“Waterproofing” Your Pleadings: A Tale of Caution

27 Apr 2023 10:59 AM | Deleted user

By Robert Young, Trisha Barfield, and Jeffrey Harnden, Elon Law Student

North Carolina courts generally adhere to the notice pleading standard set forth in Rule 8(a)(1) of NC Rules of Civil Procedure allowing leniency in the level of particularity required by a litigant’s pleading so long as the parties are placed on notice of the transactions and occurrences giving rise to the litigant’s claim. The general standard for notice pleading as it applies to tort law requires that a litigant allege that a tortfeasor’s acts fulfill each of the elements of a given tort. For example, a claim for common law negligence requires the plaintiff to allege a (1) a legal duty; (2) a breach of that legal duty; and (3) an injury proximately caused by the defendant’s breach of duty.

Under the notice pleading standard, one would presume that a plaintiff’s negligence claim satisfies Rule 8(a)(1) through factual allegations evidencing that the defendant had a specified legal duty, breached the duty by an act or omission as described, and that the defendant’s breach of duty proximately caused a specified injury. Negligence claims are customarily pled this way in typical construction defect litigation, particularly when a contractor defendant brings counterclaims or third-party claims for indemnification and/or contribution against a subcontractor and/or manufacturer. After all, due to the often elusive nature of the true cause of construction defects, or the likelihood of multiple causes of a construction defect, it is difficult for a party to know and plead detailed facts at the early pleading stage. Prior to discovery, only the most obvious manufacturing defects would be known to the parties, and the exact methods and workmanship employed by a subcontractor may be completely unknown to the plaintiff, at least during the pleading stage. Given these practical issues, notice pleading seems an appropriate and reasonable standard.

However, the Court of Appeals appears to have recently applied a heightened notice pleading standard to third-party claims for indemnity and contribution based on underlying negligence in Ascot Corp., LLC v. I&R Waterproofing, Inc., 2022-NCCOA-747, 881 S.E.2d 353, 358, ___N.C. App. ___ , ___ (N.C. Ct. App. November 15, 2022). In Ascot, the residential construction general contractor Ascot Corp. contracted with I&R Waterproofing to waterproof a basement by installing a TUFF-N-DRI barrier system manufactured by Tremco. Id. Ascot separately contracted with Tanglewood to landscape the property. Id. Approximately two years after construction, water intrusion was discovered in the basement and Ascot independently paid for the repair of the water intrusion. Id. Ascot filed suit to recover its costs against I&R asserting claims for breach of contract, breach of implied warranty of habitability and good workmanship, negligence, and unfair and deceptive trade practices. Id. Subsequently, I&R filed a third-party complaint against both the landscaper, Tanglewood, and Tremco, the manufacturer of the waterproofing barrier, asserting claims for “compensatory damages and contribution” should I&R be liable to Ascot. Id.

I&R’s third-party complaint alleged that Tremco had a duty to manufacture the water barrier in the manner of a reasonably prudent manufacturer, that Tremco breached such a duty by negligently manufacturing the barrier, and that as direct and proximate result of Tremco’s negligence I&R had suffered damages. Id. On its face, it appears that I&R properly alleged negligence against Tremco to assert a common law indemnity and contribution claim per a notice pleading standard. However, the Court of Appeals affirmed the trial court’s dismissal of I&R’s common law indemnity claim for failure to state a claim. Specifically, the Court held:

The allegations set forth in I&R's complaint, including all incorporated allegations, fail to allege facts sufficiently specific to give information of the particular acts complained of. I&R's general allegation that "Tremco was negligent in the production, design, manufacture, assembly, and/or inspection of the Tremco Barrier System, and in breach of its duties to I&R" was not sufficiently specific and thus does not set out the nature of I&R's demand sufficiently to enable Tremco to prepare its defense. Id. at 365.

The Court relied on the same reasoning to affirm the dismissal of I&R’s contribution claim based on underlying negligence against Tremco. Id. The Court’s ruling appears to require more than mere notice pleading. Interestingly, the Court cited a case decided prior to the adoption of the Rules of Civil Procedure in affirming the dismissal. Id. The Court explained that “…a general allegation without such particularity does not set out the nature of plaintiff's demand sufficiently to enable the defendant to prepare his defense." Id. at 365, citing, Stamey v. Rutherfordton Elec. Membership Corp., 247 N.C. 640, 646, 101 S.E.2d 814, 819 (1958).

In contrast, the Court held that I&R sufficiently pled negligence to support an indemnity implied in law claim against Tanglewood, the landscaper. Id. I&R alleged that Tanglewood failed to incorporate proper drainage mechanisms in violation of the NC Residential Code, failed to install pipe of a correct length, and failed to connect certain drainpipes. Id. I&R’s claim against Tremco may have survived a Rule 12(b)(6) motion if it included more detailed allegations about Tremco’s failures and/or omissions during the design or manufacturing process. In other words, it is simply not enough to allege a conclusory allegation of negligence even when incorporating other allegations, which may present challenges for the pleader when the specific facts giving rise to negligence are not apparent at the pleading stage.

Attorneys asserting indemnity and contribution claims based on underlying negligence should read the Ascot case as a tale of caution. It is not certain whether it was only the phrasing of I&R’s claim against Tremco that led to dismissal, or whether the Court analyzed the claim relative to I&R’s more specifically pled underlying negligence against Tanglewood. Regardless, the lesson here remains that mere notice pleading pursuant to Rule 8(a)(1) may not be sufficient and pleading negligence to support indemnity and contribution claims in these cases requires more factual detail to enable a defendant to prepare his or her defense. As courts will certainly differ in considering the sufficiency of indemnity and contribution claims, attorneys should avoid pleading only legally-conclusory terms with a general incorporation of other allegations and include as much factual support as possible even when lacking knowledge of the full extent of the alleged transactions or occurrences. With these considerations in mind, attorneys can “waterproof” their pleadings from a dismissal of their claims.

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