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07/22/88 the City of Oakbrook v. the Hinsdale Sanitary

July 22, 1988

THE CITY OF OAKBROOK TERRACE, PLAINTIFF-APPELLANT

v.

THE HINSDALE SANITARY DISTRICT ET AL., DEFENDANTS-APPELLEES



APPELLATE COURT OF ILLINOIS, SECOND DISTRICT

527 N.E.2d 70, 172 Ill. App. 3d 653, 122 Ill. Dec. 698 1988.IL.1137

Appeal from the Circuit Court of Du Page County; the Hon. William E. Black, Judge, presiding.

APPELLATE Judges:

JUSTICE NASH delivered the opinion of the court. DUNN and INGLIS, JJ., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE NASH

Plaintiff, the city of Oakbrook Terrace (the city), brought this action against defendants, Hinsdale Sanitary District , Frank Novotny and Associates, Inc. (Novotny) (engineer), and Du-Co Construction Company (Du-Co) (general contractor), for the recovery of damages for injury to its streets alleged to have been caused by the negligent installation of sanitary sewers beneath them. The trial court granted defendants' motions to dismiss pursuant to section 2-619(a)(9) of the Code of Civil Procedure (Ill. Rev. Stat. 1985, ch. 110, par. 2-619(a)(9)), finding that plaintiff's damages were economic losses which were not recoverable in a tort action under Moorman Manufacturing Co. v. National Tank Co. (1982), 91 Ill. 2d 69, 435 N.E.2d 443. Plaintiff appeals contending that, because it was not a party to any of the sanitary sewer contracts, the rule prohibiting the recovery of economic losses in tort was not applicable and that it was merely seeking recovery for injury to its property by defendants. We reverse.

HSD annexed into its service area the Elmhurst Countryside Subdivision located in the city of Oakbrook Terrace for the purpose of installing sanitary sewers to serve the residents. Pursuant to a sanitary district special assessment proceeding, Du-Co and Novotny contracted with HSD to perform the construction and engineering work for the project. Shortly after the sewers were installed, the street surface over the sewer trenches subsided, and this action was commenced to recover the costs of repairing the streets.

Plaintiff's first amended complaint against Novotny and Du-Co alleged that it was a third-party beneficiary of the contracts defendants had entered into with HSD and sought to recover for damages to its streets. The trial court granted defendants' motions to dismiss this complaint, finding that plaintiff was neither a party to nor a third-party beneficiary of the contracts. Plaintiff does not seek reversal of that order in its appeal.

Plaintiff repleaded and in count I of its second amended complaint alleged that HSD had commenced a sewer project which provided for the installation of sanitary sewers below certain streets owned by the City of Oakbrook Terrace; that HSD owed the city a duty of due care in doing so, but was negligent in relation to the compaction, water content, and testing of the backfill material used above the sewer line and below the city's streets; and, that as a direct and proximate result of HSD's negligence, the pavement over the installed sewer lines in the city's streets failed, requiring repairs by plaintiff to the streets and portions of the sewer trenches below them for which damages of $591,000 were sought. Counts II and III of the second amended complaint contained similar allegations against Novotny and Du-Co, respectively.

Novotny and Du-Co filed motions to dismiss arguing that plaintiff's damages were for economic losses not recoverable under a tort theory. Plaintiff responded that it was seeking recovery for damages to its property, the streets, and that Moorman and its progeny specifically exclude from the definition of economic loss damage to property other than the defective product. Plaintiff also argued that, as there were no commercial dealings between plaintiff and these defendants, the economic loss doctrine was not applicable. Du-Co replied that its product was not only the sewer trench, but also the city street above the trench, and that damages for inadequate value or costs for repair or replacement of the defective product were precluded by Moorman.

The trial court denied Novotny's and Du-Co's motions to dismiss in a letter of opinion which stated that the Moorman doctrine did not apply because plaintiff was seeking recovery for damage to its property, and also rejected Du-Co's argument that plaintiff's property was part of its product. The court also found that there was no privity of contract between plaintiff and any of the defendants.

Subsequent to this order HSD filed, among other things, a third-party complaint against Seaboard Surety Company, which was surety of Du-Co's performance bond for the sewer project contract. Thereafter, Du-Co and Seaboard filed a joint motion to dismiss counts I and III of plaintiff's second amended complaint pursuant to section 2-619(a)(9) of the Code of Civil Procedure (Ill. Rev. Stat. 1985, ch. 110, par. 2-619(a)(9)), arguing that the decisions in Anderson Electric, Inc. v. Ledbetter Erection Corp. (1986), 115 Ill. 2d 146, 503 N.E.2d 246, and Santucci Construction Co. v. Baxter & Woodman, Inc. (1986), 151 Ill. App. 3d 547, 502 N.E.2d 1134, which were decided subsequent to the trial court's order denying Du-Co's earlier motion to dismiss, supported dismissal of plaintiff's claim. The motion to dismiss noted that under Anderson "[a] plaintiff seeking to recover purely economic losses due to defeated expectations of a commercial bargain cannot recover in tort, regardless of the plaintiff's inability to recover under an action in contract." (Anderson, 115 Ill. 2d at 153.) Defendant further alleged that plaintiff had been unable to fund the sewer project itself and had obtained the assistance of HSD because of its superior borrowing power, that plaintiff was intimately involved in the design and construction of the sewers, and that the sewer project contemplated not only the installation of sewers in the city streets but also the restoration of the road surfaces above the sewers. The motion to dismiss argued that as plaintiff's losses were merely due to defeated expectations of a commercial bargain, the fact that plaintiff had no contractual remedy against defendants was irrelevant in light of the supreme court's decision in Anderson.

At the hearing on the motion to dismiss, defendants Du-Co and Seaboard tendered the discovery depositions of Richard Sarallo, mayor of the City of Oakbrook Terrace, and Leo Cavanaugh, engineer for Novotny and Associates, Inc., for consideration by the trial court in support of the motion to dismiss. The pertinent testimony of Mayor Sarallo was that prior to the commencement of the sewer project, the plaintiff had considered the feasibility of installing sewers to service the new subdivision and had engaged Novotny to undertake preliminary planning for the project. Initially, plaintiff contemplated financing the project by issuing general obligation bonds, adopting an ordinance for a special assessment, applying for Federal grants, or a combination thereof. Thereafter, HSD annexed the portion of the city where the subdivision was located for the purpose of installing sanitary sewers, and it took over matters relating to the funding, engineering, and construction of the sewers. Plaintiff contacted HSD, suggesting that it retain Novotny to provide engineering services for the project because Novotny had prepared preliminary specifications for the sanitary sewers, and, with Novotny as consulting engineer on the project, plaintiff hoped that it would have some voice in the project. At the time that efforts were underway on the sewer project, plaintiff had also been contemplating a separate road rehabilitation project. During the course of the sewer project, Novotny suggested that the sewers be put under the street, rather than the adjacent right-of-way, so that the city streets could be rebuilt at the same time the sewers were installed. Initially the plans and specification for the sewer project were to rebuild the streets with an A -- 3 finish, which was the original type of finish on the streets. During the course of construction a Novotny employee asked plaintiff whether it wanted a bituminous asphalt finish rather than an A -- 3 finish, and informed plaintiff that the change in specifications would cost plaintiff $27,000. HSD approved the specification change and, under the substituted plan, Du-Co was to install one inch of asphalt as a substitution for the A -- 3 finish called for in the original plans without a change in cost to HSD. An additional one-half inch of asphalt was required by the change in specifications at a cost of $27,000 to plaintiff. After the project was completed, settling of the streets occurred over the trenched areas which required plaintiff to reexcavate the sewer trenches, change the backfill and repave the whole street.

In his deposition, Cavanaugh testified that he was an engineer for Novotny and, while the sewer project began in 1972, he was not involved in the project until 1976. He stated that Novotny was a consulting engineer for HSD and had been involved with HSD on prior sewer projects involving plaintiff; on this job, Novotny answered to HSD, which would make all final decisions about the sewer project. Initially, the sewers were to be installed alongside the road but ...


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