LANA TYREE and DENISE TIDWELL, Plaintiffs/Appellants,
v.
BRENT CORNMAN, Defendant/Appellee,
and
CHRIS CANDELARIA; JOHN FOSTER; CANDELARIA FOSTER LLC; CANDELARIA FOSTER DESIGN * BUILD LLC; BRENT CORNMAN CONSTRUCTION, INC.; THE CORNMAN COMPANY; TROY BENEAR ROOFING, LLC; CAMPOS CONSTRUCTION, INC.; TRIPLE J CONSTRUCTION ENTERPRISES, INC.; and CARLOS RAMOS, Defendants.
APPEAL FROM THE DISTRICT COURT OF
OKLAHOMA COUNTY, OKLAHOMA
HONORABLE ALETIA HAYNES TIMMONS, TRIAL JUDGE
AFFIRMED IN PART, REVERSED IN PART
AND REMANDED FOR FURTHER PROCEEDINGS
C. Craig Cole, John E. Gatliff II, Kindra N. Avila, C. CRAIG COLE & ASSOCIATES, Oklahoma City, Oklahoma, for Plaintiffs/Appellants
Rodney D. Stewart, STEWART LAW FIRM, Oklahoma City, Oklahoma, for Defendant/Appellee
C. Russell Woody, Elizabeth A. Price, HARTZOG CONGER CASON & NEVILLE, Oklahoma City, Oklahoma, for Defendants Candelaria Foster, LLC; John Foster; Chris Candelaria and Candelaria Foster Design * Build, LLC
JOHN F. FISCHER, JUDGE:
¶1 Lana Tyree and Denise Tidwell (plaintiffs) appeal the district court's order dismissing Brent Cornman as a defendant in this breach of contract and construction defect case. The appeal has been assigned to the accelerated docket pursuant to Oklahoma Supreme Court Rule 1.36(b), 12 O.S. Supp. 2013, ch. 15, app. 1, and the matter stands submitted without appellate briefing. The plaintiffs' Seconded Amended Petition asserts various theories of liability against Brent Cornman based on his actions as the owner of Cornman Construction, Inc. Brent filed a motion to dismiss which the district court granted. The district court dismissed all of the plaintiffs' theories of liability asserted against Brent because it found that all of the plaintiffs' theories were based on acts alleged to have been performed by Brent as an officer or employee of Cornman Construction, Inc. However, an officer of a company may be individually liable in certain instances. We hold that the plaintiffs' petition states a claim for fraud and violation of the Oklahoma Consumer Protection Act against Brent Cornman. The dismissal of those claims is reversed. In all other respects, the judgment appealed is affirmed, and this case is remanded for further proceedings.
¶2 In the fall of 2013, the plaintiffs met with Brent Cornman to discuss the possibility of hiring him to build their new home. On October 24, 2013, the plaintiffs signed a contract with Brent's company, Cornman Construction, Inc., to build the home. After construction began, a dispute developed between the parties and Cornman Construction stopped working on the project. The plaintiffs hired another contractor to finish the project. That effort was unsuccessful, and the plaintiffs filed this suit naming various defendants, including Brent Cornman and Cornman Construction.
¶3 After the plaintiffs' original suit was dismissed, they filed their Second Amended Petition. That suit asserted various theories of liability against one or more of the defendants. Cornman Construction was sued for breach of contract, negligence and fraud. Brent was sued, among other things, for negligence, fraud and violation of the Oklahoma Consumer Protection Act, 15 O.S.2011 §§ 751 through 764.1. Brent filed a motion to dismiss, arguing that all of the conduct for which he was being sued was undertaken on behalf of his company and that he engaged in no conduct for which he could be held individually liable. The district court granted Brent's motion and dismissed the plaintiffs' claim against him with prejudice. The plaintiffs' appeal of the district court's judgment is authorized by 12 O.S.2011 § 994.
STANDARD OF REVIEW
¶4 Appellate review of a motion to dismiss involves a de novo consideration as to whether the petition is legally sufficient. Indiana Nat'l Bank v. Dep't of Human Servs., 1994 OK 98, ¶ 2, 880 P.2d 371. The purpose of a motion to dismiss is to test the law that governs the claim in litigation, not the underlying facts. Reynolds v. Fallin, 2016 OK 38, ¶ 5, 374 P.3d 799 (citing Darrow v. Integris Health, Inc., 2008 OK 1, ¶ 7, 176 P.3d 1204). De novo review is non-deferential, plenary and independent. Neil Acquisition L.L.C. v. Wingrod Inv. Corp., 1996 OK 125, n.1, 932 P.2d 1100.
¶5 When reviewing an order granting a motion to dismiss, all allegations in the petition are taken as true. Gens v. Casady Sch., 2008 OK 5, ¶ 8, 177 P.3d 565. For purposes of this appeal, the following facts are treated as undisputed. In the fall of 2013, Brent Cornman discussed with the plaintiffs the possibility of his company, Cornman Construction, Inc., being hired to construct a new home for the plaintiffs. Brent was the chief executive officer of Cornman Construction, Inc. During this discussion, Brent misrepresented his ability and qualifications and the capability of Cornman Construction to build the plaintiffs' home in order to induce the plaintiffs to hire Cornman Construction. On October 24, 2013, the plaintiffs executed a contract with Cornman Construction, Inc. to build their home. During construction, Brent personally performed some of the site preparation work and supervised the work of others. Cornman Construction also hired subcontractors to perform some of the work. After construction began, Brent requested an advance payment pursuant to the contract, which the plaintiffs paid, and which he diverted to another project. After a dispute developed with the plaintiffs, Cornman Construction stopped work on the home and left the project. The work performed by Cornman Construction and its agents, employees and subcontractors was incomplete, defective, substandard, and caused the plaintiffs to hire additional contractors to try and complete the work. As a result, the plaintiffs incurred damages.
¶6 The plaintiffs' petition asserts seventeen theories of liability. Allegations against Brent Cornman are contained in ten of those. However, because several of the plaintiffs' allegations are duplicated, only five actual theories of liability are asserted against Brent, negligence, breach of implied warranty, unjust enrichment, violation of the Consumer Protection Act and fraud.
¶7 The plaintiffs filed their Second Amended Petition after the district court dismissed their previously filed negligence claim against Brent Cornman.1 The plaintiffs asserted their claims for negligence against Brent Cornman and Cornman Construction in their Fourteenth Theory of Recovery. As to Brent, the plaintiffs generally alleged that he owed them a "duty to exercise ordinary care." They expanded on this allegation to allege that Brent also owed them a duty "to act . . . in good faith," a duty to perform the construction contract "in a good, reasonable, and workmanlike manner" and that he had a duty to perform the work "in a commercially reasonable and equitable manner." (Second Amended Petition at 46-66.) These basic allegations are repeated numerous times but are specifically based only on Brent's alleged performance of "grading and dirt work" and "site preparation on the land" where the house was to be constructed. The plaintiffs also alleged that if Cornman Construction hired others to work on the project, Brent had a duty to hire, train and supervise those who performed work on the project for Cornman Construction and that he "failed to use ordinary care in the performance of his direct, personal involvement in the construction and supervision" of the work on the project. The plaintiffs' negligence claim was premised on Brent's alleged breach of those various duties. (Second Amended Petition, ¶ 206.)
¶8 Any claim of negligence depends on the existence of a duty and the breach of that duty. Wofford v. Eastern State Hosp., 1990 OK 77, ¶ 8, 795 P.2d 516 (cited by plaintiffs in their petition). However:
"[D]uty" is a question of whether the defendant is under any obligation for the benefit of the particular plaintiff . . . . . . . . The statement that there is or is not a duty begs the essential question -- whether the plaintiff's interests are entitled to legal protection against the defendant's conduct. . . .
Brewer v. Murray, 2012 OK CIV APP 109, ¶ 10, 292 P.3d 41 (approved for publication by the Supreme Court) (quoting William L. Prosser, Law of Torts, 324-27 (4th ed. 1971)).
¶9 Here, the plaintiffs' interest entitled to protection was defined by the construction contract. It is undisputed that Cornman Construction, Inc., contracted with the plaintiffs to build their home. Although Brent personally negotiated the contract with the plaintiffs on behalf of Cornman Construction, the only contract that the plaintiffs allege was breached was their October 24, 2013 contract with Cornman Construction. The plaintiffs were entitled to have a house built by Cornman Construction according to the contract terms and for the agreed price. For the plaintiffs' negligence claim to survive Brent's motion to dismiss, the plaintiffs must identify some duty that Brent owed to them, the breach of which creates liability in tort. Wofford, 1990 OK 77, ¶ 8. The source of Brent's alleged duty is not clear from the plaintiffs' amended petition. There are allegations suggesting a contention that Brent breached implied duties derived from the parties' contractual relationship. But there are also allegations suggesting a contention that Brent breached some duty independent of the parties' contractual relationship. We will address both.
A. Implied Duties
¶10 "Oklahoma jurisprudence recognizes the common-law notion that implied in every contract is a covenant of good faith and fair dealing." Panama Processes, S.A. v. Cities Serv. Co., 1990 OK 66, ¶ 34, 796 P.2d 276. The common law duty of good faith and fair dealing requires "that neither party, because of the purposes of the contract, will act to injure the parties' reasonable expectations nor impair the rights or interests of the other to receive the benefits flowing from their contractual relationship." First Nat'l Bank and Trust Co. of Vinita v. Kissee, 1993 OK 96, ¶ 24, 859 P.2d 502. "The duty to act in good faith also requires a party to abstain from taking unfair advantage of another." Embry v. Innovative Aftermarket Sys. L.P., 2010 OK 82, ¶ 14, 247 P.3d 1158 (affirming summary judgment for the defendant on the plaintiff's negligence theory of recovery based on failure to pay a debt deficiency provided for in the parties' gap protection contract). In addition, there is "inherent in every contract a common-law duty to perform its obligations with care, skill, reasonable experience and faithfulness." Finnell v. Jebco Seismic, 2003 OK 35, ¶ 13, 67 P.3d 339. "'Fair dealing' in the implied covenant emphasizes 'reasonable action,' while 'good faith' is marked by 'the exercise of reasonable diligence.'" Id. (citations omitted).
¶11 In some circumstances, the breach of these duties may give rise to an action in tort and an action for breach of contract. Id. ¶ 13. The plaintiffs cite Morriss v. Barton, 1947 OK 260, 190 P.2d 451, for this proposition. Morriss held that the plaintiff stated a tort claim against an adjoining landowner who, as the operator of oil and gas wells on the plaintiff's property pursuant to an oil and gas lease, allegedly plugged the plaintiff's wells prematurely to enhance the production from wells located on his property. However, a breach of contract does not give rise to a tort claim in every case. "There is simply no general duty to use reasonable care in the performance of a contract." Embry, 2010 OK 82, ¶ 14. Absent some special circumstance, "[a]ny neglect or lack of diligence on the part of the defendants is simply proof of their breach of the implied duty to deal fairly and in good faith, and not an independent theory of recovery." Id. "In ordinary commercial contracts, a breach of [the duty of good faith and fair dealing implied in every contract] merely results in damages for breach of contract, not independent tort liability." Wathor v. Mutual Assurance Administrators, Inc., 2004 OK 2, ¶ 5, 87 P.3d 559 (citation omitted) (recognizing tort liability for breach of an insurance contract because of the special relationship between insured and insurer). "Without an independent basis to support a tortious wrongdoing, there is nothing more than an alleged breach of that contract." Rodgers v. Tecumseh Bank, 1988 OK 36, ¶ 18, 756 P.2d 1223 (reversing summary judgment on borrowers' claim for breach of contract arising from alleged breach of a commercial loan contract, but affirming grant of summary judgment on claim for tortious breach of contract asserted as a second theory of recovery).
¶12 These are formidable legal obstacles for any plaintiff to overcome when asserting a negligence claim based on an alleged breach of contract. And in this case, there is an additional obstacle. Although Brent signed the contract, he did so as the principal of Cornman Construction. "A basic tenet of American corporate law is that the corporation and its shareholders are distinct, separate entities." Kenkel v. Parker, 2015 OK 81, ¶ 12, 362 P.3d 1145. "The general rule is that a contract made with a known agent for a disclosed principal is a contract with the principal alone." Bane v. Anderson, Bryant & Co., 1989 OK 140, ¶ 15, 786 P.2d 1230.
When an agent acting with actual or apparent authority makes a contract on behalf of a disclosed principal,
(1) the principal and the third party are parties to the contract; and
(2) the agent is not a party to the contract unless the agent and third party agree otherwise.
Smoot v. B & J Restoration Servs., 2012 OK CIV APP 58, ¶ 20, 79 P.3d 805 (quoting the Restatement (Third) of Agency § 6.01 (2006)). The agent may incur personal liability where the agent "contracts without disclosing his principal, or when he acts without authority, or exceeds his authority . . . ." Bane, 1989 OK 140, ¶ 15. In addition, officers of a corporation may be liable for corporate acts if they "purport to bind themselves individually." Hall v. Sullivan-Dollars, Inc., 1970 OK 97, ¶ 6, 471 P.2d 453.
¶13 No such allegations appear in the plaintiffs' petition. "The only way a corporation can act is through its officers, directors and employees. To permit liability when the officer is acting within the scope of the corporation would be, in essence, a total disregard of the corporate entity." Seitsinger v. Dockum Pontiac Inc., 1995 OK 29, ¶ 10, 894 P.2d 1077. Consequently, unless they can point to the breach of some duty independent of the common law duties implied in the construction contract, the plaintiffs' negligence claim against Brent Cornman fails as a matter of law.
B. Independent Duties
¶14 In addition to these implied duties, the plaintiffs allege that Brent is personally liable for his own tortious conduct. In Smoot, this Court noted the general principle: "An officer or director is, in general, personally liable for all torts which he authorizes or directs or in which he participates, notwithstanding that he acted as an agent of the corporation and not on his own behalf." Smoot, 2012 OK CIV APP 58, n.3 (citing Henry W. Ballantine, Ballantine on Corporations § 112 (1946), and additional cases).2 The mere fact that corporate officers may be individually liable for their tortious conduct when they are acting on behalf of the corporation does not make every mistake made in the performance of their corporate duties a tort. The principle stated in Ballantine cannot be divorced from the "independent basis" necessary to impose tort liability required by Rodgers v. Tecumseh Bank, 1988 OK 36, 756 P.2d 1223. "Officers and directors are not generally liable for a corporation's breach of contract absent some wrongful personal conduct on which liability can be imposed . . . ." Smoot, 2012 OK CIV APP 58, ¶ 16.
¶15 The plaintiffs find a basis for this personal conduct in Wofford v. Eastern State Hosp., 1990 OK 77, 795 P.2d 516. Plaintiffs argue that Brent owed "a duty of care to all persons who are foreseeably endangered by his conduct with respect to all risks that make the conduct unreasonably dangerous." Id. ¶ 11. Wofford identified a duty owed in the absence of any contractual obligation by a psychiatrist to unknown third parties foreseeably endangered by the negligent release of a dangerous mental patient from a psychiatric hospital. Tort liability in Wofford was based on the special relationship implied by law to the psychiatrist/patient relationship and extended to third parties who could be foreseeably harmed by the patient. Id. ¶¶ 9-11.
¶16 Wofford is distinguishable, and the plaintiffs interpret Wofford too broadly. The plaintiffs have not alleged that there was, and the allegations in their petition do not support, any claim that there was a special relationship between the plaintiffs and Brent. A defendant does not owe a duty of care to the world; any duty is defined by the interest of a particular plaintiff which the law finds is entitled to protection from the conduct of the defendant. Brewer v. Murray, 2012 OK CIV APP 109, ¶ 10, 292 P.3d 41. The interest here is defined by an ordinary commercial construction contract. "Whether a defendant stands in such relationship to a plaintiff that the law will impose upon the defendant an obligation of reasonable conduct for the benefit of the plaintiff is a question for the court." Wofford, 1990 OK 77, ¶ 10. And, that is the question raised by Brent's motion to dismiss.
¶17 Nonetheless, it is generally true that:
a person owes a duty of care to another person whenever the circumstances place the one person in a position towards the other person such that an ordinary prudent person would recognize that if he or she did not act with ordinary care and skill in regard to the circumstances, he or she may cause danger of injury to the other person.
Lowery v. Echostar Satellite Corp., 2007 OK 38, ¶ 13, 160 P.3d 959 (refusing to impose tort liability on a dish satellite company whose employee instructed the plaintiff on how to repair the company's roof-mounted product). In general, 76 O.S.2011 § 1 "imposes a legal duty upon each person, without contract, to abstain from injuring the person or property of another." Lowery, 2007 OK 38, n.3. However, even this general duty is insufficient to support the plaintiffs' claim against Brent Cornman.
¶18 In their response to Brent's motion to dismiss, the plaintiffs argue that an agent, even while acting within the scope of his authority, who "steps aside to engage in a tortious act to the injury of property or personal rights of another, . . . becomes liable for the injury done." Bane v. Anderson Bryant & Co., 1989 OK 140, ¶ 15, 786 P.2d 1230. But the plaintiffs have not alleged that Brent "stepped aside" in some tortious manner, only that he failed to perform work on their project according to the terms of the contract. In Brown v. Ford, 1995 OK 101, 905 P.2d 223, a case relied on by the plaintiffs, the sole officer and shareholder of a corporation was subject to tort liability because he committed sexual battery on an employee of the corporation. The duty imposed on him, individually, by the common law to refrain from harmful or offensive contact was independent of his duties as a corporate officer. See Id. ¶¶ 11-13.
¶19 And, Bane confirms the absence of a basis for the plaintiffs' negligence claim against Brent. Bane involved an action against a securities firm for breach of contract and violation of Oklahoma securities laws. A corporate officer was held individually liable, but not because he engaged in conduct which resulted in the corporation's breach of contract. He was held liable in tort on two statutory grounds: (1) the tort statute, 76 O.S.2011 § 2 ("One who willfully deceives another, with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers"); and (2) the former Oklahoma Securities Act, 71 O.S.1981 § 408(b) ("Every person who materially participates or aids in a sale or purchase made by any person liable under [section 408(a) of the Oklahoma Securities Act], or who directly or indirectly controls any person so liable, shall also be liable jointly and severally with and to the same extent as the person so liable . . . ."). See Bane, 1989 OK 140, ¶¶ 16-17. It was the breach of those statutory duties, not his conduct as a corporate officer in the performance of the corporation's contract, which provided the "independent basis" for his tort liability. Rodgers v. Tecumseh Bank, 1988 OK 36, ¶ 18, 756 P.2d 1223. No similar duty is alleged by the plaintiffs against Brent. All of the acts on which the plaintiffs base their negligence claim against Brent, are alleged to have been performed "in the course of [his] business" as the owner of Cornman Construction.
¶20 The general basis for a corporate officer's tort liability is stated in section 352 of the Restatement (Second) of Agency:
An agent is not liable for harm to a person other than his principal because of his failure adequately to perform his duties to his principal, unless physical harm results from reliance upon performance of the duties by the agent, or unless the agent has taken control of land or other tangible things.
The plaintiffs do not allege that they were physically harmed by Brent's alleged negligence. The plaintiffs do rely on J.C. Penney Company v. Barrientez, 1965 OK 166, 411 P.2d 841, for the second appeal of this principle, but their reliance is misplaced. The "control of land" exception is not applicable here. In Barrientez, tort liability was based on the company manager's failure to discharge the company's duty to warn business invitees of hidden dangers on the company's premises. Id. ¶ 0 (Syllabus 4).3 That duty is imposed by law on any landowner or occupier, and regardless of any contractual obligation to do so. See Wood v. Mercedes-Benz of Oklahoma City, 2014 OK 68, ¶ 5, 336 P.3d 457. No such duty is alleged in this case.
¶21 Illustration 2 for comment "a" to section 352 of the Restatement of Agency captures the legal principle controlling the plaintiffs' negligence claim against Brent.
[Cornman Construction], who has agreed to build a house for [the plaintiffs], employs [Brent Cornman] to build it. [Brent Cornman] is careless in the construction of the house, so that the house does not conform to the contract. [Brent Cornman] is not thereby liable to [the plaintiffs] for the failure to construct the house in accordance with the contract.
Restatement (Second) of Agency § 352 cmt. a, illus. 2 (1958) "An agent's breach of a duty owed to the principal is not an independent basis for the agent's tort liability to a third party. An agent is subject to tort liability to a third party harmed by the agent's conduct only when the agent's conduct breaches a duty that the agent owes to the third party." Restatement (Third) of Agency § 7.02 (2006).
¶22 According to the allegations in the plaintiffs' petition, Brent Cornman may have had a duty to his employer, Cornman Construction, to perform work for his employer with ordinary skill and competence. But those allegations do not support a claim that he had an independent duty to the plaintiffs regarding that work or provide the basis for a negligence claim against him, individually, for violation of his duty to the corporation. Cf., Wathor v. Mut. Assurance Adm'rs, Inc., 2004 OK 2, ¶ 8, 87 P.3d 559 ("Agents of the insurer - even agents whose acts may have been material to a breach of [contract and] the duty [of good faith] - do not normally owe the insured a duty of good faith since agents are not parties to the insurance contract.").
¶23 Further, the plaintiffs have not alleged any damages caused by Brent that are recoverable only in tort. The absence of extra-contractual damages supports the absence of a negligence claim. "For the breach of an obligation not arising from contract, the measure of damages . . . is the amount which will compensate for all detriment proximately caused thereby, whether it could have been anticipated or not." 23 O.S.2011 § 61. What the plaintiffs allege that they are entitled to recover "is the amount which will compensate [them] for all the detriment proximately caused [by Brent], or which, in the ordinary course of things, would be likely to result therefrom." 23 O.S.2011 § 21 (defining the measure of damages for breach of contract). The plaintiffs seek contract damages, i.e., "the costs of bringing the completed projects back into compliance with the standard of construction intended by the contract." Flint Ridge Dev. Co., Inc. v. Benham-Blair and Affiliates, Inc., 1989 OK 48, ¶ 11, 775 P.2d 797. See Exhibits P-1 through 2 to the petition (describing contract damages and omitting any claim for injury to person or property). "A copy of any written instrument which is an exhibit to a pleading is a part thereof for all purposes." 12 O.S.2011 § 2010(C). And, the substance of an incorporated exhibit controls over "any conflicting allegations of the petition." Sharp v. Dougherty, 1951 OK 33, ¶ 30, 235 P.2d 663. Accord, Exendine v. Iron, 1931 OK 584, ¶ 5, 4 P.2d 1035. The nature of the damages sought determines whether the action is based in tort or breach of contract. See Flint Ridge, 1989 OK 48, ¶¶ 11-12.
¶24 Many of the cases cited by the plaintiffs recite broad statements regarding legal principles that do not reflect the current state of the law. The plaintiffs' negligence claim against Brent, in essence, seeks to revive the now discredited practice of "tortifying" contract law.4 We decline to participate in that effort. As previously stated, the purpose of Brent's motion to dismiss is to test the law that governs the plaintiffs' negligence claim, not the plaintiffs' ability to insert the word "duty" in a sentence. The allegations in the plaintiffs' Seconded Amended Petition and the facts asserted in support of those allegations do not identify any duty that Brent owed to the plaintiffs, the breach of which would support their negligence claim against him. But cf., Part IV of this Opinion (reversing the judgment as to the plaintiffs' fraud claim based on Brent's alleged personal acts of deceit and misrepresentation).
¶25 The district court's dismissal of the plaintiffs' negligence claim against Brent Cornman is affirmed.5
II. Implied Warranty
¶26 The plaintiffs' fourth theory of liability asserts a claim for breach of an implied warranty against all defendants. No specific allegations regarding this claim are asserted against Brent Cornman. Instead, the plaintiffs generally allege that a warranty of workmanship and fitness was implied to the work performed on their house by each of the defendants. Although the plaintiffs' petition contains citations to authority supporting many of their theories of liability, no authority is cited regarding the plaintiffs' implied warranty theory. Even though no such authority is required (12 O.S.2011 § 2008(A)(1)) we are unable to discern any cognizable legal theory supporting this claim against Brent.
¶27 Further, neither this theory nor any authority supporting this theory of recovery is addressed in the plaintiffs' response to Brent Cornman's motion to dismiss. And, in their motion to settle journal entry, the plaintiffs do not claim that they asserted this theory of recovery against Brent in their amended petition. The district court's order dismissing the plaintiffs' fourth theory of liability asserting a claim against Brent Cornman for breach of an implied warranty is affirmed.
III. Unjust Enrichment
¶28 The plaintiffs' tenth theory of liability asserts a claim for unjust enrichment against all defendants. They assert no specific allegations regarding this claim against Brent. The plaintiffs are "not entitled to pursue a claim for unjust enrichment when [they have] an adequate remedy at law for breach of contract." American Biomedical Group, Inc. v. Techtrol, Inc., 2016 OK 55, ¶ 27, 374 P.3d 820. The plaintiffs have alleged a breach of contract claim against Cornman Construction. Unjust enrichment is not a theory of liability that the plaintiffs claim they asserted against Brent in their amended petition. The district court's order dismissing the plaintiffs' tenth theory of liability asserting a claim against Brent for unjust enrichment is affirmed.
IV. The Consumer Protection Act
¶29 The plaintiffs' sixth and sixteenth theories of recovery assert a claim against Brent Cornman for violation of the Consumer Protection Act, 15 O.S.2011 §§ 751 through 764.1. The plaintiffs are "consumers" for purposes of the Act. Lumber 2, Inc. v. Illinois Tool Works, Inc., 2011 OK 74, ¶ 15, 261 P.3d 1143. The construction of their home is a "consumer transaction" covered by the Act. 15 O.S.2011 § 752(2). Brent is a "person" as defined in the Act. 15 O.S.2011 § 752(1). The plaintiffs allege that Brent violated sections 753(2), (3), (5), (15) and (20) of the Act. The plaintiffs have a private right of action to recover for any violation of the Act. 15 O.S.2011 § 761.1 ("The commission of any act or practice declared to be a violation of the Consumer Protection Act shall render the violator liable to the aggrieved consumer . . . .").
¶30 In dismissing the plaintiffs' amended petition, the district court relied on 12 O.S. Supp. 2013 § 682(B):
No suit or claim of any nature shall be brought against any officer, director or shareholder for the debt or liability of a corporation of which he or she is an officer, director or shareholder, until judgment is obtained therefor against the corporation and execution thereon returned unsatisfied.
The district court appears to have found that all of the plaintiffs' theories of liability asserted against Brent were based on actions he is alleged to have taken as an officer, director or shareholder of Cornman Construction, Inc., and that no judgment had yet been obtained against Cornman Construction, Inc.
¶31 Only two published opinions have previously addressed section 682(B), Maree v. Neuwirth, 2016 OK 62, 374 P.3d 750, and Sauders v. Mangum Nursing Center, LLC, 2016 OK CIV APP 53, 377 P.3d 180. Both cases involved negligence claims asserted against individual officers and members of limited liability companies that operated nursing homes. In each case, the tort resulted from an alleged breach of duty imposed on the individuals by the Oklahoma Nursing Home Care Act, 63 O.S.2011 §§ 1-1900.1 through 1-1943.1. The Sauders Court refused to apply section 682(B). The Court held that section 682(B) amended the original statute, but the amendment did not become effective until after Sauders' cause of action arose. The Court noted that the amendment affected the substantive elements of Sauders' claim and was, therefore, not entitled to retroactive application. Saunders, 2016 OK CIV APP 53, ¶ 13.
¶32 In Maree v. Neuwirth, the Supreme Court issued a writ of prohibition preventing the district court from denying the plaintiff an opportunity to amend her petition to add negligence claims against individuals. The Court stated that, had those claims been included in the original petition, "they would have amounted to a cognizable legal theory . . . ." Maree, 2016 OK 62, ¶ 9. In footnote one, the Court noted that section 682(B) became effective after the plaintiff's cause of action arose. Consequently, neither case applied section 682(B) to determine whether that statute prevents a plaintiff from filing any negligence claim against a corporate officer, director or shareholder "until judgment is obtained therefor against the corporation and execution thereon returned unsatisfied." That, however, is the issue in this case.
¶33 As the plaintiffs correctly point out, section 682(B) does not prevent:
a suit or claim against an officer, director or shareholder for their own conduct, act or contractual obligation, not within the scope of their role as an officer, director or shareholder, arising out of or in connection with their direct involvement in the same or related transaction or occurrence.
12 O.S. Supp. 2013 § 682(B). Section 682(B) does not prohibit the plaintiffs from asserting a violation of the Consumer Protection Act against Brent Cornman based on his "own conduct," to the extent that conduct was "not within the scope of [his] role as an officer, director or shareholder" of Cornman Construction, Inc. Id. Whether the conduct alleged by the plaintiffs was or was not within the scope of Brent Cornman's role as an officer, director or shareholder of Cornman Construction cannot be determined at the pleading stage. It is sufficient that the plaintiffs have alleged that Brent personally violated the Consumer Protection Act. "At this stage of the proceedings it does not appear beyond a doubt that [the plaintiffs] can prove no set of facts in support of [their] theories of recovery." Fanning v. Brown, 2004 OK 7, ¶ 22, 85 P.3d 841 (reversing, in part, the dismissal of the plaintiff's petition because she had "pled a cognizable legal theory, i.e., piercing the corporate veil"). Id. ¶ 24. That portion of the district court's order dismissing the plaintiffs' sixth and sixteenth theories of liability against Brent Cornman for violation of the Consumer Protection Act is reversed.
¶34 The plaintiffs' twelfth, thirteenth and fifteenth theories of recovery allege various fraud claims against Brent based on his individual conduct. These allegations differ from those on which the plaintiffs assert their negligence claim against Brent. For example, the plaintiffs allege that they were fraudulently induced to sign the construction contract based on Brent's alleged misrepresentation of material facts. "One who willfully deceives another, with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers." 76 O.S.2011 § 2. This provides an "independent basis" for Brent's tort liability. Rodgers v. Tecumseh Bank, 1988 OK 36, ¶ 18, 756 P.2d 1223. That portion of the district court's order dismissing the plaintiffs' twelfth, thirteenth and fifteenth theories of liability is reversed.
VI. Declaratory Judgment
¶35 In their eleventh theory of recovery, the plaintiffs assert a claim for a declaratory judgment against Brent Cornman and Cornman Construction, Inc. As relevant to Brent Cornman's motion to dismiss, the plaintiffs seek a declaration that (1) title 12 O.S.2011 § 682 does not prevent a direct action against Brent Cornman; (2) if section 682 bars an action against Brent Cornman until a judgment against Cornman Construction is returned unsatisfied, then section 682 tolls the limitations period for actions against Brent Cornman; and (3) if section 682 is not a bar to an action against Brent Cornman, then the plaintiffs may pursue all relief sought against all other defendants against Brent Cornman. The plaintiffs' petition fails to show that they may be entitled to declaratory relief.
¶36 The Declaratory Judgment Act, 12 O.S.2011 §§1651 through 1657, does not provide a separate theory of recovery, it is a procedural statute providing a remedy in certain circumstances. See Conoco, Inc. v. State Dep't of Health, 1982 OK 94, ¶ 18, 651 P.2d 125. Whether to grant a declaratory judgment is a matter within the discretion of the district court. 12 O.S.2011 § 1651 ("District courts may, in cases of actual controversy, determine rights, status or other legal relations . . . .") (emphasis added); Energy Transp. Sys., Inc. v. Kansas City S. Ry. Co., 1981 OK 159, n.11, 638 P.2d 459. See also, United Fire & Casualty Co. v. Kleppe, 498 N.W.2d 226, 227 (Wis. 1993) (grant or denial of declaratory judgment is within the discretion of the trial court).6 Finally, the district court "may refuse to make a determination where the judgment, if rendered, would not terminate the controversy, or some part thereof, giving rise to the proceeding." 12 O.S.2011 § 1651. See Associated Builders and Contractors of Okla. v. State ex rel. Okla. Dep't of Labor, 1981 OK 50, ¶ 25, 628 P.2d 1156 (noting that section 1651 "specifically vests discretion in the trial court to refuse to make a determination of rights where it finds that the judgment, if rendered, would not terminate the controversy").
¶37 The plaintiffs' first requested declaration would not "terminate the controversy." Even if, as this Opinion points out, the district court were to determine that section 682 does not prevent a direct action against Brent Cornman, other provisions of the law do.
¶38 The plaintiffs also ask for a declaration that, if section 682 does apply, their action against Brent Cornman is tolled until a judgment against Cornman Construction is returned unsatisfied. In other words, they ask for a declaratory judgment that the statute provides what its printed words state: "The statute of limitations on any claim precluded by this section . . . shall not accrue until judgment is obtained against the corporation and execution thereon returned unsatisfied." Such a declaration would result in no practical relief. Rogers v. Excise Bd. of Greer Cnty., 1984 OK 95, ¶ 15, 701 P.2d 754. More importantly, the plaintiffs are asking for the answer to a hypothetical question: If they obtain a judgment against Cornman Construction and the judgment is not satisfied, can they sue Brent Cornman for any unpaid portion of that judgment? The Declaratory Judgment Act is not a vehicle by which a party can obtain the answer to a hypothetical question. Knight v. Miller, 2008 OK 81, ¶ 8, 195 P.3d 372.
¶39 The plaintiffs' third requested declaration, like their first, would not terminate this controversy. If section 682 does not bar the plaintiffs' claims against Brent Cornman, the viability of those claims depends on other law and legal principles, which we have addressed in this Opinion.
¶40 We find no abuse of discretion in the district court's denial of the plaintiffs' request for a declaratory judgment. That portion of the district court's order dismissing the plaintiffs' eleventh theory of recovery is affirmed.
¶41 The district court correctly dismissed the plaintiffs' theories of recovery asserted against Brent Cornman based on negligence, breach of implied warranty, unjust enrichment and their request for a declaratory judgment. Those portions of the district court's judgment are affirmed. The plaintiffs have sufficiently alleged theories of liability against Brent Cornman based on fraud and violation of the Oklahoma Consumer Protection Act. That portion of the district court's judgment is reversed, and this case is remanded for further proceedings.
¶42 AFFIRMED IN PART, REVERSED IN PART AND REMANDED FOR FURTHER PROCEEDINGS.
THORNBRUGH, C.J., concurs, and WISEMAN, P.J., concurs in part and dissents in part.
WISEMAN, P.J., concurring in part and dissenting in part:
¶1 I concur with the Majority in all aspects of the Opinion except on the question of Plaintiffs' claim against Brent Cornman individually for negligence.
¶2 The Majority characterizes Plaintiffs' negligence claims against him individually as unclear, but finds their allegations suggest "Brent breached implied duties derived from the parties' contractual relationship. But there are also allegations suggesting a contention that Brent breached some duty independent of the parties' contractual relationship." (Opin., ¶ 9). I find their contentions on this point to be straightforward. In their second amended petition, their succinct negligence claim in the "Third Theory of Recovery" is that each Defendant (including Brent) performed or oversaw work on the project, the work was defective and negligently performed, Defendants had a duty to perform the work correctly, and their failure to do so was negligent. (Second amended petition, p. 13). Their claims of negligence against Brent arise from his actual performance of grading, dirt work, and site preparation on the project and from his supervision or non-supervision of other employees. (Second amended petition, p. 46, "Fourteenth Theory of Recovery").
¶3 The Supreme Court in Finnell v. Jebco Seismic, 2003 OK 35, 67 P.3d 339, described very clearly the situation confronting us here:
Oklahoma law has long recognized that an action for breach of contract and an action in tort may arise from the same set of facts. . . . [T]here is inherent in every contract a common-law duty to perform its obligations with care, skill, reasonable experience and faithfulness. A person injured by the substandard performance of a duty derived from a contractual relationship may rely on a breach-of-contract or tort theory, or both, but even if the evidence supports both, the claimant can achieve but a single recovery. In the instant case, the contract contains an express undertaking to perform in a prudent and careful manner. Its terms hence provide a basis for recovery for a breach of contract. At the same time, the contract provides the factual background for a claim ex delicto, the basis of which is defendants' tortious conduct in the performance of a duty derived from the contractual relationship. The petition's allegations give adequate notice of the dual nature of plaintiffs' claim.
Id. ¶ 13 (footnotes omitted)(emphasis in the original). The Finnell Court cites Morriss v. Barton, 1947 OK 260, 190 P.2d 451, which states: "'[A]ccompanying every contract is a common-law duty to perform the thing agreed to be done with care, skill, reasonable expediency, and faithfulness, and a negligent failure to observe any of these conditions is a tort as well as a breach of contract.'" Id. ¶ 39 (quoted citation omitted).
¶4 The language in Embry v. Innovative Aftermarket Systems L.P., 2010 OK 82, 247 P.3d 1158, appears to directly contradict this principle. In Embry, the Court said:
There is simply no general duty to use reasonable care in the performance of a contract. The duty of a party to a contract to act reasonably and diligently in the performance of a contract are encompassed within the implied covenant of fair dealing and good faith. "Fair dealing" in the implied covenant emphasizes "reasonable action," while "good faith" is marked by "the exercise of reasonable diligence." The duty to act in good faith also requires a party to abstain from taking unfair advantage of another. Any neglect and lack of diligence on the part of the defendants is simply proof of their breach of the implied duty to deal fairly and in good faith, and not an independent theory of recovery. Accordingly, we hold the trial court did not err in eliminating this [negligence] theory of recovery on summary judgment.
Id. ¶ 14 (citations omitted).
¶5 It is difficult to reconcile the divergence between Finnell and Embry on the question of whether a general common law duty exists in a contract to use reasonable care in performing the obligations of that contract. The Finnell case arose from an attorney fee application by plaintiff landowners after a jury verdict for damages to their real property arising from a contract allowing defendant to conduct a 3-D seismic survey on plaintiffs' property. The Supreme Court held that "[a] person injured by the substandard performance of a duty derived from a contractual relationship may rely on a breach-of-contract or tort theory, or both . . . . ," Finnell, 2003 OK 35, ¶ 13, because inherent in every contract is the duty to perform its obligations "with care, skill, reasonable experience and faithfulness." Id. In Embry, plaintiff sued defendants for failure to pay the deficiency remaining on a car loan after the total loss settlement by plaintiff's insurer was applied to the loan. The Court found the "gap protection contract" was insurance which created the kind of "special relationship" between plaintiff and defendants that could give rise to tort liability for "bad faith," otherwise known as the breach of the implied duty to deal fairly and in good faith in those situations where such a "special relationship" existed. The Court found it was error to grant summary judgment to defendants on the bad faith claim because defendants' conduct could reasonably be perceived as tortious bad faith.
¶6 Embry, in contrast to the line of cases represented by Finnell, found no duty of reasonable care and skill in performing the contract, the breach of which gives rise to a negligence theory of recovery, and it affirmed the trial court's summary judgment for defendants on plaintiff's negligence claim. Embry found such a duty to be "encompassed within the implied covenant of fair dealing and good faith" and breach of that duty "is simply proof of [defendants'] breach of their implied duty to deal fairly and in good faith, and not an independent theory of recovery." Embry, 2010 OK 82, ¶ 14. Plaintiff was therefore allowed to proceed with his breach of the implied duty to deal fairly and in good faith claim (bad faith) but not his negligence claim. It remains for future determination, for instance in this case, how this holding will be applied in a case, as here, where a tortious bad faith claim is not involved and therefore no separate vehicle is available, other than negligence, to raise as a tort the breach of the duty to perform the contract with reasonable care, skill and diligence.
¶7 As the Majority states, a breach of contract does not give rise to a tort claim in every case. But the converse of that is equally true--the same set of facts may give rise to both a breach of contract claim and a tort claim. In Finnell, the Supreme Court went on to say, "The doctrine of mandatory election of remedies is now an anachronism. At the submission stage, the court must charge the jury on all theories of recovery the evidence may support. The court will craft the available relief which the facts justify." Finnell, 2003 OK 35, ¶ 12 (footnotes omitted).
¶8 Although the Majority discusses the implied duty of good faith and fair dealing, this claim is not found in either Plaintiffs' "Third Theory of Recovery" or "Fourteenth Theory of Recovery" in their second amended petition. Any analogy to cases involving claims of a tortious breach of the "duty of good faith and fair dealing" is misplaced in this context of negligent home construction. The Majority's further citations to Rodgers v. Tecumseh Bank, 1988 OK 36, 756 P.2d 1223, and Wathor v. Mutual Assurance Administrators, Inc., 2004 OK 2, 87 P.3d 559, are misplaced for the same reason. Unlike the plaintiffs in Rodgers and Wathor, Plaintiffs here do not assert a claim for "bad faith"--i.e., a tortious breach of contract--against Brent because they had no "special relationship" with him, no contract with him individually, they did not claim to have such a contract, and they asserted no breach of contract claim, in bad faith or otherwise, against Brent individually. It is not, as the Majority mentions, a question of an agent incurring personal (contractual) liability when he "contracts without disclosing his principal, or when he acts without authority, or exceeds his authority," Bane v. Anderson, Bryant & Co., 1989 OK 140, ¶ 15, 786 P.2d 1230, or, as an officer, purports to bind himself individually. Hall v. Sullivan-Dollars, Inc., 1970 OK 97, ¶ 6, 471 P.2d 453. None of these basic tenets of contract law is implicated here because Plaintiffs assert no breach of contract claim against Brent individually. It's a question of whether a separate tort claim of negligence can be asserted against the individual who carelessly performed the work under the contract when he is the employee or agent of the corporation responsible for doing the work.
¶9 The Majority states, "All of the acts on which the plaintiffs base their negligence claim against Brent are alleged to have been performed 'in the course of [his] business' as the owner of Cornman Construction." (Opin., p. 16). The Majority also states, "The mere fact that corporate officers may be individually liable for their tortious conduct when they are acting on behalf of the corporation does not make every mistake made in the performance of their corporate duties a tort." (Opin., p. 12). Plaintiffs' negligence claims against Brent arise not from his conduct as a corporate officer, director or owner, but as the corporate agent doing the actual work or supervising the work of others. These claims exist without regard to Brent's ownership of the company and would exist if he had no connection to the company other than as an employee performing the contract.
¶10 And, I would argue, this point by the Majority appears to contradict the time-honored principle reiterated in Kirby v. Jean's Plumbing Heat & Air, 2009 OK 65, ¶ 5, 222 P.3d 21: "When considering a defendant's quest for dismissal the court must take as true all of the challenged pleading's allegations together with all reasonable inferences that may be drawn from them." For purposes of testing the sufficiency of this claim, we must assume the allegations under review are true.
¶11 I would treat this claim as the Majority does Plaintiffs' claim against Brent individually for fraud. As the Oklahoma Supreme Court has held in Bane, 1989 OK 140:
The general rule is that a contract made with a known agent for a disclosed principal is a contract with the principal alone. However, equally true is the exception to the general rule: If the agent, acting within the scope of his authority, in the pursuit of a lawful purpose, steps aside to engage in a tortious act to the injury of property or personal rights of another, the agent becomes liable for the injury done. The exception applies to actions for fraud, negligence, and conversion by the agent.
Id. ¶¶ 15-16 (citations omitted). The Supreme Court reiterated this position in Carter v. Schuster, 2009 OK 94, ¶ 20, 227 P.3d 149, where it said the law presumes the agent of a disclosed principal intends by his signature on a contract to bind only his principal, and the agent is not bound in his individual capacity. The Court continued, "This general rule is true when the agent acts within the scope of his authority in the pursuit of a lawful purpose. When the agent steps outside of these parameters to engage in a tortious act, which injures the property or personal rights of another, the agent becomes liable for the injury done. This exception applies to actions for fraud, negligence and conversion by the agent." Id. I have found no case law to guide us in ascertaining what constitutes "stepping outside these parameters to engage in a tortious act" for which liability might attach. Although the Majority says Plaintiffs have not alleged that Brent "stepped aside" in some tortious manner, this is not required under our code of notice pleading--"A motion to dismiss should be denied if relief is possible under any set of facts which can be established and is consistent with the allegations." Kirby, 2009 OK 65, ¶ 5.
¶12 This Court has held that "corporate officers may be individually liable for their tortious conduct even if they are acting on behalf of the corporation and regardless of whether a corporation may be held vicariously liable for the torts of its officers and directors." Smoot v. B&J Restoration Servs., 2012 OK CIV APP 58, ¶ 16, 279 P.3d 805. Allowing the negligence claim against Brent to proceed for his individual conduct does not violate the general proposition that "the individual and the corporation are two separate and distinct entities." Carter, 2009 OK 94, ¶ 17. The Supreme Court in Cox v. Kansas City Life Insurance Co., 1997 OK 122, 957 P.2d 1181, held that a "plaintiff's right to proceed against the master alone was distinct from his right to proceed against the servant." Id. ¶ 19. The Court reiterated, "'The rule appears to be quite well established that a plaintiff may bring separate actions against a master and his servant, or a principal and his agent, to recover for the negligence of the servant or agent, where the master's or principal's only responsibility is derivative. . . .'" Id. (quoted citation omitted).
¶13 "Motions to dismiss are generally viewed with disfavor." Kirby, 2009 OK 65, ¶ 5. As the Court summarized in Kirby,
The purpose of a motion to dismiss is to test the law that governs the claim in litigation rather than to examine the underlying facts of that claim. A motion to dismiss for failure to state a claim upon which relief may be granted will not be sustained unless it should appear without doubt that the plaintiff can prove no set of facts in support of the claim for relief. . . . A motion to dismiss should be denied if relief is possible under any set of facts which can be established and is consistent with the allegations.
Id. (citations omitted)(emphasis added).
¶14 After following the standards that govern us in our de novo review of this motion to dismiss, I would reverse the trial court's dismissal of Plaintiffs' negligence claims against Brent Cornman individually and remand for further proceedings, just as the dismissal of their fraud claim against him individually requires reversal and remand. I respectfully concur in part and dissent in part.
1 The plaintiffs acknowledge that ruling and state that any factual allegations or theories of recovery previously dismissed by the court are included in the Second Amended Petition only for proper notice of their currently pending theories of recovery and to preserve the issue for appeal. The plaintiffs state, therefore, that the allegations and theories of recovery contained in their Second Amended Petition "should be viewed in consistency with the prior rulings of the Court." (Second Amended Petition, footnote 1.) Plaintiffs' Third Theory of Recovery asserts a claim of negligence against all defendants. In footnote 2 to the Second Amended Petition, the plaintiffs specifically state that the district court had previously dismissed their negligence claim against Brent Cornman and, therefore, their allegations of negligence against "All Defendants is for the purposes set forth in Footnote 1, supra." The only specific allegations of negligence made against Brent are contained in the Fourteenth Theory of Liability and only that Theory is addressed in the plaintiffs' response to Brent Cornman's motion to dismiss. We will treat the allegations of negligence as they appear in the plaintiffs' Fourteenth Theory of Recovery.
2 The additional cases cited are: Pate v. Alian, 2002 OK CIV APP 68, ¶ 20, 49 P.3d 85 (party injured by intoxicated driver may recover from corporate officer and owner of a restaurant if officer neglected to perform his duties in serving alcohol to driver); Preston-Thomas Constr., Inc. v. Central Leasing Corp., 1973 OK CIV APP 10, ¶ 10, 518 P.2d 1125 (corporate officer liable for conversion of third-party's property while acting on behalf of the corporation); All American Car Wash, Inc. v. Nat'l Pride Equip., Inc., 550 F. Supp. 166 (W.D. Okla. 1981) (corporate officers personally liable if they took part in the commission of a tort or directed officers, agents or employees of the corporation to engage in such acts). See also Martin v. Johnson, 1998 OK 127, ¶ 32, 975 P.2d 889 ("If an employee acts in bad faith and contrary to the interests of the employer in tampering with a third party's contract with the employer we can divine no reason that the employee should be exempt from a tort claim for interference with contract.").
3 The Court held: "A managing agent of a retail store is answerable in damages for personal injuries suffered by the store's customers from dangerous conditions on the premises in his possession or under his control, for which he is responsible to the store's owner-proprietor, where the injuries are those for which the proprietor-owner would also be liable."
4 See "The Duty to Speak in Contract Formation," Alvin C. Harrell, 89 Okla. Bar J. no. 5, p. 6, 10, and n.54-55, February 2018.
5 Because we reach this conclusion, we do not address the parties' arguments concerning the applicability of 12 O.S.2011 § 682.
6 Wisconsin adopted the Uniform Declaratory Judgments Act in 1927. Oklahoma adopted a "substantially" similar version of the Act in 1961. Knight v. Miller, 2008 OK 81, ¶ 7, 195 P.3d 372.
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