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Dunfee v. KGL Holdings Riverfront, LLC

Superior Court of Delaware

April 30, 2019

SAMANTHA A. DUNFEE, and CHRISTINA M. DUNFEE, Administrators of the Estate of CARL T. DUNFEE, et al. Plaintiffs,
v.
KGL HOLDINGS RIVERFRONT, LLC d/b/a EVERGREEN APARTMENTS AT RIVERFRONT HEIGHTS, a Delaware limited liability company, EVERGREEN PROPERTIES MANAGEMENT, INC., a Delaware corporation, EVERGREEN APARTMENT GROUP, INC., a Delaware corporation, ANTHONY FRAGLE, CONTINENTAL CASUALTY COMPANY, a foreign corporation, VILLAGE OF WINDHOVER, L.L.C., a Delaware limited liability company, GLOBAL REALTY SERVICES GROUP, LLC a/k/a GRS GROUP/CORTEQ, a foreign corporation, SAV ENGINEERS, INC., a foreign corporation, STEPHEN VARITIKIAS, KEYCORP, individually and d/b/a KEYBANK NATIONAL ASSOCIATION, and KEYBANK NATIONAL ASSOCIATION, A-l AIR CONDITIONING HEATING & REFRIGERATION SERVICE, INC., and WILLIAM HENSEL, individually and d/b/a A-l AIR CONDITIONING, HEATING & REFRIGERATION SERVICE, INC., Defendants.

          Submitted: February 13, 2019

         On Defendants SAV Engineers, Inc.'s and Stephen Varitikias' Motion to Dismiss Plaintiffs' Complaint and Defendants' Cross Claims. DENIED.

         On Defendant Global Realty Services, Inc.'s Motion to Dismiss Plaintiffs' Complaint and Defendants' Cross Claims. DENIED.

         On Defendants Keycorp's and Keybank National Association's Motion to Dismiss Plaintiffs' Complaint. GRANTED.

          Gary S. Nitsche, Esquire, William R. Stewart, III, Esquire, and Rachel D. Allen, Esquire, Weik Nitsche & Dougherty, LLC, Wilmington, Delaware, Attorney for Plaintiffs Samantha Dunfee and Christina Dunfee.

          Joseph J. Rhoades, Esquire, Rhoades & Morrow, LLC, Wilmington, Delaware, Attorney for Plaintiff Jodi Colatriano.

          Martin C. Meltzer, Esquire, Law Office of Martin C. Meltzer, Wilmington, Delaware, Attorney for Plaintiffs Matthew Spanakos and Andrew Spanakos, Jr.

          Catherine A. Gaul, Esquire, and Aaron P. Sayers, Esquire, Ashby Geddes, P.A., Wilmington, Delaware, Attorneys for Defendants SAV Engineers, Inc. and Stephen Varitikias.

          Mary E. Sherlock, Esquire, and Stephen F. Dryden, Esquire, Weber Gallagher Simpson Stapleton Fires & Newby, LLP, Wilmington, Delaware, Attorneys for Defendants/Third-Party Plaintiffs KGL Holdings Riverfront, LLC, Evergreen Apartment Group, Inc., and Evergreen Properties Management, Inc.

          Elizabeth C. Grabey, Esquire, McGivney, Kluger & Cook, P.C., Wilmington, Delaware, Attorney for Defendant Village of Windhover, LLC.

          Christina M. Belitz, Esquire, Polsinelli PC, Wilmington, Delaware, Attorney for Defendants Keycorp and Keybank National Association.

          Michael J. Logullo, Esquire, Rawle & Henderson, LLP, Wilmington, Delaware, Attorney for Defendant Global Realty Services, Inc.

          John A. Elzufon, Esquire, Elzufon Austin & Mondell, P.A., Wilmington, Delaware, Attorney for Defendant Anthony Fragle.

          Michael I. Silverman, Esquire, Silverman, McDonald & Friedman, Wilmington, Delaware, Attorney for Defendants A-l Air Conditioning, Heating & Refrigeration, Inc. and William Hensel.

          MEMORANDUM OPINION

          COOCH, R.J.

         I. INTRODUCTION

         Before this Court are the Motions to Dismiss Plaintiffs' Complaint of Defendants Keycorp and Keybank National Association (collectively "Keybank"), Global Realty Services, Inc. ("GRS"), and SAV Engineers, Inc. ("SAV") with Stephen Varitikias ("Varitikias"); collectively the "moving defendants."[1] This case arises from the injuries and deaths of four decedents as a result of carbon monoxide exposure at Evergreen Apartments at Riverfront Heights ("Evergreen Apartments") onMarch25, 2Ol6.[2]

         Plaintiffs assert negligence on the part of the current and previous apartment owners, the property managers, the purchaser's lender, the insurance company, certain contractors, and various individuals. Of import to the moving defendants' instant motions is Plaintiffs' allegation that the moving defendants negligently performed a property valuation assessment ("assessment"), upon which Defendant KGL Riverfront Holdings, LLC ("KGL")-the owner of Evergreen Apartments at the time of the carbon monoxide exposure-relied and that reliance caused Plaintiffs' harm.

         Defendants Keybank, GRS, SAV, and Varitikias, seek dismissal pursuant to Superior Court Rule 12(b)(6). Keybank alone also seeks dismissal pursuant to Rule 12(b)(2). Keybank alleges this Court lacks personal jurisdiction to subject Keybank to litigation in Delaware. For Rule 12(b)(6), the moving defendants argue that Plaintiffs have failed to allege a proper basis for negligence to subject defendants to liability. The moving defendants contend that they cannot be held liable because the assessment was prepared for the sole and exclusive benefit of Keybank and the assessment was intended only for lending purposes.

         Plaintiffs counter that the moving defendants are liable for the alleged negligently conducted assessment under Restatement (Second) of Torts § 324A(c). Section 324A(c) imposes liability to defendants for injuries to third parties if a party, either the third-party or "another," relies on an undertaking by the defendant which the defendant should have known was for the protection of third-parties.[3] Plaintiffs argue that Keybank hired GRS to conduct the assessment, that Varitikias conducted the assessment on behalf of GRS "and/or"[4] SAV, that KGL relied on the assessment, and, lastly, KGL's reliance caused injury to Plaintiffs.

         The Court finds that-when construing all reasonable inferences in favor of the non-moving party when necessary-Plaintiffs have properly alleged that GRS and SAV, through Varitikias, undertook to perform services for another, which they should have known was for the protection of third-parties, and KGL's reliance on that undertaking led to harm to Plaintiffs. However, Plaintiffs have not satisfactorily alleged that Keybank undertook to render services for another, nor have Plaintiffs advanced a separate theory of negligence which may impose liability on Keybank.

         II. PROCEDURAL HISTORY AND FACTUAL BACKGROUND

         From 2014 to 2015, KGL was in the process of purchasing Evergreen Apartments. Prior to KGL's acquisition of the property, GRS-a company that is both incorporated and maintains its principal place of business in California- apparently engaged SAV to conduct a property valuation assessment on behalf of KGL's lender and mortgagee, Keybank.[5] On March 12, 2015, Varitikias went to the apartment complex and performed the assessment, allegedly stating to apartment personnel that he was there "on behalf of [] SAV 'and/or' GRS."[6] The assessment included an inspection of the boiler system.[7] The assessment yielded no sign of a defective boiler system and KGL received no recommendation to replace the boiler or to install carbon monoxide detectors.[8] KGL allegedly received a copy of the assessment report and recommendations.[9] Relying on the apparent soundness of the report, KGL allegedly did not conduct any further inspections or repairs on the gas boiler or conduct their own separate property assessment.

         On March 25, 2016, management at Evergreen Apartments called police after receiving reports that a resident had been unreachable for the past two days. New Castle County paramedics and police responded to the apartment complex, and located four unresponsive persons in Building G. Emergency responders pronounced all four individuals dead. The emergency responders also discovered several more persons located in Building G and Building F who, while alive, were suffering from apparent injuries. The injured were transported to the hospital for treatment. Doctors determined that those sent to the hospital had been exposed to toxic levels of carbon monoxide gas. The four individuals pronounced dead in Building G had been killed by exposure to lethal levels of carbon monoxide. Several days later, Delaware Department of Natural Resources and Environmental Control officials confirmed that high levels of carbon monoxide had been present, and determined that the gas had emanated from the exhaust pipes of the apartment complex boiler room.

         Plaintiffs were among those who were injured and killed by the carbon monoxide leak. From 2016 to 2018, Plaintiffs filed individual suits against the various defendants. Plaintiffs filed suit against the KGL entities, alleging that KGL permitted the exhaust pipes to fall into "a horrible state of disrepair and decay, rusting and collapsing, rendering them unable to [properly] vent the carbon monoxide[.]"[10] Plaintiffs brought suit against Anthony Fragale, who conducted an inspection of the property on behalf of Continental Casualty Company, and against Continental Casualty Company, on the theory of respondeat superior}[11] Plaintiffs sued Village of Windhover, L.L.C., the previous owner of Evergreen Apartments, for failure to have properly inspected the boiler system, failure to warn, failure to arrange for re-inspection, and various other negligence claims.[12] Plaintiffs brought suit against GRS claiming that GRS failed to recommend that KGL install carbon monoxide detectors in the apartment complex, failed to properly inspect the boiler system, failed to warn of any defects in the boiler system, and failed to recommend that the boiler system be repaired or replaced.[13] Plaintiffs brought suit against Stephen Varitikias and SAV Engineers, Inc., claiming that Varitikias acted as an agent of SAV "and/or" GRS and was negligent in that he failed to properly inspect the boiler system, and failed to recommend that the boiler system be repaired or replaced.[14] Lastly, Plaintiffs brought suit against Keybank, alleging that Keybank was "involved in the financing and/or hired the contractors and/or [was] involved in the inspections of the premises including the boiler and boiler systems."[15] Plaintiffs argue that Keybank is vicariously liable for the actions of GRS and SAV under the doctrine of respondeat superior.[16]

         To aid in the orderly dispensation of the issues, all cases arising from the carbon monoxide leak were consolidated by Court order on December 11, 2018.[17]GRS, SAV, Varitikias, and Keybank filed motions to dismiss pursuant to Rule 12(b)(6).[18] Keybank also argues for dismissal for lack of personal jurisdiction pursuant to Rule 12(b)(2).

         III. THE PARTIES' CONTENTIONS

         A. SAV's and Varitikias' Contentions

         SAV and Varitikias argue that Plaintiffs have failed to allege that the moving defendants owed a legal duty to Plaintiffs, breached any such duty, or that any such breach was the proximate cause of Plaintiffs injury. SAV and Varitikias contend that Plaintiffs merely allege that SAV and Varitikias "fail[ed] to do something [Plaintiffs] allege[] should have been done[, ]" a "classic" nonfeasance scenario.[19] SAV and Varitikias argue that a party who merely omits to act owes no general duty to others absent a "special relation between the actor and the other which gives rise to the duty."[20] SAV and Varitikias argue that there has been no allegation of a special relationship between the parties which would give rise to a duty, and as such Plaintiffs' claims should be dismissed.

         SAV and Varitikias also argue that Plaintiffs have failed to allege facts which would establish that the moving defendants owed a duty to third persons under Restatements (Second) of Torts § 324A. SAV and Varitikias contend that Plaintiffs have failed to allege there was an undertaking to render services for another, failed to allege that SAV and Varitikias increased any risk of harm, and failed to allege that another party properly relied on SAV and Varitikias' alleged undertaking.[21] Even if a party relied on any undertaking, SAV and Varitikias argue that such reliance was improper because a contract between Keybank and GRS ("Keybank/GRS contract") for the performance of the assessment stated that no one other than Keybank may rely on the report produced from the survey.

         B. GRS' Contentions

         GRS contends that Plaintiffs have only alleged nonfeasance, which would require Plaintiffs to establish that "there is a special relationship between [GRS] and [Plaintiffs]" to sustain a claim of negligent nonfeasance against GRS.[22] GRS argues that Plaintiffs' complaint fails to provide any factual allegations to show that such a special relationship existed between GRS and Plaintiffs which could impose a duty to act. Further, GRS contends that Plaintiffs' claim under Restatement Second of Torts § 324A is ostensibly nullified because Plaintiffs have not alleged that GRS undertook to render services for Plaintiffs' protection. Nor have Plaintiffs, GRS argues, alleged that the assessment increased the risk of harm by causing "a physical change to the environment or material alteration of the circumstances."[23] Lastly, GRS contends that Plaintiffs have not established reasonable reliance by Plaintiffs on any alleged undertaking.

         C. Keybank's Contentions.

         Keybank argues that the complaint lacks any factual allegations about how Keybank was involved in the inspection of the apartment complex or the hiring of contractors.[24] Further, Keybank argues that Plaintiffs have not alleged any facts purporting to establish the existence of any duty owed by Keybank to the Plaintiffs. Nor have Plaintiffs, Keybank argues, alleged any facts to establish any kind of relationship existed between Keybank and Plaintiffs. Keybank contends that Plaintiffs have only offered legal conclusions that other defendants were acting as agents of Keybank, but have provided no factual allegations to substantiate those legal claims. Keybank argues that without such factual allegations there can be no vicarious liability under the doctrine of respondeat superior. Without this doctrine as support for the allegations in the complaint, Keybank argues that Plaintiffs have failed to state a claim upon which relief can be granted.

         D. Plaintiffs' Contentions

         Plaintiffs contend that SAV and Varitikias undertook to perform the assessment for the benefit of GRS, KGL, and Plaintiffs. Plaintiffs-and KGL- argue that regardless of the Keybank/GRS contract language, the assessment report was in fact given to KGL, and the report had repair recommendations for KGL to follow. Plaintiffs contend that KGL relied on the apparent soundness of the report, and did not undertake any additional repairs to the Building G gas boiler because the report certified the boiler's life expectancy was for several more years. Further, Plaintiffs argue that the apartment residents, Plaintiffs among them, relied on the report to correctly detail the condition and safety of the apartment complex. Plaintiffs assert that this scenario satisfies Restatement (Second) of Torts § 324A, and overcomes SAV's and Varitikias' Motion to Dismiss.

         As for GRS, Plaintiffs reiterate the same arguments raised against SAV and Varitikias. Plaintiffs allege that GRS affirmatively acted but did so in a negligent manner which led to Plaintiffs injuries. Plaintiffs contend that SAV and Varitikias were agents of GRS whose conduct should be imputed to GRS. Further, Plaintiffs argue that there is a factual question of what entity-GRS, SAV, or both-Varitikias represented himself to be representing when he was at the apartment complex conducting the assessment.

         Lastly, Plaintiffs contend that the complaint lists specific allegations of negligent conduct by Keybank. Plaintiffs allege that Keybank failed to properly inspect the boiler system, that Keybank failed to warn of the necessity of repairs to the boiler system, and that Keybank failed to recommend to KGL to install carbon monoxide detectors.[25] To establish Keybank owed a duty to Plaintiffs, Plaintiffs again rely on ยง 324A, and allege that Keybank undertook to perform services for KGL. Plaintiffs contend that Keybank, by and ...


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