Cook v. Orkin (CA1 5/19/11)

Yet another economic loss case.

The construction company building the Cooks’ home backfilled with untreated dirt, with the result that the house had termites. Orkin treated the house but the termites never went away; Orkin returned almost every year over the next fourteen as termites reappeared. The home was damaged and at one point the Cooks had leave it for a year. Eventually they sued Orkin for all the causes of action their attorney could think of.

Orkin moved for summary judgment. It argued that it hadn’t breached the contract, that it had no fiduciary duty to the Cooks, and that the economic loss rule applied. The trial court ruled for Orkin on the fiduciary duty and economic loss issues and entered a judgment with Rule 54(b) language. (The court presumably looked at this, since it’s jurisdictional, and decided that 54(b) was proper but doesn’t explain why.)

The Cooks argued that Orkin owed them a fiduciary duty because it had specialized knowledge they had to trust. The court said that that is true of many service providers and doesn’t mean they have fiduciary obligations. (The Cooks had a California case but it apparently wasn’t really on point. Ideally, you should have something better than that ready when the defendant starts trying to pick off your kitchen-sink causes of action one by one.)

It appears that we are now calling the economic loss rule the “ELR.” That sort of thing is almost always a mistake, for reasons too numerous to describe here, but is consistent with the apparent intent of our courts – or of the Court of Appeals, at least – to turn what we have suggested (and some – or should we say “other” – learned commentators actually agree with us) is actually a hodge-podge of other rules into a distinct doctrine. In any event, the court recounts the history of “ELR” cases and decides that the Cooks have no tort claim for economic loss. Flagstaff II, which operates by determining which part of the hodge seems the podgiest, says that the rule applies in construction-defect cases. This opinion holds in a footnote that the rule applies to misrepresentation and fraud claims.

The Cooks tried to argue that the rule doesn’t apply to statutory consumer-fraud cases but that’s one claim they’ d forgotten to make below.

(link to opinion)