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Tyree v. Cornman

Court of Appeals of Oklahoma, Division II

April 2, 2019

LANA TYREE and DENISE TIDWELL, Plaintiffs/Appellants,

          Mandate Issued: 11/14/2019


          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


         ¶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.


         ¶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.

         I. Negligence

         ¶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 ...

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