UNITED STATES DISTRICT COURT DISTRICT OF NEW HAMPSHIRE

Sears Roebuck & Company and Kmart Corporation

v. Civil No. 14-cv-422-JL Opinion No.

W/S Lebanon LLC, W/S Development Associates LLC, S.R. Weiner & Associates, C/O Robert Currey Associates, now known as WS Asset Management Inc., Windalier West Lebanon, LLC, K.G.I. Properties, LLC and Keypoint Partners, LLC

MEMORANDUM ORDER

This action, arising out of flood damage to commercial

property following a hurricane, implicates a party’s liability

for breach of a contract to which it is not party. Plaintiffs

Sears Roebuck and Company and Kmart Corporation both suffered

property damage at stores located in West Lebanon, New

Hampshire, as a result of flooding brought on by Hurricane Irene

in 2013. They brought separate actions against their respective

landlords (W/S Lebanon LLC and Windalier West Lebanon, LLC) and

property managers (W/S Development Associates, LLC, WS Asset

Management, K.G.I. Properties, LLC, and Keypoint Partners, LLC),

which were later consolidated for all purposes.1

1 See Order of Consolidation (doc. no. 23). The plaintiffs bring various breach of contract,

negligence, promissory estoppel, and accounting claims against

the defendants.2 Specifically, Kmart asserts claims of

negligence and breach of contract against its lessor, Windalier,

and Windalier’s property managers, K.G.I. and Keypoint. Sears

asserts claims of negligence, breach of contract, promissory

estoppel, and a claim for accounting against its lessor, W/S

Lebanon, and W/S Lebanon’s property managers, W/S Development

and WS Asset Management (the “WS defendants”).

All defendants moved for summary judgment on all claims

against them.3 Both plaintiffs also moved for summary judgment,

albeit only on their breach of contract claims.4 The court

denied the plaintiffs’ motion for partial summary judgment

entirely, and granted Windalier’s and the WS defendants’ motion

for summary judgment in part and denied it in part, for the

reasons stated on the record at the September 1, 2017 oral

argument.

This order resolves K.G.I.’s and Keypoint’s motions for

summary judgment. Because there is no privity of contract

between Kmart and its property managers and because Kmart has

2 Their First Amended Consolidated Complaint (doc. no. 27) is operative. 3 Document nos. 56, 57, and 59. 4 Document no. 58.

2 not identified a legal duty owed it by its property managers,

the court grants K.G.I.’s and Keypoint’s motions for summary

judgment.

Applicable legal standard

“The court shall grant summary judgment if the movant shows

that there is no genuine dispute as to any material fact and the

movant is entitled to judgment as a matter of law.” Fed. R.

Civ. P. 56(a). The moving party must “assert the absence of a

genuine issue of material fact and then support that assertion

by affidavits, admissions, or other materials of evidentiary

quality.” Mulvihill v. Top-Flite Golf Co.,

(1st

Cir. 2003). “A genuine issue is one that could be resolved in

favor of either party, and a material fact is one that has the

potential of affecting the outcome of the case.” Vera v.

McHugh,

(1st Cir. 2010) (internal quotation

omitted).

Once the movant has made the requisite showing, “the burden

shifts to the summary judgment target to demonstrate that a

trialworthy issue exists.” Mulvihill,

. The

nonmoving party “‘may not rest upon the mere allegations or

denials of [the] pleading, but must set forth specific facts

showing that there is a genuine issue’ of material fact as to

each issue upon which he or she would bear the ultimate burden

3 of proof at trial.” Santiago-Ramos v. Centennial P.R. Wireless

Corp.,

, 52–53 (1st Cir. 2000) (quoting Anderson v.

Liberty Lobby, Inc.,

(1986)).

As it is obligated to do in the summary judgment context,

the court “rehearse[s] the facts in the light most favorable to

the nonmoving party (here, the plaintiff) consistent with record

support,” and gives them “the benefit of all reasonable

inferences that those facts will bear.” Noviello v. City of

Boston,

(1st Cir. 2005) (internal citation

omitted). The following background takes this approach, drawing

on the parties’ recitations of undisputed facts.

Background

Kmart has leased and occupied commercial property in a

shopping plaza (the “Kmart Plaza”) in West Lebanon, New

Hampshire, since May 1974. The Kmart Plaza sits on the east

side of the Connecticut River and south of the Mascoma River.

On August 29, 2011, Hurricane Irene caused much of the

Connecticut River and its tributaries to flood. The flooding

caused water damage to the Kmart Plaza, including the building

occupied by Kmart. The contents of Kmart’s building were also

damaged.

At the time of the event, Kmart leased its building from

Windalier. From July 2003 until a month before the event,

4 K.G.I. managed the property pursuant to an agreement between it

and Windalier. That agreement terminated, however, on July 31,

2011. Windalier then contracted with Keypoint to manage the

property, and Keypoint was the property manager when Hurricane

Irene struck.

Analysis

As discussed supra, Kmart has brought claims for breach of

its lease against its landlord, Windalier, and against

Windalier’s property managers, K.G.I. and Keypoint. Kmart has

also brought negligence claims against all three of these

defendants.

The court grants K.G.I.’s and Keypoint’s motions for

summary judgment on Kmart’s breach of contract claims against

them because they were not parties to the lease and, further,

Kmart has not pleaded breach of, nor offered any evidence

suggesting it has standing as a third-party beneficiary to sue

under, the property managers’ contracts with Windalier. Because

these defendants owe Kmart no common-law duty under New

Hampshire law, the court also grants the defendants’ motions for

summary judgment on to Kmart’s negligence claims.

A. Kmart’s contract claim against K.G.I. and Keypoint Count 11)

To succeed on a breach of contract claim under New

Hampshire law, the plaintiff must show: “(1) that a valid,

5 binding contract existed between the parties, and (2) that [the

defendant] breached the terms of the contract.” Wilcox Indus.

Corp. v. Hansen,

(D.N.H. 2012) (citing

Lassonde v. Stanton,

(2008); Bronstein v. GZA

GeoEnvironmental, Inc.,

(1995)). This case

does not implicate the contract’s existence or validity, but

only whether a breach of existing, valid contracts occurred. “A

breach of contract occurs when there is a ‘[f]ailure without

legal excuse, to perform any promise which forms the whole or

part of a contract.’” Bronstein,

(quoting

Black’ Law Dictionary 188 (6th ed. 1990)).

The parties’ arguments touch on three contracts: the lease

agreement between Kmart and Windalier,5 the property management

agreement between Windalier and K.G.I.,6 and the property

management agreement between Windalier and Keypoint.7 Kmart

bases its contract claim against K.G.I. and Keypoint on a lease

to which neither of the property managers was party: the Kmart-

Windalier lease. Sections of that lease, Kmart alleged,

obligated Windalier, and its agents KGI and Keypoint, to maintain, replace and repair the roof, outer walls and structural portions of the building necessary to maintain the building in a “safe, dry and tenantable condition” and in “good order and repair”[;] . . . to

5 Exhibit C (doc. no. 56-5). 6 Exhibit O (doc. no. 56-17). 7 Exhibit N (doc. no. 56-16).

6 maintain, replace and repair the underground utility installations, which include storm sewer systems[; and] . . . to properly service the building's storm sewers.8

The damage that Kmart sustained as a result of the flooding

caused by Hurricane Irene, Kmart further alleged, was

“proximately caused by Windalier, K.G.I. and Keypoint’s breach

of their duties” under the contract between Windalier and Kmart.9

It is undisputed that neither K.G.I. nor Keypoint is party to

that lease. Because a valid, binding contract does not exist

between Kmart, on the one hand, and K.G.I. or Keypoint, on the

other, Kmart’s breach of contract claim against K.G.I. and

Keypoint fails as a matter of law.10 Pstragowski v. Metro. Life

Ins. Co.,

, 4–5 (1st Cir. 1977) (non-party to a

contract has no remedy for breach).

In an attempt to salvage its contract-based claim against

the two property managers, Kmart argues that it was a third-

party beneficiary of the property management agreements between

K.G.I./Keypoint and Windalier. These agreements obligated the

property managers to “continually operate and manage the

8 Compl. (doc. no. 27) ¶¶ 115-117. 9 Id. ¶ 118. 10By not taking up this argument in its opposition, Kmart appears to concede that it cannot recover from K.G.I. and Keypoint under the Kmart-Windalier lease. See Plaintiffs’ Opposition Mem. (doc. no. 74-1) at 31-33.

7 Property consistent with good, sound, and prudent management

practices and consistent with standards of comparable properties

in the same area . . . .”11 Kmart cannot recover under this

theory for two reasons.

First, as discussed supra, Kmart has premised its claim on

a breach of the Kmart-Windalier agreement.12 Nowhere in the

Complaint does Kmart raise or reference the property management

contracts. Kmart has not sought to amend its Complaint to

reflect this new theory of the case, and now -- with trial

looming on the horizon -- is too late to do so. See Steir v.

Girl Scouts of the USA,

(1st Cir. 2004) (“[T]he

longer a plaintiff delays, the more likely the motion to amend

will be denied, as protracted delay, with its attendant burdens

on the opponent and the court, is itself a sufficient reason for

the court to withhold permission to amend.”); Cruz v. Bristol-

Myers Squibb Co., PR,

(1st Cir. 2012)

(affirming denial of motion to amend brought nine months after

scheduling order deadline).

Second, and more to the point, the third-party beneficiary

exception to the general rule “that a non-party to a contract

11Exhibit N (doc. no. 56-16) ¶ 2.6; Exhibit O. (doc. no. 56-17) ¶ 2.6. 12 See Compl. (doc. no. 27) ¶¶ 115-118.

8 has no remedy for breach of contract,” Brooks v. Trustees of

Dartmouth Coll.,

(2011) does not apply under

these facts.

A third-party beneficiary relationship exists if: (1) the contract calls for a performance by the promisor, which will satisfy some obligation owed by the promisee to the third party; or (2) the contract is so expressed as to give the promisor reason to know that a benefit to a third party is contemplated by the promisee as one of the motivating causes of his making the contract.

(citing Tamposi Associates v. Star Mkt. Co.,

(1979)). “[I]t is not enough that the contract manifests

the parties’intention to confer upon a third party the benefit

of the promised performance. Rather, the contract must show

that the parties considered the third party’ legal status and

intended to confer upon him a right to sue the promisor.”

(internal quotation and citation omitted). Absent

manifestation of that intent to confer a right to sue, “the

third party is only an incidental beneficiary, having no

contractual standing.”

(quotation omitted).

Seeking to establish its third-party beneficiary standing,

Kmart cites only one provision of the property management

agreements: the obligations on K.G.I. and Keypoint to

“continually operate and manage the Property consistent with

good, sound, and prudent management practices and consistent

9 with standards of comparable properties in the same area.”13

Such general language, in and of itself, does not demonstrate

that the parties to the property management agreements --

Windalier, K.G.I., and Keypoint -- intended to confer a direct

benefit on Kmart or to grant Kmart a right to sue to enforce the

agreements’ terms.14

Nor can it do so when read in the context of other

agreement terms clearly evincing the parties’ intention that the

property managers manage the property for the benefit of

Windalier -- the landlord, not the tenant. For example, the

agreements provide that, except as provided within the

agreements themselves, “everything done by [the property

manager] under this Agreement shall be done on [Windalier’s]

behalf, and all obligations or expenses incurred pursuant to

this Agreement shall be for the account of, and at the expense

of” Windalier.15 Similarly, the agreements required the property

managers to “cause to be maintained, naming [Windalier] as

13See Plaintiffs’ Opposition Mem. (doc. no. 74-1) at 31-32 (quoting Exhibit N (doc. no. 56-16) ¶ 2.6; Exhibit O. (doc. no. 56-17) ¶ 2.6). 14Even if it did so, the court is skeptical that Kmart could recover under this theory against K.G.I., in light of the undisputed fact that the Windalier-K.G.I. property management agreement was no longer in effect at the time of the event giving rise to Kmart’s claims. The court need not reach that question, however. 15 Exhibit N ¶ 8.2; Exhibit O ¶ 8.2.

10 additional insured, a Comprehensive General Liability insurance

policy, covering its acts or omissions,” within stated limits.16

Furthermore, to the extent that the agreements address the

tenants at all, those provisions give no indication that the

tenants were considered beneficiaries of the agreement. To the

contrary, those provisions address the property manager’s

authority to take action against the tenants,17 to inform them of

all rules and regulations, and to enforce the tenants’

compliance with those rules and regulations.18

Because Kmart failed to plead breach of the contracts

between the property managers and Windalier, and because, even

had it done so, no provision in the contracts indicate any

intention by the parties to recognize Kmart as a third-party

beneficiary, the court dismisses Kmart’s breach of contract

claim (count 11) as against K.G.I. and Keypoint.19

B. Kmart’s negligence claims against K.G.I. and Keypoint Counts 9 and 10)

To succeed on a claim for negligence, the plaintiff must

“establish that the defendant owed a duty to the plaintiff,

16 Exhibit N ¶ 3.12; Exhibit O ¶ 3.12. 17 See Exhibit N ¶ 3.5; Exhibit O ¶ 3.5. 18 Exhibit N ¶ 3.2; Exhibit O ¶ 3.2. 19 This count remains in play, however, as against Windalier.

11 breached that duty, and that the breach proximately caused the

claimed injury.” Estate of Joshua T. v. State,

(2003) (quotations and citations omitted). K.G.I. and

Keypoint argue that Kmart’s claim fails as a matter of law

because they owed no common law duty of care to Kmart.20

“Whether a duty exists in a particular case is a question of

law” in New Hampshire. Carignan v. New Hampshire Int'l

Speedway, Inc.,

(2004). “Absent the existence

of a duty, a defendant cannot be liable for negligence.”

(citing Williams v. O’Brien,

(1995)).

“A duty generally arises out of a relationship between the

parties.” Sisson v. Jankowski,

(2002). “The

existence and extent of that duty depends upon the nature of”

the parties’ relationship. Sintros v. Hamon,

(2002). Here, the relationship among Kmart, Windalier, K.G.I.,

and Keypoint is generally contractual in nature. Kmart’s

reliance on its lease with Windalier its basis for the alleged

duty emphasizes this point. Specifically, Kmart alleges that

all three defendants “owed Kmart a duty to operate, manage,

maintain, inspect, control, repair and replace the Kmart

Building, underground utility installations, storm sewers,

20K.G.I. Mem. (doc. no. 56-1) at 26-29; Keypoint Mem. (doc. no. 57-1) at 23-26.

12 Landlord Common Areas, and parking areas with reasonable care

and to otherwise ensure that the Kmart Building was not subject

to damages that could be avoided with the exercise of reasonable

care.”21 Kmart has drawn this duty from its lease with

Windalier, which it obligates Windalier to “maintain, repair,

and replace” at least certain portions of the leased property

itself, including “underground utility installations”; to

“maintain all driveways, sidewalks, street and parking areas

free of all settling, clear of standing water, and in a safe,

slightly and serviceable condition”; and to ensure that the

leased property is “property serviced with . . . sewer and other

utilities . . . .”22

When a contract defines the relationship, “ordinarily the

scope of the duty is limited to those in privity of contract

with one another.” Sisson,

. Here, no such

privity exists between Kmart, on the one hand, and K.G.I. and

Keypoint, on the other. This suggests that K.G.I. and Keypoint

cannot be held liable in tort for breach of a duty defined by a

contract to which they are not parties.

Attempting to overcome this, Kmart invokes the New

Hampshire Supreme Court’s conclusion, in Mbahaba v. Morgan, 163

21 Compl. (doc. no. 27) ¶¶ 97, 103, 109. 22 Exhibit C (doc. no. 56-5) ¶¶ 15, 17.

(2012), that “a party without a direct contractual duty

who nonetheless possesses the knowledge and authority of a

landlord may be held liable for his own negligence.”

. Mbahaba specifically addressed, and answered in the

affirmative, the question of whether a property manager could be

held liable by a tenant for negligence. It does not, however,

appear to create a general duty, owed by a property manager to

the tenant of a commercial property, to prevent property damage

and economic loss.

Mbahaba concerns a property manager’s liability in

negligence when a tenant is injured in a residential apartment.

The New Hampshire Supreme Court highlights the personal injury

context of that liability, basing it on the landlord having

“demise[d] dangerous property.”

at 566-67 (quoting Sargent

v. Ross,

(1973)). Once he has done so, his

“is the ordinary case of liability for personal misfeasance,

which runs through all the relations of individuals to each

other.”

at 567 (quoting Sargent,

). The

landlord’s “tort duty exists, independent of any contractual

obligation, because,” having leased property with a known

danger, “a reasonable person would exercise a certain degree of

care for the protection of a vulnerable tenant.”

There is no indication here that Windalier “demise[d]

dangerous property” to Kmart. At oral argument, Kmart’s counsel

14 argued that the property’s “danger” was inherent in its

situation in a flood zone. But nothing in Mbahaba suggests the

duty recognized therein contemplates that sort of “danger.” To

the contrary, Mbahaba itself addressed the danger, known to the

property manager in that case, of peeling lead paint to the

young daughter of a tenant. In Sargent, on which Mbahaba

relies, the New Hampshire Supreme Court abolished “the doctrine

of landlord nonliability in tort,” and concluded that a landlord

may be so liable

for injuries resulting from defective and dangerous conditions in the premises if the injury is attributable to (1) a hidden danger in the premises of which the landlord but not the tenant is aware, (2) premises leased for public use, (3) premises retained under the landlord’s control, such as common stairways, or (4) premises negligently repaired by the landlord.

Sargent,

. Kmart’s location in a flood zone of

which both landlord and tenant appear to have been equally

aware, falls under none of these categories. And the damages

that Kmart claims here -- compensation for losses relating to

damage to the property itself and to Kmart’s own property -- are

not the sort of “injury” contemplated by Mbahaba and Sargent.23

23As Keypoint’s counsel observed at oral argument, Mbahaba focuses on the imbalance of knowledge between the landlord and a “vulnerable tenant,” 163 N.H. at 567, which renders it less applicable to the relationship between two sophisticated parties to a commercial lease.

15 Kmart has grounded the duty it claims all three defendants

owe it squarely in the contract between it and its lessor,

Windalier, and to which the property managers are not parties.

It has not identified any common-law duty owed it by the

property managers.24 Accordingly, the court grants their motions

to dismiss Kmart’s negligence claims against them.

Conclusion

For the reasons discussed above, the court GRANTS K.G.I.’s

and Keypoint’s motions for summary judgment.25

SO ORDERED.

Joseph N. Laplante United States District Judge

Dated: September 6, 2017

cc: Jamie N. Hage, Esq. Richard J. Sprock, Esq. Robert P. Louttit, Esq. Kathleen A. Davidson, Esq. Mark W. Shaughnessy, Esq. Patrick Martin Audley, Esq. Quinn Emmet Kelley, Esq.

24The same may well hold true for Windalier and the WS defendants, and may entitle them -- at some juncture -- to judgment as a matter of law on the negligence claims against them. As the court noted during oral argument, however, they did not move for summary judgment on these grounds, invoking only an “act of God” defense and the doctrine of avoidable consequences. See Defendants’ Mem. (doc. no. 59-1) at 13-19. 25 Document nos. 56 and 57.

16 Michael P. Johnson, Esq. Douglas N. Steere, Esq. Clara E. Lyons, Esq. David F. Hassett, Esq. Matthew G. Lindberg, Esq. Scott T. Ober, Esq. John M. Dealy, Esq.

17