SCOVT applies economic loss rule to bar product liability claims, holding no "special relationship" existed between user and supplier and that alleged misrepresentations by supplier did not justify exception to the rule.

PeakCM, LLC v. Mountainview Metal Systems, LLC , 2025 VT 50 [8/22/2025] (part two of two)

EATON, J.  In 2019, multiple siding panels fell off a newly constructed hotel in St. Albans, Vermont.  Plaintiff, PeakCM, LLC, the general contractor responsible for the hotel’s construction, sued the siding-panel installer, Mountainview Metal Systems, LLC.  Plaintiff amended its complaint to add a product-liability claim against the siding-panel manufacturer, ATAS International, Inc.  Plaintiff appeals from the trial court’s decision to grant ATAS summary judgment.   Plaintiff argues that the trial court erred in granting summary judgment to ATAS on plaintiff’s product-liability claim because both the “other-property” and “special-relationship” exceptions to the economic-loss rule apply.  Plaintiff also argues that the court improperly granted summary judgment to ATAS on Mountainview’s implied-indemnity claim.   We affirm

Product-Liability Claim and the Economic-Loss Rule..

 

The trial court granted ATAS’s motion for summary judgment on plaintiff’s product-liability claim because it concluded that the economic-loss rule barred the  claim.  Plaintiff argues that the trial court erred in granting summary judgment to ATAS because both the “other-property” and “special-relationship” exceptions to the economic-loss rule apply. 

 

Plaintiff does not contest that the economic-loss rule applies generally.  The economic-loss rule generally “prohibits recovery in tort for purely economic losses.”  Veljovic v. TD Bank, N.A., 2025 VT 38, ¶ 11 The economic-loss rule functions to separate claims that should be brought under contract law from those that should be brought under tort law. “Economic loss is defined as ‘damages other than physical harm to persons or property.’ ”  Id. ¶ 10   In the construction context, “the remedy for purely economic losses resulting from the reduced value or costs of repairs of . . . construction defects  sound [s] in contract rather than tort” law.  LongTrail House Condo. Ass’n, 2012 VT 80, ¶ 11  

 

This Court recognizes two exceptions to the economic-loss rule: the “other property” exception and the “special-relationship” exception.  See Walsh v. Cluba, 2015 VT 2, ¶ 28, 198 Vt. 453, 117 A.3d 789 (recognizing other-property exception); Veljovic, 2025 VT 38, ¶ 12 (describing special-relationship exception) Plaintiff argues that one or both of the exceptions to the rule allow plaintiff to bring its product-liability claim against ATAS.  We disagree. Plaintiff failed to demonstrate that either exception to the economic-loss rule applies here; accordingly, the economic-loss rule bars plaintiff’s product liability claim.  Thus, the trial court appropriately granted ATAS’s motion for summary judgment. 

 

 

 Under the other-property exception, the economic-loss rule does not apply if there has been some “accompanying physical harm” beyond purely economic loss.  Walsh , 2015 VT 2, ¶ 28 “The physical harm may be to property rather than persons, but injury to the product or property that is the subject of a contract is generally considered a disappointed economic expectation for which relief lies in contract rather than tort law.”  Id.  In the trial court, plaintiff argued that the other-property exception to the economic loss rule applied because the hotel was damaged in addition to the splice plates, and plaintiff was required to pay for the damage.  On appeal, rather than relying on damage to the hotel as it did in the trial court, plaintiff now argues for the first time that the other-property exception applies because there was minimal damage to “abutting properties”— namely, the neighboring building’s roof. This argument was not preserved, and we decline to consider it. 

 

 Under the special-relationship exception to the economic-loss rule a plaintiff asserting a negligence claim may be able to recover for purely economic losses where there is a special relationship between the plaintiff and the defendant.  The exception  typically involves  the defendant has assumed the responsibility not to violate a professional duty owed to the plaintiff.”  Facts other than a professional relationship  may support the establishment of a special relationship  Veljovic, 2025 VT 38, ¶ 14; Sutton v. Vt. Reg’l Ctr., 2019 VT 71A, ¶ 33, 212 Vt. 612, 238 A.3d 608).   Sutton is the sole case where this Court has held that a special relationship existed sufficient for the exception to apply.  In this case, unlike in Sutton, there is no evidence that plaintiff and ATAS had a “close relationship” where “exceptional oversight and management” was promised or performed.  Id. ¶ 33.  ATAS neither “personally solicited” the work, nor did it enter into an ongoing “individualized relationship[]” with plaintiff See  EBWS,LLC v. Britly Corp, 2007 VT 37, ¶ 32 (holding no special relationship existed even when defendant designed and built creamery for plaintiff because plaintiff “did not rely on the defendant to provide it with a professional service, and, consequently paid for the services of a contractor not a professional architect”); see also Restatement (Third) of Torts: Liab. for Econ. Harm § 4 (2020) (describing special-relationship exception justified by heightened standard of care and describing construction contractors and tradesmen as nonprofessionals).   

 

We are unpersuaded by plaintiff’s argument that the relationship between itself and ATAS rose to the level of a special relationship for the purpose of this exception The purchase of the panels by plaintiff’s subcontractor, plaintiff’s brief in-person encounter and emails with ATAS representatives, and plaintiff’s reliance on web-based information produced by ATAS, did not create a special relationship between plaintiff and ATAS sufficient for the purpose of this exception to the economic-loss rule. 

 

 Plaintiff finally argues that ATAS owed plaintiff a duty to provide accurate information that plaintiff was intended to rely on, and that this intended reliance is sufficient to support the existence of a special relationship.  See Limoge v.People’s Tr. Co., 168 Vt. 265, 268-69, 719 A.2d 888, 890 (1998) (outlining requirements for negligent-misrepresentation[1]claim). 

Essentially, plaintiff attempts to use the duty outlined in negligent-misrepresentation claims to establish a special relationship between ATAS and plaintiff.  This interpretation would drastically expand the special-relationship exception to the point of swallowing the economic-loss rule.  It ignores the typical determining factor that there be a professional service provided in the relevant interaction between the parties—with a corresponding heightened standard of care

 

Implied Indemnity Claim

Finally, plaintiff argues that the trial court erred when it granted summary judgment to ATAS on Mountainview’s implied indemnity claim because equity requires implied indemnity in this case.  ATAS argues that plaintiff lacks standing to bring this claim on appeal.  We agree. “The plaintiff generally must assert his own legal rights and interests, and cannot rest his claim to relief on the legal rights or interests of third parties. Plaintiff does not explain how plaintiff—not Mountainview—has the right to appeal the trial court’s summary-judgment decision on Mountainview’s implied-indemnity claim.  On appeal, plaintiff does not contest the court’s ruling that nothing in the contract allows plaintiff to assume Mountainview’s claims, and plaintiff does not identify any other legal basis for it to do so.  Because plaintiff has not shown that it has the right to assert this argument on behalf of Mountainview, we decline to consider whether the trial court appropriately granted summary judgment on Mountainview’s implied-indemnity claim.  Ladd v. Valerio, 2005 VT 81, ¶ 3 (mem.) (holding “courts have no jurisdiction to grant the relief sought” when “the plaintiff lacks standing”). 

Affirmed.

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[1] SCOVT NOTE: Limoge  adopts Section 552(1) of the Restatement (Second) of Torts (1977), which provides:

• One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.

Section 5 of the Restatement (Third) of Torts: Liability for Economic Harm is "largely identical" to Restatement Second Torts § 552; but there are three substantive changes. First, the requirement that the defendant's advice concern a “business transaction” has been eliminated. . Second, the requirement that the plaintiff's reliance be “justifiable” has been replaced with a statement that conventional rules of comparative responsibility are applicable. Third, liability under this Section has been eliminated when the plaintiff's representation comes in the performance or negotiation of a contract with the defendant. See Reporter's Notes, Restatement (Third) of Torts: Liability for Economic Harm  § 5 (2020).    Section 5, like Like § 552 (1), specifically refers to "pecuniary loss" :

• Restatement (Third) of Torts: Liability for Economic Harm  § 5:
• 
  
• (1) An actor who, in the course of his or her business, profession, or employment, or in any transaction in which the actor has a pecuniary interest, supplies false information for the guidance of others is subject to liability for pecuniary loss caused to them by their reliance upon the information, if the actor fails to use reasonable care in obtaining or communicating it.
• (2) Except as stated in Subsection (3), the liability stated in Subsection (1) is limited to loss suffered:
  • (a) by the person or one of a limited group of persons for whose guidance the actor intends to supply the information, or for whose guidance the actor knows the recipient intends to supply it; and
  • (b) through reliance upon the information in a transaction that the actor intends to influence, or that the actor knows the recipient intends to influence, or in a substantially similar transaction.
• (3) The liability of one who is under a public duty to supply the information extends to loss suffered by any of the class of persons for whose benefit the duty is created, in any of the transactions in which it is intended to protect them.
• (4) A plaintiff's recovery under this Section is subject to the same principles of comparative responsibility that apply to other claims of negligence.
• (5) This Section does not recognize liability for negligent misrepresentations made in the course of negotiating or performing a contract between the parties.

On their face, both Restatements allow recovery against professionals and non-professionals for economic loss due to negligent misrepresentation. Thus in Glassford v. Dufresne & Assocs. P.C., 2015 VT 77 the Court found it sufficient to analyze an economic loss claim under section 552, which is a self-contained rule.  The  Court has further  explained that the drafters of the current Restatement reject  "a broad rule precluding recovery for economic loss."   Sutton v. Vermont Regional Center, 2019 VT 71A ¶ 31 n. 7 (noting the "plethora of exceptions to the broad formulation of the economic-loss rule," has induced the drafters of the current restatement to articulate "'a more limited principle: not that liability for economic loss is generally precluded, but that duties of care with respect to economic loss . . .are recognized in specific circumstances'") (citing Restatement (Third) of Torts: Liability for Economic Harm  § 1 cut. b (2020)  In other words, recovery in tort for economic loss is not exceptional; there is no geneeral rule against it, 

Given the third Restatement's approch, the text of  section 552 and the specificerecognition in I that  Section 552  is among the" host of exceptions" to the tradiional  ecoonomic loss rule, Sutton, 2019 VT 71A ¶ 31(citing  Limoge),   it is difficult to understand the PeakCM, Court’s concern that section 552 might “swallow” the economic loss rule.  

The simple truth is that section 552 states a black-letter rule imposing liability for economic loss due to  negligent misrepresentation. As stated in Sutton, 2019 VT 7 ¶ 36,(amended and superceded by 2019 VT 71A)  "The economic-loss rule is not an impediment to this claim."

Relief from judgment under Rule 60 is available only to parties -- even though movant did not have notice and opportunity to become a party.

 

 In Re Burchard Road Petition To Abandon Land Use Permit Denial, 2024 VT 51 (Neighbor, a party to the original act 250 proceeding who lives in New Jersey, did not receive notice of a request to abandon the Act 250 permit because the post office did not deliver a “notice to interested persons” mailed by the district commission to Neighbor’s Vermont street address.  The Environmental Court issued a final judgment and later denied Neighbor relief from judgment under Rule 60 -- as applied to Environmental Court and as affirmed by the Supreme Court-- because relief under Rule 60 is available only to a “party”.)

 REIBER, J. . Neighbor Myrna Nathin appeals the denial of her motion for relief from a judgment of the Environmental Division declaring an Act 250 land-use permit for an adjoining property to be abandoned. Neighbor argues that the Environmental Division should have vacated the order and reopened the abandonment proceeding because she was not provided with adequate notice of the petition to abandon the permit. We conclude that the Environmental Division properly denied neighbor's motion under Vermont Rule of Civil Procedure 60(b) and therefore affirm the decision below.

 Neighbor, whose property abuts a portion of the subject property, was granted party status in the 1990 permit proceeding filed a petition with the district commission to abandon the permit pursuant to 10 V.S.A. § 6091(b) and provided the district commission with a list of interested persons, including neighbor. In August 2022, the district commission declined to review the petition, reasoning the superior court had jurisdiction over the permit. The district commission sent copies of its decision to all interested persons and entities, including neighbor at the address that landowners provided. Landowners appealed to the Environmental Division and in September 2022 published public notice of the appeal in a local newspaper. Following proceedings in which neighbor did not appear, the Environmental Division entered a stipulated judgment and order on January 9, 2023, ruling that the permit was abandoned. No appeal was taken from that order.

  Nine months later, in October 2023, neighbor filed a motion for relief from judgment pursuant to Vermont Rule of Civil Procedure 60(b), asking the Environmental Division to "void" the January 2023 order and reopen the abandonment proceeding. Neighbor, who lives in New Jersey, asserted that she did not receive the notice mailed by the district commission to her Vermont street address because the post office does not deliver mail there.  In January 2024, the court denied neighbor's motion, concluding that she lacked standing to file a Rule 60(b) motion because she was not a party. See V.R.C.P. 60(b) (stating that upon motion, "the court may relieve a party or a party's legal representative from a final judgment, order, or proceeding" (emphasis added)).

 As a party to the original permit proceeding, neighbor was entitled to receive notice of the abandonment petition. Act 250 Rule 38(D Neighbor's primary argument on appeal is that because the district commission's notice to her was ineffective, the Environmental Division was required by this Court's decision in In re Conway, 152 Vt. 526, 567 A.2d 1145 (1989), to vacate the January 2023 abandonment order and reopen the proceeding so that she could participate.

 However, we rejected this interpretation of Conway in In re White, 172 Vt. 335, 339, 779 A.2d 1264, 1268 (2001). There we emphasized that "Conway does not require the Board to void or revoke permits merely based on the inadvertent omission of an adjoining landowner from the list required on permit applications no matter when this oversight is discovered." Id. at 341, 779 A.2d at 1269 Here, as in White, the permit abandonment process had already become final when neighbor filed her Rule 60(b) motion seeking to reopen the abandonment order. Unlike in Conway, there is no suggestion that the lack of notice to neighbor was intentional. Instead, the record shows that landowners provided neighbor's name and Vermont address to the district commission, and the district commission sent notice of its decision declining jurisdiction to that address. There is no evidence that landowners knew the address would be ineffective. Most importantly, the district commission did not fail to adhere to its own rules or improperly delegate its discretion over who should receive notice. Just as Conway does not automatically require a permit to be voided or revoked when an adjoining landowner is inadvertently omitted from a permit application, nothing in Conway required the Environmental Division to vacate the abandonment order here.

 On its face, Rule 60(b) allows relief from judgment only to "a party or a party's legal representative." Consistent with this plain language, federal courts have recognized that "the general rule is that one must either be a party or a party's legal representative in order to have standing to bring any Rule 60(b) motion." Kem Mfg. Corp. v. Wilder, 817 F.2d 1517, 1520 (11th Cir. 1987) (collecting cases). Neighbor never appeared in the Environmental Division when it considered landowners' petition to abandon the permit. Neighbor was not a party or the legal representative of a party to the Environmental Division proceeding, and therefore is not entitled to seek relief under the plain language of the rule.

 Neighbor claims that the January 2024 denial of her Rule 60(b) motion for lack of standing was contrary to the Rules of Environmental Court Proceedings and was inappropriate given the lack of formal notice in environmental appeals. Neighbor points to Environmental Rule 5(a)(2), which makes the Rules of Civil Procedure apply only "so far as applicable," and to Environmental Rule 1, which requires that the rules "be construed and administered to ensure summary and expedited proceedings consistent with a full and fair determination in every matter coming before the court." V.R.E.C.P. 1, 5(a)(2). Neighbor argues that unlike other civil cases, putative parties in Environmental Division proceedings do not receive a summons pursuant to Vermont Rule of Civil Procedure 4. Absent such an assurance of notice, neighbor argues, restricting Rule 60(b) to parties undermines the requirement of providing a "full and fair determination in every matter." V.R.E.C.P. 1. She asserts that "party status must be broadly interpreted in cases reaching a court without a Rule 4 summons." 

In short, Neighbor claims that party status for purposes of Rule 60(b) should be broadly interpreted in environmental appeals because putative parties do not receive notice consistent with Rule 4 in such proceedings.

 Party status in Act 250 proceedings is governed by statute and is limited to a list of specific individuals and entities. Neighbor's sweeping contention that nonparties should be allowed to file Rule 60(b) motions in any case where putative parties are not entitled to a Rule 4 summons would effectively allow anyone to intervene after judgment in any environmental appeal. This would ignore important principles of finality; create significant uncertainty over permitting decisions, leaving them open to attack for up to a year and possibly longer under Rule 60(b); and conflict with Act 250 and our precedent governing party status in such cases. For these reasons, we decline to adopt neighbor's proposed interpretation of who is a "party" for purposes of Rule 60(b) in an environmental case.

 Nothing in Environmental Rule 2 or 5 modifies Civil Rule 60 in environmental proceedings or renders the rule inapplicable to this case. The general statement in Environmental Rule 1 that "[t]he rules shall be construed and administered to ensure summary and expedited proceedings consistent with a full and fair determination in every matter coming before the court" does not eliminate the procedural requirements of the Civil Rules. A denial of relief for failure to comply with the plain terms of Rule 60(b) amounts to a "full and fair determination" of the matter because the party has received everything that they are entitled to under the rules. We therefore see no basis to disturb the decision below.

 Affirmed.

How Cited

  

SCOVT affirms summary judgment that 21 V.S.A. § 640(c) did not require prior employer to reimburse claimant for lost wages, holding claimant had no standing to assert constitutional rights of new employer.

Mahmutovic v. Washington County Mental Health Services, Inc., 2023 VT 37

COHEN, J. Claimant Semir Mahmutovic appeals a decision of the Commissioner of the Vermont Department of Labor concluding that claimant’s prior employer was not obligated to reimburse claimant for lost wages under 21 V.S.A. § 640(c), and that the statute was not unconstitutional as applied to claimant. We determine that claimant has conceded that the Commissioner properly interpreted § 640(c), and further conclude that claimant does not have standing to challenge the constitutionality of § 640(c). Therefore, we affirm the Commissioner’s decision granting summary judgment to prior employer.

 

Claimant submitted a reimbursement request to prior employer for $152.72 of lost wages. Prior employer denied payment on the ground that 21 V.S.A. § 640(c), which governs workers' compensation payments for medical benefits, shifts the financial burden of covering wages to current employer.

Claimant argued below that requiring a subsequent employer to cover lost wages is unconstitutional. Prior employer argued that claimant did not have standing to bring the constitutional claim.

This Court has adopted a three-part test for standing originally articulated for federal courts: (1) injury in fact; (2) causation; and (3) redressability.  Ferry v. City of Montpelier, 2023 VT 4, ¶ 12, In other words, standing requires a litigant to demonstrate they "have suffered a particular injury that is attributable to the defendant and that can be redressed by a court of law." Parker v. Town of Milton, 169 Vt. 74, 77 (1998).

The Commissioner concluded that claimant has standing because he suffered an injury in fact when he requested lost wages and prior employer declined to pay them.

We disagree.  Even assuming that claimant's $152.72 in lost wages due under § 640(c) is an injury in fact, claimant has not demonstrated that this injury is "fairly traceable to [prior employer]'s allegedly unlawful conduct." Id. at 78, 726 A.2d at 480. Claimant has essentially accepted that the Commissioner's interpretation of the statute does not obligate prior employer to compensate him for lost wages. Therefore, his injury—his alleged loss of the property interest created by § 640(c)—is not a result of prior employer's actions. We therefore conclude that claimant does not have standing to bring this as-applied constitutional challenge.

In his briefing, claimant additionally asks us to consider his standing as a third-party beneficiary to pursue a constitutional challenge on behalf of current employer. However, "[l]ike the federal courts, we generally do not allow third-party standing." Baird v. City of Burlington, 2016 VT 6, ¶ 15, 201 Vt. 112, 136 A.3d 223 (finding no exception to general rule against third-party standing because litigants failed to show those potentially harmed in future would likely not be able to assert their own constitutional claims). Claimant provides no basis to allow him to present this constitutional claim on behalf of current employer, and we therefore conclude that he does not have third-party standing in this matter.

Affirmed.

How cited

SCOVT affirms dismissal for lack of standing of board member's compliant of open meeting violation..

Severson v. City of Burlington & Burlington Conservation Board, 2019 VT 41 [filed 6/7/2019]

SKOGLUND, J. Appellant Jeffrey Severson appeals the trial court’s decision to grant appellees’—the City of Burlington (the City) and the Burlington Conservation Board (the Board)—motion to dismiss pursuant to Vermont Rule of Civil Procedure 12(b)(1) and (6). Severson argues that the trial court erred when it determined he, as a member of the Board, did not have standing because he did not allege an injury that is actionable under Vermont’s Open Meeting Law. 1 V.S.A. § 314(b). We find that dismissal of Severson’s claim was proper, and thus affirm

Severson filed suit against the Board and the City, seeking declaratory and injunctive relief on the ground that the Board violated § 314(c) of the Open Meeting Law by conducting its final review of the Project behind locked doors and by notifying the public in advance of the meeting that, in order to attend, any member of the public needed to arrive prior to 6 p.m. The City and the Board moved to dismiss the complaint pursuant to Vermont Rule of Civil Procedure 12(b)(1) and (6), arguing that Severson did not have standing and failed to state a claim upon which relief could be granted, and noting that Severson had failed to produce any evidence that a member of the public attempted to gain access to the meeting but was locked out.

The central question before us on appeal is whether Severson, as a member of the public body that allegedly violated § 312(a) and (h) of the Open Meeting Law, qualifies as “any person aggrieved” entitled to seek enforcement of the Open Meeting Law in the wake of the public body’s refusal to recognize, and correct, the alleged violation.

Even taking Severson’s pleadings as true, because there is no allegation here that any specific person was deprived access to the meeting, or deterred from attending the meeting, the trial court properly determined that Severson lacked standing under the Open Meeting Law and dismissed his suit

SCOVT reverses order dismissing zoning appeal as untimely, and remands to decide whether the exception under V.R.A.P. 4(c) applies because party did not receive notice of judgment.

In re Mahar, 2018 VT 20 [filed 2/15/2018]

EATON, J. Neighbors appeal the Environmental Division’s order dismissing as untimely their appeal to that court from a decision of the Town of Jericho Development Review Board (DRB) granting a conditional use permit.  Neighbors argue that the appeal was timely because they did not receive proper notice of either the hearing before the DRB or the resulting DRB decision. We conclude that at least some neighbors adequately raised a sufficient basis to reopen the appeal period and timely filed an appeal. Therefore, we reverse the dismissal and remand to the Environmental Division for resolution of the motion to reopen the appeal period and, if grounds are found, an adjudication on the merits of neighbors’ appeal.

Appeals to the Environmental Division from an act or decision of “an appropriate municipal panel pursuant to 24 V.S.A. §§ 4471, 4472” must be filed “within 30 days of the date of the act, decision, or jurisdictional opinion appealed from, unless the court extends the time.” V.R.E.C.P. 5(a)(1), (b)(1). The Environmental Division held that the appeal period does not begin to run until the individual seeking to appeal had constructive or actual notice of the municipal panel’s decision. This is not the correct legal standard. The appeal period is a single time period; it does not differ for each prospective appellant. The statute states that the appeal period is triggered by the date of the decision, not the date of notice. See V.R.C.P. 77(d) (explaining that lack of notice by clerk “does not affect the time to appeal or relieve or authorize the court to relieve a party for failure to appeal”)

To ensure fairness, the procedural rules provide avenues to extend or reopen the appeal period for various reasons, including when individuals do not receive proper notice of the judgment they seek to appeal. Relevant to this case, under Vermont Rule of Appellate Procedure 4(c), the time for filing a notice of appeal can be reopened if:

            (1) the motion is filed within ninety days of entry of judgment or seven days of receipt of notice of judgment, whichever is earlier;

           (2) the court finds that a party entitled to notice did not receive it; and

           (3) no party would be prejudiced.

See V.R.E.C.P. 5(a)(2) (stating that appellate rules apply in appeals to Environmental Division). To reopen an appeal period under Appellate Rule 4(c), a litigant should make a motion with notice to all parties so that the court and the parties are aware of the basis on which the litigant seeks to appeal.

The undisputed facts establish that Harritt and Butler met the first two requirements of  Rule (c). The undisputed facts are insufficient to determine the final requirement—a demonstration that there is no prejudice to another party.

Prejudice to another party “‘means some adverse consequence other than the cost of having to oppose the appeal and encounter the risk of reversal, consequences that are present in every appeal.’”. On remand, the Environmental Division must evaluate whether Rule 4(c)(3) was met.

We note that the trial court has discretion to deny a motion to reopen even where all of the requisite criteria are met. See V.R.A.P. 4(c) (stating that “court may, upon motion, reopen the time to file an appeal”)

Taxpayers have standing to challenge public management of federal funds used to repair a church; but preliminary injunction vacated because success unlikely on merits of claim that Compelled Support Clause of the Vermont Constitution is violated by public funding for physical repairs to a place of worship used also for secular purposes.

Taylor v. Town of Cabot, 2017 VT 92 [filed 10/6/2017]


ROBINSON, J. This case involves a challenge under the Compelled Support Clause of the Vermont Constitution to the Town of Cabot’s grant of federally derived but municipally managed funds for the purpose of repairs to a historic church. On interlocutory appeal, we consider whether plaintiffs have standing to pursue their claims and whether the trial court erred in issuing a preliminary injunction prohibiting the Town from paying the grant funds pending further order of the court. We conclude that plaintiffs do have municipal taxpayer standing, but vacate the trial court’s award of a preliminary injunction and remand for further proceedings to resolve the case on the merits.

Municipal taxpayer standing under our law encompasses claims that municipal assets have been improperly wasted, and the record in this case supports the conclusion that the grant funds here are municipal assets notwithstanding the fact that the funds originated from the U.S. Treasury. The Town has held part or all of the former federal grant funds with no requirement for accounting to HUD regarding the Town's use of the funds, and subject only to the limitation that the Town use the funds for a broad range of purposes that may supplant municipal general fund expenditures. Under these circumstances, the funds are municipal assets for the purpose of municipal taxpayer standing.

The trial court here rightly identified the main factors guiding its review under Vermont law: (1) the threat of irreparable harm to the movant; (2) the potential harm to the other parties; (3) the likelihood of success on the merits; and (4) the public interest. In re J.G., 160 Vt. 250, 255 n.2, 627 A.2d 362, 365 n.2 (1993). We do not adopt the federal test of "sufficiently serious questions as to the merits plus a balance of hardships that tips decidedly in their favor." While we affirm the preliminary injunction standard applied by the trial court, we conclude that the trial court erred in awarding the preliminary injunction because it overestimated the plaintiffs' likelihood of success on the merits, and erred in concluding that plaintiffs would suffer irreparable injury in the absence of an injunction.

Our analysis is framed by the Compelled Support Clause of Chapter I, Article Three of the Vermont Constitution and our caselaw thereunder, limitations arising from the Free Exercise Clause of the First Amendment to the U.S. Constitution, and the record in this case. In light of these considerations, plaintiffs face strong headwinds in arguing that the Compelled Support Clause embodies a categorical prohibition against any public funding for physical repairs to a place of worship, and plaintiffs have not yet presented sufficient evidence to demonstrate a high likelihood of success on a narrower claim.

The focus of the Compelled Support Clause is the support for "worship" itself. The fact that the recipient of government support is a religious organization is not itself determinative under the Compelled Support Clause; whether the funds are used to support religious worship is the critical question. The grant funds in this case were undisputedly allocated for the purpose of maintenance and repairs to a building that serves as a place of worship, is available for many nonsectarian community events and gatherings, and is an important and historic building in the town. Where funding is available on a neutral and non-discriminatory basis to a broad and diverse group of potential recipients in order to promote a squarely secular goal of the broader community, there is no indication that the funds are intended to or do advantage religious organizations or activity, and the funds are used for structural repairs rather than, for example, erecting religious symbols, we cannot conclude that such funds support worship within the meaning of Article Three.

We affirm the trial court’s denial of the Town’s motion to dismiss on standing grounds, and vacate the preliminary injunction in this case. Affirmed in part, vacated in part, and remanded for further proceedings.

Mortgage assignment, pooling and servicing agreement; standing. Consumer protection: no standing to sue where alleged deceptive act did not induce purchase, and no showing of injury or damages / declaratory judgment not an available private remedy.

Dernier v. Mortgage Network, Inc., 2013 VT 96 (18-Oct-2013)

 DOOLEY, J.   Plaintiffs Peter and Nicole Dernier appeal the dismissal for failure to state a claim, of their action for (1) a declaratory judgment that defendant U.S. Bank National Association cannot enforce the mortgage and promissory note for the debt associated with plaintiffs’ purchase of their house based on irregularities and fraud in the transfer of both instruments, (2) a declaration that U.S. Bank has violated Vermont’s Consumer Fraud Act (CFA) by asserting its right to enforce the mortgage and note, and (3) attorney’s fees and costs under the CFA.   We affirm in part and reverse in part.

We hold that plaintiffs do not have standing to challenge the assignments of the note and mortgage based on the perceived violations of the pooling and servicing agreement (PSA) governing the pool into which the mortgage had been assigned, because any such violations would render the assignments voidable rather than void. However the complaint also alleges that the note was fraudulently acquired by defendant, based on a fraudulent endorsement with a forged endorsement signature, that was created by defendant.  These allegations are sufficient to give plaintiffs standing.  The court erred in dismissing Counts 1 and 2 of the amended complaint for lack of standing, to the extent that these counts alleged irregularities in the transfer of the note and mortgage unconnected to the pooling and servicing agreement.

Next, we turn to plaintiffs’ consumer fraud claim.   Here, plaintiffs allege that the violation was based on the letter under which defendant stated its legal position that, as a holder of the note and mortgage, it had the right to enforce. The section of the statute providing for a private right of action is § 2461(b), which requires a “consumer” to show either (1) reliance on a deceptive act in contracting for goods or services or (2) damages or injury from an unfair or deceptive act.  If a plaintiff, in bringing a consumer fraud action, either fails to allege facts that meet the definitions of an unfair or deceptive act under 9 V.S.A. § 2453 or fails to demonstrate the prerequisites to a private action, as we have itemized above under 9 V.S.A. § 2461(b), the case is properly dismissed.    We focus on the prerequisites for a private action under 9 V.S.A. § 2461(b), and find that plaintiffs do not meet these requirements,.  Specifically, we look at the second prong of § 2461(b), because plaintiffs cannot have relied on this letter to contract for goods or services, as it was sent long after the purchase.  Our only question thus becomes: assuming that defendant’s statement regarding its belief that it had the right to enforce the mortgage and note was indeed deceptive, did plaintiffs suffer damages or injury from this act?   Plaintiffs do not offer an explanation as to what injury or damages the letter caused, as they do not address the requirements of § 2461(b) at all.  Indeed, the complaint seeks neither damages nor an injunction, the remedies authorized by § 2461(b).  Instead it seeks a declaratory judgment that defendant “violated Vermont Consumer Fraud Law.”  We read the complaint as seeking a declaratory judgment that defendant violated § 2453, without having to prove entitlement to a private remedy under § 2461(b).     Plaintiffs have not established an injury for the purposes of standing under 9 V.S.A. § 2461(b).  

Affirmed as to dismissal of Counts 3 and 4 of plaintiffs’ proposed amended complaint; Reversed and remanded with respect to dismissal of Counts 1 and 2 of plaintiffs’ proposed amended complaint for further proceedings not inconsistent with this decision

Justiciability, constitutional and prudential standing: predatory pricing statute does not protect governmental "competitors" not engaged in "commerce".

 Franklin County Sheriff's Office v. St. Albans City Police Department (2011-266) (03-Aug-2012) (Reiber, C.J.)  

In this predatory pricing suit, the Franklin County Sheriff’s Office appeals the trial court’s judgment in favor of the St. Albans City Police Department.  The Sheriff’s Office contends that the City Police Department engaged in an unfair method of competition with the intent to harm competition under the Vermont Consumer Fraud Act’s (VCFA) predatory pricing provision, 9 V.S.A. § 2461c.  Specifically, the Sheriff’s Office argues that the City Police Department submitted an “artificially low” bid in response to the Town of St. Albans’s request for proposals for law enforcement services.  We affirm because the Sheriff’s Office was not denied something in which it had a legally protected interest, nor is its claim within the zone of interests protected by the statute, and it therefore lacks both constitutional and prudential standing.

Because it is a threshold requirement, we first address the question of standing.  Vermont courts are limited to deciding actual cases or controversies.   An element of the case-or-controversy requirement is that a plaintiff must have standing—that is, “must have suffered a particular injury that is attributable to the defendant and that can be redressed by a court of law.”  To bring a case, a plaintiff must show “(1) injury in fact, (2) causation, and (3) redressability.”  Standing also embodies a prudential component of self-imposed judicial limits under which a plaintiff’s complaint must “‘fall within the zone of interests protected by the law invoked.’”

The claim does not meet  the injury-in-fact element of constitutional standing.  This element requires an invasion of a legally protected interest, not a generalized harm to the public.  The VCFA prohibits engaging in predatory pricing because it is an unfair method of competition in commerce. The Town was under no obligation to entertain bids for police services in the first instance, or to award the contract to the lowest bidder.  Fundamentally,  the provision of police services in Vermont occurs outside the realm of commerce because it involves no interchange of goods or commodities on the open market.  It is a governmental function provided only by governmental entities for the benefit of the public.  We conclude that no commerce existed in this case. The Sheriff’s Office has no legally protected right to “fair competition” with other statutorily created government entities to provide police services to the Town.

Second, the claim does not meet the requirements of prudential standing, which demands that the Sheriff’s Office’s complaint fall within the zone of interests protected by the predatory pricing statute.  Predatory pricing in its orthodox form exists where a single firm, having a dominant share of the relevant market, cuts its prices in order to force competitors out of the market, or perhaps to deter potential entrants from coming in. Here, the “competitors” are all statutorily created entities, meaning that one entity cannot put another out of business. There is no threat of monopolization by any one of them.  Thus, the Sheriff’s Office’s injuries alleged in the complaint do not fall within the zone of interests to be protected by Vermont’s predatory pricing statute. 

Foreclosure complaint dismissed for lack of standing.

U.S. Bank National Association v. Kimball, 2011 VT 81 (Burgess, J.)

Plaintiff US Bank  appeals from a trial court order granting summary judgment for defendant homeowner and dismissing with prejudice US Bank’s foreclosure complaint for lack of standing.  The court concluded that to enforce a mortgage note, “a plaintiff must show that it was the holder of the note at the time the Complaint was filed,” and here there was “simply no evidence of an assignment to a party in interest.”  Because neither note submitted by US Bank was dated, the court concluded that there was no evidence that the note was endorsed to US Bank before the complaint was filed.  Therefore, the court held that US Bank lacked standing to bring the foreclosure action. On appeal, US Bank argues that it had standing to prosecute the foreclosure claim and the court’s dismissal with prejudice was in error.  Homeowner cross-appeals, arguing that the court erred in not addressing her claim for attorney’s fees.  We affirm the dismissal and remand for consideration of homeowner’s motion for attorney’s fees. The foreclosure complaint is dismissed and the case is remanded for consideration of defendant’s motion for attorney’s fees.

 It is neither irrational nor wasteful to expect a foreclosing party to actually be in possession of its claimed interest in the note, and have the proper supporting documentation in hand when filing suit.  Nevertheless, and despite the court’s invocation of “with prejudice” in its dismissal order, US Bank cannot be precluded from pursuing foreclosure on the merits should it be prepared to prove the necessary elements.   The court’s dismissal on just jurisdictional grounds was not adjudication on the merits.  See V.R.C.P. 41(b)(3).

To foreclose a mortgage, a plaintiff must demonstrate that it has a right to enforce the note, and without such ownership, the plaintiff lacks standing.   While a plaintiff in a foreclosure should also have assignment of the mortgage, it is the note that is important because “[w]here a promissory note is secured by a mortgage, the mortgage is an incident to the note.”  Under the  UCC the Bank had the burden of demonstrating that it was a “ ‘[p]erson entitled to enforce’ ” the note, by showing it was “(i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument.”  9A V.S.A. § 3-301.  On appeal, US Bank asserts that it is entitled to enforce the note under the first category—as a holder of the instrument.

To be a holder, US Bank was required to show that at the time the complaint was filed it possessed the original note either made payable to bearer with a blank endorsement or made payable to order with an endorsement specifically to US Bank.  US Bank lacked standing because it has failed to demonstrate either requirement.  Initially, US Bank’s suit was based solely on an assignment of the mortgage by MERS.  The complaint did not allege that US Bank held the original note. While US Bank eventually produced the original note with an endorsement to it, none of the evidence submitted at summary judgment by US Bank established the timing of the endorsement. Fraught with contradictions and evidently lacking information based on personal knowledge, the affidavit was insufficient to establish that US Bank had an interest in the note prior to the time the complaint was filed. Based on this contradictory and uncertain documentation, the trial court did not err in concluding that there was no evidence to show that US Bank was a holder of the note at the time it filed the complaint.