Mentis Scis., Inc. v. Pittsburgh Networks, LLC

173 N.H. 584

243 A.3d 1223

MENTIS SCIENCES, INC.

v.PITTSBURGH NETWORKS, LLC

No. 2019-0548

Supreme Court of New Hampshire.

Argued: June 24, 2020

Opinion Issued: September 22, 2020

Shaheen Guerrera & O'Leary, LLC, of North Andover, Massachusetts (Peter G. Shaheen on the brief and orally), for the plaintiff.

Peabody & Arnold LLP, of Boston, Massachusetts (Robert A. McCall and John J. O'Connor on the brief, and Mr. O'Connor orally), for the defendant.

DONOVAN, J.

The plaintiff, Mentis Sciences, Inc., appeals an order of the Superior Court (McNamara, J.) dismissing its claims for damages representing the cost of recreating lost data and lost business and negligence against the defendant, Pittsburgh Networks, LLC. The plaintiff argues that the trial court erred by: (1) concluding that the damages representing the cost of recreating lost data and lost business were consequential; (2) concluding that the limitation of liability clause in the parties’ contract is enforceable; and (3) dismissing its claim for negligence. We affirm because the damages sought by the plaintiff are consequential and the limitation of liability clause precludes the plaintiff from recovering consequential damages. We also conclude that the economic loss doctrine bars the plaintiff's negligence claim.

I. Facts

We assume the following facts, as alleged in the plaintiff's complaint, to be true. The plaintiff is an engineering firm that, among other things, designs, develops, and tests advanced composite materials for United States Department of Defense customers. Since entering this sector in 1996, the plaintiff has acquired "a vast amount of valuable data that was utilized in its operations."

In 2010, the defendant began providing the plaintiff with technological support or "IT" services. In 2014, the parties executed a "Service Agreement" in which the defendant agreed to provide the plaintiff with services including "monitoring of computers and network, data backup, network services, antivirus, and comprehensive maintenance and support for servers, PC's and the network," and the plaintiff agreed to pay the defendant an annual fee of $15,864. The parties’ contract included the following limitation of liability clause: "The Service Provider shall not be liable for any indirect, special, incidental, punitive or consequential damages, including but not limited to loss of data, business interruption, or loss of profits, arising out of the work performed ... by the Service Provider."

In August 2014, the defendant notified the plaintiff that a drive in one of its servers had failed and would need to be replaced. The defendant thereafter provided the plaintiff a summary of the problem: a "Redundant Array of Independent Disks" controller malfunctioned, causing the corruption of some of the plaintiff's data. The defendant attempted to recover the corrupted data; however, the data was permanently lost because the defendant had failed to properly back it up.

The plaintiff initiated an action against the defendant, alleging breach of contract and negligence. In its complaint, the plaintiff alleged that the lost data "represents valuable intellectual property compiled over many years and is of daily critical use in [the plaintiff's] business." The plaintiff further alleged that, as a result of the data loss, it was required to conduct "massively expensive" testing in order to recreate the data and that, without the lost data, it was "unable to bid or participate in various projects worth potentially millions of dollars." The plaintiff posited that its "actual damages," which included the cost of recreating the data and lost business, were "estimated to be in the millions of dollars." The defendant moved to dismiss the plaintiff's complaint, arguing that the contract's limitation of liability clause barred the damages sought by the plaintiff because they were consequential. It also argued that the plaintiff's negligence theory was unavailable under New Hampshire law.

The trial court, finding the limitation of liability clause enforceable, concluded that the damages sought by the plaintiff were consequential and therefore unrecoverable because of the limitation of liability provision. According to the trial court, the plaintiff could only recover "what [it] expected to receive, the fair market value of [the defendant]’s services, which is probably close to ... the contract price." The trial court also concluded that the plaintiff's negligence claim was precluded by the economic loss doctrine. Accordingly, the trial court dismissed the plaintiff's damages claims for the cost of recreating the lost data and lost business and its negligence claim. Thereafter, in a ruling that is not the subject of this appeal, the trial court awarded the plaintiff $40,000 in direct damages. This appeal followed.

II. Standard of Review

In reviewing a trial court's order on a motion to dismiss, we assume the plaintiff's pleadings to be true and construe all reasonable inferences in the light most favorable to the plaintiff. Gen. Insulation Co. v. Eckman Constr., 159 N.H. 601, 611, 992 A.2d 613 (2010). We need not, however, assume the truth of statements in the plaintiff's pleadings that are merely conclusions of law. Id. Where, as here, the plaintiff attaches a copy of the contract to the complaint, we may consider the terms of the contract in reviewing the ruling on the motion to dismiss. See Beane v. Dana S. Beane & Co., 160 N.H. 708, 711, 7 A.3d 1284 (2010). A motion to dismiss should be granted if the plaintiff's allegations are not reasonably susceptible of a construction that would permit recovery. See id. In making this inquiry, we look at the facts alleged in the complaint and the applicable law and determine whether the allegations provide a basis for legal relief. See Eckman Constr., 159 N.H. at 611, 992 A.2d 613. If they do not, the trial court properly granted the motion to dismiss. See id.

III. Analysis

A. Recreation of Data and Lost Business Damages

We first address the plaintiff's argument that its complaint seeks only "direct damages, and not consequential or incidental damages." In particular, the plaintiff's complaint claims damages for "man hours spent trying to recreate some of the data" and for its loss of business "because it could not bid on certain governmental contracts without the data to support its proposals."

The goal of money damages for a breach of contract is to place "the injured party ‘in as good a position as [it] would have been in had the contract been performed.’ " Riblet Tramway Co. v. Stickney, 129 N.H. 140, 149, 523 A.2d 107 (1987) (quoting Restatement (Second) of Contracts § 347 cmt. a at 112 (1979)); see Hawkins v. McGee, 84 N.H. 114, 117, 146 A. 641 (1929). This principle describes the damages necessary to fulfill an injured party's expectation interest. See Restatement (Second) of Contracts § 347(a)-(c) & cmt. a at 112 (1981). In arguing that the damages it seeks are direct rather than consequential, the plaintiff incorrectly equates its expectation interest with the measure of direct damages. A party's expectation interest is comprised, in part, of "the loss in the value to him of the other party's performance caused by its failure or deficiency," in addition to "any other loss, including incidental or consequential loss, caused by the breach." Restatement (Second) of Contracts, supra § 347(a)-(b), at 112. Thus, according to the principles we explain further below, a party's expectation interest may be fulfilled by an award of both direct and consequential damages. See 11 Joseph M. Perillo, Corbin on Contracts § 55.3, at 10 (rev. ed. 2005) ("Placing a party in the same economic position as performance would have sometimes requires a grant of general [or direct] damages coupled with consequential damages.").

The line dividing what may be considered direct versus consequential damages "is not capable of exact determination." Id. § 56.6, at 105. However, we find the following principles instrumental when divining the difference. Direct damages "are based on the value of the performance itself," whereas consequential damages are based "on the value of some consequence that performance may produce." Dan B. Dobbs & Caprice L. Roberts, Law of Remedies: Damages — Equity — Restitution § 12.4, at 811 (3d ed. 2018); see Restatement (Second) of Contracts, supra § 347(a)-(b), at 112 ; see also Schonfeld v. Hilliard, 218 F.3d 164, 176 (2d Cir. 2000) (describing consequential damages as those that "seek to compensate a plaintiff for additional losses (other than the value of the promised performance) that are incurred as a result of the defendant's breach"). Thus, consequential damages "are not based on the capital or present value of the promised performance but upon benefits it can produce or losses that may be caused by its absence." Dobbs & Roberts, supra § 12.2, at 804; see Restatement (Second) of Contracts, supra § 347 cmt. c at 114 ("Consequential losses include such items as injury to person or property resulting from defective performance."); see also K.C. Properties v. Lowell Inv. Partners, 373 Ark. 14, 280 S.W.3d 1, 10 (2008) (describing consequential damages as those that flow "from some of the consequences or results of the breach").

Applying these principles to the plaintiff's claim for damages representing the cost of recreating the data and lost business, we conclude that such damages are consequential. Pursuant to the parties’ contract, the defendant agreed to provide services to maintain and manage the plaintiff's network infrastructure. Even if we assume, as the plaintiff asserts, that the defendant explicitly agreed to provide data protection or backup services, we would conclude that the damages the plaintiff seeks are consequential. The cost of recreating the lost data does not represent the value of the performance of maintaining and managing the plaintiff's network or data. Rather, this cost represents an amount necessary to...