Fultz v. Union-Commerce Associates: The Supreme Court’s “Separate and Distinct” Fallacy.

Victoria Shackelford

I.                   Introduction

In today’s world individuals and businesses regularly hire contractors to perform many tasks.  Historically, common law has held that every person is under a general duty to use reasonable care when undertaking an obligation.[1]  In Clark v. Dalman, the Supreme Court stated, “This rule of the common law arises out of the concept that every person is under the general duty to so act, or to use that which he controls, as not to injure another.”[2]  In Fultz v. Union-Commerce Associates, the Michigan Supreme Court abandoned this well established principle by finding that contractors have no duty to third parties to perform their contractual obligations with care.[3]  

In Fultz, the Court held that a contractor is only liable for injuries sustained by a third party if they owe a duty that is “separate and distinct” from their contractual obligations.[4]  The Court explained that this separate and distinct duty arises only when a contractor creates a new hazard.[5]  A general common law duty to perform the contract in a reasonable manner no longer exists. 

The cases applying the Fultz “separate and distinct” standard establish that the standard is an insurmountable hurdle.  If a contractor’s breach of the standard of care is connected to the contract no separate and distinct duty will arise.  This holding is inherently flawed because it leaves injured parties with no legal remedy since nearly any negligent act of a contractor is going to arise out of the performance of the contractor’s contractual obligations.  Hence, under current Michigan law, if a party is severely injured, or even killed, due to the negligent actions of a contractor, they will have no cause of action against him.  In many cases, this leaves injured parties with no source of recovery whatsoever.  Further, it sets bad policy because contractors now have no incentive to perform their duties with reasonable care.

II.                The Fultz Decision

In Fultz, the plaintiff, Ms. Fultz, slipped and fell in an icy parking lot.  She sued the owner of the lot and a default was entered against him.[6]  She also sued the contractor, CML, for failing to plow and salt the parking lot.  A jury awarded damages to Ms. Fultz holding that the Defendant contractor owed a common law duty to perform their contract in a reasonable manner and that they breached the duty by not performing their contractual obligation.[7]  The appellate court affirmed.  The Michigan Supreme Court granted leave to appeal and reversed the lower court. 

The Court began their decision by addressing the well accepted common law duty set out in the Restatement of Torts 324A.  Specifically, the Court acknowledged that if “one voluntarily undertakes to perform an act, having no prior obligation to do so, a duty may arise to perform the act in a nonnegligent manner.”[8]  Under the Restatement, which is essentially the embodiment of common law in the United States, a duty arises only when it is based on a contractor’s affirmative actions and not the failure to perform his contractual duties.  The Court explained that the common law duty arises only when there is active misfeasance in the performance of a contractual obligation; nonfeasance of a contractual obligation is insufficient.[9]  Based on this settled law, the Court could have reversed the lower court since Ms. Fultz’s claim was based on the defendant’s failure to plow the parking lot in conformity with his contract.  Instead of this logical approach, the Court abandoned the Restatement and precedent to establish a new standard. 

The Court stated that lower courts should now “analyze tort actions based on a contract and brought by a plaintiff who is not a party to that contract by using a ‘separate and distinct’ mode of analysis.”[10]  Under this test, a defendant’s duty will only arise if he creates a new hazard.

The Court distinguished the plaintiff in Fultz from the plaintiff in their prior decision of Osman v. Summer Green Lawn Care, Inc., The Court explained that the defendant in Osman met the new standard and owed a separate and distinct duty because their conduct created a new hazard.[11]  In Osman, a plaintiff sued a snow plow company for an injury she sustained when she fell on ice outside of a business.  The defendant had plowed the snow onto an area where it melted onto the sidewalk and then froze into a sheet of ice.  The Court in Fultz stated that the contractor in Osman breached a separate and distinct duty when it created a “new hazard by placing snow on a portion of the premises when it knew, or should have known or anticipated, that the snow would melt and freeze into ice on the abutting sidewalk, steps, and walkway, thus posing a dangerous and hazardous condition to individuals who traverse those areas.”[12] 

III.             Justice Kelly’s Fultz Concurrence
 

Justice Kelly’s concurrence expressed concern that the majority’s opinion imposed unreasonably limitations on the existence of duty and that many innocent injured persons would be left with no recovery.  Justice Kelly wrote, “It is particularly distressing because the majority’s new analysis of these claims could leave innocent persons without recourse to redress their injuries.”[13]

 She argued the “separate and distinct” test traditionally applied only to the parties to a contract and should not be extended to third parties.  The underlying purpose of requiring the separate and distinct analysis between parties to a contract is to prohibit them from recovering damages in both contract and in tort.  Justice Kelly opined the policy behind the separate and distinct analysis was not applicable to parties outside of the contract because an unintended third party cannot sue in contract under M.C.L. 600.1405.[14]  Thus, there is no concern the third party could receive double recovery.

Justice Kelly also expressed concern over the majority’s complete disregard for the Restatement of Torts 324A(b) and (c) which affirm a common law duty, as well as liability, when a contractor’s negligent actions result in injury to third parties.  The Restatement states that one who undertakes services for another is subject to liability for physical harm resulting from their failure to use reasonable care if: (b) he has undertaken to perform a duty owed by the other to the third person, or (c) the harm is suffered because of reliance of the other or the third person upon the undertaking. 

Justice Kelly then provided a hypothetical where an injured party would be left without any sort of recourse for injuries caused by a negligent contractor.  The majority responded to the hypothetical by arguing an injured party would have no need to sue the contractor because they would have an action against the premises owner. [15]  The majority’s response is disingenuous for a number of reasons.  First and foremost, in Fultz, the premises owner defaulted, and was likely uncollectable.  Without a cause of action against the contractor, it was unlikely that the plaintiff would ever be compensated for her injuries.  Further, under Lugo v. Ameritech Corp., a premises owner owes no duty if the danger is open and obvious.[16]  Given the sweeping effects of Lugo, there is a high likelihood that a premises owner would also not owe a duty to a plaintiff.  This leaves the innocent injured party without a culpable defendant.

IV.             The Fultz fallout

The Fultz progeny makes two points certain: 1) the Supreme Court’s separate and distinct test is an impossible standard, and 2) Justice Kelly’s concern that innocent injured citizens would be left without recourse has, unfortunately, come to fruition.  Since Fultz, there have been a handful of cases where the appellate courts have found a “separate and distinct” duty owed by a contractor to an injured party.  The Michigan Supreme Court has issued memorandum opinions on these cases reversing the appellate courts while at the same time failing to provide any sort of guidance.  This is principally frustrating given the Court’s assertion that the defendant in Osman met the new standard and owed a duty separate and distinct from the contract.

In Banaszak v. Northwest Airlines, Inc., et al., a plaintiff was injured while working as an electrician on a construction site at Detroit Metro Airport.[17]  Defendant, Otis Elevator, was on the site installing moving walkways.  To install the motors of the walkways, machinery was placed into four foot deep holes in the floor referred to as wellways.  The wellway openings were normally covered with aluminum covers.  To prevent the covers from being damaged during the renovation, Otis removed the aluminum covers and replaced them with pieces of plywood.  Ms. Banaszak was injured when she walked over the plywood and her foot and leg broke through and fell into the wellway.

            Plaintiff originally named four defendants: Wayne County (the property owner), Northwest Airlines, Hunt Construction (the contractor who hired Plaintiff’s employer), and Otis Elevator.  Every Defendant won on summary disposition except for Northwest Airlines, which was stayed due to their bankruptcy status. 

Plaintiff appealed the court’s order of summary disposition against Otis Elevator. The appellate court acknowledged that the defendant, Otis, had a contractual duty to cover the wellways and that they failed to do so.  Relying on Fultz, the court then applied the separate and distinct test and found the defendant met the standard because the removal of the aluminum covers and the placing of the shoddy plywood created a new hazard.[18] 

To no surprise, Otis Elevator appealed to the Michigan Supreme Court.  In a memorandum decision and without granting leave to appeal, the Court reversed the appellate court and reinstated the order of summary disposition.[19]  The Court offered only a topical six sentence explanation on how there was no separate and distinct duty despite the obvious confusion in the lower courts on how to apply Fultz.  The Court also made no attempt to distinguish the facts from those in Osman despite their prior acknowledgment that Osman met the new standard.

Similarly, in Mierzejewski v. Torre & Bruglio, Inc., a plaintiff sued a contractor for injuries she sustained when she slipped and fell on ice.[20]  In this case, the contractor plowed snow onto the landscaped curbed islands in the parking lot in a manner which created puddles which then froze in areas where people had to walk.  Based specifically on the Court’s finding that the defendant in Osman met the standard, the appellate court found there was a separate and distinct duty owed.  Again, the Supreme Court reversed the appellate court in lieu of granting leave to appeal.  The Court did not explain how this case differed from Osman.  They issued only one sentence on the matter, stating “The defendant did not owe any duty to the plaintiffs separate and distinct from the contractual promise made under its snow removal contract with the premises owner.”[21]

            The facts in Banaszak and Mierzejewski are directly analogous to Osman and clearly show new hazards created by the defendants’ negligence.  In Banaszak a new hazard was created when the defendant removed the aluminum cover and replaced it with shoddy plywood over a four foot deep hole when it knew or should have known that someone could be injured.  In Mierzejewski the contractor created a new hazard by placing snow where it knew or should have known the snow would melt, and refreeze, causing someone to be injured.  If the actions of the contractors in these cases do not meet the separate and distinct standard, then the standard is insurmountable.

V.                Conclusion 

The Supreme Court’s decision in Fultz is contrary to settled common law across the country, which holds that everyone, and every business entity, has a duty to act reasonably.  If they act unreasonably, and somebody is injured as a direct and proximate result, they are liable for that injury.  Here, the Supreme Court has insulated any party to a contract from liability by creating a confusing and inappropriate standard.  The lower courts have grappled with the Fultz decision and despite the obvious need for clarification the Court has refused to provide guidance.  The reason for this refusal is that the holding defies logic and contravenes basis tort law principles set forth in the Restatement.  This standard serves no legitimate purpose other than to degrade a plaintiff’s right to seek recourse for injuries sustained due to another’s negligence.