C. J. Ostalkiewicz et al. v. Guardian Alarm, A Division Of Colbert's Security Services, Inc.

C. J. Ostalkiewicz et al. v. Guardian Alarm, A Division Of Colbert's
Security Services, Inc.

Supreme Court of Rhode Island-520 A.2d 563; 1987 R.I. LEXIS 401- January 28,
1987

PRIOR HISTORY:
Appeal from Superior Court, Providence County, Lagueux, J.
PROCEDURAL POSTURE: Both plaintiff jewelers and defendant alarm provider
sought review of a judgment of the Superior Court, Providence County (Rhode
Island), which granted a motion for new trial, declined to grant a motion
for a directed verdict on the issue of fraud, and limited damages on the
issues of breach of contract and negligence.

OVERVIEW: Alarm provider installed a silent alarm in the jewelers' showroom
but it did not work when the showroom was robbed because the alarm
provider's personnel failed to program its computer to receive a signal when
the holdup button was pushed. The trial justice instructed the jury that if
it found for the jewelers on their contract and negligence claims, liability
should be limited as it was in the contract. The jury's verdict for the
jewelers included a limited damage award. On appeal, the court affirmed in
part and reversed in part. The court held that the limiting clause was not
unconscionable because the jeweler dealt at arm's length with the alarm
provider, who was not an insurer. The court also held that nothing suggested
that the alarm provider's personnel, who made statements about the system,
knew that the alarm button was not correctly programmed. Further, the court
held that the trial justice's findings of fact were not a result of him
either overlooking or misconceiving relevant evidence, nor was he clearly
wrong, so it was correct to grant a new trial on the fraud issue, however,
there was no reason to grant a new trial on the negligence or contract
issues.


OUTCOME: The court affirmed the trial court's decision to grant a new trial
on the fraud issue and reversed the order for a new trial on the negligence
and contract issues.

COUNSEL: James T. McCormick, Vincent T. Santaniello, for Plaintiffs.

Kenneth P. Borden, Higgins, Cavanagh & Cooney, for Defendant.

JUDGES: Fay, C.J., Kelleher, Weisberger, Murray, Shea, JJ.

OPINIONBY: WEISBERGER

OPINION: This case comes before us on cross-appeals from orders and rulings
made by the trial justice granting a motion for new trial, declining to
grant a motion for directed verdict on the issue of fraud, and limiting
damages on the issues of breach of contract and negligence. We affirm in
part and reverse in part. The pertinent facts of the case are as follows.

C.J. Ostalkiewicz and his wife, Cynthia (hereinafter referred to as C.J. and
Cynthia), operated a jewelry business in the town of North Providence in a
showroom located in a garage attached to their dwelling house. The business
consisted of the sale of diamond and gold jewelry to customers who would
view the merchandise by appointment. C.J. contracted on January 31, 1979,
with Guardian Alarm, a division of Colbert's Security Services, Inc.
(Guardian), for the installation and maintenance of a
burglar-and-holdup-alarm system. The contract provided that [**2] the alarm
system would remain the property of Guardian and that C.J. agreed to pay
$775 for the cost of connecting and installing the system, plus a service
charge of $60 per month for the operation of the system. The agreement was
for a term of one year, with provision for automatic renewal unless one of
the parties gave written notice of cancellation at least ninety days before
the end of the term.

The contract also provided that Guardian was not to be an insurer and that
it would not be liable "for any loss occasioned by malfeasance or
misfeasance in the performance of the System or of the services under this
Agreement or for any loss or damage sustained through burglary, theft,
robbery, fire or other cause * * *." The agreement further provided that any
liability that was due to the negligence of Guardian or otherwise should be
limited to "the greater of a sum equal in amount to the monthly service
charge provided * * * for a period of service of six months or $250."

The holdup alarm, sometimes referred to as a silent alarm, was a button that
was to be pushed in the event of robbery. This button then was expected to
send a signal to Guardian's central monitoring station, whereupon [**3] the
police would be notified. The installation was serviced from time to time by
Guardian's personnel, and apparently no defect was ever discovered. On
February 2, 1980, a robbery occurred at plaintiffs' place of business. C.J.
pressed the silent alarm, but the system did not work. Two robbers were on
the premises for approximately twenty minutes. They tied up Cynthia and a
customer, ransacked the storeroom including the safe, and escaped with a
great deal of the owners' merchandise. After punching the alarm, C.J. hid in
a closet in the office and was not discovered by the robbers.

Investigation by the police disclosed that Guardian's personnel had failed
to program its computer so as to receive a signal in the event that the
holdup button was pushed. Consequently, monitoring personnel did not become
aware that the alarm device had been pressed and that a robbery was in
progress.

The plaintiffs filed a seven-count complaint, of which counts 1, 2, and 3
were brought in C.J.'s name alone and the remaining four counts were brought
in the names of both plaintiffs. Counts 1, 2, and 3, involving contract and
negligence claims, were submitted to the jury. Directed verdicts were
rendered [**4] against both C.J. and Cynthia on count 4 alleging strict
liability, on count 6 alleging negligent misrepresentation, and on count 7
alleging violation of the consumer-protection statute. Also, a directed
verdict was rendered against Cynthia on count 5 alleging fraud. Thus, the
fraud count insofar as it applied to C.J. was submitted to the jury along
with the contract and negligence counts. The trial justice instructed the
jury that if they found for C.J. on the contract and negligence [*565]
counts (1, 2, and 3), they could award damages not exceeding $360, the
amount to which liability had been limited in the contract. He instructed
the jury that if they found for C.J. on the fraud count (5), they could
award the full amount of the damages. The jury rendered a verdict in favor
of C.J. on the breach of contract and negligence counts for the amount of
$360 and also rendered a verdict in favor of C.J. on the fraud count for the
amount of $491,147.

Both parties raise a number of issues on appeal. These issues will be
considered in the order of their significance to this opinion and not
necessarily in the order raised in the parties' briefs.

I

THE LIMITATION OF LIABILITY ISSUE [**5]

C.J. contends that the trial justice was wrong in limiting the liability of
Guardian to the sum of $360, an amount equivalent to six months service
charge in accordance with the contract. He contends that this clause was
invalid as against public policy. Such clauses limiting liability in
connection with burglar alarms have been considered in a number of
jurisdictions. In almost every instance such clauses have been upheld.

An example of the reasoning of such cases may be found in Fireman's Fund
American Insurance Cos. v. Burns Electronic Security Services, Inc., 93 Ill.
App. 3d 298, 417 N.E.2d 131, 48 Ill. Dec. 729 (1981). In that case, burglars
had stolen $800,000 worth of jewelry from Henry Kay Jewelers. Kay's insurer,
Fireman's Fund, had paid the loss in accordance with its policy and was
subrogated to Kay's right against Burns. As in the present case, the
contract between Kay and Burns provided for a limitation of liability in the
amount of $250. Fireman's Fund challenged this limitation as an exculpation
clause that was unconscionable and therefore unenforceable. In response to
this argument, the court observed:


"The terms of this contract belie unconscionability. The [**6] chance of a
burglary and the potential loss depended not only on the quality of the
alarm but on many factors peculiar to Henry Kay and within Henry Kay's
knowledge and control. For example, the type and quantity of merchandise in
the store, perhaps the prime motivation for a [break-in], was for Henry Kay
to determine, not Burns. It was not unreasonable for Burns to feel that the
jeweler was better able than itself to buy any desired amount of insurance
at appropriate rates. Burns could properly insist on the exculpation clause
to make certain that the risk of a burglary lay on the jeweler, not on
Burns. It should also be noted that the product was designed to outwit the
ever-advancing burglary profession. The risk that the protection provided by
the alarm system would not be enough was substantial regardless of how good
the particular alarm was.

"Allocating the risk to Henry Kay was thus not a bargain 'which no man in
his senses, not under delusion, would make * * * and which no fair and
honest man would accept' * * *. It does not suggest unfair surprise or
oppression * * *. On the contrary, the exculpation clause was a commercially
sensible arrangement, and the plaintiff is bound [**7] by it." 93 Ill. App.
3d at 299, 417 N.E.2d at 132-33.


Another case closely analogous to the case at bar is St. Paul Fire & Marine
Insurance Co. v. Guardian Alarm Co., 115 Mich. App. 278, 320 N.W.2d 244
(1982). There, a loss was sustained by FLX Corporation as a result of a
burglary during which the alarm system had not operated properly. The
insurer for FLX brought suit against Guardian, which countered with a
limitation of liability clause almost identical to that in the case at bar.
The insurer challenged the limitation of liability clause on public policy
grounds. The court held that both parties to the contract had dealt at arm's
length and that a contract clause limiting Guardian's liability to the
[*566] aggregate of six monthly payments or $250 was "manifestly
reasonable" in the circumstances of the case. The court pointed out that
Guardian was not in the insurance business; rather, it provided an alarm
service for a specific sum that was "not a premium for theft insurance."
Therefore, the court held that a clause limiting defendant's liability in
the event the alarm system did not work properly is not unconscionable. The
court further held that the contract was [**8] not one of adhesion and that
the parties entered into the contract fully aware of its terms.

Similar holdings may be found by courts in Arizona, Central Alarm of Tucson
v. Ganem, 116 Ariz. 74, 567 P.2d 1203 (Ct. App. 1977); California, Better
Food Markets, Inc. v. American District Telegraph Co., 40 Cal. 2d 179, 253
P.2d 10 (1953); District of Columbia, Bargaintown of D.C., Inc. v. Federal
Engineering Co., 309 A.2d 56 (D.C. Ct. App. 1973); Massachusetts, New
England Watch Corp. v. Honeywell, Inc., 11 Mass. App. Ct. 948, 416 N.E.2d
1010 (1981); New Hampshire, Shaer Shoe Corp. v. Granite State Alarm, Inc.,
110 N.H. 132, 262 A.2d 285 (1970); and Pennsylvania, Lobianco v. Property
Protection, Inc., 292 Pa. Super. 346, 437 A.2d 417 (1981). The foregoing are
only illustrative of cases in which such exculpatory or limitation of
liability clauses have been upheld.

In the case at bar, there is no question that C.J. examined the contract and
read it before signing. He dealt at arm's length with Guardian. It was
obvious under the contract that Guardian was not an insurer. Indeed, it is
apparent in this case that plaintiffs were insured, though apparently not in
the amount [**9] that they found fully compensatory for the damages
sustained. We are of the opinion that in the circumstances of this case the
limitation of liability was not violative of public policy, nor was it
unconscionable. The trial justice was correct in his limiting instructions
to the jury on the relevant counts of the complaint for breach of contract
and negligence.

II

THE FRAUD ISSUE

Both Cynthia and C.J. claimed in count 5 of their complaint that agents of
Guardian had made deliberate misrepresentations of fact concerning the
working and operational reliability of the silent-alarm system. They alleged
that these misrepresentations were false and known to be false by those who
made them.

The trial justice, after considering the testimony of Cynthia, determined
that it was insufficient to create a jury question on the issue of
deliberate and fraudulent misrepresentation. We have examined Cynthia's
testimony, and even though it is apparent that she accepted general
statements from agents of defendant, Guardian, that the system was in
working order after having been repaired on various occasions, there is
nothing in her testimony, even viewed in the light most favorable to her and
drawing [**10] all reasonable favorable inferences therefrom, that those
who made statements concerning the operational condition of the system knew
at the time that they were making them that the robbery-alarm button was not
programmed into the computer, as eventually was found to be the case.
Consequently, we are of the opinion that the trial justice did not err in
granting a directed verdict against Cynthia on this count.

Guardian contends that the trial justice was in error in declining to grant
a directed verdict in respect to C.J. on this same count. Both parties are
in agreement that when passing upon a motion for directed verdict, the court
must view the evidence in the light most favorable to the party opposing the
motion. Moreover, the trial justice must draw all reasonable favorable
inferences from such evidence in determining whether a question of fact is
presented that might be decided in that party's favor by a rational jury.
Bitgood v. Allstate Insurance Co., 481 A.2d 1001 (R.I. 1984); [*567] Welsh
Manufacturing v. Pinkerton's Inc., 474 A.2d 436 (R.I. 1984).

In examining the evidence, and particularly the testimony of C.J. in light
of the foregoing standard, we are of [**11] the opinion that this testimony
was adequate to survive a motion for directed verdict on the issue of fraud.
C.J.'s testimony, if believed, as it must be for purposes of a motion for
directed verdict, was sufficient to raise a question of fact concerning
specific assurances given to him by agents of Guardian. He reiterated in his
testimony that he had specifically asked agents of Guardian on more than one
occasion whether the holdup alarm was working. He also testified that he
received repeated assurances that the alarm button was, in fact, operative.
This testimony, when viewed in its most favorable light, could give rise to
an inference that the agent or agents of Guardian who rendered such
assurances were misrepresenting a known factual condition upon which they
had every reason to believe that C.J. would rely. Consequently, the trial
justice did not err in declining to grant a directed verdict for Guardian on
the fraud count as it applied to C.J.

III

THE MOTION FOR NEW TRIAL

The plaintiffs contend that the trial justice was in error in granting a
motion for new trial in respect to all issues of liability and damages.
First, we should consider the granting of a motion for new [**12] trial on
the fraud count. We have pointed out that the testimony of C.J. was
sufficient to survive a motion for directed verdict. Consequently, we have
determined that a question of fact was presented to the jury. The jury
resolved that question of fact in favor of C.J.

Thereafter, on motion for new trial the trial justice, in accordance with
the duty imposed upon him by Barbato v. Epstein, 97 R.I. 191, 196 A.2d 836
(1964), and its progeny, reviewed the evidence, exercised his independent
judgment thereon, and made certain determinations of fact in respect to the
credibility of the testimony of C.J. in light of certain impeaching evidence
and contradictory testimony given by employees of Guardian. The principal
thrust of the trial justice's factual determinations on this issue may be
best understood from the following excerpt taken from his decision on the
motion:
"Now the key to this case, at least as to the fraud claim, is the testimony
of the plaintiff. He said that subsequent to the installation, the service
personnel of the defendant visited his premises approximately twelve times
or about twice a month, as he puts it, and that on each and every occasion
he asked [**13] them whether the holdup button was tested and he was told
that it was tested and working. That was the plaintiff's testimony
essentially when he was first on direct examination. Now that testimony
changed during the course of the trial. He took the stand several more times
during the course of the trial and his testimony was changed in this
respect, in my view, to fit the circumstances of the case at that particular
time. For example, after he heard the testimony of Williams, who testified
that he answered two or three service calls and that no signal at all was
being received at the defendant's central station because there was
something wrong with the phone line, Mr. Ostalkiewicz then pointed out that,
of course, on those occasions he did not ask about testing because he knew
the system was not operational. In viewing all this evidence I come to the
conclusion, as a seventh juror, that at no time after installation, and
Weber's testing on the afternoon this instalation was complete, did any
personnel of the defendant test the holdup button and state to the plaintiff
or his wife that the holdup button was tested and was operational. In other
words, I conclude from this evidence that [**14] no representation was ever
made during this whole period after installation by anyone from the
defendant that this holdup system was tested and working. [*568] I am
referring specifically to the holdup button. I do not believe Mr.
Ostalkiewicz when he states that the holdup button was tested on numerous
occasions and that he was told by personnel of the defendant that it was
tested and working."


It is abundantly clear from the statements of the trial justice that he did
not believe C.J.'s testimony concerning alleged assurances given to him by
agents of Guardian that they had tested the alarm button and found it to be
functional. The trial justice was persuaded not only by prior inconsistent
statements made to the police by C.J. but also by what he deemed to be
straightforward and credible testimony of other witnesses. We have
reiterated our rule on many occasions concerning the duty of a trial justice
in responding to a motion for new trial. In the case at bar, there is no
question that the trial justice carefully reviewed the evidence on this
issue and concluded that C.J.'s testimony was not credible. We have also
frequently stated that the findings of fact made pursuant [**15] to a
motion for new trial after the exercise of independent judgment will be
entitled to great weight and will not be set aside unless the trial justice
overlooks or misconceives relevant evidence on a controlling issue or is
otherwise clearly wrong. Gallo v. Arnold, 476 A.2d 118 (R.I. 1984); Puc v.
Leaseway of New England, 121 R.I. 149, 396 A.2d 940 (1979); Morinville v.
Morinville, 116 R.I. 507, 359 A.2d 48 (1976).

After reviewing the record in this case, we are of the opinion that the
trial justice has neither overlooked nor misconceived relevant evidence, nor
was he otherwise clearly wrong. The plaintiffs argue that the trial justice
did not consider Cynthia's testimony relevant to this issue. Obviously the
trial justice committed no error in not considering Cynthia's testimony on
this issue pursuant to the motion for new trial. He had already correctly
determined that her testimony did not even raise a question of fact in
regard to fraud. Consequently, he did not err in declining to review her
evidence on the motion for new trial. The plaintiffs have failed to persuade
us that the trial justice was wrong in granting the motion for new trial on
the fraud issue.

Since [**16] the trial justice granted a motion for new trial on the
liability aspect of the fraud question, it is unnecessary for us to consider
his findings in respect to the excessive amount of damages awarded to C.J.
under the fraud count. Obviously the question of damages will be open in the
event that the triers of fact should find liability on this count in a
second trial.

In turning to the propriety of the trial justice's grant of a new trial on
the contract and negligence counts, we note that the trial justice found as
a fact on the motion for new trial that "there is absolutely no question
there was a colossal blunder by someone in the defendant's organization." He
went on to state that the failure to put plaintiffs' data into the computer
was a tremendous blunder because when the robbery took place and C.J. used
the holdup button, the message simply did not "come onto the screen and the
phone call to the police was never made." This finding in effect buttressed
the jury's verdict on the three counts that had been submitted to it on the
issue of breach of contract and negligence. The trial justice had limited
the award of damages on these counts to $360, the amount to which liability
[**17] had been limited in the contract. The jury followed his limiting
instructions and rendered a verdict on counts 1, 2, and 3 in that amount.
There seems no basis for the trial justice's granting of a new trial on
those issues. Judgment for C.J. should have been allowed to stand in the
amount of $360 on those counts. Although the motion for new trial was
properly granted on the fraud count, there seems no reason to require
plaintiff again to prove within the context of a new trial that Guardian was
negligent and failed to carry out its contractual obligations within the
limit of the $360 exposure. Consequently, the trial [*569] justice erred
in vacating the judgment in regard to the counts alleging breach of contract
and negligence.

IV
OTHER ISSUES
The plaintiffs have attempted to raise other issues in their reply brief.
These issues included the standard of proof in a fraud case and the
direction of a verdict on a count alleging a negligent misrepresentation, in
addition to the issues previously dealt with in this opinion.

Although the granting of a motion for new trial on the fraud issue rendered
the instructions given by the trial justice moot, we shall observe for the
guidance [**18] of the next trial justice that we have held in Cambrola v.
Kaiser Aluminum & Chemical Corp., 416 A.2d 694 (R.I. 1980), that fraud in a
civil suit need only be proven by a fair preponderance of the evidence. See
also Halpert v. Rosenthal, 107 R.I. 406, 267 A.2d 730 (1970).

In respect to the directing of a verdict on the issue of negligent
misrepresentation, we are of the opinion that assuming without deciding that
a separate or a distinct action might be brought for negligent
misrepresentation, it would be subject to the limitation of liability clause
in the contract and thus would come within the damages already awarded on
the contract and negligence counts. Thus, plaintiffs were not prejudiced by
the granting of this directed verdict, whether or not it was erroneous.

We have considered additional arguments raised by the plaintiffs and find
that they are without merit.

For the reasons stated, the plaintiffs' appeal is denied in part and
sustained in part. All orders of the trial justice are affirmed, save his
order granting a new trial on the contract and negligence counts (1, 2, and
3). The papers in the case may be remanded to the Superior Court with
directions to enter [**19] judgment for C.J. in the amount of $360 on the
foregoing counts and for a new trial for C.J. alone on the fraud count.