Cases of the Month

Significant Cases and Decisions Affecting the Construction Industry

By: Craig F. Martin

Lamson, Dugan & Murray, LLP

October 2014

1.  Contractor’s negligent misrepresentation claim against architect barred by economic loss rule. Beacon Residential Community Ass’n v. Skidmore, Owings & Merrill LLP, 2014 WL 2988058 (Cal. July 3, 2014).

*  What the Court Considered: The Dallas Area Rapid Transit (DART) hired the general contractor, Eby, to construct an extension to the light rail system. DART also hired a joint venture of engineering firms to design and supervise construction called LAN/STV. Eby sued LAN/STV for negligent misrepresentation claiming the design had errors and that the errors forced Eby to increase its performance costs to $14 million and it suffered delays. Eby sued DART for breach of contract, but settled for $4.7 million. The jury awarded Eby $5 million from its lawsuit against LAN/STV and divided the responsibility between Eby, 15 percent; DART, 40 percent; and LAN/STV, 45 percent. Eby was awarded 45 percent of the $5 million. On appeal the Texas Supreme Court reversed.

*  What the Court Said: The Court found that the economic loss rule barred Eby’s negligent misrepresentation claim against LAN/STV because contractual risk allocation adequately resolved any injury the contractor suffered due to design defects. The contract provided the contractor with a remedy against the architect or engineer and the contractor was able to recover $4.7 million from DART in the settlement.

*  What the Opinion Means: Negligent misrepresentation claims for design defects will be barred by the economic loss rule so long as the contractual risks are allocated. Allocation of risks should be for the parties to determine and not left to the court.

2. Carefully drafted contract language may save an architect from owner’s demand for return of architectural fees. . Picozzi v. WESKetch Architecture, 2014 WL 3510782 (N.J. App. 2014).

*  What the Court Considered: In this case, the owner hired an architect to design a French-styled mansion. The architect’s services were divided into four phases. At each stage the design of the house would reflect the owner’s wishes in consultation with the architect. The contract had a clause that expressly stated the preliminary budget was not a “guarantee of the costs of the construction or that the project can actually be constructed within the parameters of the budget.” The preliminary budget was to be a benchmark to assist the architect in the scope of design. The preliminary understanding of the project was a 15,000 square foot home and a construction cost of $5 million. The final design included 21,000 square foot home and construction cost between $11 million and $13 million. The owner sued for breach of contract claiming that the architect failed design a 15,000 foot square home at a cost of $5 million.

*  What the Court Said: The court found in favor of the architect, finding that the contract’s $5 million figure was not offered as an estimate, even an unguaranteed one, of the cost of construction. Rather, it was expressly described as a “bench mark to assist in gauging the scope of the initial concept studies.” The parties agreed that the probable construction costs would be updated. Moreover, the owner was expressly notified that the design of the home had reached 20,000 square feet and he never objected to the design of the home.

*  What the Opinion Means: A contract’s plain meaning may trump the general rule that an architect’s promise to design a structure at a fixed budget is precluded from recovery of its fees if the costs exceed the budget. Here, the contract specifically stated that $5,000,000 was not a fixed budget, but merely a starting point for the project.

3.  A third-party claim against engineer did not require support of an affidavit of merit. Jaster v. Comet II Cons., Inc., 2014 WL 2994503 (Tex. July 3, 2014).

*  What the Court Considered: In this case a homeowner sued the builder for defective design and construction of the home’s foundation. The builder filed a third-party complaint against the design firm from whom the builder purchased the plans and the engineer. The design firm filed a cross-claim against the engineer and a counter-claim against the builder. The engineer asserted that the claims required support of an affidavit of merit and the third-party claims should be dismissed. Texas Civil Practice and Remedies Code § 150.002 provided that a plaintiff must file an affidavit of a third-party architect or a professional engineer with the complaint. The trial court denied the motion to dismiss, the appellate court on interlocutory appeal affirmed and the case was appealed to the Texas Supreme Court.

*  What the Court Said:. The Texas Supreme Court found that an affidavit of merit was not required to support the third-party’s claim or cross-claim against the engineer. They interpreted the Texas Statute, and found that the legislature intended “plaintiff” to be the party initiating the lawsuit and that “third-party plaintiffs” do not initiate lawsuits. The court also pointed out that an affidavit of merit is only required when the plaintiff has a claim for damages, and this case was an action for indemnity and contribution, not damages.

*  What the Opinion Means: In Texas an affidavit of merit is only required when a plaintiff, the party initiating the lawsuit, files a claim against a third-party engineer or architect and is claiming damages.

Craig Martin is a partner in the firm of Lamson, Dugan & Murray, LLP, in Omaha, Nebraska; and is the primary author of the Construction Contractor Advisor blog, www.ConstructionContractorAdvisor.com.   For more information, or if you have any questions, please contact us at hlk@constructionchannel.net.