Contractor claims often implicate an owner’s design or acts of the owner’s design professional.
However, as the case of State Ready Mix, Inc. v. Moffatt & Nichol, 232 Cal.App.4th 1227 (2015) illustrates, contractors cannot typically bring lawsuits directly against a designer with whom it has no direct contract. The case involved a contract to construct a travel lift pier pursuant to a design by the owner’s engineering firm. The contractor hired a local ready mix company to supply concrete, which, according to the project specifications, must have air entrainment between 2% and 4% and achieve 5,000-psi compressive strength in 28 days.
During construction, the ready mix supplier submitted a mix design to the contractor, who forwarded it to the owner’s engineer. For reasons not stated in the court’s opinion, the owner’s engineer was apparently under no obligation to review the mix design, but nevertheless did so and issued its approval.
Tests taken at 28 days revealed that concrete shipped on one day achieved only 3,650 psi and the contractor asked the supplier to investigate. In an e-mail to the contractor, the supplier’s technical advisor reported: “[t]he day of the pour, 2-14-2012, [we] encountered a mechanical failure in [our] chemical dispensing equipment and had to manually add the ‘Air Entrainment’ chemical into the trucks . . . there was an error in the calculations and the chemical was overdosed. This is the reason for the lower compressive strengths.” The technical advisor determined that the air admixture was 6.5 times greater than allowed.
Consequently, the contractor demolished and rebuilt the affected portion of the pier and sued the ready mix contractor for all associated costs it incurred. In response, the ready mix supplier filed a cross complaint for implied equitable indemnity and contribution against the owner’s engineer alleging that the engineer failed to use reasonable care in reviewing and approving the concrete mix design. Before the case went to trial, the engineer requested the court dismiss the case against it on the grounds that the economic loss rule bars the supplier’s claim. The court agreed and dismissed the engineer from the lawsuit. The ready mix supplier appealed.
The appeals court held that the trial court had correctly ruled that where there was no express contract between the engineer and the concrete supplier, the supplier could not sue for equitable indemnity or contribution. The court first noted that there was no contract between the concrete supplier and the engineer. Accordingly, the supplier must allege facts that prove the engineer owed it “a duty of care sounding in tort.” Conduct becomes tortious only when it also violates a duty arising from principles of tort law. The appeals court also noted that even if the supplier were to show that the engineer violated some common law duty owed to the supplier, the economic loss rule precludes recovery for purely economic damages. In this case, the damages consisted of costs incurred to remove and replace defective work. There was no personal injury or property damages involved. Consequently, absent a contract between the engineer and the supplier, the supplier could not claim purely economic losses.
Lastly, the appeals court addressed the concrete supplier’s attempt to avoid the economic loss rule by arguing that the engineer’s agreement to review the mix design created an “implied contract” between the parties by virtue of promissory estoppel. A promissory estoppel claim, the court explained, generally entitles a plaintiff to the same damages available on a breach of contract claim. The elements of promissory estoppel are (1) a clear promise, (2) reliance, (3) substantial detriment, and (4) damages. The court pointed out that the engineer clearly worked for the project owner and the mere act by the engineer of reviewing and commenting on the mix design fell short of constituting a clear promise.
Most, but not all, states have adopted the economic loss rule, which essentially precludes a party from suing another for purely economic losses absent an express contract between them. Tort actions, which are based upon duties arising under common law (as opposed to duties parties themselves create by contract), must be accompanied by personal injury or property damage in order to be recognized. Consequently, except in a few states, a contractor can rarely sue a design professional who is under contract with a project owner. R&B