Gail S. Kelley, J.D., PE
In a dispute arising from defective concrete, State Ready Mix, Inc. v. Moffatt & Nichol, 232 Cal.App.4th 1227 (2015), the Appeals court found that the economic loss doctrine barred the concrete supplier’s claim against the engineer that reviewed the mix design. In addition, the Appeals court found that the concrete supplier could not maintain a promissory estoppel claim based on engineer’s approval of the mix design and that the engineer did not owe the concrete supplier a duty of care based on public policy factors.
Background to the Dispute
In 2012, Bellingham Marine, Inc. (Bellingham), a marine project manager, hired Major Engineering Marine, Inc. (Major) to construct a travel lift pier at the Channel Islands Harbor. Bellingham hired Moffatt & Nichols (Moffat) to design the pier. Moffat’s specifications required the concrete to have a compressive strength of 5,000 PSI at 28 days and between two and four percent air entrainment, where air entrainment refers to microscopic air bubbles in the concrete that increase the concrete’s workability. Although Moffat’s contract with Bellingham did not require it to review the mix design submitted by Major’s concrete supplier, State Ready-Mix (State), Moffat nevertheless reviewed and approved the mix design at Major’s request.
On February 14, 2012, State delivered seven truck loads of concrete to the project site. When the concrete was tested at 28 days, it was found to have a compressive strength of only 3,650 psi. It was subsequently discovered that State had experienced a mechanical failure in their chemical dispensing equipment and the amount of air-entraining admixture added to the mix was six and a half times the amount called for by the mix design. Although it appears the mix design required an excessive amount of air entrainment to begin with, increasing the amount six and a half times virtually guaranteed that the concrete strength would be lower than what was required.
Economic Loss Rule
After Major demolished and rebuilt the affected portion of the pier, it sued State for the money it spent removing and replacing the defective concrete. State then filed a cross-complaint for implied equitable indemnity and contribution against Moffat, alleging that Moffatt failed to use reasonable care in reviewing and approving the mix design. The trial court found that the cross-complaint was barred by the economic loss rule because Moffatt did not have a contract with either Major or State.
The trial court’s ruling was affirmed by the Appeals court. In its ruling, the Appeals court went through each of State’s claims in detail, explaining that the claims had no merit.
Claim for Indemnification
The Appeals court noted that State could not sue for equitable (noncontractual) indemnity or contribution because there were no facts to support a claim that Moffatt owed State a duty of care sounding in tort. Nor could State sue for equitable indemnification based on the theory that Moffatt negligently performed its contract with Bellingham. Conduct amounting to a breach of contract becomes tortious only when it also violates a duty arising from principles of tort law that is independent of the contract.
An omission to perform a contract obligation is not a tort unless it is also an omission of a legal duty. Without any action sounding in tort, there was no basis for finding joint and several liability on the part of defendants, thereby precluding a claim for equitable indemnity.
In addition, the Appeals court agreed with the trial court that because State’s defective work caused only economic losses to Major, State’s cross-complaint was barred by the economic loss rule. Moffatt had no contractual relationship with State or Major and no facts were alleged that the concrete injured a person or damaged other property.
Implied Contract—Promissory Estoppel
State’s complaint stated that its mix design called for significantly more air-entraining admixture than the manufacturer recommended and that Moffatt should have known that using large amounts of the air-entrainment admixture would result in low compressive strength. Invoking the doctrine of promissory estoppel, State argued that because Moffatt reviewed and approved the mix design at Major’s request, an “implied contract” was created between Major and Moffatt and Moffatt “promised” the amount of Mico–Air in the concrete mix design would work. A promissory estoppel claim 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 on the promise, and (3) substantial detriment because of the reliance. Damages are measured by the extent of the obligation assumed and not performed.
However, Moffatt worked for Bellingham, not Major or State. There was nothing to support a claim that Moffatt made a “clear and unambiguous promise” to Major, that Major detrimentally relied on Moffatt’s approval of the concrete mix design, or that Major’s damages are related to an “obligation assumed” but not performed by Moffatt.
Factors that Determine Whether a Special Relationship Imposes a Duty of Care
Relying on the case Biakanja v. Irving, 49 Cal.2d 647, 320 P.2d 16 (1958), State also argued that even though it did not have a contract with Moffatt, Moffatt owed it a duty of care because its review of the mix design had created a special relationship between the parties. Biakanja established six public policy factors that determine whether negligent performance of a contract may result in liability to a third party for economic losses, based on a special relationship with the third party.
When these factors favor the imposition of a legal duty of care, the fact there is no contract between the parties would not bar equitable indemnity. These factors are:
(1) the extent to which the transaction was intended to affect State; (2) the foreseeability of harm to State; (3) the degree of certainty that State suffered injury: (4) the closeness of the connection between Moffatt’s conduct and the injury suffered; (5) the moral blame attached to Moffatt’s conduct; and (6) the policy of preventing future harm.
The Appeals court noted that State’s argument failed on every factor and thus did not owe State a duty of care. With respect to the first factor – Moffatt’s services were not intended to affect or benefit State. Moffatt agreed to help Major and review the concrete design mix but the contractual duties allegedly assumed by Moffatt were intended to benefit Bellingham, not State or Major. Furthermore, Moffatt’s review and approval of the mix design was not the cause of the defective concrete.
With respect to the second, third and fourth factors – foreseeability of harm, certainty of injury, and closeness of the connection between Moffatt’s conduct and the injury suffered – the concrete did not attain the required compressive strength because State added too much air-entrainment chemical. Moffatt did not know, and had no reason to know, that State had deviated from the approved mix design. The fifth factor, moral blame, failed because Moffatt had no control over either State’s performance or the contractual relationship between State and Major.
The final factor, preventing future harm, failed because, in the court’s words, “Moffatt was not State’s insurer or guardian angel. It did not warrant that the concrete, if over-dosed with the Micro–Air additive, would work.”
This case reminds design professionals that any time they undertake to review or approve the contractor’s work or submittals, they expose themselves to potential liability. This is true even if the review and approval is not required by their contract.
About the Author: As a professional engineer, Gail Kelley has performed structural design and analysis of post-tensioned structures, has performed constructability reviews, due diligence inspections, and condition assessments, and has provided litigation support for construction defect and delay claims in both state and federal court. She received her B.S. in Civil Engineering from Cornell University, and Master of Science in Structure and Materials from Massachusetts Institute of Technology (MIT), and she received her Juris Doctorate from American University, Washington College of Law. She provides risk management services for ConstructionRisk, LLC. This article is published in ConstructionRisk.com Report, Vol. 17, No. 6 (September 2015).
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