Inside this Issue
- A1 - Application of Economic Loss Doctrine Limited to Contracting Parties Under Arizona Law
- A2 - Expert Certificate Requirement Not Necessary Under Maryland Law for Alleging Negligence Of An Engineering Firm For the Actions of a Non-Engineer Employee
Article 1
Application of Economic Loss Doctrine Limited to Contracting Parties Under Arizona Law
See similar articles: Economic Loss Doctrine
The Arizona Supreme Court held that the “economic loss doctrine” did not prevent a homeowner from pursuing economic damages for negligence against the home’s builder because there had never been a contract between the parties. Generally speaking, the economic loss doctrine limits that ability of a plaintiff to bring a negligence action when the damages are purely “economic” in nature and occur independently of any physical harm to a person or property. While some jurisdictions have applied the economic loss doctrine broadly to serve as a bar on all economic damages through negligence actions, the high court in Arizona has construed it more narrowly. Here the Court held that the doctrine only applies between contracting parties, and since the homeowners in this case did not buy the house directly from the builder they were able to seek economic damages through a negligence action. Sullivan v. Pulte Home Corp., 306 P.3d 1 (Ariz. 2013).
The builder, Pulte Home Corporation, constructed a house and sold it to the original owners in 2000. In 2003 the current homeowners, John and Susan Sullivan, bought the house from the original owners. Later in 2009 the homeowners became aware of problems with the home’s hillside retaining wall, and an engineer determined that it was constructed in a “dangerously defective manner.” Because the homeowners were the second buyers there had been no direct contractual relationship with the builder. The homeowners brought a lawsuit against the builder for various negligence counts and a breach of implied warranty. The trial court found that the homeowners were beyond the 8 year time limit to bring a breach of implied warranty claim and that the remaining negligence claims were barred under the economic loss doctrine.
On appeal, Arizona’s intermediate court found that the economic loss doctrine should not prevent the homeowner’s negligence claims. The state’s highest court agreed. In making its decision, the Court revisited its earlier ruling in Flagstaff Affordable Housing, where the Court had held that in Arizona “a contracting party is limited to contractual remedies for purely economic loss from construction defects.” In other words, the Flagstaff ruling stated that under the economic loss doctrine a contracting party cannot recover for an economic loss through a negligence action because there was already a “contractual remedy.”
The builder tried to use the Flagstaff case in its favor by arguing that the homeowners had a “contractual remedy” against the builder despite the fact that the builder had only contracted with the original owner. The builder explained that any subsequent owner of the home had 8 years from the time it was built to bring an action against the builder alleging a breach of “implied warranty of workmanship and habitability” under Arizona law. They reasoned that this implied warranty was a contractual remedy in nature and therefore the Flagstaff ruling precluded the homeowners from now seeking economic damages through a negligence action.
The Court disagreed with the builder’s interpretation of extending the economic loss doctrine to non-contracting parties. The decision explained that a policy behind the economic loss doctrine is to encourage parties with a contractual relationship to adequately address any liability for economic loss in the confines of the contract. The Court reasoned that this policy would not be served by extending it to contracts that are “implied” under common law or statutes because these implied contracts are not the product of a bargained-for exchange between two parties. As a result, there was no opportunity for the subsequent homeowners to negotiate the risk of economic loss with the builder. Notably, the Court’s decision to limit the economic loss doctrine to contracting parties is in line with the definition proposed in a recent draft of the Restatement, an influential American legal treatise.
About the author: Article written by J. Kent Holland, Jr. and James Rhodes.
J. Kent Holland, Jr. is a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk.com Report, Vol. 15, No. 11 (Nov 2013).
Copyright 2013, ConstructionRisk, LLC
Article 2
Expert Certificate Requirement Not Necessary Under Maryland Law for Alleging Negligence Of An Engineering Firm For the Actions of a Non-Engineer Employee
See similar articles: Certificate of Merit
The Maryland Court of Appeals held that a company’s suit against an engineering firm could go forward without an expert certificate because the complaint did not necessarily allege any negligence of a licensed professional involving specialized professional knowledge. In many states, malpractice plaintiffs are required to provide the court with certificate of merit, which is an endorsement of the qualified expert that supports the plaintiffs’ allegations before malpractice cases can be advanced against certain classes of licensed professionals. In Maryland this requirement is called a “certificate of a qualified expert” and it must be filed within 90 days of a complaint alleging that a licensed engineer committed professional malpractice.
Maryland’s high court found that a pet cemetery’s suit against a planning and engineering firm should not be dismissed for failing to provide an expert certificate. The complaint did not specify which, if any, particular individual may have acted negligently within the scope of their professional license. The court found that although the a count of the complaint was entitled “professional negligence,” the actual allegations of various mistakes, misrepresentations, and lack of diligence by the firm were potentially different than an allegation of a breach by a licensed professional in exercising specialized care, which would have triggered the expert certificate requirement. The court noted, however, that if on remand to the trial court, the plaintiff identifies a “licensed professional” as responsible for the negligent acts or omission asserted in the complaint, the court should dismiss the case. This would be without prejudice pursuant to the Maryland Statute, but since the statute of limitations for filing the suit has lapsed, a dismissal would effectively be with prejudice. Similarly, the court noted that when the facts of the case are further developed, “the relationship between the alleged negligence and a licensed engineer will be made manifest.” In that event, says the court, “because the time to seek to modification or waiver of the certificate requirement expired long ago, the court may humanely consign this complaint to its final resting place on a motion for summary judgment.” Heavenly Days Crematorium, LLC v. Harris, Smariga and Assoc., Inc., No. 128 Sept. Term, 2011, 2013 WL 4106701 (Md. Aug. 15, 2013).
A pet crematorium retained a planning and engineering firm, Harris, Smariga & Associates, to assist in submitting design documents and getting the necessary county approval for a proposed pet cemetery and crematorium. An employee of the planning and engineering firm initially submitted the plan to the county commission with the dimensions of a 40’ x 80’ crematorium accurately depicted, but with the wrong dimensions of 40’ x 30’ written on the document. It does not appear that the individual was a licensed professional. Despite an assurance by the firm employee that the mistake would be corrected, it was not fixed despite repeated requests of the client to do so.
The county commission issued a conditional approval of the initial plan that would expire if not built in two years. However, the pet cemetery asked the firm to submit a revised plan with larger 40’ x 100’ dimensions and in a new location. The employee of the engineering firm submitted a new proposal to the county showing the new location, but did not either depict the 40’ x 100’ dimensions or correct the written error describing the dimensions as 40’ x 30’.
After receiving comments from the county, the firm employee advised the pet cemetery they could “consider it approved.” After again being reminded by the pet cemetery that the dimensions were incorrect, the firm employee resubmitted a plan with the proper 40’ x 100’ dimensions. On an assurance by the firm employee that the revised plan would be approved, the pet cemetery obtained a building permit for the 40’ x 100’ building and prepared for construction at the new site. The Owner proceeded to have the crematorium constructed and was subsequently informed by the Department of Permits and Inspections that it had been “illegally constructed.” They were required to reapply for an approved site plan and building permit, which was rejected because “ a crematorium was not a permitted use in the zoning district.” The Owner then pursued an amendment to the county zoning ordinance to permit crematorium use and they were granted a use and occupancy permit two years later.
The owner filed a complaint against the engineering firm, including a count of “professional negligence.” The factual bases of the allegations largely centered on the actions of the particular employee discussed above, who was not herself a licensed engineer. The pet cemetery alleged various mistakes and misrepresentations made by the firm. The firm filed a motion to dismiss the pet cemetery’s claim because they had not submitted an expert certificate within 90 days of filing the complaint. The trial court agreed with the firm and dismissed the owner’s complaint. The dismissal was technically “without prejudice,” meaning the plaintiff could fix the error through submitting a new complaint. However, the statute of limitations on the claim itself had run, making the ruling effectively a bar to the plaintiff pursuing the claim. On appeal, Maryland’s intermediate court agreed with the trial court.
The owner appealed to the highest court in Maryland, which looked at whether the expert certificate was necessary for the owner to bring its case against the engineering firm. The Court noted that the state legislature had previously expanded the scope of the law on expert certificate requirements to apply in professional negligence suits against engineering firms as well as against individual engineers. The earlier version of the law only required it in professional negligence suits against the individual licensed professionals. While the revised law might seem to require an expert certificate in this case, the Court found the certificate requirement only applies to a suit against an engineering firm when the basis of the allegations is the professional negligence of a “licensed professional.” The Court noted that the employee whose actions were at issue was not a licensed engineer. Additionally, the complaint did not allege a failure by any licensed professional at the firm in supervising her.
The Court reasoned that the “certificate requirement does not apply to every action that might be brought against a licensed professional or the licensed professional’s employer.” The Court went on to explain that “the certificate requirement is triggered only when the complaint raises the issue of whether that licensed professional deviated from the standard of care for that profession.” The Court reversed the trial court’s dismissal, believing that further development of the case at the trial level would determine whether there was a viable claim of negligence against the firm that was independent of any failure by a licensed engineer in exercising professional care. If not, the case will be dismissed by summary judgment motion as suggested by the court.
About the author: Article written by J. Kent Holland, Jr. and James Rhodes.
J. Kent Holland, Jr. is a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk.com Report, Vol. 15, No. 11 (Nov 2013).
Copyright 2013, ConstructionRisk, LLC
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