Dufficy & Sons, Inc. v. BRW, Inc.

• Decision Date: 21 November 2002
• Docket Number: No. 01CA2201.,01CA2201.
• Citation: 74 P.3d 380
• Parties: DUFFICY & SONS, INC., d/b/a Central Denver Ironworks, Inc., a Colorado corporation, Plaintiff-Appellant, v. BRW, INC., a Wyoming corporation, and Professional Service Industries, Inc., a Delaware corporation, Defendants-Appellees.
• Court: Colorado Court of Appeals

74 P.3d 380

DUFFICY & SONS, INC., d/b/a Central Denver Ironworks, Inc., a Colorado corporation, Plaintiff-Appellant, v. BRW, INC., a Wyoming corporation, and Professional Service Industries, Inc., a Delaware corporation, Defendants-Appellees.

No. 01CA2201.

Colorado Court of Appeals, Div. II.

November 21, 2002.

Rehearing Denied January 9, 2003.

Certiorari Granted August 18, 2003.

Cage, Williams, Abelman & Layden, P.C., Alvin M. Cohen, Denver, Colorado; Kevin M. Dufficy, Denver, Colorado, for Plaintiff-Appellant.

Holland & Hart, LLP, Daniel R. Frost, Joseph W. Halpern, Timothy W. Gordon, Denver, Colorado, for Defendant-Appellee BRW, Inc.

Kennedy & Christopher, P.C., Charles R. Ledbetter, John R. Mann, Denver, Colorado, for Defendant-Appellee Professional Service Industries, Inc.

Opinion by Judge ROY.

Plaintiff, Dufficy & Sons, Inc., appeals from a district court judgment in favor of defendants, BRW, Inc. and Professional Service Industries, Inc. (PSI). We reverse and remand for further proceedings.

The City and County of Denver contracted with BRW to provide licensed engineering services in connection with the design and construction administration of two bridges (the project). Pursuant to the contract, BRW prepared the drawings and specifications for the project, and the project was put out for bid. BRW subcontracted its contract administration obligations, or inspections, to PSI.

The city contracted with a general contractor to construct the project, the general contractor, in turn subcontracted parts of the work. Dufficy subcontracted with an intervening subcontractor for the fabrication, painting, and shipment of portions of the structural steel. As pertinent here, Dufficy further subcontracted the painting and purchased the specified paint from the manufacturer.

The contract between the city and the general contractor incorporated BRW's plans and specifications and required the general contractor to perform and complete all the work in accordance with the plans and specifications. The subcontractors were similarly bound.

According to the complaint, Dufficy incurred additional expense and delays related to the application of the paint and sought additional compensation through the city's administrative appeal process for public works contracts. That process was the sole contractual remedy for disputes arising between the city and the general contractor, sometimes for the benefit of subcontractors, concerning additional compensation or other adjustment in the contracts. However, before a decision was reached in the administrative proceedings, Dufficy commenced this action in district court.

In its amended complaint, Dufficy alleged that BRW was negligent in preparing, interpreting, and administering the paint system specifications. Dufficy also alleged that PSI was negligent in inspecting the painting and in directing Dufficy's paint subcontractor on how and where to apply the paint. Finally, Dufficy alleged that BRW and PSI, as BRW's agent, negligently misrepresented that Dufficy's painting subcontractor was complying with the plans and specifications.

The trial court granted BRW's motion to dismiss and PSI's subsequent motion for summary judgment based on the economic loss rule and then granted Dufficy's motion for C.R.C.P. 54(b) certification. This appeal followed.

I.

We review de novo the trial court's rulings on both BRW's motion to dismiss and PSI's motion for summary judgment. See Aspen Wilderness Workshop, Inc. v. Colorado Water Conservation Board, 901 P.2d 1251 (Colo.1995)

(summary judgment); Fluid Technology, Inc. v. CVJ Axles, Inc., 964 P.2d 614 (Colo.App.1998)(motion to dismiss).

II.

Dufficy contends that the trial court erred in concluding that BRW did not owe Dufficy an independent duty of care in preparing the plans and specifications for the project. More specifically, Dufficy asserts that licensed engineers such as BRW owe contractors and subcontractors an independent professional duty of care in the preparation of plans and specifications, that BRW breached that duty, and that this breach of duty was the proximate cause of Dufficy's damages. BRW, on the other hand, argues that the economic loss rule bars Dufficy's claims. We agree with Dufficy.

The supreme court has adopted the economic loss rule, which states that "a party suffering only economic loss from the breach of an express or implied contractual duty may not assert a tort claim for such a breach absent an independent duty of care under tort law." Town of Alma v. Azco Construction, Inc., 10 P.3d 1256, 1264 (Colo.2000).

The economic loss rule is intended to maintain the boundary between contract and tort and to prevent tort law from swallowing the law of contracts. As the supreme court stated:

In this way, the law serves to encourage parties to confidently allocate risks and costs during their bargaining without fear that unanticipated liability may arise in the future, effectively negating the parties' efforts to build these cost considerations into the contract. The economic loss rule thus serves to ensure predictability in commercial transactions.

Town of Alma v. Azco Construction, Inc., supra, 10 P.3d at 1262. The court also held that the rule applies not only to the contracting parties, but also to third-party beneficiaries who may have a cause of action for breach of contractual duties. However, the supreme court expressly limited the rule to those instances in which there is no independent duty of care under tort law.

Colorado courts have not previously recognized an independent common law duty of care owed by a licensed engineer to a contractor or subcontractor who relies on the plans and specifications prepared by the engineer. Because we now conclude there is such an independent duty of care under the tort law, we hold that the economic loss rule does not preclude Dufficy's tort claims here. Whether a defendant owes a duty to a plaintiff is a question of law for the court, as is the scope of that duty. See Bath Excavating & Construction Co. v. Wills, 847 P.2d 1141 (Colo.1993)

. Whether the defendant has breached that duty and thereby caused the plaintiff damages is a question of fact for the jury. See Perreira v. State, 768 P.2d 1198 (Colo.1989).

In determining whether to recognize a duty, courts must consider many factors, including the risk involved, the foreseeability and likelihood of injury as weighed against the social utility of the actor's conduct, the magnitude of the burden of guarding against injury or harm, and the consequences of placing the burden on the actor. See Taco Bell, Inc. v. Lannon, 744 P.2d 43 (Colo.1987)

. No one factor is controlling, and the question of whether a duty should be implied is essentially one of fairness under contemporary standards, because foreseeable events include those likely enough in the setting of modern life that a reasonably thoughtful person would take them into account in guiding his or her practical conduct. See Hilberg v. F.W. Woolworth Co., 761 P.2d 236 (Colo.App.1988),

overruled in part by Casebolt v. Cowan, 829 P.2d 352 (Colo.1992). Thus, a conclusion that a duty does or does not exist is an expression of policy considerations that lead the law to say whether a plaintiff is entitled to protection. See Casebolt v. Cowan, supra.

Applying the factors listed above and the policy reasons underlying the imposition of a duty of care, we now conclude that a licensed engineer owes a duty of care to the contractors and subcontractors with respect to the plans and specifications drafted and prepared by the engineer and relied upon by the contractor or subcontractor.

Contractors clearly are subject to a substantial risk of loss by relying on the plans and specifications prepared by licensed engineers that they are obligated to implement. Licensed engineers can certainly foresee that contractors may suffer losses if the plans and specifications are faulty. Indeed, the very purpose of preparing plans and specifications is to provide contractors with the necessary details and instructions to carry out their construction activities.

Moreover, extending the licensed engineers' duty of care to contractors and subcontractors who work on a project does not impose a great burden on licensed engineers. Licensed engineers are already bound by duties imposed by their licensing authority. The regulations of the State Board of Registration for Professional Engineers and Surveyors provide that engineers are obligated to "approve and seal only those design documents" that are "in conformity with accepted engineering ... standards." Dep't of Regulatory Agencies Rule 3.1.3, 4 Code Colo. Regs. 730-1. Requiring licensed engineers to produce plans and specifications in accordance with professional standards merely requires them to perform their duties at a level that meets the reasonable expectation of those who employ and rely upon them.

We also conclude that placing a burden of reasonable care on a licensed engineer will benefit the construction industry. The risk of liability will provide engineers with incentive to perform their duties in conformity with the professional standards. Additionally, imposing losses occasioned by defective plans or specifications on the engineer shifts the risk of loss onto the person best able to control the risk.

Although some courts have reached the opposite conclusion, a majority of the appellate courts considering the issue have concluded that a licensed engineer owes a contractor a duty of care. See Mayor v. Clark-Dietz & Associates-Engineers, Inc., 550 F.Supp. 610 (N.D.Miss.1982)(finding that failure of architect to perform contractual obligations to contractor to supply sufficient design for levee and bridge rendered him liable in tort to contractor...