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

• Citation: 99 P.3d 66
• Decision Date: 04 October 2004
• Docket Number: No. 03SC104.,03SC104.
• Parties: BRW, INC., and Professional Service Industries, Inc., Petitioners, v. DUFFICY & SONS, INC., d/b/a/ Central Denver Ironworks, Inc., Respondent.
• Court: Supreme Court of Colorado

99 P.3d 66

BRW, INC., and Professional Service Industries, Inc., Petitioners, v. DUFFICY & SONS, INC., d/b/a/ Central Denver Ironworks, Inc., Respondent.

No. 03SC104.

Supreme Court of Colorado.

October 4, 2004.

Holland & Hart, LLP, Daniel R. Frost, Elizabeth A. Phelan, Timothy W. Gordon, Denver, for Petitioner BRW, Inc.

Kennedy, Christopher, Childs & Fogg, P.C., John R. Mann, Denver, for Petitioner Professional Services Industries, Inc.

Cage, Williams, Abelman & Layden, P.C., Alvin M. Cohen, Denver, for Respondent Dufficy & Sons, Inc.

Jackson Kelly, PLLC, Philip B. Cardi, Timothy M. Schulte, Denver, for Amici Curiae American Council of Engineering Companies of Colorado, The American Institute of Architects of Colorado, Structural Engineers Association of Colorado, and Colorado Association of Geotechnical Engineers.

Senn Visciano Kirschenbaum Merrick P.C., Mark D. Gruskin, Luis A. Toro, Denver, for Amici Curiae American Subcontractors Association, American Subcontractors Association of Colorado, and Colorado Contractors Association.

HOBBS, Justice.

We granted certiorari to review the court of appeals decision in Dufficy & Sons, Inc. v. BRW., Inc., 74 P.3d 380 (Colo.App.2002).¹ Dufficy & Sons, Inc. ("Dufficy") was involved in a construction project ("the Project") as a subcontractor. BRW, Inc. ("BRW"), a licensed engineer, designed the plans and specifications for the Project. Dufficy's contract required it to follow BRW's plans and specifications. BRW hired Professional Service Industries, Inc. ("PSI") to inspect the Project's construction and ensure that the general contractor and subcontractors were following BRW's plans and specifications.

Dufficy encountered problems with the Project resulting in economic loss. Dufficy filed suit against BRW and PSI, asserting claims for negligence and negligent misrepresentation. The trial court dismissed Dufficy's claims because it found the economic loss rule applicable to bar the tort claims. The court of appeals reversed; it held that BRW, as a licensed engineer, and PSI, as an inspector, owed subcontractors an independent duty of care. Under the court's reasoning, the economic loss rule did not bar the negligence and negligent misrepresentation claims because BRW and PSI owed Dufficy an independent duty of care under tort law, even though the claims arose from interrelated contracts.

We reverse the court of appeals. Our economic loss rule requires the court to focus on the contractual relationship between the parties, rather than their professional status, in determining the existence of an independent duty of care. The interrelated contracts in this case contained BRW's and PSI's duty of care. Dufficy's tort claims are based on duties that are imposed by contract and therefore, contract law provides the remedies. Accordingly, the economic loss rule bars Dufficy's tort claims.

I.

This lawsuit arises out of a City and County of Denver construction project, for two steel bridges on Speer Boulevard over the Platte River. The City contracted with BRW to obtain "professional services for the design and construction administration of the Speer Boulevard Bridges." BRW agreed to "perform professional Engineering and Architectural Services for the City in connection with the planning, designing, bidding and construction observation of the Project as specified in this Agreement."

The BRW contract sets out BRW's standard of care and its duties. Specifically, BRW agreed to complete all work performed under the BRW contract "in accordance with the standards of care, skill and diligence provided by competent professionals who perform work or services of a similar nature." BRW also agreed that its drawings and specifications for the Project would "represent a thorough study and competent solution for the Project as per usual and customary professional standards and shall reflect all architectural and engineering skills applicable to that phase of the Project." BRW also agreed to inspect the performance of the contract to determine that the work "has been or is being installed in conformance with the Contract Documents."²

As required by the BRW contract, BRW completed the drawings and specifications for the Project. Subsequently, the City invited bids from general contractors. Edward Kraemer & Sons, Inc. ("Kraemer") was the successful bidder and entered into a contract with the City providing that Kraemer would serve as the general contractor for the Project.

Kraemer then subcontracted with Anko Metal Services, Inc. ("Anko") for the fabrication, painting, and shipment of structural steel. In turn, Anko subcontracted with Dufficy for the fabrication, painting, and shipments of portions of the structural steel. Dufficy subcontracted with Coblaco Services, Inc. to apply the topcoat and primer ("shop coatings") and with Sherwin-Williams to supply paint products for the Project. BRW contracted with PSI to inspect "all of the work at issue." The following diagram illustrates the interrelated contractual relationships:

Kraemer and all of its subcontractors, including Dufficy, were contractually obligated to build the Project in accordance with BRW's design drawings and specifications. For example, Dufficy's contract with Anko required Dufficy to fabricate, paint, and ship structural steel for the Project, in accordance with BRW's plans and specifications. Likewise, the contract between Kraemer and the City incorporated BRW's plans and specifications.

Kraemer's and all of its subcontractors' contracts also included a provision requiring the contractual parties to resolve "disputes of any nature whatsoever regarding the Contract" pursuant to the City's administrative claims procedure, D.R.M.C. section 56-106. The remedy provision binds the general contractor and its subcontractors and suppliers to this dispute resolution process:

The Contractor expressly agrees that this dispute resolution process is the only dispute resolution mechanism that will be recognized by the parties for any claims put forward by the Contractor, notwithstanding any other claimed theory of entitlement on the part of the Contractor or its subcontractors or suppliers.

The Project incurred unexpected delays due to application of the primer and top-coat, and the cure period ("paint system"), which resulted in economic loss to Dufficy. In compliance with Dufficy's contractual remedy, Dufficy, through Kraemer, submitted claims to the City for administrative review on April 24, 2000.³ All of the claims were based on additional expenses incurred in connection with the delays caused by the paint system.

In its administrative complaint, Dufficy and Kraemer alleged that BRW, PSI, and the City were responsible for the delay and the increased costs. Dufficy argued that BRW required the use of a paint system that was inappropriate for Denver's altitude and arid climate.⁴ Dufficy explained that BRW required an inorganic, zinc-rich primer to be fully cured at the faying surfaces (overlapping bolted surfaces) and an intermediate coat to be applied in the shop prior to shipping. Under Denver's climatic conditions, the primer took more than two months to cure. Consequently, Dufficy could not perform its duties of reassembling the steel members. Dufficy claimed that it "expended enormous administrative time and effort in attempting to improve the performance of the primer."

Additionally, Dufficy contended that PSI delayed its inspection of the Project, greatly magnifying Dufficy's difficulty. Had PSI inspected the project on time, Dufficy argued, it would have been "in a better position to address the problems in an efficient and cost-effective manner." It also argued that PSI improperly instructed Coblaco to perform its duties in a way that caused problems with the paint system.

On October 25, 2000, prior to any administrative ruling, Dufficy filed a complaint in the District Court of Denver against BRW, PSI, Sherwin-Williams, and Coblaco. Only the tort claims against BRW and PSI are the subject of this appeal.

Dufficy's district court complaint and its administrative claim with the City are based on the same factual allegations. Dufficy's amended complaint alleges that, when the erection of the steel for the first bridge was to commence, the shop coatings "cured too slowly, inconsistently, in some instances never cured, and failed in numerous areas by peeling and falling off steel components." The slow cure time increased the costs of Dufficy's performance and "caused delays in completing the Project, resulting in significant damages to Dufficy & Sons." For example, Dufficy had to repair some of the paint on the steel that had peeled off, and the delay decreased its labor productivity.

In Dufficy's negligence action against BRW, Dufficy alleged that BRW failed to exercise reasonable care when: (1) preparing design drawings and specifications for the Project involving the paint system; (2) investigating whether requiring implementation of the paint system was justified; and (3) administering the contract documents. Dufficy also asserted a negligence claim against PSI alleging that PSI failed to exercise reasonable care when inspecting the Project.

Dufficy also brought a negligent misrepresentation claim against BRW and PSI. Dufficy claimed that BRW, through its agent, PSI, made negligent misrepresentations regarding the paint system. Dufficy argued that PSI inaccurately "represented to Dufficy ... that Coblaco was performing its contractual obligations with Dufficy ... in strict accordance with Sherwin-Williams' instructions and the Contract Documents."

Dufficy sought only economic damages for these claims. The amended complaint requested "a money judgment consisting of the sum of actual and consequential damages, the cost and expense of bringing this action, including attorneys' fees, prejudgment interest, and exemplary damages . . ., treble damages, and such other ... relief."

BRW moved to dismiss...