Eastern Steel v. City of Salem

• Decision Date: 09 February 2001
• Docket Number: No. 28202.,28202.
• Citation: 209 W.Va. 392,549 S.E.2d 266
• Court: West Virginia Supreme Court
• Parties: EASTERN STEEL CONSTRUCTORS, INC., a Maryland Corporation Doing Business in the State of West Virginia, Plaintiff Below, Appellant, v. The CITY OF SALEM, a Municipal Corporation; and Kanakanui Associates, a West Virginia Corporation; and Unidentified John Doe Defendants, Defendants Below, Appellees, and The City of Salem, a Municipal Corporation, Third-Party Plaintiff Below, Appellee, v. Old Republic Surety Company, a Corporation Domiciled in the State of Wisconsin, Third-Party Defendant Below, Appellee.

549 S.E.2d 266

209 W.Va. 392

EASTERN STEEL CONSTRUCTORS, INC., a Maryland Corporation Doing Business in the State of West Virginia, Plaintiff Below, Appellant, v. The CITY OF SALEM, a Municipal Corporation; and Kanakanui Associates, a West Virginia Corporation; and Unidentified John Doe Defendants, Defendants Below, Appellees, and The City of Salem, a Municipal Corporation, Third-Party Plaintiff Below, Appellee, v. Old Republic Surety Company, a Corporation Domiciled in the State of Wisconsin, Third-Party Defendant Below, Appellee.

No. 28202.

Supreme Court of Appeals of West Virginia.

Submitted January 9, 2001.

Decided February 9, 2001.

Dissenting Opinion of Justice Maynard July 2, 2001.

Concurring Opinion of Justice Starcher July 10, 2001.

Gary S. Wigal, Gianola, Barnum & Wigal, Morgantown, for the Appellant.

James C. Higgins, Dennis V. Garrison, III, Rist, Higgins & Associates, P.L.L.C., Beckley, for Appellee Kanakanui Associates.

DAVIS, Justice.

Eastern Steel Constructors, Inc., a contractor, appeals an order of the Circuit Court of Harrison County granting summary judgment in favor of Kanakanui Associates, a design professional, as to Eastern Steel Constructors' claims for professional negligence, implied warranty of plans and specifications, and as a third-party beneficiary to a contract between Kanakanui Associates and the City of Salem, West Virginia. The circuit court rejected the claim for professional negligence based upon its conclusion that, because Eastern Steel Constructors' sought only economic damages, this cause of action could be maintained only as a cause of action in contract. With respect to the implied warranty claim, the circuit court reasoned that absent a contract between the parties, there was no duty owed. Finally, the circuit court found that Eastern Steel Constructors' was not a third-party beneficiary of the contract between Kanakanui Associates and the City of Salem. After reviewing the parties briefs, the record submitted on appeal, and the relevant law, we find that a contractor may assert a negligence cause of action against a design professional seeking purely economic damages even in the absence of privity of contract, that there exists an implied warranty of plans and specifications that inures to a contractor in the absence of a contract, and finally, that Eastern Steel Constructors' failed to establish any evidence supporting its third-party beneficiary claim.

I. FACTUAL AND PROCEDURAL HISTORY

The City of Salem, West Virginia (hereinafter "Salem"), a defendant and third-party plaintiff below and an appellee herein, entered into a contract with Kanakanui Associates (hereinafter "Kanakanui"), also a defendant below and appellee herein, under which Kanakanui was to provide engineering and architectural services for certain improvements to Salem's existing sewer system, including the design of a new sewage treatment plant to be built under one construction contract, and of two sewer lines to the new plant that were to be built under two additional construction contracts. Kanakanui created particular documents, namely plans and specifications, to be used to solicit bids from interested construction companies in connection with the three separate contracts, and to be further used by the successful bidders in constructing the project. After the completion of the bidding process, Eastern Steel Constructors, Inc. (hereinafter "Eastern"), plaintiff below and appellant herein, was awarded a contract for the construction of one of the sewer lines to the new plant.¹

Eastern contends that, after beginning construction on the project, it experienced significant delays caused by sub-surface rock conditions and existing utility service lines that had not been disclosed in the documents prepared by Kanakanui. Kanakanui submits that under the contract between Salem and Eastern, Eastern was "to be responsible for the installation of the facilities regardless of the type, nature, or quantity of subsurface conditions, including rock, on the Project." (Emphasis added).

As a result of the delays encountered in the project, Eastern asserts, it incurred substantial actual and consequential damages. In addition, Eastern maintains that Kanakanui failed to properly administer and manage the project, which, according to Eastern, caused it further financial damage.

Eastern subsequently filed tort actions against both Salem and Kanakanui for its damages. Eastern's complaint contained three allegations that involved Kanakanui: (1) that Kanakanui had been negligent in its provision of construction engineering services, consultation, project inspection, project management, and project administration; (2) that both Salem and Kanakanui breached an implied warranty of plans and specifications; and (3) that Eastern was entitled to damages as a third-party beneficiary of the contract between Salem and Kanakanui.

Kanakanui responded with a motion for summary judgment pursuant to Rule 56(b) of the West Virginia Rules of Civil Procedure. Following a hearing on Kanakanui's motion, the Circuit Court of Harrison County, by order entered November 2, 1999, granted the motion. In reaching its conclusion that summary judgment should be awarded in favor of Kanakanui, the circuit court found that Kanakanui's motion presented two issues of law. First, whether the execution and rendering of a contract between an engineer/architect and an owner for the design, plans, and specifications of a project imports a duty from the engineer/architect to a contractor constructing part of the project under a separate contract with the owner. If the answer to this legal question is affirmative, the circuit court observed, then subsequent questions of whether such a duty conveys to the contractor a right to maintain actions against the engineer/architect for negligence in performing its contract obligations and for breach of an implied warranty of plans and specifications must be addressed. The second legal issue identified by the circuit court was whether a construction contractor hired by an owner has a third-party beneficial interest arising from a contract between an engineer/architect and the owner, to which the construction contractor was not a party, such that the construction contractor may institute an action against the engineer/architect for its failure to properly render the services contracted. After identifying these issues, the circuit court concluded, as to the first issue, that

the prevailing law in West Virginia limits the recovery of a building contractor to an action for economic damages against the owner as an action in contract only, and that there is not a duty owed by the engineer/architect to the building contractor regarding the plans, drawings and specifications, the adequacy or inadequacy of any or all of them and for the administration of the contract, under the engineer/architect's contract to and for the owner.

With regard to the second issue, the circuit court concluded "that the building contractor is precluded by West Virginia Code § 55-8-12² from maintaining any claim as a party with a beneficial interest in the contract between the Owner and the Engineer/Architect because the contractor was not specifically identified and the action instituted was in tort." (Footnote added). It is from this order that Eastern now appeals.

II. STANDARD OF REVIEW

It is well established that our review of a grant of summary judgment is de novo. "`A circuit court's entry of summary judgment is reviewed de novo.' Syllabus point 1, Painter v. Peavy, 192 W.Va. 189, 451 S.E.2d 755 (1994)." Syl. pt. 1, Shaffer v. Acme Limestone Co., Inc., 206 W.Va. 333, 524 S.E.2d 688 (1999). In conducting our de novo review of the circuit court's ruling, we must consider the following standard for granting summary judgment in the first instance:

"A motion for summary judgment should be granted only when it is clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not desirable to clarify the application of the law." Syl. Pt. 3, Aetna Casualty & Surety Co. v. Federal Insurance Co. of New York, 148 W.Va. 160, 133 S.E.2d 770 (1963).

Syl. pt. 1, Tiernan v. Charleston Area Med. Ctr., Inc., 203 W.Va. 135, 506 S.E.2d 578 (1998). With these standards as our guide, we now consider the issues raised in this appeal.

III. DISCUSSION

A. Design Professional's Liability to Contractor For Purely Economic Damages Resulting from Professional's Negligence

The first question raised in this appeal is whether there exists in West Virginia a cause of action sounding in negligence whereby a construction contractor may recover damages for purely economic losses from a design professional (e.g. architect or engineer) in the absence of a contract between the contractor and the design professional. The trial court concluded that such a cause of action may be pursued only as an action in contract law.³ We disagree.

This Court previously addressed the question of whether a claim for negligence may lie in the context of the construction industry where there is no contract between the parties to a dispute in the case of Sewell v. Gregory, 179 W.Va. 585, 371 S.E.2d 82 (1988). Sewell involved homeowners (the Sewells) who discovered latent defects in their home that allegedly resulted from negligence on the part of the construction contractor who had built the home. The defects manifested themselves in substantial flooding of the home. The Sewells had not purchased the home directly from the contractor, however. Instead, the home had initially been sold by the contractor to another family who subsequently sold it to the Sewells. Consequently, there was no contract between the Sewells and the contractor. The Sewells nevertheless sued the contractor, in part, for his alleged negligence in building the house. The circuit court dismissed the Sewell's negligence claim against the contractor, presumably based upon a...