Elcon Constr., Inc. v. E. Wash. Univ.

• Decision Date: 29 March 2012
• Docket Number: No. 83690–6.,83690–6.
• Citation: 273 P.3d 965,174 Wash.2d 157
• Court: Washington Supreme Court
• Parties: ELCON CONSTRUCTION, INC., a Washington Corporation, Petitioner, v. EASTERN WASHINGTON UNIVERSITY, Respondent.

174 Wash.2d 157

273 P.3d 965

ELCON CONSTRUCTION, INC., a Washington Corporation, Petitioner,

v.EASTERN WASHINGTON UNIVERSITY, Respondent.

No. 83690–6.

Supreme Court of Washington, En Banc.

Argued Oct. 27, 2011.

Decided March 29, 2012.

Kevin W. Roberts, Robert Allan Dunn, Michael R. Tucker, Dunn & Black PS, Spokane, WA, for Petitioner.

Jarold Phillip Cartwright, Carl Perry Warring, Catherine Hendricks, Office of the Attorney General, Spokane, WA, for Respondent.

Robert H. Crick, Jr., Robert Crick Law Firm PLLC, Spokane, WA, Amicus Curiae on behalf of Associated General Contractors of washington, Associated General Contractors Oregon–Columbia Chapter and Inland Northwest AGC.

Stewart Andrew Estes, Keating, Bucklin & McCormack, Inc., P.S., Daniel Joseph Gunter, Shata Ling Stucky, Riddell Williams PS, Seattle, WA, Amicus Curiae on behalf of Washington Defense Trial Lawyers.

C. JOHNSON, J.

¶ 1 This case involves a claim for damages relating to a drilling contract between Petitioner Elcon Construction and Respondent Eastern Washington University. In the suit, tort and contract claims were alleged by Elcon. The contract claims were resolved by arbitration. In dismissing the tort claims, the trial court applied the independent duty rule formerly known as the economic loss rule, which the Court of Appeals similarly applied in affirming.¹ We hold the economic loss rule has no application under the facts of this case but affirm the Court of Appeals on different grounds.

FACTS

¶ 2 Eastern relies on two on-campus wells for its water supply (wells 1 and 2), both of which draw from what is called the Wanapum Aquifer. Beginning in 1987, Eastern requested approval from the Department of Ecology (DOE) to consolidate its water rights. In 2003, the DOE approved Eastern's request, thereby allowing Eastern to "refurbish" its two existing on-campus wells to increase their individual yields.² Under DOE rules, refurbishment could include drilling replacement wells in close proximity to the existing wells. Eastern decided to drill replacement wells near wells 1 and 2 and began accepting bids for the job. Eastern's "Instructions to Bidders" contained an "Examination of Site and Conditions" section, which stated in relevant part that by submission of a proposal, the bidder acknowledges:

1. That it has taken steps reasonably necessary to ascertain the nature and location of the Work, and that it has investigated and satisfied itself as to the general and local conditions which can affect the Work or its cost, including ... (d) the conformation and conditions of the ground; and (e) the character of equipment and facilities needed preliminary to and during the performance of the Work.

2. That it has satisfied itself as to the character, quality and quantity of surface and subsurface materials or obstacles to be encountered insofar as this information is reasonably ascertainable from an inspection of the site, including all exploratory work done by Owner....

....

D. No statement made by any officer, agent, or employee of the Owner or [Architect/Engineer] in relation to the physical conditions pertaining to the site of the work will be binding on the Owner or [Architect/Engineer].

Clerk's Papers (CP) at 1113–14. Prior to bidding, Elcon contacted Eastern and requested all the information it had about the project, about other wells in the area, or about the geology relating to wells in the area of the drill site. Three years earlier, in 2000, Eastern had hired Varela & Associates to conduct a water capacity study, seeking to identify future options for expanding its water supply. Varela, in turn, hired Golder Associates to perform a hydrogeological investigation. The "Golder Report," based primarily on published reports and selected drillers' logs obtained from the DOE, contained information about the regional hydrology and recommended future wells be drilled into the Grande Ronde Aquifer below the Wanapum Aquifer at a depth of between 700 to 1,500 feet. CP at 338, 340. Per Elcon's request, Eastern provided Elcon a well log for well 2 and a video of well 1 but did not provide the Golder Report. CP at 864. Elcon submitted the low bid ($1,516,635) and was awarded the contract. CP at 1106–07.

¶ 3 The contract required Elcon to drill two replacement wells to an "estimated" depth of 750 feet.³ CP at 357. The contract specified that "[s]hould water of sufficient quantity and quality be encountered at lesser depths, drilling may be stopped by the Owner. Likewise, the Owner may direct the depth to be increased in order to obtain sufficient water." CP at 357. In addition, the "General Provisions" of the contract placed a duty on Elcon to investigate the site and subsurface conditions. CP at 1123–24. Elcon delegated this duty to its subcontractor, Intermountain Drilling. Outside of requesting information from Eastern and looking at several DOE well logs on-line, Intermountain Drilling did not conduct an independent investigation. CP at 1211–12.

¶ 4 In July 2003, work started on replacement well 1. Drilling stopped soon after it started, however, when an unforeseen layer of sand disrupted the work. Then, upon learning that it may have to drill significantly deeper than 750 feet, Elcon insisted upon payment for increased costs. Eastern terminated the contract for convenience instead and solicited a final pay request, which Elcon submitted to Eastern on June 4, 2004.

¶ 5 Upon learning of previously unknown damage to replacement well 1, Eastern issued a termination for cause letter on October 22, 2004, a copy of which was sent to Elcon's bond surety. Elcon filed this lawsuit claiming breach of contract, in addition to various tort claims.⁴ The trial court, interpreting the contract's arbitration provisions, submitted all contract claims to arbitration and stayed Elcon's tort claims pending completion of arbitration.⁵ CP at 211–13.

¶ 6 In December 2005, the arbitrator awarded Elcon $1,837,000 ($891,000 in addition to $946,000 Eastern had previously paid for work performed) and denied Elcon's postaward motion for statutory interest. CP at 1132–33. Following arbitration, Elcon pursued its tort claims against Eastern, which included fraud in the inducement for not providing the Golder Report and interference with a business relationship for sending a copy of the termination for cause letter to Elcon's surety. The trial court granted summary judgment dismissing Elcon's fraud and intentional interference claims, finding the intentional interference claim factually insufficient and the fraud claims barred by the economic loss rule.⁶ Relying on Alejandre v. Bull, 159 Wash.2d 674, 153 P.3d 864 (2007), the Court of Appeals affirmed, holding all Elcon's tort claims barred by the economic loss rule.

ISSUES

¶ 7 1. Whether summary judgment was appropriate with respect to Elcon's fraud in the inducement claim.

¶ 8 2. Whether summary judgment was appropriate with respect to Elcon's intentional interference with a contractual relationship claim.

¶ 9 3. Whether Elcon is entitled to statutory interest on its arbitration award.

STANDARD OF REVIEW

¶ 10 We review summary judgment orders de novo and perform the same inquiry as the trial court, viewing all facts and reasonable inferences in the light most favorable to the nonmoving party. Hisle v. Todd Pac. Shipyards Corp., 151 Wash.2d 853, 860, 93 P.3d 108 (2004) (citing Kruse v. Hemp, 121 Wash.2d 715, 722, 853 P.2d 1373 (1993) ). The grant of summary judgment is appropriate where there is "no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." CR 56(c). "A material fact is one that affects the outcome of the litigation." Owen v. Burlington N. Santa Fe R.R., 153 Wash.2d 780, 789, 108 P.3d 1220 (2005) (citing Hisle, 151 Wash.2d at 861, 93 P.3d 108). Where no dispute as to the material facts exists, summary judgment is proper.

ANALYSIS

¶ 11 The trial court and the Court of Appeals applied the independent duty doctrine, formerly referred to as the economic loss rule, to dismiss Elcon's tort claims. This was a misapplication of the doctrine, though an inconsequential one. Because Elcon's tort claims factually fail, we affirm the Court of Appeals regardless.

¶ 12 The independent duty doctrine is "an analytical tool used by the court to maintain the boundary between torts and contract." Eastwood v. Horse Harbor Found., Inc., 170 Wash.2d 380, 416, 241 P.3d 1256 (2010) (plurality opinion) (Chambers, J., concurring). In Eastwood, we adopted the term "independent duty doctrine" because it more accurately captured the principle behind the rule: "An injury," we held, "is remediable in tort if it traces back to the breach of a tort duty arising independently of the terms of the contract." Eastwood, 170 Wash.2d at 389, 241 P.3d 1256. To date, we have applied the doctrine to a narrow class of cases, primarily limiting its application to claims arising out of construction on real property and real property sales. "We have done so in each case based upon policy considerations unique to those industries. We have never applied the doctrine as a rule of general application outside of these limited circumstances." Eastwood, 170 Wash.2d at 416, 241 P.3d 1256 (Chambers, J., concurring). Indeed, in Eastwood we directed lower courts not to apply the doctrine to tort remedies "unless and until this court has, based upon considerations of common sense, justice, policy and precedent, decided otherwise." Eastwood, 170 Wash.2d at 417, 241 P.3d 1256 (Chambers, J., concurring).

¶ 13 We have not applied the independent duty doctrine to bar a claim for fraud, and we see no basis to utilize it in this case. Even in the real property context, where we have been the least hesitant to apply the doctrine, we have repeatedly recognized a fraud claim to be outside the doctrine's scope, allowing such claims to be decided based on established tort precedent. See Alejandre, 159 Wash.2d at 689–90, 153 P.3d 864; Atherton...