Fleischer v. Hellmuth, Obata & Kassabaum, Inc.

• Decision Date: 30 November 1993
• Docket Number: No. 61775,61775
• Citation: 870 S.W.2d 832
• Court: Missouri Court of Appeals
• Parties: Alfred J. FLEISCHER, Sr., Eva Fleischer, and Alfred J. Fleischer, Jr., d/b/a Fleischer-Seeger Construction Company, Plaintiffs/Appellants, v. HELLMUTH, OBATA & KASSABAUM, INC., Defendant/Appellant.

Page 832

870 S.W.2d 832

Alfred J. FLEISCHER, Sr., Eva Fleischer, and Alfred J Fleischer, Jr., d/b/a Fleischer-Seeger Construction Company, Plaintiffs/Appellants, v. HELLMUTH, OBATA & KASSABAUM, INC., Defendant/Appellant.

No. 61775.

Missouri Court of Appeals,

Eastern District,

Division Four.

Nov. 30, 1993.

Motion for Rehearing and/or Transfer to Supreme Court Denied Feb. 14, 1994.

Application to Transfer Denied March 22, 1994.

Kenneth A. Slavens, Steven H. Schwartz, Brown & James, P.C., St. Louis, for appellants.

Merle L. Silverstein, Rosenblum, Goldenhersh, Silverstein & Zafft, Clayton, and Edward L. Foote, Winston & Strawn, Chicago, IL.

AHRENS, Judge.

In this jury-tried case defendant Hellmuth, Obata & Kassabaum, Inc., appeals from the judgment in favor of plaintiffs, Alfred J. Fleischer, et al., d/b/a Fleischer-Seeger Construction Company, for damages for professional malpractice. Plaintiffs cross-appeal from the judgment in favor of defendant on plaintiffs' claim for tortious interference with contract. We reverse in part and affirm in part.

Defendant raises seven points on its appeal. We find one point dispositive: the trial court erred in denying defendant's motions for directed verdict and judgment notwithstanding the verdict for the reason that plaintiffs failed to make a submissible case of negligence.

In determining whether plaintiffs made a submissible case, "all the evidence must be viewed in the light most favorable to the plaintiffs, giving them the benefit of all favorable inferences and disregarding defendant's evidence, except insofar as it might be favorable to the plaintiffs." Tompkins v. Kusama, 822 S.W.2d 463, 464 (Mo.App.1991) [quoting Yoos v. Jewish Hosp., 645 S.W.2d 177, 183 (Mo.App.1982) ].

This litigation arose out of a construction project involving renovation of a vessel known as The S.S. Admiral. On December 22, 1983, the owner, S.S. Admiral Partners, entered into a contract with plaintiffs for services as the construction manager for this project. On December 29, 1983, the owner entered into a separate contract with defendant as the architect for the project.

Plaintiffs agreed to provide services as construction manager for the conversion of the vessel into an entertainment center, and to "provide leadership to the 'Construction Team' on all matters relating to construction." The construction team consisted of the owner, construction manager, architect, and a show designer/creative director. Plaintiffs' contract with owner provided for a substantial completion date of May 1, 1985, at a guaranteed maximum price of $15,085,000.

Defendant's contract with owner required defendant to provide architect services in five phases: schematic design, design development, construction documents, bidding or negotiations, and construction. Defendant's contract required that its basic services were to be "provided in conjunction with the services of the Construction Manager".

Plaintiffs' first amended petition sought damages in tort for professional malpractice. Plaintiffs alleged that defendant: provided plans and specifications upon which the construction work was estimated and performed; knew that the plans and specifications would be relied upon by plaintiffs as construction manager and plaintiffs' subcontractors and suppliers; and failed to exercise the ordinary care required of a reasonably prudent architect in the preparation of the plans and specifications and in performing its architectural services in the administration of the project. Plaintiffs further claimed that as a direct and proximate result of defendant's negligence, plaintiffs were "materially damaged and financially destroyed".

Specifically, plaintiffs claimed damages resulting from litigation over the termination of plaintiffs' contract, arbitration with owner, suits by subcontractors and plaintiffs' bonding company, attorneys fees and expenses, and sums for settlement with the bonding company and some thirty subcontractors, inability to obtain bonds for other projects, and lost profits on this and other projects. Major components of plaintiffs' damage claims were: $3.0 million paid by plaintiffs to its surety to settle claims for payments made to owner and sub-contractors, $290,000 paid by plaintiffs to sub-contractors, and $600,000 in lost profits.

Defendant asserts plaintiffs' claim seeks recovery for negligent interference with contract, which is not cognizable under Missouri law. J. Louis Crum Corp. v. Alfred Lindgren, Inc., 564 S.W.2d 544, 550-51 (Mo.App.1978). Plaintiffs respond that the jury verdict was on plaintiffs' claim for professional negligence, not negligent interference with contract. Further, defendant claims a "qualified privilege" because it was acting pursuant to its contractual duties to owner. Defendant also states "[defendant] had no duty to protect plaintiffs' economic interests which conflicted with the owner's interests. [Defendant's] only duty in this case was to the owner." Plaintiffs counter that the issue is one of foreseeability that the architect's negligence would injure the construction manager. Plaintiffs argue, once foreseeability is established, the absence of privity and the absence of physical damage are irrelevant, and plaintiffs may recover for economic losses alone. We disagree.

Plaintiffs' claims here do not involve a lease or other property interest. Instead, they involve purely economic losses resulting from what the jury found to be negligence on the part of defendant in performing its contract to provide architectural services for owner. For the reasons set out herein, we hold that an architect owes no tort duty of care and is not liable to a general contractor or construction manager for damages for economic losses arising as a result of the architect's negligent performance of its contract with the owner.

The general common law rule is that a defendant who has contracted with another owes no duty to a plaintiff who was not party to the contract, nor can that plaintiff sue for the negligent performance of the contract. Denial of liability for the negligent performance of a contract by one who was not a party to the contract has been based on two principal grounds. The first is the concern that legal protection of this kind of interest would lead to excessive and unlimited liability. Westerhold v. Carroll, 419 S.W.2d 73, 77 (Mo.1967) (citing Roddy v. Missouri Pac. Ry. Co., 104 Mo. 234, 15 S.W. 1112 (1891) and Winterbottom v. Wright, 10 M. & W. 109, 152 Eng.Rep. 402). The second is that it "would restrict and embarrass the right to make contracts by burdening them with obligations and liabilities to others which parties would not voluntarily assume." Id.

The Missouri Supreme Court, while recognizing exceptions to the general rule, has held that "any extension of the limits of liability in this field should be done on a case- by-case basis, with a careful definition of the limits of liability, depending upon the differing conditions and circumstances to be found in individual cases." Id. at 78. Exceptions to the rule of privity which have been recognized include: where an act of negligence is imminently dangerous to the lives or safety of others or the thing dealt with is inherently dangerous; fraud or collusion; express warranty; implied warranty; and error in the transmission of telegrams. ¹

Our Supreme Court in Westerhold provided guidance as to conditions and circumstances which are important in determining whether a defendant is liable to a third party with whom defendant is not in privity. To be considered first are the policy concerns of exposing the defendant to an unlimited number, or indeterminate class, of potential claimants and depriving parties of control over their contracts. Id. at 79. If neither of these concerns are present in a particular case, then the determination "involves the balancing of various factors, among which are the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant's conduct and the injury suffered, the moral blame attached to defendant's conduct, and the policy of preventing future harm." Id. at 81.

To support their position that defendant owed a duty of care to plaintiffs, plaintiffs rely primarily on Chubb Group of Ins. v. C.F. Murphy & Assoc., 656 S.W.2d 766 (Mo.App.1983), in which our Western District recognized a cause of action for an architect's negligent interference with a tenant's right to use and enjoy a leasehold. The Court found that "[a]rchitects and contractors owe a duty to exercise the care required of their professions to persons with whom they are not in privity when the injury to those third parties is foreseeable." Id. at 775. Defendant asserts the architect's duty of care under Chubb extends to personal injury or property damage, not the "mere loss of a business expectation." Plaintiffs contend that the focus of Chubb is foreseeability, and an architect would know and foresee that negligence in preparing plans and in failing to properly administer the construction would cause injury to the general contractor or construction manager.

According to the Chubb court, the existence of a tort duty to third parties on the part of an architect turns on whether the injury is foreseeable and within the policy considerations of avoiding both unlimited liability and the overburdening of those who assume contractual responsibilities. Id. at 776. The Chubb court also used the same "balancing of factors" analysis outlined in Westerhold.

If a duty to third parties exists, the next question to be resolved is the type of injury for which liability attaches. Liability is similarly premised on whether the injury was foreseeable and within the policy considerations of avoiding both unlimited liability and the overburdening of those who assume...