Guardian Const. Co. v. Tetra Tech Richardson, Inc.

• Decision Date: 11 July 1990
• Citation: 583 A.2d 1378
• Parties: GUARDIAN CONSTRUCTION CO., a Delaware Corporation and Stephen Batzel, t/a Batzel Construction Co., Plaintiffs, v. TETRA TECH RICHARDSON, INC., a Delaware Corporation, Defendant. . Submitted:
• Court: Delaware Superior Court

Page 1378

583 A.2d 1378

GUARDIAN CONSTRUCTION CO., a Delaware Corporation and Stephen Batzel, t/a Batzel Construction Co., Plaintiffs, v. TETRA TECH RICHARDSON, INC., a Delaware Corporation, Defendant.

Superior Court of Delaware,

New Castle County.

Submitted: July 11, 1990.

Decided: Aug. 15, 1990.

David S. Lank, of Theisen, Lank, Mulford & Goldberg, P.A., Wilmington, for plaintiffs.

Frederick W. Iobst, of Young, Conaway, Stargatt & Taylor, Wilmington, for defendant.

OPINION

BARRON, Judge.

Before the Court is an action filed by Plaintiffs Guardian Construction Company (Guardian) and Stephen Batzel, t/a Batzel Construction Company (Batzel) against Tetra Tech Richardson, Inc. (TTR). Guardian and Batzel seek damages from TTR which together total $203,500 plus interest and costs arising out of a construction project involving the parties herein, the State of Delaware, Department of Natural Resources and Environmental Control (DNREC) and Landmark Engineering, Inc. (Landmark). ¹

The construction project giving rise to this action, known as the Augustine Breakwater Project (project), was initiated by DNREC in order to make certain improvements to the Augustine Beach breakwater structure. TTR was the design engineer hired by DNREC to prepare contract documents and specifications for the project. In reliance upon these plans and specifications prepared by TTR pursuant to its contract with DNREC, as well as certain technical information conveyed by TTR to Plaintiffs and others at a pre-bid meeting, Plaintiffs prepared and submitted a bid to DNREC on the construction work to be performed on the project.

Plaintiffs' bid was successful and Guardian was hired by DNREC as general contractor on the project. Guardian then hired Batzel as subcontractor to provide labor and materials on the project in accordance with the plans and specifications prepared by TTR. At all times relevant hereto, neither Guardian nor Batzel had a direct contractual relationship with TTR.

After commencing work on the project, Plaintiffs discovered that the tidal heights and project benchmark had been miscalculated by TTR. These initial miscalculations were used by TTR to develop the project plans and specifications. As indicated, the project plans and specifications were in turn used by Plaintiffs to formulate their bids on the project. As a result of TTR's miscalculations, Batzel claims that it was unable to perform its work on the project as planned. According to Plaintiffs, TTR's miscalculations resulted in additional labor and equipment costs to Batzel of $185,000 and lost profits to Guardian totalling $18,500. On May 9, 1989, Guardian and Batzel filed this action against TTR alleging negligent misrepresentation, negligence and breach of contract. On July 2, 1990, TTR filed the instant motion for summary judgment pursuant to Superior Court Civil Rule 56.

TTR's motion presents two interesting and difficult questions of law. The first is whether or not Plaintiffs may recover purely economic losses under their negligence claims against TTR absent privity of contract. The second question is whether or not Plaintiffs were intended third-party beneficiaries of the contract between DNREC and TTR and therefore entitled to maintain a breach of contract claim against TTR thereon.

STANDARD OF REVIEW

In weighing a motion for summary judgment under Rule 56, the Court must examine the present record, including pleadings, depositions, admissions, affidavits and answers to interrogatories. The facts must be viewed in a light favorable to the non-moving party (in this case Plaintiffs), although uncontroverted evidence offered in support of the motion must be accepted as true. The moving party must show that, on unquestioned facts he is entitled to judgment as a matter of law. See Oliver B. Cannon & Sons, Inc. v. Dorr-Oliver, Inc., Del.Super., 312 A.2d 322 (1973); Matas v. Green, Del.Super., 171 A.2d 916 (1961). Indeed, the parties herein do not dispute the material facts giving rise to this litigation. It is therefore, the function of the Court at this stage of the case simply to test the legal sufficiency of the claims asserted by Plaintiffs against the body of law applicable thereto.

PLAINTIFFS' NEGLIGENCE CLAIM

As indicated, Plaintiffs seek to impose liability upon TTR for negligent preparation of the project plans and specifications and for negligent misrepresentation of material information relied upon by Plaintiffs in calculating their project bids. TTR maintains, however, that as a matter of law, the lack of contractual privity between it and Plaintiffs and the fact that Plaintiffs seek purely economic damages as opposed to damages arising out of personal injury or property damage, effectively bars recovery on both negligence theories.

Traditionally, attempts by injured third-parties to recover for damages arising out of the negligent performance of a contractual duty generally failed because of lack of privity. See generally Rozny v. Marnul, 43 Ill.2d 54, 250 N.E.2d 656 (1969). See also 57A Am.Jur.2d Negligence, § 123 (1989). The privity requirement was eventually abandoned in such cases as MacPherson v. Buick Motor Co., 217 N.Y. 382, 111 N.E. 1050 (1916) and tort liability was extended, particularly in the products liability context, to plaintiffs suffering tangible physical injury or property damage. However, where recovery was sought for purely economic damages, like those claimed by Plaintiffs in the instant case, the "citadel of privity" was held intact.

The rationale behind the traditional rule as it applied to liability for economic losses was expressed by Justice Cardozo in Ultramares Corp v. Touche, 255 N.Y. 170, 174 N.E. 441 (1931). In deciding that an accounting firm that had negligently prepared financial statements for general use by a business was not liable to a lender who made a series of loans on the basis of the financial statements, the Court reasoned:

"If liability for negligence exists, a thoughtless slip or blunder, the failure to detect a theft or forgery beneath the cover of deceptive entries, may expose accountants to a liability in an indeterminate amount for an indeterminate time to an indeterminate class. The hazards of a business conducted on these terms are so extreme as to enkindle doubt whether a flaw may not exist in the implication of a duty that exposes to these consequences."

Id. 174 N.E. at 444.

The basis of the Ultramares holding was that the accountant's work was intended to be used by the party with whom there was privity as the needs of his business might require. In short, where the lender's reliance on the information was merely one unintended possibility among many, the Court was unwilling to recognize a legal duty running from the accountant to the lender which would support a negligence cause of action.

Where however, the relationship or nexus between the supplier and the user of certain types of information is, in one way or another sufficiently close, some Courts have been willing to extend liability for economic loss in the absence of direct contractual privity. These cases suggest that the controlling question is whether it was foreseeable to the negligent supplier of information that the injured party would rely on the information. Under this line of cases, if reliance was foreseeable, a legal duty was found to exist which would support liability for economic losses even in the absence of contractual privity. See Council of Co-owners v. Whiting-Turner, 308 Md. 18, 517 A.2d 336 (1986) (developer and builder liable to homeowner's association for faulty construction of building); Donnelly Const. Co. v. Oberg/Hunt/Gilleland, 139 Ariz. 184, 677 P.2d 1292 (1984) (architect liable on negligence theory to contractor for increased cost of construction due to error in plans and specifications); Howell v. Fisher, 49 N.C.App. 488, 272 S.E.2d 19 (1980) (geological engineer liable to corporate shareholders for negligent misrepresentation in preparation of soil testing report); A.R. Moyer, Inc. v. Graham, Fla.Supr., 285 So.2d 397 (1973) (architect/engineer liable on negligence theory to general contractor absent privity); Tartera v. Palumbo, 224 Tenn. 262, 453 S.W.2d 780 (1970) (surveyor hired by purchaser of property may be liable to third person for economic losses arising out of negligent survey); Audlane Lbr. & Bldrs. Sup. v. D.E. Britt Associates, Inc., D.Ct.App.Fla., 168 So.2d 333 (1964) (architect liable on negligence theory to a third-party as a result of faulty plans and specifications).

Other cases take the foreseeability requirement a step farther and require that the faulty information be intended by its negligent supplier to be specifically relied upon by a particular party or a settled class of parties before economic damages are recoverable on a negligence theory. See E.C. Goldman, Inc. v. A/R/C/ Associates, Fla.Dist.Ct.App., 543 So.2d 1268 (1989) (roofing inspector not liable to roofing subcontractor because no intention on part of inspector that subcontractor rely on information negligently supplied); Baublit v. Barr & Riddle Engineering Co., Inc., Mo.Ct.App., 768 S.W.2d 233 (1989) (land surveyor not liable to property owner for negligent survey performed for third-party where no showing of justifiable reliance on survey); Credit Alliance v. Arthur Anderson & Co., 65 N.Y.2d 536, 493 N.Y.S.2d 435, 483 N.E.2d 110 (1985) (accounting firm not liable to lender for negligently prepared financial statements not intended to be presented to or relied upon by lender); First American Title Insurance Company, Inc. v. First Title Service Company of the Florida Keys Inc., Fla.Supr., 457 So.2d 467 (1984) (title abstractor liable to title insurance company for negligently prepared abstracts); Rozny v. Marnul, 43 Ill.2d 54, 250 N.E.2d 656 (1969) (surveyor liable to purchaser of land for faulty survey); Glanzer v. Shepard, 233 N.Y. 236, 135 N.E. 275 (1922) (weigher of beans liable to buyer for...