Hayes v. Intermountain GeoEnvironmental Servs., Inc.
|498 P.3d 435
|04 November 2021
|Kim HAYES and Nancy Hayes, Petitioners, v. INTERMOUNTAIN GEOENVIRONMENTAL SERVICES, INC., Respondent.
|Supreme Court of Utah
Attorneys:1 Damian C. Smith, Lehi, for petitioners
Anna Nelson, Salt Lake City, for respondent
¶1 Shortly after moving into their new home, Kim and Nancy Hayes noticed the walls and foundation were cracking. They discovered that this was caused by "failure surfaces" in the soil approximately sixty-five feet beneath their home. The Hayeses filed suit, asserting a variety of tort and contract claims against the contractor, the developer, and Respondent Intermountain GeoEnvironmental Services, Inc. (IGES)—a geotechnical engineering firm that provided a geotechnical report opining the site was safe for residential construction, provided certain recommendations were met.2
¶2 Each of the Hayeses’ claims against IGES were tort claims asserting negligence. IGES moved to dismiss the claims, arguing they were barred by both the common law and statutory economic loss rules, which place limits on tort claims for purely economic losses. The district court agreed and dismissed the Hayeses’ claims against IGES. And the court of appeals affirmed, holding that the claims were proscribed by Utah's statutory economic loss rule (Economic Loss Statute or Statute), which limits any "action for defective design or construction" to claims for breach of contract, with narrow exceptions. UTAH CODE § 78B-4-513(1) to (2). The court of appeals concluded that the Hayeses’ negligence claims were subject to the Economic Loss Statute because they amounted to "an action for defective design or construction."
¶3 On certiorari, the question before us is whether the court of appeals correctly construed the Economic Loss Statute to reach the Hayeses’ negligence claims. The Hayeses also argue that the court of appeals should have analyzed whether a common law independent duty exception applies to their claims.
¶4 Because we agree with the court of appeals that the Hayeses have brought an "action for defective design," the Economic Loss Statute applies and bars the Hayeses’ negligence claims. Further, no common law exception is available because the Statute is controlling. We affirm.
¶5 Kim and Nancy Hayes built a home in the Quail Hollow subdivision in Layton, Utah. The subdivision was developed by K.C. Halls Construction, Inc. Halls Construction acted as an agent for Roger Nuttal, who sold the building lot to the Hayeses. The Hayeses then hired Bob Stevenson to construct the house. About fourteen months after completion, the Hayeses noticed cracking in the home's walls and foundation.
¶6 More than ten years prior to construction of the residence, Halls Construction contracted with IGES to provide a geotechnical report for the planned development, as required by Layton City. IGES reviewed geological maps of the area; conducted a field investigation during which it completed three borings to depths of twenty-five, twenty-five, and fifty feet deep; and tested the resulting soil samples in a laboratory to "assess the soil's pertinent engineering properties." IGES prepared a geotechnical report for Halls Construction, in which it included the findings obtained from the drillings and concluded that "[b]ased on the subsurface conditions encountered at the site and slope stability analysis, it is our opinion that the subject site is suitable for the proposed construction provided that the recommendations contained in this report are complied with." The report made recommendations pertinent to future construction, including that: all structures be placed on structural fill, structures be founded on spread footings, the maximum allowable bearing pressure4 be 2,000 pounds per square foot, concrete slabs be designed by a structural engineer, and subdrains be considered.
¶7 After the cracks manifested, the Hayeses hired a different engineering firm, CMT Engineering Laboratories, to conduct another geotechnical exploration. CMT found a subsurface problem that IGES had not, concluding: The Hayeses attempted to hire a contractor to remediate the issue but were unable to find anyone to take on the project. According to the complaint, "no contractor was willing to submit a bid based on their inability to guarantee that the remedial actions would result in stabilization of the structure," and they were unwilling to assume liability for the work.
¶8 The Hayeses ultimately concluded that their property was unsafe and could not support their home. They filed a complaint against Halls Construction, Stevenson, and IGES. Relevant here, the Hayeses sued IGES for negligence, negligent misrepresentation for "wrongly concluding that the [lot] was safe and suitable for residential construction," and negligent infliction of emotional distress caused by "witnessing the continuing destruction of" their home.5 The Hayeses’ core allegation was that IGES's report had been wrong. They asserted that although IGES reported that the property was "safe and suitable" for residential construction, it "was not and is not suitable or safe for construction of a residence." They sought compensation for the damage and eventual destruction of their home, damage to the lot on which the home was built, moving expenses, and their emotional distress.
¶9 IGES moved to dismiss the Hayeses’ complaint, arguing their negligence claims were barred by both the common law economic loss rule and the Economic Loss Statute because the Hayeses were seeking compensation in tort for purely economic losses. IGES noted that the common law economic loss rule recognizes an exception, permitting tort claims for economic losses when a defendant has a duty to the plaintiff independent of any contractual relationship. IGES argued that it had no independent duty to the Hayeses. But it asserted that even if it did, the Economic Loss Statute applies to the Hayeses’ complaint, and because the Statute does not contain an independent duty exception, no exception would apply. The district court granted the motion and the Hayeses appealed.
¶10 The court of appeals affirmed. It held that the Hayeses’ tort claims against IGES were subject to the Economic Loss Statute because, in substance, they constituted an "action for defective design or construction."6 Hayes v. Intermountain GeoEnvironmental Servs. Inc. , 2019 UT App 112, ¶ 22, 446 P.3d 594. The court also concluded that because the Economic Loss Statute applied, it did not need to consider the applicability of the common law economic loss rule or its independent duty exception. Id. ¶ 8.
¶11 The Hayeses petitioned for certiorari, which we granted. We exercise jurisdiction under Utah Code section 78A-3-102(3)(a).
¶12 "On certiorari, this court reviews the decision of the court of appeals for correctness, giving no deference to its conclusions of law." State v. Marquina , 2020 UT 66, ¶ 24, 478 P.3d 37 (citation omitted).
Id. ¶ 19 (footnote omitted).
¶14 The Hayeses argue that the court of appeals erred in two respects. First, they contend their negligence claims should not be subject to the Economic Loss Statute because they are not alleging that IGES provided a "defective design." Rather, they characterize their claims as alleging only that IGES negligently missed the subsurface fracture sixty-five feet below their home and consequently issued the erroneous report. And they assert that "a geotechnical report on soil stability conditions" is not a "design." In the alternative, the Hayeses argue that the court of appeals should have considered whether IGES owed them an independent duty under the common law.
¶15 We conclude that the court of appeals correctly interpreted and applied the Statute. We first discuss the economic loss rule in general and then address the construction and application of the Economic Loss Statute.
¶16 In general, the economic loss rule places limits on tort claims for purely economic losses. See UTAH CODE § 78B-4-513(1) ; Gables at Sterling Vill. Homeowners Ass'n, Inc. v. Castlewood-Sterling Vill. I, LLC , 2018 UT 04, ¶ 47, 417 P.3d 95. It is a "judicially created doctrine that marks the fundamental boundary...
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