The Legal Edge: Solving Today’s Construction Problems

Texas Housing ConferenceJuly 28-30, 2014

Hilton HotelAustin, TX

PresentersModerator

Bobby Bowling, Tropicana Homes

Panel MembersVijay D'Cruz, Locke Lord

Joe Davis, Husch Blackwell Chris Ryman, Coats | Rose

RECENT SUPREME COURT DECISIONS LIMITING REMEDIES FOR

ERRORS BY DESIGN PROFESSIONALS

Joe Davis, Husch Blackwell

What is the remedy against a design professional whose error causes

economic damage to someone with whom it has no contract

(like a visitor, or the general contractor)?

Big QuestionBig Question

“Economic Loss Rule”Tort damages (“liability not based on a contract or a statute”) are unavailable when the plaintiff sues for breach of a contractual duty, rather than a duty imposed by law.

“When the injury is only the economic loss to the subject of a contract itself the action sounds in contract alone.”

Southwestern Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494-495 (Tex. 1991).

"[W]e have never held that [the economic loss rule] precludes recovery between contractual strangers in a case not involving a defective product."

-Sharyland Water Supply Corp. v. City of Alton, 254 S.W.3d 407, 410-20 (Tex. 2011).

Negligent Misrepresentation

RESTATEMENT (SECOND) OF TORTS §552; McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests,

991 S.W.2d 787, 791 (Tex. 1999).

"[W]hile a non-client cannot recover against a lawyer for negligence, a lawyer may be liable for negligent misrepresentation to a non-client when”:•information is transferred by an attorney to a known party for a known purpose”, •liability is not expressly limited or disclaimed but invited, and •the claimant has justifiably relied on a lawyer’s representation of material fact.

-McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, 991 S.W.2d 787, 794 (Tex. 1999).

“[A]n accountant may be liable to a strictly limited group of investors who justifiably rely on negligent misrepresentations in a corporate audit report.”

-McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, 991 S.W.2d 787, 794 (Tex. 1999).

Negligent Misrepresentation

RESTATEMENT (SECOND) OF TORTS §552; McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests,

991 S.W.2d 787, 791 (Tex. 1999).

New Texas Supreme Court CaseConcerning Design Professionals

Martin K. Eby Constr. Co. v. LAN/STV, No. 11-0810 (Tex.)

Argued October 8, 2013Opinion issued June 20, 2014

Martin Eby – Concerns Expressed from the Bench

• Where is the remedy for the contractor?• Why is the remedy against DART legally inadequate?• Couldn’t DART sue LAN/STV and pass through

damages to the contractor?• Will granting a remedy to the contractor turn entire

construction site into a tort lawsuit?

Martin Eby - Opinion by Justice Hecht

• Applied the economic loss rule to bar claims of negligent misrepresentation by a contractors against an architect hired by the owner

• Rejected the comment in Restatement (Third) that would allow liability for economic loss caused by negligent design or misrepresentation

• Determined that the parties should allocate the risk of design errors by their contracts, rather than asking the Courts to allocate the risk

Questions?Questions?