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Balfour Beatty Infrastructure, Inc. v. Rummel Klepper & Kahl, LLP

Court of Special Appeals of Maryland

January 28, 2016

BALFOUR BEATTY INFRASTRUCTURE, INC.
v.
RUMMEL KLEPPER & KAHL, LLP

Page 1025

[Copyrighted Material Omitted]

Page 1026

         Appeal from the Circuit Court for Baltimore City, Alfred Nancy, JUDGE.

         ARGUED BY: Gregory S. Martin (Jennifer G. Craddock, Gregory S. Martin & Assoc. PA on the brief) of Maitland, Florida. (Roger Jones, Lucas Webster, Joseph L. Katz, Huddles, Jones, Sorteberg & Dachille PC on the brief) of Columbia, MD, FOR APPELLANT.

         ARGUED BY: John A. King (Ronan A. Geronimo, Brett A. Pisciotta, King & Attridge on the brief) all of Rockville, MD, FOR APPELLEE.

          Leahy, Reed, Eyler, James. R., (Retired, Specially Assigned) JJ.

          OPINION

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         [226 Md.App. 426] Leahy, J.

         In this appeal we consider whether the economic loss doctrine applies to shield an engineering firm from tort claims brought by a contractor seeking damages for economic losses suffered in consequence of relying on the firm's allegedly defective designs and projections. Our holding is framed by the fact that, while the engineering firm and the contractor each had separate contracts with the government to perform work on the same design-bid-build construction project, there was no contract between the parties.

         The City of Baltimore entered into a contract with Rummel Klepper & Kahl, LLP (" RK& K" or " Appellee" ), a design engineering firm, to produce construction designs and associated documents for use by the successful bidder(s) on succeeding proposals for construction of the Patapsco Wastewater Treatment Plant. Fru-Con Construction Corporation, predecessor to Balfour Beatty Infrastructure, Inc. (" BBII" or " Appellant" ),[1] was the successful bidder on the plant upgrade projects, and entered into Sanitary Contract 852R with the City in November 2009.

         Just over four years later, BBII filed a complaint in the Circuit Court for Baltimore City against RK& K, claiming that, during construction, BBII ran into costly delays and complications in reliance on RK& K's allegedly defective designs and negligent misrepresentations concerning project timeline projections. The complaint sounded in tort, supported by the theory that RK& K had a duty to BBII based on the " intimate nexus" between them, and asserted three causes of action: 1) professional negligence, 2) information negligently supplied for the guidance of others under Restatement (Second) of Torts § 552, and, 3) negligent misrepresentation.

         RK& K filed a motion to dismiss the complaint for failure to state a claim. RK& K's central argument was that the [226 Md.App. 427] complaint sought recovery for purely economic losses, and, because there was no contractual privity or its equivalent between BBII and RK& K, the economic loss doctrine barred BBII's tort claims. The circuit

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court granted the motion to dismiss in an order entered on April 10, 2014.

         We affirm. We hold that BBII failed to state a claim because, as a matter of law, in the absence of privity, death, personal injury, property damage, or the risk of death or serious personal injury, no duty of care in tort runs from an engineer or architect to a contractor for purely economic losses on a public construction project. In reaching this holding, we determine that Maryland does not expand the " intimate nexus" test to include extra-contractual concepts of duty for the recovery of solely economic losses in public construction cases.

         BACKGROUND

         Design-bid-build contracts

          Under the " design-bid-build" project delivery method utilized by the City in this case, the owner first enters into a contract with an architect and/or engineer (" A/E" or " design professional" ) to design the project. Typically, the engineering and design is completed before the owner releases a request for proposals for a general contractor to perform the work.[2] 1 Bruner & O'Connor Construction Law § 2:11 (2015). Under this method:

(1) the design is fully developed and completed before the pricing of the work, thus, presumably resulting in lowest cost, and (2) selection among responsible and responsive bidders can be made on the basis of price alone. . . the contractor is excluded from contributing to the design process. . .

[226 Md.App. 428] Id. The A/E and the contractor each have a contract with the owner, but they have no contractual relationship with each other.

         In contrast, integrated delivery methods, such as " design-build," create a single point of responsibility because the A/E and the contractor are bound under a single contract with the owner. Id. at § 2:12. Typically the contractor who is part of a design-build team is involved in aspects of the design of a project from the beginning, and the A/E remains involved--normally in an oversight and advisory role--during the construction phase. Id. ; 5 Bruner & O'Connor Construction Law § 17:52 (2015) (explaining the modern trend to minimize the A/E's previous " substantial involvement in the construction process" to a lesser obligation to " observe the work and determine in general if the work is being performed in accordance with the contract documents." ).[3]

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          The traditional design-bid-build model often engenders tensions between the A/E and the construction contractor, as explained in one treatise on the subject:

A fundamental difficulty in allocating liability under the design-bid-build model is the inherent tension between the [226 Md.App. 429] interests of the architect and contractor. Some contractors believe they can increase profits through change orders that are based on ambiguities, errors, or omissions in the architect's design. Architects have an interest in protecting their designs, and frequently serve as the owner's representative during construction. In these situations, it benefits the architect to resist any suggestion that the design is flawed and deny change order requests based on defective plans and specifications.
Because of these competing interests, it can be difficult for the owner to determine whether the architect or contractor is responsible for a delay. . . . To complicate matters further, it may not be possible to join the architect and contractor in a single action[.]

Robert F. Cushman et al., Proving & Pricing Construction Claims § 9.03[A] (3d ed. 2015). As discussed further infra, under traditional design-bid-build contracts, especially in the public sector, the contractor normally has a contractual entitlement to recover against the owner for construction delays and other benefit-of-the-bargain damages caused by the A/E's defective specifications and designs.

         RK& K's Professional Engineering Services Contract

         According to the complaint,[4] sometime prior to October 2009,[5] the City entered into a contract with RK& K for the design of two interrelated projects to upgrade the plant, termed the " Enhanced Nutrient Removal Facilities." According to BBII, the City's contract with RK& K specified that RK& K was to produce accurate, complete, and correct [226 Md.App. 430] construction designs and drawings for use by the successful bidder(s) who would construct the plant upgrades. RK& K's duties and responsibilities allegedly included, but were not limited to:

▪ Development of the design for the two interrelated projects;
▪ Development and preparation of drawings and specifications for use by prospective contractors for preparing and submitting bids and ultimately for use by the successful contractor for the construction of the projects;
▪ Development of timelines for construction of the projects;
▪ Development and preparation of responses to questions regarding the design raised by prospective contractors during the bid phase;
▪ Review, evaluation, and comment on the proposals submitted by bidders/prospective contractors;
▪ Review, evaluation, and approval of various submittals from the successful

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contractor during construction related to the Work and RK& K's design;
▪ Review, evaluation, and inspection of the successful contractor's Work during construction to assure conformance with RK& K's design intent and design; and
▪ Review, evaluation, and acceptance of the successful contractor's Work and certification to the City regarding the same.

         Thus, in addition to its pre-construction/design phase responsibilities, RK& K was allegedly assigned several construction-phase responsibilities, including: 1) evaluating and approving " various submittals" from the contractor related to the work and RK& K's design; 2) inspecting the contractor's work during construction to assure conformance with RK& K's design intent and design; and, 3) review, evaluation, and, if acceptable, certification of the contractor's work to the City.

         [226 Md.App. 431] Sanitary Contract 852R

         Construction work for the projects under Sanitary Contract 852R (" SC 852" ) and Sanitary Contract 845R (" SC 845" )[6] was to be completed at the same time, although SC 852 was let out for bid prior to SC 845. After it was pre-qualified by the City as capable of performing the work, Fru-Con Construction Corporation (predecessor in interest to BBII) bid on the SC 852 project, directly relying upon RK& K's documents and designs.[7]

         On November 20, 2009, Fru-Con Construction Corporation and the City entered into a contract for the SC 852 project (" Contract" ). Several years later, on January 1, 2014, the City agreed to an assignment of the Contract from Fru-Con Construction, LLC, to BBII.[8] Under the Contract, BBII was to, " among other things," construct thirty-four " [d]enitrification filter cells ('DNF cells') adjacent to the existing wastewater facility." DNF cells are " enormous, concrete tubs that hold massive amounts of wastewater to be treated." The Contract also required BBII to construct pipes and pipe support systems for the SC 852 project.

         [226 Md.App. 432] BBII's Complaint

         In its complaint filed on January 6, 2014, BBII related that RK& K designed the DNF cells to expand or contract at keyed joints located in their concrete walls to accommodate fluctuating water pressure. BBII constructed the DNF cells in accordance with RK& K's designs, but, when the water retention integrity of the DNF cells was tested, BBII learned that the cells were leaking due to cracks in the expansion and contraction joints. BBII

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alleged that these cracks and the associated leaks were a direct result of deficiencies in RK& K's design and that it cost BBII substantial additional time and expense to remediate the problems. BBII also claimed that, once construction was underway, it discovered RK& K's design for the pipe support system was defective, and again, suffered substantial additional time and cost remedying RK& K's allegedly defective pipe system design.

         Finally, BBII contended that RK& K delayed completion of its design of the companion project, SC 845, and that RK& K knew that any delays in the design of SC 845 would delay BBII's ability to complete work on SC 852 and expose BBII to substantial costs and expenses. BBII alleged RK& K failed to properly establish a reasonable contract duration or project timeline for SC 852, and, instead, supplied false information to prospective contractors who were developing their estimates and competitive bids for the projects.

         Predicated on these factual allegations, BBII asserted a claim for Professional Negligence (Count I), Restatement (Second) of Torts § 552 (Court II), and Negligent Misrepresentation (Count III). In Count I, BBII claimed that it was a forseeable party that would directly rely upon RK& K's professional services and designs, and, that " based upon the intimate nexus between [RK& K's] design and [BBII's] work as well as the contractual privity equivalent that exists between [RK& K] and [BBII], [RK& K] owed [BBII] a duty to act with a reasonable degree of care, knowledge, diligence and skill ordinarily possessed and exercised by similarly situated design professionals." BBII demanded an estimated $10 million [226 Md.App. 433] in damages for " increased and additional labor, materials, equipment and subcontractor costs, investigative costs, consultant fees, remediation costs, and delay costs." In Count II (Restatement § 552 for " Information Negligently Supplied for the Guidance of Others" ), BBII contended that it suffered damages " [a]s a direct and proximate result of [RK& K's] failure to exercise reasonable care in preparing, supplying and communicating the design, including plans and specifications, for the Project."

         Finally, in its third count for negligent misrepresentation, BBII posited that, as a result of the overlapping responsibilities of RK& K in both the design and construction phases of the project, and, because RK& K knew that BBII would rely on RK& K's design and project duration schedule, " an intimate nexus and contractual privity equivalent exists between [RK& K] and [BBII]." According to BBII, RK& K knew that the design of SC 845 was not sufficiently complete so as to allow SC 582 to be constructed within the contract schedule, and RK& K failed to warn BBII that the prices and ultimate costs of completing SC 852 would far exceed estimates.

         Motions Before the Circuit Court

         After it was served with a copy of the complaint, on January 29, 2014, RK& K filed a motion to dismiss for failure to state a claim in the circuit court. In its memorandum of points and authorities, RK& K argued that BBII failed to plead any facts that would support finding the existence of a legally cognizable duty in tort running from RK& K to BBII.

         Invoking the " economic loss rule," RK& K argued that, in the construction industry, in the absence of privity or death, injury or a genuine risk of death or serious personal injury or property damage, no duty is owed by an architect or engineer to a contractor where the loss or damage alleged is economic in nature. RK& K asserted that there was no contract between the parties, and argued that the " intimate nexus" and Restatement (Second) of Torts § 522

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concepts of extra-contractual duty have never been applied in Maryland to design [226 Md.App. 434] professionals in the construction field. Nonetheless, RK& K contended that BBII failed to allege facts that would allow a court to find the parties shared an " intimate nexus" or " professional/client relationship." RK& K asserted that, for example, there were no allegations in the complaint regarding any specific communications between RK& K and BBII before or ...


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