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

Court of Appeals of Maryland

February 21, 2017

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

          Argued: October 6, 2016

         Circuit Court for Baltimore City Case No.: 24-C-14-000060

          Barbera, C.J. Greene Adkins McDonald Watts Getty Battaglia, Lynne A. (Senior Judge, Specially Assigned), JJ.

          OPINION

          ADKINS, J.

         In this appeal we revisit the elusive economic loss doctrine, to decide whether to extend a duty in tort to persons not in privity for the recovery of purely economic losses. Petitioner, a general contractor who successfully bid for work on a City of Baltimore construction project, argues that Respondent, the project's design engineering firm, owes it a tort duty of care because Respondent knew that Petitioner would rely on its designs in bidding and constructing the project. We shall hold, that, in the absence of contractual privity, physical injury, or risk of physical injury, design professionals in large government construction projects do not owe a tort duty to those who bid for and contract with a government entity.

         FACTS AND LEGAL PROCEEDINGS

         The City of Baltimore ("City") contracted with Rummel Klepper & Kahl, LLP ("Engineer") to design upgrades to the Patapsco Wastewater Treatment Plant. Under the contract, Engineer was tasked with designing the plans for two interrelated projects, Sanitary Contract 852R ("SC 852R") and Sanitary Contract 845R ("the companion project").[1] According to Balfour Beatty Infrastructure, Inc.'s ("Contractor") complaint, Engineer's responsibilities under the contract included:

• Developing the design for S.C. 852R and its companion project;
• Developing drawings and specifications for prospective contractors to use when submitting bids and for the successful contractor to use for construction;
• Developing construction timetables for the projects;
• Providing responses to questions from prospective bidders regarding the design of the projects;
• Evaluating and commenting on contractors' bids;
• Evaluating and approving submissions from the successful contractor during construction;
• Inspecting the successful contractor's work during construction to ensure conformance with Engineer's design; and
• Evaluating and accepting the successful contractor's work and certifying the work to the City.

         The City opened both projects up to bids through its competitive bidding process.[2] Contractors that submitted bids had to be prequalified as being able to complete the work required by the designs. Contractor[3] was the successful bidder for S.C. 852R.[4] Under its contract with the City, Contractor agreed to construct 34 denitrification filter cells ("DNF cells"), which are concrete tubs that hold untreated wastewater, next to the existing wastewater treatment facility. Contractor was also to construct "pipes and pipe support systems" for S.C. 852R. During construction, Contractor encountered leaking and other problems, which resulted in delays and cost overruns.

         In 2014, Contractor filed a complaint against Engineer in the Circuit Court for Baltimore City seeking to recover its financial losses. According to Contractor's complaint, Engineer designed the DNF cells using expansion and contraction joints that were meant to accommodate changes in water pressure in the cells. On completion, the water retention ability of the DNF cells was tested. The testing revealed leaks due to cracks in the expansion joints. Contractor averred that it constructed the DNF cells according to Engineer's design, and any leaking from the expansion joints was a "direct result of deficiencies in [Engineer's] design." It alleged "substantial additional costs, expenses and time to remediate the leaks." Contractor also claimed that Engineer's "design of the pipe support system was defective, " which caused it to suffer additional financial losses and delays.

         Finally, Contractor averred that Engineer failed to timely complete the design for S.C. 852R's companion project, which "hindered and delayed" Contractor's construction of S.C. 852R. Engineer also allegedly failed to warn S.C. 852R's prospective bidders of the delayed completion of the companion project's design and established an unreasonable time line for the completion of S.C. 852R, which Contractor relied on when submitting its bid. As a result, Contractor claimed, it "incurred significant cost, expense and time for which [Engineer] is responsible."

         In its three-count complaint against Engineer, Contractor brought a professional negligence claim, a negligent misrepresentation claim, and a cause of action based on Restatement (Second) of Torts § 552. As to the professional negligence claim, Contractor alleged that an "intimate nexus" and "contractual privity equivalent" existed between it and Engineer, and that Engineer owed it a duty of reasonable care "exercised by similarly situated design professionals." Contractor further alleged that it was a foreseeable party who "would utilize and directly rely upon [Engineer's] professional services including, but not limited to, the preliminary and final design of [SC 852R]."

         In its negligent misrepresentation claim, Contractor asserted that because Engineer designed the interrelated projects, it was aware that any delay in the design of the companion project would impact S.C. 852R. Contractor also claimed that Engineer intended prospective bidders like Contractor to rely on the time line it had developed for S.C. 852R when submitting bids for the project, and an intimate nexus and privity equivalent existed between it and Engineer, establishing a duty. In Contractor's words, Engineer owed it "a duty to fairly and accurately describe the contract duration for [SC 852R] as well as the status of the [companion project's] design." In addition, Contractor alleged, Engineer knew that the companion project's design was not sufficiently complete to allow for timely completion of S.C. 852R. Therefore, Contractor claimed, Engineer had a duty to advise prospective bidders, including Contractor, that S.C. 852R could not be completed within the time frame it had established. Finally, in its Restatement (Second) of Torts § 552 cause of action, Contractor alleged that Engineer provided designs, plans, and specifications for the construction of S.C. 852R, which contained deficiencies, and knew or should have known that Contractor would rely on those documents, causing it damages.

         Engineer filed a motion to dismiss for failure to state a claim. In its motion, Engineer argued that without privity between the parties, no legally cognizable tort duty ran from Engineer to Contractor that would permit recovery of purely economic losses. Engineer also argued that the intimate nexus test and Restatement (Second) of Torts § 552 concepts of extra-contractual duty do not apply to design professionals and, even if they did, Contractor failed to allege facts satisfying these tests.

         The Circuit Court granted Engineer's motion to dismiss due to lack of privity between Contractor and Engineer. Contractor appealed. The Court of Special Appeals affirmed the dismissal of Contractor's complaint based on lack of privity. Balfour Beatty Infrastructure, Inc. v. Rummel Klepper & Kahl, LLP, 226 Md.App. 420 (2016). It held that the economic loss doctrine barred Contractor's negligence and negligent misrepresentation claims, and that privity equivalent concepts of extra-contractual duty did not apply in Contractor's case. Id. at 445, 452-53, 459-60.

         We granted Contractor's Petition for Writ of Certiorari to consider the following questions:

1. Does the economic loss doctrine bar a general contractor's professional negligence claim against a design professional on a government construction project under the privity-equivalent analysis of the intimate nexus test?
2. Does the economic loss doctrine bar a general contractor's action for negligent misrepresentation against a design professional on a government construction project?
3. Does the economic loss doctrine bar a general contractor's action under the Restatement (Second) of Torts § 552 against a design professional on a government construction project?[5]

         Because we answer yes to all three questions and decline to apply the privity-equivalent component of the intimate nexus test, we shall affirm the judgment of the Court of Special Appeals.

         STANDARD OF REVIEW

         We review a trial court's grant of a motion to dismiss to determine whether it was legally correct. Kiriakos v. Phillips, 448 Md. 440, 454 (2016) (citation omitted). In conducting this review, we assume that the facts and allegations in the complaint, and any inferences that may be drawn from them, are true and view them in a light most favorable to the non-moving party. Rounds v. Md.-Nat'l Capital Park & Planning Comm'n, 441 Md. 621, 636 (2015) (citation omitted). The Court does not, however, accept conclusory allegations and assertions containing insufficient facts as true. State Ctr., LLC v. Lexington Charles Ltd. P'ship, 438 Md. 451, 497 (2014) (citation omitted). We only consider the well-pleaded facts to determine whether the complaint states a cause of action for which relief may be granted. Id.

         DISCUSSION

         Contractor's overarching contention is that the economic loss doctrine[6] does not apply to its claims of professional negligence, Restatement (Second) of Torts § 552, and negligent misrepresentation because it only applies in products liability cases. Instead, Contractor avers, the intimate nexus test applies to its claims, and the allegations in its complaint satisfy the test. Therefore, Contractor asserts, Engineer owes it a duty of care and may be held liable in tort for the economic losses it has incurred.

         Engineer urges us to apply the economic loss doctrine, which is a principle courts have used to limit the expansion of tort liability absent privity. Engineer avers that under this doctrine there is no liability without privity when a plaintiff has suffered only economic loss without physical injury or risk thereof.

         Professional Negligence

         Contractor contends that Engineer is liable for damages it sustained under a negligence theory. Contractor asserts that Engineer owed it a duty of care, and Engineer breached that duty when it failed to: (1) properly design DNF cells and a pipe support system for the S.C. 852R project; (2) establish a reasonable timetable for the S.C. 852R project; (3) timely design the companion project; and (4) inform Contractor that completion of the companion project's design was delayed. Contractor avers that the allegations contained in its ...


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