The Legal Edge: Solving Today’s Construction Problems Texas Housing Conference July 28-30, 2014 Hilton Hotel Austin, TX

Presenters Moderator Bobby Bowling, Tropicana Homes Panel Members Vijay 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 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, (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, (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). One who, in the course of his business, profession or employment, or in any transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information. Restatement (Second) of Torts § 552

"[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). 9/17/12 DRAFT, Restatement (Third) of Torts: Liability for Economic Harm; Sec. 6. Negligent Performance of Services (Comment): “A mistake in the architect’s plans imposes costs on the builder, who sues the architect to recover. Sometimes the negligence of the architect or other design professional takes the form of a misrepresentation. In other cases it may amount to a non-verbal misjudgment or other lack of care. This Restatement recognizes tort liability on such facts.”

New Texas Supreme Court Case Concerning Design Professionals Martin K. Eby Constr. Co. v. LAN/STV, No (Tex.) Argued October 8, 2013 Opinion 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?