Federal District Court in New Jersey Holds that Economic Loss Rule Does Not Bar Contractor’s Tort Claims Against Architect Where Parties Were Not in Privity of Contract

by Pepper Hamilton LLP
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Bedwell Co. v. Camden County Improvement Auth., 2014 U.S. Dist. LEXIS 95510 (D.N.J. July 14, 2014)

The University of Medicine and Dentistry of New Jersey contracted HDR Architects and Engineers, P.C. (“HDR”) to design a medical school building. After the project went to bid, the Bedwell Company (“Bedwell”) contracted with the owner’s development and contracting agent for the performance of foundation, structural steel, and other construction work.

Bedwell and HDR did not have a contract with each other. According to the allegations in Bedwell’s complaint, however, HDR was aware that the design documents that it prepared under its contract with the owner would be used by contractors like Bedwell in their estimation of costs and time for completion of the work. In its complaint, Bedwell alleged that defects in HDR’s design documents—which led to 212 Requests for Information and 469 Change Order Requests—caused unexpected costs and numerous delays.

Bedwell’s complaint asserted four tort-based claims against HDR: negligence, tortious interference with contractual relations, negligent misrepresentation of business information, and professional malpractice. HDR moved to dismiss, arguing that each claim was barred by the economic loss rule. Alternatively, HDR argued that each claim suffered from factual deficiencies.

The court noted that New Jersey’s economic loss rule maintains the “distinction between tort and contract actions” and bars a tort claim when the claim (i) is brought in addition to a contract action, and (ii) does not stem from an independent duty of care. Reviewing prior decisions that applied New Jersey’s economic loss rule, the court found that the rule precludes tort claims only when the parties are in privity of contract. Where each separately contracted with a third party, such as an owner or developer, the absence of a contract between the plaintiff and defendant will render the economic loss rule inapplicable. The court thus held that the economic loss rule did not bar Bedwell’s claims.

Turning to HDR’s other arguments, the court dismissed Bedwell’s tortious interference claim because it failed to allege malice, a necessary element of the claim under New Jersey law, which consists of an intentional interference without justification. The court also dismissed the negligence claim because it was duplicative of and subsumed by the professional malpractice claim. Each count alleged a breach of the same duty: a professional’s duty to perform in accordance with the standards of its profession. Finally, the court rejected HDR’s argument that the count for negligent misrepresentation of business information should be dismissed as a claim that is not recognized under New Jersey law. The complaint contained all the elements of a claim for negligent misrepresentation under New Jersey law, and Bedwell’s inclusion of the additional words “of business information” did not alter the claim or subject it to dismissal under federal pleading standards.

To view the full text of this decision, courtesy of Lexis ®, click here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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