Elliot-Lewis Corp. v. Skanska USA Building, Inc., 2015 U.S. Dist. LEXIS 98405 (E.D. Pa. July 27, 2015)
This dispute arises out of a major renovation and expansion of the Franklin Institute in Philadelphia (the “Project”). Plaintiff Elliot-Lewis Corporation (“ELCo”) was a subcontractor hired to install the piping and controls for the Project’s heating, ventilation and air conditioning (“HVAC”) system. The Project’s schedule required that start up and testing of the HVAC system begin by February 23, 2013 and that the system be operational by April 1, 2013. But, when the HVAC was started for testing, flooding issues arose due to problems with the condenser pumps specified in the HVAC system’s specifications. Ultimately, the HVAC system was not operational by April 1 and ELCo was required to perform additional work and install temporary cooling equipment so that the Franklin Institute could open during the summer. ELCo was never paid by the prime contractor for this additional work.
ELCo filed a complaint against the prime contractor for breach of contract. In turn, the prime filed a third party claim for negligent misrepresentation against a number of design professionals who had performed design work on the Project (the “Design Defendants”), alleging that ELCo’s additional work had been caused by errors in the Project’s plans and specifications.
The Design Defendants filed a fourth-party complaint sounding in negligence against the manufacturer and supplier of the condenser pump (the “Pump Suppliers”), alleging that they had relied upon inaccurate information provided by the Pump Suppliers. The Pump Suppliers moved to dismiss, arguing that the economic loss rule barred the claims against them.
The Design Defendants argued that the economic loss rule was inapplicable. First, they argued that Section 522 of the Restatement (Second) of Torts, which was adopted by the Pennsylvania Supreme Court in Bilt-Rite Contractors v. The Architectural Studio, 581 Pa. 454 (2005), provides an exception to the economic loss rule where the defendant is in the business of supplying information. Next, they argued that this exception should apply under the circumstances because the Pump Suppliers provided information to the Design Defendants in the course of transacting the sale of condenser pumps and were aware that the Design Defendants would rely on the information in creating the Project’s design documents.
The court rejected the Design Defendants’ argument and dismissed the claims against the Pump Suppliers. The court reasoned that the Pump Suppliers “are not in the business of supplying information”, which is a “necessary predicate to be subject to liability under Section 522.” While the Pump Suppliers did in fact supply information to the Design Defendant as part of the sale of the condenser pump, the “sale of a product is fundamentally different from the sale of information, even if the seller provides information about the product to consummate the sale.” If the supply of information in those circumstances could subject a seller to Section 522 liability, the court determined that Section 522 would “eviscerate the economic loss doctrine.” Thus, the court held that the economic loss rule applied to bar the Design Defendants’ claim against the Pump Suppliers.
ELCo filed a complaint against the prime contractor for breach of contract. In turn, the prime filed a third party claim for negligent misrepresentation against a number of design professionals who had performed design work on the Project (the “Design Defendants”), alleging that ELCo’s additional work had been caused by errors in the Project’s plans and specifications.
The Design Defendants filed a fourth-party complaint sounding in negligence against the manufacturer and supplier of the condenser pump (the “Pump Suppliers”), alleging that they had relied upon inaccurate information provided by the Pump Suppliers. The Pump Suppliers moved to dismiss, arguing that the economic loss rule barred the claims against them.
The Design Defendants argued that the economic loss rule was inapplicable. First, they argued that Section 522 of the Restatement (Second) of Torts, which was adopted by the Pennsylvania Supreme Court in Bilt-Rite Contractors v. The Architectural Studio, 581 Pa. 454 (2005), provides an exception to the economic loss rule where the defendant is in the business of supplying information. Next, they argued that this exception should apply under the circumstances because the Pump Suppliers provided information to the Design Defendants in the course of transacting the sale of condenser pumps and were aware that the Design Defendants would rely on the information in creating the Project’s design documents.
The court rejected the Design Defendants’ argument and dismissed the claims against the Pump Suppliers. The court reasoned that the Pump Suppliers “are not in the business of supplying information”, which is a “necessary predicate to be subject to liability under Section 522.” While the Pump Suppliers did in fact supply information to the Design Defendant as part of the sale of the condenser pump, the “sale of a product is fundamentally different from the sale of information, even if the seller provides information about the product to consummate the sale.” If the supply of information in those circumstances could subject a seller to Section 522 liability, the court determined that Section 522 would “eviscerate the economic loss doctrine.” Thus, the court held that the economic loss rule applied to bar the Design Defendants’ claim against the Pump Suppliers.
Article originally posted November 5, 2015 on Constructlaw, an update and discussion of recent trends in construction law and construction, maintained and edited by Pepper Hamilton's Construction Law Practice Group.
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