District Court in Michigan Holds that Manufacturer of Water Treatment Equipment May Have Action Upon Implied Contract Against Owner’s Engineer for Costs of Redesign and Modification of Equipment to Make Treatment System Work

M.A. Mortenson Co. v. City of Grand Rapids,
1995 U.S. Dist. LEXIS 11626 (W.D. Mich. July 27, 1995)

For the construction of a water filtration system, the City of Grand Rapids (“Grand Rapids”), as the owner of the project, contracted with, inter alia, Greeley and Hansen to provide engineering services, and Envirex, Inc. (“Envirex”) for flocculation and sedimentation equipment (the “equipment”). After delivery and installation, the equipment allegedly did not work properly, and it sustained stress related damage. Several claims ensued.

In this action, Envirex sued Greeley and Hansen, claiming that the specifications for the equipment contained an insufficient number of baffles to control the velocity gradient for the flow of water through the system, causing the system to sustain stress related damage. Envirex alleged five counts against Greeley and Hansen: a third party beneficiary claim, which Envirex subsequently abandoned; breach of an implied contract in fact and law; negligence; indemnification; and, contribution. In turn, Greeley and Hansen moved to dismiss Envirex’ third party complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure.

After rejecting to Greeley and Hansen’s arguments that the language of the contract between Envirex and Grand Rapids barred Envirex’s action, the Court addressed Envirex’ claim under implied contract in law and in fact. The Court initially distinguished between an implied contract in fact, where the conduct of the parties implies a “meeting of the minds,” and a contract implied in law, where one party has been unjustly enriched at the expense of the other and the law requismiss.

The Court then examined whether Greeley and Hansen breached a common law duty of reasonable care to Envirex. Greeley and Hansen argued that Envirex’s negligence claim must fail because Greeley and Hansen only owed contractual duties to Grand Rapids, and therefore Greeley and Hansen owed Envirex no duty of reasonable care. The Court noted that Michigan law required a breach of duty separate and distinct from a breach of contract. However, the Court found that Michigan law had left open the issue whether an engineer owes a duty of reasonable care to contractors in providing designs and specifications for equipment.

In the absence of any clear Michigan law to the contrary, the Court held that an engineer may have a common law duty of reasonable care to subcontractors, depending on the individual facts of the case.

The Court also dismissed Greeley and Hansen’s argument that the economic loss doctrine bars Envirex’s negligence claim. The Court noted how the economic loss doctrine provides that where a buyer’s expectations are frustrated because a product is not working properly, that buyer’s remedies sound in contract because the buyer’s loss in only economic. However, the Court held that the economic loss doctrine fails where there is no contractual relationship between the parties.

This entry was posted in Breach of Contract, Negligence, Subcontract and tagged , . Bookmark the permalink.