Utah Court Assesses Impact Of “Anti-Assignment” Clause On Claims Against Design Professional Assigned By Owner In Settlement With Contractor

SME Indus., Inc. v. Thompson, Ventulett, Stainback & Assocs., Inc.
C.A. No. 990869, 2001 Utah LEXIS 90 (June 26, 2001)

In SME Indus., Inc. v. Thompson, Ventulett, Stainback & Assocs., Inc., the Supreme Court of Utah addressed the ability to assign of claims for damages for breach of contract to a party who is not in privity with the alleged wrongdoer. That court determined that summary judgment was inappropriate because it was ambiguous whether the parties intended to include the assignment of causes of action under a “no assignment” clause. Id. at *16.
The suit arose out of a dispute concerning of the construction of the Salt Palace Convention Center in Salt Lake City, Utah (the “Project”). The owner, Salt Lake County (the “County”), contracted with Thompson, Ventulett, Stainback & Associates, Inc. (“TVSA”), for architectural and consulting services. TVSA, in turn, contracted with Gillies, Stransky, Brems & Smith and Jonathan Bradshaw (“GSBS”), to provide local architectural services and Reaveley Engineers & Associates, Inc. (“Reaveley”), to provide structural engineering services. The County then contracted directly with Hughes-Hunt (“Hughes”) as general contractor for the Project. Hughes then subcontracted the Project’s structural steel work to SME Industries, Inc. (“SME”).

During the Project, SME experienced problems with the structural steel specifications, and presented over 450 requests for information. After completing its work on the Project, SME submitted a claim for $2,193,000.00 to Hughes. Hughes forwarded SME’s claim to the County who settled with Hughes in exchange for $150,000.00 and the assignment of the County’s “rights, causes of action, and claims against the design team.” Hughes, in turn, settled with SME for $150,000.00 and the assignment of the rights it had obtained from the County.

SME then sued TVSA, GSBS, and Reaveley for delay damages and economic losses sustained. SME’s claims for breach of the TVSA-County Contract, breach of express and implied warranties, tort, and breach of third-party beneficiary were all summarily dismissed by the trial court. On appeal, the Supreme Court of Utah affirmed the trial court’s dismissal of the express warranty and third-party beneficiary claims because SME failed to prove either the existence of an express warranty or that it had third party beneficiary status under the design agreements. The court also affirmed the dismissal of SME’s tort claims as barred by the economic loss doctrine (i.e., no recovery in tort where party suffers neither property damage or personal injury). The court, however, reversed the trial court’s dismissal of SME’s breach of contract and breach of implied warranty claims, finding a question of fact existed as to whether the anti-assignment clauses of the design agreements precluded SME from prosecuting these assigned claims.

Central to the court’s decision to reverse the dismissal of SME’s breach of contract claim was the effect of the “no assignment” clause in the contract between the County and TVSA. The court explained the general rule that a “no assignment” clause in a construction contract does not ordinarily preclude the assignment of claims for damages for breach (as opposed to rights and privileges under a contract). The court continued, noting the exception to this general rule where “a contract expressly states that the right to sue for breach of contract is non-assignable.”

Applying the rule and the exception to the clause before it, the Supreme Court of Utah determined that the clause prohibiting the assignment of either party’s “interest in this Agreement,” was ambiguous concerning the parties’ intent to expressly prohibit such assignments. Therefore, the court ruled the issue unresolvable on a motion for summary judgment. Accordingly, the court remanded the claims to the trial court for resolution.

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