Contractor’s Negligent Supervision Claims Against Construction Manager Require Privity, But Negligent Representation Claims Do Not

Dynalectric Co. v. Whittenberg Constr. Co.
2007 U.S. Dist. LEXIS 27025 (W.D. Ky. Apr. 10, 2007)

Defendant project-owner Luther F. Carson Four Rivers Center, Inc. contracted with Whittenberg Construction Company to serve as general contractor in the construction of a fine arts facility and with defendant Ray Black & Son, Inc. to serve as construction manager. Whittenberg contracted the electrical contracting work to Plaintiff Dynalectric. Dynalectric brought suit against Four Rivers and Black, alleging that they had caused its work to take longer and cost more than anticipated and as a result Dynalectric had not been fully compensated for its work on the project.

Black moved for dismissal pursuant to Fed. R. Civ. P. 12(b)(6), contending that the claims against it were not viable, and requesting to be dismissed from the action. As a threshold matter, Black argued that Dynalectric’s claims were barred by a one year statute of limitations under K.R.S. §413.245 which provides that a civil action arising out of the rendering of “professional services” must be brought within one year of the occurrence. Professional services are defined under K.R.S. §413.243 as “any service rendered in a profession required to be licensed, administered and regulated as a profession in the Commonwealth of Kentucky.” The preliminary issue was whether the services provided by Black were “professional services” within the meaning of the statute. Black submitted that because it had been retained for its expertise in the construction process, that its services were professional and the statute of limitations was applicable. The court held otherwise, finding that Black was not an architectural firm and that nothing in the pleadings indicated that Black was licensed, administered, or regulated as a professional. Accordingly, the one year statute of limitations was inapplicable to Dynalectric’s claims.

Count I of Dynalectric’s complaint alleged that “[a]s a direct and proximate result of intentional or negligent information or representations by Whittenberg, Four Rivers and/or Black, Dynalectric ha[d] been economically harmed.” Count II alleged that Black’s negligent design and negligent administration had caused Dynalectric economic harm. Black contended that the only claims against it were those in Count II. The District Court determined however that although Black was not included in the caption of Count I of the complaint, that under the standards of notice pleading, Black had been fairly informed of the negligent representation claims against it.

In analyzing the substance of the claims, the District Court turned first to Count II and Black’s contention that Dynalectric’s negligent design and negligent administration claims sounded in contract law and did not make out a cognizable cause of action under tort law. Under Kentucky law, if a claim is based in contract law, there must be contractual privity for a claim to proceed. Dynalectric did not address Black’s argument regarding contractual privity, but rather asserted that Black, as an agent of the Owner, was liable for its own torts. The issue then became whether the claims sounded in contract or tort.

In making that determination, the District Court applied the Kentucky Supreme Court case of Presnell Construction Managers, Inc. v. EH Construction, LLC, 134 S.W.3d 575 (Ky. 2004). In that case, a contractor had filed suit against the construction manager for economic harm allegedly caused by the construction manager’s negligent supervision of the project. The contractor had contracted directly with the owner and the agreement did not provide for a duty to run from the construction manager to the contractor. On those facts, the Kentucky Supreme Court dismissed the contractor’s negligent supervision claim, holding that it did not set forth a claim independent of the construction manager’s duties under the contract and therefore no tort claim could stand. It further held that because there was no contractual privity between the contractor and the construction manager, there was no basis for a contractual claim.

Applying the rule of Presnell to the case before it, the District Court observed that there was no contract creating privity between Black and Dynalectric and that Dynalectric’s negligent design and negligent administration claims were substantially similar to the negligent supervision claims in Presnell. Thus, under the Presnell standard, it held that Dynalectric’s Count II negligent administration claims failed as a matter of law could not proceed against Black.

In turning to Dynalectric’s Count I claims of negligent representation, the court again looked to the Kentucky Supreme Court’s analysis, noting that Presnell is also the controlling case on claims of negligent information. Black argued that in Presnell claims similar to those asserted by Dynalectric had been dismissed. But the District Court pointed out that only negligent supervision claims had been dismissed based on lack of privity and that Presnell had expressly found that “privity was not necessary to maintain a tort action.” The Dynalectric court observed that the Supreme Court had adopted section 552 of the Restatement Second of Torts and found that “the tort of negligent representation defines an independent duty for which recovery in tort for economic loss is available” in holding that negligent representation is an actionable tort in Kentucky.

Following the Presnell precedent, the District Court held Dynalectric had alleged a viable claim of negligent representation and that portion of the claim could proceed. The court declined Dynalectric’s request for leave to amend its complaint, stating that due to the lack of contractual privity, an amendment of the negligent administration claim would be futile. The court allowed Dynalectric’s Count I negligent representation claims to proceed and dismissed the Count II negligent administration claims.

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