U.S. District Court in New York Holds Economic Loss Rule Does Not Bar Recovery in Cases Involving Violation of Professional Duty

Crown Castle USA, Inc., et al. v. Fred A. Nudd Corporation
2008 U.S. Dist. LEXIS 3416 (W.D. N.Y. Jan. 16, 2008)

The United States District Court for the Western District of New York held that the “economic loss doctrine” did not bar a professional negligence claim against defendant where plaintiff’s claims sought tort liability for defendant’s failure to exercise reasonable care in the design of a prefabricated product.

Fred A. Nudd Corporation (“Nudd”) fabricates steel products, including cellular phone towers (“monopoles”). On January 12, 2001, Crown and Nudd executed a construction services agreement (the “CSA”) where Nudd was to design, fabricate and/or construct twelve monopoles for Crown. In November 2003, a monopole designed by Nudd for another company collapsed. When Crown became aware of the collapse, it became concerned about the monopoles that Nudd designed and manufactured under the CSA. Crown alleges that it began an investigation which revealed that the monopole shafts, base plates, anchor rods and foundations for each of the monopoles were defective, overstressed and did not have the capacity to support the loads for which they were designed. Crown filed a complaint alleging that the monopoles which Nudd designed, fabricated and constructed contained design and construction defects. In its complaint, Crown’s only claim for damages is the costs to repair the allegedly defective monopoles.

Nudd filed a summary judgment motion contending that Crown’s professional negligence claims should be dismissed. Nudd asserts that the claims are barred by New York’s recognition of the “economic loss rule” because Crown alleges only economic damages as a result of the claims of professional negligence. Under the “economic loss rule”, a negligence action seeking recovery for economic loss will not lie. The rule provides the fundamental boundary between contract and tort liability. Accordingly, the Court noted that if the doctrine was applicable, Crown’s claim for negligence/malpractice would be barred. The Court, citing Second Circuit precedent, held that the economic loss rule allows recovery in the limited class of cases involving the violation of a professional duty. Because Crown alleged damage stemming from the negligent provision of professional services, the Court held the professional negligence exception to the economic loss rule applied and thus Nudd might be liable in tort for failure to exercise reasonable care, irrespective of the contractual duties.

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