North Carolina Appellate Court Holds Limitation Of Damages And Indirect Damages Provisions In Engineering Contract To Be Enforceable

Mostellar Mansion, LLC v. Mactec Engineering & Consulting of Georgia, Inc.
2008 N.C. App. LEXIS 1011 (May 20, 2008)

Mostellar Mansion, LLC (Mansion) entered into a contract with Mactec Engineering and Consulting of Georgia, Inc. (Mactec) in connection with Mostellar’s plan to purchase a tract of land for the construction of an apartment complex (the Project Site). Under the contract, Mactec was to assess the subsurface conditions of the Project Site, determine if the Project Site was suitable for the proposed construction and provide recommendations for foundation design and site preparation for the proposed structures. The contract contained the following pertinent provisions:

“8. Limitation of Liability. The inclusion of a limitation of liability provisions in this Agreement under the terms set forth below is a material consideration for [Mactec’s] willingness to perform the services. To the maximum extent permitted by applicable law and for additional consideration of $10.00 from [Mactec], [Mostellar] hereby expressly agrees that the liability of [Mactec} … for any cause of action based upon breach of contract, strict liability, negligent professional acts, errors or omissions or negligent misrepresentation arising out of or in connection with this Agreement and/or any services provided, or work product developed, pursuant to this Agreement shall be limited to the aggregate sum … of $50,000 or the total fees paid to [Mactec] by [Mostellar] under this Agreement, whichever is greater….
9. Indirect Damages. Neither party shall be responsible to the other or to any third party for any economic, consequential or indirect damages (including, but not limited to, loss of use, income, profits, financing or reputation) arising out of or relating to this Agreement or the performance of the services. “

Pursuant to the contract, Mactec drilled test borings at the Project Site and submitted a geotechnical report explaining its findings. Mostellar paid Mactec $8,900.00 for its services. Thereafter, Mostellar filed a complaint against Mactec alleging breach of contract, negligence, professional negligence and negligent misrepresentation. Mostellar alleged that upon commencing the grading of the Project Site, it discovered that the soil was unsuitable for the planned construction. In response to interrogatories, Mostellar alleged that Mactec caused over $300,000 in damages. Mostellar asserted damages associated with the removing and replacing of the unsuitable soil as well as damages associated with loss of business and costs of insurance, interest and penalties.

Mactec moved for summary judgment asserting that all of Mostellar’s claims arose out of the contract and were therefore subject to the contract’s terms and conditions. Mactec sought an order enforcing the Limitation of Liability and Indirect Damages provisions. The trial court granted Mactec’s motion. On appeal, in addition to arguments regarding the applicability of Georgia or North Carolina law, Mostellar argued that that the Limitation of Liability and Indirect Damages violated applicable law.

The Court determined that Georgia law governed Mostellar’s breach of contract claim. The Court held that there was no conflict between the Limitation of Liability provision and the public policy of Georgia. Turning to the Indirect Damages provision, Mostellar argued that the provision conflicts with Georgia statute Ga. Code Ann. § 13-8-2(b) which bars agreements in connection with construction projects which hold a party harmless from liability associated with property damage or bodily injury resulting from its sole negligence. The Court held that the Indirect Damage provision at issue did not release Mactec from liability resulting from personal injury, death or property damage and thus was did not violate Ga. Code Ann. § 13-8-2(b). Mostellar also argued that Georgia law regulates engineers and thus a provision exculpating an engineer from liability was void against public policy. The Court held that the provision was not void against public policy. The Indirect Damages provision did not relieve Mactec from all liability and, importantly, did not relive Mactec from liability associated with personal injury, death or property damage.

The Court, applying North Carolina law, next addressed whether the Limitation of Liability and Indirect Damages provisions applied to the Mostellar’s professional negligence and negligent misrepresentation claims. Mostellar argued that the Limitation of Liability provisions and Indirect Damages were void against North Carolina law. The Court disagreed finding that the parties were sophisticated professionals, and the result of their bargain did not elicit a profound sense of injustice. Moreover, the health and safety of the public were not implicated by the limitation of liability. Accordingly, the Court found that Limitation of Liability and Indirect Damages provisions also applied to the Mostellar’s professional negligence and negligent misrepresentation claims.

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