U.S. District Court in New Jersey Holds Economic Loss Doctrine No Bar to General Contractor’s Delay Claims Against Architect

SRC Constr. Corp of Monroe v. Atl. City Housing Auth.
2013 U.S. Dist. LEXIS 47301 (D.N.J. April 2, 2013)

The U.S. District Court for the District of New Jersey denied a defendant architect’s motion for summary judgment, holding that the economic loss doctrine applies only to bar tort claims between parties to a contract.

In 2001, Defendant Atlantic City Housing Authority (“ACHA”) awarded a lump sum contract to Plaintiff SRC Construction Corporation of Monroe (“SRC”) to build a senior living center in Atlantic City, NJ (“the Project”). In April 2002, ACHA and SRC entered a general contract for the Project’s construction. Defendant Lindemon was retained by ACHA to provide architectural services for the Project. Lindemon and SRC did not have a contractual relationship.

After construction began, SRC filed suit against ACHA and Lindemon. As to ACHA, SRC brought a variety of contract claims, including breach of contract, wrongful termination and unjust enrichment. With respect to Lindemon, SRC asserted claims of negligence and breach of express and implied warranties. Specifically, SRC alleged that Lindemon caused significant construction delays by (1) failing to provide necessary building permits; (2) submitting drawings to the Building Department on multiple occasions that were non code-compliant; (3) failing to timely respond to SRC’s requests for information on a number of issues; and (4) repeatedly providing defective verbal approvals of SRC’s change order requests, which were then rejected by ACHA. SRC alleged that these delays cost it in excess of $3 million.

Lindemon moved for summary judgment, asserting that the claims were barred by New Jersey’s economic loss doctrine. The Court denied the motion.

With respect to the negligence claim, the Court held that the economic loss doctrine did not bar SRC’s claim because, under New Jersey law, “the doctrine only applies to bar certain tort claims between parties to a contract. Stated another way, the absence of a contract between a plaintiff and defendant in a negligence suit precludes the application of the economic loss doctrine.” (emphasis in original). To the Court, the economic loss doctrine only applies to prevent a plaintiff from asserting “a contract claim in tort clothing” and therefor is inapplicable where there is no contractual relationship between the parties. Therefore, the recovery of purely economic damages is available to a plaintiff whose claim truly sounds in tort. Such a remedy, moreover, is not foreclosed merely because plaintiff has available contract claims against other parties. Rather, the availability of alternate means of redress should not affect the availability of tort damages.

Based upon this reasoning, the Court denied Lindemon’s motion for summary judgment. The economic loss doctrine did not operate to bar SRC’s claims against it merely because SRC had viable contract claims against ACHA. To the contrary, the economic loss doctrine operates only to preclude tort claims between parties to a contract, and there was no contractual relationship between Lindemon and SRC.

Kristopher Berr

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