The Exception to the Exception to the Economic Loss Doctrine

Construction lawyers are familiar with the economic loss doctrine. In jurisdictions where the doctrine is recognized, the doctrine operates to prevent a plaintiff who has suffered only economic losses from suing entities outside the chain of contract to recover those losses. The most common application in a construction context is to prevent a contractor or subcontractor from suing an architect or engineer with whom the contractor has no contract. Thus, in a traditional design-bid-build delivery system, the construction team would have no claims against the design team (with limited exceptions, most of which have to do with good faith in the handling of payment applications). Because not all states recognize the economic loss doctrine, attorneys tend to view the doctrine as binary: a given state either recognizes it or it doesn't. Nevertheless, even in states with weak or nonexistent economic loss doctrines, the savvy lawyer can find utility for his or her client. Florida's version of the economic loss doctrine has two substantial exceptions that are relevant to construction law. First, suits against professionals alleging professional negligence are never barred by the economic loss doctrine. Second, negligent misrepresentation suits are not barred by the economic loss doctrine so long as the plaintiff is among the class of individuals whom the defendant could reasonably have foreseen relying on the statements that are alleged to be misrepresentations. Moransais v. Heathman, 744 So.2d 973 (Fla. 1999). The co-operation of these two exceptions has created a cookie-cutter complaint that contractors use to sue designers in Florida: they allege that the plans and specifications fell below the standard of care, and that the contractor relied on the representations in the designs when bidding, and was misled by the plans to its detriment. In this way, the contractor can pursue its full compliment of damages, but stay squarely in Florida's recognized exceptions to the economic loss doctrine. The opinion of the court in Recreational Design & Construction, Inc. v. Wiss, Janney, Elstner Associates, Inc., --- F.Supp.2d ---, 2011 WL 5117130 (S.D.FL Jan. 24, 2011) illustrates how the economic loss doctrine can be leveraged, even in states (like Florida) that are viewed as having no strong economic loss doctrine. There, Recreational Design & Construction served as the general contractor for the construction of a pool for the City of North Miami Beach. After construction was complete, the City began to notice sub-standard workmanship in the construction, and hired Wiss, Janney to assess the completed project. After an investigation, Wiss, Janney issued a report that recommended a number of corrective measures be taken to address poor workmanship in the completed project. Relying on this report, the City ordered Recreational Design to undertake the work, and refused to pay any additional money for that work. After performing the work, Recreational Design brought a claim against Wiss, Janney for professional malpractice and negligent misrepresentation, alleging that Wiss, Janney's reports were incorrect, and had harmed Recreational Design. While this pleading effectively got around the economic loss doctrine, by limiting Recreational Design to claims of malpractice and negligent misrepresentation only, the pleading begged the question: does a construction inspector (which was essentially the role Wiss, Janney was fulfilling) owe any duty to the contractor whose work it is inspecting? On Wiss, Janney's motion for summary judgment, the court found the answer was no. The court found that, because Wiss, Janney had only the power to recommend action, and not the power to compel Recreational Design to perform additional work, Wiss, Janney did not owe Recreational Design any duty when inspecting the project and making recommendations to the City. Notably, one authority cited by the court in reaching this conclusion was in McElvy, Jennewein, Stefany, Howard, Inc. v. Arlington Elec., Inc., 582 So.2d 47 (Fla. 2d DCA 1991), which considered the duties owed by the architect of record to the contractor on the project when interpreting the plans and specifications. Thus, it is possible that the result reached in the Recreational Design case has ramifications beyond the narrow scope of its uncommon facts. Lawyers laboring in states with weak or nonexistent economic loss doctrines can despair of (or rejoice in, depending on whom they are representing) the loss of protections enjoyed elsewhere, even in these circumstances, there are opportunities. When the doctrine compels a plaintiff to plead narrowly, more traditional attacks on issues of duty and causation can become more effective than they would have been had the plaintiff been afforded a panoply of pleading options. Strategic use of these opportunities can yield excellent results.