New York Court Applies Economic Loss Doctrine In Dismissing Surety's Lawsuit Against Architect
April, 2011
In Travelers Cas. & Surety Co. v. Dormitory Authority-State of New York, 734 F.Supp.2d 368 (S.D. N.Y. 2010), the United States District Court for the Southern District of New York was faced with a dispute over the construction of a fourteen story vertical campus for Baruch College in New York City. The owner of the project entered into a contract with an architectural firm to provide all of the designs for the project, including contract drawings and specifications, bid documents and approve of all shop drawing, samples and substitutions proposed by the contractor.
Ultimately, the contractor was unable to finish the project and its surety bond holder stepped in to complete the project. The surety then brought suit against a number of parties involved in the construction project, including the designer.Since the contractor did not have a contractual relationship with the architectural firm, the surety's claims against the architect were based on professional negligence for the architect's alleged failure to provide clear and unambiguous bid documents as well as failing to provide timely interpretations of its designs. The architect moved for summary judgment on the surety's professional negligence claims on the grounds that New York's economic loss doctrine barred the surety's tort claims. In response, the surety argued that New York's negligent misrepresentation exception to the economic loss doctrine allowed it to pursue its professional negligence claims.
Under New York's negligent misrepresentation exception to the economic loss doctrine:
A defendant is liable where there is carelessness in imparting words upon which others were expected to rely and upon which they did act or failed to act to their damage, provided that such information was expressed directly with knowledge or notice that it will be acted upon, to one to whom the author is bound by some relation of duty, arising out of contract or otherwise, to act with care if he acts at all.
After reviewing the facts of the case, the court held that there was not sufficient evidence of a contractual relationship or other close relationship between the contractor and the architect that would support the surety's claims. In particular, the court found that the surety had failed to show that the contractor was known to the architect at the time it was preparing the bid documents. Also, the court found that the surety's failure to identify any specific misrepresentation prevented its negligence claims. As such, the court dismissed the surety's negligence claims against the architect.
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