Construction law and business litigation attorney Mark F. Craig reports on a significant new court of appeals decision:
Sometimes the conduct of a design professional injures someone other than an owner. For instance, a defect in the plans or specifications may cause a contractor additional work or expense. Can the injured contractor obtain damages from the design professional? The answer, in Ohio, is not usually.
The problem is that the contractor's injury is likely to be only economic: He has spent more money than he originally planned because of the design professional's shortcomings. So the "Economic Loss Doctrine" applies, and it says that economic losses should be handled through contract actions, not tort (negligence) actions. That is the Supreme Court's lesson in Floor Craft Floor Covering, Inc. v. Parma Community General Hospital Assoc. (1990), 54 Ohio St.3d 1, a very significant case.
The only exception is a narrow one: When a design professional exercises unusual control of the construction project, this may be seen as a sufficient "nexus" to substitute for a contractual relationship. For instance, in Clevecon, Inc. v. Northeast Ohio Regional Sewer District (1993), 90 Ohio App.3d 215, the Eighth District Court of Appeals (Cuyahoga County) held that a contractor’s lack of a contract with the Architect was no obstacle to an action for professional malpractice. In a decision based on Floor Craft, the court still found that “liability for economic loss exists in a malpractice action against a design professional.”
What was the difference between Floor Craft and Clevecon? The amount of control exercised by the Architect and sewer designer, Jenny:
Jenny’s involvement in the tunnel project went far beyond the limited role of the architect in Floor Craft. Jenny exercised a substantial amount of control over the project. Jenny's engineers were present at the construction site and gave orders about the project, including ordering the removal of concrete segments and the application of additional grouting. This type of control has been held to establish a nexus between the parties.
This type of control was sufficient to permit a claim against Jenny, even though the plaintiff and Jenny did not have a contract. But the usual ruling is just the opposite. When the only losses are economic, plaintiff is limited to a contract claim and can only sue a party with whom he has a contract.
In International Fidelity Ins. Co. v. TC Architects, Inc. (Sept. 20, 2006), 2006-Ohio-4869, 2006 Ohio App. LEXIS 4784, the Ninth District Court of Appeals, Summit County, Ohio rejected the idea that the “excessive control” doctrine has been accepted in Ohio as a substitute for privity and affirmed summary judgment dismissing claims raised by a surety against the owner’s architect. The Court distinguished Clevecon, holding that while the Eighth District Court of Appeals “adopted the excessive control doctrine to a limited extent, such a holding in no way binds this court. We look to the Ohio Supreme Court, which has soundly rejected any such argument, and we accordingly decline to adopt an excessive control doctrine as a substitute for privity of contract.”
In International Fidelity, the Architect, TCA, had a contract with the Owner, Vitron. Vitron hired OL as its general contractor (“GC”) for its construction project. OL contracted with the Surety, IFIC, to provide a performance and a payment bond. The Surety, standing in the shoes of the GC due to performance issues, claimed that the Architect attempted to take control of the project and fix problems with design specifications via verbal directives, causing delays to the GC’s performance. The Architect took “excessive control,” the Surety argued, which should be an adequate substitute for the lack of privity of contract between the parties.
The Court disagreed, holding that the Ohio Supreme Court soundly rejected the use of “excessive control” as a substitute for contractual privity:
Notably, it did so in a case in which an architect who had a substantial amount of on-site input on the project was being sued by a contractor for alleged flaws in the designs the architect produced. Floor Craft Floor Covering, Inc., v. Parma Community General Hospital Assoc. (1990), 54 Ohio St.3d 1, 560 N.E.2d 206. Moreover, Ohio law has long held that, in the absence of a contract or a substitute for contractual privity, there is no general duty to protect another party from purely economic harm, and a party suing in tort cannot recover for purely economic harm.
There is clearly a split in the Ohio district courts on the issue of “excessive control” and how it may serve as a substitute for privity of contract. It will be interesting to see if the Ohio Supreme Court will weigh in on the issue. For now, the “Economic Loss Doctrine” is alive and well in the Ninth District.