USA Walnut Creek, DST v. Terracon Consultants, Inc. f/k/a HBC Engineering, Inc., 2015 Tex. App. LEXIS 1806 (Tex. App. 2015)

This cases arises out of the construction of a twelve building apartment complex in Austin Texas.  The builders, Creekstone Walnut, LP and Creekstone Builders, Inc., contracted with defendant Terracon for geotechnical engineering and inspection services.  As part of the services, Terracon performed test borings and provided the geotechnical recommendations for, among other things, the foundation design.  Terracon’s inspection services included providing testing and inspection of the construction materials, including compaction testing on the earthwork.

Plaintiff USA Walnut Creek purchased the complex in 2005, approximately three years after construction had been completed.   In 2007 and 2008, USA Walnut Creek received reports detailing damage to the buildings that were attributed to the movement of the building structures and foundations.  In 2009, USA Walnut Creek sued the builder and property management entities (“Creekstone Defendants”), alleging that the Creekstone Defendants caused it damage by the defective construction and maintenance of the apartment complex.  The Creekstone defendants identified Terracon as a responsible third-party and USA Walnut Creek filed an amended complaint adding Terracon as a defendant.  USA Walnut Creek alleged that Terracon was negligent in providing its engineering and testing services during construction of the apartment complex, causing the damage to the buildings.

Terracon moved for summary judgment, arguing that USA Walnut Creek did not have any evidence to support its allegation that Terracon owed a tort duty to USA Walnut Creek.  The trial court granted the motion and USA Walnut Creek appealed.

On appeal, the Court of Appeals of Texas first explained that the economic loss rule did not bar USA Walnut Creek’s claims simply because Terracon’s work was the subject of a contract between Terracon and the builder.  The court explained that the “general” economic loss rule bars the parties to a contract from recovering purely economic losses in a negligence claim.  Citing to the Texas Supreme Court’s opinion inChapman Custom Homes, Inc. v. Dallas Plumbing Co., 445 S.W.3d 716, 717 (Tex. 2014), the court explained that a homeowner may recover damages in tort from a contractor even where the contractor’s work is covered by its contract with third-party.  “[A] party cannot avoid tort liability to the world simply by entering into a contract with one party [otherwise] the economic loss rule would swallow all claims between contractual and commercial strangers.”  USA Walnut Creek, 2015 Tex. App. LEXIS 1806 at *8 (quoting Chapman, 445 S.W.3d at 718) (alterations in original).  Likewise, simply because a party’s work “was the subject of a contract does not mean that a contractual stranger is necessarily barred from suing a contracting party for breach of an independent duty.”  USA Walnut Creek, 2015 Tex. App. LEXIS 1806 at *8 (quoting Sharyland Water Supply v. City of Alton, 354 S.W.3d 407, 419 (Tex. 2011)).

The court then resolved Terracon’s sole argument on summary judgment, that it owed no duty to USA Walnut Creek because it had no control over the construction of the apartment complex.  Terracon relied uponBlack+Vernooy Architects v. Smith, 346 S.W.3d 877 (Tex. App. Austin 2011), which held that “the architects did not owe a common law duty to protect plaintiffs from the acts of the third-party builders and that the plaintiffs were not third-party beneficiaries of the contract between the homeowners and the architect.” USA Walnut Creek, 2015 Tex. App. LEXIS 1806 at *12.  However, the court distinguished the Vernooy case and explained that USA Walnut Creek was not claiming that Terracon breached a duty to protect it against damages caused by a third-party.  Rather, USA Walnut claimed that Terracon breached its duties by negligently performing the engineering and testing, which created the conditions that caused the damage to the apartment complex.  Thus, the court rejected Terracon’s sole argument on summary judgment that, because it did not control the construction, it owed no duty to USA Walnut Creek.  The court reversed and remanded the case to the trial court after concluding that there was sufficient evidence for the jury to consider all elements of USA Walnut Creek’s negligence claims against Terracon.

(Note: A petition for review has been filed in this matter.)

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