On June 10, 2019, the Superior Court of Pennsylvania affirmed a lower court decision to deny a motion to dismiss in connection with a tort claim for negligent misrepresentation by a contractor against a third-party design/engineer. The Court’s opinion highlights Pennsylvania’s exception to the economic loss doctrine insofar as it applies to claims raised by contractors against architects/engineers for faulty bidding documents, specifications, or designs.
The economic loss doctrine stands for the general proposition that a party cannot recover purely economic losses in a tort as a result of failed contractual expectations. However, a number of states—including Pennsylvania—have created exceptions to this general rule.
In the case of Popple Construction, Inc. v. Reilly Associates, the City of Pittison, Pennsylvania hired Reilly Associates (“Reilly”) to design and prepare bidding documents for a sewer system improvement project. Popple Construction, Inc. (“Popple”) reviewed the bidding documents, submitted a bid for the project, and was awarded a contract with the City of Pittison.
After the contract award, the project appears to have experienced significant setbacks and Popple sued Reilly on a single claim of negligent misrepresentation. According to Popple, Reilly prepared flawed biding documents that caused Popple to suffer financial losses on the sewer improvement project and, as a result, should be liable for Popple’s losses despite an absence of contractual privity.
Reilly sought to the dismiss the action on a variety of grounds, including that Popple’s claims were legally insufficient. The lower court declined to dismiss the action and Reilly appealed.
On appeal, Reilly effectively argued that the lower court’s ruling was incorrect because Popple Construction failed to allege a cause of action for negligent representation. The Court, however, was not convinced. As the Court explained, “we cannot reasonably construe the complaints factual allegations and reasonable inferences therefrom as preventing [Popple] from pursuing any tort claim of negligent misrepresentation against [Reilly].” The Court added: “[Reilly] has not established that [Popple] would be unable to prove fact legally sufficient to establish the right to relief.” In doing so, the Court tacitly affirmed that, despite the lack of contractual privity between Popple Construction and Reilly, Popple Construction could pursue a cause of action in tort against Reilly for economic losses sustained by virtue of a separate contractual arrangement.
Although the Court in Popple did not expressly apply Pennsylvania’s exception to the economic loss doctrine, the import of the opinion is clear. Pennsylvania’s exception to the economic loss doctrine for third-party claims against design professionals remains alive and well.