Bilt-Rite Contractors, Inc. v. Architectural Studio

866 A.2d 270

581 Pa. 454

BILT-RITE CONTRACTORS, INC., Appellant v. THE ARCHITECTURAL STUDIO, Appellee.

Supreme Court of Pennsylvania.

Argued December 4, 2002.

Decided January 19, 2005.

Mason Avrigian, Jr., Blue Bell, for Bilt-Rite Contractors, Inc., appellant.

Maura Zajac McGuire, Nicholas Noel, Easton, for The Architectural Studio, appellee.

Before: CAPPY, C.J., CASTILLE, NIGRO, NEWMAN, SAYLOR and EAKIN, JJ.

OPINION

Justice CASTILLE.

This appeal raises the first impression question of whether a building contractor may maintain a negligent misrepresentation claim against an architect for alleged misrepresentations in the architect's plans for a public construction contract, where there was no privity of contract between the architect and the contractor, but the contractor reasonably relied upon the misrepresentations in submitting its winning bid and consequently suffered purely economic damages as a result of that reliance. The Superior Court found as a matter of law that, absent privity of contract, the contractor could not maintain such a tort action against the architect. For the reasons that follow, we reverse the order of the Superior Court and remand to the trial court for further proceedings.

Because this Court sits in review of the trial court's grant of appellee's preliminary objections in the nature of a demurrer, the salient facts are derived solely from the allegations in appellant's complaint. In such an instance, all material facts as set forth in the complaint, as well as all inferences reasonably deducible therefrom, must be accepted as true. Estate of Witthoeft v. Kiskaddon, 557 Pa. 340, 733 A.2d 623, 624 n. 1 (1999). The facts are as follows: East Penn School District entered into a contract with appellee, The Architectural Studio ("TAS"), pursuant to which TAS provided architectural services for the design and construction of a new school in Lower Macungie Township, Lehigh County. The services included the preparation of plans, drawings and specifications to be submitted to contractors for the purpose of preparing bids for the construction of the new school. In February of 1997, the school district solicited bids from contractors for all aspects of the project and included TAS's plans, drawings and specifications in the bid documents supplied to the contractors. Appellant, Bilt-Rite Contractors, Inc. ("Bilt-Rite"), submitted its bid for general construction work on the project and on May 6, 1997, the school district awarded the general construction contract to Bilt-Rite, who was the lowest responsible bidder. On June 6, 1997, the school district and Bilt-Rite entered into a contract for the project in the base amount of $16,238,900. The contract specifically referred to, and incorporated by reference, TAS's plans, drawings and specifications.

TAS's plans provided for the installation of an aluminum curtain wall system, sloped glazing system and metal support systems, all of which TAS expressly represented could be installed and constructed through the use of normal and reasonable construction means and methods, using standard construction design tables. Once construction commenced, however, Bilt-Rite discovered that the work including the aluminum curtain wall, sloped glazing and metal support systems could not be constructed using normal and reasonable construction methods, and instead required Bilt-Rite to employ special construction means, methods and design tables, resulting in substantially increased construction costs.

On November 19, 1999, Bilt-Rite sued TAS on a theory of negligent misrepresentation under Section 552 of the Restatement (Second) of Torts, claiming that TAS's specifications were false and/or misleading, and seeking damages for its increased construction costs.¹ On December 9, 1999, TAS filed preliminary objections in the nature of a demurrer, arguing that: (1) Bilt-Rite's action was barred by the "economic loss doctrine," which holds that a tort plaintiff cannot recover for purely economic losses; and (2) TAS owed no duty to Bilt-Rite, with whom it had no contractual relationship. On June 22, 2000, the trial court sustained TAS's preliminary objections and dismissed Bilt-Rite's complaint.

The trial court deemed itself bound by the Superior Court's decision in Linde Enterprises, Inc. v. Hazelton City Authority, 412 Pa.Super. 67, 602 A.2d 897 (1992),appeal denied, 533 Pa. 601, 617 A.2d 1275 (1992), which, the court noted, held that a contractor cannot prevail against an architect for economic damages suffered as a result of negligence in drafting specifications, absent privity of contract between the contractor and the architect. Slip op. at 2 n. 1. The trial court found further support for its decision in Palco Linings, Inc. v. Pavex, Inc., 755 F.Supp. 1269 (M.D.Pa.1990). In Palco, the district court, which was applying Pennsylvania law in a diversity action, addressed the operation of the economic loss rule in actions involving negligent misrepresentation. Palco noted that the economic loss rule reflects the concern that tort law (unlike contract law) is not generally intended to compensate parties for losses suffered as a result of a breach of duties which are assumed only by agreement; to recover in tort, there must be a breach of a duty of care imposed by law and a resulting injury. 755 F.Supp. at 1271. Looking to Illinois cases for persuasive authority, the Palco court suggested two viable exceptions to the economic loss rule in negligent misrepresentation cases: (1) where the defendant intentionally makes a false misrepresentation; and (2) where the defendant is in the business of supplying information for the guidance of others and makes negligent misrepresentations. The Palco court found that neither exception should apply to architects sued in their capacity as design professionals. Id. at 1274.

Following its discussion of Linde and Palco, the trial court noted that, although Pennsylvania courts have cited Section 552 of the Restatement (Second) with approval, no court had held that it permitted such a cause of action against a design professional. The trial court found that Bilt-Rite's action did not fall into either of the exceptions outlined in Palco, and therefore, Bilt-Rite had failed to set forth a viable Section 552 cause of action against TAS.

On Bilt-Rite's appeal, the Superior Court affirmed in an unpublished decision. The panel noted that the absence of privity is not an absolute bar to recovery for economic damages in tort; however, the question of which business relationships should be deemed exempt from the privity requirement (and thus exempt from the economic loss rule) must be decided on a case-by case basis. The panel further noted that the architect-contractor relationship had never been expressly included or excluded from the reach of Section 552. Therefore, the panel reasoned, its "review is guided by the principle that the tort of negligent misrepresentation, like the [sic] any action in negligence, requires the existence of a duty owed by one party to another." Slip op. at 9, citing, inter alia, Bortz v. Noon, 556 Pa. 489, 729 A.2d 555, 561 (1999) and Gibbs v. Ernst, 538 Pa. 193, 647 A.2d 882, 889 (1994). The question then became whether, as a matter of law, an architect such as TAS who prepares and develops design drawings and specifications, owes a duty to the contractors who apply those specifications in the situation where no contractual relationship exists. The panel recognized that question was controlled by Linde; since Bilt-Rite enjoyed no privity of contract with TAS, TAS owed it no duty, and Bilt-Rite could not proceed upon its negligent misrepresentation claim.

This Court granted further review because the question of the viability of a negligent representation tort action in the architect/contractor/no privity scenario is one of first impression for this Court; the question has split other state courts and the federal courts, see Linde, 602 A.2d at 901(discussing competing authority); and the question has split the lower federal courts in Pennsylvania, attempting to predict how this Court would rule on the question in light of our previous applications of Section 552. Compare Palco, supra with Borough of Lansdowne v. Sevenson Env. Services, 2000 WL 1886578 (E.D.Pa.2000), at *4-*5 (unpublished memorandum by Weiner, J.). The question of the reach and scope of the action is a pure question of law; as such, this Court's review is plenary. E.g. MCI WorldCom, Inc. v. Pennsylvania Public Utility Comm'n, 577 Pa. 294, 844 A.2d 1239 (2004). Further, "the standard of review for preliminary objections in the nature of a demurrer is limited; the question presented by the demurrer is whether, on the facts averred, the law says with certainty that no recovery is possible. Where a doubt exists as to whether a demurrer should be sustained, this doubt should be resolved in favor of overruling it." MacElree v. Philadelphia Newspapers, Inc., 544 Pa. 117, 674 A.2d 1050, 1056 (1996) (quoting AM/PM Franchise v. Atlantic Richfield, 526 Pa. 110, 584 A.2d 915, 921 (1990)). Thus, this Court is charged with deciding whether, under the facts alleged in Bilt-Rite's complaint, tort recovery is possible under Pennsylvania law.

Citing Rempel v. Nationwide Ins. Co., 471 Pa. 404, 370 A.2d 366 (1977) (plurality opinion) and Gibbs v. Ernst, supra, Bilt-Rite argues that this Court has recognized the tort of negligent misrepresentation and, in so doing, has approved the Restatement (Second) Section 552 formulation of the action.² Bilt-Rite further argues that, when this Court has set forth the elements of the negligent misrepresentation action (relying upon the Restatement for those elements), it has not included contractual privity. Instead, Bilt-Rite argues, this Court has focused on whether there was reliance upon the misrepresentations and the foreseeability of that reliance. Bilt-Rite argues that the focus on foreseeability, rather than...