Halcrow, Inc. v. Eighth Judicial District Court of the State of Nevada Ex Rel. County of Clark

129 Nev., Advance Opinion 42.
IN THE SUPREME COURT OF THE STATE OF NEVADA
HALCROW, INC., No. 60194
Petitioner,
vs.
THE EIGHTH JUDICIAL DISTRICT
COURT OF THE STATE OF NEVADA,
IN AND FOR THE COUNTY OF
FILED
CLARK; AND THE HONORABLE JUN 2 7 ZO13
ELIZABETH GOFF GONZALEZ,
DISTRICT JUDGE,
Respondents,
and
PACIFIC COAST STEEL; AND
CENTURY STEEL, INC.,
Real Parties in Interest.
Original petition for a writ of mandamus challenging a district
court order granting real parties in interest's motions for leave to amend
their third- and fourth-party complaints in order to plead claims for
negligent misrepresentation, indemnity, contribution, and apportionment.
Petition granted.
Backus Carranza & Burden and Leland Eugene Backus and Shea A.
Backus, Las Vegas; Lloyd, Gray, Whitehead & Monroe, P.C., and E.
Britton Monroe and Burns L. Logan, Birmingham, Alabama,
for Petitioner.
Gordon & Rees, LLP, and Robert E. Schumacher, Las Vegas; Procopio,
Cory, Hargreaves & Savitch, LLP, and Scott R. Omohundro, Craig A.
Ramseyer, and Timothy E. Salter, San Diego, California,
for Real Party in Interest Pacific Coast Steel.
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Hutchison & Steffen, LLC, and Michael K. Wall, James H. Randall, L.
Kristopher Rath, and Cynthia G. Milanowski, Las Vegas; Koeller,
Nebeker, Carlson & Haluck, LLP, and Megan K. Dorsey and Robert C.
Carlson, Las Vegas,
for Real Party in Interest Century Steel, Inc.
Watt, Tieder, Hoffar & Fitzgerald, LLP, and David R. Johnson and Jared
M. Sechrist, Las Vegas,
for Amicus Curiae Tishman Construction Corporation of Nevada.
BEFORE THE COURT EN BANC. 1
OPINION
By the Court, SAITTA, J.:
In this opinion, we address whether the economic loss doctrine
applies to bar a claim alleging negligent misrepresentation against a
structural steel engineer on a commercial construction project. We
exercise our discretion to review this petition for extraordinary writ relief,
as our intervention will help resolve related future litigation by addressing
an important legal issue, which our decision in Terracon Consultants
Western, Inc. v. Mandalay Resort Group, 125 Nev. 66, 206 P.3d 81 (2009),
left open. Ultimately, we conclude that the economic loss doctrine bars
negligent misrepresentation claims against commercial construction
design professionals where the recovery sought is solely for economic
losses.
1 TheHonorable Kristina Pickering, Chief Justice, voluntarily
recused herself from participation in the decision of this matter.
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4741-....VP,F(1.11414)``-'n
PROCEDURAL HISTORY AND FACTS
This original proceeding stems from the construction of, and
subsequent litigation regarding, the Harmon Tower (the Harmon) located
within CityCenter, a mixed-use urban development in Las Vegas owned
and developed in part by MGM Mirage Design Group. MGM retained an
architectural firm and a general contractor, Perini Building Company,
Inc., to assist in the project's development. The architectural firm
retained petitioner Halcrow, Inc., to design the Harmon's structure,
prepare drawings, and perform ongoing structural engineering services,
including observations and inspections, throughout the construction of
multiple structures in CityCenter. Perini hired real party in interest
Century Steel, Inc., to provide the steel installation. Following the
construction of a portion of the Harmon, Century assigned its assets,
including the contract for the Harmon, to real party in interest Pacific
Coast Steel (PCS).
All parties agree that Halcrow had no contract with PCS,
Century, or Perini. Nonetheless, pursuant to PCS's and Century's
contractual obligations to Perini, they were required to follow Halcrow's
design and specifications for installing reinforcing steel in the Harmon.
Problems arose when defects were discovered relating to the reinforcing
steel's installation. Ultimately, the Harmon, which originally was to
consist of over 40 floors, could not be built above 26 floors due to flaws in
the steel installation.
After construction was stopped on the Harmon, Perini filed a
complaint against MGM for allegedly failing to make timely payments.
MGM filed a counterclaim against Perini for the alleged reinforcing steel
defects and other nonconforming work on the Harmon. Perini then filed a
third-party complaint against Century and PCS, among others, asserting
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claims for contractual indemnity. Century and PCS in turn filed their own
third- and fourth-party complaints against several entities, including
Halcrow, alleging claims for negligence, equitable indemnity, and
contribution and apportionment, and seeking declaratory relief.
Halcrow filed a motion to dismiss Century's and PCS's third-
and fourth-party complaints for failure to state a claim on which relief can
be granted, based on this court's holding in Terracon Consultants Western,
Inc. v. Mandalay Resort Group, 125 Nev. 66, 206 P.3d 81 (2009). Halcrow
argued that Terracon bars unintentional tort claims against design
professionals in commercial construction projects when the claimant
incurs purely economic losses. The district court granted Halcrow's
motion and dismissed Century's and PCS's claims for negligence,
indemnity, contribution, and declaratory relief.
PCS then sought leave to amend its third-party complaint in
order to include a cause of action for negligent misrepresentation.
Century followed suit and filed a motion for leave to amend its fourth-
party complaint against Halcrow and others, to allege a claim for
negligent misrepresentation. Halcrow filed an opposition to Century's and
PCS's motions to amend their complaints, arguing that Terracon did not
carve out an exception to the economic loss doctrine for negligent
misrepresentation claims, and thus, PCS and Century should not be
permitted to maintain such claims. Century and PCS on the other hand
argued that Halcrow owed them a duty to act with reasonable care,
pursuant to the Restatement (Second) of Torts section 552, in
communicating information to Century and PCS about the steel
installation. Specifically, they alleged that Halcrow failed to conduct
timely inspections in accordance with its representations that inspections
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would take place and erroneously stated that on-site adjustments would
alleviate errors in its plans. Century and PCS therefore contended that as
a result of their foreseeable reliance on Halcrow's false representations
regarding the steel installation inspection and correction process, Halcrow
could be held liable for negligent misrepresentation.
Following a hearing, the district court granted the motions to
amend but stayed the proceedings pending resolution of the legal issues by
this court. This petition for extraordinary writ relief followed.
DISCUSSION
Writ of mandamus
A writ of mandamus is available to compel the performance of
an act that the law requires as "a duty resulting from an office, trust or
station." NRS 34.160. Mandamus relief may also be proper "to control an
arbitrary or capricious exercise of discretion." Int'l Game Tech., Inc. v.
Second Judicial Dist. Court, 124 Nev. 193, 197, 179 P.3d 556, 558 (2008).
Mandamus is an extraordinary remedy, and we have full discretion to
determine whether a petition will be considered. Cote H. v. Eighth
Judicial Dist. Court, 124 Nev. 36, 39, 175 P.3d 906, 908 (2008). Writ relief
will not be available when an adequate and speedy legal remedy exists.
NRS 34.170. "Whether a future appeal is sufficiently adequate and speedy
necessarily turns on the underlying proceedings' status, the types of issues
raised in the writ petition, and whether a future appeal will permit this
court to meaningfully review the issues presented." D.R. Horton, Inc. v.
Eighth Judicial Dist. Court, 123 Nev. 468, 474-75, 168 P.3d 731, 736
(2007); see also Smith v. Eighth Judicial Dist. Court, 113 Nev. 1343, 1344-
45, 950 P.2d 280, 281 (1997) (indicating that this court will consider a
petition challenging an order denying motions to dismiss when an
important issue of law needs clarification and considerations of sound
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judicial economy and administration militate in favor of granting the
petition).
We exercise our discretion to consider this petition because the
legal issue of whether a negligent misrepresentation tort claim may be
maintained against a design professional in a commercial construction
setting is one of first impression in Nevada and the issue has resulted in
split decisions in Nevada state and federal district courts such that our
clarification of this important issue now will promote sound judicial
economy and administration. D.R. Horton, Inc., 123 Nev. at 474-75, 168
P.3d at 736.
The district court acted arbitrarily and capriciously in granting leave to
amend in order to plead negligent misrepresentation
NRCP 15(a) provides that leave to amend a complaint shall be
"freely given when justice so requires." However, leave to amend should
not be granted if the proposed amendment would be futile. See Allum v.
Valley Bank of Nev., 109 Nev. 280, 287, 849 P.2d 297, 302 (1993). A
proposed amendment may be deemed futile if the plaintiff seeks to amend
the complaint in order to plead an impermissible claim. See Soebbing v.
Carpet Barn, Inc., 109 Nev. 78, 84, 847 P.2d 731, 736 (1993).
Negligent misrepresentation and the economic loss doctrine
In Terracon, we held that the economic loss doctrine applied to
preclude a plaintiff from asserting professional negligence claims against
design professionals when the plaintiff sought to recover purely economic
losses in a dispute concerning commercial construction. Specifically, we
concluded that:
in a commercial property construction defect
action in which the plaintiffs seek to recover
purely economic losses through negligence-based
claims, the economic loss doctrine applies to bar
6
such claims against design professionals who have
provided professional services in the commercial
property development or improvement process.
125 Nev. at 80, 206 P.3d at 90. In so holding, we explained that the
economic loss doctrine is intended to mark "the fundamental boundary
between contract law, which is designed to enforce the expectancy
interests of the parties, and tort law, which imposes a duty of reasonable
care and thereby [generally] encourages citizens to avoid causing physical
harm to others." Id. at 72-73, 206 P.3d at 86 (alteration in original)
(quoting Calloway v. City of Reno, 116 Nev. 250, 256, 993 P.2d 1259, 1263
(2000), overruled on other grounds by Olson v. Richard, 120 Nev. 240, 241-
44, 89 P.3d 31, 31-33 (2004)). We further explained that application of the
doctrine protects parties from unlimited economic liability, which could
result from negligent actions taken in commercial settings. Id. at 74, 206
P.3d at 86-87.
In this case, Halcrow contends that the clear and explicit
holding in Terracon bars all negligence-based claims, including negligent
misrepresentation. It further argues that numerous courts have refused
to exempt negligent misrepresentation claims from the economic loss
doctrine in cases of large commercial construction projects. In contrast,
PCS and Century argue that Terracon left open the question of whether
negligent misrepresentation may be an appropriate exception to the
economic loss doctrine. Further, both PCS and Century argue that
negligent misrepresentation should be adopted as an exception to the
economic loss doctrine because it would not lead to the type of unlimited
liability that the doctrine seeks to avoid. They maintain that the
Restatement (Second) of Torts section 552 (1977) imposes on design
professionals a duty of care, separate and apart from any duties arising
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from Halcrow's contract with the architectural firm, and because Halcrow
breached that duty by negligently misrepresenting that it inspected and
made corrections to the steel work, thus causing Century and PCS
financial damages, they should be permitted to amend their complaints to
assert negligent misrepresentation. We disagree.
Although Terracon recognized that exceptions to the economic
loss doctrine exist, it answered only the specific question of whether the
doctrine applied to preclude professional negligence claims against design
professionals who provided services in the commercial property
development and improvement process, when the plaintiff sought purely
economic losses. In this case, Century's and PCS's proposed amended
complaints include a cause of action for negligent misrepresentation,
based on Halcrow's alleged misrepresentations that it would inspect and
make appropriate on-site adjustments to the steel installation, and on
which representations Century and PCS allege they relied. Terracon did
not address whether the economic loss doctrine applied to bar plaintiffs
from asserting such claims, and we resolve that question now.
We have previously adopted section 552 of the Second
Restatement of Torts in upholding a claim for negligent
misrepresentation. That section provides:
"One who, in the course of his business, profession
or employment, or in any other [trans] action in
which he has a pecuniary interest, supplies false
information for the guidance of others in their
business transactions, is subject to liability for
pecuniary loss caused to them by their justifiable
reliance upon the information, if he fails to
exercise reasonable care or competence in
obtaining or communicating the information."
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Bill Stremmel Motors, Inc. v. First Nat'l Bank of Nev., 94 Nev. 131, 134,
575 P.2d 938, 940 (1978) (quoting Restatement (Second) of Torts § 552
(1977)). Section 552 provides that in situations where only pecuniary loss
results, liability for negligent misrepresentation is not based on general
duty rules, but instead, on a "restricted rule of liability." Restatement
(Second) of Torts § 552 cmt. a (1977). Liability is only imposed on a party
who has supplied false information, where that information is for the
guidance of others and where the party knows that the information will be
relied upon by a foreseeable class of persons. Id. cmt. b.
In Terracon, we left open the door for exceptions to the
economic loss doctrine for negligent misrepresentation claims "in [a]
certain categor[y] of cases when strong countervailing considerations
weigh in favor of imposing liability." 125 Nev. at 73, 206 P.3d at 86.
Liability is proper in cases where there is significant risk that "the law
would not exert significant financial pressures to avoid such negligence."
Id. at 76-77, 206 P.3d at 88. These types of cases encompass economic
losses sustained, for example, as a result of defamation, intentionally
caused harm, negligent misstatements about financial matters, and loss of
consortium. Barber Lines AI S v. M IV Donau Maru, 764 F.2d 50, 56 (1st
Cir. 1985) (citing numerous exceptions to the economic loss doctrine that
have been accepted by courts). However, in the context of commercial
construction design professionals, negligent misrepresentation claims do
not fall into such a category because "contract law is better suited" for
resolving such claims. Terracon, 125 Nev. at 77, 206 P.3d at 89. Further,
in commercial construction situations, the highly interconnected network
of contracts delineates each party's risks and liabilities in case of
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negligence, which in turn "exert significant financial pressures to avoid
such negligence." Id. at 77, 206 P.3d at 88.
Additionally, complex construction contracts generally include
provisions addressing economic losses. See Terracon, 125 Nev. at 78, 206
P.3d at 89. Therefore, the parties' "disappointed economic expectations'
are better determined by looking to the parties' intentions expressed in
their agreements. Id. at 79, 206 P.3d at 90 (quoting Sensenbrenner v.
Rust, Orling & Neale, Architects, Inc., 374 S.E.2d 55, 57-58 (Va. 1988)).
This is further supported by the fact that design professionals supply
plans, designs, and reports that are relied upon to create a tangible
structure; the ultimate quality of the work can be judged against the
contract. See id. at 79, 206 P.3d at 90; see also Fireman's Fund Ins. Co. v.
SEC Donohue Inc., 679 N.E.2d 1197, 1202 (Ill. 1997). The drawings,
reports, and on-site instructions are "incidental to a tangible product."
Fireman's Fund Ins. Co., 679 N.E.2d at 1202; see also Kuhn Constr. Co. v.
Ocean & Coastal Consultants, Inc., 844 F. Supp. 2d 519, 527-28 (D. Del.
2012). Thus, requiring parties that are not in direct privity with one
another but involved in a network of interrelated contracts to rely upon
that network of contracts ensures that all parties to a complex project
have a remedy and maintains the important distinction between contract
and tort law. See Calloway v. City of Reno, 116 Nev. 250, 256, 993 P.2d
1259, 1263 (2000), overruled on other grounds by Olson v. Richard, 120
Nev. 240, 241-44, 89 P.3d 31, 31-33 (2004).
In Terracon, we concluded that a design professional's duty to
a party with whom it contracted is set forth in the contract, and "any duty
breached arises from the contractual relationship only." 125 Nev. at 79,
206 P.3d at 90 (emphasis added). Based on the foregoing discussion, we
10
see no reason to limit our conclusion in Terracon by imposing the
extracontractual duty described in section 552 of the Second Restatement
of Torts. See Leis Family Ltd. P'ship v. Silversword Eng'g, 273 P.3d 1218,
1224-25 (Haw. Ct. App. 2012); 2314 Lincoln Park W. Condo. Ass'n v.
Mann, Gin, Ebel & Frazier, Ltd., 555 N.E.2d 346, 353 (Ill. 1990);
Indianapolis-Marion Cnty. Pub. Library v. Charlier Clark Sz Linard, P.C.,
929 N.E.2d 722, 738 (Ind. 2010); Fleischer v. Hellmuth, Obata &
Kassabaum, Inc., 870 S.W.2d 832, 837 (Mo. Ct. App. 1993);
Berschauer I Phillips Constr. Co. v. Seattle Sch. Dist. No. 1, 881 P.2d 986,
993 (Wash. 1994).
Determining that design professionals have a separate and
distinct duty, pursuant to section 552, to any subcontractor that must rely
on their plans would essentially allow any party to recast their barred
negligence claim into a negligent misrepresentation claim. In the context
of commercial construction projects, the evidence that would need to be
presented in order to prove a negligent misrepresentation claim is almost
identical to that which would be necessary in proving a claim for
negligence. Allowing one and not the other would create a loophole in
Terracon's objective of foreclosing professional negligence claims against
commercial construction design professionals and would, essentially, cause
the economic loss doctrine to be nullified by negligent misrepresentation
claims.
Here, PCS and Century, the subcontractors hired to install the
steel, sought to plead negligent misrepresentation claims against Halcrow,
the steel engineer. Halcrow was employed on the Harmon as a design
professional and responsible for creating the plans and overseeing the
installation of the Harmon's steel infrastructure. PCS and Century have
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never stated that they sought anything other than economic losses.
Negligent misrepresentation is an unintentional tort and cannot form the
basis of liability solely for economic damages in claims against commercial
construction design professionals. 2 Consequently, PCS and Century
cannot assert claims of negligent misrepresentation against Halcrow. 3
Therefore, leave to amend should not have been granted because the
amendment to PCS's and Century's pleadings was futile. See Allum v.
Valley Bank of Nev., 109 Nev. 280, 287, 849 P.2d 297, 302 (1993); Soebbing
v. Carpet Barn, Inc., 109 Nev. 78, 84, 847 P.2d 731, 736 (1993).
CONCLUSION
We conclude that, in commercial construction defect litigation,
the economic loss doctrine applies to bar claims against design
professionals for negligent misrepresentation where the damages alleged
are purely economic. 4 Thus, the district court was compelled to deny
2 Intentional
torts are not barred by the economic loss doctrine. See
Terracon, 125 Nev. at 72-73, 206 P.3d at 85-86. Thus, the economic loss
doctrine does not preclude litigants from asserting claims of intentional
misrepresentation.
3 Our conclusions, however, do not bar PCS or Century's potential
reliance on Home Furniture, Inc. v. Brunzell Construction Co., 84 Nev.
309, 313-14, 440 P.2d 398, 401-02 (1968), and United States v. Spearin,
248 U.S. 132, 136 (1918) (providing that contractors cannot be liable for
loss or damage resulting from defects in the plans and specifications, when
the contractors simply followed the plans as provided).
4 Because we determine that negligent misrepresentation and
professional negligence claims cannot form a basis for liability, Terracon,
125 Nev. at 80, 206 P.3d at 90, Halcrow cannot be deemed a joint
tortfeasor with PCS or Century. Consequently, PCS and Century's
equitable claims for contribution, apportionment, and indemnity
necessarily fail. See Black & Decker (U.S.), Inc. v. Essex Grp., Inc., 105
Nev. 344, 345, 775 P.2d 698, 699 (1989).
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Century's and PCS's motions to amend their third- and fourth-party
complaints to include claims for negligent misrepresentation against
Halcrow. Accordingly, we grant Halcrow's petition for a writ of
mandamus. The clerk of this court shall issue a writ of mandamus
directing the district court to vacate its order granting PCS and Century
leave to amend their third- and fourth-party complaints and the amended
complaints.
J.
Saitta
Gibbons
1/40.4X4.-\ J.
Hardesty
Parraguirre
J.
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