New Bern Riverfront Development, LLC et al v. Humphrey Heating and Air Conditioning, Inc. et al

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE:
NEW BERN RIVERFRONT DEVELOPMENT,
LLC,
DEBTOR.
NEW BERN RIVERFRONT DEVELOPMENT,
LLC,
Plaintiff
v.
WEAVER COOKE CONSTRUCTION, LLC;
TRAVELERS CASUALTY AND SURETY
COMPANY OF AMERICA; JDAVIS
ARCHITECTS, PLLC; FLUHRER REED, PA; and
NATIONAL ERECTORS REBAR, INC. f/k/a
NATIONAL REINFORCING SYSTEMS INC.,
Defendants
and
WEAVER COOKE CONSTRUCTION, LLC and
TRAVELERS CASUALTY AND SURETY
COMPANY OF AMERICA,
Defendants, Counterclaimants and
Crossclaimants,
v.
CASE NO.
09-10340-8-JRL
CHAPTER 11
ADVERSARY
PROCEEDING NO.
10-00023-8-JRL
SO ORDERED.
SIGNED this 24 day of May, 2011.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
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JDAVIS ARCHITECTS, PLLC; FLUHRER REED
PA; SKYSAIL OWNERS ASSOCIATION, INC.;
WACHOVIA BANK, NATIONAL ASSOCIATION
and WELLS FARGO & COMPANY f/d/b/a
WACHOVIA CORPORATION,
Crossclaim Defendants.
and
NATIONAL ERECTORS REBAR, INC.,
Defendant, Counterclaimant, Crossclaimant,
and Third-Party Plaintiff,
v.
ROBERT ARMSTRONG, JR., ROBERT P.
ARMSTRONG, JR., INC., SUMMIT DESIGN
GROUP, INC., JMW CONCRETE
CONTRACTORS, and JOHNSON’S MODERN
ELECTRIC COMPANY, INC.,
Third-Party Defendants.
and
JDAVIS ARCHITECTS, PLLC,
Third-Party Plaintiff,
v.
MCKIM & CREED, P.A.,
Third-Party Defendant.
ORDER
This matter came before the court on defendant National Erectors Rebar’s motion to
dismiss the plaintiff’s claim against it. A hearing was held on March 29, 2011, in Raleigh, North
Carolina.
The plaintiff, New Bern Riverfront Development, LLC (“NBRD”) initiated this
adversary proceeding against various defendants including National Erectors Rebar, Inc.
(“National Erectors”), JDavis Architects, PLLC, (“JDavis”), and Weaver Cooke Construction,
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LLC, (“Weaver Cooke”). NBRD owned real property in Craven County, North Carolina, and
developed it into the SkySail Luxury Condominiums (“the project”). Weaver Cooke served as
the general contractor for the project and hired National Erectors as a subcontractor to design
and construct certain structural components for the project. National Erectors now moves to
dismiss the claim of negligence asserted against it by NBRD.
BACKGROUND
Weaver Cooke hired National Erectors as a subcontractor to design and construct a post-
tensioning concrete system (“the PT system”), which is a series of cables embedded in concrete
structures integrated into the project to provide support. NBRD directly contracted with JDavis
as architect, who was responsible for designing the rest of the project’s structural elements
besides the PT system. JDavis oversaw the manner in which the PT system connected with the
rest of the components of the project.
After completion of the design and construction of the PT system, the system failed in
three separate sections. The failure caused the surrounding concrete to fracture and the
reinforcing steel cables to be displaced. The fracturing and displacement caused concrete debris
to fall from above onto the deck of the parking garage of the project. After the damage, NBRD
alleges in its complaint that Weaver Cooke hired two firms to investigate the failures and draft a
plan for corrective work, one of which was to specifically focus on the PT system. That firm
reported that the PT system adversely affected the columns in the parking deck of the project and
the swimming pool. NBRD’s lawsuit is based, among other things, on the damage done by the
failure of the PT system. NBRD asserted claims for breach of contract against Weaver Cooke
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1NBRD also alleges willful and egregious breach of contract, unfair and deceptive trade
practices, and breach of the covenant of good faith against Weaver Cooke.
2NBRD’s claim for negligence was also asserted against Fluhrer Reed, P.A., who was
hired by JDavis to provide engineering services and design and construct the PT system.
3This phrase is employed by NBRD. See infra for discussion on its relevance.
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and JDavis1 and a claim for negligence against National Erectors.2
DISCUSSION
NBRD’s claim for negligence is based on two grounds: (1) National Erectors failed to
comply with the standard of care required of “design professionals”3 under North Carolina law
which resulted in damage to the project and NBRD; and (2) under common law, National
Erectors failed to exercise reasonable care in designing and constructing the PT system, which
caused damage to the project and NBRD. National Erectors moves to dismiss the claim for
failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6) of the Federal
Rules of Civil Procedure (made applicable to adversary proceedings by Federal Rule of
Bankruptcy Procedure 7012). National Erectors argues it is not a “design professional” to which
this specific standard of care should be applied and that an action in common law tort does not
lie against a party who is simply negligent in performing a contract.
A. Negligence based on professional duty of care
Negligence arises out of the violation of a duty to exercise ordinary care which is
imposed on every person who engages in an active course of conduct and results in harm to
others or the property of others. Davidson and Jones, Inc. v. New Hanover County, 41 N.C.
App. 661, 666 (N.C. Ct. App. 1979). That duty of care may also arise out of contractual
relations. Id. However, privity of contract is not a prerequisite to impose a duty to use due care
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4Based on the filings, it appears all parties agree that Weaver Cooke served as the general
contractor for the project. However, in describing the parties, jurisdiction and venue in its
complaint, NBRD describes National Erectors as being licensed by the state as a general
contractor.
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“in one’s actions in connection with an economic relationship.” Id. North Carolina courts have
developed a discrete form of negligence applicable to engineers, surveyors, and architects,
requiring them to use the degree of care which an engineer, surveyor, or architect would use
under similar circumstances. Id. at 667 (referring to architects); Associated Indus. Contractors,
Inc. v. Fleming Engineering, Inc., 162 N.C. App. 405, 409-410 (N.C. Ct. App. 2004) (referring
to engineers and surveyors and citing Davidson and Jones Inc., 41 N.C. App. at 668).
Furthermore, lack of privity of contract does not render these professionals immune from
liability to the general contractor for damages resulting from their negligence. Davidson and
Jones Inc., 41 N.C. App. at 668. Although NBRD is not the general contractor, the lack of
contractual privity still exists as to National Erectors. Thus despite the lack of contractual
privity, the duty of care applicable to engineers, surveyors and architects may still apply to
National Erectors. See Quail Hollow East Condominium Ass’n. v. Donald J. Scholz Co., 47
N.C. App. 518, 522-526 (N.C. Ct. App. 1980) (giving homeowners’ association standing to sue
architect in negligence for work done for condominium complex despite the fact that there was
no contract between architect and HOA).
The remaining issue is whether National Erectors qualifies as an architect, engineer
and/or surveyor and should thus be held to this standard of care. National Erectors argues the
standard should not apply to its actions, because the only job for which NBRD alleges National
Erectors was licensed was as general contractor.4 Furthermore, National Erectors argues NBRD
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5For example, Fluhrer Reed P.A. is a co-defendant and served as the licensed engineer on
the project.
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is attempting to expand the scope of professional negligence to include “design professionals”
while courts have adhered to the specific categories of architect, engineer, and surveyor. Finally,
National Erectors denies contributing to the design of the project and that even if it did, it did not
do so as a licensed architect, engineer, or surveyor—those roles were fulfilled by other parties
named in the complaint.5
North Carolina law does not categorize the special duty of care as one applying to
“design professionals” as NBRD phrases in its complaint. Courts have strictly dealt with this
discrete form of negligence as applying to architects, engineers, and surveyors. See, e.g.,
Davidson and Jones, Inc., 41 N.C. App. at 583084 (titling the section as “Architects’ liability”
and discussing the duty of care of architects); Quail Hollow East Condominium Association, 47
N.C. App. at 521-22 (discussing the duty of care imposed on architects); Associated Industrial
Contractors, Inc., 162 N.C. App. 409-10 (outlining the degree of care required of surveyors or
civil engineers). Therefore it is inappropriate to expand this standard as applying to any party
serving as a “design professional,” which according to the complaint, is defined as someone who
“designs and constructs.” However, NBRD also alleges that National Erectors owed a duty to
perform its work in accordance with the standard of care applicable to engineers and architects,
so the additional use of the broader category of “design professional” is not detrimental. The
court will disregard it and focus on whether a claim for professional negligence by an architect
or engineer has been sufficiently pled.
NBRD does not allege that National Erectors was a licensed architect, engineer or
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surveyor, nor does National Erectors contend it is licensed in any of those professions. North
Carolina law regarding the standard of care applied to these professionals does not specify
whether it should be applied to licensed individuals. North Carolina law does, however, prohibit
the practice or offer to practice architecture without certificate of admission to practice. N.C.
Gen. Stat. § 83A-12. Similarly, it is unlawful to practice engineering or land surveying without a
license or imply that one is a professional engineer when one is not licensed. N.C. Gen. Stat. §
89C-23. Although it is unlawful to practice these professions without a license, North Carolina
law generally holds those who practice a particular profession without a license to the standard
of care applicable to licensed professionals in negligence actions. See, e.g., Grier v. Phillips, 230
NC. 672, 679 (1949) (holding an unlicensed dentist must exercise the skill and care required of
licensed dentists); Hazelwood v. Adams, 245 N.C. 398, 401 (1957) (confirming that one who
holds himself out to practice dentistry implicitly agrees to provide services in compliance with
the standard of care of the average member of the profession in good standing).
The court does not imply or presume that National Erectors was practicing architecture,
engineering, or surveying without a license, nor does NBRD specifically assert this in its
complaint. In fact, there are exemptions, at least under the architecture statutes, which allow for
certain work that appears to be the practice of architecture to be conducted without a license.
See N.C. Gen. Stat. 83A-13 (listing categories of projects and work that do not require an
architectural license, such as general contractors participating in “Design/Build” undertakings).
All the court intends to address at this juncture is whether a claim for professional negligence has
been asserted by NBRD, viewing the complaint in the light most favorable to NBRD, the non-
movant.
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NBRD alleges that National Erectors was required to “design and construct” certain
components of the project and owed NBRD a duty to perform the design and construction of the
project “consistent with the standard of care applicable to . . . [an] engineer, or architect . . . .” It
also alleges this duty was breached and proximately caused damage to NBRD. Neither the
complaint, National Erectors’ motion to dismiss, nor NBRD’s response elaborate on the work
performed by National Erectors, whether the “design and construct[ion]” of the PT system was
truly that of the practice of engineering, surveying, or architecture, and whether National
Erectors, licensed or not, performed work in conformity with the care exercised by the average
professional in that field. It may well be that the work performed by National Erectors does not
fit the definition of “engineering” or “architecture” or that National Erectors’ work falls under a
statutory exception. Those responses have yet to be provided and explored. Therefore, the court
denies the motion to dismiss the claim for professional negligence, as NBRD has sufficiently
pled a claim as it relates to any alleged engineering or architectural work performed by National
Erectors.
B. Common law negligence
The court next addresses whether NBRD has sufficiently pled a claim on the second
grounds for negligence—common law negligence. More specifically, the issue is whether in
light of the contractual relations between National Erectors and third parties, NBRD can still
assert a claim for negligence. The general rule in North Carolina is that a breach of contract
does not give rise to a tort action between the contracting parties. N.C. State Ports Authority v.
Lloyd A. Fry Roofing Co., 294 N.C. 73, 81 (N.C. 1978) rejected in part on other grounds by Trs.
Of Rowan Tech. Coll. v. J. Hyatt Hammond Assocs., Inc., 313 N.C. 230 (1985); See also Moore
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v. Coachmen Industries, Inc., 129 N.C. App. 389, 401 (N.C. Ct. App. 1998). The law of contract
governs the obligations and remedies of the parties in the event of a breach of contract. Spillman
v. American Homes of Mocksville Inc., 108 N.C. App. 63, 65 (N.C. Ct. App. 1992). The rule is
often referred to as the economic loss rule, which encourages contracting parties to allocate risks
for economic loss themselves. Lord v. Customized Consulting Specialty, Inc., 182 N.C. App.
635, 639 (N.C. Ct. App. 2007). Where the loss is already contemplated by the contract, a claim
for negligence, arising out of the party’s negligent performance of the contract, is surplusage.
Ports Authority, 294 N.C. at 83. Exceptions to this rule fall into four categories:
(1) the injury was to the person or property of someone other than the promisee;
(2) the injury was to property of the promisee other than the property which was
the subject of the contract, or was a personal injury to the promisee;
(3) the injury was loss of or damage to the promisee’s property, which was the
subject of the contract, the promisor being charged by law, as a matter of public
policy with the duty to use care in the safeguarding of the property from harm;
and
(4) the injury was a willful injury to or a conversion of the property of the
promiseee, which was the subject of the contract.
22 Strong’s North Carolina Index 4th
, Negligence §12 (citing Ports Authority, 294 N.C. at 82).
In these instances, a tort action can be brought against the defendant despite the fact that the
parties have a contract between them.
National Erectors argues the negligence claim should be dismissed because the facts
resemble those in Ports Authority and that NBRD’s claim is surplusage. In Ports Authority, the
plaintiff hired a general contractor, who in turn hired a subcontractor to construct roofs for the
project. The roofs leaked due to improper installation and the plaintiff sued the general
contractor and subcontractor for breach of contract as well as negligence. The North Carolina
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Supreme Court dismissed the negligence claims against the general contractor and subcontractor.
As to the general contractor, the plaintiff’s claim of negligence was surplusage because the
parties had a contract between them which dictated the obligations and remedies of the parties in
the event of a breach. Ports Authority, 294 N.C. at 83. As to the subcontractor, the Supreme
Court held that although the complaint alleged the subcontractor was negligent in installing the
roofs, it also alleged the subcontractor, having a contract with the general contractor, failed to
properly apply the roofing material. Ports Authority, 294 N.C. at 87. This was “simply an
allegation that [the subcontractor] did not properly perform its contract with [the general
contractor]” and an action in tort was improper based on the economic loss rule. Id.
Furthermore, the circumstances in Ports Authority did not fall under one of the four
exceptions to the economic loss rule, allowing a negligence claim to proceed. The plaintiff
sought recovery and reimbursement for repairs to the roof and for expenses incurred in moving
goods away from the leaking areas. Id. at 76. Thus all the damage done and relief requested
related to the subject of the contract—the installation of roofs to the project. Id. (seeking
recovery of “‘all necessary repairs to the roofs’”). This clearly did not fit in the latter two
categories discussed above—where the promisor, such as a common carrier, is charged by law
with the duty to use care or where the promisor caused a wilful injury to the promisee’s property.
See Id. at 82. Nor was the injury at issue to a person or property of someone other than the
promisee. Id. The remaining exception covers injuries to property that belongs to the promisee
but was not the subject of the contract. Id. As described above, in Ports Authority, the injury at
issue was to the roofs themselves which were the precise subject of the contracts—both the
contract of the general contractor to construct the buildings, including roofs, and that of the
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subcontractor to specifically construct the roofs.
NBRD argues that its negligence claim should not be barred by the economic loss rule
because it falls under this exception. In its complaint, NBRD alleges that the subject matter of
its contract with Weaver Cooke, in part, and Weaver Cooke’s contract with National Erectors
was to design and construct the PT system. NBRD also alleges that the improper design and
construction of the PT system caused damage to parts of the parking deck and swimming pool.
Therefore, NBRD alleges that the injury sustained was to property other than that which was the
subject matter of the contract. Taking the complaint in the light most favorable to the non-
movant, the negligence claim is sufficiently pled against National Erectors such that it survives
the motion to dismiss at this phase of the proceeding.
NBRD cites Lord v. Customized Consulting Specialty, Inc., 182 N.C. App. 635 (N.C. Ct.
App. 2007), as further support that the negligence claim is allowed. The court is hesitant to rely
on Lord because it is difficult to reconcile with the North Carolina Supreme Court’s decision in
Ports Authority. In Lord, the Court of Appeals upheld a negligence claim asserted against a
subcontractor by the clients of the general contractor. The clients, William and Jennifer Lord,
hired a general contractor to construct a home. Id. at 637. The general contractor hired a
subcontractor to provide trusses used in the construction of the home. Id. at 638. 	The trusses
were defective and the Lords asserted claims of negligence against the general and
subcontractors. The court held that “[b]ecause there was no contract between the Lords and the
[subcontractor], we further find that the economic loss rule does not apply and therefore does not
operate to bar the Lords’ negligence claims.” Id. at 643. This appears to be the opposite of the
conclusions reached in Ports Authority. There, the court found that even though the plaintiff did
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not have a contract with the subcontractor, the negligence claim was barred by the economic loss
rule because it was brought against the subcontractor for negligently performing its contract with
the general contractor. Ports Authority, 294 N.C. at 87. The Court of Appeals in Lord, although
discussing Ports Authority initially, does not describe the extent of the damages or whether the
negligence claim was allowed under one of the four exceptions to the economic loss rule. Lord,
182 N.C. App. at 640-42 (discussing Ports Authority). Regardless, for purposes of the issue
before this court, NBRD’s negligence claim against National Erectors is properly brought as an
exception to the economic loss rule described in Ports Authority.
CONCLUSION
Based on the foregoing the defendant’s motion to dismiss the claims for professional
negligence and common law negligence is DENIED.
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