Stating a Claim for Negligent Misrepresentation for a Design Professional’s Supply of Information

By Gregory J. Kelley, Esq.*

The False Information Need Not Be Expressly Misrepresented, and How Specific the Allegations Must Be Remains Subjective

Until 2005, in Pennsylvania the Economic Loss Doctrine precluded contractors from suing design professionals in negligence for additional costs incurred on a construction project due to errors or omissions in the design plans. The contractor’s recourse was to sue the party who had contracted with the contractor and provided the plans. This changed when the Pennsylvania Supreme Court, in Bilt-Rite Contractors, Inc. v. The Architectural Studio, 866 A.2d 270 (Pa. 2005), adopted the Restatement (Second) of Torts, § 552, Information Negligently Supplied for the Guidance of Others, which states in part:

 (1)         One who, in the course of his business, profession, or employment, or in any other transaction 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. …

In adopting § 552, the Bilt-Rite court created a narrow exception to the Economic Loss Doctrine. This exception allows contractors to sue design professionals under a negligent misrepresentation theory for losses incurred on a project because of errors or omissions in the design plans.

In Pennsylvania, a plaintiff is required to state facts in the complaint with sufficient specificity to allow the defendant to ascertain the subject matter and basis of the claim. An issue remains with respect to the specificity required to plead a claim under Bilt-Rite and § 552. In asserting a negligent misrepresentation claim against a design professional, how specific must the complain be in identifying the allegedly false information that was supplied by the design professional? Is it sufficient to allege that the design plans as a whole were faulty? Can the claim be based on an implied misrepresentation? Must a claim be an express misrepresentation by error or omission in the plans and specifications supplied?

The Pennsylvania Superior Court addressed these issues in Gongloff Contracting, L.L.C. v. Robert Kimball & Associates, Architects and Engineers, Inc., 119 A.3d 1070 (Pa.Super.2015), in which the steel erection contractor had contended that the roof design of a university’s new convocation center was faulty in that steel beams were undersized. The contractor alleged that the faulty design caused three work shutdowns during construction, the lay offing of its employees, an inability to pay vendors, and other economic losses and damage to its reputation.

The contractor sued the architect and two of its engineers (the designers) for negligent misrepresentation. The complaint alleged that the design professionals: (1) either explicitly or implicitly represented that the structure could safely sustain all required loads; (2) either explicitly or implicitly represented that normal construction methods could be employed to erect the structure; and (3) supplied false information in the form of its structural design of the project. The convocation center was completed and standing, but the contractor denied that the structural system was the same as originally designed. The architect denied the allegations and moved for judgment on the pleadings, contending that the economic loss doctrine barred the claim. The trial court granted the motion on two grounds.

First, the designers contended that the contractor did not identify in its complaint the alleged express or implied representation that the roof could safely hold the loads. Thus, although the design was complex and had allegedly required further engineering and design by the contractor, this could not be attributed to any representation by the designers. Second, the designers required that the contractor have special credentials, which the contractor did not have. This requirement undermined the contention that the designers implied that normal construction methods could be used to erect the structural steel.

On appeal, the Superior Court addressed two questions: (1) whether § 552 requires that the designers make an explicit negligent misrepresentation of a specific fact; and (2) whether the contractor properly alleged that the designers either ”expressly” or “impliedly” represented that the structure could safely sustain the load.

The designers argued that an actual misrepresentation was required and that, in the complaint, the contractor must identify some particular communications or documents provided by the designers that were false. The appellate court ruled against the designers, distinguishing between the allegations in a complaint and the level of proof that must be shown at trial. In reviewing the complaint, the court accepts the allegations as true. In noting that § 552 pertains to the supply of false information, the court stated that Bilt-Rite required only that information, a rather general term, be negligently supplied by the design professional. Accordingly, the court concluded that the contractor was not required to identify an express representation by the designers. Therefore, the complaint’s allegations that the designers’ documents constituted negligently-supplied false information were pled with the appropriate level of specificity to state a cause of action for negligent misrepresentation. The court noted that while the designers might prove later in the litigation that the allegation—that it provided false information concerning the integrity of its roof design was unsubstantiated—it was not entitled to judgment at the pleadings stage.

A plaintiff-contractor still must plead facts to support the elements of a common law claim for negligent misrepresentation, which are: (1) a misrepresentation of a material fact; (2) made under circumstances in which the misrepresenter ought to have known its falsity; (3) with an intent to induce another to act on it; and (4) which results in injury to a party acting in justifiable reliance on the misrepresentation.” Bilt-Rite, 866 A.2d at 277. However, in analyzing whether the facts are sufficiently pled, the totality of the circumstances must be considered. Have the design plans or specifications that are allegedly false been sufficiently identified? Were there requests for information (RFIs) seeking additional information or clarification? Were the plans and specifications revised, and if so, how, when, why and in what form were the changes communicated to the contractor?

Such analysis should determine whether a contractor has sufficiently stated a claim against a design professional. If not, then it should be challenged in the pleadings stage. If yes, then discovery will be taken to further develop the facts and determine whether there was a misrepresentation in the supply of information.

In Gongloff, the designer fully knew the subject matter and context of the claim, but argued that the contractor did not identify an explicit representation by the designer on which the contractor detrimentally relied. The court ruled that the allegations of faulty design in the roof system were sufficiently stated in the complaint, even though no specific representation (e.g. specific design detail) was identified as false and, thus, negligently supplied. The implication is that the falsity of the information, evaluated in its totality, and not limited to an express misrepresentation, still must be proven at trial. The takeaway from this decision is that it may be more difficult to challenge a plaintiff-contractor’s general allegations at the pleadings stage. The sufficiency of specificity averred in the complaint will continue to be subjectively determined by the court on a case by case basis.

*Greg is a shareholder in our King of Prussia, Pennsylvania and Cherry Hill, New Jersey offices. Greg can be reached at 610.354.8273 or 856.414.6413 and at gjkelley@mdwcg.com.

_{Defense Digest, Vol. 22, No. 2, June 2016}

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