Case Title: Rissler & McMurry Co. v. Sheridan Area Water Supply Joint Powers Bd.

Citation: 

Docket Number: 95-227

State: wyoming

Court: Wyoming Supreme Court

Date: 1996-12-20T00:00:00Z

Document:
Rissler & McMurry Co. v. Sheridan Area Water Supply Joint Powers Bd.1996 WY 169929 P.2d 1228Case Number: 95-227Decided: 12/20/1996Supreme Court of Wyoming
RISSLER & McMURRY CO., a Wyoming Corporation,

Appellant 
(Plaintiff),

v.

SHERIDAN AREA WATER 
SUPPLY JOINT POWERS BOARD; 

and HKM Associates, a 
Montana Corporation, 

Appellees 
(Defendants).

Appeal from District 
Court, Sheridan County, John C. Brackley, J.

Donald J. 
Rissler and John R. Hursh of Central Wyoming Law Associates, P.C., Riverton, 
for Appellant.

Virgil G. 
Kinnaird of Northern Wyoming Law Associates, Sheridan, for Appellee Sheridan 
Area Water Supply Joint Powers Board.

Tom C. Toner of 
Yonkee & Toner, Sheridan, for Appellee HKM Associates.

Before 
TAYLOR, C.J., and THOMAS, MACY, GOLDEN,* and LEHMAN, 
JJ.

* Chief Justice at time of 
oral argument.

TAYLOR, Chief 
Justice.

[¶1]      Rissler & 
McMurry Company (Rissler) appeals summary judgment granted in favor of the 
Sheridan Area Water Supply Joint Powers Board (the Board) and HKM Associates 
(HKM), the engineer, in a dispute over the contract price for construction of a 
water distribution system in Sheridan County, Wyoming (the Project). When the 
Board denied Rissler's claim for an increase in contract price and extension of 
time after completion of the Project, Rissler sued the Board under contract 
theories. Rissler later added HKM as a defendant, claiming HKM was negligent in 
providing the plans and specifications for the Project. The district court 
granted summary judgment in favor of the Board on Rissler's contract claims 
because Rissler failed to comply with the written notification requirements of 
the contract. The district court separately granted summary judgment in favor of 
HKM on Rissler's negligence claims because Rissler sought purely economic 
damages and the duty owed by HKM to Rissler, if any, arose solely from the 
contract between the Board and Rissler.

[¶2]      We 
affirm.

I. 
ISSUES

[¶3]      The issues 
presented by Rissler in its initial brief are:

ISSUE I

Did the court error as a 
matter of law when it granted summary judgment to appellee Sheridan Area Water 
Supply Joint Power Board for the reason that:

A.        Appellant 
had a cause of action for breach of implied warranty for defective plans and 
specifications; and

B.        Appellant 
presented a genuine issue of material fact that appellee had waived the written 
notice provisions of the contract by subsequent course of conduct.

ISSUE II

Did the court error as a 
matter of law when it granted summary judgment in favor of co-appellee HKM for 
the reason that the Wyoming law of torts does not preclude actions for economic 
damages suffered by a contractor as a result of defective engineering plans and 
specifications?

[¶4]      In response, the 
Board articulates the issues as follows:

A.        Did the 
District Court err, in granting Summary Judgment to JPB [Sheridan Area Water 
Supply Joint Powers Board], by reason of the existence of an implied warranty of 
sufficiency of plans and specifications?

B.        Was there a 
genuine issue of material fact as to whether the Appellant and JPB had, by 
course of conduct, waived provisions of a written construction 
contract?

[¶5]      HKM presents the 
following issues for consideration:

Interference with 
Contract Claim

1.                     
Did the District Court correctly rule that the Board did not breach its 
construction contract with Rissler and, therefore, HKM did not induce any 
breach?

Negligence and Negligent 
Misrepresentation Claims

2.                     
Can Rissler as a general contractor pursue a tort claim against HKM as 
the engineer to recover purely economic damages?

3.         Did 
HKM owe a duty to protect the economic interests of Rissler, a 
nonclient?

4.                     
Did Rissler contractually agree that HKM would have no liability except 
for failure to act in good faith thus barring Rissler's claims for negligence 
and negligent misrepresentation?

Negligent 
Misrepresentation

5.                     
Did HKM misrepresent an "existing fact" to Rissler?

6.                     
Could Rissler justifiably rely on the plans and specifications to show 
all underground utilities?

7.                     
Was Rissler paid in full for all damages and delays associated with 
unlocated underground utilities?

8.                     
Should negligence misrepresentation claims be recognized in the context 
of detailed construction contracts?

[¶6]      On its second 
bite at the apple, Rissler rephrases and presents these issues:

I.          
Did the court err when it ruled appellant had no claim for interference 
with contract?

II.          
Did the court err when it ruled that the economic loss doctrine bared 
[sic] appellant's claim of negligence against the engineer?

III.         Are 
genuine issues of material fact raised in regard to appellant's negligent 
misrepresentation claim?

IV.        Are genuine 
issues of material fact raised in regard to appellant's claim SJPB [Sheridan 
Area Water Supply Joint Powers Board] waived the notice provisions of the 
contract by subsequent course of dealings?

V.        Do specific 
notice provisions of the contract nevertheless bar appellant's claim for breach 
of contract and implied warranty against the owner?

II. FACTS

[¶7]      During the summer 
of 1992, the Board advertised for bids for the construction of a water 
distribution system to serve the Little Goose Valley, Big Horn and the City of 
Sheridan. Prior to the bidding, the Board contracted with HKM for the design and 
preparation of site plans to be used in the bidding process and during 
construction. Rissler submitted the low bid and was awarded the contract. 
Rissler and the Board proceeded to negotiate a detailed construction contract 
which incorporated the plans and specifications provided by HKM and identified 
HKM as the engineer referred to throughout the contract. The job was to be 
completed within 270 days once notice to proceed was given. The duties and 
responsibilities of the parties were set forth in detail, including several 
provisions which required written notice of claims for an adjustment to the 
terms of the contract. These provisions, as they are relevant to this case, will 
be presented in detail in our discussion.

[¶8]      On November 2, 
1992, Rissler was given notice to proceed. As construction ensued, Rissler 
quickly encountered several problems. By November 13, 1992, water began to 
appear in the trenches and, by the end of November, it was apparent to Rissler's 
supervisor that the bedding material required by HKM's specifications would not 
support the pipe in high ground water areas. Rissler's supervisor verbally 
complained about these conditions to HKM and believed that his complaints were 
memorialized in notes kept by HKM during the weekly project meetings. Rissler 
informed HKM that it believed rock was necessary to provide proper support, but 
HKM did not agree to deviate from the original specifications. Rissler was also 
frustrated by the inaccuracy of the utility locations as represented on the 
original plans, necessitating additional time and costs in determining the 
actual locations and completing any repairs resulting from unexpected encounters 
with underground facilities. However, Rissler did not submit any written 
complaints or claims regarding these problems during construction of the 
Project.

[¶9]      By the end of 
April 1993, all the waterlines had been fully laid and buried. Testing of the 
pipeline, which began in April 1993 and continued through August 1993, revealed 
numerous leaks allegedly caused by movement of the pipe due to the lack of 
support provided by the materials specified in HKM's design. Rissler completed 
the repairs, placing rock in several areas to provide additional support to the 
pipe. All leaks were identified and repaired by August 10, 1993, and Rissler 
"was finished by August 11." Substantial completion of the Project was 
designated as September 18, 1993.

[¶10]   On September 16, 1993, Rissler 
delivered a letter to HKM entitled "Notification of Claim per Article 11 of the 
General Conditions of the Contract." Four months later, on January 17, 1994, 
Rissler and the Board signed a Change Order which, under its terms, included any 
adjustment to the contract. Almost two months after signing the Change Order, 
Rissler delivered documents entitled "Claim for Change in Contract Price and 
Time" dated March 1, 1994 which contained justifications for an increase in the 
contract price and an adjustment of the time needed to complete the Project. On 
September 16, 1994, the Board formally denied the claim without 
comment.

[¶11]   Rissler filed suit against the 
Board on October 11, 1994, alleging negligence in the provision of engineering 
plans and design, breach of implied warranty, and breach of contract. The Board 
timely responded and proceeded to file a motion for summary judgment contending 
that Rissler's failure to follow the written claims procedures barred claims on 
the contract and that the Wyoming Governmental Claims Act barred all of 
Rissler's tort claims. Rissler then filed an amended complaint naming both the 
Board and HKM as defendants. In its amended complaint, Rissler alleged three 
causes of action against the Board: breach of contract; breach of contractual 
duty not to interfere; and breach of implied warranty of plans and 
specifications. Rissler alleged the same claims against HKM and, in addition, 
alleged negligent misrepresentation, negligence, and tortious interference with 
contractual relations. After answering the amended complaint, the Board 
supplemented its earlier motion for summary judgment with additional affidavits 
and briefing. On April 13, 1995, the district court granted the Board's motion 
for summary judgment ruling that Rissler failed to give timely notice as 
required by the contract.

[¶12]   HKM then made its own bid for 
summary judgment. While HKM's motion was pending, the parties moved to dismiss 
the contract claims against HKM, which motion was granted by the district court. 
The district court granted summary judgment in favor of HKM on the remaining 
claims on June 1, 1995. Rissler now appeals both summary judgment 
orders.

III. 
DISCUSSION

A. STANDARD OF 
REVIEW

[¶13]   Summary judgment is properly 
granted only where there is no genuine issue of material fact and the prevailing 
party is entitled to judgment as a matter of law. Emmett Ranch, Inc. v. Goldmark 
Engineering, Inc., 908 P.2d 941, 944 (Wyo. 1995). When reviewing a grant of 
summary judgment, we review the judgment in the same light as the district 
court, using the same information. State ex rel. Bayou Liquors, Inc. v. City of 
Casper, 906 P.2d 1046, 1048 (Wyo. 1995). A party moving for summary judgment has 
the burden of proving the nonexistence of a genuine issue of material fact. 
Material fact is defined as any fact which, if proved, would have the effect of 
establishing or refuting an essential element of the claim or defense asserted 
by the parties. Century Ready-Mix Co. v. Campbell County School Dist., 816 P.2d 795, 799 (Wyo. 1991). The record is reviewed from the vantage point most 
favorable to the non-moving party, awarding that party all favorable inferences 
which may be drawn from the facts. If the record reveals any proper legal theory 
on which summary judgment may be granted, we will affirm the district court. 
Id.

B. SUMMARY JUDGMENT IN 
FAVOR OF THE BOARD

[¶14]   Rissler premises its claims against 
the Board on the Board's alleged breach of contract and breach of implied 
warranty because it was "impossible" for Rissler to complete the job under the 
specifications and plans provided to Rissler. The Board responds by pointing to 
the contract provisions which allocate the responsibilities of the parties, 
including several provisions which require written notification of construction 
problems within specific time periods. The following are the contract provisions 
which most clearly illustrate the disposition of this case:

General 
Conditions:

3.2 If, during the 
performance of the Work, Contractor finds a conflict, error or discrepancy in 
the Contract Documents, Contractor shall so report to Engineer in writing at 
once and before proceeding with the Work affected thereby shall obtain a 
written interpretation or clarification from Engineer; however, Contractor shall 
not be liable to Owner or Engineer for failure to report any conflict, error or 
discrepancy in the Contract Documents unless Contractor had actual knowledge 
thereof or should reasonably have known thereof.

*           
*           
*           
*           
*           
*

9.12 * * * The rendering 
of a decision by Engineer * * * with respect to any such Claim, dispute or other 
matter * * * will be a condition precedent to any exercise by Owner or 
Contractor of such rights or remedies as either may otherwise have under the 
Contract Documents or by Laws or Regulations in respect of any such Claim, 
dispute or other matter.

*           
*           
*           
*           
*           
*

11.2 The Contract Price 
may only be changed by a Change Order or by a Written Amendment. Any Claim 
for an increase or decrease in the Contract Price shall be based on written 
notice delivered by the party making the Claim to the other party and to the 
Engineer promptly (but in no event later than thirty days) after the occurrence 
of the event giving rise to the Claim and stating the general nature of the 
Claim. Notice of the amount of the Claim with the supporting data shall be 
delivered within sixty days after such occurrence * * * and shall be accompanied 
by Claimant's written statement that the amount claimed covers all known amounts 
(direct, indirect and consequential) to which the Claimant is entitled as a 
result of the occurrence of said event. All Claims for adjustment in the 
Contract Price shall be determined by Engineer in accordance with paragraph 9.11 
if Owner and Contractor cannot otherwise agree on the amount involved. No Claim 
for an adjustment in the Contract Price will be valid if not submitted in 
accordance with this paragraph 11.2.

*           
*           
*           
*           
*           
*

12.1 The Contract Time 
may only be changed by a Change Order or a Written Amendment. Any Claim for 
an extension or shortening of the Contract Time shall be based on written notice 
delivered by the party making the Claim to the other party and to the Engineer 
promptly (but in no event later than thirty days) after the occurrence of the 
event giving rise to the Claim and stating the general nature of the Claim. 
Notice of the extent of the Claim with supporting data shall be delivered within 
sixty days after such occurrence * * * and shall be accompanied by the 
Claimant's written statement that the adjustment claimed is the entire 
adjustment to which the Claimant has reason to believe it is entitled as a 
result of the occurrence of said event. All Claims for adjustments in the 
Contract Time shall be determined by Engineer in accordance with paragraph 9.11 
if Owner and Contractor cannot otherwise agree. No Claim for an adjustment in 
the Contract Price will be valid if not submitted in accordance with this 
paragraph 12.1

(Emphasis 
added.)

[¶15]   It is well settled that courts will 
give effect to the intent of the parties to a contract when such intent is 
expressed in clear and unambiguous language. Westates Const. Co. v. City of 
Cheyenne, 775 P.2d 502, 504 (Wyo. 1989). The terms of this contract are clear 
and unambiguous, specifically setting forth a mandatory procedure to establish 
the claims of the contractor. This procedure requires the contractor to give 
written notice when it discovers any error or discrepancy in the contract 
documents or when it anticipates a change in the contract price or time. When 
Rissler executed this contract, it agreed that failure to comply with these 
procedures precluded "any such Claim, dispute or other matter * * 
*."

[¶16]   We have recognized the right of the 
parties to create a contractual prerequisite to a right to sue. Westates Const. 
Co., 775 P.2d  at 504; Brasel & Sims Const. Co. Inc. v. State Highway Com'n 
of Wyoming, 655 P.2d 265, 268 (Wyo. 1982). We must therefore give effect to the 
intent of the parties as expressed in the contract. Westates Const. Co., 775 P.2d  at 504. The record demonstrates that Rissler was aware of the problems 
which are the subject of its claims as early as November 1992. However, 
affording Rissler every favorable inference, the latest date on which Rissler 
was required to file a written claim was September 10, 1993, thirty days after 
Rissler was finished with the job. It is undisputed that Rissler did not submit 
any written claim until September 16, 1993. Thus, there is no question that 
Rissler failed to comply with the written claims procedure specifically set 
forth in the contract.

[¶17]   In an attempt to sidestep the 
express claims procedures, Rissler asserts that the Board waived the requirement 
of written notice. Relying on our decision in Huang Intern., Inc. v. Foose 
Const. Co., 734 P.2d 975 (Wyo. 1987), Rissler argues that because change orders 
were regularly provided after the start or completion of work arranged through 
oral requests, it is a question of fact whether the Board waived the requirement 
for timely written claims.

[¶10]   In Huang Intern., Inc., 734 P.2d  at 
978, we held that "[t]he habitual disregard of a provision which requires that 
change orders for extras be in writing, if determinable as a matter of fact, can 
amount to a waiver of the contractual requirement." In that case, the factual 
basis for our decision was that: (1) the parties agreed that the contract 
documents did not include finalized plans and specifications; (2) as the project 
progressed, the parties orally agreed to work which far exceeded the original 
intent of the contract; and (3) there were no written change orders provided at 
any time during the construction. Id. at 978-79. The facts in the case before 
us, however, cannot amount to waiver.

[¶19]   To establish waiver, Rissler must 
show some facts which indicate that the parties mutually adopted a mode 
of performing the contract which differs from its terms. Quin Blair Enterprises, 
Inc. v. Julien Const. Co., 597 P.2d 945, 951 n. 6 (Wyo. 1979). Rissler presented 
no evidence that the Board agreed to forego the written procedures. The contract 
documents were complete when the parties entered the contract, and there is no 
requirement in the contract that change orders be signed before the work is 
done. The undisputed evidence demonstrates that during construction of the 
Project, written field orders were regularly issued which were eventually 
incorporated into change orders.

[¶20]   Regardless of the foregoing, the 
record indicates that Rissler agreed to a contract price after it 
submitted its claim on September 16, 1993. In January 1994, the parties signed a 
Change Order entitled "Reconciliation of Final Quantities." The following 
language is found on the Change Order above Rissler's signature: "Signature of 
the contractor indicates his agreement herewith, including any adjustment in the 
Contract Sum or the Contract Time." The Change Order does not include the 
amounts Rissler now claims it is owed nor is there any indication on the face of 
this document of any reservation of claims. Rissler offers no cogent argument 
why it should not be bound by this document. Therefore, we conclude that the 
district court correctly found that Rissler presented no material issue of fact 
preventing summary judgment in favor of the Board as a matter of 
law.

C. SUMMARY JUDGMENT IN 
FAVOR OF HKM

[¶21]   We now turn to Rissler's tort 
claims against HKM. The district court granted HKM's motion for summary judgment 
on the claims of negligence and negligent misrepresentation ruling that these 
claims fail under the "economic loss doctrine" and because HKM's duty to 
Rissler, if any, arose from contract. Rissler contends the district court's 
conclusion is in error because HKM's duty arises pursuant to Restatement of 
Torts (Second) § 552 (1977), which allows recovery of purely economic 
losses.

[¶22]   Restatement of Torts (Second), 
supra, § 552 has been recognized by this court as a viable basis for a claim. 
Verschoor v. Mountain West Farm Bureau Mut. Ins. Co., 907 P.2d 1293, 1299 (Wyo. 
1995); Duffy v. Brown, 708 P.2d 433, 437 (Wyo. 1985). In order to present a 
claim for negligent misrepresentation against HKM, Rissler must show

"[f]alse information 
supplied in the course of one's business for the guidance of others in their 
business, failure to exercise reasonable care in obtaining or relating the 
information, and pecuniary loss resulting from justifiable reliance thereon. 
Restatement of Torts (Second) § 552, p. 126 (1977)."

Verschoor, 907 P.2d  at 1299 (quoting Duffy, 708 P.2d at 437). However, none of our previous 
decisions required consideration of the "economic loss rule" as applied to a 
claim under Restatement of Torts (Second), supra, § 552.

[¶23]   The "economic loss rule" bars 
recovery in tort when a plaintiff claims purely economic damages unaccompanied 
by physical injury to persons or property.1 The purpose of the "economic loss 
rule" is to maintain the distinction between those claims properly brought under 
contract theory and those which fall within tort principles. As the court noted 
in Sensenbrenner v. Rust, Orling & Neale, Architects, Inc., 236 Va. 419, 374 S.E.2d 55, 58 (1988):

The controlling policy 
consideration underlying tort law is the safety of persons and property - the 
protection of persons and property from losses resulting from injury. The 
controlling policy consideration underlying the law of contracts is the 
protection of expectations bargained for. If that distinction is kept in mind, 
the damages claimed in a particular case may more readily be classified between 
claims for injuries to persons or property on one hand and economic losses on 
the other.

The "economic 
loss rule" is "founded on the theory that parties to a contract may allocate 
their risks by agreement and do not need the special protections of tort law to 
recover for damages caused by a breach of the contract." South Carolina Elec. 
& Gas Co. v. Westinghouse Elec. Corp., 826 F. Supp. 1549, 1557 (D.S.C. 
1993). In this case, Rissler did not contract with HKM for the design of the 
Project and therefore had no opportunity to negotiate directly with HKM 
regarding the limits of its liability. However, Rissler had the opportunity to 
allocate the risks associated with the costs of the work when it contracted with 
the Board and, in fact, entered into a detailed contract which allowed it the 
means, method and opportunity to recover economic losses allegedly caused by 
HKM's negligence.

[¶24]   Considering nearly identical facts 
to those before us, the court in Berschauer/Phillips Const. Co. v. Seattle 
School Dist. No. 1, 124 Wn.2d 816, 881 P.2d 986, 992 (1994) reasoned that a 
bright line distinction between the remedies offered in contract and tort with 
respect to economic damages encourages the parties to negotiate toward the risk 
distribution that is desired or customary. In deference to the abilities of 
sophisticated businessmen to provide contractual remedies in their business 
dealings, that court held that the contractor's claims against the architect 
must fail under the economic loss doctrine. Id. 881 P.2d  at 993. We 
agree.

[¶25]   We have consistently noted the 
importance of the parties' right to negotiate the terms of a contract, limited 
only by statutory prohibitions or public policy. Commercial Union Ins. Co. v. 
Stamper, 732 P.2d 534, 538 (Wyo. 1987) (and cites therein); Allstate Ins. Co. v. 
Wyoming Ins. Dept., 672 P.2d 810, 815 (Wyo. 1983); Mountain Fuel Supply Co. v. 
Emerson, 578 P.2d 1351 (Wyo. 1978). Just as firm has been our recognition that 
the parties to a contract must comply with the terms of their agreement. 
Bouwkamp v. McNeill, 902 P.2d 725, 727 (Wyo. 1995); Pete Lien & Sons, Inc. 
v. Ellsworth Peck Const. Co., 896 P.2d 761, 763 (Wyo. 1995); JBC of Wyoming 
Corp. v. City of Cheyenne, 843 P.2d 1190, 1197 (Wyo. 1992); Westates Const. Co., 
775 P.2d  at 504. While we acknowledge that there may be circumstances under 
which purely economic damages may be a basis for an action under Restatement of 
Torts (Second), supra, § 552, we will not allow Section 552 to be used as a 
method to sidestep contractual duties or to provide a scapegoat for 
self-inflicted damages. Therefore, we hold that when the plaintiff has 
contracted to protect against economic liability caused by the negligence of the 
defendant, there is no claim under Restatement of Torts (Second), supra, § 552 
for purely economic loss. We believe that this ruling not only encourages the 
parties to negotiate the limits of liability in a contractual situation, but it 
holds the parties to the terms of their agreement. The decision of the district 
court to grant summary judgment in favor of HKM is affirmed.

[¶26]   Rissler's intentional interference 
with contract claim against HKM was not presented on appeal through argument 
supported by any authority. Therefore, we will not consider this issue. 
Earlywine v. Peterson, 885 P.2d 861, 864 (Wyo. 1994). 

IV. 
CONCLUSION

[¶27]   The district court's orders 
granting summary judgment in favor of Sheridan Area Water Supply Joint Powers 
Board and HKM Associates are affirmed as there are no genuine issues of material 
fact and appellees are entitled to judgment as a matter of law.

FOOTNOTE

1 This court has adopted 
the "economic loss rule" in products liability based on negligence and strict 
liability theories. Schneider Nat., Inc. v. Holland Hitch Co., 843 P.2d 561, 586 
(Wyo. 1992); Continental Ins. v. Page Engineering Co., 783 P.2d 641, 647 (Wyo. 
1989); Buckley v. Bell, 703 P.2d 1089, 1095 (Wyo. 1985); Cline v. Sawyer, 600 P.2d 725, 732 (Wyo. 1979). We have also applied the "economic loss doctrine" 
where an employer sued a third party in negligence for the loss of his 
employee's services. Champion Well Service, Inc. v. NL Industries, 769 P.2d 382 
(Wyo. 1989). In JBC of Wyoming Corp. v. City of Cheyenne, 843 P.2d 1190, 1197 
(Wyo. 1992), we noted our precedent regarding economic loss and held that tort 
liability can only be premised on a duty independent of contractual duties. 
However, contrary to HKM's assertion, we have declined to apply the "economic 
loss rule" to all tort claims alleging pecuniary harm in the absence of physical 
harm. Century Ready-Mix Co., 816 P.2d  at 801.