Case Title: EXCEL CONSTRUCTION, INC., a Wyoming corporation V. HKM ENGINEERING, INC., a Montana corporation

Citation: 

Docket Number: S-09-0120

State: wyoming

Court: Wyoming Supreme Court

Date: 2010-03-23T00:00:00Z

Document:
EXCEL CONSTRUCTION, INC., a Wyoming corporation V. HKM ENGINEERING, INC., a Montana corporation2010 WY 34228 P.3d 40Case Number: S-09-0120Decided: 03/23/2010
OCTOBER 
TERM, A.D. 2009

 
 
EXCEL 
CONSTRUCTION, INC., a Wyoming 
corporation,Appellant(Plaintiff),v.HKM ENGINEERING, 
INC., a Montana 
corporation,Appellee(Defendant).

 
 
Appeal 
from the District Court of Big Horn County

The 
Honorable Steven Cranfill, Judge

 
 

Representing 
Appellant:

Patrick 
J. Murphy of Williams, Porter, Day & Neville, P.C., Casper, Wyoming 

 
 

Representing 
Appellee:

Matthew 
F. McLean of Crowley Fleck P.L.L.P., Bozeman, Montana

 
 
Before 
GOLDEN, HILL, KITE, and BURKE, JJ., and DAVIS, 
D.J.

 
 

DAVIS, 
District Judge.  

[¶1]      This is an appeal 
from a summary judgment granted to Appellee HKM Engineering by the district 
court for Big Horn County.  For the 
reasons set forth below, we affirm the district court.

 
 
ISSUES

 
 
[¶2]      1.         
Should this Court modify its ruling in Rissler & McMurry Co. v. Sheridan Area 
Water Supply Joint Powers Bd., 929 P.2d 1228 (Wyo. 1996), to permit 
negligence claims by general contractors against project engineers or design 
professionals?

 
 
2.         
May Excel Construction maintain a claim against HKM for tortious 
interference with the contract between Excel Construction and the Town of Lovell 
when HKM was acting as Lovell's agent?

 
 
3.         
May Excel Construction maintain a claim of misrepresentation on the basis 
asserted in the trial court under the Rissler decision?

 
 
4.         
Does ¶9.10(A) of the agreement between the Town of Lovell and HKM impose 
a duty of good faith and fair dealing on HKM, creating an issue which must be 
tried?

 
 
FACTS

 
 
[¶3]      This case 
involves a dispute between general contractor Excel Construction, Inc. ("Excel") 
and project engineer HKM Engineering, Inc. ("HKM") related to a contract for the 
replacement and improvement of water and sewer lines in the Town of Lovell, 
Wyoming.  The record before the 
Court is sparse, with only portions of the contract documents supplementing the 
pleadings below.  The following can 
be gleaned from the record, the briefing, and the arguments of 
counsel.

 
 
[¶4]      The Town of 
Lovell entered into an agreement with HKM Engineering, Inc. for engineering 
services on the project, including both design of the new water and sewer system 
and project management.  In the 
terms pertinent to this appeal, the agreement provided that HKM would be the 
Town of Lovell's representative during construction.  HKM was to make periodic site visits, 
and to assure that work progressed in accordance with project plans and 
specifications. If the parties agreed, HKM was to provide a project 
representative to provide more extensive observation of the work.   The record does not reflect 
whether this occurred or not.  

 
 
[¶5]      HKM was empowered 
to issue written clarifications of the contract documents, to authorize minor 
variations in the work, and to reject defective work by the contractor.  HKM was also authorized by the agreement 
with the Town of Lovell to determine compliance of completed work with the 
contract requirements, and to act as an impartial interpreter and judge in so 
doing.  

 
 
[¶6]      The contract 
between the Town of Lovell and HKM also provided as follows in 
¶9.10(A):

 
 
Neither 
ENGINEER's authority or responsibility under this Article 9 or under any other 
provision of the Contract Documents nor any decision made by ENGINEER in good 
faith either to exercise or not exercise such authority or responsibility or the 
undertaking, exercise, or performance of any authority or responsibility by 
ENGINEER shall create, impose, or give rise to any duty in contract, tort, or 
otherwise owed by ENGINEER to CONTRACTOR, and Subcontractor, any Supplier, any 
other individual or entity, or to any surety for or employee or agent of any of 
them.

 
 
[¶7]      The Town of 
Lovell entered into a separate agreement with Excel to serve as general 
contractor on the project.  Only a 
small portion of the contract between the town and Excel are in the record.  In any event, Excel and HKM each 
contracted separately with the Town of Lovell, and there is no contract between 
HKM and Excel.  The provisions of 
¶9.10 of the Town of Lovell-HKM contract are incorporated in the Town of 
Lovell-Excel contract by §9.01(A)(4).  

 
 
[¶8]      The record does 
not reflect any detailed information as to the nature of the dispute which arose 
between HKM and Excel.  At oral 
argument, counsel for Excel gave as examples of Excel's claims that HKM's 
specifications called for insufficient backfill in certain locations, and that 
Excel was told by HKM representatives to simply purchase the required backfill 
and bill all of the charges for it at the end of the month, rather than 
submitting an immediate request for a change order or payment.  Excel claims that HKM engaged in 
misrepresentation and other tortious conduct in making that representation, and 
that it was not paid for the cost of the additional backfill after it relied on 
HKM's direction.  Counsel also 
claimed that HKM released Excel from the worksite with the understanding that it 
would return to complete some minor work, and then attempted to assess 
liquidated delay damages for the time during which Excel was not working after 
being released.  It also claims that 
HKM improperly denied certification of substantial completion.  Until substantial completion is 
certified, Excel cannot obtain the funds held as retainage to insure completion 
of the project.  

 
 
[¶9]      Excel initially 
filed suit against the Town of Lovell on February 5, 2008.  It claimed breach of contract, breach of 
an implied covenant of good faith and fair dealing, account stated, unjust 
enrichment, and entitlement to a declaratory judgment for amounts due under the 
agreement between the parties.  The 
town counterclaimed for damages based on alleged breaches of contract by 
Excel.  Excel amended its complaint 
to join HKM as a party-defendant on June 13, 2008, claiming that HKM had engaged 
in the tort of misrepresentation, breached a duty of good faith and fair 
dealing, intentionally interfered with Excel's contract with the Town of Lovell, 
and acted negligently.  In its 
complaint, Excel accused HKM of unreasonably refusing to certify substantial 
completion of the work, and of hindering and delaying Excel's work by refusing 
to meet, approve change orders after altering the scope and duration of the 
work, refusing to provide accurate and buildable drawings for the work, and 
generally of interfering with Excel's performance of its contract.  

 
 
[¶10]   Defendant HKM filed a motion to 
dismiss on August 8, 2008.  In that 
motion, it contended that the complaint must be dismissed under Rissler & McMurry Co. v. Sheridan Area 
Water Supply Joint Powers Bd., 929 P.2d 1228 (Wyo. 1996), which determined 
that a contractor's claims against a project engineer were barred by the 
economic loss rule.  Excel responded 
to the motion, and included in its response copies of portions of the contract 
between it and the Town of Lovell, as well as copies of portions of the contract 
between the town and HKM.  

 
 
[¶11]   At a hearing held on February 13, 
2009, the district court converted HKM's motion to dismiss to a Rule 56 motion 
for summary judgment as permitted by Wyoming Rule of Civil Procedure 12(b)(6), 
based upon the inclusion of matters beyond the pleadings.  The record does not reflect a request 
from either party for additional time to conduct discovery or to supplement the 
record to include any additional information which might properly have been 
considered on a motion for summary judgment.

 
 
[¶12]   The district court granted HKM's 
motion.  In its decision letter, the 
Court held that the economic loss rule articulated in Rissler did in fact bar recovery in this 
case, which it found to involve similar claims.  Proceedings in the case against the Town 
of Lovell were stayed pending resolution of this appeal.  We will affirm the district court's 
ruling, although we do so as to certain claims for different reasons.  

 
 
STANDARD 
OF REVIEW

 
 
[¶13]   
As noted above, HKM initially filed a motion to dismiss.  This motion was converted to a motion 
for summary judgment after Excel attached portions of the contract to its 
response to the motion.  Although 
the materials outside the pleadings which were considered by the district court 
were limited to a few pages of the contracts between the parties, and although 
the record contains no affidavits or depositions which might create a specific 
factual record, this Court will apply the standard applicable to motions for 
summary judgment under W.R.C.P. 56:

 
 
            
Summary judgment is proper "if the pleadings, depositions, answers to 
interrogatories, and admissions on file, together with the affidavits, if any, 
show that there is no genuine issue as to any material fact and that the moving 
party is entitled to a judgment as a matter of law." W.R.C.P. 56(c). A genuine 
issue of material fact exists when a disputed fact, if proven, would establish 
or refute an essential element of a cause of action or a defense that a party 
has asserted. Metz Beverage Co. v. Wyoming Beverages, Inc., 2002 WY 21, ¶ 
9, 39 P.3d 1051, [1055](Wyo. 2002). 

            
We evaluate the propriety of a summary judgment by employing the same 
standards and by examining the same material as the district court. Id. 
We examine de novo the record, in the light most favorable to the party 
opposing the motion, affording to that party the benefit of all favorable 
inferences that may be drawn from the record. Roussalis v. Wyoming Medical 
Center, Inc., 4 P.3d 209, 229 (Wyo. 2000). If upon review of the record, 
doubt exists about the presence of issues of material fact, that doubt must be 
resolved against the party seeking summary judgment. Id. We accord no 
deference to the district court's decisions on issues of law. Metz, ¶ 9. 

Linton 
v. E.C. Cates Agency, Inc., 2005 WY 63, ¶¶ 6-7, 113 P.3d 26, 28 (Wyo. 2005). 
We "may affirm the summary judgment on any legal grounds appearing in the 
record." Wyo. Cmty. Coll. Comm'n v. Casper Cmty. Coll. Dist., 2001 WY 86, 
¶ 11, 31 P.3d 1242, 1247 (Wyo. 2001).

 
 

Lawrence 
v. City of Rawlins, 
2010 WY 7, ¶ 12, 224 P.3d 862, *3-4 (Wyo.  2010). 

 
 
DISCUSSION

 
 
Should 
the Rissler decision be modified to 
permit suit by a general contractor

against 
a project engineer notwithstanding the economic loss 
rule?

 
 
[¶14]   
HKM and the trial court relied heavily upon this Court's decision in 
Rissler & McMurry v. Sheridan Area 
Water Supply Joint Powers Bd., 929 P.2d 1228 (Wyo. 1996).  In that case, the general contractor 
under a contract for the construction of an improved water supply system in the 
Sheridan area sued, among others, the project engineer, which happened to be 
HKM, the Appellee in this case.  
Rissler claimed that HKM was negligent in the formulation of the plans 
and specifications for the project, thus causing it damage.  It also claimed that HKM had made 
negligent misrepresentations which also caused it damage.  

 
 
[¶15]   In Rissler, the trial court granted summary 
judgment in favor of HKM based upon the economic loss rule.  In affirming, this Court 
stated:

 
 

            
The 
"economic loss rule" bars recovery in tort when a plaintiff claims purely 
economic damages unaccompanied by physical injury to persons or property.  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 propertythe 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.

 
 

Rissler, 
929 P.2d  at 1234-35 (footnote omitted).   
Excel argues that this Court should modify its ruling in Rissler to permit suit by a contractor 
against a professional project engineer like HKM on theories of negligence and 
negligent misrepresentation.  It 
argues that other states have permitted suit against design and construction 
management professionals on this basis in spite of the economic loss rule.  It points out that in Century Ready-Mix Co. v. Campbell County 
Sch. Dist., 816 P.2d 795, 801 (Wyo. 1991), the Court recognized that "a 
majority of jurisdictions now recognize a tort duty of care in the absence of 
contractual privity" between an architect/engineer and a contractor.   

 
 
[¶16]   As an example of this approach, 
Excel points to the Montana Supreme Court's decision in Jim's Excavating Service, Inc. v. HKM 
Associates, 878 P.2d 248 (Mont. 1994).  
In that case, the Montana court held that a third party contractor may 
recover from an architect or engineer when that design professional knew or 
should have known that the particular plaintiff or an identifiable class of 
plaintiffs were at risk if they relied upon information supplied.  Id. at 254-55.  

 
 
[¶17]   The Montana decision in Jim's Excavating Service preceded the 
decision in Rissler, and it is 
inconsistent with that ruling.  The 
Court continues to believe that parties to a construction contract have the 
opportunity to allocate the economic risks associated with the work, and that 
they do not need the special protections of tort law to shield them from losses 
arising from risks, including negligence of a design professional, which are 
inherent in performance of the contract.  
Rissler, 929 P.2d  at 
1235.   A respectable number of 
states continue to follow the same rule. E.g., BRW, Inc. v. Dufficy & Sons, Inc., 
99 P.3d 66, 71-75 (Colo. 2004) (holding that economic loss doctrine barred 
subcontractor's negligence and negligent misrepresentation claims against 
engineering firm and inspector); SME 
Indus., Inc. v. Thompson, Ventulett, Stainback & Assoc., Inc., 28 P.3d 669, 680-83 (Utah 2001) (relying on Rissler and holding that economic loss 
doctrine barred subcontractor's negligence and negligent misrepresentation 
claims against members of the design team); Blake Constr. Co., Inc. v. Alley, 353 S.E.2d 724, 726-27 (Va. 1987) (holding that a contractor cannot recover economic 
losses against a design professional in the absence of contractual privity); Berschauer/Phillips Constr. Co. v. Seattle 
Sch. Dist., 881 P.2d 986, 989-93 (Wa. 1994) (recovery of economic loss by 
contractor against architect, structural engineer, and project inspector due to 
construction delays was limited to remedies provided by construction 
contract).

 
 
[¶18]   
For these reasons, we will decline Excel's invitation to overrule Rissler as it applies to claims arising 
involving negligence or negligent misrepresentation in claims between a 
contractor and design professional/project manager.  This decision disposes of Excel's claim 
of negligence.  If Excel claims 
negligent representation as opposed to intentional misrepresentation, this 
ruling disposes of that claim as well.  Excel's allegations with regard to HKM's 
conduct involve performance of contractual duties, at least as they involve 
theories of negligence, and are barred by the economic loss rule in Rissler.    

 
 
[¶19]   In footnote 1 to the Rissler decision, this Court declined to 
apply the economic loss rule to all tort claims alleging solely pecuniary 
harm.  929 P.2d  at 1234 n.1.  As noted in JBC of Wyoming Corp. v. City of Cheyenne, 
843 P.2d 1190, 1197 (Wyo. 1992), tort liability may still be premised on a 
duty independent of contractual duties.  
We therefore examine the remainder of Appellant's claims to determine 
whether summary judgment was appropriately granted as to those 
claims.

 
 

Is 
Excel Entitled to Maintain Its Claim of Tortious Interference with 
Contract?

 
 
[¶20]   Excel argues that even courts 
rigorously applying the economic loss rule do not bar claims based on 
intentional tort theories, and therefore contends that it can pursue a claim 
against HKM for tortiously interfering with its contract with the Town of 
Lovell.  The agreement between HKM 
and the Town of Lovell provided that HKM was to act as the town's agent in 
administering the construction contract, including making determinations 
concerning change orders, etc.  The 
parties agree that HKM was acting as the Town of Lovell's agent in that respect, 
and the amended complaint filed by Excel specifically alleges that HKM "acted as 
Lovell's [agent] throughout the project."  
Nowhere in Excel's amended complaint or in the briefing of the parties 
does Excel suggest that HKM acted outside the scope of its duties as the Town of 
Lovell's agent in any of the actions complained of.

 
 
[¶21]   It has long been the rule in this 
state and elsewhere that a claim for intentional interference with contract 
cannot survive if it involves an assertion that an agent for one party to the 
contract interfered with it.  In Kvenild v. Taylor, 594 P.2d 972 (Wyo. 
1979), the plaintiffs claimed that a real estate agent interfered with their 
contractual rights to purchase a piece of property by recommending that her 
principal sell the real property to another buyer.  This Court reversed a judgment for money 
damages in favor of the plaintiffs because the real estate agent was acting as 
the sellers' agent.  It quoted Board of Trustees of Weston Cty. Sch. Dist. 
#1 v. Holso, 584 P.2d 1009, 1017 (Wyo. 1978), to this 
effect:

 
 
These 
theories [intentional interference with contract and intentional interference 
with prospective advantage], however, do not apply to actions between parties to 
an existing contract--they lie only against outsiders who interfere with 
contractual expectancies of others.  

 
 

Kvenild, 
594 P.2d  at 977.

 
 
[¶22]   The Court reached the same result 
in Chasson v. Community Action of Laramie 
County, Inc., 768 P.2d 572, 579-580 (Wyo. 1989), holding that corporate 
officers could not be held liable for interference with the contract of an 
employee of the corporation.  In Birt v. Wells Fargo Home Mortg., Inc., 
2003 WY 102, ¶ 69, 75 P.3d 640, 662 (Wyo. 2003), the holding in Kvenild was summarized to be that a 
"vendor and her real estate agent could not be liable for tortious interference 
with a contract to which vendor was a party."  

 
 
[¶23]   In this case, HKM was charged with 
determining compliance with the contract, approving change orders, and otherwise 
serving as decision-maker for the Town of Lovell by the express terms of its 
agreement.  HKM therefore acted not 
only as an agent, but as an agent with the power to make decisions on behalf of 
the town.  Its actions, if they 
breached the contract, may entitle Excel to recover against the town for that 
breach, but Excel may not recover from HKM on a theory of intentional 
interference with a contract for actions taken as the town's agent.  The trial court properly granted summary 
judgment on this claim, although it did so for different 
reasons.

 
 
Is 
Excel entitled to maintain its claim of 
misrepresentation?

 
 
[¶24]   As already noted, this Court's 
decision in Rissler would bar claims 
against HKM based upon negligent misrepresentation.  Excel argues that its claim of 
misrepresentation is really a claim of intentional misrepresentation or 
fraud.  It contends that even courts 
which apply the economic loss rule to disputes between contractors and design 
professionals exclude claims of fraud from the rule because fraud is a remedy 
for purely economic loss.  HKM 
responds that Excel made a claim of negligent misrepresentation, not intentional 
misrepresentation or fraud.   HKM also responds that in those 
jurisdictions in which fraud or other intentional torts are treated as 
exceptions to the economic loss rule, such claims are only allowed if they arise 
from an independent duty and if they involve claims for damages which are not 
available for a breach of contract.  
HKM denies that Excel's claim meets these criteria.

 
 
[¶25]   The trial court held that a claim 
for intentional misrepresentation was barred by Rissler because fraud shares common 
elements with the tort of negligent misrepresentation.  
A claim for intentional misrepresentation is not necessarily barred by 
the economic loss rule.  Such a 
claim could be predicated on an independent duty.  Rissler, 929 P.2d  at 1234 n.1; JBC, 842 P.2d  at 1197.  Of course, a claimant may not use a 
fraud claim as an artifice to sidestep contractual duties or the economic loss 
rule.  Rissler, 929 P.2d  at 1235.  

 
 
[¶26]   Both parties cited cases in which 
the courts of other states have taken a case-by-case approach to the question of 
whether an intentional tort claim is based upon an independent duty, or whether 
it has been pled simply to avoid contractual limitations.  In Giles v. General Motors Acceptance 
Corp., 494 F.3d 865 (9th Cir. 2007),  the Ninth Circuit applied Nevada law to 
a claim that General Motors Acceptance Corporation ("GMAC") had misrepresented 
the terms of a lien and tricked a car dealer into signing backdated assignments 
of accounts.  GMAC asserted the 
economic loss rule as a defense.  
The Ninth Circuit noted that the economic loss rule is in part intended 
to prevent tort law from progressing so far that "contract law would drown in a 
sea of tort," quoting East River S.S. 
Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 866, 106 S. Ct. 2295, 
2300, 90 L. Ed. 2d 865 (1986).  Giles, 494 F.3d  at 
874.

 
 
[¶27]   The Giles court also pointed out that 
application of the economic loss rule has historically been difficult because 
courts have stated that purely economic losses may not be recovered in tort in 
overly broad terms.  Id. These statements are not completely 
accurate, it noted, because torts such as fraud and conversion exist to remedy 
purely economic loss, quoting Grynberg v. 
Questar Pipeline Co., 70 P.3d 1, 11, 13 (Utah 2003).  Some courts apply the economic loss rule 
only in products liability cases and negligence actions, and not to claims for 
fraud and other intentional torts.  
Giles, 494 F.3d  at 
875.

 
 
[¶28]   The Giles court further pointed out that 
some courts, including those of Nevada, analyze fraud claims on a case-by-case 
basis in an effort to determine whether a particular claim really alleges 
nothing more than a failure to perform a promise contained in a contract.  Giles, 494 F.3d  at 876.  The Nevada Supreme Court has treated the 
phrase "purely economic loss" as a term of art referring to losses which could 
be recovered in a contract suit.  Calloway v. City of Reno, 993 P.2d 1259, 
1263-64 (Nev. 2000).  As a result, 
it has held that it could not delineate the entire universe of intentional torts 
which would or would not be subject to the economic loss rule, and concluded 
that each case had to be examined to determine whether or not the economic loss 
rule would apply to bar intentional tort claims.  Id. at 1266 n.3.  

 
 
[¶29]   The Ninth Circuit summarized the 
Nevada rule as follows:

 
 
            
Based on our reading of the Nevada cases, Nevada's economic loss doctrine 
is generally consistent with the principles discernable in the case law of other 
jurisdictions.  Broadly speaking, 
Nevada applies the economic loss doctrine to bar recovery in tort for purely 
monetary harm in product liability and in negligence cases unrelated to product 
liability.  Nevada law may also bar 
recovery for tort claims where the plaintiff's only complaint is that the 
defendant failed to perform what was promised in the contract.  But it does not bar recovery in tort 
where the defendant had a duty imposed by law rather than by contract and where 
the defendant's intentional breach of that duty caused purely monetary harm to 
the plaintiff.  

 
 

Giles, 
494 F.3d  at 879.  Based on its 
analysis, the Giles court held that 
the fraud claims involved in that case were not barred because they related to 
behavior outside the contract and violated an obligation under Nevada law not to 
commit fraud.  Id. at 880.       

 
 
[¶30]   HKM cited Hamon Contractors, Inc. v. Carter & 
Burgess, Inc., -- P.3d --, 2009 WL 1152160 (Colo. App. 2009) (currently 
unpublished).1 In that case, which involved a 
construction contract, the intermediate appellate court held that a claim that 
the project engineer concealed the inadequacy of its design and thereby 
committed fraud was barred by the economic loss rule.   The court interpreted a three-factor test set out 
by the Colorado Supreme Court in BRW, 
Inc. v. Dufficy & Sons, Inc., 99 P.3d 66, 74 (Colo. 2004) as (1) whether 
the duty allegedly breached is independent of the parties' contract; (2) whether 
there is a recognized common law duty of care; and (3) whether the tort duty 
differs in any way from the contractual duty.  Hamon, *9.

 
 
[¶31]   Both cases are consistent with this 
Court's decisions in previous cases.  
A party may not sidestep contractual limitations by simply pleading an 
intentional tort.  Rissler, 929 P.2d  at 1235.  Recovery on a tort theory requires a 
showing that a duty independent of contract was violated.  Id. at 1235 n.1; JBC of Wyoming Corp, 842 P.2d  at 1197.  
Determining whether a particular intentional tort claim is simply a 
repackaged contract claim requires consideration of the conduct alleged, its 
relationship to the contractual duties of the parties, the source of the tort 
duty alleged to have been breached, and the nature of the damages claimed.    

 
 
[¶32]   In this case, the record consisted 
only of the pleadings and a few pages from the contracts Excel and HKM had with 
the Town of Lovell.  This limited 
record would make it impossible to determine whether or not Excel's claim arises 
from an independent duty  if Excel 
has adequately pled a claim for intentional misrepresentation or fraud.  To determine whether such a claim has 
been pled obviously requires an analysis of the pleadings in this case.  

 
 
[¶33]   The elements of intentional 
misrepresentation or fraud are as follows:

 
 
(1) 
the defendant made a false representation intended to induce action by the 
plaintiff;  (2) the plaintiff 
reasonably believed the representation to be true;  and (3) the plaintiff relied on the 
false representation and suffered damages.  

 
 

Birt, 
¶ 42, 75 P.3d  at 656.  In order to 
prove intentional misrepresentation, the plaintiff must show that the 
misrepresentation was made intentionally, with knowledge of its falsity, or that 
the maker of the misrepresentation was at least aware that he did not have a 
basis for making the statement.  Id.; Restatement (Second) of Torts §526 
(1977).  Fraud must be proven by 
clear and convincing evidence, as opposed to by a preponderance of the evidence 
for negligent misrepresentation claims.  
Birt, ¶ 42, 75 P.3d  at 
656.  Fraud must be pled with 
particularity.  W.R.C.P. 9(b).  

 

[¶34]   Excel alleged as follows in its 
complaint:

 
 
            
33.       
HKM represented to Excel that at least some of Excel's claims for impacts 
from extra work would be addressed at the end of the Project without adhering to 
the formal contract requirements ("Representation").

 
 
            
34.       
The Representation made by HKM was false.

 
 
            
35.       
HKM made the Representation to induce Excel into believing that Excel 
would not have to provide documentation for every impact at the time of the 
impact because the parties would address those impacts at the end of the 
Project.

 
 
            
36.       
Excel relied on the Representation by not submitting documentation for 
every impact per the contract requirements.

 
 
            
37.       
Excel reasonably believed HKM's Representation was 
true.

 
 
            
38.       
Excel has suffered damages in an amount to be proven at trial as a result of HKM's negligent 
misrepresentation.   [Emphasis added].

 
 
[¶35]   The Wyoming Rules of Civil 
Procedure permit "notice pleading," and pleadings are to be liberally construed 
to do substantial justice.  However, 
even notice pleading requires fair notice to opposing parties of the nature of a 
party's claim.  Krenning v. Heart Mtn. Irr. Dist., 
2009 WY 11, ¶ 30, 200 P.3d 774, 783 (Wyo. 2009).  Liberal construction of pleadings does 
not excuse omission of that which is material and necessary in order to entitle 
one to relief.  William F. West Ranch, LLC v. Tyrrell, 
2009 WY 62, ¶ 9, 206 P.3d 722, 726 (Wyo. 2009).

 
 
[¶36]   The claim made by Excel can only be 
construed as one for negligent misrepresentation.  Excel did not allege that HKM 
intentionally made representations which it knew to be false, even though fraud 
must be pled with particularity.  In 
addition, Excel specifically described its claim as one for "negligent 
misrepresentation."  The record does 
not suggest that Excel ever sought to amend its claim to add allegations of 
fraud.  Under the circumstances, the 
Court can only conclude that Excel made a claim for negligent misrepresentation 
and not for fraud.  Under Rissler, a claim for negligent 
misrepresentation falls within the bar of the economic loss rule, as the parties 
can allocate the risks related to such misrepresentations by the terms of the 
contract itself.  The trial court 
therefore correctly granted the motion for summary judgment as to Excel's claim 
of misrepresentation. 

 
 
Is 
Excel entitled to maintain its claim of breach of a covenant of good faith 

and 
fair dealing?

 
 
[¶37]   As noted above, HKM's agreement 
with the Town of Lovell provided as follows in ¶9.10(A):

 
 
Neither 
ENGINEER's authority or responsibility under this Article 9 or under any other 
provision of the Contract Documents nor any decision made by ENGINEER in good 
faith either to exercise or not exercise such authority or responsibility or the 
undertaking, exercise, or performance of any authority or responsibility by 
ENGINEER shall create, impose, or give rise to any duty in contract, tort, or 
otherwise owed by ENGINEER to CONTRACTOR, and Subcontractor, any Supplier, any 
other individual or entity, or to any surety for or employee or agent of any of 
them.

 
 
The 
contract between Excel and the Town of Lovell incorporated these 
provisions.  Excel argues that this 
language created an obligation on the part of HKM to act in good faith in its 
decision-making as the town's agent, and that it failed to do so.  HKM makes a highly technical and 
somewhat implausible argument that the quoted language does not impose a duty to 
act in good faith, but only to decide in good faith whether to exercise its 
authority or not, after which the clause is inapplicable.   Neither interpretation is correct. 
  

 
 
[¶38]   The language in question is drawn 
from the standard "general conditions" portion of an owner-engineer form 
developed by a group of professional associations.  This particular provision has been 
referred to in the case law as an "exculpatory clause."  See, e.g., Lyndon Prop. Ins. Co. v. Duke Levy & 
Associates, L.L.C., 475 F.3d 268, 271-72 (5th Cir. 2007).   It is so called because it 
purports to exculpate project managers for liability for torts which do not 
involve bad faith.  At least some 
courts have held the clause invalid even for that purpose.  Id.      

 
 
[¶39]   This Court has recognized that all 
contracts contain an implied covenant of good faith and fair dealing.  Scherer Constr., LLC v. Hedquist Constr., 
Inc., 2001 WY 23, ¶ 24, 18 P.3d 645, 655 (Wyo. 2001).  With some rare exceptions in insurance 
and employment law, a suit based on the implied covenant sounds in contract and 
not in tort.   Id., ¶ 17, 18 P.3d  at 652.  The implied covenant imposes an 
obligation to act honestly in fact in the transaction, and to refrain from 
actions which would injure the rights of the other party to receive the benefit 
of its bargain.  Id., ¶ 19, 18 P.3d  at 653.  Obligations under the implied covenant 
must arise from and may not conflict with the express obligations of the 
parties' contract.  Id.  

 
 
[¶40]   Excel did not contract directly 
with HKM, and there is therefore no implied covenant under Scherer.  However, Excel argues that the language 
of ¶9.10(A) imposes the same duties upon HKM as the implied covenant would if 
Excel had contracted directly with HKM.  

 

[¶41]   The Court does not construe the 
clause as creating an obligation on the part of the engineer to act in good 
faith in all decisions affecting the contractor as might arguably be the case 
under an implied covenant of good faith and fair dealing.  The exculpatory clause would just limit 
the engineer's liability to claims which involve an element of bad faith.  Negligence does not require proof of bad 
faith.  On the other hand fraud or 
intentional misrepresentation requires proof of bad faith to the extent of 
knowingly making a false representation intended to induce reliance by another 
party.  

 
 
[¶42]   In other words, the clause means 
that the contractor may not recover from the engineer for careless errors which 
were not made in bad faith, while it does not bar claims involving bad faith 
such as fraud, provided that Excel might pursue those claims as a matter of 
substantive law.  The "exculpatory 
clause" is thus limited to claims which do not involve bad faith.  The clause appears to be an effort to 
allocate the risks of certain types of conduct in performance of the contract, 
as encouraged by the economic loss rule.  
See Rissler, 929 P.2d  at 
1234-35.   

 
 
[¶43]   As previously held, Excel may not 
maintain a claim of intentional interference with contract against the agent of 
a party to its contract, and it did not present a claim of intentional 
misrepresentation or fraud to the trial court on the pleadings in this 
case.  Thus, although the clause did 
not purport to exculpate HKM for actions taken in bad faith, those claims either 
could not be maintained as a matter of substantive law, or were not presented by 
the pleadings before the trial court. 

 
 
CONCLUSION

 
 
[¶44]   The Court declines to modify the 
economic loss rule in Rissler to 
permit actions against a design professional based on negligence.  Although a party may be able to maintain 
an action for the intentional tort of interference with contract under Rissler, Excel may not maintain such a 
claim against HKM for actions taken in its capacity as the Town of Lovell's 
agent under the Excel-Town of Lovell contract.  While a party may be entitled to 
maintain a claim for intentional misrepresentation or fraud under certain 
circumstances notwithstanding the economic loss rule enunciated in Rissler, Excel did not present such a 
claim to the district court, and Excel's claim for negligent misrepresentation 
is barred by Rissler.  The language of ¶9.10(A) of the HKM-Town 
of Lovell contract did not impose a duty similar to that of the implied covenant 
of good faith and fair dealing on HKM, but rather limited the exculpatory 
language contained in that paragraph to claims not involving bad faith.  The clause would not have barred tort 
claims involving an element of bad faith, but Excel either could not maintain 
its intentional tort claims as a matter of substantive law or did not raise them 
in the trial court.

 
 
[¶45]   The judgment of the district court 
is therefore affirmed.

 
 
FOOTNOTES

 
 

1The opinion has not yet been released for publication, perhaps pending a 
petition for rehearing or for certiorari to the Colorado Supreme 
Court.