Title: Crescent University City Venture, LLC v. Trussway Manufacturing, Inc.
Citation: N/A
Docket Number: 407A19
State: north-carolina
Issuer: north-carolina Supreme Court
Date: December 18, 2020

IN THE SUPREME COURT OF NORTH CAROLINA 
No. 407A19   
Filed 18 December 2020 
 
CRESCENT UNIVERSITY CITY VENTURE, LLC 
 
v. 
 
TRUSSWAY MANUFACTURING, INC. and TRUSSWAY MANUFACTURING, 
LLC 
 
Appeal pursuant to N.C.G.S. § 7A-27(a)(2) from an order and opinion granting 
summary judgment in favor of defendants entered on 14 August 2019 by Judge Louis 
A. Bledsoe III, Chief Business Court Judge, in Superior Court, Mecklenburg County, 
after the case was designated a mandatory complex business case by the Chief Justice 
pursuant to N.C.G.S. § 7A-45.4(a). Heard in the Supreme Court on 16 June 2020. 
 
Kiran H. Mehta and William J. Farley III for plaintiff-appellant. 
 
Fox Rothschild LLP, by Elizabeth Brooks Scherer and Jeffrey P. MacHarg; 
and Martyn B. Hill and Michael A. Harris for defendant-appellees. 
 
 
MORGAN, Justice.  
 
In this case we must determine whether, under North Carolina law, a 
commercial property owner who contracts for the construction of a building, and 
thereby possesses a bargained-for means of recovery against a general contractor, 
may nevertheless seek to recover in tort for its economic loss from a subcontracted 
manufacturer of building materials with whom the property owner does not have 
contractual privity. The Business Court determined that North Carolina’s economic 
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loss rule requires negligence claims to be based upon the violation of an extra-
contractual duty imposed by operation of law, simultaneously recognizing that 
parties generally do not owe each other a duty of care to prevent economic loss. We 
agree with the Business Court and therefore affirm the Business Court’s order 
granting summary judgment in favor of defendants.  
Factual and Procedural Background 
 
Plaintiff Crescent University City Venture, LLC (Crescent) was the owner and 
developer of an initiative to build and lease several student apartment buildings near 
the campus of the University of North Carolina at Charlotte (the project). In 2012, 
Crescent entered into a contract with AP Atlantic, Inc. d/b/a Adolfson & Peterson 
Construction (AP Atlantic), a general contractor, whereby AP Atlantic agreed to 
construct a multi-building apartment complex on Crescent’s property. As a matter of 
course, AP Atlantic entered into agreements with several subcontractors to facilitate 
the construction of the project, including a subcontract with Madison Construction 
Group, Inc. (Madison) for the provision and installation of wood framing for the 
buildings. The AP Atlantic-Madison subcontract required Madison to procure the 
floor and roof trusses at issue in the present controversy. The trusses in this context 
were structures of wood members held together by metal plates bristling with teeth, 
which were pressed into the pieces of wood at points where they connected at angles, 
creating a cross-supporting web of triangles. The trusses were delivered 
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premanufactured to the project site and were each installed as a single piece to make 
up the floor and roof portions of each apartment building. In order to procure trusses 
for the project, Madison executed a signed purchase order with Trussway 
Manufacturing, Inc. (Trussway). The purchase order included the specifications of 
the trusses required by the project and set forth further terms applicable to the sale 
of the trusses including an express warranty.  
Students of the University of North Carolina at Charlotte began occupying the 
apartments for the 2014–2015 academic year. Following a party attended by 80–100 
people hosted in one of the units of Building C—one of the student apartment 
buildings erected during the project—on 30 January 2015, the occupants of the unit 
below reported that their living room ceiling had cracked and was sagging. Crescent 
relocated the residents of both units in Building C, after which the residents of a unit 
in Building E reported similar problems on 1 May 2015. Initial inspections revealed 
that the floor trusses between the apartments in Buildings C and E were defective. 
Crescent hired an engineering firm, Simpson Gumpertz & Heger, Inc. (SGH), to 
conduct an investigation into both the identified failures as well as a random 
sampling of the remaining apartments to determine if the structural defects were 
isolated or systemic. After examining the apartments with noticeable defects and a 
wider sample of other apartments, SGH informed Crescent that it believed the floor-
truss defects were systemic and pervasive throughout the project. The investigation 
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revealed that 13.6% of the metal plates connecting the wood members of each truss 
that SGH inspected had failed or presented an unsafe defect, and reports produced 
by SGH detailed the repairs necessary to bring the project back to an acceptable 
standard. While having initially consulted AP Atlantic to conduct the necessary 
repairs, the parties to this action disagreed about the reasonableness of the proposed 
timeframe and repair plan Crescent developed with SGH. Crescent instead enlisted 
the assistance of a third party, Summit Contracting Group, Inc. to complete the 
planned repairs.  
On 5 August 2015, AP Atlantic filed suit against Crescent for outstanding 
payments on the project, to which Crescent responded with a breach of contract 
counterclaim on multiple grounds including the defective trusses. Crescent initiated 
a separate action against AP Atlantic’s parent company to enforce a performance 
guaranty while AP Atlantic maintained multiple derivative claims against the 
subcontractors on the project, including Trussway. The matter was designated as a 
complex business case and assigned to the North Carolina Business Court for 
administration and resolution. The Business Court consolidated the actions on 10 
October 2016. Following multiple rounds of pleadings, a lengthy discovery process, 
and several settlement agreements and voluntary dismissals, the resulting 
procedural posture led Crescent to move the Business Court to realign the parties, 
with Crescent as plaintiff, AP Atlantic and its parent company as defendants, and 
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the subcontractors as third-party and fourth-party defendants. All parties to the 
consolidated proceedings agreed, and the Business Court granted Crescent’s motion 
on 11 December 2017.  
On 12 February 2018, the parties to the consolidated action filed motions for 
summary judgment, while Crescent filed a complaint asserting a single negligence 
claim against Trussway, along with a motion to consolidate the new claim with the 
ongoing matters. Crescent’s new complaint alleged that Trussway’s negligence in 
manufacturing the trusses resulted in almost eight million dollars in damages from 
a combination of the project-wide repairs and stipends to residents for temporary 
accommodations, transportation, and storage. After this new action was itself 
designated as a complex business case on 7 March 2018, Trussway filed a motion to 
dismiss Crescent’s new negligence complaint, arguing that the “prior action pending” 
doctrine barred such a claim. The Business Court held a hearing on the summary 
judgment motions, Trussway’s motion to dismiss the new Crescent action, deemed 
the “Trussway Action” by the Business Court, and Crescent’s motion to consolidate 
the Trussway Action with the remaining cases on 30 May 2018. In an order dated 16 
July 2018, the Business Court denied Trussway’s motion to dismiss the Trussway 
Action and granted Crescent’s motion to consolidate. Following this consolidation and 
denial of its motion to dismiss, Trussway filed an answer to the Trussway Action 
denying Crescent’s negligence allegation and lodging several defenses.  
CRESCENT UNIV. CITY VENTURE, LLC V.  
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After the conclusion of discovery in the Trussway Action, Trussway filed a 
motion for summary judgment, arguing that because the duties Trussway allegedly 
violated as stated in Crescent’s newest complaint arose under a contractual 
relationship—and not by operation of law—Crescent’s claims were barred by, inter 
alia, the economic loss rule.  A hearing was held before the Business Court on 25 July 
2019 during which Trussway specifically argued that Crescent had failed to present 
sufficient evidence showing the breach of any duty other than the contractual duties 
contained within the purchase order for the defective trusses with Madison. The 
Business Court agreed, finding that “[b]ecause Crescent has not alleged or forecast 
evidence showing the breach of any separate or distinct extra-contractual duty 
imposed by law, . . . Crescent may not maintain a negligence claim against it.” 
Applying the economic loss rule irrespective of the existence or lack of a contractual 
relationship between Crescent and Trussway, the court dismissed Crescent’s 
negligence claim with prejudice. We agree with the Business Court’s application of 
the economic loss rule and therefore affirm its order granting summary judgment in 
favor of Trussway.   
Analysis 
 
Applying the economic loss rule, North Carolina courts have long refused to 
recognize claims for breach of contract disguised as the type of negligence claim that 
Crescent asserted against Trussway in the case before us. See generally N.C. State 
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Ports Auth. v. Lloyd A. Fry Roofing Co. (Ports Authority), 294 N.C. 73, 240 S.E.2d 345 
(1978), rejected in part on other grounds by Trs. of Rowan Technical Coll. v. J. Hyatt 
Hammond Assocs., Inc., 313 N.C. 230, 328 S.E.2d 274 (1985). Adopted by this Court 
in Ports Authority, the economic loss rule bars recovery in tort by a plaintiff “against 
a promisor for his simple failure to perform his contract, even though such failure 
was due to negligence or lack of skill.” Id. at 83, 240 S.E.2d at 351. Ports Authority 
involved parties which had a relationship posture which is similar to the relationship 
between Crescent and Trussway in the instant case. In Ports Authority, the North 
Carolina State Ports Authority contracted with a general contractor for the 
construction of two storage buildings at a site owned and operated by the state 
agency. Id. at 75, 240 S.E.2d at 347. In turn, the general contractor entered into a 
subcontract with E.L. Scott Roofing Company (E.L. Scott) for the construction of the 
roofs on both buildings. Id. Almost four years after the buildings were completed and 
occupied by the State Ports Authority, leaks developed in both roofs that necessitated 
the expensive removal of the equipment and goods stored inside the affected 
buildings. Id. at 75–76, 240 S.E.2d at 347.  
The State Ports Authority sued the general contractor in Ports Authority for 
breach of contract based upon the contractor’s alleged failure to construct the roofs 
“in accordance with the plans and specifications” of their agreement. The agency also 
included in its complaint a second claim that E.L. Scott negligently installed portions 
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of the roof substructure under the supervision of the general contractor, resulting in 
the same damages as the general contractor’s breach of contract. Id. at 81, 240 S.E.2d 
350. In addressing the State Ports Authority’s negligence claim against E.L. Scott, 
while the Court noted the existence of appellate case precedent establishing that a 
promisor to a contract can be held liable in tort for personal or property damage 
caused by the promisor’s negligence, such cases fit into one of four categories, with 
the common feature among them being the breach of an extra-contractual duty, 
relationship, or bailment. Id. at 81–82, 240 S.E.2d at 350–51. However, this Court 
recognized that it had never allowed a tort action against a party to a contract “for 
[its] simple failure to perform [its] contract.” Id. at 83, 240 S.E.2d at 351. Since that 
time, North Carolina courts have endeavored to apply the economic-loss-rule 
instruction of Ports Authority. See Beaufort Builders, Inc. v. White Plains Church 
Ministries, Inc. (Beaufort Builders), 246 N.C. App. 27, 32–38, 783 S.E.2d 35, 39–42 
(2016) (applying the economic loss rule to bar a negligence claim where the denial of 
a occupancy permit for the contract’s subject matter—a church building—constituted 
the plaintiff’s alleged injury); Window Gang Ventures, Corp. v. Salinas (Window 
Gang), 2019 NCBC LEXIS 24, at *23–33 (N.C. Super. Ct. Apr. 2, 2019) (analyzing 
one of four Ports Authority exception categories in denying negligence cause of action 
against defendant based on economic loss rule). 
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An examination of the Supreme Court of the United States’ adoption of the 
economic loss rule within admiralty law reveals the utility of the rule within its 
original product-liability context. The Supreme Court of the United States 
emphasized in East River S.S. Corp. v. Transamerica Delaval, Inc. (East River), 476 
U.S. 858, 866 (1986), that the purpose of the economic loss rule is to prevent “contract 
law [from] drown[ing] in a sea of tort.” Id. at 866. In East River, a group of tanker 
ship operators sued the manufacturer of the turbines installed on ships that they had 
chartered from a shipbuilder after the turbines suffered multiple malfunctions, 
leading to costly delays in the ongoing businesses of the tanker ship operators. Id. at 
859–61. In much the same relationship as exists between AP Atlantic and Madison 
in the case at bar, the shipbuilder had contracted with the manufacturer for the 
provision and installation of a single part of a larger design/build arrangement. Id.  
The Supreme Court of the United States grappled with the question of 
“whether a commercial product injuring itself is the kind of harm against which 
public policy requires manufacturers to protect, independent of any contractual 
obligation.” Id. at 866 (emphasis added). Applying what is now coined as the economic 
loss rule in denying the tanker ship operators’ recovery from the turbine 
manufacturer, the Supreme Court of the United States held in East River that “a 
manufacturer in a commercial relationship has no duty under either a negligence or 
strict products-liability theory to prevent a product from injuring itself.” Id. at 871. 
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Recognizing that “a commercial situation generally does not involve large disparities 
in bargaining power,” the nation’s high court saw “no reason to intrude into the 
parties’ allocation of risk” in reinforcing the operation of the economic loss rule in 
contractual disputes. Id. at 873. Instead, the Supreme Court pointed the tanker ship 
operators to remedies in warranty, where a plaintiff could enjoy the “full benefit of 
its bargain” by seeking compensation for expectation damages and “foregone business 
opportunities,” similar to the damages Crescent now attempts to recover from 
Trussway. Id. The economic loss rule has since gained near universal acceptance, and 
nearly all other state and federal jurisdictions that have applied the rule to 
commercial transactions—like the transaction involved in the case sub judice—agree 
that purely economic losses are not recoverable under tort law. See, e.g., Chicopee, 
Inc. v. Sims Metal Works, Inc., 98 N.C. App. 423, 432, 391 S.E.2d 211, 217 (1990) 
(citing 2000 Watermark Ass’n, Inc. v. Celotex Corp., 784 F.2d 1183, 1185 (4th Cir. 
1986)); see also Kelly v. Georgia-Pacific LLC, 671 F. Supp. 2d 785, 791 (E.D.N.C. 
2009).  
Crescent’s argument, in construing the Court of Appeals decision in Lord v. 
Customized Consulting Specialty, Inc., 182 N.C. App. 635, 643 S.E.2d 28 (2007), to 
represent that the application of the economic loss rule hinges on the existence of a 
contract between the plaintiff and defendant, is at odds with our holding in Ports 
Authority which is specific to the commercial-development context. To the extent that 
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such cases as Lord spawn an argument against the application of the economic loss 
rule in commercial cases where a sophisticated commercial developer attempts to 
recover in tort against a subcontractor when the injury complained of concerns solely 
the subject matter of a valid contract between the developer and the general 
contractor, as is the case here, such an argument is unpersuasive. The lack of privity 
in the commercial context between a developer and a subcontractor, supplier, 
consultant, or other third party—the potential existence of which is readily known 
and assimilated in sophisticated construction contracts—is immaterial to the 
application of the economic loss rule. To this end, Ports Authority represents that a 
lack of contractual privity between 1) a plaintiff who engages in commercial 
development with a general contractor and 2) a subcontractor, supplier, or other 
third-party whose relevance to the plaintiff springs from the original contract 
between the plaintiff and the general contractor does not bar the application of the 
economic loss rule. 
We are well aware of how the intersection between contract law and tort law 
in North Carolina has developed since Ports Authority, as illustrated by Crescent’s 
reliance on Lord and this Court’s discussion of negligence as a cause of action against 
residential homebuilders in Oates v. JAG, Inc., 314 N.C. 276, 333 S.E.2d 222 (1985). 
In Oates, this Court addressed the trial court’s allowance of a defendant-
homebuilder’s motion to dismiss for failure to state a claim after the plaintiffs in the 
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case, who were residential homebuyers who had purchased the subject home from a 
seller several degrees removed from the defendant builder, had discovered latent 
defects in the construction of the home. Id. at 277–78, 333 S.E.2d at 224. The trial 
court in Oates had granted the defendant-homebuilder’s motion to dismiss on the sole 
ground that plaintiffs could not establish contractual privity with the defendant. Id. 
at 278, 333 S.E.2d at 224. The Court of Appeals affirmed the trial court’s order, 
opining that because the implied warranty of fitness in the construction of homes in 
North Carolina protected only the initial purchaser in privity of contract with the 
homebuilder and since the plaintiff was a subsequent purchaser well-removed from 
contractual privity with the homebuilder, the traditional doctrine of caveat emptor 
applied to bar a cause of action against a homebuilder by a once-removed purchaser. 
Id. at 278–79, 333 S.E.2d at 224. 
This Court in Oates reversed the decision of the Court of Appeals, determining 
instead that a subsequent home purchaser in the consumer context could recover 
against the builder of the home in negligence, even if the purchaser maintained no 
contractual privity with the builder. Id. at 281, 333 S.E.2d at 226. In so holding, this 
Court adopted the public policy considerations of two Florida intermediate appellate 
court decisions which both addressed the plight of residential homebuyers who had 
alleged that their residences suffered from negligent construction on the part of the 
defendant homebuilders. Id. at 279–81, 333 S.E.2d at 225–26 (first quoting Navajo 
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Circle, Inc. v. Development Concepts Corp., 373 So. 2d 689, 691 (Fla. Dist. Ct. App. 
1979); then quoting Simmons v. Owens, 363 So. 2d 142, 143 (Fla. Dist. Ct. App. 1978)). 
Crescent cites only this Court’s discussion of Florida’s Navajo Circle case, in arguing 
that our holding in Oates remained consistent with Ports Authority in allowing 
“claims of negligence for those who suffer economic losses or damages from improper 
construction but who, because not in privity with the builder,  have no basis for 
recovery in contract.” See Warfield v. Hicks, 91 N.C. App. 1, 10, 370 S.E.2d 689, 694 
(1988). We are not inclined to assign such an expansive reading to Oates as Crescent 
urges, especially in light of this Court’s further discussion of the Simmons case from 
Florida in Oates which reveals the public policy consideration which undergirds the 
ability of residential homeowners to pursue recovery for deficient construction of their 
homes on the ground of negligence.  
Our holding in Oates is a fact-specific response to a problem eloquently 
recognized by the Florida First District Court of Appeal in Simmons. 
We must be realistic. The ordinary purchaser of a home is 
not qualified to determine when or where a defect exists. 
Yet, the purchaser makes the biggest and most important 
investment in his or her life and, more times than not, on 
a limited budget. The purchaser can ill afford to suddenly 
find a latent defect in his or her home that completely 
destroys the family’s budget and have no remedy for 
recourse. This happens too often. The careless work of 
contractors, who in the past have been insulated from 
liability, must cease or they must accept financial 
responsibility for their negligence. 
 
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Oates, 314 N.C. at 280–81, 333 S.E.2d at 225–26 (quoting Simmons, 363 So. 2d at 
143). In recognizing the propriety of the Florida court’s considerations in Simmons, 
this Court allowed a negligence cause of action in favor of residential homeowners 
against the distant homebuilders of their homes when the pleadings reflect that the 
homebuilder’s negligent construction of the home constituted the proximate cause of 
the homeowner’s damages. Whether characterized by the Court of Appeals as a 
refinement of our holdings in Ports Authority and Lord or as a public policy exception 
to the economic loss rule for the layperson homeowner, this Court’s holding in Oates 
should not be read to disturb the applicability of the economic loss rule to commercial 
real-estate development transactions. 
When a plaintiff asserts that the subject matter of a contract has, in its 
operation or mere existence, caused injury to itself or failed to perform as bargained 
for, the damages are merely economic, and a purchaser has no right to assert a claim 
for negligence against the seller or the product’s manufacturer for those economic 
losses under the economic loss rule. See East River, 476 U.S. at 871 (concluding that 
the economic loss rule imposes no duty upon manufacturers “under either a 
negligence or strict products-liability theory to prevent a product from injuring 
itself”); see also Moore v. Coachmen Indus., Inc., 129 N.C. App. 389, 401, 499 S.E.2d 
772, 780 (1998). The plaintiff must instead look toward the breach of its contractual 
relationship with its supplier or general contractor to recover these purely economic 
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losses. Here, Trussway occupies a position much more akin to the component-parts 
suppliers in East River and Moore and the roofing subcontractor in Ports Authority 
as compared to the residential homebuilders in Oates. Crescent negotiated with AP 
Atlantic for the construction of a number of student apartment buildings with the full 
knowledge of and power to control the acquisition and engagement of subcontractors 
for the various roles within the greater construction scheme. We are constrained by 
the well-established origins and ongoing application of the economic loss rule in North 
Carolina from affording Crescent, a sophisticated, commercial developer, the same 
extra-contractual remedies afforded residential homeowners by reason of public 
policy. 
Conclusion 
 
North Carolina’s state courts have consistently applied the economic loss rule 
to hold that purely economic losses are not recoverable under tort law, particularly 
in the context of commercial transactions. The Business Court was correct in its 
interpretation and application of this Court’s decision in Ports Authority. Therefore, 
we affirm the Business Court’s allowance of defendant’s motion for summary 
judgment. 
 
AFFIRMED.