Court Opinion

ID: 1033208
Source: CourtListenerOpinion
Date Created: 2013-07-09 19:52:59.547061+00
Date Added: 2024-06-11T12:44:19.187993
License: Public Domain

129 Nev., Advance Opinion 42.
                       IN THE SUPREME COURT OF THE STATE OF NEVADA

                HALCROW, INC.,                                        No. 60194
                Petitioner,
                vs.
                THE EIGHTH JUDICIAL DISTRICT
                COURT OF THE STATE OF NEVADA,
                IN AND FOR THE COUNTY OF
                                                                     FILED
                CLARK; AND THE HONORABLE                              JUN 2 7 ZO13
                ELIZABETH GOFF GONZALEZ,
                DISTRICT JUDGE,
                Respondents,
                   and
                PACIFIC COAST STEEL; AND
                CENTURY STEEL, INC.,
                Real Parties in Interest.

                            Original petition for a writ of mandamus challenging a district
                court order granting real parties in interest's motions for leave to amend
                their third- and fourth-party complaints in order to plead claims for
                negligent misrepresentation, indemnity, contribution, and apportionment.
                           Petition granted.

                Backus Carranza & Burden and Leland Eugene Backus and Shea A.
                Backus, Las Vegas; Lloyd, Gray, Whitehead & Monroe, P.C., and E.
                Britton Monroe and Burns L. Logan, Birmingham, Alabama,
                for Petitioner.

                Gordon & Rees, LLP, and Robert E. Schumacher, Las Vegas; Procopio,
                Cory, Hargreaves & Savitch, LLP, and Scott R. Omohundro, Craig A.
                Ramseyer, and Timothy E. Salter, San Diego, California,
                for Real Party in Interest Pacific Coast Steel.

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                     Hutchison & Steffen, LLC, and Michael K. Wall, James H. Randall, L.
                     Kristopher Rath, and Cynthia G. Milanowski, Las Vegas; Koeller,
                     Nebeker, Carlson & Haluck, LLP, and Megan K. Dorsey and Robert C.
                     Carlson, Las Vegas,
                     for Real Party in Interest Century Steel, Inc.

                     Watt, Tieder, Hoffar & Fitzgerald, LLP, and David R. Johnson and Jared
                     M. Sechrist, Las Vegas,
                     for Amicus Curiae Tishman Construction Corporation of Nevada.

                     BEFORE THE COURT EN BANC. 1

                                                       OPINION

                     By the Court, SAITTA, J.:
                                   In this opinion, we address whether the economic loss doctrine
                     applies to bar a claim alleging negligent misrepresentation against a
                     structural steel engineer on a commercial construction project. We
                     exercise our discretion to review this petition for extraordinary writ relief,
                     as our intervention will help resolve related future litigation by addressing
                     an important legal issue, which our decision in Terracon Consultants
                     Western, Inc. v. Mandalay Resort Group, 125 Nev. 66, 206 P.3d 81 (2009),
                     left open. Ultimately, we conclude that the economic loss doctrine bars
                     negligent misrepresentation claims against commercial construction
                     design professionals where the recovery sought is solely for economic
                     losses.

                           1 TheHonorable Kristina Pickering, Chief Justice, voluntarily
                     recused herself from participation in the decision of this matter.

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                                  PROCEDURAL HISTORY AND FACTS
                             This original proceeding stems from the construction of, and
                subsequent litigation regarding, the Harmon Tower (the Harmon) located
                within CityCenter, a mixed-use urban development in Las Vegas owned
                and developed in part by MGM Mirage Design Group. MGM retained an
                architectural firm and a general contractor, Perini Building Company,
                Inc., to assist in the project's development. The architectural firm
                retained petitioner Halcrow, Inc., to design the Harmon's structure,
                prepare drawings, and perform ongoing structural engineering services,
                including observations and inspections, throughout the construction of
                multiple structures in CityCenter. Perini hired real party in interest
                Century Steel, Inc., to provide the steel installation. Following the
                construction of a portion of the Harmon, Century assigned its assets,
                including the contract for the Harmon, to real party in interest Pacific
                Coast Steel (PCS).
                             All parties agree that Halcrow had no contract with PCS,
                Century, or Perini. Nonetheless, pursuant to PCS's and Century's
                contractual obligations to Perini, they were required to follow Halcrow's
                design and specifications for installing reinforcing steel in the Harmon.
                Problems arose when defects were discovered relating to the reinforcing
                steel's installation. Ultimately, the Harmon, which originally was to
                consist of over 40 floors, could not be built above 26 floors due to flaws in
                the steel installation.
                             After construction was stopped on the Harmon, Perini filed a
                complaint against MGM for allegedly failing to make timely payments.
                MGM filed a counterclaim against Perini for the alleged reinforcing steel
                defects and other nonconforming work on the Harmon. Perini then filed a
                third-party complaint against Century and PCS, among others, asserting
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                claims for contractual indemnity. Century and PCS in turn filed their own
                third- and fourth-party complaints against several entities, including
                Halcrow, alleging claims for negligence, equitable indemnity, and
                contribution and apportionment, and seeking declaratory relief.
                            Halcrow filed a motion to dismiss Century's and PCS's third-
                and fourth-party complaints for failure to state a claim on which relief can
                be granted, based on this court's holding in Terracon Consultants Western,
                Inc. v. Mandalay Resort Group, 125 Nev. 66, 206 P.3d 81 (2009). Halcrow
                argued that Terracon bars unintentional tort claims against design
                professionals in commercial construction projects when the claimant
                incurs purely economic losses. The district court granted Halcrow's
                motion and dismissed Century's and PCS's claims for negligence,
                indemnity, contribution, and declaratory relief.
                            PCS then sought leave to amend its third-party complaint in
                order to include a cause of action for negligent misrepresentation.
                Century followed suit and filed a motion for leave to amend its fourth-
                party complaint against Halcrow and others, to allege a claim for
                negligent misrepresentation. Halcrow filed an opposition to Century's and
                PCS's motions to amend their complaints, arguing that Terracon did not
                carve out an exception to the economic loss doctrine for negligent
                misrepresentation claims, and thus, PCS and Century should not be
                permitted to maintain such claims. Century and PCS on the other hand
                argued that Halcrow owed them a duty to act with reasonable care,
                pursuant to the Restatement (Second) of Torts section 552, in
                communicating information to Century and PCS about the steel
                installation. Specifically, they alleged that Halcrow failed to conduct
                timely inspections in accordance with its representations that inspections

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                  would take place and erroneously stated that on-site adjustments would
                  alleviate errors in its plans. Century and PCS therefore contended that as
                  a result of their foreseeable reliance on Halcrow's false representations
                  regarding the steel installation inspection and correction process, Halcrow
                  could be held liable for negligent misrepresentation.
                              Following a hearing, the district court granted the motions to
                  amend but stayed the proceedings pending resolution of the legal issues by
                  this court. This petition for extraordinary writ relief followed.
                                                 DISCUSSION
                  Writ of mandamus
                              A writ of mandamus is available to compel the performance of
                  an act that the law requires as "a duty resulting from an office, trust or
                  station." NRS 34.160. Mandamus relief may also be proper "to control an
                  arbitrary or capricious exercise of discretion."    Int'l Game Tech., Inc. v.
                  Second Judicial Dist. Court, 124 Nev. 193, 197, 179 P.3d 556, 558 (2008).
                  Mandamus is an extraordinary remedy, and we have full discretion to
                  determine whether a petition will be considered.          Cote H. v. Eighth
                  Judicial Dist. Court, 124 Nev. 36, 39, 175 P.3d 906, 908 (2008). Writ relief
                  will not be available when an adequate and speedy legal remedy exists.
                  NRS 34.170. "Whether a future appeal is sufficiently adequate and speedy
                  necessarily turns on the underlying proceedings' status, the types of issues
                  raised in the writ petition, and whether a future appeal will permit this
                  court to meaningfully review the issues presented." D.R. Horton, Inc. v.
                  Eighth Judicial Dist. Court, 123 Nev. 468, 474-75, 168 P.3d 731, 736
                  (2007); see also Smith v. Eighth Judicial Dist. Court, 113 Nev. 1343, 1344-
                  45, 950 P.2d 280, 281 (1997) (indicating that this court will consider a
                  petition challenging an order denying motions to dismiss when an
                  important issue of law needs clarification and considerations of sound
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judicial economy and administration militate in favor of granting the
petition).
               We exercise our discretion to consider this petition because the
legal issue of whether a negligent misrepresentation tort claim may be
maintained against a design professional in a commercial construction
setting is one of first impression in Nevada and the issue has resulted in
split decisions in Nevada state and federal district courts such that our
clarification of this important issue now will promote sound judicial
economy and administration. D.R. Horton, Inc., 123 Nev. at 474-75, 168
P.3d at 736.
The district court acted arbitrarily and capriciously in granting leave to
amend in order to plead negligent misrepresentation
               NRCP 15(a) provides that leave to amend a complaint shall be
"freely given when justice so requires." However, leave to amend should
not be granted if the proposed amendment would be futile. See Allum v.
Valley Bank of Nev.,      109 Nev. 280, 287, 849 P.2d 297, 302 (1993). A
proposed amendment may be deemed futile if the plaintiff seeks to amend
the complaint in order to plead an impermissible claim.        See Soebbing v.
Carpet Barn, Inc., 109 Nev. 78, 84, 847 P.2d 731, 736 (1993).
      Negligent misrepresentation and the economic loss doctrine
               In Terracon, we held that the economic loss doctrine applied to
preclude a plaintiff from asserting professional negligence claims against
design professionals when the plaintiff sought to recover purely economic
losses in a dispute concerning commercial construction. Specifically, we
concluded that:
               in a commercial property construction defect
               action in which the plaintiffs seek to recover
               purely economic losses through negligence-based
               claims, the economic loss doctrine applies to bar

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                            such claims against design professionals who have
                            provided professional services in the commercial
                            property development or improvement process.
                125 Nev. at 80, 206 P.3d at 90. In so holding, we explained that the
                economic loss doctrine is intended to mark "the fundamental boundary
                between contract law, which is designed to enforce the expectancy
                interests of the parties, and tort law, which imposes a duty of reasonable
                care and thereby [generally] encourages citizens to avoid causing physical
                harm to others."    Id. at 72-73, 206 P.3d at 86 (alteration in original)
                (quoting Calloway v. City of Reno, 116 Nev. 250, 256, 993 P.2d 1259, 1263
                (2000), overruled on other grounds by Olson v. Richard, 120 Nev. 240, 241-
                44, 89 P.3d 31, 31-33 (2004)). We further explained that application of the
                doctrine protects parties from unlimited economic liability, which could
                result from negligent actions taken in commercial settings.   Id. at 74, 206
                P.3d at 86-87.
                            In this case, Halcrow contends that the clear and explicit
                holding in Terracon bars all negligence-based claims, including negligent
                misrepresentation. It further argues that numerous courts have refused
                to exempt negligent misrepresentation claims from the economic loss
                doctrine in cases of large commercial construction projects. In contrast,
                PCS and Century argue that Terracon left open the question of whether
                negligent misrepresentation may be an appropriate exception to the
                economic loss doctrine. Further, both PCS and Century argue that
                negligent misrepresentation should be adopted as an exception to the
                economic loss doctrine because it would not lead to the type of unlimited
                liability that the doctrine seeks to avoid. They maintain that the
                Restatement (Second) of Torts section 552 (1977) imposes on design
                professionals a duty of care, separate and apart from any duties arising
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                   from Halcrow's contract with the architectural firm, and because Halcrow
                   breached that duty by negligently misrepresenting that it inspected and
                   made corrections to the steel work, thus causing Century and PCS
                   financial damages, they should be permitted to amend their complaints to
                   assert negligent misrepresentation. We disagree.
                              Although Terracon recognized that exceptions to the economic
                   loss doctrine exist, it answered only the specific question of whether the
                   doctrine applied to preclude professional negligence claims against design
                   professionals who provided services in the commercial property
                   development and improvement process, when the plaintiff sought purely
                   economic losses. In this case, Century's and PCS's proposed amended
                   complaints include a cause of action for negligent misrepresentation,
                   based on Halcrow's alleged misrepresentations that it would inspect and
                   make appropriate on-site adjustments to the steel installation, and on
                   which representations Century and PCS allege they relied.       Terracon did
                   not address whether the economic loss doctrine applied to bar plaintiffs
                   from asserting such claims, and we resolve that question now.
                              We have previously adopted section 552 of the Second
                   Restatement of Torts in upholding a claim for negligent
                   misrepresentation. That section provides:
                              "One who, in the course of his business, profession
                              or employment, or in any other [trans] action 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."

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                Bill Stremmel Motors, Inc. v. First Nat'l Bank of Nev.,      94 Nev. 131, 134,
                575 P.2d 938, 940 (1978) (quoting Restatement (Second) of Torts § 552
                (1977)). Section 552 provides that in situations where only pecuniary loss
                results, liability for negligent misrepresentation is not based on general
                duty rules, but instead, on a "restricted rule of liability." Restatement
                (Second) of Torts § 552 cmt. a (1977). Liability is only imposed on a party
                who has supplied false information, where that information is for the
                guidance of others and where the party knows that the information will be
                relied upon by a foreseeable class of persons. Id. cmt. b.
                            In Terracon, we left open the door for exceptions to the
                economic loss doctrine for negligent misrepresentation claims "in [a]
                certain categor[y] of cases when strong countervailing considerations
                weigh in favor of imposing liability." 125 Nev. at 73, 206 P.3d at 86.
                Liability is proper in cases where there is significant risk that "the law
                would not exert significant financial pressures to avoid such negligence."
                Id. at 76-77, 206 P.3d at 88. These types of cases encompass economic
                losses sustained, for example, as a result of defamation, intentionally
                caused harm, negligent misstatements about financial matters, and loss of
                consortium. Barber Lines AI S v. M IV Donau Maru, 764 F.2d 50, 56 (1st
                Cir. 1985) (citing numerous exceptions to the economic loss doctrine that
                have been accepted by courts). However, in the context of commercial
                construction design professionals, negligent misrepresentation claims do
                not fall into such a category because "contract law is better suited" for
                resolving such claims. Terracon, 125 Nev. at 77, 206 P.3d at 89. Further,
                in commercial construction situations, the highly interconnected network
                of contracts delineates each party's risks and liabilities in case of

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negligence, which in turn "exert significant financial pressures to avoid
such negligence." Id. at 77, 206 P.3d at 88.
            Additionally, complex construction contracts generally include
provisions addressing economic losses. See Terracon, 125 Nev. at 78, 206
P.3d at 89. Therefore, the parties' "disappointed economic expectations'
are better determined by looking to the parties' intentions expressed in
their agreements.   Id. at 79, 206 P.3d at 90 (quoting Sensenbrenner v.
Rust, Orling & Neale, Architects, Inc., 374 S.E.2d 55, 57-58 (Va. 1988)).
This is further supported by the fact that design professionals supply
plans, designs, and reports that are relied upon to create a tangible
structure; the ultimate quality of the work can be judged against the
contract. See id. at 79, 206 P.3d at 90; see also Fireman's Fund Ins. Co. v.
SEC Donohue Inc., 679 N.E.2d 1197, 1202 (Ill. 1997). The drawings,
reports, and on-site instructions are "incidental to a tangible product."
Fireman's Fund Ins. Co., 679 N.E.2d at 1202; see also Kuhn Constr. Co. v.
Ocean & Coastal Consultants, Inc., 844 F. Supp. 2d 519, 527-28 (D. Del.
2012). Thus, requiring parties that are not in direct privity with one
another but involved in a network of interrelated contracts to rely upon
that network of contracts ensures that all parties to a complex project
have a remedy and maintains the important distinction between contract
and tort law. See Calloway v. City of Reno, 116 Nev. 250, 256, 993 P.2d
1259, 1263 (2000), overruled on other grounds by Olson v. Richard, 120
Nev. 240, 241-44, 89 P.3d 31, 31-33 (2004).
            In Terracon, we concluded that a design professional's duty to
a party with whom it contracted is set forth in the contract, and "any duty
breached arises from the contractual relationship only." 125 Nev. at 79,
206 P.3d at 90 (emphasis added). Based on the foregoing discussion, we

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                 see no reason to limit our conclusion in Terracon by imposing the
                 extracontractual duty described in section 552 of the Second Restatement
                 of Torts. See Leis Family Ltd. P'ship v. Silversword Eng'g, 273 P.3d 1218,
                 1224-25 (Haw. Ct. App. 2012); 2314 Lincoln Park W. Condo. Ass'n v.
                 Mann, Gin, Ebel & Frazier, Ltd., 555 N.E.2d 346, 353 (Ill. 1990);
                 Indianapolis-Marion Cnty. Pub. Library v. Charlier Clark Sz Linard, P.C.,
                 929 N.E.2d 722, 738 (Ind. 2010); Fleischer v. Hellmuth, Obata &
                 Kassabaum, Inc.,     870 S.W.2d 832, 837 (Mo. Ct. App. 1993);
                 Berschauer I Phillips Constr. Co. v. Seattle Sch. Dist. No. 1, 881 P.2d 986,
                 993 (Wash. 1994).
                             Determining that design professionals have a separate and
                 distinct duty, pursuant to section 552, to any subcontractor that must rely
                 on their plans would essentially allow any party to recast their barred
                 negligence claim into a negligent misrepresentation claim. In the context
                 of commercial construction projects, the evidence that would need to be
                 presented in order to prove a negligent misrepresentation claim is almost
                 identical to that which would be necessary in proving a claim for
                 negligence. Allowing one and not the other would create a loophole in
                 Terracon's objective of foreclosing professional negligence claims against
                 commercial construction design professionals and would, essentially, cause
                 the economic loss doctrine to be nullified by negligent misrepresentation
                 claims.
                             Here, PCS and Century, the subcontractors hired to install the
                 steel, sought to plead negligent misrepresentation claims against Halcrow,
                 the steel engineer. Halcrow was employed on the Harmon as a design
                 professional and responsible for creating the plans and overseeing the
                 installation of the Harmon's steel infrastructure. PCS and Century have

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never stated that they sought anything other than economic losses.
Negligent misrepresentation is an unintentional tort and cannot form the
basis of liability solely for economic damages in claims against commercial
construction design professionals. 2 Consequently, PCS and Century
cannot assert claims of negligent misrepresentation against Halcrow. 3
Therefore, leave to amend should not have been granted because the
amendment to PCS's and Century's pleadings was futile.          See Allum v.
Valley Bank of Nev., 109 Nev. 280, 287, 849 P.2d 297, 302 (1993); Soebbing
v. Carpet Barn, Inc., 109 Nev. 78, 84, 847 P.2d 731, 736 (1993).
                               CONCLUSION
              We conclude that, in commercial construction defect litigation,
the economic loss doctrine applies to bar claims against design
professionals for negligent misrepresentation where the damages alleged
are purely economic. 4 Thus, the district court was compelled to deny

      2 Intentional
                  torts are not barred by the economic loss doctrine. See
Terracon, 125 Nev. at 72-73, 206 P.3d at 85-86. Thus, the economic loss
doctrine does not preclude litigants from asserting claims of intentional
misrepresentation.

      3 Our conclusions, however, do not bar PCS or Century's potential
reliance on Home Furniture, Inc. v. Brunzell Construction Co., 84 Nev.
309, 313-14, 440 P.2d 398, 401-02 (1968), and United States v. Spearin,
248 U.S. 132, 136 (1918) (providing that contractors cannot be liable for
loss or damage resulting from defects in the plans and specifications, when
the contractors simply followed the plans as provided).

      4 Because   we determine that negligent misrepresentation and
professional negligence claims cannot form a basis for liability, Terracon,
125 Nev. at 80, 206 P.3d at 90, Halcrow cannot be deemed a joint
tortfeasor with PCS or Century. Consequently, PCS and Century's
equitable claims for contribution, apportionment, and indemnity
necessarily fail. See Black & Decker (U.S.), Inc. v. Essex Grp., Inc., 105
Nev. 344, 345, 775 P.2d 698, 699 (1989).

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                Century's and PCS's motions to amend their third- and fourth-party
                complaints to include claims for negligent misrepresentation against
                Halcrow. Accordingly, we grant Halcrow's petition for a writ of
                mandamus. The clerk of this court shall issue a writ of mandamus
                directing the district court to vacate its order granting PCS and Century
                leave to amend their third- and fourth-party complaints and the amended
                complaints.

                                                                                 J.
                                                    Saitta

                Gibbons

                           1/40.4X4.-\         J.
                Hardesty

                Parraguirre

                                               J.

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