Court of Appeals Upholds Summary Judgment for Design Professional Based on Established Law Regarding Duty and Bad Faith

On April 19, 2022, the Court of Appeals rendered its opinion in Southeast Caissons, LLC v. Choate Construction Company, Choate Construction Group, LLC, and Falcon Engineering, Inc., No. COA21-223, 2022 WL 1146261 (N.C. Ct. App. April 19, 2022).

Plaintiff Southeast Caissons, LLC (“Plaintiff”) appealed from an Order granting Falcon Engineering, Inc.’s (“Falcon”) Motion for Summary Judgment, as well as the Judgment dismissing Plaintiff’s claims against Choate Construction Company and Choate Construction Group, LLC (collectively, “Choate”) following a jury trial and verdict in favor of Choate.

McKinney Drilling Co. v. Nello L. Teer Co., 38 N.C. App. 472, 248 S.E. 2d 444 (1978) and Durham v. Reidsville Engineering, 255 N.C. 98, 120 S.E.2d 564 (1966), the Court discussed the historical necessity that, for a duty to arise between contractors working on a construction project, there needed to be either privity of contract or an intended third-party beneficiary relationship. Citing Shoffner Indus., Inc. v. W.B. Lloyd Constr. Co., 42 N.C. App. 259, 257 S.E.2d 50 (1979), the Court acknowledged that it has since been determined that privity is not necessarily required for a contractor or subcontractor to maintain a negligence action. Without privity, though, there needs to be a showing that the architect or engineer exercised a significant degree of authority and control over the contractor and subcontractor. Without either privity or a finding of authority/control, a negligence claim cannot lie.

Relying on these cases in the context of the case at hand, the Court noted that Falcon “did not design the plans and specifications for the Project and did not have the authority to release, revoke, alter or increase the requirements of the contract, control the contractor’s means or methods, or stop work for the Project.” Nor did Falcon have the authority to authorize or withhold payments.

As such, the Court found that Falcon did not have the broad supervisory control over the project – specifically, Plaintiff’s work – that could give way to a finding of duty (absent privity) between the two parties as contractors working on a construction project. Without the requisite element of duty, the negligence claim necessarily failed.

The Court also upheld summary judgment in favor of Falcon on the claim for bad faith in the performance of contractual duties. Specifically, the Court discussed that an architect or engineer may be deemed the “sole [or final] arbitrator” between contracting parties where a contract provides that the work of the contracting party shall be done to the satisfaction, approval, or acceptance of an architect or engineer. In this specific case, though, because Falcon was not contractually obligated to act in such capacity as arbitrator (even if it had, at times, notated certain items/progress in its inspection reports), the claim for bad faith failed as a matter of law. The Court emphasized the underlying requirement of a contractual obligation.  Based on other recent rulings from the North Carolina Supreme Court and Court of Appeals, the Court’s decision may be yet another signal that the exceptions to the economic loss rule are likely going to be more narrowly construed moving forward.

The remainder of the Court’s opinion addressed issues not specific to the construction context, but which are interesting from an evidentiary perspective. The full opinion can be found here.