Where a business suffered a purely economic loss as a result of the failure of another to fulfill its contractual obligations, no negligence claim exists unless a separate duty is proven. Crescent University City Venture, LLC, et al. v. AP Atlantic, Inc. , et al., 2019 NCBC 48 (J. Bledsoe). As a result, if no separate duty is proven, then the economic loss rule prevents the non-breaching party from maintaining its negligence claim.
Crescent University City Venture, LLC (“Crescent”) brought a negligence claim against the sub-subcontractor who provided and installed the trusses for the Project, defendant Trussway, Inc. (“Trussway”), contending that it had negligently constructed the various trusses that were used in the Project. Crescent sought to recoup from Trussway the Relocation Expenses it incurred but could not recover from APA. Trussway moved for summary judgment, contending it owed no separate duty to Crescent, and that Crescent’s negligence claim was barred by the economic loss rule.
The Business Court agreed. Recognizing that the economic loss rule holds that purely economic losses (especially in a commercial contract) are not recoverable in tort, the Business Court held that Crescent could maintain its tort claim only if it proved Trussway owed Crescent a special duty. Crescent could not rely upon the contractual duty Trussway owed to the entity that had hired it for the Project, Madison, to maintain its negligence claim. Although the Supreme Court had previously recognized the existence of a special duty owed by a subcontractor to a residential homeowner, the Business Court refused to apply that exception in the commercial context. In granting Trussway’s motion for summary judgment, the Business Court emphasized that the application of the economic loss rule does not depend on whether there is a contractual relationship between the parties (e.g., between Crescent and Trussway or between Crescent and APA), but the analysis instead is on the nature of the loss (i.e., purely economic vs. personal injury/some other property damage). Where the loss is purely economic in nature, the Business Court recognized that no claim would lie in tort.
As a result of this decision, a business which suffers a purely economic loss as a result of a subcontractor’s failure to manufacture a product will be limited solely to damages permitted under its original contract if it has no contract with the subcontractor.
Additional legal points of interest:
The application of the economic loss rule poses risks to remote purchasers, but the allowance of such risk is better than allowing a negligence claim to circumvent the parties’ agreement (Opinion, ¶ 66).
Categories: Key Business Court Decisions