News & Insights

Application Of North Carolina’s Economic Loss Doctrine Is Hotly Debated Subject

North Carolina’s version of the economic loss doctrine prohibits recovery for purely economic losses in tort, “for [a defendant’s] simple failure to perform his contract.”  In other words, where a party can sue for economic losses in a breach of contract claim, he is barred from also suing in tort for those same losses. 

Nonetheless, in Crescent University City Venture, LLC v. Trussway Manufacturing, Inc., 852 S.E.2d 98 (N.C. 2020), the North Carolina Supreme Court held that a negligence claim against a product manufacturer was barred, even though there was no contractual privity between the owner and the manufacturer. The Court reasoned the plaintiff “negotiated with [the contractor] for the construction of … 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.”  Because the Owner had a contractual claim against the general contractor for the defective trusses, the Court dismissed the tort claim against the manufacturer.   

Following Crescent, the viability of the economic loss doctrine was heavily questioned in North Carolina.  It was unclear whether a contract or chain of contractual relationships would otherwise foreclose the separate and independent negligence claims against subcontractors, consultants and suppliers.  Many theorized that tort claims against non-contracting parties, like the engineers retained by an architect as a consultant, may be barred, because the owner has a contractual recovery against the architect. 

A handful of important cases related to design services may have answered this question.  In New Dunn Hotel, LLC v. K2M Design, Inc., 2021 WL 1910033 (E.D.N.C. May 12, 2021) and Walbridge Aldinger LLC v. Cape Fear Engineers Inc., 2022 WL 288181 (E.D.N.C. January 31, 2022), the Court specifically allowed professional negligence claims against an architect and an engineer, finding the lack of contractual privity between the Plaintiffs and the designers rendered the economic loss rule inapplicable. Moreover, in Schneider Electric Building America’s Inc. v. CBRE Heery, Inc., 2021 WL 5114653 (E.D.N.C. July 26, 2021), the Court went a step further and allowed a tort claim against an architect that had contractual privity with the Plaintiff, but only after determining the contract did not encompass the architectural duties and breaches at issue in the case.  In all three cases, the Court held that professional negligence claims against design professionals are allowed only to the extent there is no corresponding contract claim for the same breach.

While Crescent certainly caused waves in North Carolina, it appears the economic loss doctrine’s stated intent of preventing “contract law from drowning in a sea of tort” is still intact.  Where contractual privity exists, architects and engineers should continue to seek dismissal of tort claims in North Carolina and assert the contractual defenses and limitations that protect them.