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.
