In Paradyme Asset Management, LLC v. Figurd, LLC, a dispute arose over the architectural design of an apartment complex in San Antonio, Texas. Paradyme Asset Management, LLC (“Paradyme”) contracted with Figurd, LLC (“Figurd”) as the architect. Figurd subcontracted with David Robertson and Robertson Architecture, LLC (collectively, “Robertson”) to actually perform the architectual design. While Robertson was not a party to the Paradyme/Figurd contract, it was mentioned in the contract as being the Project Manager. Paradyme alleged Robertson’s design was flawed and increased costs. Paradyme sued Robertson, who moved to dismiss the claim based on the economic loss rule.
Under Texas law, the economic loss rule generally prevents recovery in tort against non-contracting parties for purely economic damages unaccompanied by injury to person or property. Golden Spread Elec. Cooperative, Inc. v. Emerson Process Mgmt. Powers, 954 F.3d 804, 808 (5th Cir. 2020). However, an exception allows recovery for economic losses caused by professional’s negligence provided the professional’s actions were directed to a “known party for a known purpose.” Dunn, 2015 WL 12778390, at 13.
Paradyme argued the exception applied because Robertson directed its actions to a known party (Paradyme) for a known purpose (the Project). In its defense, Robertson analogized the case to LAN/STV, 435 S.W.3d at 244 and A&H Properties Partnership v. GPM Eng’g, 3:3-13-850-CV, 2015 WL 9435974 (Tex. App. Dec. 23, 2015), but the Court found these cases distinguishable, stating in LAN/STV the Texas Supreme Court ruled the plaintiff could not recover for negligence because it was a “contractual stranger” to the architect’s contract. The Court reasoned the plaintiff in LAN/STV did not directly rely on the architect’s plans and lacked a contractual relationship with the architect. Thus, the economic loss rule barred the claim.
Paradyme argued Robertson was not a “stranger” as it was designated as the Project Manager in the Agreement. The Court agreed and found that even if Robertson was not a party to the Agreement, it was not a “stranger” to Paradyme.
The Court’s ruling further limits the economic loss rule in Texas in cases involving design professional negligence claims. The “actions directed at a known party for a known purpose” exception to the economic loss rule could eventually swallow, or completely erode, the economic loss rule for design professionals in Texas.