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Eastern District of PA Declines to Broaden Bilt–Rite Exception to Economic Loss Doctrine

In an unreported decision handed down this summer, the United States District Court for the Eastern District of Pennsylvania in Elliott-Lewis Corp. v. Skanska USA Bldg., Inc., 2015 WL 4545362 (E.D. Pa. July 28, 2015), declined to extend the Bilt–Rite exception to Pennsylvania’s economic loss doctrine – which established that architects and design professionals can be liable in tort to contractors for purely economic harm resulting from the inclusion of erroneous information in design documents – to a contractor that supplied information to design professionals during remedial construction.

The Franklin Institute (“Franklin”) contracted with Saylor Gregg Architects (“Saylor Gregg”) to design significant renovations to the Franklin Institute in Philadelphia.  Saylor Gregg entered into an agreement with Urban Engineers (“Urban”) and Marvin Waxman Consulting Engineers, Inc. (“Marvin Waxman”) to provide engineering services for the project.  Franklin contracted separately with Skanska USA Building, Inc. (“Skanska”) to construct the project.

Skanska subcontracted with Elliott-Lewis Corporation (“ELCo”) to install the project’s HVAC piping and controls.  Skanska and ELCo had discretion to choose the exact make and model of the HVAC system’s cooling tower so long as Marvin Waxman’s design specifications were met, and ultimately elected to use a four-cell cooling tower which required different piping and controls than the two-cell tower specified in the original plans.

The HVAC system was not completed in accordance with project deadlines and the cooling tower overflowed when the system was first tested, damaging the building itself.  In troubleshooting the issues with the HVAC system, Marvin Waxman utilized information provided by the supplier of the HVAC’s pump system, Patterson Pump Company (“Patterson”), and Patterson’s representative, Clapp Associations, Inc. (“Clapp”).  After several weeks of unsuccessful repair efforts, Patterson eventually admitted that there were problems “intrinsic to the pumps supplied.”

Despite performing extra work on the HVAC system and providing Franklin with a temporary cooling system, ELCo was never paid for this extra work by Skanska.  ELCo sued Skanska for breach of contract and Skanska filed a third-party complaint against Saylor Gregg, Urban, and Marvin Waxman (the “Design Defendants”), claiming that ELCo’s extra work was necessitated by errors in the design drawings and specifications.  The Design Defendants filed a fourth-party complaint against Patterson and Clapp, alleging that they reasonably relied on inaccurate information regarding the HVAC system supplied by Patterson and Clapp when drafting the design documents.

Patterson and Clapp claimed that the Design Defendants’ suit was barred by Pennsylvania’s economic loss doctrine, which prohibits a plaintiff from recovering in tort if the loss suffered is purely economic and not accompanied by an injury to either person or property.  However, the Design Defendants argued that their claims were valid under the Bilt–Rite exception to the economic loss doctrine, which permits recovery in tort for purely economic injuries when information is negligently supplied by one in the business of supplying information (such as an architect or design professional) and where it is foreseeable that the information will be used and relied upon by third parties.  See Bilt–Rite Contractors, Inc. v. The Architectural Studio, 866 A.2d 270 (Pa.2005).

Here, the Eastern District declined to extend this exception to Patterson and Clapp because they are not in the business of supplying information.  Specifically, Patterson manufactured a product and Clapp facilitated the sale of that product.  The court noted that the “sale of a product is fundamentally different than the sale of information, even if the seller provides information about the product to consummate the sale,” and that a “manufacturer and a manufacturer’s representative are very different from the accountants, lawyers, and architects noted in Bilt–Rite.”  The court further reasoned that, if the Bilt–Rite exception were to apply to Patterson and Clapp in this situation, then many typical commercial transactions would be subject to this standard and the economic loss doctrine would be rendered meaningless.  Because the sale and purchase of a product often involves at least some conveyance of information by the seller, the court determined that broadening Bilt–Rite to include such run-of-the-mill transactions was inappropriate and dismissed the Design Defendants’ claims against Patterson and Clapp.

While the Bilt–Rite exception remains narrowly-tailored, the court also noted that the Design Defendants failed to demonstrate that they reasonably relied on any representations made by Patterson and Clapp when drafting the design documents.  Therefore, contractors should therefore be wary of making representations to design professionals on which the design professionals will rely when drafting design documents.