Donatelli v. D.R. Strong Consulting Engineers, Inc. , 179 Wash. 2d 84 ( 2013 )

Fairhurst, J.

¶1 Steve and Karen Donatelli hired D.R. Strong Consulting Engineers Inc. to help the Donatellis develop their real property. Before development of the property could be completed, however, the Donatellis suffered substantial financial losses and lost the property in foreclosure. The Donatellis sued D.R. Strong for breach of contract; violation of the Consumer Protection Act (CPA), chapter 19.86 RCW; negligence; and negligent misrepresentation. D.R. Strong moved for partial summary judgment on the CPA and negligence claims. D.R. Strong argued that the negligence claims must be dismissed under the economic loss rule because the relationship between the parties was governed by contract and the damages claimed by the Donatellis were purely economic. The trial court and Court of Appeals held that as a matter of law, the Donatellis’ negligence claims were not barred. We affirm.

I. FACTUAL AND PROCEDURAL HISTORY

¶2 The Donatellis consulted with and hired D.R. Strong to help the Donatellis develop their King County real property into two short plats. According to Steve Donatelli, D.R. Strong’s representatives orally agreed to help the Donatellis with the county permitting process and to manage the project “through to [the] final recording of the short plats.” Clerk’s Papers (CP) at 65. In their complaint, the Donatellis alleged that D.R. Strong agreed to:

a. Perform the necessary surveys and analyses;

b. Create the required plans for, inter alia, soil erosion, storm water drainage;

c. Prepare the necessary reports and County permit applications; and

d. Take all other actions necessary to get the short plats recorded with King County so that Donatelli could build houses on each lot.

CP at 2. According to the Donatellis, D.R. Strong represented that it would be able to finish the project within “approximately one and [one-half] years, if not less time.” CP at 4.

¶3 D.R. Strong’s first involvement in the project was apparently helping the Donatellis apply for preliminary approval for the project with King County pursuant to King County Code 19A.08.150. King County granted preliminary approval on October 4, 2002. In its letter granting preliminary approval, the county noted that the “preliminary approval is valid for a period of 60 months.” CP at 28.

¶4 On October 11, 2002, D.R. Strong sent the Donatellis a written contract for engineering services entitled “Revised Proposal for Engineering Services.” CP at 21. In the contract, D.R. Strong agreed to perform six phases of engineering services in exchange for an estimated fee totaling $33,150. The contract did not reflect whether D.R. Strong agreed to provide managerial services or to oversee the day-to-day operation of the project. The contract limited D.R. Strong’s professional liability to $2,500 or its professional fee, whichever was greater. Steve Donatelli apparently signed the contract on October 31, 2002, although he now claims that he did not know what he was signing.

¶5 According to the Donatellis, between October 2002 and October 2007, D.R. Strong assumed a managerial role over the project and worked closely with other contractors, builders, and vendors involved with the project. See CP at 67 (D.R. Strong “ran the daily operations of the Project.”), 68 (D.R. Strong “[was] running the show.”). Although in the written contract D.R. Strong estimated its fee would be $33,150, D.R. Strong allegedly charged the Donatellis “approximately $120,000 in costs and fees” over the course of the project. CP at 2.

¶6 In October 2007, the preliminary approval expired and the project was still not complete. The expiration of the preliminary approval came as a complete surprise to the Donatellis. According to Steve Donatelli, employees of D.R. Strong “apologized many times, said that they screwed up, and that they would make everything right.” CP at 67. D.R. Strong began the process of obtaining a new preliminary approval for the project. Before D.R. Strong could obtain a new preliminary approval, however, the Donatellis suffered substantial financial losses and eventually lost the property in foreclosure.

¶7 The Donatellis sued D.R. Strong, claiming damages in excess of $1.5 million and alleging breach of contract, CPA violations, negligence, and negligent misrepresentation. D.R. Strong moved for partial summary judgment on the CPA, negligence, and negligent misrepresentation claims. D.R. Strong argued that the economic loss rule barred the Donatellis’ negligence claims. The trial court denied summary judgment on the two negligence claims but granted summary judgment on the CPA claims. The trial court found that “professional negligence claims can be stated even in the context of a contractual relationship.” CP at 95.

¶8 The Court of Appeals affirmed, holding that the independent duty doctrine did not bar the Donatellis from bringing negligence claims against D.R. Strong because professional engineers owe duties to their client independent of any contractual relationship. Donatelli v. D.R. Strong Consulting Eng’rs, Inc., 163 Wn. App. 436, 443, 261 P.3d 664 (2011). We granted D.R. Strong’s petition for review. Donatelli v. D.R. Strong Consulting Eng’rs, Inc., 173 Wn.2d 1025, 272 P.3d 851 (2012).

II. ISSUES

¶9 A. Did the trial court properly deny summary judgment as to the Donatellis’ negligence claim when there were genuine issues of material fact regarding the scope of D.R. Strong’s contractual obligations to the Donatellis?

flO B. Did the trial court properly deny summary judgment as to the Donatellis’ negligent misrepresentation claim when the Donatellis alleged D.R. Strong misrepresented the time and expense necessary to complete the project and such representations induced the Donatellis to contract with D.R. Strong?

III. STANDARD OF REVIEW

f 11 Typically, we review an order on summary judgment de novo, engaging in the same inquiry as the trial court. Mohr v. Grantham, 172 Wn.2d 844, 859, 262 P.3d 490 (2011). Summary judgment is appropriate when “there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law.” CR 56(c). In this case, the trial court did not consider whether there were genuine issues of material fact underlying D.R. Strong’s motion for summary judgment because the motion presented a purely legal question — does the economic loss rule bar the Donatellis from bringing claims of negligence and negligent misrepresentation against D.R. Strong? We review alleged errors of law de novo. Jongeward v. BNSF Ry., 174 Wn.2d 586, 592, 278 P.3d 157 (2012) (citing State v. Breazeale, 144 Wn.2d 829, 837, 31 P.3d 1155 (2001)). To the extent we consider factual issues in this case, we consider all facts and reasonable inferences in the light most favorable to the Donatellis, the nonmoving party. Dowler v. Clover Park Sch. Dist. No. 400, 172 Wn.2d 471, 484, 258 P.3d 676 (2011).

IV. ANALYSIS

¶12 The question D.R. Strong presented before the trial court and the Court of Appeals was whether the economic loss rule barred the Donatellis’ negligence and negligent misrepresentation claims against D.R. Strong. Both the trial court and the Court of Appeals found, as a matter of law, that the Donatellis’ negligence claims should not be dismissed. We agree.

¶13 Regarding the Donatellis’ negligence claim, it is unclear from the record what professional obligations D.R. Strong assumed toward the Donatellis based on oral representations, the written contract, and D.R. Strong’s affirmative conduct. Regarding the Donatellis’ negligent misrepresentation claim, we find the duty to avoid misrepresentations that induce a party to enter into a contract arise independently of the contract. Because D.R. Strong’s duty to avoid negligent misrepresentation arose independent of the contract, the independent duty doctrine does not bar the Donatellis’ negligent misrepresentation claim.

A. Negligence

¶14 The Court of Appeals found that the independent duty doctrine did not bar the Donatellis’ claim for negligence. We agree but find that the independent duty doctrine cannot apply to this case because the record does not establish the scope of D.R. Strong and the Donatellis’ contractual duties.

¶15 Historically, Washington applied the economic loss rule to bar a plaintiff from recovering tort damages when the defendant’s duty to the plaintiff was governed by contract and the plaintiff suffered only economic damages. Alejandre v. Bull, 159 Wn.2d 674, 683,153 P.3d 864 (2007). The economic loss rule “attempted to describe the dividing line between the law of torts and the law of contracts.” Eastwood v. Horse Harbor Found., Inc., 170 Wn.2d 380,385, 241 P.3d 1256 (2010).

¶16 In Eastwood, a majority of this court concluded that the term “economic loss rule” was a misnomer and renamed the rule the “independent duty doctrine” to more accurately describe how this court determines whether one contracting party can seek tort remedies against another party to the contract. The independent duty doctrine continues to “ ‘maintain the boundary between torts and contract’ ” in the place of the economic loss rule. Eicon Constr., Inc. v. E. Wash. Univ., 174 Wn.2d 157, 165, 273 P.3d 965 (2012) (quoting Eastwood, 170 Wn.2d at 416 (Chambers, J., concurring)). The court has limited the application of the independent duty doctrine to a “narrow class of cases . . . claims arising out of construction on real property and real property sales.” Id.

¶17 Under the independent duty doctrine, “[a]n injury is remediable in tort if it traces back to the breach of a tort duty arising independently of the terms of the contract.” Eastwood, 170 Wn.2d at 389. The analytical framework provided by the independent duty doctrine is applicable only when the terms of the contract are established by the record. To determine whether a duty arises independently of the contract, we must first know what duties have been assumed by the parties within the contract. If a contract term (such as a term defining the scope of the parties’ contractual duties) is ambiguous, the trial court must ascertain the intent of the parties. Berg v. Hudesman, 115 Wn.2d 657, 663, 801 P.2d 222 (1990). “Contract interpretation is normally a question of fact for the fact-finder.” Spradlin Rock Prods., Inc. v. Pub. Util. Dist. No. 1 of Grays Harbor County, 164 Wn. App. 641, 654, 266 P.3d 229 (2011).

¶18 This case makes obvious the inability of the independent duty doctrine to provide an analytical framework when the scope of contractual duties are in dispute. Generally, “the foundation of any liability analysis for . . . design professional [s] rests in contract.” Architect and Engineer Liability: Claims against Design Professionals § 1.05, at 7 (Kevin R. Sido ed., 3d ed. 2006). In a contract, design professionals and their clients can allocate risks and ensure against “expected liability exposure.” Berschauer/Phillips Constr. Co. v. Seattle Sch. Dist. No. 1, 124 Wn.2d 816, 826-27, 881 P.2d 986 (1994).

¶19 But design professionals also owe duties to their clients and the public to act with reasonable care, which can sometimes give rise to a tort duty independent of the contract. See Affil. FM Ins. Co. v. LTK Consulting Servs., Inc., 170 Wn.2d 442, 461, 243 P.3d 521 (2010) (Engineers have an independent duty to “use reasonable care .. . with respect to risks of physical damages to [physical property].”); Jarrara v. Seifert, 22 Wn. App. 476, 479, 591 P.2d 809 (1979) (engineers undertaking engineering services in this state have a common law duty of reasonable care); Murray H. Wright & Edward E. Nicholas III, The Collision of Tort and Contract in the Construction Industry, 21 U. Rich. L. Rev. 457,464 (1986-87) (“[D]esign professionals owe a tort duty to the general public to take reasonable care to avoid causing foreseeable personal injuries or property damage.” (citing Restatement (Second) of Torts § 324A (1965))).

|20 Regardless of whether a client’s claim is framed as a breach of contract or a tort claim, however, “the first step in analyzing a professional malpractice claim is to determine the scope of the professional obligations.” Architect and Engineer Liability, supra, § 501[E], at 94. The scope of engineers’ professional obligations should be set forth in written contracts between engineers and their clients. See id. (recommending that contracts between design professionals and their clients contain detailed descriptions of the scope of the professionals’ services). A contract may assume an engineer’s common law duty to act with reasonable care. See Seattle W. Indus., Inc. v. David A. Mowat Co., 110 Wn.2d 1, 10, 750 P.2d 245 (1988) (“The scope of an engineer’s common law duty of care extends at least as far as the duties assumed by him in the contract with the owner.”). Engineers may also assume additional professional obligations by their “affirmative conduct.” Id.

¶21 In this case, the record does not establish the scope of D.R. Strong’s professional obligations to the Donatellis. The Donatellis allege that D.R. Strong orally promised to manage the short plat project and oversee the work of other subcontractors involved with the project.¹ The Donatellis also allege that D.R. Strong promised to take care of the necessary paperwork and permitting processes. D.R. Strong, however, seems to argue that it agreed to provide only the six phases of engineering services outlined in the written contract.* ²

¶22 It is also unclear whether D.R. Strong assumed additional duties to the Donatellis by virtue of its affirmative conduct. From the affidavits provided by the Donatellis, it appears that at least two contractors involved with the project agree that D.R. Strong oversaw work performed by at least some subcontractors. According to the Donatellis’ general contractor, D.R. Strong would “advise and direct [the contractor’s] efforts in fixing day-to-day problems.” CP at 84. Another subcontractor hired by the Donatellis stated that D.R. Strong “coordinated the different parts of the job.” CP at 80. The written contract, however, does not appear to require D.R. Strong to provide such services. Furthermore, the significant discrepancy between D.R. Strong’s estimated fee and the fee it allegedly charged the Donatellis might be evidence that D.R. Strong performed additional work not contemplated by the written agreement.

¶23 Given that the record does not reflect what the Donatellis and D.R. Strong agreed to, and what duties D.R. Strong assumed through its affirmative conduct, it is impossible to say at this point what professional obligations D.R. Strong owed to the Donatellis — contractually or otherwise. The trial court properly denied D.R. Strong’s motion for summary judgment on the Donatellis’ negligence claim. Because we do not know the scope of D.R. Strong’s contractual obligations, we cannot determine if any of D.R. Strong’s duties to the Donatellis arose independently of the contract. We affirm the Court of Appeals.

B. Negligent misrepresentation

¶24 The trial court and the Court of Appeals found that the independent duty doctrine did not bar the Donatellis’ claim for negligent misrepresentation. We agree because the duty to avoid misrepresentations that induce a party to enter into a contract arises independently of the contract.

¶25 Generally, Washington recognizes a tort claim for negligent misrepresentation based on Restatement (Second) of Torts § 552(1) (1977).³ Van Dinter v. Orr, 157 Wn.2d 329, 332-33, 138 P.3d 608 (2006); 16 David K. DeWolf & Keller W. Allen, Washington Practice: Tort Law and Practice § 18.10 (3d ed. Supp. 2012). The former economic loss rule often barred a plaintiff from bringing a negligent misrepresentation claim against a defendant who had contracted with the plaintiff against potential economic liability. See, e.g., Berschauer/Phillips, 124 Wn.2d at 828 (general contractor barred from asserting negligent misrepresentation claim against design professionals); Alejandre, 159 Wn.2d at 677 (buyers of home barred from asserting negligent misrepresentation claim against seller); Griffith v. Centex Real Estate Corp., 93 Wn. App. 202, 211-13, 969 P.2d 486 (1998) (homeowners barred from asserting negligent misrepresentation claim against builder-vendor).

¶26 But since adopting the independent duty doctrine, the court has emphasized that in some circumstances, a negligent misrepresentation claim may be viable even when only economic damages are at stake and the parties contracted against potential economic liability. In Jackowski v. Borchelt, 174 Wn.2d 720, 738,278 P.3d 1100 (2012), we noted that, like a claim for fraud, a negligent misrepresentation claim might exist “to the extent the duty to not commit negligent misrepresentation is independent of the contract.”⁴ This rule is narrower than the rule adopted in some jurisdictions where the duty to avoid negligent misrepresentation always arises independently of the contract. See, e.g., Presnell Constr. Managers, Inc. v. EH Constr., LLC, 134 S.W.3d 575,582 (Ky. 2004) (“by adopting [Restatement] § 552, we agree that the tort of negligent misrepresentation defines an independent duty for which recovery in tort for economic loss is available”). In essence, the rule expressed in Jackowski recognizes that there are some circumstances where the duty to avoid negligent misrepresentation might arise independently of the contract.

¶27 One circumstance where the duty to avoid negligent misrepresentation might arise independently of the contract is where one party, through misrepresentations, induces another to enter into a contractual relationship. See, e.g., Haberman v. Wash. Pub. Power Supply Sys., 109 Wn.2d 107, 163-64, 744 P.2d 1032, 750 P.2d 254 (1987) (trial court erred in dismissing bondholders’ negligent misrepresentation claim against design engineers when the engineers’ statements induced the bondholders to purchase bonds issued to finance construction of nuclear power plant); Keller v. A. O. Smith Harvestore Prods., Inc., 819 P.2d 69, 72 (Colo. 1991) (“a contracting party’s negligent misrepresentation of material facts prior to the execution of an agreement may provide the basis for an independent tort claim asserted by a party detrimentally relying on such negligent misrepresentations”); Gilliland v. Elmwood Props., 301 S.C. 295,301,391 S.E.2d 577 (1990) (recognizing owner’s negligent misrepresentation claim against architect when architect’s misrepresentations induced the owner to enter a contract).

¶28 That is not to say that the duty to avoid negligent misrepresentation cannot be assumed in a contract. For example, a real estate contract may be written to assume the seller’s duty to avoid misrepresentations to the buyer, thus precluding the buyer from later bringing a negligent misrepresentation claim against the seller. See, e.g., Alejandre, 159 Wn.2d at 679 (buyer’s negligent misrepresentation claim against seller barred when seller disclosed all known defects and buyers acknowledged their own duty to “ ‘pay diligent attention to any material defects’ ” when such defects could be discovered through “ ‘diligent attention and observation’ ” (quoting Ex. 5)); Snyder v. Lovercheck, 992 P.2d 1079, 1083 (Wyo. 1999) (purchaser’s negligent misrepresentation claim against seller barred when purchase agreement contained an “ ‘as is’ clause, a merger clause, a liberal inspection clause, [and] a specific objection procedure,” and provided, “ ‘Purchaser is not relying upon any representations of the Seller’ ” (quoting contract)).

¶29 In this case, the trial court properly denied summary judgment on the Donatellis’ negligent misrepresentation claim because D.R. Strong’s duty to avoid misrepresentations that induced the Donatellis to enter into a contract arose independent of the contract. Specifically, the Donatellis allege that D.R. Strong “originally represented to [them] that the Project should be able to be completed within approximately one and 1/2 years, if not less time ... and that the Project should not take more than $50,000 to complete.” CP at 2. Based on these representations, the Donatellis “retain[ed] [D.R. Strong] to handle the Project.” Id. We make no ruling on whether the Donatellis will eventually prevail on their negligent misrepresentation claim. We hold only that D.R. Strong’s duty to avoid negligent misrepresentations that induced the Donatellis into hiring D.R. Strong arose independently of the contract. The independent duty doctrine does not bar the Donatellis from asserting their negligent misrepresentation claim. We affirm the Court of Appeals.

V. CONCLUSION

¶30 The independent duty doctrine is an analytical framework that is used to determine whether one party to a contract can bring tort claims against another party to the contract. The independent duty doctrine will allow a plaintiff to pursue tort claims against a defendant when the plaintiff can prove defendant’s “breach of a tort duty arising independently of the terms of the contract.” Eastwood, 170 Wn.2d at 389. To determine whether a duty arises independently of the contract, we must first know what duties have been assumed by the parties within the contract.

¶31 Because there are genuine issues of material fact regarding the scope of D.R. Strong’s contractual duties to the Donatellis, we cannot apply the independent duty doctrine to say, one way or the other, whether D.R. Strong had a duty independent of the contract to avoid professional negligence. However, D.R. Strong’s duty to avoid misrepresentations that induced the Donatellis to contract with D.R. Strong in the first place do arise independent of any contract the parties might have agreed to. The Donatellis’ negligence claims cannot simply be dismissed on the narrow legal grounds argued by D.R. Strong. We affirm the trial court and Court of Appeals and remand for further proceedings consistent with this opinion.

Owens, Stephens, and González, JJ., and Chambers, J. Pro Tem., concur.

1 “The interpretation of an oral contract is generally not appropriate for summary judgment because the existence of an oral contract and its terms usually depends on the credibility of witnesses testifying to specific fact-based dealings that, if believed, would establish a contract and the contract’s terms.” Spradlin Rock Prods., 164 Wn. App. at 655.

2 Conspicuously absent from the written contract is any type of merger or integration clause providing that the written contract supersedes any prior agreements between the parties. Such a clause would tend to diminish the likelihood of the Donatellis establishing the existence of an oral contract. See Architect and Engineer Liability, supra, at 8 (“A written agreement with a ‘merger clause’ or an ‘integration clause’ can prevent the opposite side from attempting to explain or embellish contractual terms.”).

3 A plaintiff claiming negligent misrepresentation must prove by clear, cogent, and convincing evidence that (1) the defendant supplied information for the guidance of others in their business transactions that was false, (2) the defendant knew or should have known that the information was supplied to guide the plaintiff in his business transactions, (3) the defendant was negligent in obtaining or communicating the false information, (4) the plaintiff relied on the false information, (5) the plaintiff’s reliance was reasonable, and (6) the false information proximately caused the plaintiff damages.

Boss v. Kirner, 162 Wn.2d 493, 499,172 P.3d 701 (2007) (citing Lawyers Title Ins. Corp. v. Baik, 147 Wn.2d 536, 545, 55 P.3d 619 (2002)).

4 Since Jackowski, the Court of Appeals has correctly applied the independent duty doctrine to conclude that a trial court should not “automatically dismiss” a plaintiff’s negligent misrepresentation claim “based solely on the existence of a contract between [the parties] .’’Key Dev. Inv., LLC v. Port of Tacoma, 173 Wn.App. 1,24,292 P.3d 833 (2013) (holding that the independent duty doctrine did not bar a property owner’s negligent misrepresentation claim against a potential buyer of property when the trial court made no findings regarding whether the buyer’s alleged duties arose independently of the contract).