Opinion
No. 04-15-00096-CV
05-11-2016
ALS 88 DESIGN BUILD LLC, Appellant v. MOAB CONSTRUCTION CO., Appellee
MEMORANDUM OPINION From the 407th Judicial District Court, Bexar County, Texas
Trial Court No. 2014-CI-03033
Honorable Gloria Saldana, Judge Presiding Opinion by: Jason Pulliam, Justice Sitting: Karen Angelini, Justice Luz Elena D. Chapa, Justice Jason Pulliam, Justice REVERSED AND RENDERED
INTRODUCTION
MOAB Construction Co. filed an action for negligence against ALS 88 Design Build LLC arising from alleged deficient performance under a contract to provide architectural design. A jury found in favor of MOAB and awarded damages consisting of MOAB's losses attributed to ALS 88's deficient performance under the contract. The trial court denied ALS 88's motion for directed verdict and motion for judgment notwithstanding the verdict (JNOV). ALS 88 appeals on four grounds. We reverse the trial court's judgment and render judgment in favor of ALS 88, concluding the economic loss doctrine precludes the jury's award of purely economic losses arising under the contract based upon a negligence theory.
PROCEDURAL AND FACTUAL HISTORY
MOAB entered a contract with International Boundary and Water Commission (IWBC) to design and build an administration building. To fulfill these duties, MOAB also entered a contract with ALS 88, a licensed architectural firm, under which ALS 88 was to provide the architectural design for the project. Eventually, MOAB terminated the services of ALS 88 prior to completion of ALS 88's obligations under the contract. Some time later, IWBC terminated MOAB's services as general contractor of the project prior to its completion.
MOAB filed suit against ALS 88 alleging a single cause of action of negligence based upon ALS 88's alleged deficient performance and failure to perform under the contract. Specifically, MOAB alleged ALS 88 failed to deliver the plans timely and in the format required, failed to communicate appropriately, and the architectural design was flawed. Based upon these alleged deficiencies, MOAB alleged the construction project "was placed in jeopardy and such actions were a proximate cause of damages 'in excess of the minimum jurisdiction of the Court.'"
The case proceeded to trial on March 2, 2015. At the close of all evidence, ALS 88 moved for a directed verdict, which was denied. The jury found in favor of MOAB on its negligence cause of action and awarded damages in the amount of $600,504.69. ALS 88 moved for JNOV, which was denied. ALS 88 now appeals the trial court's judgment in four points of issue.
ISSUE ONE: WHETHER THE ECONOMIC LOSS DOCTRINE PRECLUDES THE JURY'S FINDING AND DAMAGES AWARD
In its first issue, ALS 88 contends the trial court erred by denying its motion for JNOV because the economic loss doctrine precludes the awarded recovery on MOAB's negligence cause of action. ALS 88 contends the damages asserted and recovered are limited to economic losses arising solely from the contract between the parties, and therefore, recovery is limited to a breach of contract cause of action.
STANDARD OF REVIEW
The standard of review used to determine the validity of a trial court's granting or denial of a motion for JNOV is the same as that used for review of a "'no evidence'" claim. Dowling v. NADW Mktg., Inc., 631 S.W.2d 726, 728 (Tex. 1982). A trial court may disregard a jury's verdict and render a JNOV if there is no evidence to support the jury's findings or if a directed verdict would have been proper. TEX. R. CIV. P. 301; Fort Bend County Drainage Dist. v. Sbrusch, 818 S.W.2d 392, 394 (Tex. 1991). A directed verdict is warranted when the evidence is such that no other verdict can be rendered, and the moving party is entitled to judgment as a matter of law. Morey v. Page, 802 S.W.2d 779, 783 (Tex. App.—Dallas 1990, no writ). A motion for JNOV must be predicated on either the presence of conclusive evidence that entitles the moving party to judgment as a matter of law or on the absence of any evidence to support an issue the opposing party must prove in order to prevail. CPS Int'l, Inc. v. Harris & Westmoreland, 784 S.W.2d 538, 541 (Tex. App.—Texarkana 1990, no writ).
"A JNOV should be granted when the evidence is conclusive and one party is entitled to recover as a matter of law...." B & W Supply, Inc. v. Beckman, 305 S.W.3d 10, 15 (Tex. App.—Houston [1st Dist.] 2009, pet. denied); Cain v. Pruett, 938 S.W.2d 152, 160 (Tex. App.—Dallas 1996, no pet.). Courts must consider evidence in the light most favorable to the nonmoving party, but if the evidence allows only one inference, the court may not disregard it. See City of Keller v. Wilson, 168 S.W.3d 802, 822 (Tex. 2005); Gov't Employees Ins. Co. v. Spring Indep. Sch. Dist., 01-13-00696-CV, 2014 WL 3971432, at *4 (Tex. App.—Houston [1st Dist.] Aug. 14, 2014, no pet.) (mem. op.). Therefore, when an appellant challenges the denial of its motion for JNOV based upon a legal principle that would prevent a party from prevailing, the appellant must establish conclusive evidence that demonstrates its entitlement to judgment as a matter of law. Cain v. Pruett, 938 S.W.2d 152, 160 (Tex. App.—Dallas 1996, no writ); Atlantic Richfield Co. v. Misty Products, Inc., 820 S.W.2d 414, 420-21 (Tex. App.—Houston [14th Dist.] 1991, writ denied).
ECONOMIC LOSS DOCTRINE
Texas courts have long adhered to the economic loss doctrine, which precludes the recovery of purely economic damages that are unaccompanied by injury to the plaintiff or its property in actions for negligence. LAN/STV v. Martin K. Eby Constr. Co., 435 S.W.3d 234, 235 (Tex. 2014); see also Sharyland Water Supply Corp. v. City of Alton, 354 S.W.3d 407, 415 (Tex. 2011); Sw. Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494-95 (Tex. 1991). "Economic loss" are those "'damages for inadequate value, costs of repair and replacement of the defective product, or consequent loss of profits—without any claim of personal injury or damage to other property....'" Bass v. City of Dallas, 34 S.W.3d 1, 9 (Tex. App.—Amarillo 2000, no pet.) (quoting Thomson v. Espey Huston & Assocs., 899 S.W.2d 415, 421 (Tex. App.—Austin 1995, no writ)).
When applicable, the economic-loss rule generally precludes recovery of purely economic losses in actions for negligent performance of contractual services. LAN/STV, 435 S.W.3d at 243 (collecting cases); Bass, 34 S.W.3d at 8. However, the Texas Supreme Court clarified adherence to this doctrine, recognizing that there is not one "economic loss rule," but several rules governing recovery of economic losses, dependent upon various areas of the law implicated. Sharyland Water Supply Corp., 354 S.W.3d at 417-18. The Sharyland court reiterated that when a plaintiff seeks damages for breach of a duty created under a contract, rather than a duty imposed by law, tort damages are precluded as a matter of law. Id.
In some situations, an exception to this general rule does exist to allow an action for negligence against a professional. See id.; see also LAN/STV, 435 S.W.3d at 243-44. In addition, the contractual relationship of the parties may create duties under both contract and tort law. Montgomery Ward & Co. v. Scharrenbeck, 204 S.W.2d 508 (1947). In such a situation, determination whether the economic loss doctrine is applicable requires examination of both the source of the defendant's duty and the nature of the injury. Formosa Plastics Corp. USA v. Presidio Eng'rs & Contractors, Inc., 960 S.W.2d 41, 45 (Tex. 1998); Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986); A & H Properties P'ship v. GPM Eng'g, 03-13-00850-CV, 2015 WL 9435974, at *2 (Tex. App.—Austin Dec. 23, 2015, no pet.).
If the defendant's duty arose out of a contract, rather than imposition of law independent of the contract, a breach of that duty will usually sound only in contract, not in tort. DeLanney, 809 S.W.2d at 494. Thus, under the economic loss doctrine, for a tort duty to arise out of a contractual duty, i.e. a negligent failure to perform a contract, "the liability must arise 'independent of the fact that a contract exists between the parties': the defendant must breach a duty imposed by law rather than by the contract." United Servs. Auto. Ass'n v. Pennington, 810 S.W.2d 777, 783-84 (Tex. App.—San Antonio 1991, writ denied) (quoting Delanney, 809 S.W.2d at 494). If a defendant's conduct would impose liability on him only because it breaches the parties' agreement, the claim is contractual as a matter of law. Delanney, 809 S.W.2d at 494; Pennington, 810 S.W.2d at 783-84.
Similarly, when the injury is only the economic loss to "the subject of a contract itself", the action sounds in contract alone. Formosa Plastics Corp. USA, 960 S.W.2d at 45; Jim Walter Homes, Inc., 711 S.W.2d at 618. That is, a plaintiff cannot maintain a tort cause of action against a defendant when its damages are only for economic losses caused by the failure to perform a contract. Bass, 34 S.W.3d at 8. So, "if a contractual duty is negligently performed, causing only economic loss, only a breach of contract action may be maintained, and an action in tort for negligence is precluded." Trebuchet Siege Corp. v. Pavecon Commercial Concrete, Ltd., 05-12- 00945-CV, 2014 WL 4071804, at *6 (Tex. App.—Dallas Aug. 19, 2014) (mem. op.) (quoting Bass, 34 S.W.3d at 8).
In this case, the subject matter of the contract between MOAB and ALS 88 was the architectural design of a building to be constructed by MOAB for IBWC. The gravamen of MOAB's negligence cause of action is that ALS 88 negligently performed its duties under the contract by failing to communicate and perform according to the contract terms and by rendering a flawed architectural design. As alleged, ALS 88's duty of liability arose under the contract, not independent of the contract.
The only evidence of damages presented by MOAB consisted of testimony from its President, Melissa Madsen. Madsen testified that MOAB suffered monetary damages which represented the difference between the amount of money it expended to build the administration building and the amount of money paid by IWBC before its termination as the general contractor. Madsen attributed MOAB's termination by IWBC and consequential financial loss to ALS 88's deficient design. The jury awarded damages in the amount to which Madsen testified. Therefore, the only evidence of damages is that establishing economic losses caused by ALS 88's alleged failure to perform its duties under the contract.
To support an award of damages under a negligence theory in this case, as an exception to the economic loss doctrine, MOAB would have to prove a distinct tortious injury with actual damages. See Sharyland Water Supply Corp., 354 S.W.3d at 417-18. However, the damages alleged by MOAB and presented at trial consist of purely economic loss arising from the subject matter of the contract between MOAB and ALS 88. Based upon Madsen's testimony, the only evidence on the issue of damages was the actual financial loss suffered by ALS 88's alleged deficient performance under the contract. The jury awarded no other damages based upon a tortious injury other this economic loss of the benefit of the bargain. MOAB alleged and recovered based upon a breach of duty created under the contract, not a breach of duty created by law. Accordingly, no exception to the economic loss doctrine applies, and the appropriate cause of action was breach of contract, only. See Sharyland Water Supply Corp., 354 S.W.3d at 417-18; Delanney, 809 S.W.2d at 494.
Because the theory alleged, the evidence presented, and the damages awarded amount to economic loss arising only under the contract, ALS 88 satisfied its burden to show conclusive evidence established its entitlement to a directed verdict, and thus a JNOV, as a matter of law. See Delanney, 809 S.W.2d at 494. Accordingly, the trial court should have granted ALS 88's motion for JNOV.
For these reasons, we reverse the trial court's judgment and render JNOV in favor of ALS 88.
Based upon this conclusion, we do not reach ALS 88's three remaining appellate issues challenging the trial court's judgment: (1) whether MOAB was required to establish a duty owed by ALS 88 and/or any breach of that duty by expert testimony; (2) whether the evidence of damages was legally sufficient; and (3) whether the trial court erred by admitting exhibits, overruling objections, and/or excluding evidence. See TEX. R. APP. P. 47.1.
Jason Pulliam, Justice