Austin Court Of Appeals Upholds Engineer’s Summary Judgment

This case is especially significant for design professionals, in that it confirms that the provisions of their contracts with owners or other design professionals will be honored in the event that a party is dissatisfied only with the services they perform, and further affirms that they will not be held liable for “benefit of the bargain” damages by parties with whom they have not contracted.

On December 23, 2015, the Third Court of Appeals in Austin issued its opinion in A&H Properties Partnership vs. GPM Engineering, (Tex. App.—Austin Dec. 23, 2015, –S.W.3d–, 2015 WL 9435974 (no pet. h.), affirming summary judgment on behalf of GPM Engineering based upon the Economic Loss Rule. 

The Court of Appeals held that the Economic Loss Rule barred an owner from suing an engineering subconsultant with whom the owner did not contract, for purely economic losses arising out of the performance of professional design services.

A&H Properties, who was building an ice cream distribution warehouse, contracted with Bell Industry Inc., to design and install energy efficiency improvements, including a geothermal loop.  Bell, in turn, contracted with GPM to design the geothermal loop to Bell’s specifications.  The geothermal loop was installed partially by Bell and partially by others after Bell was terminated.  A component of the system critical to its operation was not installed, and the system did not function as designed.  A&H sued Bell and eventually settled that case.  A&H then sued GPM for an alleged inadequate design of the geothermal loop.

GPM moved for summary judgment on the basis of the Economic Loss Rule, and the trial court granted the motion because there was no damage alleged other than a defective geothermal loop.  A&H appealed the summary judgment and the Third Court of Appeals affirmed the trial court’s ruling.  In its opinion, the appellate court built upon the rationale from the Texas Supreme Court’s recent opinion in LAN/STV v. Martin K. Eby Construction Co., 435 S.W.3d 234 (Tex. 2014), and held that the owner of the project cannot maintain a negligence claim against the designer with whom it did not contract for damages for inadequate value, costs of repair, and/or replacement of an alleged defective installation, or loss of profits, without a claim for personal injury or damage to other property.  In declining to impose a negligence duty on GPM, the court focused particularly on the “vertical chain of contracts” involving A&H, Bell, and GPM.