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    March 11, 2015 Practice Points

    Texas Supreme Court Rejects Contractor Action for Negligent Misrepresentation

    The Texas Supreme Court recently carved out a construction contract exception to the tort of negligent misrepresentation that had been consistently applied in business transactions in Texas for some 50 years

    by Robert M. Pitkin

    The Texas Supreme Court recently carved out a construction contract exception to the tort of negligent misrepresentation that had been consistently applied in business transactions in Texas for some 50 years.

     In LAN/STV v. Martin K. Eby Construction Co., Inc.  455 SW2d 234 (Tex. 2014), a contractor, Eby, claimed that the architect/engineer, LAN, provided plans and specifications to the owner, Dallas Area Rapid Transit (DART), for Eby’s use in preparing its bid, and that the documents were replete with false information causing Eby financial loss. This theory was consistent with prior law in Texas where, for example, an attorney who prepared an inaccurate title opinion for a mortgage company was held liable to a land purchaser who the attorney could reasonably expect to rely on for that opinion, McCamish, Martin, Brown and Loeffle v. F.E. Appling Interests, 991 SW2d 787 (Tex. 1999)

    A jury sided with Eby and awarded $5 million. The Dallas Court of Appeals upheld that judgment based on a careful analysis of prior case law and the evidence at trial.

    At the supreme court LAN argued, as it had at the court of appeals, that the “economic loss rule” should preclude recovery against LAN, a third party to its contract with DART. The Texas Supreme Court sided with LAN, effectively emasculating the well established cause of action for negligent misrepresentation in a construction contract context.

    Keywords: economic loss rule, architect/engineer liability to contractor, negligent misrepresentation

    Robert M. Pitkin is with Horn Aylward & Bandy, LLC, Kansas City, MO.

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