There is no liability in tort for economic loss caused by negligence in the performance or negotiation of a contract between the parties. It was less clear 20 years ago, and still is today, the extent to which Texas precludes recovery of economic damages in a negligence suit between contractual strangers, notwithstanding the rule's genesis. Although cases between contractual strangers are the paradigm of the traditional "economic loss" rule, no Texas case involving "strangers" expressly addresses the economic loss rule.
The Dallas Area Rapid Transportation Authority ("DART") contracted with petitioner company to prepare plans, drawings, and specifications for the construction of a light rail transit line from Dallas's downtown West End to the American Airlines Center about a mile away. Respondent construction company built two other DART light rail projects, one of which was designed by petitioner, submitted the low bid on this project, just under $25 million, and was awarded the contract. The contract provided an administrative procedure for respondent to assert contract disputes with DART, including complaints about design problems. Petitioner and respondent had no contract with each other. Days after beginning construction, respondent discovered petitioner's plans were full of errors thus causing delay. Only seven months into what would turn out to be a 25-month job, respondent sued DART for breach of contract. The court dismissed the case because it had not exhausted its administrative remedies against DART under their contract and Texas law. They later on reached a settlement agreement. Respondent also sued petitioner asserting causes of action for negligence and negligent misrepresentation. The case proceeded to trial, but only on Eby's claim that LAN/STV negligently misrepresented the work to be done in its error-ridden plans. Accordingly, the trial court rendered judgment for Eby for $2.25 million plus interest. Both LAN/STV and Eby appealed, and following the court of appeals' affirmance, both petitioned for review.
Was petitioner's argument that respondent's recovery for negligent misrepresentation is barred by the economic loss rule correct?
DART was contractually responsible to respondent for providing accurate plans for the job. Respondent agreed to specified remedies for disputes, pursued those remedies (when the federal court would not allow it to sue), and settled its claims for $4.7 million. Had DART chosen to do so, it could have sued petitioner for breach of their contract to provide accurate plans. But respondent had no agreement with petitioner and was not party to the latter's agreement with DART. Clearly, the economic loss rule barred respondent's subcontractors from recovering their own delay damages in negligence claims against petitioner.