Opinion
CIVIL ACTION NO. 1:04-cv-3537-GET.
September 29, 2006
ORDER
The above-styled matter is presently before the court on:
1) defendants Heery International, Inc., Heery/Mitchell, E.R. Mitchell Company's (jointly, "Heery/Mitchell") motion for summary judgment [docket no. 230];
2) plaintiffs' and defendants Heery/Mitchell's joint motion for leave to file excess pages [docket no. 256]; and
3) defendants Heery/Mitchell's motion to strike [docket no. 270].
Plaintiffs filed the instant action on December 3, 2004, seeking damages resulting from the breach of a construction contract. Plaintiffs issued a performance bond to Latco Construction Company, Inc. ("Latco"), the general contractor on the school construction project, in favor of DeKalb County Board of Education ("DCBE"). In addition to Latco, DCBE hired R. L. Brown Associates, Inc. ("R. L. Brown") to serve as architect for the project and Heery/Mitchell, a joint venture between Heery International, Inc. and E.R. Mitchell and Company (collectively, "Heery/Mitchell") to serve as program manager. After deficiencies were discovered in the construction, DCBE declared Latco in violation of the contract and plaintiffs completed the project pursuant to the terms of the performance bond. DCBE also claimed additional payments from plaintiffs. In an agreement settling those claims, DCBE assigned all claims against third parties in connection with the design, construction and supervision of the project to plaintiffs.
Plaintiffs filed the instant suit against Heery/Mitchell and R. L. Brown asserting claims for breach of contract by assignment and subrogation, negligent misrepresentation and professional negligence in their own right and by right of subrogation, and common law indemnity. The instant order deals only with motions between plaintiffs and Heery/Mitchell regarding plaintiffs' claims against Heery/Mitchell. On January 24, 2006, Heery/Mitchell filed a motion for summary judgment. On March 15, 2006, plaintiffs and Heery/Mitchell jointly filed a motion for leave to file excess pages. On April 5, 2006, Heery/Mitchell filed a motion to strike portions of plaintiffs' expert's affidavit.
Discussion
Motion for Leave to File Excess Pages
On March 15, 2006, plaintiffs and Heery/Mitchell jointly filed a motion for leave to file excess pages. Plaintiffs sought to increase the limitations of their response brief to fifty (50) pages, and Heery/Mitchell sought to extend the page limitations on their reply brief to forty (40) pages. Pursuant to LR 7.1D, parties may file briefs in excess of the page limitations described therein with prior permission of the court. After reviewing the motion, the court finds that the parties have requested permission before their briefs were due, and have reason to request excess pages. Accordingly, plaintiffs' and Heery/Mitchell's joint motion for leave to file excess pages [docket no. 256] is hereby GRANTED.
Motion for Summary Judgment
Heery/Mitchell seeks summary judgment as to all of plaintiffs' claims. The parties have filed a sur-reply and rebuttal, which the court considered pursuant to the minute order on July 21, 2006 [docket no. 359].
Standard
Courts should grant summary judgment when "there is no genuine issue as to any material fact . . . and the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party must "always bear the initial responsibility of informing the district court of the basis of its motion, and identifying those portions of `the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 106 S. Ct. 2548, 477 U.S. 317, 324 (1986). That burden is `discharged by `showing' — that is, pointing out to the district court — that there is an absence of evidence to support the nonmoving party's case." Id. at 325; see also U.S. v. Four Parcels of Real Prop., 941 F.2d 1428, 1437 (11th Cir. 1991).
Once the movant has met this burden, the opposing party must then present evidence establishing that there is a genuine issue of material fact. Celotex, 477 U.S. at 325. The nonmoving party must go beyond the pleadings and submit evidence such as affidavits, depositions and admissions that are sufficient to demonstrate that if allowed to proceed to trial, a jury might return a verdict in his favor. Anderson v. Liberty Lobby, Inc., 106 S. Ct. 2505, 477 U.S. 242, 257 (1986). If he does so, there is a genuine issue of fact that requires a trial. In making a determination of whether there is a material issue of fact, the evidence of the non-movant is to be believed and all justifiable inferences are to be drawn in his favor. Id. at 255; Rollins v. TechSouth, Inc., 833 F.2d 1525, 1529 (11th Cir. 1987). However, an issue is not genuine if it is unsupported by evidence or if it is created by evidence that is "merely colorable" or is "not significantly probative." Anderson, 477 U.S. at 249-50. Similarly, a fact is not material unless it is identified by the controlling substantive law as an essential element of the nonmoving party's case. Id. at 248. Thus, to create a genuine issue of material fact for trial, the party opposing the summary judgment must come forward with specific evidence of every element essential to his case with respect to which (1) he has the burden of proof, and (2) the summary judgment movant has made a plausible showing of the absence of evidence of the necessary element. Celotex, 477 U.S. at 323.
Facts
In light of the foregoing standard, the court finds the following facts for the purpose of resolving this motion for summary judgment only. DCBE owns and operates Freedom Middle School. On June 2, 1999, Latco entered into a fixed price construction contract with DCBE (the "Latco Contract") for the construction of Freedom Middle School. Under the Latco Contract, Latco had to deliver a Performance Bond. Plaintiffs provided the Performance Bond, which stated, in part:
The [Latco] Contract is hereby incorporated herein and by reference made a part hereof to the same extent and effect as though it were copied verbatim herein. The [plaintiffs] and [Latco] shall be and are hereby bound for the full performance of the [Latco] Contract, including, without exception, all of its terms and conditions, both express and implied.
The Performance Bond further provided that if Latco was found in default of the Latco Contract by DCBE and plaintiffs were notified by DCBE of the default, that plaintiffs had an obligation to inform DCBE that plaintiffs would either "complete full performance of the [Latco] Contract including, without limitation, correction of defective and nonconforming work performed by or on behalf of [Latco]," or, with the consent of DCBE, obtain bids from contractors for full performance of the Latco Contract, or to "[t]ake any and all other acts, if any, mutually agreed upon in writing by" DCBE and plaintiffs.
Heery/Mitchell also had a contract with DCBE (the "Heery/Mitchell Contract") relating to the Freedom Middle School project to serve as Program Manager of the Special Purposes Local Option Sales Tax ("SPLOST") Program for DCBE. Under the Heery/Mitchell Contract, Heery/Mitchell oversaw approximately $400 million worth of construction projects, of which Freedom Middle School was but one. Under the Heery/Mitchell Contract, Heery/Mitchell represented to DCBE that it was "professionally qualified to act as program manager for the Program." The contract further provided that Heery/Mitchell agreed that the "program manager shall perform all Services at a level, and to a standard of care, consistent with the standards and quality prevailing among first class, nationally recognized program and construction management firms of superior knowledge, skill and experience engaged in programs of similar size and complexity." The contract provided that Heery/Mitchell was to be DCBE's agent in performing their services and "shall promote and protect the Owner's interests, and shall have a fiduciary obligation of undivided loyalty and trust to the Owner in connection herewith." Under the contract, Heery/Mitchell, as the Program Manager, was to become the "alter ego" and "owner's representative" of DCBE.
Under the Heery/Mitchell Contract, Heery/Mitchell also had an obligation to review the contractor's pay requests upon receipt from the project architect, R.L. Brown. The contract further provides: "Program Manager's Certification of any Contractor Pay Requests shall be a representation to Owner that the amount certified is currently owed to the Contractor under the terms of the Construction Contract and that the Program Manager knows of no reason why any portion of such amount should be withheld." The Heery/Mitchell Contract also provides that there are no third party beneficiaries under the contract, and that "[n]othing contained in this Agreement shall create a contractual relationship with or any rights in favor of any third party, including without limitation any project architect, contractor, supplier, subcontractor or consultant."
Latco defaulted on its contract for Freedom Middle School. DCBE found Latco in default because of substantially defective work that was discovered by R.L. Brown and Heery/Mitchell. Plaintiffs were notified by letter from DCBE, dated April 10, 2000, that Latco was in default and that Latco's right to continue performance under the Latco Contract was terminated. Upon receipt of the letter from DCBE, plaintiffs elected to discharge their obligations as surety to DCBE under the Performance Bond and paid to complete construction of Freedom Middle School.
The Latco Contract states that payment to Latco by DCBE shall not be "interpreted or construed as an acceptance of any Work of the Contractor not strictly in compliance with this Contract." The contract further states that DCBE retained the right to refuse to make payment and/or demand the return of part or all of the amount previously paid to Latco due to "[t]he quality of a portion, or all, of the Contractor's Work not being in accordance with the requirements of this Contract" or "[t]he quantity of the Contractor's work not being as represented in the Contractor's Payment Request, or otherwise." The contract also provides that "[i]n the event that the Contractor covers, conceals or obscures its Work in violation of this Contract or in violation of a directive from the Owner or the Architect, such Work shall be uncovered and displayed for the Owner's or Architect's inspection upon request, and shall be reworked at no cost in time or money to the Owner." The contract further specified that any work rejected by R.L. Brown or DCBE as defective or failing to conform to the contract was to be corrected by Latco at no cost to DCBE.
Latco submitted eighteen (18) pay applications under the Latco Contract. The first pay application was signed by Program Manager Phillip Norris on August 23, 1999. The seventeenth pay application was signed by Mr. Norris on December 19, 1999. Before the payment of the eighteenth pay application, and after payment of approximately 96% of the contract funds to Latco under the first seventeen (17) pay applications, serious defects were discovered in Latco's construction work at Freedom Middle School. Further investigation identified more serious defects.
Heery/Mitchell did not communicate directly with plaintiffs regarding Latco's performance of its contract prior to Latco's default on the Latco Contract. Thus, Heery/Mitchell did not make any direct representations to plaintiffs prior to Latco's default. Plaintiffs did not rely on Heery/Mitchell in issuing the Performance Bond. Plaintiffs did not independently investigate Latco's performance before Latco defaulted. Plaintiffs made no inquiries of R.L. Brown, Heery/Mitchell, or DCBE regarding Latco before Latco's termination. Plaintiffs issued the Performance Bond that required them to correct any work, including covered-up defective work that was later uncovered, long before Heery/Mitchell ever approved a payment application for DCBE. Before taking over the project, plaintiffs never saw or reviewed a payment request submitted by Latco. There was no communication between Heery/Mitchell and plaintiffs during the process of the Freedom Middle School job at any time, including the approval of payment applications, prior to Latco's termination.
Latco defaulted on two (2) jobs, Freedom Middle and New Lithonia High Schools. Plaintiffs had to take over and complete both jobs. The settlement agreement entered into between plaintiffs and DCBE references the "Freedom Contract," the "New Lithonia Contract," the "Dugdale Litigation," the "Lat and Hope Nguyen Litigation," the "Latco Freedom Litigation," and the "Latco New Lithonia Litigation." In the settlement agreement between DCBE and plaintiffs, plaintiffs ran a calculation for both jobs and came to a settlement amount with DCBE as to how much plaintiffs were owed for the completion of both jobs from the funds held by DCBE. The combined balance for the Freedom Contract and the New Lithonia Contract ("combined contract balance") was $3,011,044.34. Paragraph G.3, entitled "Disbursement of Combined Contract Balance" states:
[DCBE] shall disburse the Combined Contract Balance as set forth in this Paragraph 3 and subject to the terms and conditions of this Agreement. [DCBE] shall retain and keep as compensation for its damages, including, but not limited to, liquidated damages, architectural, construction management, engineering fees and expenses, and attorneys' fees, incurred on both the Freedom Project and the New Lithonia Project, the amount of one million two hundred thousand and no/100 dollars ($1,200,000.00) (hereinafter referred to as the "Obligee's Damages"). As full and complete payment for the timely performance of all of [plaintiffs'] obligations under this Agreement, and subject to the terms and conditions set forth in this Agreement (including, without limitation, the time and manner of payment), [DCBE] shall pay [plaintiffs] the amount of one million eight hundred eleven thousand forty-four and 34/100 dollars ($1,811,044.34) (hereinafter referred to as the "Co-Sureties' Final Payment").
There was no express allocation of the combined contract funds between the Freedom Project and the New Lithonia Project in the settlement agreement.
By the terms of the settlement agreement between plaintiffs and DCBE, DCBE assigned to plaintiffs all rights and claims that it may have against Latco or other with respect to the Freedom Contract, the Freedom Project, the New Lithonia Contract, and the New Lithonia Project. DCBE did not assign the Heery/Mitchell Contract in the settlement agreement between plaintiffs and DCBE. Paragraph 13 of the settlement agreement, entitled "Co-Sureties' Release of Obligee," reads as follows:
[T]he [plaintiffs], and each of them, do hereby forever release, waive and discharge the Obligee, the DeKalb County School District, and the officers, directors, members, employees, staff, successors, assigns and attorneys of any of them, from any and all claims or causes of action in respect of the Freedom Project, the Freedom Contract, the New Lithonia Project, the New Lithonia Contract, or any one or more of them, whether known or unknown, whether accrued or unaccrued, arising heretofore, now or in the future, and whether sounding in contract, tort or otherwise.
Paragraph 15 of the settlement agreement between plaintiffs and DCBE specifically reserves rights against Latco. There is not a provision in the settlement agreement that specifically reserves rights against Heery/Mitchell by name, however, Paragraph 12 does state that DCBE assigned its rights and claims against Latco or "others" with respect to Freedom Project. There is no specific mention of reserving rights against any party in the Takeover Agreement between plaintiffs and DCBE.
Discussion
Plaintiffs' complaint asserts six (6) causes of action against Heery/Mitchell — 1) negligent misrepresentation in plaintiffs' own right, 2) professional negligence in plaintiffs' own right, 3) breach of contract through assignment from DCBE, 4) breach of contract through subrogation, 5) professional negligence and negligent misrepresentation through subrogation, and 6) common law indemnity in plaintiffs' own right. In their motion for summary judgment, Heery/Mitchell moves for summary judgment on all of plaintiffs' claims. The court will address each claim in turn.Professional Negligence
Plaintiffs' assert a claim, in their own right, against Heery/Mitchell for professional negligence. In their motion for summary judgment, Heery/Mitchell contends that plaintiffs may not assert a professional negligence claim in their own right against Heery/Mitchell because plaintiffs lack privity with Heery/Mitchell, which is a prerequisite for a professional negligence claim. Heery/Mitchell further asserts that without privity of contract, plaintiffs may not recover in tort for purely economic damages, which is all that plaintiffs suffered in the present case.
In Georgia, "[a]bsent privity between the plaintiff and the professional, generally, the professional cannot be sued for professional negligence by a third party." Smiley v. S J Invs, Inc., 260 Ga. App. 493, 495 (2003). Georgia courts have been willing to relax the requirement of privity in malpractice actions, "recognizing that under certain circumstances, professionals owe a duty of reasonable care to parties who are not their clients." Id. Courts have permitted an exception to the rule of strict contractual privity where injury to a third party is foreseeable. Id. "[I]n cases involving negligent misrepresentation of facts, liability extends to a foreseeable person or limited class of persons for whom the information was intended, either directly or indirectly. . . . [Otherwise] there will be no liability in the absence of privity, willfulness, or physical harm or property damage." Id. (citing Robert Co. Assoc. v. Rhodes-Haverty Partnership, 250 Ga. 680, 682 (1983)).
Georgia's economic loss rule, O.C.G.A. § 51-1-11(a), provides:
Except as otherwise provided in this Code section, no privity is necessary to support a tort action; but, if the tort results from the violation of a duty which is itself the consequence of a contract, the right of action is confined to the parties and those in privity to that contract, except in cases where the party would have a right of action for the injury done independently of the contract and except as provided in Code Section 11-2-318.
The rule thus bars a plaintiff from recovering in tort where the party is not in privity with the defendant and the plaintiff's damages are purely economic. Robert Co. Assoc. v. Rhodes-Haverty P'ship, 250 Ga. 680, 681 (1983); see also Malta Constr, Co. v. Henningson, Durham Richardson, Inc., 716 F. Supp. 1466, 1468 (N.D. Ga. 1989). In Robert Company Associates, the Supreme Court of Georgia adopted an exception to the economic loss rule as set forth in the Restatement of Torts 2d § 552 (1977). 250 Ga. at 681. The exception allows plaintiffs to assert a claim for negligent misrepresentation against a defendant with whom they are not in privity "where a known third party's reliance was the desired result of the representation." Id. The Georgia Court of Appeals has indicated that where negligence is alleged against a defendant and there is a lack of privity between the parties and the alleged negligence was neither inherently dangerous, caused personal injury, nor caused property damage, that the appropriate cause of action "arises under an action for negligent misrepresentation by a professional reasonably relied upon to the detriment of a third party whose reliance was foreseeable."Smiley, 260 Ga. App. at 496 (citing Robert Co. Assoc., 250 Ga. at 682). In Smiley, the court granted summary judgment on the plaintiffs' professional negligence claim against the defendant where the plaintiffs were not in privity with the defendant and there was no evidence of wilfulness, physical harm, or property damage. 260 Ga. App. at 496. The court found that the plaintiffs' claim was properly analyzed under the theory of liability for negligent misrepresentation, which "generally applies to the professional defendants only, who provide information that is false through failure to exercise reasonable care or competence in obtaining information that is relied upon by a third party and such reliance is foreseeable." Id. In support of their professional negligence claim, plaintiffs cite to Balboa Insurance Company v. Fulton County, 148 Ga. App. 328 (1978), which held:
[W]here a construction contract requires, as a condition of payments to the contractor, a certificate or estimate of an architect, engineer, or other person designated in the contract, showing the amounts due, the owner is not responsible, as against the surety on the contractor's bond, for the mistakes of the architect or engineer, and the surety is not discharged from liability to the owner by reason of payments made in good faith in accordance with overestimates or erroneous certificates, although such payments exceed, in fact, the sums due under the contract.148 Ga. App. at 330. Plaintiffs assert that because Balboa indicates that they have no right of action against DCBE for Heery/Mitchell's alleged erroneous certifications of Latco's work, that this court should recognize a relationship between plaintiffs and Heery/Mitchell sufficient to allow plaintiffs recourse against Heery/Mitchell for alleged negligent performance of Heery/Mitchell's duties. Plaintiffs acknowledge that there is no direct authority in Georgia for this type of recourse, and cite to several cases from other jurisdictions where an architect, engineer, construction manager, or other "professional" has been held liable directly to a performance bond surety for professional negligence or negligent misrepresentation. Plaintiffs assert that Heery/Mitchell's duties listed in the Heery/Mitchell Contract with DCBE were for the benefit of both DCBE and plaintiffs and thus, Heery/Mitchell had a contractual obligation owing to DCBE and a "professional obligation" owing to plaintiffs. Plaintiffs contend that Heery/Mitchell breached this professional obligation by inappropriately certifying Latco pay applications and permitted release of contract funds for work which was defective or nonconforming, and that plaintiffs suffered damages from this breach.
In discussing the negligent misrepresentation exception to the strict privity requirement for a professional negligence claim, the Georgia Court of Appeals has refused to find a similar exception for other negligence claims where there is a lack of privity between the parties. In Wood Brothers Construction Company v. Simons-Eastern Company, 193 Ga. App. 874 (1989), the plaintiff, who was a contractor working on a construction project, sued the defendants, who were hired to design and supervise the construction of the project. Id. at 876. The plaintiffs asserted a claim against the defendants for negligent supervision of the construction, which arose out of the contract between the owner of the project and the defendants. Id. at 875. The court held that while there is an exception to the strict privity rule for negligent misrepresentations claims, that there is no similar exception for claims alleging negligent failure to supervise a project. Id. at 876 (citing Gulf Contracting v. Bibb County, 795 F.2d 980, 982 n. 2 (11th Cir. 1986)). Negligent review of work was also not found to fit within the negligent misrepresentation exception to the economic loss rule in Malta Construction Company. 716 F. Supp. at 1468. In that case, a plaintiff who was not in privity with the defendants was not allowed to assert a claim for negligent review of shop drawings under the exception "because a claim for negligent review of shop drawings is not like a claim for negligent misrepresentation, supply or omission of information. It is more like a claim for failure to supervise and approve change orders," which was found not to fall within the exception to the rule requiring strict privity. Id. (citing Gulf Contracting, 795 F.2d at 982, n. 2)).
Plaintiffs further contend that a lack of privity does not bar their claim against Heery/Mitchell for professional negligence. Plaintiffs cite to Smiley for the proposition that this court should relax the rule of privity and allow for plaintiffs to proceed with their claim of professional negligence against Heery/Mitchell. Plaintiffs, however, acknowledge that there is no Georgia case law on point where the exception to the requirement of strict privity has been applied to a surety asserting a claim for professional negligence against a party that they are not in privity with.
Plaintiffs admit that they are not in privity with Heery/Mitchell, and further do not allege wilfulness, physical harm, or property damage. Plaintiffs further fail to provide the court with other exceptions to the rule of strict privity recognized by Georgia courts that would apply to this case other than the one for negligent misrepresentation. Therefore, this court hereby GRANTS Heery/Mitchell's motion for summary judgment [docket no. 230] on plaintiffs' personal claim for professional negligence, and will analyze plaintiffs' claim against Heery/Mitchell under the theory of negligent misrepresentation.
Negligent Misrepresentation
The elements of a negligent misrepresentation claim are: "(1) the defendant's negligent supply of false information to foreseeable persons, known or unknown; (2) such person's reasonable reliance upon that false information; and (3) economic injury proximately resulting from such reliance." Hardaway Co. v. Parsons, Brinckerhoff, Ouade Douglas, Inc., 267 Ga. 424, 426 (1997). In Robert Company Associates v. Rhodes-Haverty Partnership, the Georgia Supreme Court carved out an exception to the general rule that requires privity to assert a claim for negligent misrepresentation against a professional for cases "where a known third party's reliance was the desired result of the representation." 256 Ga. 680, 681 (1983). The court stated:
Under this standard, one who supplies information during the course of his business, profession, employment, or in any transaction in which he has a pecuniary interest has a duty of reasonable care and competence to parties who rely upon the information in circumstances in which the maker was manifestly aware of the use to which the information was to be put and intended it be so used.Id. at 681-82. The court limited the scope of liability to "a foreseeable person or limited class of persons for whom the information was intended, either directly or indirectly." Id. at 682. A plaintiff alleging negligent misrepresentation must show that the defendant's representation was "made for the purpose of inducing third parties to rely and act upon the reliance." Id.;see also White v. BDO Seidman, 249 Ga. App. 668, 670 (2001) (holding that a plaintiff may only recover where their reliance was the desired result of the misrepresentation). "If such cannot be shown there will be no liability in the absence of privity, wilfulness or physical harm or property damage." Roberts Co. Assoc., 256 Ga. at 682.
In Badische Corporation v. Caylor, 257 Ga. 131 (1987), the Georgia Supreme Court clarified the rule from Roberts Company Associates "by holding that professional liability for negligence extends to those persons, or the limited class of persons, who the professional is `actually aware' will rely upon the information prepared." Martha H. West Trust v. Market Value of Atlanta, Inc., 262 Ga. App. 90, (2003) (quoting Badische Corp., 257 Ga. at 133)). The plaintiff must also provide evidence of actual reliance, as evidence of indirect reliance will not suffice. White, 249 Ga. App. at 493. Finally, the plaintiff must show that the defendant made a representation. Ali v. Fleet Finance, Inc., 232 Ga. App. 13, 14 (1998). Where evidence of reliance is introduced, a jury question is created as to whether the reliance was justified. Smiley, 260 Ga. App. at 499. If any one of the elements of a negligent misrepresentation claim set forth in Roberts Company Associates is not present, then the rule from the case does not apply. Martha H. West Trust, 262 Ga. App. at 92-93.
In their motion for summary judgment, Heery/Mitchell contends that plaintiffs fail to present any evidence of actual reliance on a representation made by Heery/Mitchell. Heery/Mitchell further asserts that plaintiffs fail to establish that there was a communication between plaintiffs and Heery/Mitchell during Latco's performance of the job because plaintiffs never saw the payment requests or the payment applications that were approved by Heery/Mitchell.
In response, plaintiffs state that because of the unique relationship of the parties and the fact that Heery/Mitchell knew that plaintiffs issued a performance bond for Latco's services that Heery/Mitchell must be charged with knowledge that their failure to properly certify payments to Latco would result in direct detriment of plaintiffs if Latco was declared in default. Plaintiffs respond to Heery/Mitchell's contention that there is no evidence of a communication between Heery/Mitchell and plaintiffs by asserting that a claim for negligent misrepresentation can be based on an indirect representation. Plaintiffs assert that Heery/Mitchell was aware that their certifications would be relied upon by DCBE and that the actions of DCBE taken in reliance would directly affect and "bind" the interests of plaintiffs as the surety on Latco's performance bond.
In response to Heery/Mitchell's allegation that plaintiffs fail to provide the court with any evidence of actual reliance on a representation made by Heery/Mitchell, plaintiffs assert that DCBE's reliance on Heery/Mitchell's certifications of Latco's pay applications was known and anticipated by Heery/Mitchell, as was the knowledge that plaintiffs would be directly impacted by overpayment or improper release of contract funds based on wrongly certified pay applications, is sufficient to show actual reliance by plaintiffs. In their sur-reply to Heery/Mitchell's motion for summary judgment, plaintiffs direct the court to City of Cairo v. Hightower Consulting Engineers, Inc., 278 Ga. App. 721 (2006), to support their contention that plaintiffs may assert a claim for negligent misrepresentation against Heery/Mitchell without providing evidence of direct reliance.
After evaluating the parties' arguments, the court finds that regardless of whether Heery/Mitchell negligently certified any of Latco's payment requests, plaintiffs fail to provide the court with any evidence of plaintiffs' actual reliance on Heery/Mitchell's certifications. Plaintiffs signed the performance bond for Latco's performance on the Latco Contract before Heery/Mitchell certified any of Latco's pay applications. Plaintiffs cannot circumvent this required element by alleging that DCBE relied on the certifications and its reliance caused plaintiffs' injury. White, 249 Ga. App. at 671 ("[W]e cannot agree that Georgia law permits such indirect reliance to substitute for proof of actual reliance in a negligent misrepresentation case.")
Contrary to plaintiffs' assertion, City of Cairo and Balboa Insurance do not change Georgia law with regard to the actual reliance element of a negligent misrepresentation claim. In City of Cairo, the court stated that the plaintiff, while not in privity with the defendant, relied on the defendant's inaccurate soil report when the city purchased land based on the results of the report. 278 Ga. App. at 727-28. Thus, there was evidence of the city's direct reliance on the defendant's negligent misrepresentation because the city both received and paid for the defendant's soil report before purchasing land. Id. Plaintiffs fail to provide the court with any evidence of their actual reliance on Heery/Mitchell's alleged negligent certifications of Latco's pay applications, as plaintiffs had already issued the performance bond before the alleged negligent misrepresentations occurred. With regard to Balboa Insurance, as stated above, this case held that a surety may not recover against the owner of a project when the surety asserts that the owner should not have made payments to a contractor because of the mistakes of an architect or engineer. 148 Ga. App. at 330.Balboa Insurance does not, contrary to plaintiffs' contention, further state that the surety may recover directly against the architect or engineer.
Plaintiffs further fail to provide any evidence showing that Heery/Mitchell's alleged misrepresentations through their negligent certification of the pay applications was made for the purpose of inducing plaintiffs to rely and act upon the representations, which is also an essential element of a negligent misrepresentation claim. Roberts Co. Assoc., 250 Ga. at 681 (holding that if a plaintiff cannot show that the alleged misrepresentation was made for the purpose of inducing the plaintiff to rely and act upon the reliance, "there will be no liability in the absence of privity, wilfulness or physical harm or property damage.") Thus, this court hereby GRANTS Heery/Mitchell's motion for summary judgment [docket no. 230] on plaintiffs' claim for negligent misrepresentation in their own right.
Breach of Contract — Assignment Subrogation
Plaintiffs' amended complaint asserts that, through the settlement agreement plaintiffs entered into with DCBE, plaintiffs have a claim against Heery/Mitchell for breach of the Heery/Mitchell Contract with DCBE. Paragraph 12 of the settlement agreement, entitled "Assignment of Rights and Claims," reads:
Except as provided in the immediately succeeding sentence, [DCBE] hereby assigns, without recourse, to [plaintiffs] any and all rights and claims [DCBE] or the DeKalb County School District may have against Contractor or others with respect to the Freedom Contract, the Freedom Project, the New Lithonia Contract, and the New Lithonia Project.
Plaintiffs' amended complaint also asserts a claim for breach of contract against Heery/Mitchell by equitable right of subrogation.
In their motion for summary judgment, Heery/Mitchell contends that DCBE does not have a claim against Heery/Mitchell for breach of the Heery/Mitchell Contract, through either assignment or subrogation, because DCBE's representative who testified in a Fed.R.Civ.P. 30(b)(6) deposition, Dr. Stanley Pritchett, testified that Heery/Mitchell fully complied with the Heery/Mitchell Contract. Heery/Mitchell argues that "[t]he interpretation and understanding of the terms and conditions of the contract belongs first to the parties to that contract. If there is a dispute, the interpretation is a question of law for the court. Thereafter, if the court finds some remaining ambiguity after applying the rules of construction, it is a jury question." Heery/Mitchell contends that because there is no dispute between DCBE and Heery/Mitchell, the original parties to the Heery/Mitchell Contract, the contract is not subject to the rules of contract construction and there is nothing more for the court to interpret. Heery/Mitchell's motion for summary judgment also asserts that, even if plaintiffs have a viable claim for breach of contract by right of assignment and/or subrogation, a four (4) year statute of limitations applies and that plaintiffs' claims are barred by such limitation.
Plaintiffs dispute that the testimony of Dr. Pritchett amounts to an admission that DCBE itself has no claim for breach of the Heery/Mitchell contract. Plaintiffs assert that Dr. Pritchett is not qualified to determine whether Heery/Mitchell breached their contract with DCBE and that this is simply the personal view of Dr. Pritchett. Plaintiffs further state that it is unclear from the testimony of Dr. Pritchett whether he is referring to the Heery/Mitchell contract for Freedom Middle School, which is the relevant contract in the present case, or the Heery/Mitchell contract for New Lithonia High School. Plaintiffs argue that nothing in the deposition testimony of Dr. Pritchett indicates, prior to the execution of the settlement agreement between DCBE and plaintiffs, that any DCBE personnel or counsel made any evaluation of DCBE's claims against Heery/Mitchell. Plaintiffs finally assert that the court should view Dr. Pritchett's statement in light of his entire testimony, which stated that DCBE did not investigate the issue of Heery/Mitchell's certification of Latco's defective and nonconforming work and thus DCBE did not have an opinion as to whether Heery/Mitchell should have or could have discovered the nonconforming work.
After reviewing the parties' argument on the issue of breach of contract by right of assignment and subrogation, the court finds that there is an issue of fact for a jury to decide as to whether Heery/Mitchell breached their contract with DCBE. For example, Paragraph 3.1 of the Heery/Mitchell Contract, entitled "Standard of Care," states that Heery/Mitchell "shall perform all Services at a level, and to a standard of care, consistent with the standards and quality prevailing among first-class, nationally recognized program and construction management firms of superior knowledge, skill and experience engaged in programs of similar size and complexity." Paragraph 4.39 of the Heery/Mitchell Contract, entitled "Review of Contractors' Pay Requests" states:
[Heery/Mitchell] shall review each Contractor pay request upon receipt from [R.L. Brown], and shall certify to [DCBE] the amount that, in [Heery/Mitchell's] professional judgment, is due the Contractor. [Heery/Mitchell] shall notify [DCBE] in writing of any disagreement with a Project Architect's certification and any reasons for such disagreement. [Heery/Mitchell's] certification of any Contractor pay request shall be a representation to [DCBE] that the amount certified is currently owed to the Contractor under the terms of the Construction Contract and that [Heery/Mitchell] knows of no reason why any portion of such amount should be withheld.
A question of fact remains as to whether Heery/Mitchell breached their contractual obligations when it certified pay requests/applications submitted by Latco.
The court further finds that a six (6) year statute of limitations stated in O.C.G.A. § 9-3-24 applies to plaintiffs' breach of contract claims. Heery/Mitchell asserts in their motion for summary judgment that, because O.C.G.A. § 13-1-2 defines "executed" and "executory" contracts, and O.C.G.A. § 13-1-5 defines "simple" contracts as all other contracts than those specified in O.C.G.A. §§ 13-1-2 through 13-1-4, O.C.G.A. § 9-3-24's six year statute of limitations cannot apply to any contract defined in O.C.G.A. §§ 13-1-2 through 13-1-4.
The court finds that Georgia law does not recognize the distinction advanced by Heery/Mitchell in their motion for summary judgment with regard to the applicable statute of limitations for plaintiffs' breach of contract claims. Georgia courts have applied O.C.G.A. § 9-3-24's six (6) year statute of limitations to contracts that are not defined as "simple contracts" under O.C.G.A. § 13-1-5. See, e.g., Wallace v. Bock, 279 Ga. 744, (2005) (applying O.C.G.A. § 9-3-24 to plaintiffs' claim for breach of contract against defendant for sale of a house); Koncul Enters., Inc. v. Fleet Fin., Inc., 279 Ga. App. 39, 40 (2006) (finding homebuilder's suit against a financing company alleging breach of contract was governed by O.C.G.A. § 9-3-24's six (6) year statute of limitations); Constrini v. Hansen Architects, P.C., 247 Ga. App. 136, 137 (2000) (holding that six (6) year statute of limitation in O.C.G.A. § 9-3-24 applied to plaintiff's claim against defendant who designed and supervised improvements to plaintiff's building). Heery/Mitchell contends that the cases dealing with construction contracts are inapplicable in the present case because the Heery/Mitchell Contract was not a construction contract. While the court acknowledges the nature of the Heery/Mitchell Contract was not a typical construction contract, the Georgia cases cited that deal with construction contracts demonstrate that Georgia courts have not recognized the distinction Heery/Mitchell makes with regard to all executed and executory contracts being governed by a four (4) year statute of limitations. Thus, the court hereby DENIES Heery/Mitchell's motion for summary judgment [docket no. 230] on plaintiffs' claims for breach of contract, through subrogation and assignment, with regard to Heery/Mitchell's certification of Latco's payment request/applications.
Professional Negligence Negligent Misrepresentation (Subrogation)
Plaintiffs' amended complaint asserts professional negligence and negligent misrepresentation claims against Heery/Mitchell through the equitable right of subrogation. At the outset, the court must determine whether DCBE had a claim for negligent misrepresentation and/or professional negligence against Heery/Mitchell before it can determine whether plaintiffs were subrogated to those rights when plaintiffs took over the Latco Contract. "Subrogation is the substitution of another person in the place of the creditor. . . . The substitute is put in all respects in the place of the party to whose rights he is subrogated." Cornelia Bank v. First Nat'l Bank, 170 Ga. 747, 750 (1930).
Under Georgia law, "[m]ere breach of the contract's terms is insufficient to create a tort cause of action; the defendant must also breach an independent duty created by statute or common law." Construction Lender, Inc. v. Sutter, 228 Ga. App. 405, 409 (1997). Thus, in order for DCBE to have had a claim against Heery/Mitchell for professional negligence or negligent misrepresentation, it must be shown that Heery/Mitchell breached an independent duty outside of the ones it was obligated to perform under the Heery/Mitchell Contract. See Mauldin v. Sheffer, 113 Ga. App. 874, 878 (1966) ("Thus, if a contract imposes a legal duty upon a party thereto, which duty exists apart from the specific obligation of the contract, the negligence of that duty is a tort founded upon a contract) (emphasis added). In their response to Heery/Mitchell's motion for summary judgment, plaintiffs admit that their claims for professional negligence and negligent misrepresentation by right of subrogation may be redundant of the breach of contract claim asserted in their amended complaint. Plaintiffs contend that they can assert claims for negligence against Heery/Mitchell for Heery/Mitchell's performance of the obligations in the contract with DCBE because Heery/Mitchell had a duty to perform to the relevant standard of care. This argument, however, does not provide the court with any evidence of an independent duty, created by statute or common law, that Heery/Mitchell undertook, thereby making it liable in tort to DCBE.
Specifically, with regard to the professional negligence claim, O.C.G.A. § 9-11-9.1 applies to professional malpractice claims alleging professional negligence. Labovitz v. Hopkinson, 271 Ga. 330, 334 (1999). The statute requires a plaintiff asserting a professional negligence claim to submit an expert affidavit along with the complaint to "set forth specifically at least one negligent act or omission claimed to exist and the factual basis for each such claim." O.C.G.A. § 9-11-9.1(a). InHewitt v. Walker, the Georgia Court of Appeals affirmed the trial court's grant of summary judgment on a professional negligence claim where the defendant, an unlicensed bookkeeper, was found not to be a "professional" under O.C.G.A. §§ 14-7-2(2); 14-10-2(2); 43-1-24, and Chapter 4 of Title 26, 226 Ga. App. 764, 764-65 (1997). Plaintiffs fail to provide the court with any evidence that Heery/Mitchell is a professional as defined by any one of these code sections. Thus, DCBE could not have maintained an action against Heery/Mitchell for professional malpractice, and neither can plaintiffs as subrogees.
With respect to the negligent misrepresentation claim, plaintiffs fail to provide the court with any other statutory or common law principle imposing a duty on Heery/Mitchell outside of the duties set forth in the Heery/Mitchell Contract. The duty to "identify and reject defective and non-conforming work as required by [Heery/Mitchell's] inspection services" is a specific duty that arises from the Heery/Mitchell Contract, and not from statute or case law. See Construction Lender, 228 Ga. App. at 409-10 (finding that, where a contract "spelled out in detail" how loan funds were to be advanced, plaintiffs claim that defendant improperly advanced the funds was in contract, not tort). "The question of duty is for the court, and if the court finds no duty was owed, no material question of fact remains for determination by the jury." Hewitt, 226 Ga. App. at 765. Thus, the court hereby GRANTS Heery/Mitchell's motion for summary judgment [docket no. 230] on plaintiffs' claims for professional malpractice and negligent misrepresentation by right of subrogation.
Common Law Indemnity
Speculative Damages
Auto Owners Ins. Co. v. Anderson252 Ga. App. 361363 13-6-2
The rule against the recovery of vague, speculative, or uncertain damages relates more especially to the uncertainty as to cause. . . . Mere difficulty in fixing their exact amount, where proximately flowing from the alleged injury, does not constitute a legal obstacle in the way of their allowance, when the amount of the recovery comes within that authorized with reasonable certainty by the legal evidence submitted.Ayers v. John B. Daniel Co., 35 Ga. App. 511, 512 (1926). Georgia contract law further states that, in a breach of contract case, the injured party is to be placed in the position he would have been in if the contract had not been breached. Crawford Associates, Inc. v. Groves-Keen, Inc., 127 Ga. App. 646, 650 (1972) (citations omitted).
Plaintiffs assert that the damages they seek to recover in the present case are a result of Heery/Mitchell's alleged negligent performance of their contractual duties, including the duty to certify Latco's payment applications. Plaintiffs state that their damages include the cost of remediating nonconforming work performed by Latco and certified by Heery/Mitchell. Plaintiffs have presented evidence with regard to which pay applications and which specific items on the pay applications they contend should not have been certified by Heery/Mitchell and the cost to remediate the nonconforming work performed by Latco and certified by Heery/Mitchell. Accordingly, the court finds that plaintiffs have presented sufficient evidence to create an issue of fact regarding their damages for the breach of contract claims. Thus, this court hereby DENIES Heery/Mitchell's motion for summary judgment [docket no. 230] with regard to plaintiffs' damages.
Heery/Mitchell's Alleged Release through the Settlement Agreement
In their motion for summary judgment, Heery/Mitchell asserts that plaintiffs released Heery/Mitchell through the settlement agreement plaintiffs entered into with DCBE. Heery/Mitchell directs the court to Paragraph 13 of the settlement agreement, entitled "Co-Sureties' Release of Obligee," which states:
Subject to Paragraph 10, and except for Obligee's obligations under this Agreement, which obligations (subject to the terms and conditions of this Agreement) shall survive the signing of this Agreement, [plaintiffs], and each of them, do hereby forever release, waive and discharge the Obligee, the DeKalb County School District, and the officers, directors, members, employees, staff, successors, assigns and attorneys of any of them, from any and all claims or causes in respect of the Freedom Project, the Freedom Contract, the New Lithonia Project, the New Lithonia Contract, or any one or more of them, whether known or unknown, whether accrued or unaccrued, arising heretofore, now or in the future, and whether sounding in contract, tort or otherwise.
(emphasis added). Heery/Mitchell contends that the term "attorneys" in the release language effected a release of Heery/Mitchell because an "attorney" is an agent, and under the Heery/Mitchell Contract, Heery/Mitchell was the agent of DCBE, and thus its attorney. Heery/Mitchell also directs the court to Paragraph 12 of the settlement agreement between plaintiffs and DCBE, and the fact that Paragraph 12, wherein DCBE assigned its rights and claims to plaintiffs, only refers to Latco by name and not Heery/Mitchell.
The court finds that the word "attorney" in Paragraph 13 of the settlement agreement between plaintiffs and DCBE refers to an attorney at law, and not an attorney in fact. See Balentine's Law Dictionary, (3d ed. 1969) (defining "attorney" as an attorney at law or an attorney in fact, but noting that "[t]he word, unless clearly indicated otherwise, is construed as meaning attorney at law"). The court also notes that Paragraph 12 of the settlement agreement specifically assigns DCBE's claims against Latco to plaintiffs, but also assigns all claims against " others with respect to the Freedom Contract, [and] the Freedom Project." (emphisis added). The term "others" can clearly encompass Heery/Mitchell with regard to the Freedom Middle School project. Thus, the court hereby DENIES Heery/Mitchell's motion for summary judgment [docket no. 230] with regard to Heery/Mitchell's assertion that it was released from all claims through the settlement agreement between plaintiffs and DCBE.
Heery/Mitchell Motion to Strike
With their response to Heery/Mitchell's motion for summary judgment, plaintiffs filed the affidavit of Troward G. Wells, Jr., plaintiffs' representative responsible for negotiating the settlement between plaintiffs and DCBE. On April 5, 2006, Heery/Mitchell filed a motion to strike or, in the alternative, to strike portions of the affidavit of Mr. Wells. Heery/Mitchell contends that the affidavit contains inadmissible hearsay and also testimony that is speculative, irrelevant, and otherwise improper. Specifically, Heery/Mitchell objects to Mr. Wells' testimony regarding any conversations he had with Mr. Phillips and Mr. Wells' speculation about DCBE's intent in entering into the settlement agreement.
After reviewing the parties' argument, the court finds that it is not necessary to look to the affidavit of Mr. Wells to decide Heery/Mitchell's motion for summary judgment. Specifically, with regard to plaintiffs' breach of contract claim, the court found previously in this Order that the deposition testimony of Dr. Pritchett is insufficient to warrant a grant of summary judgment in favor of Heery/Mitchell on that issue. Additionally, with regard to Heery/Mitchell's contention that it was released under the settlement agreement between plaintiffs and DCBE, the court finds that the language in the settlement agreement itself was insufficient to support Heery/Mitchell's contention that it was released by the agreement. Thus, the court hereby DENIES AS MOOT Heery/Mitchell's motion to strike or, in the alternative, motion to strike portions of the affidavit of Troward G. Wells, Jr. [docket no. 270].
Summary
1) Defendants Heery International, Inc., Heery/Mitchell, E.R. Mitchell Company's (jointly, "Heery/Mitchell") motion for summary judgment [docket no. 230] is hereby GRANTED IN PART AND DENIED IN PART. The motion is GRANTED as to plaintiffs' claims for professional negligence in their own right, negligent misrepresentation in their own right, professional negligence and negligent misrepresentation by right of subrogation, and common law indemnity. The motion is DENIED as to plaintiffs' claims for breach of contract by right of subrogation and assignment, Heery/Mitchell's claim that plaintiffs damages are speculative, and Heery/Mitchell's claim that it was released by the settlement agreement between plaintiffs and DCBE;
2) Plaintiffs' and defendant Heery/Mitchell's joint motion for leave to file excess pages [docket no. 256] is hereby GRANTED;
3) Defendants Heery/Mitchell's motion to strike [docket no. 270] is hereby DENIED AS MOOT.