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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: May 23, 2019

Plaintiff Adequately Alleges Negligent Misrepresentation Claim

On May 9, 2019, Justice Masley of the New York County Commercial Division issued a decision inĀ Steadfast Ins. Co. v Allan Briteway Elec. Contr., Inc., 2019 NY Slip Op. 31363(U), holding that a plaintiff had adequately alleged a negligent misrepresentation claim, explaining:

Here, ABE states classic negligent misrepresentation in a project to construct a building. ABE alleges that the Design Defendants had the responsibility to produce a complete set of plans, that if followed, would result in an acceptable code compliant electrical system. ABE sufficiently alleges, the Design Defendants knew or should have known that their plans were to be used for the purpose of creating a code compliant electrical system. ABE alleges that it had a construction obligation to rely on these plans in preparing its bid to produce the code compliant electrical system. Indeed, ABE was part of a definable class that would rely on the bid documents.

ABE further alleges conduct linking it to the Design Defendants, evincing the Design Defendants’ understanding of ABE’s reliance because in many instances, the Design Defendants changed the plans and specifications after ABE completed installation and therefore, ABE had to tear out previously contract compliant work and reinstall work. The Design Defendant’ reliance on Beck v Studio Kenji, Ltd (90 AD3d 462 [1st Dept 2011]) is misplaced. There, plaintiff failed to establish that the architect of record had the functional equivalent of privity with the design architect where plaintiff failed to adequately allege that the design architect intended for the architect of record to rely on the design architect in determining whether the plans complied with building codes. The court also rejects the Design Defendants’ reliance on Yonkers Contracting Company, Inc. v The County of Westchester (63929/2015 [Sup Ct, Westchester County 2018]) where the plaintiff only alleged that all of the contracting and subcontracting parties are working toward the same goal and that each contracting party’s job performance may affect other contracting parties’ job performances; which was insufficient to establish the functional equivalence of privity. In any case, this court is not bound by that decision. Therefore, ABE has sufficiently alleged a relationship approaching privity.

ABE also sufficiently alleges the final two elements of negligent misrepresentation. ABE alleges that Design Defendants’ plans, on which ABE relied, did not accurately define the work to be performed to the tune of $10.5 million in excess of the bid price. Although ABE fails to use the magic words reasonable reliance, the court accepts the facts alleged as true and infers that ABE’s reliance was reasonable because ABE could only estimate prices for its bid using the plans created by the Design Defendants. In this manner, IFD Const. Corp v Corddry Carpenter Dietz and Zack is distinguishable because the bidder there was under a duty to inspect the work site and soil conditions. Such independent inspection is not possible here, where a building is to be constructed and the design team creates the universe of labor, materials, and specifications. Nor could ABE have known that the Design Defendants would significantly change the plans after ABE’s bid was accepted. Indeed, holding otherwise would create a perverse incentive in the industry to contract out of liability for design or architectural plans leaving contractors with no assurances that the information given to prepare their bids is reliable information. Unlike IFD, here ABE cannot create its own plans; it must rely on Design Defendants.

Furthermore, the cases on reliance cited by the Design Defendants are easily distinguished. In Marcellus Constr. Co. v Vill. of Broadalbin (302 AD2d 640, 642 [3d Dept 2003], the bidders’ instruction unequivocally advised bidders that they were required to conduct their own investigation concerning site conditions, while here such a site inspection was not possible. Here, the problem is with the plans to build a building, not site conditions that can be independently observed. In Schultz Constr, Inc. v Franbilt, Inc. (14 AD3d 895, 898 [3d Dept 2005]), unlike here, the contract provided that the inspections were solely for the benefit of the Authority, and thus Franbilt could not assert reliance. This court is confounded as to how contractors could bid on a project without relying on anything other than the design and architectural plans.

(Internal quotations and citations omitted).

We frequently litigate disputes regarding commercial property. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you are involved in a dispute regarding a commercial real estate transaction.

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