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Hayes v. Intermountain GeoEnvironmental Services Inc.

Court of Appeals of Utah

June 27, 2019

Kim Hayes and Nancy Hayes, Appellants,
v.
Intermountain GeoEnvironmental Services Inc., Appellee.

          Second District Court, Farmington Department The Honorable Glen R. Dawson No. 170700693

          Damian C. Smith, Attorney for Appellants

          Anna Nelson, Attorney for Appellee

          Judge Ryan M. Harris authored this Opinion, in which Judges Kate Appleby and Diana Hagen concurred.

          HARRIS, JUDGE

         ¶1 A little more than a year after they built their "dream home," Kim and Nancy Hayes (Plaintiffs) began to notice cracks in the house's foundation and walls, and soon learned that the soil beneath the house was unstable. More than a decade earlier, Intermountain GeoEnvironmental Services Inc. (IGES) had, at the request of a developer (Developer), authored a geotechnical report concluding that residential construction could occur on the site provided certain precautions were taken. After learning that their house was built on unstable soil, Plaintiffs filed suit against IGES, asserting various negligence-based tort claims. The district court dismissed those claims, concluding that they were barred by the economic loss rule. Plaintiffs appeal that decision, and we affirm.

         BACKGROUND[1]

         ¶2 In 2004, Developer hired IGES to conduct a geotechnical investigation and prepare a slope stability report for a subdivision it wanted to develop within the city limits of Layton, Utah. Layton City required that such a report be generated prior to construction of any houses on hillside lots. The lot upon which Plaintiffs eventually built their house was within the subdivision in question. After its investigation, IGES determined that construction could occur within the subdivision, provided that certain precautions were taken, ultimately concluding that "slope stability is satisfactory and the site is suitable for the proposed construction in accordance with the recommendations contained in this report."

         ¶3 Developer sold some of the subdivision lots to a third party, who in turn sold one to Plaintiffs. In 2015, Plaintiffs hired a general contractor (Contractor) to build a house on the lot, and Contractor completed construction that same year. The record on appeal contains little information about who designed the house and drew the architectural plans that governed construction, and does not reveal whether and to what extent that designer (in designing the house) or Contractor (in building it) relied on IGES's conclusions.[2]

         ¶4 About fourteen months after construction of the house was completed, Plaintiffs observed cracks in its foundation and walls. Plaintiffs then hired a different engineering firm to conduct another geotechnical study of the property. This study noted that the house was "experiencing excessive foundation settling," that "some lateral movement of the foundation elements has been observed," and that the movement was "believed to be the result of instability in the slope immediately below and to the east of the home." The report concluded that "the existing slope at the site fails to meet the minimum factors of safety" and, among other measures, recommended installing additional support for the foundation of the house, which would "likely need to extend at least 65 feet below existing foundation elements." Plaintiffs contacted several contractors to ask them to undertake the work, but none was willing to do so because of liability concerns. Unable to stabilize the structure, Plaintiffs continued to observe widening cracks in the foundation and walls of the house, and eventually concluded that the house was not safe to live in and was unsalable on the real estate market.

         ¶5 Plaintiffs then filed their lawsuit, suing IGES, Developer, and Contractor.[3] Against IGES, Plaintiffs brought tort claims for negligence, negligent misrepresentation, and negligent infliction of emotional distress (NIED), as well as a breach of contract claim in which Plaintiffs claimed to be third-party beneficiaries of the 2004 contract between IGES and Developer. Plaintiffs sought to recover damages stemming from the damage to their house, the diminution in value of their land, and moving expenses. IGES moved, pursuant to rule 12(b)(6) of the Utah Rules of Civil Procedure, to dismiss all of Plaintiffs' claims against it, arguing that the tort claims were barred under both the statutory and common law version of Utah's economic loss rule, and that Plaintiffs were not third-party beneficiaries of any contract with IGES. The district court granted IGES's motion, concluding that the economic loss rule applied to bar all of Plaintiffs' tort claims, and that Plaintiffs were not third-party beneficiaries of any contract between IGES and Developer.[4]

         ISSUE AND STANDARD OF REVIEW

         ¶6 Plaintiffs now appeal the district court's order, arguing that the court erred when it applied the economic loss rule to dismiss their tort claims.[5] "The decision to grant a motion to dismiss presents a question of law that we review for correctness." Davencourt at Pilgrims Landing Homeowners Ass'n v. Davencourt at Pilgrims Landing, LC, 2009 UT 65, ¶ 12, 221 P.3d 234 (quotation simplified). When reviewing such an order, "we accept the material allegations in the complaint as true and interpret those facts and all reasonable inferences drawn therefrom in a light most favorable to the plaintiff as the non-moving party." Id. (quotation simplified).

         ANALYSIS

         ¶7 As originally articulated, the economic loss rule was solely "a judicially created doctrine" marking "the fundamental boundary between contract law, which protects expectancy interests created through agreement between the parties, and tort law, which protects individuals and their property from physical harm by imposing a duty of reasonable care." SME Indus., Inc. v. Thompson, Ventulett, Stainback & Assocs., Inc., 2001 UT 54, ¶ 32, 28 P.3d 669. In general, "the economic loss rule prohibits tort claims for purely economic loss." Gables at ...


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