Lathan Co. v. State, No. 2016-CA-0913, 2017 La. App. LEXIS 2277 (La. App. 1st Cir. Dec. 6, 2017)

On December 6, 2017, the Louisiana Court of Appeals, First Circuit, reversed and remanded the trial court’s decision to grant the appellee’s, Jacobs Project Management Co./CRSS Consortium (“Jacobs”), motion for summary judgment.  In its opinion, the court of appeals held that a project manager owed a general contractor a duty of professional care and thus, could be held liable to a general contractor under Louisiana law, even if the project manager was not in direct privity with the general contractor.

On August 13, 2010, the appellant, The Lathan Company, Inc. (“Lathan”), entered into a public works contract with the State of Louisiana, Department of Education, Recovery School District (“Owner”) to renovate the William Frantz School in New Orleans.  Jacobs, through its contract with the Owner, served as project manager on behalf of the Owner.  Four years later, in August 2014, after filing an original lawsuit against the Owner in 2012 for payment of undisputed amounts due, Lathan filed an amended pleading that alleged inter alia Lathan was entitled to damages from Jacobs under general tort law for negligent professional undertaking and under Louisiana’s Unfair Trade Practices Act.  According to Lathan, Jacobs owed Lathan a duty of conduct in accordance with a standard of care similar to professionals in the industry and that Jacobs breached its duty of care by failing to (i) disclose mold conditions and the existence of an underground fuel tank at the outset of the project; (ii) timely respond to Lathan’s 400+ requests for information; (iii) perform inspections consistent with industry standards; and (iv) review, certify, and/or approve amounts due to Lathan.

In response, Jacobs argued that it could not be liable to Lathan because Lathan was not a party to the contract between Jacobs and the Owner and therefore, Jacobs did not owe Lathan a duty of care.  Accordingly, Jacobs argued it could not be liable for the tort of negligent professional undertaking or a violation of Louisiana’s Unfair Trade Practices Act and moved for summary judgment on that basis.  The trial court agreed and dismissed Lathan’s claims.

Lathan immediately appealed the trial court’s decision arguing inter alia that the trial court improperly granted Jacob’s motion because Jacobs, being and acting as a licensed construction professional, and under the facts of the case, owed a duty of care to Lathan as a matter of Louisiana law.  The court of appeals agreed.

Specifically, in issuing its opinion, the court of appeals relied on legal precedent from Louisiana and elsewhere which held that a third party contractor, that is not in privity with an architect/engineer, may have a cause of action in tort against the architect/engineer because an architect/engineer must be deemed and held to know that his services are not only for the protection of the owner, but also third parties who must rely on the architect/engineer to produce a completed project conforming to the contract plans and specifications.  The court of appeals further explained that an architect/engineer’s liability to a third-party contractor will depend on a balancing test which assesses (i) the degree to which the defendant could foresee the harm it could cause to the plaintiff; (ii) the degree of certainty that the plaintiff would suffer an injury as a result of the misconduct of the defendant; (iii) the closeness of the connection between the defendant’s conduct and the injury suffered; (iv) the moral blame attached to the defendant’s conduct; and (v) the policy of preventing future harm.

In applying the balancing test to the facts of the case, the court of appeals concluded that, despite the fact that Jacobs was not in privity with Lathan, Jacobs exerted substantial authority to influence and impact Lathan.  For example, a review of the contract between Jacobs and the Owner demonstrated that Jacobs was responsible for providing design management services, document quality assurance/quality control reviews, invoice management, change order coordination, and recommendations concerning acceptance of substantial completion.  According to the court of appeals, each of these activities substantially impacted Lathan’s ability to execute the project.  As a result, after considering the appellate record and relevant case law, the court of appeals found no reason why the rationale for extending liability to architects and engineers should not also apply to project managers such as Jacobs and held that, after applying the balancing test above, Jacobs owed Lathan a duty of care giving rise to the possibility of liability to Lathan should Lathan establish that Jacobs breached its duty of care.

To view the full text of the court’s decision, courtesy of Lexis®, click here.