CONSTRUCTION & REAL ESTATE BLOG

“Economic loss can take the form of either direct or consequential damages.” Spring Motors Distribs. v. Ford Motor Co., 98 N.J. 555, 566 (1985). “A direct economic loss includes the loss of the benefit of the bargain, i.e., the difference between the value of the product as represented and its value in its defective condition.” Ibid. (emphasis omitted). “Consequential economic loss includes such indirect losses as lost profits.” Ibid.

As the Third Circuit has aptly noted, “[u]nder New Jersey  [*19] law, the economic loss doctrine defines the boundary between the overlapping theories of tort law and contract law by barring the recovery of purely economic loss in tort.” Travelers Indem. Co. v. Dammann & Co., 594 F.3d 238, 244 (3d Cir. 2010) (internal quotation and formatting marks omitted). “The purpose of the rule is to strike an equitable balance between countervailing public policies that exist in tort and contracts law.” Ibid. (internal quotation and formatting marks omitted). Our Supreme Court has observed that “the purpose of a tort duty of care is to protect society’s interest in freedom from harm, i.e., the duty arises from policy considerations formed without reference to any agreement between the parties[]” whereas “[a] contractual duty, by comparison, arises from society’s interest in the performance of promises.” Spring Motors, supra, 98N.J. at 579.

1)      Similar to the defendant in Messeka, Defendant interposed his construction professional, Miseo, as an expert intermediary between himself and Plaintiff. Therefore he was not a vulnerable consumer who needed the CFA’s protection;
2)      Plaintiff disclosed the amended work and the rates charged for that work;
3)      Defendant and Miseo were aware of those rates and Miseo approved them on behalf of the Defendant;  and
4)      Miseo recognized the rates as fair and reasonable within the industry.

In McCarthy v. Turner Construction, Inc., 17 N.Y. 3d. 369 (2011), Boston Properties, Inc. and Time Square Tower Associates, LLC (collectively “Property Owners”) leased a retail storefront to Ann Taylor, Inc. (“Ann Taylor”). Subsequently, by agreement (the “Agreement”), Ann Taylor engaged a general contractor, John Gallin & Son, Inc. (“Gallin”) to perform construction on its storefront.  The Agreement stated that Gallin was solely responsible for and in control of the construction and was required to take reasonable safety precautions to protect the workers from injury. Id. at 372.

However, Gallin did not perform the construction itself; Gallin engaged Linear Technologies Inc. (“Linear”) as its subcontractor.  Shortly thereafter, Linear hired Samuels Datacom, LLC (Samuels) as its sub-subcontractor. An electrician employed by Samuels (“Plaintiff”) was injured when he fell from a ladder while working on the project site. Subsequently, he brought an action in the Supreme Court of New York (“Lower Court”) for his injuries against Gallin and the Property Owners. Id. The Property Owners asserted a cross claim against Gallin for common law indemnification. Id. at 373. Indemnification is a legal concept that enables a defendant the right to be reimbursed for some or all costs associated with the suit by another person or entity.

The Lower Court held that the Property Owners and Gallin were vicariously liable for Plaintiff’s injuries. Vicarious liability is a legal concept that holds a third party responsible for the acts of another solely because of his or her relation to the actual wrongdoer. For example, under certain circumstances an employer could be held vicariously liable for his or her employee’s unlawful conduct.

Property Owners and Gallin  reached a settlement under which they each paid the Plaintiff $800.000.00. The settlement itself was not in dispute. Instead, the question before the Court was whether the Property Owners could recoup some or all of that money from Gallin.

The Lower Court rejected the Property Owners’ cross claim for common law indemnification because Gallin was not actively at fault in bringing about the injury. Id. at 373. Thus, the Lower Court held that Gallin was not required to reimburse the Property Owners for some or all of the $800,000.00 they paid to Plaintiff.

The Property Owners appealed to the Supreme Court of New York, Appellate Division (“Appellate Court”). The Appellate Court affirmed the Lower Court’s holding.

The Property Owners appealed to the Court of Appeals of New York (the “Court of Appeals”). In their appeal, they argued that they were entitled to common law indemnification by Gallin, whether or not Gallin directly supervised and controlled Plaintiff’s work, based upon the Agreement. Id. at 374. That was the central issue before the Court of Appeals: whether a person or entity that does not supervise or control another can be liable to indemnify for the damages that party causes.

First, the Court of Appeals considered Labor Law §240(1) which imposes upon owners and general contractors and their agents a nondelegable duty to provide safety devices necessary to protect workers from the risks inherent in elevated work sites. Further, the Court of Appeals noted that  §240(1) holds owners and general contractors absolutely liable for any breach of the statute, even if the job was performed
by an independent contractor whom they did not supervise nor control.

Having said all of that, the Court of Appeals nevertheless held that a general contractor’s authority to supervise the work and implement safety procedures was not a sufficient basis for requiring common law indemnification. It explained that liability for indemnification may only be imposed against parties who exercised actual supervision. Thus, the Court asserted that a common law indemnification claim did not lie against a party who had contractual authority to direct and supervise the work at a job site but never exercised that authority because it subcontracted its contractual duties to another.  Id. at 378.

The Court of Appeals also noted that an owner or general contractor, who was not at fault for the misconduct, still has the right to seek full indemnification from the party who was actually responsible for the accident.  Id.  A party’s right to indemnification may not only arise from a contract but may have also be based upon equity (what is fair and proper between the parties). Common law indemnification is generally
available in favor of an innocent party who was held vicariously liable for the wrongdoing of another.  Id. at 375.

In its analysis, the Court explained that although the Agreement required Gallin to supervise and direct the work at the worksite, such a provision was insufficient to establish that Gallin actually supervised or directed
Plaintiff’s work. The Court noted that this was especially so considering the following facts:

1.  Gallin had no supervisory authority over Samuels’ (Plaintiff’s employer’s work) work.
2. Gallin would not have directed Plaintiff as to how to perform his work.       and 
3. Gallin did not provide any tools or ladders for the subcontractors that worked at the
   site.

Id.

Therefore, the Court affirmed the dismissal of Plaintiff’s cross claim for common law indemnification, holding that Gallin did not actually supervise, nor direct, Plaintiff’s work. Id. Thus, Gallin did not have to compensate the Property Owner for any of the $800,000.00 they paid to Plaintiff in order to settle his personal injury claim.