By Michael C. Loulakis, Lauren P. McLaughlin, and Ashley P. Cullinan
Almost everyone in the construction industry understands how risky it is to be a geotechnical engineer. They are paid relatively small fees in relation to others working on a project, yet they face substantial liability when something goes wrong.
A geotechnical engineer can manage potential liability from its client through its contract — such as by using a limitation of liability clause. However, it is more complicated to manage liability from third parties who use and presumably rely upon the engineer’s work product.
The best legal defense an engineer can use to fend off claims from third parties is the economic loss doctrine, a topic we often discuss in our column. The ELD is a principle based on privity of contract, and it holds that if a party does not have privity of contract with the engineer, then it cannot make a claim against the engineer for monetary damages.
Unfortunately for engineers, the ELD is only accepted in about half the country. Those state courts that do not accept the ELD find a variety of ways to justify letting the third party sue the defendant, as demonstrated in this column’s case, Symbiont Science, Engineering and Construction Inc., et al. v. Ground Improvement Services Inc., et al.
The case
The project at issue involved an engineering, procurement, and construction contract between Trenton Biogas LLC and Symbiont for the construction of an anaerobic digestion and biogas production facility. The EPC contract included the construction of several aboveground storage tanks.
Symbiont retained GZA GeoEnvironmental Inc. to provide geotechnical engineering services on the project. One of GZA’s reports concluded that the ground needed to be stabilized and reinforced to support the tanks, which led Symbiont to hire Ground Improvement Services to perform the ground improvement. GIS’s proposal to Symbiont was based on GZA’s reports, and its subcontract with Symbiont required that the tanks could not settle more than 2 in. GIS engaged one of its subsidiaries to design the required soil improvements.
After GIS performed its soil improvement work, Symbiont placed the concrete floor slabs and assembled the tanks. According to court documents, the tanks were tested by filling each with water up to their capacity. While the testing process indicated some foundation settlement, GIS believed that the settlement would stop once the tanks were filled. However, almost a year after completing the tests, after the tanks had reached full operational capacity and after Trenton Biogas began operations, the tanks settled to levels below those mandated in GIS’s subcontract. This resulted in the tanks being forced to operate at severely restricted levels. The tanks continued to sink and ultimately settled between 6 and 7 in.
Trenton Biogas and Symbiont settled most of their issues in mediation, with Symbiont paying almost $12 million. While Symbiont’s insurers assumed responsibility for this payment, Symbiont had additional expenses and exposure to Trenton Biogas. This resulted in Symbiont bringing a lawsuit in New Jersey federal court against GIS and its subsidiary. In response, the GIS parties filed a crossclaim against GZA for, among other things, professional negligence, arguing that GZA’s reports had material errors in them. GZA moved to dismiss the professional negligence claim, arguing that it did not owe a duty to the GIS parties.
The ruling
GZA raised several arguments in support of its position that it did not owe the GIS parties a duty of care. First, GZA argued that it only had a contract with Symbiont and had no privity of contract with the GIS parties, which meant it owed no duty of care to them. It also cited to a limitations clause in both of its reports that stated “reliance by any party not expressly identified in the agreement, for any use, without prior written permission, shall be at that party’s own risk, and without any liability to GZA.”
The GIS parties countered these arguments by focusing on the fact that one of the GZA reports specifically stated that the soil was unsuitable to support the tanks and that Trenton Biogas would need to hire a contractor to stabilize the soil. Based on this, the GIS parties argued that it was foreseeable that a contractor would rely upon these reports.
The court first noted that in considering a motion to dismiss, it was obligated to accept the truth of the allegations made by the GIS parties. Based on this, the court found that the GIS parties had sufficiently alleged that it was foreseeable that the GZA reports would be relied upon by contractors in performing their work. The court further found that the GIS parties had sufficiently pled that GZA owed a professional duty of care to the GIS parties as to the accuracy of GZA’s reports.
Next, the court considered GZA’s argument that the ELD precluded the GIS parties from claiming monetary damages against GZA. The argument contended, among other things, that the GIS parties had the ability to recover their damages from Symbiont, with whom they had contracted. The court disagreed, finding that under New Jersey law, the ELD did not bar a claim when a defendant owes an independent duty of care to a plaintiff. Because the court already found that the GIS parties had sufficiently pled that GZA owed the GIS parties a duty of care, the absence of privity of contract could not be used as a basis to dismiss the GIS parties’ claim against GZA.
The analysis
While there are quite a few cases in New Jersey discussing the ELD, it seems fairly clear that the doctrine cannot easily be used to dismiss a defendant like GZA from claims by third parties. Because the decision did not address the merits of the claims and specifically describe what was in the GZA reports that the GIS parties relied upon to their detriment, it is hard to assess at this point what really happened and what, if anything, GZA did wrong. It may be that GZA will argue that its report was accurate or that its report had nothing to do with the tanks sinking. However, getting the answers to those questions will require a trial, which is both expensive and unpredictable.
We note that disclaimers like the one contained in the GZA report are commonly found in geotechnical reports. From the experience of the authors, these disclaimers rarely tip the scale in favor of the geotechnical engineer in state courts that do not apply the ELD. If, on the other hand, this case were being heard in a court in which the ELD was recognized, this disclaimer would likely have been cited as one of the grounds for dismissing GZA from the lawsuit.
Michael C. Loulakis is the president and CEO of Capital Project Strategies LLC in Reston, Virginia. Lauren P. McLaughlin is a partner and Ashley P. Cullinan is an associate with Smith Currie Oles LLP in Tysons, Virginia.
This article first appeared in the March/April 2025 issue of Civil Engineering as “Economic Loss Doctrine Did Not Help Geotechnical Engineer against Claim from Soil Improvement Contractor."
