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Poyner Spruill recently prevailed before the North Carolina Court of Appeals.  On December 31st, 2020, in Wright Construction Services, Inc. v. Hard Art Studio, PLLC,[1] the court reversed the Wake County Superior Court and ruled that architects and engineers may not defend themselves from tort liability on the basis of a contractor’s failure to obtain licensure prior to entering into a construction contract.

Factual and Procedural Background:

The core issue in the case turned on the general contractor’s licensure status at the time it entered a construction contract with the project owner: the contractor executed the contract before obtaining its general contractor’s license.[2]  Under North Carolina law, such contracts may be enforced by the project owner but are unenforceable by the contractor.[3]  Nevertheless, the contractor in Wright Construction undertook work on the project and encountered significant design deficiencies and delays.[4]  The project architect, a named defendant, acknowledged numerous design issues that prevented the contractor from completing construction.[5]  The project architect, on that basis, recommended the owner to stop work or extend the project schedule pending resolution of the design issues.[6]  The project owner, however, terminated the contractor for failing to complete the work on time.[7]

The contractor arbitrated contract claims against the owner and prevailed, with the arbitration panel concluding that the project owner breached the contract and awarding the contractor damages.[8]  The project architect and its subcontracted structural engineer, also a named defendant, were not parties to the arbitration.[9]  In a separate action in the Wake County Superior Court, the contractor brought tort claims against the defendants alleging breaches of their professional duties of care.[10]  The defendants successfully moved the Superior Court to enter summary judgment on their behalf, arguing that the contractor’s tort claims were barred because the contractor was unlicensed when it entered the construction contract (the “licensure defense”).[11]  The contractor appealed.[12]

The Court’s Legal Analysis:

The court’s analysis turned on two discrete points: 1) the existence of long established common law duties owed by architects and engineers to the participants of a construction project deriving from the special knowledge and skill that architects and engineers possess;[13] and 2) the fact that the contractor’s tort claims existed independently of any rights and/or obligations of the contractor vis-à-vis the project owner and construction contract.[14]  Considering those two discrete points, the court held that the licensure defense does not apply to negligence claims.[15]

The court supported its holding on three bases: 1) that it was consistent with the legislative intent of general contractor licensing statutes; 2) that it was supported by other decisions examining the licensure defense outside of the owner/contractor contractual relationship; and 3) that the holding, as applied, did not blur the boundaries of contract and tort.[16]  To the first point, the court reasoned that the licensure defense is intended to protect the public from incompetent builders.[17]  Thus, the court concluded that architects and engineers, “when performing their own professional work on a construction project[,]” are “not among the class of persons the Legislature intended to protect” by enacting the general contractor licensing statutes.[18]  To the second point, the court’s holding flowed from other decisions considering complimentary issues, such as where a North Carolina court enforced a subcontract against the subcontractor even though the licensure defense precluded the general contractor from enforcing its prime contract with the owner,[19] or where a federal court in North Carolina barred a contractor’s tortious interference claim against the project architect (because the licensure defense rendered the prime contract unenforceable) while simultaneously allowing the contractor’s common law negligence claim to proceed.[20]  Finally, to the third issue, the court concluded that Wright Construction’s tort claims were based upon allegations that the defendants “failed to use due care in the exercise of professional knowledge and skill that only they possess[,]” and that such claims could not be brought as contract claims against the owner, who lacked such knowledge and skill.[21]

The court declined to consider whether the licensure defense would bar claims against architects and/or engineers acting in a supervisory or monitoring capacity as owners representatives, where “they are more akin to administrative agents of the owner than professionals who are using their own special knowledge and skill.”[22]

Key Takeaways:

While this opinion sets a new precedent that the licensure defense does not apply to tort claims against design professionals, its practical implications are not novel.  For many decades, North Carolina law has recognized common law duties of care owed by design professionals to other participants engaged on a construction project.  In North Carolina, design professionals can be sued by general contractors and it is, therefore, incumbent upon design professionals to maintain sufficient professional liability coverage to mitigate this risk.

 

[1] No. COA19-1089, 2020 WL 7906704, at *1 (N.C. Ct. App. Dec. 31, 2020).

[2] Id.

[3] Id. at *3 (citing Brady v. Fulghum, 309 N.C. 580, 583, 308 S.E.2d 327, 330 (1983)).

[4] Id. at *2

[5] Id.

[6] Id.

[7] Id.

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12] Id.

[13] Id. at *2-3 (citing Shoffner Indus., Inc. v. W. B. Lloyd Constr. Co., 42 N.C. App. 259, 272, 257 S.E.2d 50, 59 (1979) and Davidson & Jones, Inc. v. New Hanover Cty., 41 N.C. App. 661, 667, 255 S.E.2d 580, 584 (1979).

[14] Id. at *3.

[15] Id.

[16] Id.

[17] Id. (citing Bryan Builders Supply v. Midyette, 274 N.C. 264, 270, 162 S.E.2d 507, 511 (1968)).

[18] Id. (quoting Vogel v. Reed Supply Co., 277 N.C. 119, 133, 177 S.E.2d 273, 282 (1970)) (internal quotations omitted).

[19] Id. at *4 (citing Vogel, 277 N.C. at 133-34, 177 S.E.2d at 282).

[20] Id. (citing RCDI Constr., Inc. v. Spaceplan/Architecture, Planning & Interiors, P.A., 148 F. Supp. 2d 607, 612–17, 620–22 (W.D.N.C. 2001), aff’d 29 F. App’x 120 (4th Cir. 2002)).

[21] Id.

[22] Id.

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