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Owner may sue town's engineering consultant for being billed excessive tap fees

By Tim Gordon

Rocky Mountain Festivals, Inc. v. Parsons Corporation (Colo. Nov. 8, 2010).

Today, the Supreme Court cleared the way for a property owner to pursue claims against a town's consulting engineer for issuing a faulty report that resulted in the owner having to litigate with the town regarding over assessment of tap fees.

The Town of Larkspur hired Parsons to investigate problems with its water and wastewater systems.  As part of its report to the Town, Parsons noted that the Renaissance Festival had underpaid for water and wastewater services.  The Town then billed the Festival for approximately $1,600,000 in unpaid back tap fees.

The Festival fought the Town, and proved that Parsons' report was flawed.  The trial court held that the Festival owed only $100,000 of the Town?s $600,000 bill for unpaid water tap fees.  The trial court also determined that ?Parsons? wastewater assessment relied on faulty assumptions, used ?incredible? data, and stated that its inaccuracy was made ?abundantly clear by other evidence introduced.??  The trial court finally concluded that the Festival had overpaid the Town for wastewater usage, and enjoined the Town from enforcing its billing.

The Festival then sued Parsons under several legal theories of both tort and contract, seeking damages under the wrong-of-another doctrine.  The Festival ?essentially argu[ed] that Parsons? faulty advice to the town had caused the festival to incur litigation costs and attorneys? fees in the prior case that they should be entitled to recover.?

 The trial court entered summary judgment in favor of Parsons, reasoning that ?the festival was barred from its pursuit of attorneys? fees as damages because it had been partially at fault in the underlying litigation, as evidenced by the order directing it to pay $100,000 for water tap fees.?  The Court of Appeals affirmed, after which the Festival petitioned for certiorari with the Colorado Supreme Court.  The Supreme Court reversed, holding that the Festival?s partial liability on some claims in the prior litigation should not preclude its recovery for expenses incurred in litigating other claims on which it was wholly successful.

 Wrong-Of-Another Doctrine

As for the wrong-of-another doctrine, the Court clarified that the ?doctrine does not establish a stand-alone cause of action, . . . nor is it an exception to the so-called American rule that parties are responsible for their own litigation costs and fees.  Rather, the doctrine is but an acknowledgement that the litigation costs incurred by a party in separate litigation may sometimes be an appropriate measure of compensatory damages against another party.?  According to the Court, it is not necessary that the plaintiff be 100% without fault for the wrong-of-another doctrine to apply.  The Court then fashioned the following rule:

 [W]here the claims for which a plaintiff seeks wrong-of-another damages cannot be conceptually distinguished from the remainder of the underlying dispute, no award tailored to a subset of claims shall issue.  If, however, the subset of claims for which a plaintiff seeks litigation costs was founded in a distinct core of facts and premised on distinct legal theories, the plaintiff can attempt to show the subset is uniquely traceable to the defendant?s alleged wrong, and so seek costs incurred by litigating those claims.  Of course, his ultimate success in such an action relies upon his ability to establish those elements of the tort or contract theory on which his claim for wrong-of-another damages is premised.

 The Court reasoned that the Festival?s prior claims appear ?segregable,? and so its pursuit of attorneys? fees against Parsons under the wrong-of-another doctrine is not barred as a matter of law.

 Viability Of A Negligence Claim Against Parsons

The Court stressed that the case before it ?arose in the limited context of summary judgment? as to the damages issue, and that neither the trial court nor the Appellate court otherwise addressed the viability of the festival?s negligence claim.  So the Court too passed no judgment on the viability or merits of the festival?s negligence claim with regard to the elements of duty, breach of duty, or proximate cause.  But the Court did issue this caution:

 Although it is rare that a hired expert such as Parsons owes any legal duty of care to non-contracting third parties, such a duty may arise based on the details of its contractual obligations or some pertinent statutory scheme.  . . .  As such, the trial court was free to conclude Parsons owed the festival a legal duty of care where Parsons? contract with the town included services for ?regulatory guidance? and ?compliance assistance? with regard to the town?s wastewater systems.?

Thus, it remains to be seen whether or not Parsons owes a legal duty to the Festival.  Perhaps Parsons will argue that the economic loss doctrine would bar any tort claim against it, and that the Festival is not an intended third-party beneficiary of its contract with the Town.

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Full post as published by Colorado Construction Law on November 08, 2010 (boomark / email).