Sierra Summit, LLC v. Humphreys & Partners Architects, Nevada, LLC

Opinion

3 UNITED STATES DISTRICT COURT

4 DISTRICT OF NEVADA

5 * * *

6 SIERRA SUMMIT, LLC, Case No.: 3:25-cv-00511-MMD-CLB

7 Plaintiff, ORDER v. 8 HUMPHREYS & PARTNERS 9 ARCHITECTS, NEVADA, LLC,

10 Defendant.

11 12 I. SUMMARY 13 Plaintiff Sierra Summit, LLC (“Sierra Summit”) sued Defendant Humphrey & 14 Partners Architects, Nevada, LLC (“HPA”) for economic damages arising from HPA’s 15 professional architectural services provided under contract for the design of a multi-family 16 apartment complex. (ECF No. 1 (“Complaint”).) Sierra Summit asserts four claims: (1) 17 breach of contract; (2) breach of implied covenant; (3) negligence; and (4) gross 18 negligence. (Id. at 14-21.) Before the Court is Defendant HPA’s motion for judgment on 19 the pleadings on Plaintiff’s second, third, and fourth claims.1 (ECF No. 25 (“Motion”).) As 20 explained below, the Court grants the Motion because Plaintiff’s claims are not 21 cognizable, as they are barred by Nevada’s economic loss doctrine. 22 II. RELEVANT BACKGROUND2 23 This case arises out of architectural design services provided for a commercial 24 construction project and involves allegations of a design firm’s deficient performance 25 under contract. Plaintiff Sierra Summit is a Nevada/California limited liability company, 26 and Defendant HPA is a Texas limited liability company and licensed multi-family 27 1Plaintiff responded (ECF No. 28), and Defendant replied (ECF No. 29). 28 1 architectural design firm. (ECF No. 1 at 1-2.) In September 2016, Sierra Summit 2 contracted with HPA to construct a multi-family, luxury apartment complex in Reno, 3 Nevada known as “INOVA” (the “Project”) consisting of 581 rental units and associated 4 common-area buildings. (Id. at 2.) Sierra Summit then filed suit against HPA, alleging that 5 it breached contractual obligations3 through its failure to “coordinate with the prime 6 contractor and subcontractor,” “timely integrate the professionals’ plans into the 7 architectural plans,” “respond to the prime contractor and subcontractors’ requests for 8 information,” and “address the City of Reno’s concerns and identified deficiencies in the 9 architectural plans,” resulting in the delayed construction of the Project. (See id. at 5-11.) 10 In addition to delays and the below-described alleged negligent conduct, Sierra Summit 11 alleges that it “had to retain the services of a local Reno architect to help mitigate the 12 harms caused” by Defendant HPA. (Id. at 10, 21.) 13 Sierra Summit further alleges that HPA breached the implied covenant of good 14 faith and fair dealing in the following four ways: (1) by permitting “unlicensed interns” to 15 “manage” and “supervise” the Project; (2) by maintaining no meaningful “physical 16 presence” on-site; (3) by not placing any “qualified personnel” on site in Reno during the 17 construction phase, and (4) by relying on “formulaic” and “copyrighted” designs without 18 updating them to comply with applicable building codes. (Id. at 15-16.) 19 As to the negligence and gross negligence claims, Sierra Summit alleges the 20 following. As a licensed design professional, Defendant HPA owed Sierra Summit a “duty 21 of care to perform its design and related work on the Project in a manner consistent with 22 the applicable standard of care,” i.e., “the professional skill and care that ordinarily would 23 be provided by architects practicing in the Reno, Washoe County, Nevada, area, and 24 under the same or similar circumstances, on the same or a similar Project.” (Id. at 16-17.) 25 Sierra Summit alleges that the design firm’s performance was negligent and fell below

26 3In its Complaint, Sierra Summit cites to multiple provisions of the agreement, including, in pertinent part, Section 3.1.1.: “The Architect shall manage and be 27 responsible for the Architect’s services, consult with the Owner, research applicable design criteria, attend Project meetings, communicate with members of the Project team 28 and report progress to the Owner.” (ECF No. 1 at 3.) 1 the applicable standard of care for the same four reasons mentioned above. (Id. at 17- 2 21.) 3 The Complaint asserts four claims for relief under Nevada law: (1) breach of 4 contract; (2) breach of implied covenant; (3) negligence; and (4) gross negligence. (Id. at 5 14-21.) Plaintiff seeks general and specific damages, as well as pre- and post-judgment 6 interest and fees and costs, for the alleged errors in design services. (Id. at 21.) 7 III. DISCUSSION 8 HPA moves for a judgment on the pleadings in its favor as to Sierra Summit’s 9 second, third, and fourth claims under Federal Rules of Civil Procedure 12(c)4 on the 10 basis that, under Nevada law, the claims are barred by the economic loss doctrine, which 11 prevents design professionals from being sued for non-intentional tort-based claims, 12 absent personal injury or “other property” damage. (ECF No. 25 at 4-5; ECF No. 29 at 3.) 13 In response, Sierra Summit argues that the doctrine does not apply for two reasons: (1) 14 its negligence claims arise from independent, “common law duties”; and (2) its breach of 15 implied covenant claim sounds in a contractual, as opposed to tortious, basis. (ECF No. 16 28 at 2-3.) The Court agrees with Defendant HPA. The Court addresses HPA’s Motion 17 first as to the challenged negligence claims and then as to the contract-based claim. 18 A. Claims 3 and 4 – Negligence 19 In its Motion, Defendant generally argues that, under Nevada law, the economic 20 loss doctrine bars Sierra Summit’s negligence claims and no exceptions5 apply (ECF No. 21 25 at 6-9; see also ECF No. 29 at 3, 7), while Plaintiff counters that the doctrine does not

22 4“Because a Rule 12(c) motion is functionally identical to a Rule 12(b)(6) motion, the same standard of review applies to motions brought under either rule.” Gregg v. 23 Hawaii, Dep't of Pub. Safety, 870 F.3d 883, 887 (9th Cir. 2017) (internal citation and quotations omitted). “A judgment on the pleadings is properly granted when, taking all the 24 allegations in the pleadings as true, the moving party is entitled to judgment as a matter of law.” Id. (internal citation and quotations omitted). 25

5The economic loss doctrine bars tort liability absent personal injury or property 26 damage, subject to limited, traditionally recognized exceptions for certain categories of claims (e.g., intentional tort, defamation, injurious falsehood). See Terracon Consultants 27 W., Inc. v. Mandalay Resort Grp., 206 P.3d 81, 90 (Nev. 2009) (citing Barber Lines A/S v. M/V Donau Maru, 764 F.2d 50, 55-56 (1st Cir. 1985)) (“Negligence claims against 28 design professionals do not fall within those traditional exceptions[.]”). 1 apply because the negligence claims, which it frames as “non-contractual breaches,” are 2 based on “duties imposed by law” and conduct independent of the contract (ECF No. 28 3 at 10-11). Plaintiff further argues that a carve-out provision of the contract holds HPA 4 responsible for its “negligent acts and omissions.” (Id. at 11-12 (citing ECF No. 1 at 4).) 5 The Court agrees with Defendant HPA. 6 Preliminarily, both parties agree that Nevada law recognizes the well-established 7 economic loss doctrine. (ECF No. 25 at 4, 6; ECF No. 28 at 2.) “Under the economic loss 8 doctrine ‘there can be no recovery in tort for purely economic losses.’”6 Calloway v. City 9 of Reno, 993 P.2d 1259, 1263, 1266 (Nev. 2000) (internal citation omitted) (holding that 10 the economic loss doctrine applied to constructional defect cases), overruled on other 11 grounds by Olson v. Richard, 89 P.3d 31, 31-33 (Nev. 2004). In Calloway, the Nevada 12 Supreme Court held that “economic losses are not recoverable in negligence absent 13 personal injury or damage to property other than the defective entity itself.” Id. at 1267 14 (internal citations omitted); see also Local Joint. Exec. Bd. v. Stern, 651 P.2d 637, 638 15 (Nev. 1982) (holding that the doctrine’s purpose is “to shield [defendants] from unlimited 16 liability for all of the economic consequences of a negligent act, particularly in a 17 commercial or professional setting, and thus to keep the risk of liability reasonably 18 calculable”). The policy rationale behind the doctrine is that “in the context of engineers 19 and architects,” “contract law is better suited to resolve professional negligence claims,” 20 absent any personal injury or property damage. See Terracon, 206 P.3d at 89-90. 21 Here, Defendant HPA argues that the Calloway Court’s holding expressly bars 22 Sierra Summit’s negligence claims and points to Terracon Consultants W., Inc. v. 23 Mandalay Resort Grp., 206 P.3d 81, 90 (Nev. 2009) (extending Calloway to design 24 professionals, e.g., engineers and architects, in the commercial-property-development 25 context) to support its position. (ECF No. 25 at 7-8.) Specifically, HPA argues that

26 6In Calloway, the Nevada Supreme Court defines “purely economic loss” as “the loss of the benefit of the user's bargain ... including ... pecuniary damage for inadequate 27 value, the cost of repair and replacement of the defective product, or consequent loss of profits, without any claim of personal injury or damage to other property.” Id. at 1263 28 (internal citation omitted). 1 because Sierra Summit seeks “purely economic losses” from its design professional for 2 alleged errors in design services, its claims of negligence and gross negligence are 3 barred by the doctrine. (Id. at 8.) 4 Sierra Summit counters that its claims fall outside the doctrine because they arise 5 from independent duties imposed by law—namely, HPA’s obligation as a licensed design 6 professional to meet an applicable standard of care—rather than from the parties’ 7 contract. (ECF No. 28 at 10-11 (citing Giles v. Gen. Motors Acceptance Corp., 494 F.3d 8 865, 873, 879 (9th Cir. 2007)) (holding that the economic loss doctrine “does not bar 9 recovery in tort where the defendant had a duty imposed by law rather than by contract”).) 10 To drive home this point, Sierra Summit attempts to characterize the four above- 11 mentioned bases for its negligence claims (i.e., HPA’s unprofessional project 12 management and supervision, lack of on-site presence, and reliance on outdated 13 copyrighted designs that failed to comply with building codes) as “non-contractual 14 breaches,” which it contends arise from duties not expressly contained in the contract. 15 (Id.) The Court is, however, unpersuaded by this argument and finds these bases to be 16 sufficiently intertwined with the same duties and obligations governed by the parties’ 17 contract, which include the architect’s duty to manage its services, consult and 18 communicate with the owner, research design criteria, and report progress.7 (See ECF 19 No. 1 at 3.) 20 Although Plaintiff suggests otherwise (see ECF No. 28 at 13), the Court agrees 21 with Defendant that the alleged losses—including project delays and the costs associated 22 with retaining a third-party local architect—are purely economic in nature and do not 23 constitute “personal injury” or “property damage” of any kind. As such, the Court finds that 24 Defendant has met its burden8 of showing that such losses are “properly remediable only 25 7Plaintiff further contends that the economic loss doctrine is inapplicable because 26 a contractual “carve-out” provision holds HPA responsible for its “negligent acts and omissions.” (ECF No. 28 at 11-12.) The Court is likewise unpersuaded by this argument. 27

8The moving party bears the burden of establishing that, “on the face of the 28 pleadings[,]” no material issue of fact remains to be resolved and that it is entitled to 1 in contract.” See Giles, 494 F.3d at 873, 876 (9th Cir. 2007) (holding that tort claims 2 amounting to “nothing more than a failure to perform a promise contained in a contract” 3 are barred by the economic loss doctrine). 4 Accordingly, taking all allegations in the pleadings as true9, the Court finds that 5 Defendant HPA is entitled to judgment as a matter of law, as Plaintiff’s negligence claims 6 are barred by the economic loss doctrine.10 7 B. Claim 2 – Breach of Implied Covenant of Good Faith and Fair Dealing 8 Defendant HPA further argues that it is entitled to judgment on the pleadings on 9 Plaintiff’s breach of implied covenant claim because, although pleaded by Plaintiff as 10 contractual, the claim sounds in tortious negligence and is therefore barred by the 11 economic loss doctrine. (ECF No. 25 at 9-11.) Plaintiff counters that the claim should be 12 construed as contract-based and thus should not be subject to the doctrine. (ECF No. 28 13 at 8-9.) Again, the Court is unconvinced by Plaintiff’s argument. 14 As explained above, the economic loss doctrine precludes recovery for “purely 15 economic losses” arising from unintentional torts. See Terracon, 206 P.3d at 86 (internal 16 citation omitted). Moreover, the doctrine “prevents a plaintiff from asserting contract 17 claims ‘cloaked in the language of a tort.’” Bank of America v. Bailey, Case No. 2:14-cv- 18 885-JCM-GCF, 2016 WL 3410174, at *4 (D. Nev. June 15, 2016) (citing Giles, 494 F.3d

19 judgment as a matter of law. MST Mgmt., LLC v. Chicago Doughnut Franchise Co., LLC, 584 F. Supp. 3d 923, 935 (D. Nev. 2022) (internal citations omitted). 20

9Judgment on the pleadings is proper when, “taking all the allegations in the non- 21 moving party's pleadings as true,” the moving party is entitled to judgment as a matter of law. See, e.g., Ventress v. Japan Airlines, 486 F.3d 1111, 1114 (9th Cir. 2007) (internal 22 citation omitted); see also Fleming v. Pickard, 581 F.3d 922, 925 (9th Cir. 2009 (holding that the Court must “accept all factual allegations in the complaint as true and construe 23 them in the light most favorable to the non-moving party”).

24 10Having determined that the economic loss doctrine bars Plaintiff’s negligence claims against Defendant HPA as a matter of law, and that no exception applies, the 25 Court need not—and does not—address Plaintiff’s argument that judgment on the pleadings is “inappropriate” because “material issues of fact remain.” (ECF No. 28 at 7- 26 8.) This is because, even accepting Plaintiff’s well-pleaded factual allegations as true and drawing all reasonable inferences in Plaintiff’s favor, see, e.g., MacDonald v. Grace 27 Church Seattle, 457 F.3d 1079, 1081 (9th Cir. 2006), the negligence claims remain barred as a matter of law, seeing as there are no allegations of personal injury or property 28 damage in the Complaint. 1 at 872). Here, as Defendant HPA points out, Plaintiff’s second claim, although framed as 2 contractual, alleges negligent, non-intentional conduct. (ECF No. 25 at 10.) For example, 3 in its Complaint, Plaintiff asserts that Defendant HPA’s “negligent breaches of the implied 4 covenant of good faith and fair dealing” constitute the direct and proximate cause of 5 Plaintiff’s damages and lists multiple instances of the “negligent” conduct. (Id. at 10-11 6 (citing ECF No. 1 at 16).) Accordingly, the Court finds that Defendant HPA is entitled to 7 judgment as a matter of law as to Plaintiff’s second claim for breach of implied covenant 8 because this claim, as pled, sounds in tort. However, the Court grants Plaintiff leave to 9 amend its Complaint to assert a contractual breach of the implied covenant of good faith 10 and fair dealing. 11 C. Leave to Amend 12 Plaintiff asks for leave to amend in the event the Court grants judgment on the 13 pleadings in Defendant HPA’s favor on the second, third, and fourth claims. (ECF No. 28 14 at 14.) In particular, Plaintiff asks for leave to amend the Complaint to incorporate the four 15 above-mentioned “non-contractual breaches” into its first claim for breach of contract. (Id.) 16 The Court should give leave to amend freely when justice requires, though leave need 17 not be granted where amendment: “(1) prejudices the opposing party; (2) is sought in bad 18 faith; (3) produces an undue delay in litigation; or (4) is futile.” Amerisource Bergen Corp. 19 v. Dialysist W., Inc., 465 F.3d 946, 951 (9th Cir. 2006) (internal citation omitted). Because 20 the Court cannot find that amendment is futile, the Court grants Plaintiff leave to file an 21 amended complaint to amend its contract-based claims. 22 IV. CONCLUSION 23 The Court notes that the parties made several arguments and cited several cases 24 not discussed above. The Court has reviewed these arguments and cases and 25 determines that they do not warrant discussion, as they do not affect the outcome of the 26 issues before the Court. 27 It is therefore ordered that Defendant’s motion for judgment on the pleadings (ECF 28 No. 25) is granted. 1 Itis further ordered that Plaintiff is granted leave to amend the Complaint to amend 2 || its contract-based claims within 15 days. Failure to file an amended complaint will result 3 || in the case proceeding on the first claim for breach of contract. 4 DATED THIS 20" Day of March 2026. 5

7 8 UNITED STATES DISTRICT JUDGE 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28