306 Ga. 102 FINAL COPY
S19Q0249. THOMASTON ACQUISITION, LLC v. PIEDMONT CONSTRUCTION GROUP, INC. et al.
NAHMIAS, Presiding Justice.
This case is before our Court on certified questions from the
United States District Court for the Middle District of Georgia
regarding the scope of the “acceptance doctrine” in negligent
construction tort cases. At issue is whether and how the acceptance
doctrine applies as a defense against a claim brought by a
subsequent purchaser of allegedly negligently constructed
buildings.
1. In 2011, Thomaston Crossing, LLC (the “original owner”)
entered into a construction contract with appellee Piedmont
Construction Group, Inc. to build an apartment complex in Macon.
Piedmont then retained two subcontractors — appellees Alan Frank
Roofing Company and Triad Mechanical Company, Inc. — to
construct the roof and the HVAC system, respectively. In 2014, the complex was completed, turned over to, and accepted by the original
owner. In 2016, the original owner sold the apartment complex to
appellant Thomaston Acquisition, LLC (“Thomaston”) pursuant to
an “as is” agreement.
Shortly after the sale, Thomaston allegedly discovered
evidence that the roof and HVAC system had been negligently
constructed. Thomaston filed suit against Piedmont, asserting a
claim for negligent construction of the roof and HVAC system and a
claim for breach of contract/implied warranty. Piedmont then filed
a third-party complaint against Alan Frank Roofing and Triad
Mechanical because both companies had allegedly agreed to
indemnify Piedmont for losses arising out of their work.
Each of the appellees later moved for summary judgment based
in part on the defense that Thomaston’s negligent construction
claim is barred by the acceptance doctrine. On September 27, 2018,
the district court certified the following two questions to our Court:
1. After construction of real property is completed, and the property is sold by the original owner to a subsequent bona fide purchaser, does the acceptance doctrine apply to a negligent construction claim brought by a subsequent purchaser who is the current owner-operator of the property at issue? 2. If the acceptance doctrine does apply, to whose inspection does the analysis of whether the defect(s) was “readily observable on reasonable inspection” relate: the original owner’s inspection, or a subsequent owner’s inspection?
As explained below, we conclude that the acceptance doctrine does
apply to Thomaston’s claim and that “readily observable upon
reasonable inspection” refers to the original owner’s inspection. 1
1 We note at the outset that the acceptance doctrine is typically asserted
when a plaintiff seeks recovery for personal injury or damage to other property caused by defective construction work, rather than recovery based on the defective work itself. See, e.g., Powell v. Ledbetter Bros., Inc., 251 Ga. 649 (307 SE2d 663) (1983) (damage to other property); Stopanio v. Leon’s Fence & Guardrail, LLC, 346 Ga. App. 18 (815 SE2d 232) (2018) (personal injury); Clive v. Gregory, 280 Ga. App. 836 (635 SE2d 188) (2006) (personal injury and damage to other property). Here, by contrast, Thomaston appears to seek recovery for the allegedly defective roof and HVAC system rather than for any personal injury or damage to other property caused by the alleged defects. The typical context of acceptance doctrine cases is perhaps due to the “economic loss rule.” As one treatise explains: “In its most widely accepted form, the doctrine of economic loss bars the use of negligence or strict liability theories for recovery of economic losses arising out of commercial transactions where the loss is not a consequence of an event causing personal injury or damage to other property.” 6 Phillip L. Bruner & Patrick J. O’Connor, Jr., Bruner & O’Connor on Construction Law § 19:10 (June 2018 update). In the context of construction, “economic loss” includes the cost to repair or replace defective materials, damage to a structure, diminution in value of a damaged structure not repaired, loss of 2. (a) This Court long ago explained the acceptance doctrine as
follows:
[A]n independent contractor is not liable for injuries to a third person, occurring after the contractor has completed the work and turned it over to the owner or employer and the same has been accepted by him, though the injury result from the contractor’s failure to properly carry out his contract.
Young v. Smith & Kelly Co., 124 Ga. 475, 476 (52 SE 765) (1905).2
The general rule in nineteenth century product liability law was
use or delay in utilizing property for its intended purposes, and related lost profits, lost revenue, and costs. . . . Third parties lacking contractual rights have no legal basis for recovery of economic loss on theories of tortious conduct that cause neither personal injury nor damage to property beyond the defective property itself. Notwithstanding such straightforward distinctions, third party recovery in tort for economic loss caused by breaches of contract or warranty duties owed between others has been for decades a subject of heated controversy. There has been a definite lack of uniform treatment. Id. (footnotes omitted). The appellees raised the economic loss rule in their motions for summary judgment. But the district court has not yet ruled on that issue and did not pose a question to us about it, so we do not opine on its application in this case except to note that this Court appears never to have squarely considered whether or how the rule would apply in a negligent construction case, although the Court of Appeals has. See Rowe Dev. Corp. v. Akin & Flanders, Inc., 240 Ga. App. 766, 769 (525 SE2d 123) (1999) (holding that the economic loss rule did not apply to a negligent construction claim seeking recovery for a collapsed parking lot). 2 The acceptance doctrine is also referred to as the completed work
doctrine, the completed and accepted rule, and similar formulations. that a manufacturer’s liability for injuries caused by a defective
product was limited to the original purchaser or his privies in the
purchase contract. See W. Page Keeton et al., Prosser and Keeton on
the Law of Torts § 96, at 681 (5th ed. 1984). This rule was extended
to building contractors performing original work and contractors
performing repairs or installing parts. See id. § 104A, at 722.
The acceptance doctrine shields contractors from liability for
injuries to third parties resulting from their work at the moment the
work is turned over to and accepted by the owner.
The owner-employer can reject work which does not comply with the agreement and which may be defective or create either a latent or patent hazard. The owner is best situated to foresee and to guard against dangers to users of the premises, because he alone may know how he expects the premises to be utilized.
Frank M. Eldridge, Personal Injury and Property Damage:
Causation & Parties, The Law in Georgia § 5-9, at 108 (1978). By
accepting the completed work, presumably after a reasonably
careful inspection to identify any defects, the owner adopts the work
as his own, “deprives the contractor of all opportunity to rectify his wrong,” bears “the immediate duty to make [the premises] safe,” and
is therefore accountable for future injuries. Emmanuel S. Tipon,
Modern Status of Rules Regarding Tort Liability of Building or
Construction Contractor for Injury or Damage to Third Person After
Completion and Acceptance of Work; “Completed and Accepted”
Rule, 74 ALR5th 523, § 4 (1999).
Over time, many courts began to recognize a variety of
exceptions to the general rule barring liability without privity. In
the product liability context, the exceptions swallowed the rule, and
the privity requirement was widely abandoned in the early
twentieth century. See Bragg v. Oxford Constr. Co., 285 Ga. 98, 101
(674 SE2d 268) (2009) (Hunstein, P. J., dissenting). In Georgia, this
abandonment was recognized by statute in 1968. See id. See also Ga.
L. 1968, p. 1166 (enacting what is now OCGA § 51-1-11 (b) to provide
that breach of implied warranty tort actions may be brought against
manufacturers of new personal property “irrespective of privity”).
In the context of building contractors, Georgia courts have
recognized a handful of exceptions to the acceptance doctrine. Most significantly, the doctrine does not bar a third party’s claim for
injuries suffered as a result of a defect hidden from reasonable
inspection. See Smith v. Dabbs-Williams Gen. Contractors, LLC, 287
Ga. App. 646, 647 (653 SE2d 87) (2007) (explaining that the
acceptance doctrine applies to a negligent construction claim “if the
defect is not hidden but readily observable on reasonable inspection”
(citation and punctuation omitted)). Other exceptions are recognized
for claims based on work or repairs that were inherently or
intrinsically dangerous, constituted a nuisance per se, or were “so
negligently defective as to be imminently dangerous to third
persons.” David Allen Co. v. Benton, 260 Ga. 557, 558 (398 SE2d 191)
(1990) (citation and punctuation omitted). Our courts also recognize
an exception for claims against a contractor “who is an expert in the
design of the type of work being done” and who “performs a contract
in accordance with plans supplied to [the contractor],” if the plans
supplied to the contractor contained a serious and dangerous defect
that the expert should have known would be harmful to third
parties. Id. (explaining that an expert contractor “may not ignore defects in the design from which [the contractor] is to work”). See
also Shetter v. Davis Bros., Inc., 163 Ga. App. 230, 232 (293 SE2d
397) (1982).
Thomaston points out that most of our sister states have
abandoned the acceptance doctrine in favor of the “foreseeability
doctrine,” which has no privity requirement.3 Just a decade ago,
however, this Court considered and rejected the argument that we
should overrule our longstanding precedent in favor of the
foreseeability doctrine. See Bragg, 285 Ga. at 100-102. The majority
opinion in Bragg said that the acceptance doctrine would continue
to be applied in Georgia until “changed by express statutory
enactment or by necessary implication” from a legislative
enactment. Id. at 100 (citation and punctuation omitted). Since then,
3 Under the foreseeability doctrine,
a building or construction contractor is liable for injury or damage to a third person even after completion of the work and its acceptance by the owner where it was reasonably foreseeable that a third person would be injured by such work on account of the contractor’s negligence or failure to disclose a dangerous condition known to such contractor. Bragg, 285 Ga. at 101 (Hunstein, P. J., dissenting) (citation and punctuation omitted). the General Assembly has not enacted or amended any statute
purporting to modify or abrogate the acceptance doctrine, so the
privity requirement remains intact as the foundation for the
doctrine in the construction context. Nor do the circumstances of this
case “actually demonstrate why the doctrine proves to be
inadequate.” Id. at 101. Indeed, it is not clear that the acceptance
doctrine even needs to be invoked in this case. See footnote 1 above.
We see no persuasive reason to reconsider the traditional acceptance
doctrine in this case, so under Georgia law, the acceptance doctrine
continues to shield contractors from liability for negligent
construction claims brought by a third party — meaning someone
who was neither a party to nor in privity with a party to the
construction contract — unless one of the above-mentioned
exceptions applies.
(b) The appellees argue that Thomaston is such a third party
because it was neither a party to nor in privity with a party to the
contract for construction of the apartment complex. We agree. As
discussed previously, this Court explained more than a century ago that the acceptance doctrine applies to completed work that has
been “turned . . . over to the owner or employer and . . . has been
accepted by him.” Young, 124 Ga. at 476. See also Smith, 287 Ga.
App. at 647 (“‘Where the work of an independent contractor is
completed, turned over to, and accepted by the owner, the contractor
is not liable to third persons . . . .’” (citation omitted)). As a
subsequent purchaser, Thomaston was not a party to the
construction contract, which was entered into in 2011. The appellees
were not hired by Thomaston; they were hired by the original owner.
Nor was Thomaston the owner of the apartment complex when its
construction was completed in 2014; the original owner accepted it.
Thomaston had no authority to inspect, accept, or ratify the
allegedly defective work or to assume control of the property from
the appellees when it was turned over to the original owner. It is
therefore axiomatic that Thomaston is a third party.
Without any real claim of privity, Thomaston nevertheless
contends that it should be treated like the original owner because it
is the current owner-occupier of the property. But doing so would undermine the acceptance doctrine’s foundational purpose of
shielding contractors from liability for injuries occurring after the
owner has accepted the completed work, thereby assuming
responsibility for future injuries. There is no “current owner-
occupier” or “subsequent purchaser” exception to the acceptance
doctrine, and the facts of this case do not compel us to recognize one
here. See Bragg, 285 Ga. at 100 (“[T]he dissent makes no effort to
explain why the facts of this case would dictate that a change to this
longstanding law needs to be made.”). Indeed, Thomaston cites no
Georgia case holding that a subsequent purchaser is exempted from
the acceptance doctrine.4
4 Even if we were inclined to treat Thomaston like the original owner, we
question whether an owner who was a party to the construction contract would have a viable negligent construction claim on these facts. (In posing its first question, the district court cited Jai Ganesh Lodging, Inc. v. David M. Smith, Inc., 328 Ga. App. 713 (760 SE2d 718) (2014), a case in which the Court of Appeals “assume[d] that the acceptance doctrine applies both to owners and to third parties,” and then held that the doctrine did not apply on summary judgment because there was a fact question about whether the defect at issue was hidden. Id. at 724.) The acceptance doctrine shifts liability from the contractor to the owner at the time the work is accepted by that owner. So if we treated Thomaston like the original owner, Thomaston may be the responsible party. Moreover, insofar as Thomaston seeks recovery in tort for the defective roof and HVAC system, as opposed to personal injury or damage After the work has been accepted, a contractor generally has
no authority to inspect or make changes to the property, and it may
not be authorized even to enter the premises. As our Court of
Appeals has explained many times in the context of road
contractors, with the exceptions noted earlier, a “‘contractor cannot
be held responsible for completed work over which it no longer
exercises any control.’” Ogles v. E.A. Mann & Co., 277 Ga. App. 22,
24 (625 SE2d 425) (2005) (citation omitted). This rationale is
particularly salient under the facts of this case. When the appellees
completed their work in 2014, the original owner could have refused
to accept the work altogether or accepted it on the condition that the
appellees would repair any readily observable defects. But the
original owner did not do that; it accepted the apartment complex,
and upon that acceptance, all liability for readily observable defects
shifted from the appellees to the original owner. After that time, the
to other property caused by the defective roof or HVAC system, the claim might be barred by the economic loss rule. See footnote 1 above. But we need not resolve these issues today, because whether and how the acceptance doctrine or the economic loss rule would apply to the same sort of negligent construction claim if brought by an original owner is not before us. appellees had no control over the property and no authority to repair
or maintain it. When the original owner sold the complex to
Thomaston in 2016 — two years after construction was completed,
turned over to, and accepted by the original owner — the liability
did not shift back to the appellees.
Contrary to Thomaston’s ominous warnings, our decision today
does not leave subsequent purchasers of real property unprotected.
Subsequent purchasers can protect themselves from injuries caused
by readily observable defects by adequately inspecting and refusing
to purchase defective property or demanding repairs by the seller
before closing. Subsequent purchasers also need not purchase
property with an “as is” contract (as Thomaston did), which could
potentially cut off any contract claims against the seller. Nor does
our decision eradicate the negligent construction tort claim, as
Thomaston contends. The claim remains a viable cause of action for
third parties (including Thomaston) if one of the exceptions to the acceptance doctrine applies.5
3. The district court also asked us whether, under the hidden
defect exception, the phrase “readily observable on reasonable
inspection” (which is used in acceptance doctrine cases including
Smith, 287 Ga. App. at 647) refers to the original owner’s inspection
or a subsequent owner’s inspection. The parties all contend that the
only inspection that matters is the one that was (or should have
been) conducted before the owner accepted the work. We agree.
As explained above, the acceptance doctrine shifts liability for
injuries caused by readily observable defects away from the
contractor and onto the owner at the moment the owner accepts the
5 The appellees contend that once construction work has been accepted
and the original owner sells the property to someone else, any negligent construction claim is “dead and cannot be brought back to life” by one of the exceptions. We disagree. The acceptance doctrine does not shield contractors from liability for claims by third parties for personal injuries or damage to other property caused by defects that are hidden, that constitute nuisances per se, that are inherently dangerous, or that come under any other recognized exception. See, e.g., Smith, 287 Ga. App. at 647 (“Unless the work performed by the contractor falls within an exception to the doctrine, ‘when the work is finished by (the contractor) and accepted by his employer, the liability of the (contractor) generally ceases and the employer becomes answerable for damages which may thereafter accrue from the defective conditions of the work.’” (citation omitted; emphasis added)). Sale of the property does not eliminate these exceptions. defective work. At that point, the contractor no longer has control
over the condition of the property; a contractor does not become
liable for a defect that was readily observable when the original
owner accepted the work but is no longer readily observable days,
months, or years later when the original owner sells the property.
See, e.g., Smith, 287 Ga. App. at 648-649 (holding that evidence that
a hidden defect developed over time was not sufficient to establish
that the defect existed at the time the work was accepted by the
owner). Thus, under the hidden defect exception to the acceptance
doctrine, a party asserting a negligent construction claim must show
that the defect was not “readily observable on reasonable inspection”
at the time that the work was completed, turned over to, and
accepted by the original owner.
Certified questions answered. All the Justices concur. Decided June 3, 2019.
Certified questions from the United States District Court for
the Middle District of Georgia.
Dentons US, Nathan L. Garroway, Jeffrey A. Zachman,
Gregory T. Wolf, for appellant.
James Bates Brannan Groover, Duke R. Groover, Lee M. Gillis,
Jr.; Gray, Rust, St. Amand, Moffett & Brieske, Matthew G. Moffett,
Jacquelyn D. Smith; Jones Cork & Miller, Christopher J. Arnold,
Rufus D. Sams III; Adams, Hemingway & Wilson, Kathryn M.
Willis, for appellees.