In a case of first impression, in April 2016 the Northern District of Ohio held in Eberhard Architects, LLC v. Bogart Architecture, Inc., 314 F.R.D. 567 (N.D. Ohio 2016), that a contractor and its subcontractors may have committed copyright infringement by continuing work after the architect terminated the nonexclusive license to use the architect’s instruments of service (“IOS”).
Eberhard Architects, LLC (“Eberhard”) agreed to provide architectural services to Lifecare Hospice (“Lifecare”) in accordance with AIA B101-2007 (the “Agreement”). Based on the standard language of AIA B101-2007, Eberhard granted Lifecare a nonexclusive license to use the IOS created by Eberhard in connection with the construction of a 12-bed hospice inpatient facility:
Upon execution of this Agreement, the Architect grants to the Owner a nonexclusive license to use the Architect’s Instruments of Service solely and exclusively for purposes of constructing, using, maintaining, altering and adding to the Project, provided that the Owner substantially performs its obligations, including prompt payment of all sums due, under this Agreement. The Architect shall obtain similar nonexclusive licenses from the Architect’s consultants consistent with this Agreement. The license granted under this section permits the Owner to authorize the Contractor, Subcontractors, Sub-subcontractors, and material and equipment suppliers, as well as the Owner’s consultants and separate contractors, to reproduce applicable portions of the Instruments of Service solely and exclusively for use in performing services or construction for the Project. If the Architect rightfully terminates this Agreement for cause as provided in Section 9.4, the license granted in this Section 7.3 shall terminate.
Eberhard obtained a copyright in connection with the IOS for the project. Lifecare later breached the Agreement by failing to make required payments and Eberhard terminated the Agreement. Eberhard brought suit against Lifecare for breach of contract, and also asserted claims for copyright infringement against Lifecare and the contractor and subcontractors (the “Contractor Defendants”) alleging that the Contractor Defendants continued to use Eberhard’s copyrighted IOS after Eberhard terminated the nonexclusive license.
Relying on the language of AIA B101-2007, the Court noted that the parties expressly agreed that Eberhard’s termination of the Agreement would also terminate the nonexclusive license. The Court therefore denied the Contractor Defendants’ motion to dismiss and allowed Eberhard to proceed with its copyright infringement claims against the Contractor Defendants.
The Eberhard decision demonstrates the full scope of the power an architect wields via its ability to grant and revoke a nonexclusive license. If the architect terminates its design agreement with the owner, it may be able to effectively halt work on the entire project until the dispute is resolved or the parties reach an agreement as to the continued use of the architect’s IOS. In light of this possibility, contractors desiring additional protection should consider including language in their contracts permitting them to suspend work (or even terminate the contract) if the architect terminates the design agreement and questions arise as to the validity of the license protecting the architect’s IOS.
In an unreported decision handed down this summer, the United States District Court for the Eastern District of Pennsylvania in Elliott-Lewis Corp. v. Skanska USA Bldg., Inc., 2015 WL 4545362 (E.D. Pa. July 28, 2015), declined to extend the Bilt–Rite exception to Pennsylvania’s economic loss doctrine – which established that architects and design professionals can be liable in tort to contractors for purely economic harm resulting from the inclusion of erroneous information in design documents – to a contractor that supplied information to design professionals during remedial construction.
The Franklin Institute (“Franklin”) contracted with Saylor Gregg Architects (“Saylor Gregg”) to design significant renovations to the Franklin Institute in Philadelphia. Saylor Gregg entered into an agreement with Urban Engineers (“Urban”) and Marvin Waxman Consulting Engineers, Inc. (“Marvin Waxman”) to provide engineering services for the project. Franklin contracted separately with Skanska USA Building, Inc. (“Skanska”) to construct the project.
Skanska subcontracted with Elliott-Lewis Corporation (“ELCo”) to install the project’s HVAC piping and controls. Skanska and ELCo had discretion to choose the exact make and model of the HVAC system’s cooling tower so long as Marvin Waxman’s design specifications were met, and ultimately elected to use a four-cell cooling tower which required different piping and controls than the two-cell tower specified in the original plans.
The HVAC system was not completed in accordance with project deadlines and the cooling tower overflowed when the system was first tested, damaging the building itself. In troubleshooting the issues with the HVAC system, Marvin Waxman utilized information provided by the supplier of the HVAC’s pump system, Patterson Pump Company (“Patterson”), and Patterson’s representative, Clapp Associations, Inc. (“Clapp”). After several weeks of unsuccessful repair efforts, Patterson eventually admitted that there were problems “intrinsic to the pumps supplied.”
Despite performing extra work on the HVAC system and providing Franklin with a temporary cooling system, ELCo was never paid for this extra work by Skanska. ELCo sued Skanska for breach of contract and Skanska filed a third-party complaint against Saylor Gregg, Urban, and Marvin Waxman (the “Design Defendants”), claiming that ELCo’s extra work was necessitated by errors in the design drawings and specifications. The Design Defendants filed a fourth-party complaint against Patterson and Clapp, alleging that they reasonably relied on inaccurate information regarding the HVAC system supplied by Patterson and Clapp when drafting the design documents.
Patterson and Clapp claimed that the Design Defendants’ suit was barred by Pennsylvania’s economic loss doctrine, which prohibits a plaintiff from recovering in tort if the loss suffered is purely economic and not accompanied by an injury to either person or property. However, the Design Defendants argued that their claims were valid under the Bilt–Rite exception to the economic loss doctrine, which permits recovery in tort for purely economic injuries when information is negligently supplied by one in the business of supplying information (such as an architect or design professional) and where it is foreseeable that the information will be used and relied upon by third parties. See Bilt–Rite Contractors, Inc. v. The Architectural Studio, 866 A.2d 270 (Pa.2005).
Here, the Eastern District declined to extend this exception to Patterson and Clapp because they are not in the business of supplying information. Specifically, Patterson manufactured a product and Clapp facilitated the sale of that product. The court noted that the “sale of a product is fundamentally different than the sale of information, even if the seller provides information about the product to consummate the sale,” and that a “manufacturer and a manufacturer’s representative are very different from the accountants, lawyers, and architects noted in Bilt–Rite.” The court further reasoned that, if the Bilt–Rite exception were to apply to Patterson and Clapp in this situation, then many typical commercial transactions would be subject to this standard and the economic loss doctrine would be rendered meaningless. Because the sale and purchase of a product often involves at least some conveyance of information by the seller, the court determined that broadening Bilt–Rite to include such run-of-the-mill transactions was inappropriate and dismissed the Design Defendants’ claims against Patterson and Clapp.
While the Bilt–Rite exception remains narrowly-tailored, the court also noted that the Design Defendants failed to demonstrate that they reasonably relied on any representations made by Patterson and Clapp when drafting the design documents. Therefore, contractors should therefore be wary of making representations to design professionals on which the design professionals will rely when drafting design documents.
On May 24, 2016, the Commonwealth Court in Se. Reprographics, Inc. v. Bureau of Prof’l & Occupational Affairs, No. 2235 C.D. 2014, 2016 WL 2979844 (Pa. Commw. Ct. May 24, 2016) addressed an issue of first impression and held that the petitioner did not perform an “engineering land survey” in violation of the Engineer, Land Surveyor and Geologist Registration Law (Law), 63 P.S. §§ 148 – 158.2, when it used maps and mobile GPS/GIS equipment to locate and identify a customer’s physical assets for a non-engineering purpose.
Southeastern Reprographics, Inc., now known as The Davey Resource Group (“DRG”), was commissioned by Central Electric Cooperative, Inc. (“CEC”), a rural electric distribution cooperative, to locate every piece of electric equipment owned by CEC, including transmission poles, distribution poles, security and street light poles, mounted equipment, regulators, and meters. The purpose of this field inventory was to provide CEC with sufficient information to create a GIS database of its existing assets. Using GIS/GPS technology, DRG assessed over 100 square miles of land, located CEC’s assets to sub meter accuracy, took an inventory of all equipment at each location, and identified and tagged the equipment. DRG then transferred this data to CEC in the form of x-y coordinates to be electronically plotted on a base map.
Based on this information, the State Registration Board for Professional Engineers, Land Surveyors, and Geologists (the “Board”) concluded that DRG performed an “engineering land survey” as defined by the Law when it determined by measurement methods the position of fixed objects on the Earth’s surface through the use of GIS/GPS equipment. According to the Board, DRG violated the Law when it conducted this “engineering land survey” without the necessary license.
On review, the Commonwealth Court reversed the Board’s determination. Agreeing with DRG, the Court held that “‘engineering land surveys’ regulated or encompassed under the Law are those that are performed in connection with or related to building construction and land development.” And because DRG’s field inventory of CEC’s assets was performed purely so that CEC could create a GIS database of its electrical equipment, it was not an “engineering land survey” as defined by the Law.
In a dissenting opinion, Judge McCullough cautioned the Court against overturning legal determinations based on the Board’s extensive “technical expertise.” Judge McCollough also noted that the Law’s licensure requirements are in place to “to safeguard life, health or property and to promote the general welfare.” And because CEC shared DRG’s maps with PA One Call and EMS services for six or seven different counties, Judge McCollough believed that the risk of not properly identifying and locating electrical infrastructure was so great that it should only be entrusted to a licensed professional. The dissent also expressed dissatisfaction with the majority’s limiting the definition of “engineering land survey” to surveying activities performed in connection with building construction or land development.
Overall, the Court’s opinion demonstrates that licensure under the Law is not required to simply determine the location of objects on the Earth’s surface. However, design professionals should be aware that they must be licensed under the Law before performing any surveying activities in conjunction with building construction or land development.
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