Guam Supreme Court Decides Questions Raised by Collapse of Defective Water Reservoir Tank

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Guam – The Guam Supreme Court Thursday issued an opinion in the case of Maeda Pacific Corp. v. GMP Hawaii.

The decision was authored by Chief Justice F. Philip Carbullido and joined by Associate Justice Robert J. Torres and Associate Justice Katherine A. Maraman.

For the first time, the court considered two certified questions from the District Court of Guam.

The dispute originated in the construction of a defective water reservoir tank.

READ the Guam Supreme Court’s Decision HERE

In 2003, after the U.S. Naval Facilities Engineering Command solicited proposals to design and rebuild a replacement water supply system at Andersen Air Force Base, Maeda Pacific Corporation (“Maeda Pacific”) hired GMP Hawaii, Inc. (“GMP”) to prepare a cost estimate. Maeda also subcontracted construction of the water reservoir tank in question to Smithbridge, Inc. (“Smithbridge”), who in turn hired Jorgensen & Close (“Jorgensen”) for structural engineering. When the tank had been substantially completed, but not yet delivered to Maeda, the tank roof collapsed during a test of the water pumping system.

Maeda alleged a structural design defect was the proximate cause of the collapse.

Maeda filed in the District Court claims of breach of contract and negligence against both GMP and Jorgensen. The two certified questions from the District Court arose from motions for summary judgment filed by Jorgensen and Smithbridge. Jorgensen and Smithbridge argued that Maeda sought damages for the cost of repairing damage caused by the collapse were considered “economic losses” and were not recoverable in tort claims.

In answering the certified questions, the court first held that it may entertain certified questions from other courts, even in the absence of a specific Guam statute. Addressing the first certified question, the court concluded that the economic loss doctrine applies in Guam. The second certified question involved the extent of the applicability of the economic loss doctrine in the commercial construction context—specifically, whether it should apply to negligence claims against design professionals (e.g., engineers and architects).

The court answered the second question and held that in commercial construction litigation, if a party in privity of contract with a design professional seeks economic loss damages, but alleges no personal injury or damages to property other than the subject of the contract, that party is limited to contractual remedies and may not maintain a negligence cause of action. The court rejected the argument that a different standard of care should be applied to design professionals beyond that applied to other parties in negligence claims.

The court further held that in the commercial construction context, the economic loss doctrine may apply regardless of privity existing among the parties. Rather, application of the doctrine depends on the respective parties’ opportunity to bargain or negotiate the allocation of risks of negligent design. Finally, the court concluded that its holding on the application of the economic loss doctrine was specific to the facts in this case, where
the parties involved were sophisticated and possessed comparable bargaining power. In contrast, situations involving a more profound asymmetry of bargaining power between the parties (i.e., third-party purchaser such as home buyers, who remain outside the scope of a commercial construction project) may require a different analysis.