Mechanical, Inc. v. Venture Electrical Contractors, Inc. (Economic Loss Doctrine)

*This case is recommended for publication.


In Mechanical, Inc. v. Venture Electrical Contractors, Inc. (2018AP2380), the Court of Appeals District II held the economic loss doctrine bars a negligence claim from a subcontractor against another subcontractor with whom there was no contract. The economic loss doctrine is a judicially created doctrine typically barring lawsuits that seek to recover solely economic losses arising from the nonperformance of a contract, including costs associated with delays and lost profits.

J.P. Cullen & Sons, Inc. hired both Mechanical, Inc. and Venture Electrical Contractors, Inc. as subcontractors in a construction project. Mechanical and Venture did not have a contractual relationship with each other. The contracts between Mechanical and Cullen and between Venture and Cullen both required that the subcontractors perform the work within a specified amount of time. The subcontractors would be responsible for any costs incurred by delay.

There was a delay in the construction, and Venture first sought to recover its overtime pay and other incurred costs of delay from Cullen. Cullen denied Venture’s claim pursuant to the contract. Venture later sought these delay-related damages from Mechanical, claiming Mechanical was negligent in failing to timely perform work on the project, which in turn caused Venture to incur delay-related losses.

Mechanical argued Venture’s claims were barred by the economic loss doctrine. Venture argued that the economic loss doctrine does not preclude its claims because Mechanical and Venture did not have a contractual relationship.

The court held that the economic loss doctrine still applies to the horizontal relationship between subcontractors, even when there is no direct contractual relationship. In this case, the economic loss doctrine applied because the loss arose from construction duties under interrelated contracts on the Cullen project. Venture had the opportunity to address risk of economic loss due to delay in its contract with Cullen. In accordance with the purpose of the economic loss doctrine – to avoid tort claims when parties have contracted for potential losses – Venture cannot pursue a tort claim outside its contract with Cullen, which was interrelated to Cullen’s contract with Mechanical. Since Venture had the opportunity to address the risk of delay-related loss by contract, even if not in a contract specifically with Mechanical, it cannot file a tort claim against Mechanical for those losses.