In an opinion issued on October 9, 2020, Judge Susan Hickey of the Western District of Arkansas held that the implied duty of design adequacy that was created under the case of United States v. Spearin, 248 U.S. 132 (1918), extends to contracts between private parties when Michigan law applies.
The case of Midamerica, Inc. v. Bierlein Companies, Inc., 2020 U.S. Dist. LEXIS 187540, involved the decommission, demolition, and decontamination of a retired power plant. Bierlein served as the general contractor on the project and engaged Midamerica to perform remediation and waste disposal. Midamerica's tasks under its subcontract included cleaning Fuel Oil from the plant's pipelines and associated equipment. Before the project commenced, Bierlein asked Midamerica to prepare a bid based on certain plans and specifications. Midamerica contended in the litigation that those plans and specifications said that only material it would be cleaning was No. 2 Fuel Oil. Midamerica said that this was confirmed by the plant owner during a pre-bid walkthrough. On the basis of these representations, Midamerica submitted its bid.
After it started its work, Midamerica discovered that the material was instead No. 6 Fuel Oil, which has a much higher boiling point, carbon chain length, and viscosity, making it significantly harder to clean. Midamerica claimed that it incurred over $400,000 in additional costs to remove the No. 6 Fuel Oil.
In its action to recover the increased construction costs, Midamerica asserted claims for breach of contract and unjust enrichment against Bierlein. The district court applied Michigan law, which was specified in Midamerica's subcontract. Applying Michigan law, the judge found that the implied warranty of design adequacy, which was first articulated to apply to government contracts in Spearin (and know to practitioners as the Spearin Doctrine), applied to contracts between private parties. Thus, Midamerica was entitled to rely on the plans and specifications when it prepared and submitted its bid.
This decision makes Michigan the latest state to extend this implied warranty to private contracts.
Michigan's implied warranty of design adequacy applies to contracts between private parties.