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California Supreme Court Expands Liability of Design Professionals Architect Without Privity of Contract Properly Named in CD Action

July 10, 2014

California Supreme Court Expands Liability of Design Professionals
Architect Without Privity of Contract Properly Named in CD Action

 Beacon Residential Community Association v. Skidmore, Owings, and Merrill LLP
Supreme Court of California, July 3, 2014

WHY IS THIS CASE IMPORTANT

This case expands the scope of design professionals’ liability under California common law. The Supreme Court of California has held that, where a design professional plays a primary role in the design and construction of a project, a design professional may be held liable to ultimate purchasers even if the professionals lack privity with those third parties. A homebuyer or third party may now bring claims against such a principal design professional for negligence under common law tort theories and potentially for violations of the construction standards set forth in SB 800. On a larger scale, businesses should take note that the Supreme Court’s action in this matter is representative of the growing trend in California to sideline privity as a requirement in negligence based actions.

HOLDING

The Supreme Court of California held that principal architects owe a duty of care to future homeowners relating to the design of residential properties. The Court found that such a duty extends to homeowners even when the architects do not actually build the project or exercise ultimate control over construction and when there is no privity or contractual relationship between the architects and the homeowners.

FACTUAL BACKGROUND

Skidmore, Owings & Merrill, LLP (Skidmore) and HKS, Inc. provided architectural and engineering services for the construction of the Beacon Residential Condominiums, a 595 unit condominium project in San Francisco. The companies provided original design services and played an active role through the construction process.

The homeowner’s association Beacon Residential Community Association (HOA) filed suit against the original owners and developers of the condominium as well as Skidmore and HKS. The HOA alleged a variety construction defects, including “solar heat gain” (a condition causing units to reach excessively high temperatures). The HOA alleged that the solar heat gain was due to Skidmore’s and HKS’s approval of less expensive windows and a building design with inadequate ventilation in violation of state and local building codes. The HOA also alleged in its Third Amended Complaint that it was the owner which made the final decisions.

The design professionals demurred to the complaint claiming that they owed no duty of care to the HOA or its members. The trial court concurred finding the allegations in the complaint did not show that the work of either company went beyond the typical role of an architect, i.e. making recommendations to the owner. Relying on Bily v. Arthur Young & Co., (1992) 3 Cal.4th 370, and Weseloh Family Limited Partnership v. K.L. Wessel Construction, (2004) 125 Cal App.4th, the court sustained the demurrer based on the rationale that an architect that makes recommendations but not final decisions relating to the construction owes no duty of care to future homeowners with whom it does not have privity. The Court granted the HOA leave to amend the complaint to alleged that the design professionals dictated and controlled the decision to eliminate the ventilation ducts and acted in manner contrary to the owner’s directions or ignored the owner’s directions. The HOA declined and appealed.

Upon appeal, the First District of the California Court of Appeal reversed the trial court’s holding. The Court of Appeal held that the trial court erred in sustaining the defendants’ demurrers and concluded the design professionals did owe a duty of care to the HOA. Not only did the Court of Appeal distinguish Wesolah on the basis that it concerned the duty of care owned by a design professional to a commercial property owner in the context of a summary judgment motion and conclude that Bily did not apply, but also the Court of Appeal concluded that the Right to Repair Act (or Senate Bill 800) expressed a legislative intent to impose a duty of case to future homeowners on design professionals.
Thereafter, Skidmore and HKS petitioned the Supreme Court for review. The Supreme Court affirmed the First District of the California Court of Appeal’s holding.

ANALYSIS

The Supreme Court’s concluded that the architects in this matter owed a duty to the HOA even in the absence of privity based on an application of the factors in Bily and Biakanja v. Irving (1958) 49 Cal.2d 64.

In arriving at its decision, the Supreme Court also looked to the common law and found that the requirement of privity is becoming an outdated principle in negligence actions. The Court provided a history of previous precedent which diminished the effect of privity in construction law and which held architects liable to third parties. In support of this trend, the Court pointed to included Aas v. Superior Court (2000) 24 Cal.4th 627, Stewart v. Cox (1961) 55 Cal.2d 857, and Hale v. Depaoli (1948) 33 Cal.2d 228. However, the Court declined to decide whether the Right to Repair with its references to “design professionals” was dispositive of the issue before it. Rather, the Court stated that it could draw its conclusions from an application of Biakanja and Bily, which are discussed below.

The Court initially relied on the factors outlined in Biakanja to determine if a duty of care exists in the absence of privity. The Biakanja factors include: 1) the extent to which the transaction was intended to affect the plaintiff, 2) the foreseeability of harm to him, 3) the degree of certainty that the plaintiff suffered injury, 4) the closeness of the connection between the defendant’s conduct and the injury suffered, 5) the moral blame attached to the defendant’s conduct, and 6) the policy of preventing future harm. The Court concluded it did.

Following the Biakanja factors, the Court The court found that (1) the work was intended to benefit the homeowners living in the units that they designed and helped construct, (2) it was foreseeable that the homeowners would be among the class of persons harmed by the negligent design of the units, (3) the HOA’s members suffered injury in that the design defects have made their homes unsafe, (4) there was a close connection between the design professional’s role as principal architects and the injury suffered, (5) significant moral blame attaches to the design professional’s conduct due to their unique and well compensated role and their awareness that the future homeowners would rely upon their expertise to design safe and habitable homes, and (6) the policy of preventing future harm to homeowners reliant on the specialized skills of architect.

The Supreme Court also highlighted three factors that distinguished this matter from Bily, a suit brought by investors in a computer company against an accounting firm that the computer company had hired to conduct an audit and issues audit reports and financial statements. In the present case, the Court determined that Skidmore and HKS had a common law duty to the plaintiffs for the following reasons: 1) the closeness of the connection between the defendants’ conduct and the plaintiff’s injury in that Skidmore and HKS were the principal architects on the project; 2) the limited and wholly evident class of persons and transactions that Skidmore’s and HKS’ conduct was intended to affect in that the aim of the transaction was to provide residences for future homeowners; and 3) the absence of private ordering options that would more efficiently protect homeowners from design defects and their resulting harms.

Finally, the Supreme Court also distinguished and limited the applicability of Weseloh. In Weseloh, a property owner contracted with a general contractor to build a car dealership. A subcontractor Sierra built the retaining walls for the project and hired Randle, an employee of engineering company Owen to design the retaining walls. InWeseloh, the Court of Appeal held that since neither Randle nor Owen had a contractual relationship with Weseloh, they owed no duty to the owner Weseloh. The Supreme Court explained that the defendants in Weseloh played a “materially different role” in the construction project than did Skidmore and HKS. Significantly, neither had a role in the construction of the retaining wall, and their limited role was primarily to benefit Sierra. Additionally, upon reviewing the case at the summary judgment stage, the Court in the Wesolah matter found the Plaintiffs in that case failed to provide evidence showing how or the degree to which design defects caused the damages claimed. The Supreme Court noted that no such problem confronted it here at the demurrer stage.

About Wood, Smith, Henning & Berman LLP

Founded in 1997 by David F. Wood, Kevin D. Smith, Stephen J. Henning and Daniel A. Berman, WSHB is today one of the fastest growing firms in the United States. WSHB currently employs 150 attorneys in 15 offices in Arizona, California, Colorado, Nevada, New Jersey, New York, Oregon and Washington. WSHB is also one of the most diverse firms in the country. Approximately 44% of WSHB attorneys are female, 42% of WSHB partners are female, and 25% of WSHB attorneys are minority. With active practices in medical malpractice and healthcare, commercial, construction, environmental, professional liability, employment, real estate, transportation, toxic tort and intellectual property litigation, WSHB’s attorneys have tried over 860 cases to verdict with a 92% success rate.

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