Beacon Residential Community Association v. Skidmore, Owings & Merill

in: AIACC / 3 Comments
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There is before the California Supreme Court an issue of great – if not grave – importance for design professionals. And depending on how the court rules, its decision could reverse many protections architects have come to enjoy, such as privity of contract, and not owing a duty to anyone other than their client.
Beacon v. SOM is not so much about what SOM did or did not do, but rather that of resolving a policy matter between two lower courts. Here the California Supreme Court must determine if the appellate court erroneously ruled when it reversed the trial court decision to uphold that SOM owed no duty to Beacon. The appellate court, relying on the Right to Repair Act of SB 800, expanded the interpretation of the Repair Act to conclude it imposed a duty of care on design professionals in every such case. SB 800 established construction standards for residential housing.

The case: SOM designed a condominium project for a developer client in San Francisco, California. Due to the mild Bay Area climate, the project did not include providing an air conditioning system for the individual condominium units in the design. The allegation: glazing specified by the architect resulted in an extremely high solar heat gain, rendering some of the condominium units uninhabitable during days of higher than normal temperatures. It is SOM’s claim that the installed glazing was the result of a developer-led value engineering decision which led to the installation of improper glazing.

However, glazing is not the issue. As a result of the original lawsuit in which Beacon sued SOM in the lower court, (even though SOM had no contract with Beacon, and SOM prevailed at trial, but then lost on appeal in the appellate court), the matter is now before the California State Supreme Court for determination as to whether an architect can be liable for claims from a third party with whom they did not have a contract. Simply stated, this case will determine: are architects accountable to third party purchasers of property for negligent design?

From a legal perspective, the issues trace to a line of cases which states professionals do not owe a duty to those with whom they are not in contract, starting with Bily v. Arthur Young & Co., a 1992 decision by the California Supreme Court that held that professionals (in that case, an accountant) do not owe a duty to anyone other than their client. This was then developed further in the 2001 decision of Ratcliff v. Vanir. Finally, in 2004 there was the case of Weseloh Family Limited Partnership v. K.L. Wessel Construction Co. Each of these decisions has progressively improved the position of design professionals relative to the duties they owe to their clients or others.

This issue is important because if third parties who are not in privity of contract with the design professional are allowed to file suit, the door opens for contractors, construction managers, subsequent owners, and others to sue the design professional. Having this type of exposure to liability would not only increase liability to the design professional, but create a scenario of torn loyalties, making it difficult for the architect to properly serve their client, the owner, if doing so may subject the architect to liability claims by the contractor. The recent case involving SOM reverses the recent history of cases by holding that, in fact, architects may have a duty to those with whom they are not in contract.

This has a national effect, not only on those firms which practice in California and in other states, but if California adopts a rule that architects owe duties to those with whom they are not in contract, such a case would be instructive to other jurisdictions. The rationale used by the California Court in crafting such a rule would provide a template to courts and litigants in other states of how to hold architects liable for duties that they never before had.
Clearly, the consequences for the profession are grave should the California Supreme Court rule in favor of Beacon. And because of the seriousness of this matter, the AIACC has engaged the legal assistance from one of its allied partners—the law firm of Collins, Collins, Muir + Stewart (CCM+S).

CCM+S has agreed to assist the AIACC with the preparation of an amicus curiae (friend of the court) brief to the California Supreme Court. CCM+S has agreed to file a request with the Supreme Court that they be permitted to present an amicus curiae brief on behalf of the AIACC. Concurrent with the filing of that request, the court rules require CCM+S also file the amicus brief. This process will be assisted by CCM+S’ appellate department, as well as attorneys that are intimately involved in the representation of architects. At this time the AIACC’s amicus is scheduled to be filed on or around September 17, 2013.

CCM+S has generously reduced their rates and fees to assist AIACC with this process. As you can see and appreciate, CCM+S’s existing relationship with the AIACC, and their knowledge with the previous and relevant court cases cited, has reduced the amount of legal research needed to write the amicus brief, and thus significantly reduced the cost to provide these services.

Since this is clearly not just a California issue, and because this matter is significant on both a national and state level, the AIACC requested the support and assistance of the AIA in the funding of the amicus. Seeing the importance of this issue the AIA has agreed to support the amicus, including financial support in the amount of $2,500 to help defray the cost of the amicus and has also offered to add their name to the brief, subject to their review and approval of the brief.
Additionally, the American Council of Engineering Companies (ACEC) will file its own amicus brief with the California Supreme Court.

The AIACC will continue to provide updates on the case as it progresses.

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Kurt Cooknick, Assoc. AIA

Kurt T. Cooknick, Assoc. AIA, is the Director of Regulation and Practice. With experience in the profession and over 15 years as an advocate on behalf of the architectural profession in California, he is passionate about protecting and advancing the profession.

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  1. avatar
    Howard I. Littman, AIA

    Kurt, I must say that I have mixed feelings regarding the pending case, which I have followed (although not in depth) for some time.

    CCMS has been a friend of the California design professional community for many years, and I appreciate their involvement, as does the AIA (apparently). However, as you note, this is a case with potentially far-reaching consequences – both locally and nationally. With that in mind, the fact that AIA National has determined the level of importance to be worthy of a contribution of only $2,500 toward the amicus brief speak volumes about where its head is at.

    Separately, as to the case itself, I have doubts about a couple of points. First, as to contractors and subs: The rationale (or analogy) does not seem to hit home. The aggrieved builder has a course of action (albeit indirect) against design professionals and impacts of negligent design – although not directly – by claiming damages against the original Owner (the client for whom they constructed the project). So I am not convinced a decision against SOM in this case opens a door that is not already at least ajar, and will likely not lead to a deluge of new actions.

    The successor owner of a property is in a very different position, since he has no contractual relationship to the designer (even indirectly), and thus no potential remedy for even the most egregious design flaws. This case raises what I think is at least an issue with some merit. Perhaps that is because I have seen, in my field, both excellent work and fatal errors by design firms.

    An obvious theoretical might be, as an example only: A property owner (Mr. A) engages A/E’s and then builders, who ultimately complete a project on December 31. The Owner finds himself in a financial bind personally, but a great real estate market, so on January 1, he sells the project to Mr. B. Mr. A still has to declare bankruptcy, and moves to Brazil.

    In February, when rainstorms hit, it is then factually/indisputably determined (at least for this theoretical) there are serious flaws in the plans that led to deficient construction, allowing water intrusion and significant resultant damage. The cost to mitigate will exceed the value of the project after including both reconstruction and Mr. B’s collateral damages.

    Backing up one step – the A/E’s had an underlying (and I believe over-arching) obligation to design a project without significant flaws. The only open question (raised by this case) is whether it really matters who owns the building at the time the negligent design is discovered. To the designer, does it matter – that is, would the plans have been any different, or the physical result any different, if the title block on the plans listed a different Owner name… or if the property was still owned by Mr. A and only rented to Mr. B?

    Does the professional standard of care relevant to the A/E’s original obligation to design in a non-negligent fashion change when the building is sold? Of course not.

    So my ‘conflict’ in thinking about this case boils down to whether Mr. B should be entitled to ‘inherit’ the originally-promised A/E performance when he bought the building the day after it was finished. Forgetting the legislation involved, or the case law that led to this point, somehow I keep circling back on the ethical issue of whether a designer needs to be accountable when it fails in some significant way to perform its duties in a professional manner. Conversely, is it ethical that Mr. B has to ‘eat’ the damaged building simply because there is now a different name on the deed?

    I know some will say Mr. B should sue Mr. A, who in turn can sue the A/E’s. Of course, that suit would never proceed, since Mr. A is no longer a viable player. [This is, as you know, entirely ordinary in the development field, where single-purpose entities ‘disappear’ the day after a project has been occupied.] Thus Mr. B is left without recourse… as any insurance that might exist would probably be inadequate.

    However, this all might really be form over substance. After all, if Mr. A was still in country the A/E’s would be held accountable for their errors, even if this was via a pass-through suit.

    When a property Seller transfers to a Buyer this conceptually includes the ability to stand in the Seller’s shoes for various purposes. I am not convinced the sale should excuse and give the A/E’s a free ride on errors it made solely because of the new ownership. It seems to me at least worth considering if the A/E’s promise of ‘commodity’ should survive the formalities of a financial transfer.

    In my perfect world A/E’s would fight vigorously against any unmerited allegation of negligence. However, they would also stand up and confess (and ‘make it right’) when the allegations are accurate (and in some cases obvious). That actually might go a long way toward restoring the public image of Architects – something the AIA supposedly is diligently addressing at this juncture – because they have collectively fallen (or at least are faltering) from their historic pedestal.

    Professionals like Architects have long had a reputation/image as being morally and ethically a notch above the average businessman. Taking responsibility for one’s errors should be on equal footing with accepting praise for one’s successes. Arguing that A/E’s should be immune from consequences of their negligence – only on a technicality – does not seem consistent with that image.

  2. avatar
    Bob Chase, AIA

    Worthwhile and significant effort by the California Council and AIA National. Thank you Kurt.

  3. avatar
    Laura B Macaulay

    Kurt –
    Good information, I agree that if Beacon is upheld the architect will be subject to all sorts of law suits. The architect would then be contracting and being paid by one entity only to be sued and trying to anticipate the needs of another unnamed participant. Many small practitioners would most likely go without insurance since they would be unable to afford it. But I think most would simple close shop due to the tremendous financial burden each potential client would place on them. The end result would be only large firms and the cost for services would be astronomical.

    Very perplexing!

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