Source: http://www.lexology.com, June 5, 2014
By: Gregory T. Hanson, Gordon Rees Scully Mansukhani LLP
On May 7, the California Supreme Court heard oral arguments in Beacon Residential Community Assn. v. Skidmore, Owings, & Merrill LLP, a case that will have a huge impact on design professional liability in California when third-party purchasers sue a designer alleging defective designs.
The Beacon is a mixed-use project consisting of 595 condominium units and some commercial and office space. Plaintiff Beacon Residential Community Association (the HOA) sued the initial developer, a subsequent developer, the architects, the general contractor and subcontractors asserting SB 800 and common-law causes of action. The architects demurred to the HOA’s Third Amended Complaint asserting they owed no duty of care to the HOA.
The trial court sustained the demurrer, reasoning that the architects had not asserted direct “control” over construction decisions, and thus, under the Biakanja ((1958) 49 Cal. 2nd647), Bily ((1992) 3 Cal. 4th 370) andWeseloh ((2004) 125 Cal. App. 4th, 152) line of decisions, ruled the architects owed no duty to the HOA.
The HOA appealed and in December 2012, the California Court of Appeal, First Appellate District, reversed the trial court ruling in Beacon (2012) 211 Cal.App.4th 1301. The Court of Appeal reasoned that in analyzing the various factors elucidated in Biakanja and Bily, and distinguishing those and the Weseloh facts from those inBeacon, design professionals do owe a duty of care to eventual third-party purchasers. The architects appealed to the California Supreme Court asserting that the rulings in Weseloh and Beacon are inapposite.
During the Supreme Court oral arguments, the justices focused on: 1) the foreseeability of harm to the plaintiff; 2) the closeness of connection between the defendant’s conduct and the injury suffered; and 3) the potential imposition of liability out of proportion to fault. The court distinguished Beacon from the former line of cases in that: 1) it was imminently foreseeable that a defective design of residential units would affect eventual purchasers of the units; 2) the architects were directly responsible for the alleged design defects given their “intimate involvement” with construction value-engineering decisions and project observation (i.e., they did not simply draw plans, hand them over, then leave the project); and 3) unlike Weseloh, where the retaining-wall designers provided only $2,000 in services relative to a $6 million claim, Beacon architects provided $5 million worth of services in a $45 million claim.
The Supreme Court has 90 days from May 7 to issue an opinion. Given the Supreme Court’s comments and analysis at oral argument, it looks like it may agree with the Court of Appeal and rule that in the context of residential-unit design, design professionals do owe a duty of care to eventual third-party purchasers regardless of lack of privity.