In a decision which should bring some additional clarity in regard to the liability of
professional consultants to third parties involved in public works developments and
construction projects, the California Court of Appeal, First District held in Lake Almanor
Associates, L.P. v. Huffman-Broadway Group, Inc. (2009)178Cal.App.4thJ194 (the "Lake
Almanor" case) that a developer could not sue a consultant hired to prepare. an
Environmental Impact Report (IE1R")even though the consultant breached its contract with
the public entity to provide the EIRin a timely fashion and the developer's application was
allegedly rejected due to the consultant's failure to provide the EIR within the required
The facts of the Lake Almanor case are somewhat compelling and should stand as
decisive case law. In Lake Almanor, a developer, Lake Almanor Associates, L.P. (herein,
"Developer") submitted a project application to the County of Plumas ("County")for a 1,392
acre mixed use development. Acomplete, revised development application was submitted
to the County in April 2005. Under the California Environmental Quality Act ("CEQA"),
the County was required to prepare an Environmental Impact Report or "EIR"for the
proposed development. See, Public Resources Code section 21151. Under CEQA, the
County was also required to establish a time limit for completion and certification of the
ElR, not to exceed one year from submission of the project applicant's complete application.
See, Public Resources Code section 9 21151.5(a)(1). The Developer was responsible for the
cost of the ElR.
In July 2005, the County entered into a written contract with Huffman-Broadway
Group, Inc. ("Consultant") to prepare the EIR. The Consultant's contract identified the Lake
Almanor project, required the Consultant to provide a copy of the EIR to the Developer
and did not contain any language which barred other parties from claiming a third party
beneficiary status under Civil Code 1559. The Consultant's contract contemplated the.
submission of an administrative draft EIR to the County by November 14, 2005. The
Consultant failed to meet the deadline under its contract and the County delivered a notice
of termination to the Developer in June 2006. The Consultant sought additional time and
delivered a "Preliminary Working Draft EIR". The County rejected the Preliminary
Working Draft EIR as deficient and sent the Developer a second notice of rejection in
September 2006. The Consultant then submitted invoices for its services and the County
demanded reimbursement from the Developer. The County also demanded
reimbursement by the Developer for the services of a second consultant to prepare the EIR.
The Developer then sued the Consultant on the bases of its being a third party
intended beneficiary and in tort. The trial court, after granting leave to amend, sustained a
demurrer to the Developer's second amended complaint on the basis that the Developer
was not an intended beneficiary under the Consultant's contract given that it was neither a .
creditor or donee beneficiary and because the Consultant owed no duty in tort to the
After a judgment was entered in favor of the Consultant, the Developer appealed.
The Court of Appeal affirmed the trial court's decision. In its published opinion, the
Court of Appeal ruled that the Developer could not be an intended beneficiary because
there was no donative intent and because prior published case law held that the public
entity did not owe any duty to a developer to provide an EIR. See, Mission Oaks Ranch,
Ltd. v. County of Santa Barbara (1998)65 Cal.App.4th 713,720 (disapproved on another
ground in Briggs v. Eden Councilfor Hope & Opportunity (1999) 19 Ca1.4th1106,1123, fn.
10) ("Mission Oaks" case). The Court of Appeal acknowledged that the Consultant's
contract lacked language disclaiming a duty to the Developer (which was the case in
Mission Oaks) but noted that there were no terms in the contract which provided for any
liability to the Developer in the event of a breach or otherwise demonstrating that the
Developer was an intended beneficiary. The Court of Appeal also ruled that the
Consultant did not owe any duty under statute to the Developer.
The Court of Appeal went on to hold that that there was no duty in tort, either.
As to this issue, the Court of Appeal examined "the nature of the activity or the
relationship of the parties" and determined that no duty in tort existed citing the so called
"economic loss rule" which provides that the duty to manage business affairs so as to
prevent purely economic loss to third parties in their financial transactions is the exception,
not the rule, in negligence law citing Bily v. Arthur Young & Co. (1992) 3 Ca1.4th370, 397,
Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Ca1.4th26,58 and Ratcliff Architects
v. Vanir Construction Management, Inc. (2001) 88 Cal.App.4th 595,605.
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information which may be of interest or use to clients and colleagues of The Morrison Law
Group and should not be construed as legal advice on any matter.