On July 3, 2014, the California Supreme Court issued its decision in Beacon Residential Community Association v. Skidmore, Owings & Merrill, LLP (2014) 327 P.3d 850. ("Beacon Residential Case") whereby it ruled that a principal architect for a condominium development may be sued by the owners association of the development for construction design deficiencies. The Beacon Residential Case will have substantial impacts on claims involving construction design deficiencies as lead design professionals hired by a developer will now likely be named as defendants in construction defect actions brought by owners associations and other owners of newly constructed real estate development projects.
The Beacon Residential Case concerns the Beacon residential condominiums, a 595 unit development located in San Francisco. The homes in the Beacon development were rented for the first two years after completion but were later sold as condominiums during which time an owners association was formed. Thereafter, the owners association for the Beacon development filed suit against the developer of the Beacon development, two architectural and engineering firms and others alleging that defects made the residences unsafe and uninhabitable for a significant portion of the year due to high temperatures.
The architectural firms which were involved in the design of the Beacon development, which allegedly designed the homes in a negligent manner but did not make the final decisions regarding how the homes would be built, demurred arguing that the lack of privity between the owners association and the two defendant architectural firms were barred under California law because the architectural firms had only made recommendations but not final decisions on the construction and owed no duty of care to future home owners with whom they had no contractual relationship.
The trial court, citing the decisions in Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370 ("Bily") and Weseloh Family Ltd Partnership v. K.L. Wessel Construction Co., Inc. (2004) 125 Cal.App.4th 152 ("Weseloh") sustained the demurrers without leave to amend. On appeal, the Court of Appeal reversed holding that Weseloh involved a summary judgment motion and not a demurrer, that Bily (an action involving an auditor) did not support the architects' position and that the Right to Repair Act [see, Civil Code § 895, et seq.] expressed a legislative intent to impose a duty of care on design professionals.
The California Supreme Court granted review.
In its ruling, the California Supreme Court reviewed the factors that are generally applied in considering whether a person or entity can be sued for negligent provision of services – irrespective of privity of contract - as set forth in Biakanja v. Irving (1958) 49 Cal.2nd 647 ("Biakanja"). [See also, Stewart v. Cox (1961) 55 Cal.2d 857 ("Stewart")] In that regard, the Court noted that contractors have been held to owe a duty of care to owners of property since the Stewart decision and reviewed case law which holds or at least assumes a duty of care exists between architects and third parties such as in Cooper v. Jevne (1976) 56 Cal.App.3d 860 and Huang v. Garner (1984) 157 Cal.App.3d 404.
Thereafter, and based on its application of the Biakanja and Bily cases, the California Supreme Court ruled that that a duty of care was owed by the lead architect defendants. In its holding, the Court noted that the principal architectural firms were paid in excess of $5,000,000 for their services for the Beacon development. In this regard, the Court distinguished the Bily case (which holds that an auditor in general does not owe a duty of care to third parties) by explaining that the auditor has a secondary role and that a principal architect has such a leading role in a development that a duty of care – at least with lead architects, will exist to future homeowners. The Court also distinguished the Weseloh case because that case did not deal with a lead design professional but instead dealt with a design professional with a limited role in the project in that case.
The Court also noted that it need not decide whether the Right to Repair Act imposes duties on design professionals given its holding that a general duty of care exists.
The Beacon Residential Case will certainly have substantial impacts, at least for design deficiency claims involving lead design professionals.
About the Authors: Edward F. Morrison, Jr. is the founding partner and Larry A. Schwartz is Of Counsel to The Morrison Law Group, a professional corporation. Their biographies can be viewed at www.morrisonlawgroup.com.
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