ECHO Supports HOA Claims in Architectural Lawsuit

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On July 3, 2014, the California Supreme Court announced its long-awaited decision in Beacon Residential Community Association v. Skidmore, Owings & Merrill, et al. In a first-of-its-kind ruling, the Court held unanimously that principal architects of new residential construction can be liable to the eventual purchasers of those projects (and their associations) for negligence in performing design services, even where they do not actually build the project or exercise ultimate control over construction.   And ECHO – which filed an amicus curiae (or “friend of the court”) brief on behalf of the Beacon Association – was instrumental in guiding the Court to announce that rule.

The Beacon Project  

The Beacon ProjectThe Beacon Project

The Beacon is a 595-unit, twin-towered development in San Francisco across from AT&T Park.  Its homeowners association, the Beacon Residential Community Association, brought a construction defect action against several parties involved in the construction including two architectural firms.  The Beacon Association alleged that negligent architectural design work by these firms resulted in a series of defects including structural cracks, inadequate fire separations and water intrusion.  But a principal problem had to do with the windows and ventilation.  The Beacon Association alleged that because of the architects’ design errors, units heated up in periods of sun exposure and did not cool down, even at night, because of the concrete and steel construction and resulting “thermal memory” and because there was no way for the heat to escape.  This rendered the units inhabitable and unsafe due to high temperatures.

Earlier Proceedings

In late 2011, the architectural firms filed a motion asking to be dismissed from the lawsuit, claiming that they had “no control” over the ultimate construction of the project and only made “design recommendations.”  Therefore, they concluded, they had no duty to the owners or the Beacon Association.  The trial court agreed, ruling that the architects owed no duty of care to the Beacon Association or its members.  It held that nothing in the complaint alleged that the architects “went beyond the typical role of the architect, which is to make recommendations” to the developer-owner.  Even if the architect designed the buildings, provided construction administration services, and initiated changes and substitutions that contributed to the defects, “so long as the final decision rested with the owner, there is no duty owed by the architect to the future condominium owners ….”  Thus, according to the Superior Court judge, the owners and Beacon Association could not bring a negligence claim against the architects.

In December of 2012, the First District Court of Appeal unanimously reversed the decision of the trial court.  It held that both under the common law and under the provisions of SB 800 (Civil Code sections 895 et seq.), the architects owed a duty of care to the owners and their association.  (ECHO also filed an amicus curiae brief on behalf of the Beacon Association in that proceeding.)

The Supreme Court Decision and ECHO’s Amicus Brief

In its amicus curiae brief, ECHO’s goal was to remind the Court that new home purchasers were ordinary consumers who depended upon tort law to protect them from the consequences of design defects because they had no other reasonable means of protecting themselves. As such, it was sound public policy to impose a duty of care on the architects, benefitting these owners, to perform their design professional services with due care.

First, ECHO pointed to the decades-old understanding that purchasers of new construction were ordinary consumers.  They typically lacked construction expertise of any kind, much less the specialized knowledge of an architect or engineer.  They depended upon those professionals to do their job with the proper skill.   And unlike the developer of a project – or even the more sophisticated owners of commercial properties – residential purchasers could not protect themselves through contracts with either the developer or the design professional (since those were typically signed years before purchasers even visit the project).

Read about the common problems HOAs face with contracts

The architects argued that potential purchasers had the right to inspect the homes before purchasing and, as a result, would have obtained more than an “ordinary consumer’s” knowledge about the conditions of the property.  But ECHO contended that these inspections were not architectural or engineering reviews – nor did the Legislature intend them to be.   They were visual inspections only.  And purchasers did not typically hire architects or engineers as part of a home purchase process.  Additionally, in a condominium association like the Beacon, the owners also owned undivided interests in the common areas, and it was in the common areas where construction defects typically caused the most damage.  Thus – taking the Beacon as an example – a potential purchaser would have to not only inspect the unit, but all of the common area, in order to have specialized knowledge about the defects.

The Supreme Court agreed with ECHO, noting that was “unrealistic to expect homebuyers” to take such measures.  Said the Court:  “A liability rule that places the onus on homebuyers to employ their own architects to fully investigate the structure and design of each home they might be interested in purchasing does not seem more efficient than a rule that makes architects who designed the homes directly responsible to homebuyers for exercising due care in the first place.”

Next, the architects pointed to a provision in their contract with the developer that expressly stated that they would not be liable to the eventual purchasers or any homeowners association.  In other words, the provision specifically stated that purchasers and the association could not be third-party beneficiaries of the contract between the architects and the developer.  And they argued that imposing a duty on them might cause a conflict between their duty to the ultimate purchasers of the units and the contractual duties imposed upon them in their agreement with the owner-developer.

But as ECHO pointed out in its brief, a “party need not be a third-party beneficiary in order for the contracting parties to intend to affect it.”  Moreover, ECHO submitted that an architect’s duty under its contract with the developer was the same as its duty of care to the owners:  to perform its services with reasonable care.  Finally, ECHO countered the architects’ claim that they should be absolved of any duty of care to the purchasers because the developer allegedly concealed the defects.  ECHO showed that this argument went to two different elements of a negligence action – causation and damages – which were not considered until after a duty of care was established.  The Court agreed, holding that such a claim did not “diminish the closeness of the connection” between the conduct of the architects and the injury to the purchasers and the Beacon Association for purposes of determining whether the architects owed a duty of care. It then rejected – as “patently inconsistent with public policy”– the architects’ argument that their duty to the owner-developer would somehow differ from their duty to the purchasers.

Ultimately, the Court concluded that its decision, which built on “substantial case law and the common law principles on which it is based,” was also sound public policy.  It put the onus on the architects to perform their services properly and held them to a duty of care as to individuals and associations who would eventually live in and manage the properties that those architects designed.  Thus, it unanimously affirmed the Court of Appeal’s decision to reverse the trial court’s ruling.  As a result, the architects are back in the case as defendants, and the case can now go to trial.

The Impact of Beacon

While the Beacon ruling repeatedly references architects, there is little doubt that its ruling also applies to other design professionals such as engineers (provided that they are the principal entities providing their services and are not subordinate to another design professional).  Groups advocating on behalf of architects and design professionals claim that this decision is a “sea of change in the law” which will make it more difficult for design professionals to build new projects and obtain insurance.  They are wrong.  As the opinion makes clear, the Beacon holding only affirms the long-standing rule that architects and design professionals are liable to the eventual owners when their defective work causes damage.  It seems clear that this unanimous Court did not believe that it was announcing a fundamental change in the law, but rather finally confirming at the highest level what many lower courts had already concluded.  And practically speaking, insurance companies for architects have been defending and resolving such claims for decades. 

Ultimately, this duty from an architect to an eventual owner (and association) protects home purchasers as ordinary consumers, since they are entirely foreseeable parties that may be damaged if design professionals fail to use due care in rendering their services.  As a matter of public policy, the rule properly places the burden on these design professionals to meet that standard of care.

Ann Rankin is the founding principal of the Law Offices of Ann Rankin in Oakland, CA and a member of the ECHO Legal Resources Panel.  She is counsel for the Beacon Residential Community Association.

Matt J. Malone is Of Counsel to Ram, Olson, Cereghino & Kopczynski.  He authored the amicus brief on behalf of ECHO. 

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