UPDATE: On February 27, 2013, the California Supreme Court agreed to hear a further appeal of Beacon Residential Community v. SOM. The appellate court’s decision, discussed below, is set aside until the Supreme Court affirms or overturns it.
In a clarification of third party tort liability rules for design professionals, the First District Court of Appeal (San Francisco) recently decided that design professionals such as architects owe a duty of care for construction defects towards third party consumers, i.e., home buyers.
Typically, the Biakanja factors determine a party’s tort liability towards a third person in the absence of privity of contract. [Biakanja v. Irving (1958) 49 Cal.2d 647, 650-651.] The six Biakanja factors are:
Thirty-four years after Biakanja, the California Supreme Court again revisited the issue in a case involving an accountant’s independent audit of a client’s financial statements made in advance of the client’s public stock offering. [Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370.] Third parties not in privity of contract with the accountant relied on the accountant’s audit, sued for professional negligence and won at trial. The California Supreme Court reversed the judgment and added three policy considerations to the Biakanja factors. Those factors are:
Finally, the Fourth District Court of Appeal (Santa Ana) declined to impose a duty of care against engineers who designed a retaining wall for a commercial property when that wall failed. [Weseloh Family Ltd. Partnership v. K.L. Wessel Construction Co. (2004) 125 Cal.App.4th 152.] The court relied heavily on Biakanja and Bily and found that the design engineers did not owe a duty of care under the Biakanja/Bily factors. Since this decision, design professionals have heavily relied upon Weseloh, Bily, and Biakanja to argue that they owe no duty of care towards a third party without privity of contract.
The Beacon Case
Beacon Residential Community v. SOM arose within this legal context. The Beacon HOA sued for construction defect, including in their complaints an allegation of unbearable “solar heat gain” due to a substitution of window types that the project architects approved for construction. The architects demurred by using Bily and Weseloh to argue that they owed no duty of care to third parties not in privity of contract, i.e., the Beacon HOA. The trial court agreed and sustained the architect’s demurrer.
The Beacon court reversed judgment by applying the reapplying the Biakanja/Bily factors and limiting the importance of Weseloh. They agreed with the reasoning in the Cooper case, which found that nothing in the Biakanja test precluded the imposition of liability on architects for economic losses created by the architects’ negligence and suffered by homeowners. [Cooper v. Jevne (1976) Cal.App.3d 860, 868.] The Cooper court further found that architects logically owed a duty of reasonable care in the performance of their professional services to those who purchased the allegedly defectively designed and built homes within the building project. [Id. at 869.]
Some of Beacon‘s more interesting analysis deals with the application of the Bily policy factors. The Beacon court distinguished the Beacon architects’ work on the project with the Bily accountants’ work by contrasting the fairly limited universe of potential litigants (buyers who bought homes in the Beacon project) with the unknowable and infinite universe of potential litigants in Bily (anyone who read the audit report in advance of the IPO). Also, unlike the design engineers in Weseloh who received a relatively minor sum (the engineers received $1,500-$2,200 while facing $6M in alleged damages), the Beacon architects received $5,000,000 for their work on the project. This implied a more direct connection between the architects and the properties purchased by the Beacon homeowners.
Lastly, the Beacon court distinguished Bily from Beacon by stating that design professionals could only be liable for negligence when they failed to meet the requisite professional standards of care. The court in Bily worried that imposing a duty of care on accountants for a potentially infinite universe of litigants would burden accountants with liability even when they performed their professional duties according to adequate professional standards. Quoting a legal economist, the Bily court agreed that the deterrent effect of liability rules would weaken if liability could be imposed even after parties met their professional standards in the performance of their contractual duties. The Beacon court disagreed, finding that the law required design professionals to exercise only “reasonable care and competence,” not “infallibility.” [Beacon, at fn. 12.]
One question is whether the opinion limits design professional tort liability to the SB 800 context. SB 800 only applies to residential homes built after 2002. The Beacon court, in dicta, states that the task of creating tort liability rules for construction defects is the better province of the Legislature due to broad policy considerations related to housing and the economy. Does this limit Beacon to the post-2002 residential home context? The answer is No. The Beacon court explains in Footnote 13 that SB 800 addressed the policy considerations raised by imposing tort liability for construction defect on design professionals whether or not SB 800 applied to the Beacon housing development.
Another question is whether the split between two appellate courts on the issue of design professional liability would be ripe for review by the California Supreme Court. The Beaconcourt imposed tort liability on design professionals whereas its sister court, the Weseloh court, refused to impose tort liability on design professionals. Though the Beacon court factually distinguished its case from the Weseloh matter, some believe that the two opinions are inapposite and cannot be reconciled. Whether this is an irreconcilable split requiring review by the California Supreme Court is up in the air.