7 Jul

What the Recent Beacon Residential Decision Really Means for Design Professionals in California

by and

Last week, the California Supreme Court issued its much anticipated decision in Beacon Residential Community Assn. v. Skidmore Owings & Merrill LLP. This case has been closely monitored by design professionals and the attorneys who represent them because it addresses a fundamental legal question: do design professionals owe a duty of care to third parties without privity of contract? At first blush, Beacon appears to hold in the affirmative. On closer examination, however, the scope of the Court’s opinion is not so far reaching, and does not universally abolish a “no duty” defense. As illustrated below, the facts of each particular case will determine Beacon’s impact on the issue of duty.

The Facts. Beacon Residential Community Association (Beacon) is a homeowner’s association for a condominium complex in San Francisco. On behalf of its members, Beacon sued two architectural firms – Skidmore, Owings & Merrill LLP and HKS, Inc. (collectively Design Defendants) – and others over alleged construction design defects. Beacon alleged the architectural firms violated state and local building codes by approving less expensive, substandard windows, and a building design that lacked adequate ventilation. These alleged design defects resulted in a condition called “solar heat gain,” which made the condominium units unsafe and uninhabitable during certain periods due to high temperatures.

Procedural History. The Design Defendants demurred to Beacon’s complaint, alleging that even under the facts alleged, they owed no duty to Beacon. The trial court agreed, relying on two familiar cases: Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, and Weseloh Family Ltd. Partnership v. K.L. Wessel Construction Co., Inc. (2004) 125 Cal.App.4th 152. The trial court ruled that the allegations of Beacon’s complaint did not show that either of the Design Defendants “went beyond the typical role of an architect, which is to make recommendations to the owner.” It held that even if the Design Defendants initiated the substitutions, changes, and other elements of design that Beacon alleged to be the cause of serious defects, so long as the final decision rested with the owner, there was no duty owed by the Design Defendants to the future condominium owners or their HOA (i.e., Beacon). Beacon appealed. The Court of Appeal reversed the trial court, applying the foreseeability factors from Biakanja v. Irving (1958) 49 Cal.2d 647, 650 to determine whether the Design Defendants owed a duty of care to Beacon. The appellate court held that Bily did not support the Design Defendants’ position. It also distinguished Weseloh, a case decided on summary judgment, not demurrer. Finally, the appellate court concluded the Right to Repair Act (Civ. Code, § 895 et seq.) expressed a legislative intent to impose on design professionals a duty of care to future homeowners.

The Supreme Court’s Decision. The California Supreme Court granted review to decide whether design professionals owe a duty of care to a homeowner’s association and its members in the absence of privity. In answering this question, the Court did not make new law. Rather, it relied on existing precedent and a factual analysis of the claims in Beacon’s complaint. In reaching its decision, the Court focused on three factors that distinguished Beacon’s complaint from Bily:

(1) the closeness of the connection between the defendants’ conduct and the plaintiff’s injury;

(2) the limited and wholly evident class of persons and transactions that defendants’ conduct was intended to affect; and

(3) the absence of private ordering options that would more effectively protect the homeowners from design defects and their resulting harms.

First, the Court found the Design Defendants’ role on the project bore a close connection to Beacon’s alleged injuries. The Design Defendants were the principal architects on the project and the only ones with architectural expertise. The Court dismissed the Design Defendants’ argument that their role in the project was only advisory by making an analogy to the attorney-client relationship – an attorney’s client always has the right to sue his or her attorney for malpractice because it is understood that the client relies on the attorney’s professional expertise. The Court also placed emphasis on the Design Defendants’ active role in the project, which included weekly inspections, monitoring contractor compliance with design plans, altering design requirements as needed, and advising the owner of nonconforming work – all for a fee of $5 million.

Second, the Court found that the Design Defendants knew the finished construction would ultimately be sold as condominiums and used as residences. Beacon was thus a specific, foreseeable, and well-defined class. Third, the Court found Beacon had no reasonable alternative but to rely on the Design Defendants’ work, because the average homebuyer relies on the skill of the developer and the implied representation that the home will be reasonably fit for habitation.

The Court distinguished Beacon’s complaint from Weseloh – a case that found no duty of care owed by a design engineer to a commercial property owner – on several grounds. As a threshold matter, Weseloh was decided on summary judgment, not demurrer. In granting summary judgment to the design engineer, the Weseloh court found the plaintiffs failed to produce evidence showing a causal relationship between the design engineer’s work and the damage to the property. Beacon, conversely, was decided at the pleading stage without the benefit of discovery. The Court also distinguished Weseloh because the design engineer in that case was paid a small fee, and its work was for the benefit of a subcontractor, Sierra Pacific Earth Retention Corporation. In contrast to the design engineer in Weseloh, the Design Defendants in Beacon were the only architects on the project – they applied their expertise to make sure the construction conformed with the approved design. In other words, the Design Defendants in Beacon, unlike the design engineer in Weseloh, were the driving force of the design aspects of their project. It appears that the Design Defendants’ substantial involvement (both professional and financial) in the project ultimately led the court to hold that an architect owes a duty of care to future homeowners in the design of a residential building where the architect is a principal architect on the project, and not subordinate to other design professionals.

What This Case Means for Design Professionals. There is little question that Beacon represents a significant step toward clarifying the existence of a legal duty between design professionals and third parties without privity of contract in California. However, it does not signal the end of the “no duty” defense altogether. Going forward, design professionals who are sued must evaluate their role in a project with the assistance of counsel to determine whether a “no duty” argument is appropriate. For example, if a design professional was subordinate to another design professional in a litigated project, the “no duty” defense may very well prevail, even at the pleading stage. If the design professional was not subordinate to another design professional on the project, counsel should consider foregoing pleading level challenges with an eye toward a possible summary judgment motion depending on how the facts develop. California law for design professionals is constantly evolving, and Beacon is yet another example of the nuanced issues that arise when defending these cases.

Please contact Traci S. Lagasse (tlagasse@albblaw.com) or Cary A. Kinkead (ckinkead@albblaw.com) with any questions you may have or if we can assist with your organization’s professional or general liability needs