LOAR AND CO-COUNSEL WIN LANDMARK SUPREME COURT CASE
By Ann Rankin, Esq., Law Offices of Ann Rankin
On July 3, 2014, the California Supreme Court announced its ruling in Beacon Residential Community Association v. Skidmore, Owings & Merrill, et al. The case was a big win for Law Offices of Ann Rankin and its co-counsel, Katzoff & Riggs—and for property owners throughout California whose buildings suffer from design errors caused by the negligence of architects and engineers.
The Supreme Court justices unanimously ruled in the opinion that principal architects of new residential construction can be held liable to the eventual purchasers of those projects (and their associations) for negligence in performing design services, even where the architects don’t have any written contract with the consumers who purchased the property from the original developer or with their property owners’ association.
The case involves a 595-unit development in San Francisco consisting of four buildings (some high rise and some mid-rise) across from AT&T Park. Its homeowners association, the Beacon Residential Community Association, sued a number of defendants who developed, designed and built the project for common law negligence and for violation of Performance Standards contained in SB 800, codified as Civil code 895 et. seq. The performance standards set forth minimum standards which for-sale residential buildings sold after January 1, 2003 are required to meet.
The Association alleged that the architects were responsible for a number of design errors, including inadequate fire separations, water intrusion and solar heat gain. Solar heat gain is a well-known phenomenon which, in the case of the Beacon, results in interior temperatures in many of the units being thirty degrees or more higher than the outside air temperature during sunny weather. The solar heat gain resulted from a design involving large glass windows—many of them floor-to ceiling—in an un-air-conditioned building made of steel and concrete. The windows were also designed with no low-e coating to cut down on solar heat gain. Once the building heats up, it often does not cool down for days or weeks—even at night. This condition is exacerbated by inadequate ventilation.
In late 2011, the architectural firms filed a motion asking to be dismissed from the lawsuit, claiming that the Association had no right to sue them because they had no legal duty, either to the association or to the homeowners who purchased the homes within the property. The trial judge agreed, ruling that the architect had “no control” over the ultimate construction of the project and only made “design recommendations.” The trial judge also said that the association could make a claim against the architects only if the association could prove that the architects had ignored the instructions of the developer, and had designed the buildings in a manner contrary to the developer’s wishes. The association argued that this was an incorrect legal standard, and that an architect who is hired by a developer should be accountable for making negligent design decisions even if the architect did not, in so doing, defy the wishes of the developer.
In December of 2012, the First District Court of Appeal unanimously reversed the trial court’s order and held that both under the common law and under the provisions of SB 800, the architects owed a duty of care to the owners and their association.
In February, 2013, the California Supreme Court granted review of the Court of Appeal decision.
The Association contended that there were numerous precedents allowing building owners and their associations to sue negligent design professionals, and that these cases had never been overruled. The architects had contended that these cases should be disregarded because of a more recent case absolving auditors of liability to investors who purchased shares of stock in reliance on an audit report that turned out to have failed to disclose problems with the corporation’s business.
The Association contended that there’s a big difference between an auditor, who may simply fail to realize that his corporate client has “cooked the books,” and architects who earn millions of dollars by designing a large condominium complex.
The architects also contended that potential purchasers had the right to inspect the homes before purchasing and, as a result, could obtain more than an “ordinary consumer’s” knowledge about the conditions of the property.
The Association explained that when consumers obtain a visual inspection of a unit, they don’t receive enough information to understand whether the common areas are designed or built correctly or incorrectly, and that such inspections don’t include any destructive testing or detailed review of the construction documents.
The Supreme Court agreed with the Association and its counsel on all of these points.
The architects also pointed out 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. However, none of the people who ended up buying the units had ever agreed to the provision, nor had the owners’ association, so the association said they should not be bound by a provision that they had never negotiated or agreed upon. The Supreme Court sided with the association on that argument as well.
The Supreme Court concluded that its decision, in favor of the owners’ association, was also sound public policy. It simply required the architects to perform their services properly and held them to a duty of care 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.
Since the Supreme Court is the highest California court, the decision in the Beacon sets a precedent which will guide courts in all subsequent cases in which owners and their associations have claims against negligent architects, engineers, and other design professionals.
The Executive Council of Home Owners and the Consumer Attorneys of California both filed amicus curiae briefs in support of the Association’s position. Needless to say, the American Institute of Architects filed an amicus curiae brief in support of the architects’ losing position.
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 and her firm are counsel for the Beacon Residential Community Association.
This article is informational only and is not a substitute for qualified legal advice. See an attorney who practices in the areas of construction defects litigation and common interest development law if you have a potential legal issue involving the design of your community.