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Beacon Residential Community Association v. Skidmore

December 13, 2012

BEACON RESIDENTIAL COMMUNITY ASSOCIATION, PLAINTIFF AND APPELLANT,
v.
SKIDMORE, OWINGS & MERRILL LLP ET AL., DEFENDANTS AND RESPONDENTS.



Superior Court of the City and County of San Francisco, No. CGC-08-478453, Richard A. Kramer, Judge.

The opinion of the court was delivered by: Bruiniers, J.

CERTIFIED FOR PUBLICATION

(San Francisco City and County Super. Ct. No. CGC-08-478453)

Skidmore, Owings & Merrill LLP (SOM) and HKS, Inc. (individually & doing business as HKS Architects, Inc.; hereafter HKS) are design professionals. SOM and HKS (collectively Respondents) provided architectural and engineering services, as well as construction administration and construction contract management, for the Beacon Residential Condominiums--595 condominium units and associated common areas located at 250 and 260 King Street, San Francisco, California (the Project). Appellant Beacon Residential Community Association (BRCA), the homeowners' association that manages the Project, sued several defendants, including Respondents for alleged construction defects. (Civ. Code, § 1368.3, subd. (a).)*fn1 BRCA asserted that Respondents had a duty of care to it and to future residents in design of the Project, and that their professional negligence caused the Project to violate residential construction standards established by Senate Bill No. 800 (2001-2002 Reg. Sess.) (§§ 895-945.5; hereafter Senate Bill No. 800).

The trial court sustained demurrers, with partial leave to amend,*fn2 to a third amended complaint as to both SOM and HKS on the ground that they owed no duty to BRCA or its members, under either common law or Senate Bill No. 800. We disagree and reverse.

I. FACTUAL AND PROCEDURAL BACKGROUND*fn3

Respondents were the architects for the Project. As detailed in the third amended complaint,*fn4 their involvement included architecture, landscape architecture, and engineering (civil, mechanical, structural, soils, electrical), in addition to construction administration and construction contract management. BRCA alleged multiple defects in the Project caused by negligent architectural and engineering design, observation, and construction work performed by Respondents, including water infiltration, inadequate fire separations, structural cracks and other life safety hazards. One of the defects alleged is "solar heat gain," whereby the condominium units are rendered uninhabitable, unhealthy, and unsafe during certain periods due to excessively high temperatures. The solar heat gain is purportedly due to Respondents' approval of the substitution of less expensive, and ultimately nonfunctional, windows, as well as a design lacking adequate ventilation within the residential units. Respondents are named in three causes of action: the first cause of action, for "Civil Code Title 7 - Violation of Statutory Building Standards for Original Construction"; the second cause of action, for "Negligence Per Se in Violation of Statute"; and the fifth cause of action, for "Negligence of Design Professionals and Contractors."

Respondents demurred to the third amended complaint, arguing that, under Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370 (Bily) and Weseloh Family Ltd. Partnership v. K.L. Wessell Construction Co., Inc. (2004) 125 Cal.App.4th 152 (Weseloh), they owed no duty of care to BRCA or its members, and consequently could not be liable. The trial court agreed. In sustaining the demurrers, the court took the view that liability could not be premised on negligent design, and that BRCA was required to show that the design professionals had "control" in the construction process, assuming a role beyond that of providing design recommendations to the owner. The court found that "[t]he allegations do not show that [Respondents] went beyond the typical role of the architect, which is to make recommendations to the owner. Even if [Respondents] initiated the substitutions, changes, and other elements of design that [BRCA] alleges to be the cause of serious defects, so long as the final decision rested with the owner, there is no duty by [Respondents] to the future condominium owners, in the Court's view." BRCA prepared and submitted an order to the Court on the demurrer, and the judgments issued. A timely notice of appeal was filed on January 20, 2012.

II. DISCUSSION

A. Standard of Review

On appeal from an order dismissing an action after the sustaining of a demurrer, we independently review the pleading to determine whether the facts alleged state a cause of action under any possible legal theory. (McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415; Aubry, supra, 2 Cal.4th at p. 967.)

B. Design Liability Under Common Law

BRCA's second and fifth causes of action sought to impose liability on Respondents on negligence theories.*fn5 "The threshold element of a cause of action for negligence is the existence of a duty to use due care toward an interest of another that enjoys legal protection against unintentional invasion. [Citations.] Whether this essential prerequisite to a negligence cause of action has been satisfied in a particular case is a question of law to be resolved by the court. [Citation.] [¶] A judicial conclusion that a duty is present or absent is merely ' "a shorthand statement . . . rather than an aid to analysis. . . . '[D]uty,' is not sacrosanct in itself, but only an expression of the sum total of those considerations of policy which lead the law to say that the particular plaintiff is entitled to protection." ' [Citations.] 'Courts, however, have invoked the concept of duty to limit generally "the otherwise potentially infinite liability which would follow from every negligent act . . . ." ' [Citations.]" (Bily, supra, 3 Cal.4th at p. 397.) A duty of care may arise through statute, contract, the general character of the activity, or the relationship between the parties. (J'Aire Corp. v. Gregory (1979) 24 Cal.3d 799, 803.) "The determination whether in a specific case the defendant will be held liable to a third person not in privity is a matter of policy and involves the balancing of various factors, among which are the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant's conduct and the injury suffered, the moral blame attached to the defendant's conduct, and the policy of preventing future harm. [Citations.]" (Biakanja v. Irving (1958) 49 Cal.2d 647, 650-651 (Biakanja).)

In Biakanja, supra, 49 Cal.2d 647, the Court held that a defendant's negligent performance of a contractual obligation resulting in damage to the property or economic interests of a person not in privity could support recovery if the defendant was under a duty to protect those interests. The court articulated a case-by-case test for identifying such a duty. (See Aas v. Superior Court (2000) 24 Cal.4th 627, 643-644 (Aas), superseded in other respects by statute.) The court permitted recovery in Biakanja by the intended beneficiary under a will prepared for the decedent by the defendant notary public, but who then failed to have it properly attested. In concluding the notary owed a duty to an intended beneficiary not to mishandle the will's drafting and solemnization, the Supreme Court attached particular importance to the fact that the " ' "end and aim" ' of the notary's service to the testator was 'to provide for the passing of [the] estate to [the] plaintiff' [citation], and to the high impropriety of, and need to prevent, the unlicensed practice of law [citation]." (Aas, at p. 644; Biakanja, at p. 651.)

In Bily, supra, 3 Cal.4th 370, the Supreme Court considered whether an accounting professional's duty of care in preparing an independent audit of a client's financial statements extended to persons other than the client, in the context of the client's public stock offering. A jury returned a verdict in favor of the investor plaintiffs on a claim of professional negligence. The jury was instructed that " '[a]n accountant owes a further duty of care to those third parties who reasonably and foreseeably rely on an audited financial statement prepared by the accountant. A failure to fulfill any such duty is negligence.' " (Bily, at p. 379.) The court reversed the judgment, employing the "checklist of factors" articulated in Biakanja to "assess[] legal duty in the absence of privity of contract between a plaintiff and a defendant." (Bily, at p. 397; id. at pp. 407, 416.) The Bily court again emphasized the important role of policy factors in determining negligence, observing that "mere presence of a foreseeable risk of injury to third persons [is not] sufficient, standing alone, to impose liability for negligent conduct" and that " '[p]olicy considerations may dictate a cause of action should not be sanctioned no matter how foreseeable the risk . . . for the sound reason that the consequences of a negligent act must be limited in order to avoid an intolerable burden on society.' " (Id. at p. 399.) Additional considerations the court found pertinent in limiting the auditor's liability in Bily were: (1) potential imposition of liability out of proportion to fault, "rais[ing]the spectre of vast numbers of suits and limitless financial exposure" (id. at p. 400, fn. omitted); (2) the ability of third parties in an audit negligence case to " 'privately order' " the risk of inaccurate financial reporting through alternative contractual arrangements (id. at p. 403); and (3) the effect on auditors of third party liability, in light of the relative sophistication of third parties who lend and invest based on audit reports--i.e., "whether auditors are the most efficient absorbers of the losses from inaccuracies in financial information" (id. at p. 405, fn. omitted). In limiting general negligence liability to the direct clients of the auditor, the Supreme Court observed that "judicial endorsement of third party negligence suits against auditors limited only by the concept of forseeability raises the spectre of multibillion-dollar professional liability that is distinctly out of proportion to: (1) the fault of the auditor (which is necessarily secondary and may be based on complex differences of professional opinion); and (2) the connection between the auditor's conduct and the third party's injury (which will often be attenuated by unrelated business factors that underlie investment and credit decisions). [¶] As other courts and commentators have noted, such disproportionate liability cannot fairly be justified on moral, ethical, or economic grounds. [Citations]." (Id. at pp. 401-402.)

The trial court also relied on Weseloh, supra, 125 Cal.App.4th 152, in sustaining the demurrers in favor of the design professionals here. In Weseloh, the defendant engineers prepared the design for a retaining wall for a commercial property on behalf of a subcontractor. They were sued by the property owner and by the general contractor when the wall failed. The trial court granted motions for summary judgment on the ground the design engineers did not owe a duty of care to the property owner or to the general contractor. (Id. at p. 158.) Considering the case to be one of first impression, the Fourth District Court of Appeal applied the Biakanja and Bily factors and affirmed, finding that the plaintiffs had failed to produce evidence to satisfy their burden to prove the existence of a duty or of a triable issue of material fact relevant to the duty issue. (Weseloh, at pp. 167-174.) "With regard to the Biakanja factors, while it was foreseeable that design defects could cause a retaining wall to fail, the . . . plaintiffs . . . failed to produce any evidence showing (1) [defendants'] design was primarily intended to affect the . . . plaintiffs . . . ; (2) the closeness of the . . . plaintiffs' injury to [defendants'] conduct; (3) any moral blame implicated by [defendants'] conduct; or (4) how, by imposing expanded liability on design engineers under similar circumstances, future harm would be prevented. [ΒΆ] With regard to the Bily factors, the imposition of ...


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