Revisiting Black + Vernooy: Lessons Learned RLI Design Professionals Design Professionals Learning Event DPLE 258 March 5, 2014 An Interview with Mark C. Roberts II Macdonald Devin Phone: 214.651.3325 [email protected] RLI Design Professionals is a Registered Provider with The American Institute of Architects Continuing Education Systems. Credit earned on completion of this program will be reported to CES Records for AIA members. Certificates of Completion for non-AIA members are available on request. This program is registered with the AIA/CES for continuing professional education. As such, it does not include content that may be deemed or construed to be an approval or endorsement by the AIA of any material of construction or any method or manner of handling, using, distributing, or dealing in any material or product. Questions related to specific materials, methods, and services will be addressed at the conclusion of this presentation. Copyright Materials This presentation is protected by US and International Copyright laws. Reproduction, distribution, display and use of the presentation without written permission of the speaker is prohibited. © RLI Design Professionals Course Description In 2011, a three-judge panel of the Austin, TX Court of Appeals heard a case brought against the architecture firm Black + Vernooy. The case and its outcome teach several important lessons to design professionals, which we’ll review in this course. Learning Objectives Participants will:  Learn the risks of “endeavoring to guard” an Owner, and why this language was removed from AIA documents;  Evaluate whether or not a design professional is considered a guarantor of the Contractor’s Work;  Consider whether visitors to a project might be considered third party beneficiaries of the design professional’s contract for the project; and  Analyze some of the benefits of standard industry contract documents. Facts Black + Vernooy Architects v. Smith 346 S.W. 3D 877, 879 (Tex. App. Austin 2011) Owners Robert and Katherine Maxfield contracted with prominent architect Sinclair Black to design a vacation home on Inks Lake, near Burnet. Their contract also called for Black to observe the construction, for which they paid him an additional $16,800. Owners hired Nash Builders as GC. Nash hired Stephen Rodriguez, a sub, to do the framing. Black’s plans included a third-story balcony. The home was completed in 2003. Facts A year after completion, two women are visiting the lake house and step onto the third-story balcony. The balcony collapsed beneath them, broke away from the house, and sent the women plummeting more than 20 feet to the ground. The balcony, weighing an estimated 3,000 pounds, was attached to the house with 3¼-inch nails, not the bolts that the architect's design had specified. Facts The platform bounced off a stone wall above the steps and spun forward, flinging the women toward the sloped lawn. One woman landed 35 to 40 feet from the house. Facts One woman was rendered a paraplegic, and the other suffered a broken finger, a crushed toe, and multiple bruises. One victim said she felt the balcony shudder "kind of like when you step in an elevator and ... there's a little give, like it's not quite going to be there." “There was a moment when there wasn't anything under my feet." Black's design called for balcony to be attached with bolts beneath the balcony and inside the wall structure and for there to be internal support structures. AFTER REPAIRS The conduit clamps have been replaced by welded clamps, which were originally called for in the plans. Steel joist hangers have been added. Design details Photos and testimony showed that instead of bolts, the ledger board that supported the balcony was attached to the house with nails. He also testified that GC Nash was aware that he was using nails instead of bolts. Rodriguez, the sub who built the balcony, testified that he used about 20 nails instead of bolts because "there were no bolts" at the job site. Design details Rodriguez also testified that he had started using a cantilever technique — in which the joists that supported the balcony extended inside the home's wall and were attached there. However, joist hangers were not used; the joists were attached directly to the ledger board. Rodriguez said Nash told him to change it, because the plans called for the joists to be attached to the exterior wall, using metal joist hangers. Facts Black + Vernooy Architects v. Smith, 346 S.W. 3d 877, 879 (Tex. App. Austin 2011) Architect’s contract with owners • Black was hired to design the home and observe the construction, for which he was paid extra. • Black agreed to "endeavor to guard against defects and deficiencies in the work; and to determine if the work is performed in accordance with the contract documents. • AIA form used. Duty to Inspect • The Maxfields testified they believed Black's role was to ensure the home was built as planned. • Black disputed that: "We're not there investigating the contractor. We're there observing how the building goes together generally." Duty to Inspect Owners’ contract with Architect required that he sign contractor's pay applications as assurance that "the quality of workmanship and materials used conforms with the contract documents." Black confirmed he signed the applications. On appeal, Black argued that his contract did not require him or his employees to inspect the framing work. He cited the contract "... The architect shall not be required to make exhaustive or continuous on-site inspections to check the quality or quantity of the work.“ This picture is a construction photo of the balcony taken by the architect during its inspections. The photo shows the weak conduit clamps and the lack of steel joist hangers to reinforce the connection between the beams and the wall. Initial lawsuit Defendants: GC Nash, sub Rodriguez, Black and his firm. Nash settled for $1.4 million and Owners settled for $250,000. Rodriguez had no insurance and was dropped from the suit. Jury found Black 10% responsible and ordered him to pay $410,521.19 in damages. Jury assessed damages to the paraplegic woman at $4 million. There was no dispute as to why the balcony fell: it wasn't attached to the house the way Black's design dictated. Case Against Architect The case against Black was not based on negligent design, but on the theory the architect’s construction administration was negligent. The question before the trial court was whether the duty to oversee construction extended to third parties. The trial court held the injured parties were foreseeable users of the balcony and the architect owed them a duty of care. Case Against Architect Jury found that the injury was caused by the negligence of (1) the Architects who designed the home, (2) the general contractor who built the home, and (3) the framing subcontractor who installed the balcony. Jury attributed 10% of the responsibility to the Architects, 70% to Nash (GC), and 20% to Rodriguez (framing sub). Black appealed. On appeal - Architect’s POSITION No Duty to Third Parties to Identify Defects No Obligation to Ensure or Guarantee that Residence is Built in Accordance with Plans Even If There is a Duty to the Injured House Guests, Insufficient Evidence that Architects Breached the Duty On appeal: Injured House Guests’ POSITION Architects’ Duty Is to Identify Defects and this Duty Extends to the Injured House Guests: The victims asserted that the jury’s determination should be upheld because the Architects owed them a duty to identify the defects and because legally sufficient evidence was presented during the trial showing that the Architects breached that duty. On appeal: Injured House Guests’ POSITION The Injured House Guests Are Third Party Beneficiaries of the Architect Contract: The victims argued that, although they had no contractual relationship with the Architects, the architects’ duty to protect against variances from the plans and specifications extended to them as third-party beneficiaries as foreseeable users of the residence. On appeal: Injured House Guests’ POSITION Lack of Privity Not a Bar to Tort Liability: Finally, the victims argued that due to the dangers resulting from faulty construction and due to the public’s reliance on architects, “public policy demands that contractual privity not be an indispensable requirement for a duty of care to houseguests, or other foreseeable users of the balcony.” Appellate Court Opinion A three-judge panel of the Austin Court of Appeals initially held that the architect owed a duty to a house guest injured by a construction defect. The entire Court later reversed itself on rehearing, holding that the architect owed no such duty. Architect’s Duty – A Contractually Limited Duty Provider of Information – “Known Defects” The Court Majority, while acknowledging that an architect, which has undertaken a contractual obligation to “endeavor to guard” an owner against “known defects,” has a duty to its client, found it did not need to opine on the extent of an architect’s duty to its client as a provider of information, as it concluded that the Architects did not owe a common law duty to third parties, such as the guests, to identify defects in the balcony and to thus protect them from injury should defects exist. Architect’s Duty – A Contractually Limited Duty Not a Guarantor of Contractor’s Work: The Court Majority argues that the practical consequence of extending tort liability protection to the guests under these circumstances would be to make the A/E the guarantor of the contractor’s work. No Duty to Third Party Injured House Guests Are Not Third Party Beneficiaries of the Architect Contract  (1) No Intent to Create Third Party Beneficiary  The Court Majority notes that, although the Dissent does not urge that the guests are 3rd party beneficiaries of the Contract, and the Dissent’s opinion is not predicated on such a finding, the guests urged the court to find that they were 3rd party beneficiaries.  The Court Majority found nothing in the Contract indicating that there are 3rd party beneficiaries of the contract. The Court Majority notes that 3rd party beneficiary status occurs only if the contracting parties intend to secure a benefit to the 3rd party. No Duty to Third Party (2) AIA Form Disclaims Such Intent  The Court points out that the AIA B151 – 1997 at ¶ 9.7 expressly disclaims that there are third party beneficiaries of the contract:  “Nothing contain in this Agreement shall create a contractual relationship with or a cause of action in favor of a third party against either the Owner or Architect.”  The Court Majority concludes that when the Architects entered into the Contract with the Owners, they assumed no contractual duty to 3rd parties, including the houseguests. No Texas Common Law Duty Exists The Court Majority characterizes the guests and the Dissent as requesting “something that has never been done in the history of Texas jurisprudence, converting a contractual duty to a contract party into a tort duty to a non-contract party.” “Although our sympathies extend to the Smiths *guests+ for the suffering they have unjustly been forced to endure, this Court simply cannot create a new common law duty in order to uphold the relief that they sought against the Architects. The decision regarding whether to undertake such a massive expansion is better left to courts of higher jurisdiction.” Third party beneficiary An individual is a third-party beneficiary to a contract only if the contracting parties intended to secure a benefit to the third party and also “entered into the contract directly for the third party’s benefit.” Stine v. Stewart, 80 S.W.3d 586, 589 (Tex.2002). If the benefit is merely incidental, the third party has no right to recover. Id.; see also Loyd v. ECO Res., Inc., 956 S.W.2d 110, 134 (Tex.App.Houston [14th Dist.] 1997, no pet.) (explaining that “fact that a person is directly affected by the parties’ conduct ... does not make him a third party beneficiary”). Third party beneficiary The contract “must clearly and fully express an intent to confer a direct benefit to the third party”; a third-party-beneficiary status may not be created by implication. Stine, 80 S.W.3d at 589. Presumption exists against third-party-beneficiary agreements, and accordingly, all doubts must be resolved against a finding that an individual is a third-party beneficiary. Raymond v. Rahme & Williams Invs., 78 S.W.3d 552, 561 (Tex.App.-Austin 2002, no pet.). The intent of the contracting parties must be determined by examining the entire contract, and courts should give effect to all of the contract’s provisions. Stine, 80 S.W.3d at 589. COURT Analysis: Third party beneficiary “Nothing in the contract demonstrates that these duties were to be engaged in for the benefit of 3rd parties...the agreement specifically stated that “*n+othing contained in this Agreement shall create a contractual relationship with or a cause of action in favor of a 3rd party against either the [Owners] or [the] Architect[s]. In light of the preceding...and…the clear language expressly disavowing 3rd beneficiaries, we must conclude that when the Architects entered into the agreement with the [owners], they assumed no contractual duty to 3rd parties to the agreement, including the *guests+.” On March 22, 2013, the Texas Supreme Court denied the petitioners’ motion for rehearing. The effect is that the Austin Court of Appeals’ decision is final. Anti-Assignment It is worth considering whether or not the result of the Black + Vernooy case might have been different if the home owners had assigned their contract with the architect to the injured house guests. A standard method for design professionals to avoid such an assignment is to include in their AIA form agreement a standard antiassignment provision that prohibits assignment of the contract to another party without the written consent of the design professional. An example of such a provision is found in B141 Part 1 Article 1.3.7.9. Anti-Assignment AIA B141 Part 1 Anti-Assignment However, such a provision has severe limits. We have encountered multiple cases lately where the design professional's client attempts to avoid the anti-assignment clause by assigning its "cause of action for breach of contract" against the design professional to someone else. Courts have held that one can assign a cause of action for breach of contract and sue for breach of contract without assigning the contract itself. Anti-Assignment Therefore, to avoid this loophole, it is highly recommended that the anti-assignment provision be modified to include language that states, "Neither the Agreement nor any rights, assets, interests, claims or causes of action arising out of or related to the Agreement shall be assigned without written consent." Such a provision will assist in thwarting any efforts to skirt the anti-assignment clause of your contract. This concludes The American Institute of Architects Continuing Education Systems Program Laurel Tenuto, Client Risk Management Coordinator [email protected] Barbara Sable, Assistant Vice President [email protected]