Inside this issue:

California Court Allows City to Assert Claims Against Design Professional Absent Privity of Contract

By Kristen R. Ragosta, Esq.

What the Legislature Gives, It Can Also Take Away (Sometimes)

By Justin R. Giles, III, Esq.

Wisconsin’s Economic Loss Doctrine Bars Professional Negligence And Breach of Contract Claims Under the Statutes of Limitation And Repose

By Lauren P. Marini, Esq.

The New Jersey Appellate Court Holds That An Architect Is Entitled To Apportion Liability To Other Design Professionals Even Though Claims Were Barred By The Statute Of Repose Nevada Supreme Court Strictly Enforces Certificate of Merit Statutes

By Rita C. Marcado, Esq.

Continuous Representation Doctrine

By Justin M. Jagher, Esq.

Design Professional Owes No Duty to Third-Party with Whom Design Professional Has not Contracted Unless Third-Party’s Reliance Is Reasonable and Foreseeable and Design Professional Had Actual Knowledge of Reliance

By Kristina S. Raevska, Esq.

California Court Allows City to assert Claims against Design Professional Absent Privity of Contract

By Kristen R. Ragosta, Esq.

A California Federal District Court Justice held that a City that is not in privity with a design professional may have: 1) a valid breach of contract claim against the design professional if the City is a third party beneficiary of the design services contract; and 2) a valid negligence claim against the design professional if the City shares a “special relationship” with the design professional.

The Design Professional (“DP”) agreed to provide design, engineering, and construction management services for the Irrigation District (“ID”) during the expansion of a water treatment facility (“the Project”) in Modesto, California (“City”). DP and ID contracted directly (“the Agreement”). The City was not a party to the Agreement. Alleged design defects that were discovered during construction caused Project delays.

Subsequently, DP filed an unspecified action against ID. The City filed Counterclaims in Intervention alleging Breach of Contract and Negligence and requesting declaratory relief against DP. DP moved to dismiss the City’s counterclaims. The primary issues addressed in the Motion to Dismiss were whether the City could intervene and assert claims against DP where DP and the City were not in privity; and whether the City’s request for declaratory relief was based on past or future rights. In its Opposition, the City argued that it could assert Breach of Contract and Negligence claims against DP because the City was a third party beneficiary of the Agreement, and DP and the City shared a “special relationship.” Further, the City argued that it properly requested declaratory relief for future rights, not past. California United States District Court denied DP’s Motion to Dismiss and allowed the City to pursue Breach of Contract and Negligence claims against DP. The court further allowed the City to seek declaratory relief against DP, holding that the City’s request related to future, and not past, rights.

Breach of Contract – Third Party Beneficiary

Under California law, a third party beneficiary may enforce a contract if the contract is “made expressly for the benefit of a third person.” Cal. Civ.Code § 1559. “A third party qualifies as a beneficiary under a contract if the parties intended to benefit the third party and the terms of the contract make that intent evident.” Karo v. San Diego Symphone Orchestra Ass’n, 762 F. 2d 819, 821-22 (9th Cir. 1985) (citations omitted). To identify the intent of the parties, courts look first to contract language and then, if necessary, to the circumstances under which the contract was made. Civ Code §1636, 8-9, 47, Landale-Cameron Court, Inc. v. Ahonen, 155 Cal.App.4th 1401, 1411 (citations omitted), Garcia v. Truck Ins. Exchange, 36 Cal.3d 426, 437 (1984).

The court found that there was an ambiguity as to whether the City was a third party beneficiary because, even though the City was not a contracting party, the Agreement expressly required the City to enter a Cost Sharing Agreement to fund portions of the Project, the City participated in the selection of DP, and DP addressed the labor estimate portion of the Agreement to the City and ID. To resolve the ambiguity, the court examined the circumstances under which ID and DP entered the Agreement. It found that DP understood that the City would have a beneficial interest in the outcome of the Project when DP wrote in a letter that the Project “proposed for the City” would work, and that the “careful coordination between [ID] and the City will be required…” The court found further that the City’s significant involvement in the Project’s design, planning, and construction, including its required approval in moving the Project forward, were sufficient to demonstrate that the Agreement was specifically intended to benefit the City and meet its needs.

Negligence – Special Relationship

The California Supreme Court uses the following six factors to determine if a plaintiff not in privity of contract may assert a negligence claim based on a “special relationship”: 1) the extent to which the transaction was intended to affect the plaintiff; 2) the foreseeability of harm to the plaintiff; 3) the degree of certainty that the plaintiff suffered injury; 4) the closeness of the connection between the defendant’s conduct and the injury suffered; 5) the moral blame attached to the defendant’s conduct; and 6) the policy of preventing future harm. Biakanja v. Irving, 49 Cal.2d 647 (1958).

The court found that DP and the City had a “special relationship” based on the court’s analysis of the Biakanja factors. The DP/ID Agreement was intended to affect the City; the harm to the City was foreseeable; and alleged economic loss alone was sufficient to support a negligence claim because the City was a third party beneficiary of the Agreement, thereby satisfying Biakanja factors one through three. The court held that the City met the fourth factor, establishing a connection between conduct and injury, because it alleged that DP’s negligence directly caused the City to incur increased water production costs. The City met the fifth factor, moral blame, because the Project was intended for public use which justifies the imposition of liability for public policy reasons. Ales-Peratis Foods International, Inc. v. American Can Co., 164 Cal.App.3d 277, 289 (1985). Finally, the court found that existence of the sixth Biakanja factor because “general” California policy holds tortfeasors responsible in failing to exercise due care.

This case is an example of the trend in California to allow suits against professionals. Professionals practicing in California should carefully consider references to third parties in their design services contracts. Further, professionals should be aware that they may be liable to parties in addition to those with whom they share contractual privity and they should take steps to account for this risk when pricing their contracts and obtaining insurance.

*Black & Veach Corp. v. Modesto Irrigation Dist., 2012 WL 43211 (E.D. Cal. Jan. 9, 2012).

What the Legislature Gives, It Can Also Take Away (Sometimes)

By Justin R. Giles, III, Esq.

On August 1, 2007, the Interstate 35W Bridge (“Bridge”) that crosses the Mississippi River in Minneapolis, Minnesota collapsed killing 13 people and injuring approximately 145 people. In 2008, in response to the collapse, the Minnesota Legislature passed a compensation statute, Minn.Stat. §§ 3.7391 – 3.7395. Ultimately, the State entered into settlement agreements with the survivor-claimants who made statutory claims for compensation under the statute, paying the claimants approximately $37,000,000.

After the State made payments to the victims, several lawsuits were filed against the contractors who performed work on the Bridge. One of the contractors (PCI) filed a third-party complaint against the State and Jacobs Engineering Group, Inc. (“Jacobs”), whose predecessor had designed the Bridge in 1965. The State subsequently filed a cross-claim against Jacobs for contribution, indemnity and statutory reimbursement under Minn.Stat. § 3.7394, subd. 5(a). Section 3.7394 provides:

Notwithstanding any statutory or common law to the contrary, the state is entitled to recover from any third party, including an agent, contractor, or vendor retained by the state, any payments made from the emergency relief fund or under section 3.7393 to the extent the third party caused or contributed to the catastrophe.

Jacobs asserted several defenses to the State’s claims and sought to dismiss the claims on the basis that the State’s actions were barred by Minnesota’s applicable statute of repose.

In In re Individual 35W Bridge Litigation, 806 N.W.2d 820 (2011), the Minnesota Supreme Court agreed that the State’s cause of action for contractual indemnity was extinguished in 1982 under the repose statute; however, the court found that the State was still able to seek recovery from Jacobs under § 3.7394, subd. 5(a). In evaluating the parties’ respective positions, the court found that the legislature created the compensation statute in response to what was considered to be a catastrophe of historic proportions in Minnesota. As such, and in the best interest of the public, the legislature deemed it necessary to create a compensation process in order to minimize the impact of the catastrophe to the State. While the court noted that statutes are generally not retroactive, it held that this presumption can be overcome by express language demonstrating legislative intent to the contrary, which the court found existed in § 3.7394, subd. 5(a). Therefore, the court held that the State’s cause of action previously extinguished by the statute of repose was revived.^[1]

In evaluating whether retroactively reviving the cause of action was constitutional, the court applied the rational basis test. Despite determining that the statute of repose defense was a protectable property right, it held that the State’s claim against Jacob’s was rationally related to a legitimate governmental interest, which was establishing a compensation process to provide a remedy for claimants while removing the uncertainty of litigation in resolving the State’s liability. The court stressed that since the legislature could extinguish a common law right by statute, it necessarily could extend or make an exception to that right.

At first blush, this case seems unfavorable to design professionals because it expands potential liability into what has previously been seen as a statutory safe haven. However, upon closer inspection, the case holds that a statutory right to a repose defense is a protectable vested property right. Thisholding is beneficial because it mandates the application of the rational basis test. As such, the right cannot be overcome without some rational relation to a legitimate government interest.

In Massachusetts, the Legislature passed G.L. c. 260 § 2B, which caps a design professional’s liability on an improvement to property at six years. The Legislature’s passage of G.L. c. 260 § 2B was in response to case law that essentially extended design professionals’ liability indefinitely. In Klein v. Catalano, 386 Mass. 701, 709 (1982), the Massachusetts Supreme Court held that limiting liability is a well recognized public purpose. Additionally, the court noted that the United States Constitution allows the Legislature to abolish common law causes of action to promote permissible legislative objectives, such as limiting liability.

Those now practicing in Massachusetts need not fear that the applicable statute of repose is in jeopardy. Absent a catastrophic event affecting the Commonwealth, it is highly unlikely that the Legislature will attempt to undo the protection it has previously afforded design professionals. The courts of the Commonwealth have consistently upheld and enforced G.L. c. 260 § 2B, and will likely continue to do so. In the event the Legislature should change its course, design professionals can point to In re Individual 35W Bridge Litigation for support that the repose defense afforded to them is a protectable vested property right, and absent a legitimate government purpose, cannot be overcome.

[1] In a companion case, In re Individual 35W Bridge Litigation, 806 N.W.2d 811 (2011), a joint tortfeasor’s right to contribution was precluded by the statute of repose and not revived by an amendment to the statute of repose.

Wisconsin’s Economic Loss Doctrine Bars Professional Negligence And Breach Of Contract Claims Under The Statutes Of Limitation And Repose

By Lauren P. Marini, Esq.

In Kalahari Development, LLC v. Iconcia, Inc., 2012 WL 569368 (Wis. App. Feb. 23, 2012), the Wisconsin Appellate Court held that a claim relating to architectural and engineering services can be barred by the statute of limitations before the statute of repose expires. The Court held further that the economic loss doctrine applies to claims where the principal purpose of the service was to provide a product, and to tort claims arising from professional services.

On May 11, 1999, Kalahari Development, LLC (“Kalahari”) retained Iconica, Inc. to provide architectural, engineering and construction services for the Kalahari Resort and Conference Center. (“Project”). The Project, which included an indoor water park, hotel units and lobby, and a restaurant, was substantially completed on May 4, 2000. In May 2008, approximately eight years after the Project was completed, Kalahari observed moisture damage to the buildings’ walls.

On April 23, 2012, Kalahari filed a lawsuit alleging that Iconica’s design and installation of the walls’ vapor barriers were defective. The Complaint alleged claims for breach of contract and professional negligence. Iconica filed a Motion for Summary Judgment arguing that the breach of contract claim was barred by the statute of limitations, and the professional negligence claim was barred by the economic loss doctrine. Iconica’s Motion for Summary Judgment was granted by the trial court and affirmed by the appellate court.

Breach of Contract Claim Barred by the Statute of Limitations/Repose

In Wisconsin, the statute of limitations provides that “if a person sustains damages…and the statute of limitationsapplicable to the damages bars commencement of the cause of action before the end of the [ten year] exposure period, the statute of limitations applicable to the damages applies.” In other words, a claim may be barred by the statute of limitations before the expiration of the ten-year period for the statute of repose. Specifically as it relates to Kalahari’s breach of contract claim, which is governed by a six-year statute of limitations, the breach of contract claim began to accrue when the contract was breached. Although the breach of contract occurred no later than May 2000, the lawsuit was not filed until April 2010. Based on this analysis, the appellate court held that the statute of limitations barred the breach of contract claim because the lawsuit was filed after the expiration of six years.

Despite the expiration of the statute of limitations, Kalahari argued that the breach of contract claim was governed by the ten-year statute of repose. It relied on subsection (3)(b) of Section 893.89, which provides,

If, as a result of a deficiency or defect in an improvement to real property, a person sustains damage during the period beginning on the first day of the 8th year and ending on the last day of the 10th year after substantial completion…the time for commencing the action for the damages is extended for 3 years after the date on which the damages occurred.

The court rejected Kalahari’s argument on the grounds that the extended limitation period was intended to allow plaintiffs additional time to file a lawsuit when the damage did not occur until the end of the ten-year repose period. It stated further that the extended period was not intended to apply to lawsuits already barred by the statute of limitations. Therefore, the court held that Kalahari’s breach of contract claim was similarly barred by the statute of repose.

As this case was already barred by the statute of limitations, the Wisconsin Appeals Court did not permit the case to be resurrected using a statute of repose argument.

Professional Negligence Claim Barred by the Economic Loss Doctrine

As set forth in its contract, Iconica agreed to provide architectural and engineering services, other services necessary for contraction, including supervision and labor, and construction materials. The cost of the architectural and engineering services represented only 4% of the contract price.

In analyzing the Economic Loss argument, the court relied upon two Wisconsin Supreme Court cases for the proposition that when construction contracts involve both services and materials, the predominant purpose of the contract will be deemed to be the provision of a product (i.e. the finished structure). Given the percentage of services as compared to the products provided by Iconica, the court found that the predominant purpose of the contract was to provide a product. In doing so, the court rejected Kalahari’s argument that the “predominant purpose test” applied only to contracts for the provision of products, and it expressly held that the test is applicable to contracts for professional services. The court affirmed judgment for Iconica on the professional negligence claim.

Therefore, the economic loss doctrine applies to claims arising from a contract providing for architectural and engineering services as well as the construction of a product.

Through this case, the Wisconsin Court of Appeals reaffirmed that services provided by architects and engineer are not unlike other “nonprofessional” services when evaluating the application of the Economic Loss Doctrine in Wisconsin, thereby evidencing its intention to broadly apply the Doctrine.

The New Jersey Appellate Court Holds That An Architect Is Entitled To Apportion Liability To Other Design Professionals Even Though Claims Were Barred By The Statute Of Repose Nevada Supreme Court Strictly Enforces Certificate of Merit Statutes

By Rita C. Marcado, Esq.

The ability to apportion liability to other design professionals whose claims were dismissed from litigation based on a Statute of Repose defense was recently highlighted in a decision from the New Jersey Appellate Court’s (“Appeals Court”). The decision represents a victory for design professionals because it entitles them to reduce their liability based on the fault of others under the New Jersey Joint Tortfeasor Contribution Law and the Comparative Negligence Act.

In this instance, the Town/Owner (“Owner”) retained the Architect to design and supervise the construction of a police and fire facility (“Project” or “Building”). The Owner also retained a geotechnical engineer to perform a subsurface investigation of the soil, and issue a report providing three options for the design and construction of the Project’s foundation. The Architect retained the structural engineer to design the Project’s foundation based on one of the geotechnical engineer’s recommendations. The structural engineer issued its design but the Owner failed to present the final design to the geotechnical engineer for a final review, despite the geotechnical engineer’s recommendation to do so.

In September 1994, Project construction began and progressed without major complications. However, the Project’s structural integrity deteriorated over time eventually resulting in the differential settlement of the floor slab. Nonetheless, a certificate of occupancy was issued on April 9, 1996 for the police portion of the Building. On April 7, 2006, the Owner filed a complaint against the Architect, the geotechnical engineer, and the structural engineer alleging professional negligence.

Both the geotechnical engineer and structural engineer (collectively “Engineers”) filed summary judgment motions asserting that their claims were barred by the applicable ten-year Statute of Repose. After determining that the geotechnical engineer did not provide services after July 31, 1990, the structural engineer completed its services prior to October 30, 1995, and the complaint was filed more than ten years after the latest date of service, the Trial Court granted the Engineers’ summary judgment motions, and dismissed all claims against them, including the Architect’s cross-claims.

The Trial Court then granted the Owner’s motion to strike the Architect’s affirmative defenses as to apportionment of damages against the Engineers and the Town. After the trial, the jury returned a verdict in favor of the Owner against the Architect. The Architect appealed the decision on several procedural and substantive grounds, including the Trial Court’s order to preclude apportionment of liability against the Engineers and the Owner.

Apportionment to the Engineers

On appeal, the Appeals Court concluded that the Trial Court erred in precluding apportionment of liability against the Engineers. It held that the denial of such apportionment was inconsistent with the purpose of the Joint Tortfeasor Contribution Law, the Comparative Negligence Act, and the Statute of Repose. It held further that the Trial Court’s determination unreasonably denied the Architect the opportunity to shift liability for a portion of the Owner’s damages to the Engineers which would otherwise recognize the Owner’s own delay in filing its Complaint.

The Appeals Court reiterated that the purpose of the Joint Tortfeasor Contribution Law and Comparative Negligence Act is to “promote the fair sharing of the burden of judgment by joint tortfeasors and to prevent a plaintiff from arbitrarily selecting his or her victim.” Kearny v. Brandt, 2011 WL 2535286 (N.J. App. Decided June 28, 2011) at 3, quoting Burt v. W. Jersey Health Sys., 339 N.J. Super., 296, 303 (App. Div.2001). The Comparative Negligence Act allows joint tortfeasors to share liability based on percentage of fault. The Appeals Court held that allowing apportionment of liability to the Engineers did not contravene the purpose of the Statute of Repose. Rather, the Statute of Repose was promulgated to protect design professionals and contractors from the burden of defending stale claims. Allowing the Architect to apportion damages to the Engineers did not require the Engineers to participate in re-trial of the case, but could serve to reduce damages awarded to the Owner from the Architect.

The Appeals Court noted further that even though, in general, comparative fault should be allocated against only “parties” to a lawsuit, New Jersey courts have allowed, in certain circumstances, a jury to assess liability against individuals who are no longer parties to an action; including parties that settle before trial and/or are dismissed due to a plaintiff’s failure to comply with the affidavit of merit requirement.

Apportionment to the Owner

As set forth above, the Architect took the position that it was entitled to apportion liability to the Owner based on the Owner’s failure to instruct the geotechnical engineer to perform a final review of the Project’s structural design. The Appeals Court rejected the argument noting that “professionals may not diminish their liability under the Comparative Negligence Act when the alleged negligence of the client relates to the task for which the professional was hired.” Kearny, at 4, quoting Aden v. Fortsh, 169 N.J. 64, 78 (2001). Because the Architect was hired to perform design services, it was precluded from apportioning damages to the Owner unless the Owner withheld information or impeded the Architect’s ability to perform its scope of work.

Conclusion

This decision demonstrates that New Jersey courts are not hesitant to retain an avenue of liability for potentially liable joint tortfeasors. Although dismissed from an action by virtue of the Statute of Repose, they may still be subject to apportionment of liability.

Continuous Representation Doctrine Article

By Justin M. Jagher, Esq.

In a favorable decision for design professionals, a New York appellate court recently held that the statute of limitations was not tolled by the continuous representation doctrine.^[1] In City of Binghamton v. Hawk Engineering, P.C., 2011 WL 2375978 (N.Y. App. Div. June 16, 2011), a lawsuit was filed against an engineering firm (“Engineer”) by a city alleging breach of contract, negligence, and professional malpractice. The allegations stemmed from a dispute between the Engineer and the city (“City”) over damages incurred for allegedly deficient professional services.

In 2003, the Engineer entered into an agreement with the City to provide a design for the rehabilitation of a bridge. In September 2005, the Engineer provided the plans to the City. In November 2005, the Engineer submitted and received payment for its final invoice; the bridge was completed in October 2007. Subsequently, in December 2007, cracking was discovered in certain portions of the bridge, and the City retained an independent consulting firm that opined that the bridge’s structural design was inadequate. In March 2008, the City revealed these findings to the Engineer and asked it to review its documents. The Engineer subsequently contracted with another engineering firm to evaluate the design. The consulting engineering firm similarly identified certain design errors and recommended repairs. Thereafter, in June 2008, the City asked the Engineer to pay for the repairs.

The City waited until April 2009 to commence its lawsuit against the Engineer alleging breach of contract, negligence, and professional malpractice. The trial court ruled that the gist of the City’s claim was for professional malpractice and applied the three-year, tort statute of limitations period instead of the six-year, contract limitations period. Although the City’s complaint alleged that the Engineer breached the contract by violating a contractual “duty and obligation to use ordinary skill, care, and diligence in rendering their professional services,” the court identified that the City’s alleged damages and claim stemmed from the Engineer’s refusal to cover the costs of repairing the bridge. Thus, because damages were not alleged based on a breach of contract, the three-year, tort statute of limitations period applied.^[2] The court then ruled that the City’s claim accrued no later than November 2005, when the Engineer received its final payment. After tendering the final payment to the Engineer, the City did not request any additional services. The court established that the parties’ agreement contemplated that the professional relationship would conclude upon the latter of the Engineer’s submission of its final design, or final payment for services rendered.

In upholding the trial court’s ruling, the appellate court held that the continuous representation doctrine did not toll the limitations period. It analyzed the parties’ interactions and determined that the communications that occurred two-and-a-half years after the claim had accrued indicated a resumption, rather than a continuation, of the previous professional relationship between the parties. The appellate court rationalized that the City did not rely on the Engineer after discovering the cracks in the bridge. Instead, it retained a competing engineering firm to determine the cause of the cracks. It was not until after receiving the adverse report from its own consultant that it decided to allocate liability to the Engineer for errors and omissions.

The appellate court held that for the continuous representation doctrine to apply, both parties must expect the relationship to continue. Since the City consulted with an independent and competing engineering firm prior to contacting the Engineer, and then further delayed in contacting the Engineer after reviewing the results of its independent investigation, it could not support an allegation that it had continually relied on the Engineer’s professional services. When the City next contacted the Engineer, it was deemed a resumption, not a continuation, of services. Moreover, there was no basis for extension of the tolling period because there was no evidence of deceptive or otherwise wrongful conduct.

This is a positive decision for design professionals because it precludes owners and others from engaging multiple consultants to determine the cause of their issues and then alleging that there has been no break in the parties’ relationship to avoid tolling the statute of limitations. More importantly, it establishes a clear endpoint to relationships with contracting parties.

[1] The continuous representation doctrine is a legal tenet that a malpractice claim does not begin to accrue if the professional continues to provide services to a client concerning issues underlying the potential malpractice action.

[2] Additionally, the City’s argument that its breach of contract claim should not be time-barred was not raised until an affidavit was filed as part of an opposition to a motion for summary judgment, which the court determined was too late in the litigation.

Design Professional Owes No Duty to Third-Party with Whom Design Professional Has not Contracted Unless Third-Party’s Reliance Is Reasonable and Foreseeable and Design Professional Had Actual Knowledge of Reliance

By Kristina S. Raevska, Esq.

Recently, the Appeals Court of Massachusetts refused to hold a design professional liable to a developer (“Developer”) for deficient work where the design professional (“Design Professional”) did not have a contract with the Developer; the Design Professional had a contract with the town (“Town”) where a development subdivision (the “Project”) was located. See Meridian v. [Design Professional], 81 Mass. App. Ct. 128 (2012). The Town’s regulations required it to retain a design professional to conduct “subdivision reviews and inspections.” Prior to commencement of the Project, the Design Professional provided a memorandum to the Developer and the Town explaining that it would perform inspection services “on an as needed basis, when requested by the [Town],” and that “any field changes made by the contractor without prior approval of the [Design Professional], will be performed at the Contractor’s risk.”

Despite the foregoing limitation of services during construction, the Design Professional was on site almost daily without explicit directive from the Town. It then prepared reports of its inspections that it submitted to the Town and the Developer. After the Project’s completion, it was discovered that the Contractor had improperly installed multiple infrastructure features. The Developer brought suit against the Design Professional alleging that it was negligent because it failed to discharge its duty to the Developer to identify the Contractor’s errors and omissions. The Design Professional prevailed on a motion for summary judgment and the Developer appealed.

The key issue analyzed by the Appeals Court within the framework set forth in Craig v. Everett M. Brooks, Co., 351 Mass 497 (1967), was whether the Design Professional owed a duty to the Developer with whom it did not have a contract. In Craig, the Supreme Judicial Court of Massachusetts (“SJC”), imposed a duty upon a surveyor to a subcontractor, with which it did not contract, where the surveyor was retained to lay out offset stakes to be used by the subcontractor to grade and locate a road. The subcontractor sued the surveyor for damages due to improperly placed offset stakes. The SJC found that the surveyor owed a duty to the subcontractor because the surveyor knew the identity of the subcontractor, the subcontractor’s reliance was reasonable and foreseeable, and the surveyor knew of that reliance, even though there was no contract between the two parties.

In evaluating whether the Developer’s reliance was reasonable and foreseeable, the Appeals Court distinguished the circumstances in Craig from the circumstances in this case. In doing so, the Appeals Court relied upon the provisions in the Design Professional’s contract with the Town that disclaimed “authority or responsibility for the methods and procedures of construction selected by the Contractor.” Further, the Appeals Court pointed to the Design Professional’s memorandum that explicitly disclaimed any responsibility for unapproved deviations from the plans and specifications. In light of these disclaimers, the Appeals Court reasoned, the Developer’s alleged reliance upon the Design Professional’s services performed on behalf of the Town was not justifiable.

The Appeals Court explained further that the Developer’s reliance was not reasonable because the Developer was free to retain, and did retain, its own construction administration design professional. While the Town allowed only one Design Professional to inspect construction on behalf of the Town to assure compliance with Town’s regulations, the Developer was free to retain its own design professional to advise its contractor on compliance with the Project’s design requirements. That the Developer’s inspector failed to perform its own contractual obligations to the Developer, did not make the Developer’s reliance upon the Town’s Design Professional inspections “reasonable.”

The Appeals Court also rejected the Developer’s reasonable reliance argument on the grounds that the Design Professional’s contract explicitly disclaimed responsibility for the Contractor’s deviations. As such, the Appeals Court concluded that the Developer’s reliance on the Design Professional’s performance of its contractual obligations to the Town to ensure compliance with the Town-approved subdivision plan and the Town’s rules and regulations was neither reasonable nor justifiable.

In light of this decision, design professionals that inspect private projects on behalf of municipalities pursuant to local rules and regulations should carefully and clearly delineate in their contractual agreements the scope of and purpose for services (e.g. mere compliance with municipal regulations as opposed to construction administration), and disclaim responsibility for any unapproved work that deviates from approved plans.