By: Michael S. Zetlin, Esq.
Zetlin & De Chiara, LLP
In a decision that could have far-reaching implications for design professionals, a court in California recently concluded that a fiduciary relationship existed between an architect and an owner. As a result of the architect’s breach of this purported fiduciary relationship, a jury rendered a verdict in favor of the owner for over $8,000,000.
The owner, Lake Merritt Plaza , in the case of Lake Merritt Plaza v. Hellmuth Obata & Kassabaum, claimed that the project architect failed to properly monitor and report upon the work of a curtainwall designer and contractor. In particular, Lake Merritt Plaza (“LMP”) sued Hellmuth Obata & Kassabaum (“HOK”) and the general contractor, Turner Construction Company (“Turner”), for curtain wall defects that arose in connection with the construction of the Lake Merritt Plaza building.
The court apparently relied upon standard language used in American Institute of Architects (AIA) contracts to find that a fiduciary relationship existed between the owner and the architect. As a result, the court expanded the role of the architect beyond the explicit contract terms.
Factual and Procedural Background
Turner retained a curtain wall subcontractor to design and install the curtain wall system. After the work was supposedly completed, the curtain wall leaked continuously. The curtain wall subcontractor performed repairs but leaks continued severely thereafter. LMP then apparently waited several years before investigating the causes of the leakage.
LMP never retained a waterproofing consultant, although its contract with HOK provided that LMP would provide the services of a consultant “when such services [were] deemed necessary by the Owner and the Architect … for determining … water conditions, with reports and professional recommendations.” HOK recommended the services of a consultant to evaluate the watertightness of the curtain wall. LMP never retained the consultant, however, because it apparently was led to believe by Turner and others (not HOK) that the mock-up test passed. In fact, the mock-up test failed. One of LMP’s primary claims against HOK was that it was never apprised of the failure of the mock-up test. LMP alleged that HOK, as its fiduciary, had the obligation to advise it of the results of the mock-up test.
According to LMP, had it known of the failure of the test, it would have retained a curtain wall waterproofing consultant which would have prevented the leakage that subsequently occurred. LMP also argued that HOK had an obligation to ensure that the remediations prepared at the mock-up tests were incorporated into the shop drawings for the project. HOK countered that it was unaware that LMP never received the report of the mock-up test failure, and it was incumbent upon LMP to provide such information to HOK. In any event, argued HOK, LMP had the independent obligation to retain the waterproofing consultant to inspect the installation. That obligation was not dependent upon the results of the mock-up test. HOK also stressed that the partners of LMP were experienced developers and lawyers. HOK argued, therefore, that it was unnecessary and inappropriate for the Court to impose a higher standard to the relationship than was otherwise imposed by the terms of the contract itself.
HOK’s Contractual Responsibilities and the Fiduciary Relationship
HOK’s contract with LMP was predicated on standard American Institute of Architects contract language. HOK agreed to “endeavor to guard the Owner against defects and deficiencies in the work of the Contractor.” HOK, however, was not responsible “for construction means, methods, techniques, sequences or procedures.” Similarly, HOK was not responsible for the acts, omissions or failures of the contractors.
Nothing in the contract explicitly imposed a fiduciary obligation on the architect or a relationship of trust and confidence. Nevertheless, the Court apparently relied on other language in the contract which declared the architect to be a representative of the Owner and other scope provisions to conclude that HOK owed fiduciary obligations to LMP.
The Significance of the Fiduciary Relationship Determination
As a result of the Court’s finding of a fiduciary relationship, LMP was given free reign at the trial to present evidence of HOK’s “duties” which apparently far exceeded the explicit duties set forth in the contract. LMP presented witnesses who testified about the expectations and understandings of HOK’s construction administration services rather than relying on the express terms of the contract.
HOK, therefore, was imparted with considerable responsibility for protecting the interests of the owner with respect to the curtain wall, even though (i) the general contractor was solely responsible for construction means and methods, and (ii) HOK had no explicit contractual responsibility for supervising or inspecting the curtain wall or the mock-up tests.
Even more damaging to HOK’s case was a finding that HOK’s fiduciary relationship with LMP excused LMP’s inaction after discovering the leakage problem. The curtain wall leaked repeatedly and the curtain wall subcontractor attempted to repair the leaks on several occasions. The repair failed and severe leakage occurred but LMP did not actually seek to investigate the cause of the leakage. Had it done so it would have discovered the cause of the leakage several years earlier. The Court excused LMP’s delay in taking affirmative steps to discover the cause of the problem of the fiduciary relationship finding, depriving HOK of a possible statute of limitations defense.
Under the circumstances of this case, the Court held a design professional to a higher standard of care than agreed to as part of the contract terms. As a result, in this case, the design professional had to defend against phantom responsibilities never bargained for as part of the underlying agreement.
While this decision does not reflect a trend of courts to expand a design professional’s responsibility to an owner, certain precautions are still warranted. In particular, it would be prudent for a design professional to explicitly incorporate in its contract with an owner that nothing contained in the agreement or otherwise is intended to create a fiduciary relationship between the parties. Without taking certain precautions, a design professional will run the risk of being saddled with more responsibility than it anticipated for a project.
About the Author: Michael S. Zetlin is founding member of Zetlin & De Chiara LLP, a New York, New Jersey and Connecticut based law firm that represents architects, engineers, design professionals, contractors, construction managers, owners, developers, and other parties in the construction industry. A graduate civil engineer as well as an attorney, Mr. Zetlin represents national and multi-national firms in a wide range of construction and real estate matters. He lectures frequently on many topics relating to the design and construction industries and he is a member of the Governing Committee of the ABA Forum on the Construction Industry. He may be contacted at Zetlin & De Chiara, 801 Second Ave. , New York , NY . 10017, 212-682-6800 or by e-mail at firstname.lastname@example.org.
Publisher’s Note: This article was written by Mr. Zetlin several years ago when the case was decided and was published in the Zetlin & DeChiara newsletter. I am re-printing it here because this issue continues to be of concern and I am seeing more and more contracts in which the project owner is seeking to use language stating that the design professional will have a fiduciary duty to the owner. For the reasons explained in this article, design professionals should strike that kind of language from the contracts.