Expert Commentary

Remote Relations and Legal Duties of Design Professionals

A recent Iowa Court of Appeals decision provides reason to believe that there are some limits on the exposure of design professionals to those with whom there is no contractual relationship.


Design Liability
September 2006

The Iowa Court of Appeals found that a subsequent purchaser of an apartment complex did not have a viable claim against the architectural firm and the engineering firm involved in the original design of the apartment building in the holding handed down in First Sierra Equities, L.L.C., et al. v. Signature Partners—Des Moines, Ltd., et al., No. 5-978/4-1068, filed April 12, 2006.

The First Sierra case has two significant holdings for the design professional community. First, the court of appeals concluded that the licensing statute in Iowa does not create a private cause of action. Second, the court found that the design professionals being sued by a subsequent purchaser of a building did not owe that subsequent purchaser a legal duty. As a result, the design professionals could not be legally obligated to the subsequent purchaser.

Background

In 1998, the plaintiffs, in differing capacities, purchased an apartment building in Iowa. Following the purchase, the purchaser-plaintiffs came to believe that there were construction defects in the building existing since originally constructed, but that were not known or discovered during the purchasing process, despite due diligence being exercised.

The purchasers filed suit against the sellers and others, including the architectural firm that provided the architectural design of the building and the engineering firm that provided the mechanical, electrical, and plumbing. The architectural design was provided by a firm named Fusch-Serold. The mechanical, electrical, and plumbing engineering design was provided by Custom Engineering. These firms provided their respective services in 1995 and 1996, 2 or 3 years prior to the sale of the building.

As to the claims against the design professionals, the purchaser-plaintiff’s made a claim under Iowa’s statute which sets forth the licensing standards and enforcement procedures for those engaged in professional engineering in Iowa. The purchaser-plaintiffs claimed that they were entitled to enforce a private cause of action for violation of this statute against Custom Engineering. Though not specifically set out in the court’s opinion, the claim against Custom Engineering seems to have been that the purchaser-plaintiffs did not believe that the design met certain standards of minimum competence as required by the statute.

The purchaser-plaintiffs also alleged common law negligence (a failure to comply with the accepted standard of care) against Fusch-Serold and Custom Engineering.

Private Cause of Action under the Licensing Statute

The court considered the arguments of the purchaser-plaintiffs and concluded that there is no private cause of action under the Licensing Statute. To determine whether a private cause of action could be implied from the statute, the Iowa Court of Appeals considered four factors. Those factors were:

  1. Is the plaintiff a member of the class for whose benefit the statute was enacted?

  2. Is there any indication of legislative intent, explicit or implicit, to either create or deny such a remedy?

  3. Would allowing such a cause of action be consistent with the underlying purpose of the legislation?

  4. Would the private cause of action intrude into an area over which the federal government or a state administrative agency holds jurisdiction?

The court here concluded that the legislatively created Board and enforcement procedure set out in the Licensing Statute implied an intent to deny a private remedy to those seeking redress upon an alleged violation of the statute. A private cause of action would intrude on the agency’s enforcement authority, and it would permit an individual to avoid the "carefully designed enforcement scheme" set out in the Iowa statute, according to the court.

The Iowa Court of Appeals found in favor of Custom Engineering on the claims made under the Licensing Statute.

Negligence Claim

In review of the negligence claims under common law principles, the court found that neither Fusch-Serold nor Custom Engineering owed a duty to the plaintiff-purchasers. The court’s holding on the negligence issue is premised on, what it described as, the key inquiry: Whether the design firms know or should have foreseen that the purchaser-plaintiffs would rely on their services.

The court looked at several factors to reach the decision. The underlying considerations and the applicable logic was the same for both Fusch-Serold and Custom Engineering.

When the professional services were being provided by the two design firms, 2 to 3 years prior to the sale, there was no knowledge, and the court concluded that there was no reason there should have been any knowledge, that the property would be sold several years after the services were rendered. There was no reason that these two design firms should have known that the purchaser-plaintiffs would subsequently be relying on the plans provided to the original developer. The purchaser-plaintiffs were "far removed," as the court noted, from the project when the design professional services were provided, and, in fact, the purchaser-plaintiffs were unaware of the services until after problems were discovered with the apartment building. As a result, there is no duty owed by Fusch-Serold or by Custom Engineering to these plaintiffs.

The court summed up its analysis by noting that the purchaser-plaintiffs "were not a known third-party" to the design professionals that the design professional could have recognized as someone who would "reasonably rely" on the professional services provided by the firms.

The Iowa Court of Appeals affirmed the judgment entered by the trial court in favor of the design firms on the negligence claims.

Lessons Learned

The lesson we can learn is to be cautious of making representations or accepting statements in the agreements for professional services about what may happen in the future to the structure for which the services are provided. Here, the design firms were found to not owe a duty to a subsequent purchaser because the firms had no "reason to know" that some entity other than the one with which they had contracted would be "relying" on their design.

When being engaged to provide services, be aware of what may happen in the future. If you know the building is to be sold or transferred to another entity, take that into account in doing your risk analysis. It may well be as if you are contracting with the future owner as well as the party with whom you are dealing. As a standard suggestion, you may want to include language in the agreements for professional services that the services are only for the entity to whom you are contracted, and that the agreement does not create any duties or obligations to any other party or entity. This may not insulate you completely, but it will help eliminate claims like the design professionals faced in this Iowa lawsuit.


Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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