In a Win for Design Professionals, California Court of Appeals Holds That Relation-Back Doctrine Does Not Apply to Certificate of Merit Law

Garret Murai | California Construction Law Blog | December 5, 2017

The year was 1995. The old guard was still in power in Sacramento. “Button-Down” Pete Wilson was Governor. Willie Brown, the self-nicknamed “Ayatollah of the Assembly,” was Speaker of the Assembly. And Bill “Huggy” Lockyer was Senate Pro Tem. Names that, for many reasons as of late, seem . . .  well . . . let’s just say, “quaint.”

Their time, however, was coming to an end. Three years earlier, California voters approved Proposition 140, which instituted term limits for the first time in California. And by 1996, the first slate of legislators would be “termed out.” The immediate impact: It was the time for making deals because you didn’t know who would be keeping house next.

At the time, I was lobbying for a trade association in Sacramento representing the architecture profession. One of the key legislative priorities for the association was protecting and “preserving” a statute that had originally been enacted in 1979 and scheduled to have sunsetted in 1984. For more than 10 years, it had been kept alive by legislative extensions.

The law, Business and Professions Code section 411.35, was designed to limit frivolous lawsuits against licensed architects, registered professional engineers and licensed land surveyors by requiring attorneys to consult with another design professional as a condition of filing a complaint or cross-complaint against a licensed architect, registered professional engineer, or licensed land surveyor.

Also known as a “Certificate of Merit,” the law was supposed to sunset in 1995, but the association was able to get the sunset removed. Business and Professions Code section 411.35, as currently amended, provides that “on or before” serving a cross-complaint alleging the professional negligence of a licensed architect, registered engineer, or licensed surveyor, a certificate of merit must be signed by the attorney and filed with the court representing that either:

  1. The attorney has consulted with at least one architect, professional engineer, or land surveyor licensed to practice in California or any other state, who is in the same discipline as the architect, professional engineer, or land surveyor, and the attorney has concluded based on the consultation that there is reasonable and meritorious cause for filing the complaint or cross-complaint;
  2. The attorney was unable to obtain a consultation before the running of the statute of limitations, in which event, a certificate of merit shall be filed within sixty (60) days after filing the complaint; or
  3. The attorney was unable to obtain a consultation following three (3) good faith attempts to obtain an opinion from three (3) separate architects, professional engineers, or land surveyors.

An attorney is not required to disclose the identity of architect(s), professional engineer(s), or land surveyor(s) consulted unless the attorney files a certificate of merit stating that it was unable to obtain a consultation, in which event, the identities of the architects, professional engineers, or land surveyors from whom a consultation was sought may be required to be disclosed by the court.

However, if, at the conclusion of litigation, the licensed architect, registered engineer, or licensed surveyor prevails, the licensed architect, registered engineer, or licensed surveyor may file a motion with the court requiring the attorney to disclose the names, addresses, and telephone numbers of the persons consulted. If the court finds that the consulting requirements were not met, the court may order a party, a party’s attorney, or both, to pay reasonable expenses, including attorney’s fees, to the licensed architect, registered engineer, or licensed surveyor.

In Curtis Engineering Corporation v. Superior Court of San Diego, Case No. D072046 (October 23, 2017), the California Court of Appeals addressed the impact of the relation-back doctrine – a doctrine that generally provides that a later-filed pleading “relates back” to the date of an earlier-filed pleading for statute of limitations purposes – on the certificate of merit law.

Curtis Engineering Corporation v. Superior Court of San Diego

In Curtis Engineering, George Sutherland, a crane operator, was injured when his crane tipped over on May 5, 2014. Nearly two years later, on May 3, 2016, he filed suit in the San Diego Superior Court. His complaint included a negligence cause of action against Curtis Engineering Corporation.

Sutherland’s original complaint, however, did not include a certificate of merit. On December 1, 2016, Sutherland filed an amended complaint that included a certificate of merit.

In response, Curtis Engineering filed a demurrer arguing that Sutherland had failed to file the required certificate of merit within the two-year statute of limitations period applicable to a negligence cause of action. The trial court, however, denied the motion concluding that the first amended complaint “related-back”to the date the original complaint was filed

Curtis Engineering appealed.

The Court of Appeal Decision

On appeal, Curtis Engineering argued that the two-year statute of limitations for negligence expired on May 5, 2016, that the certificate of merit was not filed until December 1, 2016 (nearly seven months after expiration of the statute of limitations), and that the sixty (60) day grace period under Business and Professions Code section 411.35 had expired on July 2, 2016.

Discussing the relation-back doctrine, the Court of Appeals explained that under the doctrine a later-filed pleading will be deemed to have been filed at the time of an earlier complaint if the amended complaint is based on the same general set of facts. However, held the Court, based on the language of the certificate of merit statute, the relation-back doctrine does not apply to later-filed pleadings alleging the professional negligence of a licensed architect, professional engineer, or licensed surveyor for two reasons.

First, held the Court of Appeals, Business and Professions Code section 411.35 states that a certificate of merit “shall” be signed and filed by an attorney “on or before the date of service.” This requirement, explained the Court, would be rendered meaningless if the relation-back doctrine permitted an attorney to file a certificate of merit later in time in order to avoid a statute of limitations deadline.

Second, held the Court of Appeals, Business and Professions Code section 411.35 provides a sixty (60) day grace period applicable in situations where an attorney is unable to file a certificate of merit before a statute of limitations deadline. “[A]pplying the relation-back doctrine in this situation,” explained the Court, “would mean a plaintiff has virtually an unlimited amount of time to obtain the necessary consultation as long as the plaintiff files the certificate of merit with an amended complaint that relates back to the original complaint. This cannot be what the Legislature intended.”

Conclusion

Curtis Engineering provides further assurances to licensed architects, registered engineers and licensed surveyors that the intent of the certificate of merit law is preserved, by requiring attorneys to obtain a certificate of merit “on or before” service of a complaint or cross-complaint, or if a certificate of merit cannot be filed by the time a statute of limitations deadline expires, by requiring that a certificate of merit be filed within sixty (60) days after the filing of a complaint or cross-complaint.

Out-of-State Contractors and Design Professionals Beware: The Georgia Removal Statute Does Not Apply to You

William R. Wildman, Jesse W. Lincoln and Matthew J. Bowness | Eversheds Sutherland | November 30, 2017

Out-of-state contractors and design professionals working on projects in Georgia should consider including venue selection clauses in their contracts. Under O.C.G.A. § 14-2-510(b)(4), venue for tort actions lies “in the county where the cause of action originated,” i.e., generally in the county where the project is located. Thus, even if a contractor’s primary Georgia office is located in Atlanta’s Fulton or DeKalb counties, the contractor is subject to being sued in the project’s county.

An in-state contractor that is sued in an unfavorable venue has the statutory right to remove the suit to its home county—the county in which it maintains its “principal place of business.” The Supreme Court of Georgia, however, has made it clear that out-of-state contractors do not have this right.

In Kingdom Retail Grp. v. Pandora Franchising, 334 Ga. App. 812, 816 (2015) (aff’d Pandora Franchising v. Kingdom Retail Grp., 299 Ga. 723 (2016)), the plaintiff sued the defendant in the Superior Court of Thomas County. Id. at 812. The defendant filed a notice of removal of venue, arguing that it had the right to remove the action to the Superior Court of Gwinnett County, where it “maintain[ed] its registered office as its principal place of business in the State of Georgia.” Id. at 813. It attached with its motion an affidavit attesting to the fact that it did “not have any other principal office or principal place of business in the State of Georgia.” Id.at 813 (emphasis added).

The Superior Court conducted a hearing on the matter and then ordered that venue be removed to the Superior Court of Gwinnett County. Id. at 812. The plaintiff immediately appealed.

On appeal, the court held that the term “principal place of business” referred to a single place in the world meeting a certain standard, not to a place within Georgia meeting that standard. Id. at 816. The court further held that the venue removal statute “allows a transfer only if a defendant’s principal place of business, as defined above, is located in Georgia.” Id. at 817. Because the defendant’s principal place of business was in Columbia, Maryland, the court held that the Superior Court had erred by ordering removal to Gwinnett County. Id. at 817. It thus remanded the case to the Superior Court of Gwinnett County with instruction to remand the case back to the Superior Court of Thomas County. Id. at 817.

The defendant subsequently appealed to the Supreme Court of Georgia. Pandora Franchising v. Kingdom Retail Group, 299 Ga. 723 (2016). The Supreme Court unanimously affirmed, holding that “the language of subsection (b)(4) confers the right of a company to remove an action in which venue is based upon this subsection only to the county in Georgia where the defendant maintains its worldwide principal place of business.” Id. at 727 (emphasis added). The court further held that “[i]f that place is not located in a Georgia county, then no right to remove is granted.” Id. at 727.

Thus, under Kingdom Retail, out-of-state corporations cannot avail themselves of Georgia’s venue removal statute if they find themselves embroiled in litigation in an unfriendly county. Accordingly, out-of-state contractors and design professionals working on projects in Georgia should take care to include strong venue selection clauses in their contracts to avoid being sued in plaintiff-friendly counties. Such clauses should apply to all claims arising out of or relating to the contract and should specify that such claims must be brought in the contractor’s preferred venue.

Montana Supreme Court Holds that a Waiver of Consequential Damages and a Partial Limitation of Liability in a Design Contract are not Contrary to Montana Law

Emily D. Anderson | Constructlaw | November 30, 2017

Zirkelbach Constr., Inc. v. DOWL, LLC, 2017 Mont. Lexis 591 (Mont., Sept. 26, 2017)

In interpreting a state statute which makes contractual limitations on a party’s liability unenforceable in certain instances, the Supreme Court of Montana recently upheld the validity of a contract provision in a professional services agreement between a general contractor and a designer in which the parties waived consequential damages against each other and limited the liability of the designer to $50,000.00.

Zirkelbach Constr., Inc. (“Zirkelbach”) and DOWL, LLC (“DOWL”) entered into a professional services agreement (the “Agreement”), whereby DOWL agreed to provide design work to Zirkelbach, a general contractor, for the construction of a FedEx Ground facility in Billings, Montana.  The original contract price was $122,967, but was adjusted to approximately $665,000 after the parties made several addenda to the Agreement to account for additional services.

The Agreement contained a provision (the “limitation of liability clause”) – which the parties did not renegotiate when they modified the Agreement through addenda – in which the parties agreed to waive against each other “any and all claims for or entitlement to special, incidental, indirect, or consequential damages arising out of, or resulting from, or in any way related to the Project,” and also agreed that DOWL’s total liability to Zirkelbach under the Agreement “shall be limited to $50,000.”

After Zirkelbach brought suit against DOWL asserting claims of negligence and breach of contract in the amount of $1,218,197.93 for problems allegedly caused directly by DOWL’s design plans, DOWL filed a motion for partial summary judgment arguing that DOWL could not be liable to Zirkelbach in any amount exceeding $50,000 due to the limitation of liability clause. The District Court granted DOWL’s motion and Zirkelbach appealed.

On appeal, Zirkelbach argued that the limitation of liability clause was unenforceable as against public policy under Section 28-2-702, MCA, which provides:

All contracts that have for their object, directly or indirectly, to exempt anyone from responsibility for the person’s own fraud, for willful injury to the person or property of another, or for violation of law, whether willful or negligent, are against the policy of the law.

The Supreme Court disagreed.  In holding that the limitation of liability clause was valid under § 28-2-702, the Supreme Court emphasized the importance of the freedom of parties to mutually agree to the terms governing their private conduct, provided those terms do not conflict with public laws, and emphasized that Zirkelbach and DOWL were two experienced, sophisticated business entities with equal bargaining power.  The Court relied on case law in both Montana and California, which has an identical statute, in concluding that “it would be difficult to imagine a situation where a contract between relatively equal business entitles would be able to meet the required characteristics of a transaction that implicated public interest.”

Additionally, the Court noted that the limitation of liability clause only capped damages and did not exempt DOWL from all liability under the Agreement, as the Court had previously held that § 28-2-702, is not violated when business entities contractually limit liability, but do not eliminate liability entirely, or when a limitation of liability applies only to a narrow type of damages, but not all damages.  DOWL remained exposed to liability on the negligence claim asserted by Zirkelbach and for $50,000 under the Agreement.

Finally, the Court rejected Zirkelbach’s argument that the $50,000 limitation of liability indirectly exculpated DOWL from liability because it was a nominal amount compared to DOWL’s total adjusted fee.  The Court pointed out that the limitation was a much larger percentage of DOWL’s fee before the parties modified the Agreement to add additional services by addenda, and stressed that it would not “allow Zirkelbach to avoid a term of the contract simply because it [had] become more burdensome due to its own failure to renegotiate.”  Each time the Agreement was modified, Zirkelbach had an opportunity to renegotiate the cap on liability, but did not.

Accordingly, the Supreme Court affirmed the grant of summary judgment in DOWL’s favor.

The California Legislature Passes SB 496 Limiting Design Professional Defense and Indemnity Obligations

Mark Himmelstein and Jenny Guzman | Construction Defect Journal | June 15, 2017

Since 2008 when the California legislature limited subcontractor indemnity obligations, the design professional community has been shouting “what about us?” Well, the legislature finally responded and a new law that limits design professional’s defense and indemnity obligations to their percentage of fault goes into effect on January 1, 2018.

THE NEW LAW – SB 496
SB 496 amends California Civil Code section 2782.8 and states that indemnity agreements must be limited to the negligence, recklessness or willful misconduct of the indemnitee (i.e. no more Type I indemnity with design professionals). The amendment also provides that “in no event shall the cost to defend charged to the design professional exceed the design professional’s proportionate percentage of fault”, with a limited opportunity for reallocation in the event another defendant is judgment proof.
However, the duty to defend still remains and still arises at the time of the tender of the defense (both issues that were unsuccessfully targeted by the design professional lobbyists).

WHAT CAN BE DONE NOW?
Developers and Owners should strongly consider reviewing and revising the indemnity provisions in their consultant contracts to comply with the new legislation before the first of the year. This includes master agreements because project addenda entered into after January 1 are subject to the new law. The statute does not apply to current contracts, so these do not need to be amended.

Construction Contracts, Third Party Claims and Tort Law Liability

Carl R. Pebworth | Faegre Baker Daniels | October 5, 2017

What tort obligations does a design professional on a construction project owe to non-parties — like, for example, the persons who will use what has been designed after it is built? Tort law involves the idea of a duty of care that the design professional owes to others arising out of the designer’s professional expertise and certification. Matters involving a design professional’s tort obligations typically raise the following issues:

  • The nature and extent of the professional’s duty of care to others
  • What kinds of damages can be recovered if this duty of care is breached
  • What is necessary to prove that a third party has been damaged by the breach

Contracts and Establishing the Standard of Care

In one Illinois case, a court addressed whether an engineer who had contracted to design a “replacement” for a bridge deck had a professional obligation to “improve” the bridge deck after it failed and third-party motorists were killed. In other words, did the design professional have an independent obligation to go beyond replacing the bridge deck, as the contract stipulated? The Supreme Court of Illinois said no, granting summary judgment as a matter of law in favor of the engineer as to the deceased motorists’ claims.

In this case, there was a contract that prescribed the duty of care that the design professional agreed to meet: “the degree of skill and diligence normally employed by professional engineers or consultants performing the same or similar services.” These contract obligations trumped the standard of care that would exist absent a contract: “the use of the same degree of knowledge, skill and ability as an ordinarily careful professional would exercise under similar circumstances.” While these standards look similar, they differ because one recognizes the limitations that the parties agreed to in their contract limit the engineer’s duty to others. Because the contract specifically required replacement — and not redesign — of the bridge deck, the engineer could not be held liable for failing to go beyond the contractual scope of duty.

The engineer could have been found liable to third parties if he had been negligent in performing services relating to the replacement of the bridge deck — that was in the scope of what the engineer had agreed to do. Moreover, the engineer could have assumed additional liability by voluntarily attempting to improve the bridge deck and delivering a poor or defective product.

Contracts and the Economic Loss Doctrine

A design professional’s obligations to third parties are further limited by the “economic loss doctrine,” which applies to claims that do not involve physical harm. This doctrine prevents a party from pursuing a claim for economic or commercial losses arising from an alleged breach of a duty of care if the design professional’s contract precludes recovery of consequential or tort-based damages. Put simply, the contract’s limitation of damages can preempt economic loss liability even in cases where a professional failed to meet the duty of care.

Another question that arises if a duty of care is present and a third party has suffered damages is whether the breach of the duty has “proximately caused” these damages. Here, many courts — including the Illinois court — look at what the professional has contractually agreed to do. If injury results from something reasonably within that contractually defined responsibility, a design professional can be seen to proximately cause damages that flow from the designer’s failure to competently perform those duties.

In Conclusion: Know (and Perform) Your Contractual Duties

In summary, a design professional’s contract serves to confine and to define the designer’s obligations — not just to the design professional’s client, but also to third parties with whom the designer does not have a contractual relationship. As long as the design professional sticks to what the designer has contracted to do and does that work professionally, the designer cannot be obligated to go beyond those duties.