Fashion Trends for Design Professionals: Wearing Many Different Hats

Brian L. Lynch | Faegre Baker Daniels | January 18, 2018

With the rise in alternative project delivery systems, design professionals are often expected to provide services beyond those required under the “traditional model.”1 As one may expect, this expansion of services can also increase risk for the designer and affect legal relationships and liabilities for all contracting parties. The growing complexity of construction — coupled with designers wearing multiple hats due to changing relationships and increased scopes of work from different project delivery systems and industry practices — has had a significant effect on designer liability.

Today, design professionals can wear any one of following three “hats” during a project:

  • An independent contractor in the preparation of the construction plans and specifications.
  • An agent of the owner in observing the construction work as it progresses and administering the contract.
  • A quasi-judicial officer with certain immunity when acting as arbiter in resolving disputes between the owner and the contractor.2

Hat No. 1: An Independent Contractor

First, during the preparation of construction plans and specifications, a designer’s legal role is that of an “independent contractor.” Under state licensure statutes and state and local building codes, the designer bears a unique responsibility as an “independent contractor” which cannot be delegated except to other licensed professionals. The principal consequence of this classification in performing design services is that a designer may be held liable for negligence to parties with whom there is no contractual privity that results in injuries to persons or property and, in some jurisdictions, in economic losses.3

Hat No. 2: An Agent of the Owner

Second, a designer may provide a vast array of services during the administration and construction phases, acting as an agent for the owner within the scope of his or her contract with the owner.4 For example, Section 4.2.1 of the new AIA Document A201-2017, General Conditions of the Contract for Construction, specifically states that “[t]he Architect will have authority to act on behalf of the Owner only to the extent provided in the Contract Documents.” Whether a designer is an agent or independent contractor during these phases can have significant implications for all contracting parties, such as whether a) the owner is bound by the designer’s actions; b) the designer may be liable to contractors and other third-parties for harm caused by their acts as an owner’s agent; and c) whether a designer can be found liable to a contractor seeking tort damages for economic loss.

Hat No. 3: An Independent Arbiter

Lastly, a designer may serve as an independent quasi-adjudicator of disputes between the owner and contractor as provided for in the contract documents. Frequently, a designer is given the authority to interpret contract documents due to its status as the party knowledgeable about design intent. For example, Section 4.2.11 of the new AIA Document A201-2017 states that it is the role of the designer to “interpret and decide matters concerning performance under, and requirements of, the Contract Documents on written request of either the Owner or Contractor.” In rendering these interpretations, Section 4.2.12 requires the designer to “endeavor to secure faithful performance by both Owner and Contractor, will not show partiality to either, and will not be liable for results of interpretations or decisions rendered in good faith.” This role, however, is fraught with potential conflicts of interest, as a designer is normally employed and paid by an owner. One of the most prevalent is when a designer is required to reexamine positions taken as the owner’s agent during the administration and construction phases. But if acting in good faith in its role as a quasi-arbitrator, designers are granted immunity from suit for their decisions.5

Because design professionals can wear any number of “hats” during a construction project — which each have an important effect on legal relationships and liabilities — it is important that all contracting parties understand which roles the design professional plays on their project.

For more on the distinct professional roles of a designer, see Bruner & O’Connor Construction Law §§ 17.4 to 17.9.

1 For an overview of the “traditional model” of project delivery, see 1 Bruner & O’Connor Construction Law §§ 2:13, 2:29 to 2:30, 6:1 to 6:4.
2 See 5 Bruner & O’Connor Construction Law §§ 17.4 to 17.9.
3 See, e.g., Eastern Steel Constructors, Inc. v. City of Salem, 549 S.E.2d 266 (W. Va. 2001) (holding architect liable to contractor for economic losses arising out of defectively prepared plans and specifications on the basis of both professional negligence and implied warranty).
4 “Possible services include: (1) advising the owner regarding contractor selection; (2) observing the work for compliance with the plans and specifications; (3) certifying contractor payment applications; (4) reviewing shop drawing submittals; (5) monitoring project scheduling; (6) certifying substantial and final completion; and (7) certifying grounds for contract termination for default.” 5 Bruner & O’Connor Construction Law § 17:6.
5 See, e.g., Wilder v. Crook, 34 So. 2d 832, 834 (Ala. 1948)

Cross-Examining the Expert Witness in a PL Case Part III: Challenging the Methodology

Rosario M. Vignali | Wilson Elser | January 16, 2018

In this third and last installment of our three-part series examining the type of deposition questioning that can derail your opponent’s expert and set up a successful Daubert challenge, we will look at Daubert’s insistence that the expert’s opinions be based on “reliable methodology” before opinions can be presented to the jury.

What exactly does a reliable methodology under Daubert mean? Essentially, it requires that the expert’s opinions be based on information gathered in the same manner as a scientist would undertake before he or she reaches a conclusion about the design of the product at issue. The distinction is between using sound scientific procedures as opposed to unsupported speculation to develop a hypothesis, analyze and test against it, and reach a conclusion.

Careful and targeted questioning of the expert often can establish that the expert’s opinions are indeed the product of nothing more than guesswork and conjecture – the very ipse dixit approach against which Daubert and its progeny warned and that the Federal Rules, when properly enforced by the court exercising its “gatekeeping” function, should disallow. Fortunately, Daubert and its progeny have given us extensive guidance as to the types of questions to ask the expert to establish the expert’s lack of sound methodology. They involve concepts such as testing, “peer review,” rates of error, the existence of standards, “general acceptance” and other well-defined criteria. Let’s look at some of them.

Assume for the sake of this example that a plaintiff’s expert has opined in a report that your client’s Widget-making machine was defectively designed because it lacked a guard over its cutting implement. That hypothesis, like all hypotheses, could theoretically be tested, but has the expert bothered to do so? For example, has the expert actually designed and placed a guard over the Widget-making machine to see if, under real working conditions, it actually cuts down on the frequency of accidents without reducing the machine’s overall functionality and utility?

“Peer review” is the process by which a scholarly work (such as a paper or a research proposal) is vetted by a group of experts in the same field to make sure it meets the acknowledged and accepted standards in the field before it is published or generally accepted. Why should the plaintiff’s expert’s opinion (i.e., scholarly work) be any different, or immune to this level of scrutiny? Under Daubert, it isn’t. For that reason, effective questioning of the expert often will establish that his theory of defect – in our imagined scenario, the lack of a guard over the Widget-making machine’s cutting implement – has never been published anywhere other than in a series of the expert’s reports he issued in prior lawsuits. Therefore, by definition, the theory of design defect the expert is advancing in your case has never been offered for commentary to other experts in the same field. Once this fact is established, the plaintiff’s expert is nothing more than a lone wolf; his theory of design defect has never been checked for scientific soundness and has never become generally accepted by the community of similarly situated scientists.

Real scientists employ the scientific method to develop a hypothesis, test against it and then reach a conclusion about the soundness of the hypothesis. Real scientists then publish their theory in trade journals and give speeches about it at industry or academic gatherings. In this way, the expert’s proposed testimony grows naturally and directly out of healthy and impartial scientific curiosity. If targeted questioning establishes that the expert has never published the theory of defect in anything but the reports that were prepared within the context of litigation, then the expert’s opinions become nothing more than the product of advocacy instead of the product of real scientific inquiry.

Will the guard over the Widget-making machine’s cutting implement stop all accidents, or only some of them? If questioning establishes that there remains a fair modicum of Widget-machine accidents that would happen even with a guard over the cutting implement, then it also has established that there is a certain amount of “known or potential error” in the plaintiff’s expert’s hypothesis. Stated otherwise, the expert’s proffered design is no panacea.

Similarly, has the expert accounted for other possible explanations for the accident? What if the plaintiff was hurt simply because he or she was under the influence of alcohol? What if the Widget-making machine originally had a guard over its cutting implement, but the guard had been removed? Real scientists, using a legitimate methodology, strive to explain away all other possibilities for an accident’s occurrence.

Effective questioning of the expert also can establish that the expert can cite no known published standard – voluntary or mandatory; governmental or private – to support his theory. In our fictional example, effective questioning can show that no body of experts in the field, who were otherwise charged with the deliberative task of developing standards over a period of months or years for the safe design and use of Widget-making machines, had ever advanced the notion that a guard over the cutting implement was necessary to make the machine “safe.” Again, the plaintiff’s expert looks more and more like the lone wolf − rather than a reasonable scientist.

In a case in which the expert advanced an opinion that your client’s product was missing an important warning, had the expert actually developed a proposed warning for the product? That is, has the expert actually written the verbiage and determined the warning’s size and shape, the font size and correct “signal” word? Has he tested the proposed warning for “understandability” and its effect on the reader? Will the proposed warning actually work to change the product user’s behavior and prevent an accident? Without such development and testing, the expert’s opinions in this area is speculative at best.

Lastly, effective questioning of the expert should ask whether there is a causal link between the opinion and the facts of the case; that is, as Daubert and its progeny put it, whether the opinion actually “fits” the facts of the case. If questioning of the plaintiff’s expert establishes that the existence of a guard over the Widget-making machine’s cutting implement would have made no difference – perhaps the facts show that the plaintiff intentionally reached into the area of the cutting implement to clear a jam and thus the existence of a guard would not have prevented the accident – then the plaintiff’s expert’s opinion and proffered alternative design, though interesting, arguably proves nothing.

The ways to question a supposed expert’s methodology is limited only by one’s imagination. This article suggests some areas of attack. With effective questioning, your opponent’s expert will look less like an independent and impartial scientist and more like the proverbial “hired gun” who will advance any opinion so long as an attorney is willing to pay the required hourly rate.

Connected Devices Bring New Product Liability Challenges

Morrison & Foerster LLP | January 18, 2018

“My Google Home Mini was inadvertently spying on me 24/7 due to a hardware flaw,” wrote a tech blogger who purchased Google Inc.’s latest internet of things (IoT) device. Following the incident, a pact of consumer advocacy groups insisted the U.S. Consumer Product Safety Commission (CPSC) recall the Google smart speaker due to privacy concerns arising when the device recorded all audio without voice command prompts.

The CPSC is charged with protecting consumers from products that pose potential hazards. Traditionally, this has meant hazards that may cause physical injury or property damage. But as internet-connected household products continue to proliferate, issues like the “always-on” Google Home Mini raise an important question: Where does cybersecurity of consumer IoT devices fit within the current legal framework governing consumer products?

The Explosion of IoT

Forecasts predict that by 2020 IoT devices will account for 24 billion of the 34 billion devices connected to the internet. According to a recent Gemalto survey, “[a] hacker controlling IoT devices is the most common concern for consumers (65%), while six in ten (60%) worry about their data being stolen.”

The rapid growth of the IoT market and continued integration into daily life raises the question of which regulatory body or bodies, if any, should be responsible for consumer safety when it comes to cybersecurity for consumer IoT devices.

The Intersection of Consumer Product Safety, Privacy and Cybersecurity

The CPSC’s jurisdiction has traditionally been limited to physical injury and property damage. It is “charged with protecting the public from unreasonable risks of injury or death associated with the use of the thousands of types of consumer products under the agency’s jurisdiction.”

Companies reporting potential safety hazards are given the option to categorize the hazard as fire, mechanical, electrocution, chemical or “other.” But “other” has never been used to describe a hazard that did not involve a personal injury or property damage risk. CPSC enforcement actions against manufacturers of IoT devices for security defects that do not lead to physical injury or property damage would be unprecedented.

One way to think about CPSC’s potential jurisdiction is over incidents that could give rise to product liability claims. Product liability primarily aims to compensate consumers and bystanders for injuries caused by unsafe products and to incentivize manufacturers and supply-chain participants to take reasonable precautions in producing and distributing products. The underlying policy rationale is that manufacturers are typically in the best position to prevent harms caused by their products.

Product recalls seek to remove unsafe products from the market and prevent product liability claims from arising in the first place. But when does a privacy or security breach reach the threshold of a safety hazard or a product defect such that it mandates a recall? And what role do product recalls even play in an age where companies can deploy firmware updates to implement a corrective action for privacy or security breaches?

The very features that are potential weaknesses for IoT devices can also be leveraged as strengths. Google demonstrated this by issuing a security patch to address the “always-on” issue in its Google Home Mini.

Protecting Your Business in the Face of Regulatory Uncertainty

How do IoT companies manage regulatory compliance where the regulatory framework is so uncertain and regulators are unable to keep up with technological developments? One possible construct is to anticipate traditional product defect claims that consumers might bring against IoT products, and use the power of connected devices to safeguard against liability while also protecting the product brand.

Take, for example, manufacturing defects. Courts may find that errors or oversights in coding, random malfunctions or bugs in the system constitute product liability claims for manufacturing or design defects. But IoT companies can also look at ways to put checks in place to catch these issues early. And the ability of connected devices to provide effective—and even fun—warnings and instructions to consumers about possible flaws is limited only by developers’ creativity.

What about failure to warn? Product manufacturers have traditionally had a duty to warn of risks that they know about or reasonably should have known about. We recently wrote about the growing role of artificial intelligence and the implications of product manufacturers’ ability to mine big data. Companies that choose to collect and store that data do assume risks, but they also have the ability to assess problems and develop innovative ways to provide warnings about them.

It will take years for government regulators to catch up to these issues and enact applicable regulations, particularly in light of the current administration’s trend toward deregulation. This is a golden opportunity for IoT manufacturers to create their own framework for how best to protect consumers and to balance the risks and benefits of IoT devices.

Where Do New Risks Fit into the Old Framework?

Undoubtedly, the existing product liability framework has limits and doesn’t map perfectly to IoT devices. Consider the “always-on” feature recently brought to the CPSC’s attention. Under the economic loss doctrine, a plaintiff cannot recover monetary damages that don’t arise from physical injury to her person or physical harm to her property. Security breaches may cause an invasion of privacy without causing any physical injury, making the product liability framework inapplicable.

As shown by the recent consumer advocacy letter, these groups may argue that security considerations and subsequent risks of IoT devices—while different from traditional public safety concerns—still fall within the CPSC’s broad mandate to “protect the public against unreasonable risk of injuries and death associated with consumer products.” But without a clear CPSC directive that an injury to privacy falls within the requirements to report a safety hazard, IoT manufacturers would be voluntarily involving CPSC should they decide to report incidents similar to the Google Home Mini.

Although new regulations could fill the cybersecurity gap, technological innovation is far outpacing regulatory agencies. By the time applicable regulations are in place, they may already be out of date. Consequently, it is incumbent upon industry leaders to work together to pave the way for a robust cybersecurity framework that avoids stifling innovation by overregulation while still protecting consumers from security vulnerabilities.

Advances in IoT technology and its continued integration into everyday life are changing traditional notions of consumer product safety. Working closely with product liability, privacy and cybersecurity specialists will allow IoT companies to anticipate legal issues and use technology to stay ahead of regulatory enforcement and consumer-driven lawsuits.

Washington Supreme Court Upholds Rule That Property Owner and General Contractor Are Not Indispensable Parties in a Lien Foreclosure Action Against the Surety of the Lien Release Bond

Jennifer McMillan Beyerlein | Lane Powell | January 18, 2018

Today, the Washington Supreme Court has clarified any misunderstanding about the necessary parties in a mechanic’s lien foreclosure action when a lien release bond has been posted. In Inland Empire Dry Wall Supply Co. v. Western Surety Co., the Court upheld a divided Court of Appeals by allowing a lien foreclosure action brought by a material supplier to proceed solely against the surety securing the lien release bond. Inland Empire Dry Wall Supply Company alleged that it was not paid for drywall supplied to an apartment complex in Richland, Washington. Inland Empire filed a pre-claim notice and a mechanic’s lien against the property. The general contractor, Fowler General Construction, obtained a lien release bond from Western Surety Company, which identified Fowler as the “Principal” and Western Surety as the “Surety.” Ultimately, Inland Empire filed a lien foreclosure action solely against Western Surety seeking to foreclose its lien claim against bond.

Western Surety sought dismissal of the action, arguing that Inland Empire failed to properly include Fowler as the principal on the bond as required under the mechanic’s lien statute. The trial court granted summary judgment against Inland Empire, finding that the material supplier was required by statute to bring its lien foreclosure action against both the surety and the purchaser of the bond, Fowler. The trial court held that because the bond was the subject of the claim of lien, in place of the apartment complex, that both Fowler and Western Surety were the “owners” of the bond — making both indispensable parties to the lien foreclosure action. Division III of the Court of Appeals, in a split decision, disagreed last January, holding that the only necessary party to a lien foreclosure action involving a lien release bond was the surety.

In reviewing the statutory history of mechanic’s liens in Washington, the Supreme Court noted that the owner of the real property is required to be named in actions where no lien release bond is filed. The Court noted that this makes sense given that forfeiture of the property would be required in order to enforce payment of amounts owed under a mechanic’s lien. When a lien release bond is obtained, however, the real property is released from the lien and becomes “unreachable” and the bond becomes the security for enforcement of payment. In strictly reading the mechanic’s lien statutes, the Court found that neither the real property owner nor the entity who purchased the lien release bond are necessary parties in any action to enforce the lien against the surety who posted the lien release bond. This is because the surety is substituted for the real property owner in the eyes of the mechanic’s lien statutes for purposes of enforcement.

Practice Tip: In dicta, the Court noted that when a property owner or other party to a lien foreclosure action obtains a lien release bond after a lien foreclosure action is initiated, the lien claimant should amend its pleadings to specifically seek to foreclose on the lien release bond to avoid a situation where there is a judgment in favor of the lien claimant, but no security to enforce the judgment.

Does Arbitration Apply to Contemporaneously Executed Contracts (When One of the Contracts does Not Have an Arbitration Provision)?

David Adelstein | Florida Construction Legal Updates | January 6, 2018

Binding arbitration is an alternative to litigation.  Instead of having your dispute decided by a judge and/or jury, it is decided by an arbitrator through an arbitration process.  Arbitration, however, is a creature of contract, meaning there needs to be a contractual arbitration provision requiring the parties to arbitrate, and not litigate, their dispute.  Just like litigation, there are pros and cons to the arbitration process, oftentimes dictated by the specific facts and legal issues in the case.

 

What happens when a person executes two (or more) contemporaneous contracts, one with an arbitration provision and one without?  Are the parties required to arbitrate the dispute arising out of the contract that does not contain the arbitration provision?

 

The reality is that this has become an unnecessary over-complicated situation that should be avoided by specifically incorporating all of the contracts into an operative contract or, conversely, expressing the intent in each contract whether arbitration applies.  Being specific will avoid the over-compilation of this issue.

 

In an example of what really amounts to an over-complicated opinion regarding an arbitration provision, the case of Lowe v. Nissan of Brandon, Inc., 43 Fla. L. Weekly D103b (Fla. 2d DCA 2017) dealt with a consumer automobile transaction where a consumer challenged the sale price of an automobile.  The consumer purchased a car and signed three contemporaneous contracts: a purchase agreement, an installment sale contract (i.e., the purchase was subject to the condition that the installment contract would be accepted by a financing institution), and an arbitration agreement.  The purchase agreement incorporated the arbitration agreement.   The arbitration agreement incorporated the installment contract.  The installment contract (quite confusingly, in my opinion), however, did not incorporate the arbitration agreement or the purchase contract.

 

The consumer claimed that because the installment contract did NOT incorporate the arbitration agreement, arbitration did not apply to disputes involving the installment contract.  Notwithstanding, the trial court compelled arbitration. The appellate court affirmed.

 

The general contract principle regarding construing contemporaneously executed documents together has been reiterated in many casesSee, e.g.Dodge City, 693 So. 2d at 1035; Phoenix Motor Co., 144 So. 3d at 696 (quoting Collins, 641 So. 2d at 459). “But if the parties execute ‘two separate contracts and only one contract contains an arbitration clause, the parties cannot be compelled to arbitrate disputes arising from the contract that does not call for arbitration.’ ” Phoenix Motor Co., 144 So. 3d at 696 (quoting Lee v. All Fla. Constr. Co., 662 So. 2d 365, 366 (Fla. 3d DCA 1995)). The exception is where the contract with the arbitration clause incorporates by reference the contract which does not contain an arbitration clause, such that the latter could be “interpreted as part of the [former] contract.” Id. at 697 (citing Affinity Internet, Inc. v. Consol. Credit Counseling Servs., Inc., 920 So. 2d 1286, 1288-89 (Fla. 4th DCA 2006)).

To incorporate by reference a collateral document, the incorporating document must (1) specifically provide “ ‘that it is subject to the incorporated [collateral] document’ ” and (2) the collateral document to be incorporated must be “ ‘sufficiently described or referred to in the incorporating agreement’ ” so that the intent of the parties may be ascertained. Kantner v. Boutin, 624 So. 2d 779, 781 (Fla. 4th DCA 1993) (quoting Hurwitz v. C.G.J. Corp., 168 So. 2d 84, 87 (Fla. 3d DCA 1964)). The [s]upreme [c]ourt set forth the second requirement for incorporation by reference in OBS Co. v. Pace Construction Corp., 558 So. 2d 404, 406 (Fla. 1990): “It is a generally accepted rule of contract law that, where a writing expressly refers to and sufficiently describes another document, that other document, or so much of it as is referred to, is to be interpreted as part of the writing.”

Lowe, supra.

 

Here, there was no dispute regarding the contemporaneous execution of the contracts.  The appellate court found that while the installment contract did not incorporate the arbitration provision, this contract was a condition precedent to the purchase agreement.  Thus, once the installment contract was accepted by a financing institution, the purchase agreement with the arbitration provision became the operative contract without any conditions precedent. (The case actually has a more complicated legal analysis to affirm the trial court’s ruling that the parties should be compelled to arbitration).

 

In my opinion, this is nothing more than a basis to compel the parties to arbitrate when the installment contract that was sued upon did not contain an arbitration provision or incorporate the arbitration agreement or purchase agreement.  All of this could have been avoided had specificity occurred in the installment contract or had the purchase agreement specifically incorporated the installment contract.  But, if arbitration is a creature of contract, and the dealership prepared (which it did) the contracts it wanted the consumer to contemporaneously execute, compelling the parties to arbitrate based on what is perceived to be the “operative contract” seems to go against the grain that parties cannot be compelled to arbitrate disputes arising from a contract that does not contain an arbitration provision.