Source: http://www.jdsupra.com, November 5, 2014
By: Traub Lieberman Straus & Shrewsberry LLP
Issues of privity and whether claims sound in breach of contract or negligence are common in construction defect cases involving architects and New York is no exception. Indeed, New York courts have long wrestled with architect liability and formulas for imposing or defeating liability. A recent, illustrative case is Board of Managers of the Greenbelt Condominium v. 361 Manhattan Avenue LLC, et. al., 2014 N.Y. Misc. LEXIS 3344 (Sup. Ct. N.Y. County 2014), which involved a five story expansion/conversion of an existing one story commercial building located in Brooklyn, New York. The architect was retained by the condominium sponsor which split the architect’s varying obligations among five (5) construction phases, from “Survey/Schematic Design” through “Construction Administration.”  In the Construction Administration phase, the architect agreed to “supervise” and “monitor” the construction to ensure “the accuracy, compliance and timeliness of the work.” The architect also agreed to “sign off” on the completed condominium building after the contractors had satisfied an architect-generated punch list.
Following substantial completion of the project and sale of most of the units, the condominium Board determined that “numerous defects” existed, including failure to seal steel wall panels and the underlying EIFS (exterior insulation finishing system) layer, and failure to properly and completely install flashing and capping in several locations. Leaking and consequent damage were alleged. The Board subsequently filed a suit against various contractors, engineers and the architect. The complaint alleged that “many shortcuts were taken during construction” which resulted in water being directed towards, instead of diverted from, interior portions of the structure.
The Board’s complaint asserted causes of action against the architect for professional malpractice and negligence. In support of these claims it was alleged that defendant architect breached its “duty of care owed to the condominium sponsor” by failing to ensure that the “work conformed to the architectural plans, specifications and drawings.” The architect moved to dismiss the complaint on various grounds, including that the claim sounding in breach of contract sought recovery for economic loss which, under controlling New York authority, required that architect be in privity with the party seeking damages. The architect also argued that the negligence cause of action required a showing of a duty of “reasonable care” owed to the party initiating the action, which did not exist. Plaintiff opposed the motion, declaring that the Board was a logical and legal “successor” to the sponsor. It should therefore be entitled to assume the duties and rights inherent in the sponsor.
Accepting all complaint allegations as true for purposes of a motion to dismiss, the Court granted the architect’s motion. The Court held that the allegations of negligence under the circumstances were based on construction defects and “as such, sound in breach of contract rather than tort.” This was so, even though plaintiff alleged ”breach of a duty of care,” a traditional tort liability concept. The Court dismissed the breach of contract claim as well, holding that a “successor in interest” argument should not be permitted to erode the firmly established privity requirement for an architect’s contract-based liability.