May a project owner sustain a claim against design professionals retained by the contractor? Stapleton v. Barrett Crane Design & Engineering. United States Court of Appeals, Second Circuit (2018), by Hugh Anderson

Summary: Keywell, the project owner, entered into contract with Pavilion Building for the design and construction of a commercial building in western New York. Pavilion subcontracted some or all of the design to Barrett Crane Design & Engineering. After completion, Keywell brought professional negligence and breach of contract claims in Federal court against Pavilion, Barrett Crane, and two individual Barrett Crane engineers, Uzman and Barrett, alleging that the design of the building did not fulfill the requirements of the prime contract.
Keywell obtained a default judgment against Pavilion; presumably Pavilion was not able to pay the judgment, because Keywell continued to pursue the engineering defendants. The engineering defendants moved for summary judgment; the reported decision addresses the district court’s grant of summary judgement in favor of the two individual engineers, Uzman and Barrett.
The focus of the summary judgment and subsequent appeal was the lack of contractual privity between Keywell, as project owner, and the two individual engineers.

Decision: The Court of Appeals, Second Circuit, affirmed the summary judgment in favor of the two individual engineers. The court stated that under New York law, a breach of contract claim requires direct contractual privity (being parties to a contract), but acknowledged that an exception could occur if plaintiff’s and defendant’s relationship “is the functional equivalent to privity.” Similarly, although under New York law a professional negligence claim in this context requires privity of contract between the parties, there is a limited exception for the situation where “the bond between them [is] so close as to be the functional equivalent of privity.”

The court held that the critical element in establishing “the functional equivalent of privity” was to show evidence of “linking conduct” by the design professional—words or actions that link the professional to the non-client. Keywell had not alleged any such linking conduct. The record indicated no direct contact between Uzman and Barrett and Keywell. Keywell argued that by stamping his name on the design drawings (presumably as engineer of record), Uzman had established a link to Keystone. The court found this unpersuasive, noting that Uzman did not convey the drawings to Keywell, or make any related contact or communication.

As a result of the lack of any allegation or evidence of “linking conduct” sufficient to create the functional equivalent of privity of contract, the appellate court affirmed the district court’s summary judgment in favor of the two individual engineers.
Comment: A design professional’s exposure to claims by third parties (non- clients) varies greatly depending on the jurisdiction, and on the nature of the claims. A requirement of privity (a direct contractual relationship) is a barrier to contract-based claims, but as this case shows, most defenses are subject to some exceptions.

The decision mentioned that the owner, Keywell, had failed to preserve and pursue a claim based on third-party beneficiary status. The EJCDC professional services agreements expressly state that they do not create a benefit for third parties.
The Stapleton decision is cursory, and of limited precedential value. Although the court’s conclusion in favor of the engineers is primarily based on lack of privity, the court also noted that the record showed that the building that was actually constructed was not based on the Uzman/Barrett design, a factor that might have influenced the court’s ultimate disposition of the claim.

You may also like

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}