Does a Subcontractor Owe a Duty to Owner Without Contractual Privity?
This issue was answered in the recent California appellate decision in Lynch v. Peter & Associates, Engineers, Geologists, Surveyors, Inc., where the appellant subcontractor became liable for an extensive amount of damages even though it only charged the general contractor $360 for its services.
This case demonstrates the veracity of the California Supreme Court’s observation that the declining significance of privity has found its way into construction law.
Appellant sued, amongst others, a soils engineering firm that had performed what is alleged to be a very cursory geotechnical inspection of an excavated footing trench on her property for a home remodeling project.
She brought claims against the firm for professional negligence and nuisance when her home sustained significant damage from subsidence resulting from the construction.
The firm filed for summary judgment, arguing it had no contract with appellant, and thus owed her no duty of care.
The trial court agreed and granted the firm’s motion.
The appellate court found the respondent firm failed to meet its moving burden, and also held that it did in fact owe appellant a duty of care.
Appellant Cheryl Lynch is the owner of residential real property located in San Clemente (the subject property).
In the summer of 2015, the Lynches engaged a general contractor, Hutton Construction (Hutton), to perform two phases of home improvement construction and repairs on the subject property, as per plans prepared by architect Benjamin Stevens.
The construction proposed was: a remodel of the existing residence, building additions along the south and north sides of the existing residence, a site retaining wall along the northern property boundary, underpinning of the existing foundation along the general west side of the existing residence, a new raised wood deck west of the residence, and surrounding hardscape improvements.
The first phase of work was governed by a contract dated July 27, 2015.
Pursuant to Stevens’ plans, the first phase involved site improvements, was to commence August 3, 2015, and finish by September 14, 2015. The total to be paid to Hutton on the first phase was $154,677.60.
The second phase was governed by a contract dated July 8, 2016. This phase was to consist of the residence remodel and addition. The second phase was to commence June 14, 2016, and finish by October 14, 2016. The total to be paid to Hutton on the second phase was $250,679.59.
In September 2014, Stevens requested a geotechnical services proposal from Coastal Geotechnical (Coastal), a local geotechnical engineering firm.
Coastal provided its proposal, which was addressed to the Lynches stating Coastal would evaluate the geotechnical conditions beneath the accessible portions of the property, and provide grading and foundation recommendations for the proposed construction for an estimated cost of $5,800.
Included in Coastal’s scope of work was review of available reports, maps, and photographs; subsurface exploration by way of manually excavated test pits for geologic observation and soil and rock sampling; laboratory testing of samples; engineering and geologic analysis; and preparation of a final report with test results, analyses, conclusions, and recommendations.
Coastal noted that published geologic maps of the area showed the subject property was situated on a “queried landslide,” and it emphasized its scope of work was not intended to remedy that issue specifically or the slope stability issues that might accompany it.
By the spring of 2018, the Lynches replaced the general contractor, Hutton, with an outfit called Grover Construction (Grover).
Grover engaged the respondent, Peter & Associates, Engineers, Geologists, Surveyors, Inc. (the Peter firm), to do a geotechnical inspection of a footing trench it had excavated for the proposed addition on the property.
The contract for this work, written up on the Peter firm’s letterhead, provided the Peter firm would be paid $360.
The contract also contained the following provision: “This contract does not include: [¶] 1. Subsurface exploration, laboratory testing, settlement analysis and/or slope stability calculations. Peter & Associates, Inc. is not responsible for potential settlement and/or slope failure, if any. [¶] 2. Geotechnical review of grading plan, foundation plan, and/or structural design calculations, if any. Peter & Associates, Inc. is not responsible for adequacy of the plans/calculations.”
The Peter firm’s contract did not mention the Lynches and contained no clause pertaining to third party beneficiaries. It also contained a clause limiting their liability to twice their fee.
Grover paid the Peter firm $360 and the Peter firm sent a licensed civil and geotechnical engineer named Lan Pham to inspect the footing on the subject property.
Pham’s inspection consisted of visual observation of the trench, and use of a steel probe three feet in length to “punch it down” into the trench to feel the soil. Afterward, he prepared a single-page handwritten memo summarizing his findings.
The memo was addressed to both Mike Grover, principal of Grover, and “Gregory & Cheryl Lynch.”
Grover went ahead and poured the footing, but the soil proved inadequate to the task of holding it up. The footing for the addition collapsed, and the house subsided in that area, moving laterally toward the slope underneath.
Appellant was required to install a grade beam and caissons to support the collapsed addition. As of May 2023, the house included over 4.9 inches of deflection, and had cracks in the floor and foundation, and other signs of distress.
The Lynches filed suit in 2021 against Hutton, Coastal, Stevens, the Peter firm, and other subcontractors for breach of contract, nuisance, and negligence.
The Peter firm was named as a defendant on the fifth cause of action for professional negligence and the sixth cause of action for nuisance.
The Peter firm filed a motion for summary judgment against the third amended complaint, on the ground that it had no legal liability to appellant under any negligence or nuisance theory.
The motion did not seek summary adjudication in the alternative.
The Peter firm argued it had no legal liability to appellant because it was a small engineering firm hired to inspect a single footing for a fee of $360.
It also cited the exclusions in the contract, as well as the fact it had no other role in
After hearing argument and taking the matter under submission, the trial court, granted summary judgment.
Appellant takes issue with this ruling on three grounds.
First, despite a lack of privity of contract, she contends the Peter firm did indeed owe her a duty of care in large part because she and her late husband were the intended direct beneficiaries of the work being performed.
Second, she says there are triable issues of fact regarding her nuisance cause of action and the trial court erroneously concluded her nuisance claim was identical to her negligence claim.
Finally, she argued the trial court erred by sustaining in blanket fashion the Peter firm’s objections to two declarations she filed in opposition to summary judgment—her own declaration and that of her expert, Gregory Axten.
The appellate court agreed with her on all three points.
In this case, the Peter firm failed to meet its moving burden on summary judgment.
Even if it negated the element of duty in appellant’s negligence claim—which, to be clear, it did not—it failed to make any showing whatsoever to invalidate appellant’s nuisance claim.
It is axiomatic that liability for negligence in any scenario must be premised on a duty of care, and the existence and scope of a defendant’s duty is an issue of law to be decided by the court.
When professional negligence is alleged, the plaintiff must show the defendant had a duty to use such skill, prudence and diligence as other members of the profession commonly possess and exercise.
In times past, it was generally accepted that there was no liability for negligence committed in the performance of a contract in the absence of privity.
However, as the California Supreme Court recognized as far back as 1958, the rule has since been greatly liberalized, and the courts have permitted a plaintiff not in privity to recover damages in many situations for the negligent performance of a contract.
Thirty-four years later, the state high court substantially restricted the scope of the professional duty owed by auditors to the investing public.
To that point, California cases dealing with negligence by construction professionals often take a harder line in general than those in the accounting and audit space.
However, the project here was not commercial, but residential.
Contractors working on a residential project surely know their work directly impacts a person’s home, which changes the analysis substantially. And the defendant’s written report was addressed directly to the Lynches as well as Grover.
The Peter firm knew its contract with Grover was for appellant’s benefit.
Also, appellant argues the same footing trench inspected by the Peter firm was inadequate to hold up the foundation as represented by Pham in his report. This same foundation failed and required further repairs.
The Peter firm does not show that the soil in the excavated trench was adequate for the intended use. Additionally, the Peter firm’s contract contained exclusions, essentially allowing it to abdicate some of the basic steps necessary to make the geotechnical inspection it was required to make.
Six factors support finding a duty of care in this case.
First, as we have already noted, the transaction was most definitely intended to affect the Lynches as homeowners, and the harm to them if the job was not correctly done was certainly foreseeable.
Coastal had noted as early as 2014 the property’s being situated on a possible landslide area, which was information easily accessible to the Peter firm if they had tried to obtain it.
Because of the nature of the property, the Peter firm had to have known a proper soils inspection was crucial to successfully building the foundation for the addition.
The injury here is reasonably certain: appellant claims the house has subsided laterally into the slope, which suggests the ground underneath the house is moving.
It is less clear who is more or less responsible for the subsidence, but certainly given what has occurred, a trier of fact could reasonably conclude that the Peter firm’s inspection should have raised the soil issues.
The Peter firm did not submit any evidence to show its inspection was adequate.
Moral blame attaches due to the contract between Grover and the Peter firm. And finding a duty in this case would further the policy of preventing harm.
Therefore, the appellate court held the Peter firm owed appellant a duty of care to perform its geotechnical inspection with the skill expected of a professional in its position.
The motion for summary judgment failed to undermine or negate any element in appellant’s nuisance claim either.
Under Civil Code section 3479, a nuisance includes an obstruction to the free use of property, so as to interfere with the comfortable enjoyment of life or property.
Appellant alleged the damage to her house is ongoing as the slope underneath it continues to essentially give way.
In its motion, the Peter firm argued it was only on the property once to conduct a single inspection of one footing, and thus could not be held liable for nuisance.
Nothing could be further from the truth. Not only is the party who maintains the nuisance liable but also the party or parties who create or assist in its creation.
The Peter firm did not adduce any evidence showing it was not responsible for the damage and subsidence at the Lynches’ home, whether it was the result of one trip to the property or multiple trips.
LESSONS:
1. The California Supreme Court recognized as far back as 1958, the rule has since been greatly liberalized, and the courts have permitted a plaintiff not in privity to recover damages in many situations for the negligent performance of a contract.
2. It is axiomatic that liability for negligence in any scenario must be premised on a duty of care, and the existence and scope of a defendant’s duty is an issue of law to be decided by the court.
3. When professional negligence is alleged, the plaintiff must show the defendant had a duty to use such skill, prudence and diligence as other members of the profession commonly possess and exercise.
4. Not only is the party who maintains the nuisance liable but also the party or parties who create or assist in its creation.