David Abramovitz is an associate principal at Zetlin & De Chiara, a law firm in New York that serves the design, construction, and real estate industries.

Privity Gets a High-Profile Endorsement

A recent decision in a lawsuit over 7 World Trade Center shows that privity of contractual relationships is alive and well.

by David Abramovitz

A recent decision by a federal court in New York that dismissed claims against New York City stemming from the collapse of 7 World Trade Center in the terrorist attacks of Sept. 11, 2001 garnered much public attention.

However, many overlooked another notable aspect of that decision, which also dismissed claims against firms that were involved in the design and construction of the original 7 World Trade Center and the subsequent build-out of some of the primary tenant spaces. Among the defendants dismissed from the case were prominent industry names, such as Tishman Construction, Syska & Hennessy Engineers, AMEC, Skidmore Owings & Merrill, Flack + Kurtz, Swanke Hayden Connell Architects, Cosentini Associates, and Cantor Seinuk Group.

The decision by U.S. District Court Judge Alvin Hellerstein of the Southern District of New York is significant because it relied on the concept of privity, which looks to the relationship between contracting parties, as the primary basis for assessing when a design professional or contractor may be sued for alleged negligence in its services. Whether privity remained a relevant principle in New York appeared to be in question after a different Southern District judge ruled last year that a contractor could sue a design professional for alleged design errors and omissions despite the absence of any contractual relationship between them. The more recent decision in the 7 World Trade Center case, however, appears to give privity a ringing endorsement.

Traditionally, those involved in the design or construction of a building have been held to owe a duty of care only to the party with whom they were in privity or, in layperson's terms, to the party with whom they contracted to perform services. As New York's Court of Appeals explained nearly two decades ago, at the heart of this rule was the recognition that the law of torts, of which negligence is a category, is a means of apportioning risks and allocating the burden of loss so "that the legal consequences of wrongs are limited to a controllable degree." In other words, how wide the net may be cast in search of liability is a policy-laden determination.

In the context of the design and construction industries, the courts have approached the subject consistently with the conventional owner-centric paradigm, in which an owner retains architects or engineers to design a project and separately retains contractors to build it. The two groups of professionals have been viewed as performing their respective services solely for the owner's benefit and use. Architects and engineers in particular have long been held to owe a duty of care to the owner, but not to other property owners, contractors, the public at large, or even subsequent owners with whom they were not in privity.

The relative certainty arising from the privity-based paradigm created commercial expectations that have facilitated billions of dollars of transactions in the metropolitan New York area alone. However, it has also been a source of frustration for those who suffered damages, but who were prohibited from suing parties who may have played a role in causing those damages. As a result, what U.S. Supreme Court Justice Benjamin Cardozo called "the citadel of privity" has been under steady assault for decades.

The 7 World Trade Center decision involved precisely such a challenge. That case stemmed from damage to a Consolidated Edison substation in the original 7 World Trade Center, which collapsed after burning for more than seven hours from fires triggered by the attacks on the Twin Towers on Sept. 11. Con Edison's insurers sued numerous parties for negligence, including every company they could identify as having been involved in the design and construction of the building and some of its tenant spaces. In admitting that Con Edison did not have privity with any of the design or construction defendants, the lawsuit set up a high-stakes battle over whether such a lawsuit could be maintained.

In the end, the answer was that it could not. The court dismissed the claims against the design and construction professionals because it found that absent privity, they did not owe any duty to Con Edison. Citing past cases for support, the court concluded that New York has a policy of restricting the duty of care in the context of building design and construction, and reaffirmed that privity remains the prism through which issues of duty are analyzed under New York law.

This case and others illustrate that attacks may well continue on New York's policy based on privity. Like the rumors of Mark Twain's death many years ago, however, claims that privity is dead as a basis to limit the liability of design and construction professionals remain premature.