texas breach of contract lawsuit by 12play

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     Overview, Current Developments and Trends

                      C.A. “Joe” Davis
                      Daniel R. Smith
                BROWN McCARROLL, LLP
                111 Congress Ave., Suite 1400
                    Austin, Texas 78701
                       (512) 472-5456

                    State Conference
                    Lakeway, Texas
                    October 23, 2004
                     Overview, Current Developments and Trends

                                     I. INTRODUCTION

        In today’s climate of competitive pressure on professional service pricing and
production, and aggressive litigation over design and construction defects, it is more important
than ever for Professional Engineers to be aware of the potential legal pitfalls in their daily
practice. Despite recent legislative measures aimed at “tort reform,” attorneys for plaintiffs in
construction litigation continue to develop innovative theories of liability on the part of design
professionals. These theories are being asserted in all varieties of construction claims, from the
recent “mold rush” claims to the new wave of claims involving sulfate attack on prestressed
concrete. This presentation is not intended to provide legal advice, which must be based upon
known specific facts, but rather will attempt to identify and summarize the traditional bases of
professional liability of engineers, and some of the more newly minted theories, discuss some
defensive strategies, and point out some practical steps engineers can employ to reduce their
exposure to legal claims.


A.       Professional Duty

        All individuals in our legal system are obligated by common law principles to conduct
themselves in relation to their fellows in a non-negligent manner. Thus, one whose negligent
conduct proximately causes damage to another can be held liable in a court of law for those
damages. Generally, conduct is considered negligent if it fails the “prudent person” test; that is,
if a prudent person would not have acted as the defendant did, the defendant’s conduct can be
considered negligent. See City of Amarillo v. Martin, 971 S.W.2d 426, 429 (Tex. 1998).
Engineers and other design professionals, on the other hand, are governed by a heightened
standard of care in serving their clients. They must use the skill and care in the performance of
their duties commensurate with the requirements of the profession (not merely the degree of skill
that would be exercised by a “prudent person”), and engineers are liable for a failure to exercise
reasonable care and skill commensurate with those requirements. I.O.I. Systems, Inc. v. City of
Cleveland, 615 S.W.2d 786, 790 (Tex. Civ. App.—Houston [1st Dist.] 1980, writ ref’d n.r.e.).

       As with most professionals, design professionals are generally licensed by a board of
examiners that polices the profession by enforcing its standards of care. In Texas, Engineers are
governed by the Texas Board of Professional Engineers. This examining board is legislatively
charged with the duty to adopt rules to enforce standards of care, and to provide a complaint
process for aggrieved clients. In addition to the common understanding among engineers of
what constitutes “reasonable care and skill commensurate with the requirements of the
profession,” these board rules may also be looked to in defining the standard of care for design
professionals. 22 TEX. ADMIN. CODE ch. 137 (Professional Engineers).

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        If design professionals fail to satisfy the governing standard of care in serving their
clients, they may be subject to a claim for professional negligence, which is often referred to as
malpractice. The plaintiff in a professional malpractice case generally carries the burden of
proving: (1) a duty by the professional to act according to a certain standard; (2) a breach of the
applicable standard of care; (3) an injury; and (4) a causal connection between the breach of care
and the injury. Onwuteaka v. Gill, 908 S.W.2d 276, 281 (Tex. App.—Houston [1st Dist.] 1995,
no writ). Professional negligence in the context of design professional services means doing that
which a design professional of ordinary prudence in the exercise of ordinary care would not have
done under the same or similar circumstances or failing to do that which a design professional of
ordinary prudence in the exercise of ordinary care would have done under the same or similar
circumstances. The Parkway Company v. Woodruff, 857 S.W.2d 903, 919 (Tex. App.—Houston
[1st Dist.] 1993), aff’d as regards engineers 901 S.W.2d 434 (Tex. 1995).

       In order to establish a breach of the governing standard of care, the plaintiff in a
professional malpractice lawsuit must present expert testimony. Proof of professional negligence
requires that a professional similarly licensed offer testimony that the conduct complained of was
beneath the standard of care in the profession and that this breach of care was the proximate
cause of the plaintiff’s damages. Palmer v. Espey, Huston & Assoc., Inc., 84 S.W.3d 345, 354
(Tex. App.—Corpus Christi 2002, pet. denied). Expert testimony must be presented in order to
avoid a directed verdict in favor of the defendant design professional. Id.

B.       Contractual Duty

       In addition to exercising skill and care in performing their duties commensurate with the
requirements of their profession, design professionals are governed by their duties as provided in
their employment agreement. Romero v. Parkhill, Smith & Cooper, Inc., 881 S.W.2d 522, 525
(Tex. App.—El Paso 1994, writ denied).

        If design professionals fail to perform their duties under a professional services
agreement, they may be sued for breach of contract. A plaintiff in a breach of contract lawsuit
must establish that: (1) a valid contract existed; (2) the plaintiff performed its obligations under
the contract; (3) the defendant breached the contract; and (4) the plaintiff has suffered damages
as a result of the defendant’s breach. Sebree v. Sebree, 986 S.W.2d 364, 372 (Tex. App.—Austin
1999, pet. denied).

        The distinction between an engineer’s breach of contract and professional negligence is
often blurred, especially when the alleged contractual breach relates to substandard performance
by the engineer. The Supreme Court of Texas has explained that it is unable to discern any real
difference between an owner’s claim that an engineer’s efforts were not good and workmanlike
and did not meet the standards of reasonable engineering practice and its claim that the engineer
was negligent in the performance of his professional services. Coulson v. Lake LBJ Mun. Utility
Dist., 734 S.W.2d 649, 651 (Tex. 1987). Contracts typically create both contractual obligations
and implied duties the breach of which may create liabilities in contracts and in tort.
Furthermore, the common law duty to perform with care and skill accompanies every contract
and that the negligent failure to meet this implied standard can be a basis for recovery in tort. Id.
Thus, the standard for determining whether an engineer committed professional negligence is

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arguably the same for a breach of contract claim against an engineer for failing to perform his
contractual obligations in a good and workmanlike manner.

        Though clients may sue design professionals for substandard performance based upon
breach of contract grounds, the Supreme Court of Texas has not found an implied warranty for
good and workmanlike performance of purely professional services. See Dennis v. Allison, 698
S.W.2d 94, 96 (Tex. 1985); Rhodes v. Sorokolit, 846 S.W.2d 618, 620 (Tex.App. – Fort Worth
1983) aff’d on other grounds, 889 S.W.2d 239 (Tex. 1994); Chapman v. Wilson, 826 S.W.2d
214, 217 (Tex.App.—Austin 1992, writ denied); but see White Budd Van Ness Partnership v.
Major-Gladys Drive Joint Venture, 798 S.W.2d 805, 812-814 (Tex. App.—Beaumont 1990),
writ dism’d 811 S.W.2d 541 (Tex. 1991) (finding an implied warranty owed by an architectural
firm to its client).

C.       Fiduciary Duty

        “Fiduciaries,” such as trustees and agents acting on behalf of others, owe their principals
a high duty of good faith, fair dealing, honest performance, and strict accountability. Avary v.
Bank of America, N.A., 72 S.W.3d 779, 791 (Tex. App.—Dallas 2002, pet. denied). They
maintain a special or confidential relationship with their principals that imposes additional duties
of a higher or different character than when parties deal at arms length. Chien v. Chen, 759
S.W.2d 484, 487 n.2 (Tex. App.—Austin 1988, no writ). The term “fiduciary” includes those
informal relations that exist whenever one party trusts and relies upon another, as well as
technical fiduciary relations. Texas Bank and Trust Company v. Moore, 595 S.W.2d 502, 507
(Tex. 1980). A fiduciary relationship, moreover, exists where a special confidence is reposed in
another who in equity and good conscience is bound to act in good faith and with due regard to
the interests of the one reposing confidence. Moore, 595 S.W.2d at 507. Because of the superior
bargaining power and/or special skill or knowledge possessed by the fiduciary, breach of
fiduciary duty can result in liability for not only actual damages caused by the breach, but also
punitive or exemplary damages, and fee forfeiture. See, Section III below.

        The law is unclear as to whether design professionals, simply by performing design
services, are entering into fiduciary relationships. Some jurisdictions have held that, based upon
the particular facts presented to them, no fiduciary relationship arose between the client and the
design professional. See, e.g., Lone Mountain Processing, Inc. v. Bowser-Morner, Inc., 94
Fed.Appx. 149 (4th Cir. 2004); Parkman & Weston Associates v. Ebenezer African Methodist, 69
U.S.P.Q.2d (BNA) 1300 (N.D. Ill. 2003); Strauss Veal Feeds, Inc. v. Mead and Hunt, Inc., 538
N.E.2d 299 (Ind. Ct. App.—[3d. Cir.] 1989). Other jurisdictions have recognized a fiduciary
duty owed by design professionals, especially when they maintain a supervisory function over
the project. See, e.g., Hammel v. Roadway Package Sys., 1997 U.S.App. LEXIS 21209 (9th Cir.
1997); Canton Lutheran Church v. Sovik, Mathre, Sathrum & Quanbeck, 507 F. Supp. 873 (D. S.
Dakota 1981); Palmer v. Brown, 273 P.2d 306 (Cal. Ct. App.—[2d Dist.] 1954); Holy Cross
Parish v. Huether, 308 N.W.2d 575 (S. Dakota 1981); McDaniel v. St. Clair, 18 Va. Cir. 470
(Va. Cir. Ct. 1990); North Carolina G.S. § 83A-1 (5). In Texas, at least one court has ruled that
the relationship between an architect and its client was of a fiduciary nature. Baylor University
v. Carlander, 316 S.W.2d 277, 287 (Tex. Civ. App.—Dallas 1958, writ ref’d n.r.e.). The ruling

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was made in the context of an architect’s failure to disclose his true belief to his university client
about the actual cost estimate for constructing a building.

        The rules of professional conduct and ethics promulgated by the Texas Board of
Professional Engineers specifically state that, “the engineers shall act as faithful agent for their
employers or clients.” 22 TEX. ADMIN. CODE §137.63(b)(4) (emphasis added). This language,
identifying the engineer as an “agent” of his or her client, arguably imposes a fiduciary duty
upon the engineer that is owed by other agents (such as lawyers or trustees) to their clients. It
provides more authority upon which plaintiffs rely in bringing their breach of fiduciary duty
claims against engineers.

     D.      Duty to Contractors

        The relationship between the design professional and the contractor on a construction job
is complex and often difficult. Both the design professional and the contractor are serving their
client, the owner, but must rely on each other to make sure the project is completed to the
satisfaction of the owner.

        Typically, the design professional does not owe any contractual duty to the contractor.
The owner, rather than the design professional, would have contracted with the contractor for his
services. The design professional would usually not be a party to that contract. If the design
professional has not obligated itself in contract to the contractor, the contractor typically cannot
maintain a suit for breach of contact against the design professional. See Bernard Johnson, Inc.
v. Continental Constructors, Inc., 630 S.W.2d 365, 369-70 (Tex.App.—Austin 1982, writ ref’d
n.r.e.). There would be no “privity of contract” between the design professional and the

       There may be instances in which a contractor may be made a third party beneficiary to
the contract between the owner and the design professional. In that case, the contractor could
bring a suit against the design professional for damages based upon the design professional’s
breach of the contract with the owner.

        Where the contract between the owner and the contractor is silent on the subject, Texas
law holds that the owner makes an implied warranty to the contractor that the plans and
specifications for a construction job are accurate and sufficient for the construction project. See
Shintech Incorporated v. Group Constructors, Inc., 688 S.W.2d 144, 151 (Tex.App.—Houston
[14th Dist.] 1985, no writ). If the design plans and construction plans are faulty, prohibiting the
contractor from moving forward with the construction project, the contractor may sue the owner
for breach of this implied warranty. In that instance, the owner may make the design
professional a third party defendant to the lawsuit, shifting some or all of the blame for the
defective construction documents to the design professional. The design professional would then
have to defend itself against the third party claim relating to his or her alleged defective work.

                              III. EXPOSURE FOR DAMAGES

A.        Direct Damages

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         Direct damages are the necessary and usual result of the defendant’s wrongful act; they
flow naturally and necessarily from the wrong. Direct damages compensate the plaintiff for loss
that is conclusively presumed to have been foreseen by the defendant from his wrongful act. See
Arthur Andersen & Co. v. Perry Equipment Corporation, 945 S.W.2d 812, 816 (Tex. 1997).

      If successful in a negligence action, the plaintiff may recover the direct economic
damages that he has suffered because of the design professional’s negligence. These are the
damages that necessarily and usually result from the design professional’s wrongful act.

        The universal rule for measuring damages for breach of contract is just compensation for
the loss or damage actually sustained. Stewart v. Basey, 245 S.W.2d 484, 486 (Tex. 1952). A
non-breaching party is generally entitled to all actual damages necessary to put it in the same
economic position in which it would have been had the contract not been breached. In other
words, the plaintiff is entitled to be placed in the position he would have been in had the contract
been performed. See Abraxas Petroleum Corporation v. Hornburg, 20 S.W.3d 741, 760
(Tex.App.—El Paso 2000, no pet.).

        When an agent commits a clear and serious violation of his fiduciary duty to his client, all
or a part of the fee that the client has paid to the agent can be forfeited. See Burrow v. Arce, 997
S.W.2d 229, 241 (Tex. 1999). If a clear and serious breach of a fiduciary is established, the
plaintiff could be awarded the entire fee it paid to the engineer on the project.

B.       Special or Consequential Damages

       Special or “consequential” damages result naturally, but not necessarily, from the
defendant’s wrongful acts. Consequential damages need not be the usual result of the wrong, but
must be foreseeable, and must be directly traceable to the wrongful act and result from it. If
consequential damages are too remote, too uncertain, or purely conjectural, they cannot be
recovered. Arthur Andersen & Co. v. Perry Equipment Corporation, 945 S.W.2d 812, 816 (Tex.
1997); Smart v. The United Stated Fidelity & Guaranty Company, 513 S.W.2d 291, 296 (Tex.
Civ. App.—Waco 1974, writ ref’d n.r.e.).

       Lost profits can be recovered as consequential damages. The injured party must establish
the amount of the loss by competent evidence with reasonable certainty. At a minimum,
opinions or estimates or lost profits must be based on objective facts, figures, or data from which
the amount of lost profits may be ascertained. Recovery of lost profits must be predicated on one
complete calculation. Szczepanik v. First Southern Trust Company, 883 S.W.2d 648, 649 (Tex.

        Delay damages are recoverable as consequential damages. The measure of damages for
delay in a construction project is typically the fair market rental value of the structure for the
period of delay. Ryan v. Thurmond, 481 S.W.2d 199, 206 (Tex. Civ. App.—Corpus Christi
1972, writ ref’d n.r.e.). The measure of the owner’s damages for delay is the same whether the
delay is caused by the errors of the builder, the architect, the engineer, or any other tradesman
with whom the owner had contracted for construction of the building. Miami Heart Institute,

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Inc. v. Heery Architects & Engineers, Inc., 765 F.Supp. 1083, 1085 (S.D. Fla. 1991). Courts
have also awarded different types of delay damages, such as an investor owner’s reasonable
return on a completed structure for the period of delay, the cost of inflation resulting from the
period of delay, additional interest costs to the owner, depreciation costs, additional overhead
expenses for the contractor’s home office or job site as a result of delay, increased cost of
supervision and oversight for the construction, storage costs necessitated by breach or delay, or
the increased cost of purchasing or material incurred as a result of the delay. See International
Fidelity Insurance Company v. County of Rockland, 98 F.Supp.2d 400, 415-16 (S.D.N.Y. 2000);
Georgetown Steel Corporation v. Law Engineering Testing Company, 1996 U.S. App. LEXIS
29461, *6 (4th Cir. 1996).

C.       Punitive and Statutory “Treble” Damages

        Exemplary or “punitive” damages can be awarded when gross negligence, fraud, or
malice is proven. See TEX. CIV. PRAC. & REM. CODE ch. 41; Cheek v. Humphreys, 800 S.W.2d
596, 599 (Tex. App.—Houston [14th Dist.] 1990, writ denied) (intentional and willful breach of
fiduciary duty [in partnership context] can warrant punitive damages); Hawthorne v. Guenther,
917 S.W.2d 924, 936 (Tex. App.—Beaumont 1996, writ denied) (self-dealing by a fiduciary can
warrant punitive damages).

       Engineers have also been sued under the Texas Deceptive Trade Practices Act (“DTPA”).
The DTPA allows a prevailing plaintiff to recover, not only actual damages suffered, but also
additional damages up to three times the amount of the actual damages for false, misleading, or
deceptive acts or practices committed knowingly in a consumer transaction. TEX. BUS. & COMM.
CODE §§ 17.46 (a), 17.50 (b) (1). It further allows the prevailing plaintiff to recover court costs
and reasonable and necessary attorney’s fees. TEX. BUS. & COMM. CODE § 17.50 (d). It should
be noted that the DTPA generally does not apply to claims arising from a written contract
involving a project where the consideration is more than $100,000, or claims involving more
than $500,000, regardless of whether there is a written contract. TEX. BUS. & COMM. CODE §
17.49 (f). However, if a consumer’s residence is involved, these dollar limitations do not apply,
and the DTPA’s treble damage provisions are available to the plaintiff. Id. Claims based on the
rendering of professional services, the essence of which is the providing of advice, judgment,
opinion, or similar professional skill, are generally exempt from the DTPA. TEX. BUS. & COMM.
CODE § 17.49 (c). This exemption, however, does not apply to an express misrepresentation of
material fact, a failure to disclose information if such failure to disclose was intended to induce
the consumer into a transaction into which the consumer would not have entered had the
information been disclosed, an unconscionable act or course of action, or an actionable breach of
an express warranty. Id.

D.       Attorney’s Fees and Court Costs

       Attorney’s fees and costs are not recoverable in negligence actions, but may be recovered
when a breach of contract is proven. See TEX. CIV. PRAC. & REM. CODE Ch. 38. Plaintiffs suing
design professionals will often bring both a breach of contract and negligence action in an
attempt to maximize their recovery, including an award of their attorney’s fees and court costs.

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E.       Insurance Coverage and Other Considerations

        Perhaps even more important than legal liability issues is the issue of insurance coverage.
Human beings are fallible. Mistakes and resulting damage claims are virtually inevitable. When
a claim is made, will your insurance carrier respond? Insurers have exercised many imaginative
tactics for avoiding coverage. Many Commercial General Liability (“CGL”) policies today
specifically exclude coverage for damages claims based on mold, mildew, rust, or pollution.
Most CGL policies do not cover damages claims arising from breach of contract. Happily, most
Professional Liability policies carried by engineering firms do not exclude coverage for these
kinds of claims.

         Professional Liability policies are of two general types: Claims Made policies and
Occurrence policies. A “Claims Made” policy covers liability for claims that are first asserted
during the policy period. An “Occurrence” policy covers liability for occurrences taking place
during the policy period. “Occurrence” is generally defined in the policy (or if not defined, is
generally considered) as the “first manifestation of damage” arising from the professional
negligence of the insured. Each of these kinds of policies may have a deductible amount, which
must be paid by the insured before the insurer’s obligation to indemnify matures, and “limits of
liability,” capping the insurer’s obligation to pay claims. There is commonly a different “limit of
liability” per occurrence and for all occurrences in the aggregate. This policy structure means
that coverage disputes often arise over whether the “occurrence” or “claim” took place within the
specified policy period. When any claim is received, a prudent insured engineer should promptly
notify not only his current insurance carrier, but all carriers who provided coverage during any
year when the first manifestation of damage may have occurred. Let the different carriers fight it
out as to which policy has coverage.

        It cannot be denied that plaintiffs’ lawyers are hard-wired to “plead into coverage.” This
is both a blessing and a curse to the prudent engineer who carries a hefty Professional Liability
policy. High limits of liability will certainly tend to make the insured a target defendant when a
construction defect results in significant damages claims. However, where insurance is the
primary source of perceived ability to pay, the kinds of claims asserted by plaintiffs’ counsel will
tend to be the kind that are covered by insurance. The plaintiff’s lawyer can become the
insured’s ally in arguing applicable dates of loss and notice of claim in such a manner as to
trigger coverage rather than exclude coverage. Moreover, the insolvency and irresponsibility of
general contractors is not unheard of. Where the contractor is unable to pay defect claims, and
the contractor’s CGL insurance has insufficient limits of liability, or broad exclusions, the design
professionals become the automatic target of opportunity. If only for the cost-of-defense
coverage, substantial Professional Liability insurance is an absolute must for any engineering

       Owner Controlled Insurance Programs (“OCIPS”) are coordinated insurance coverage
arrangements project participants put in place, along with appropriate waivers of claims and
subrogation, in an attempt to reduce premium costs and avoid claims among themselves in the

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event of liability claims. A detailed discussion of OCIPS is beyond the scope of this paper, but it
bears mentioning that such arrangements must be assembled by knowledgeable individuals with
competent legal advice. Left to the machinations of insurance agents alone, these programs can
become a nightmare of gaps and overlaps in coverage that fails to achieve the theoretical savings
which is their avowed purpose.


        All causes of action are governed by a statute of limitations. Negligence claims are
governed by a two-year limitations period. Claims for breach of contract and breach of fiduciary
duty are governed by a four-year limitations period. Causes of action accrue on the date the
wrongful act occurs, and the limitations period begins to run on that date. In some instances, the
limitations period will be “tolled” because the injury is inherently undiscoverable. The
limitations period, in that case, will not begin to run until the plaintiff discovered or, in the
exercise of reasonable diligence, should have discovered her injury.

        Design professionals are protected by a special statute of repose. The statute of repose is
different from a statute of limitations in that it acts as an absolute bar to any lawsuits against
design professionals, regardless of the discovery rule. A person who wishes to bring a suit for
damages against a design professional who has designed, planned, or inspected the construction
of an improvement to real property or equipment attached to real property must bring his suit no
later than 10 years after substantial completion of the improvement or the beginning of operation
of the equipment. TEX. CIV. PRAC. & REM. CODE § 16.008.

                                V. RECENT DEVELOPMENTS

A.       Certificate of Merit

        The 2003 Texas legislature made it statutorily more difficult to bring an action for
professional negligence against a design professional. Before bringing an action for professional
negligence, the plaintiff is now required to file with his complaint a “certificate of merit.” The
certificate is an affidavit of a third party registered architect or a licensed professional engineer
that supports specifically at least one negligent fact, error or omission claimed to exist and the
factual basis for each such claim. The third party professional engineer or registered architect
must be licensed in Texas and actively be engaged in the practice of architecture or engineering.
The plaintiff’s failure to file the certificate of merit may result in dismissal with prejudice of the
complaint against the defendant. See TEX. CIV. PRAC. & REM. CODE Ch. 150.

B.       Responsible Third Parties

    The 2003 Texas legislature also enacted statutory provisions allowing the allocation of
liability to “responsible third parties” who are not actual parties to a lawsuit. TEX. CIV. PRAC. &
REM. CODE § 33.004. A “responsible third party” is a person who is alleged to have caused
some or all of the harm for which the plaintiff is seeking to recover damages, whether by a
negligent act or omission, or other conduct or activity that violates an applicable legal standard.
TEX. CIV. PRAC. & REM. CODE § 33.011 (6). In designating someone a responsible third party,

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the defendant can ask the court or jury to allocate to that third party some or all of the blame for
the plaintiff’s alleged injury, and any resultant damages, without the necessity of bringing any
legal action against the third party or joining it in the existing lawsuit. This new rule allows the
defendant to “try the empty chair,” presenting evidence of a third party’s wrongdoing without
effective rebuttal by the third party. The court or jury is required to determine the percentage of
responsibility for each defendant and each designated responsible third party with respect to
causing (or contributing to cause) the harm complained of by the plaintiff. TEX. CIV. PRAC. &
REM. CODE § 33.003.

C.       Engineers as Fiduciaries

        As previously discussed, the rules promulgated by the Texas Board of Professional
Engineers governing the practice of engineering in this state specifically state that engineers
must act as faithful agents of their clients. 22 TEX. ADMIN. CODE § 137.63(b)(4). It is becoming
increasingly more common for plaintiffs to include a breach of fiduciary duty claim in their
professional malpractice lawsuits against engineers. This is a fairly new development, which has
not been considered at length by Texas courts. A cause of action for breach of fiduciary duty is
particularly powerful because of the potential remedies of punitive damages and partial or
complete fee forfeiture. Moreover, in other fiduciary relationships, the courts have shifted the
normal burden of proof. Generally, the plaintiff has the burden to prove each element of its case
by a preponderance of the evidence. However, in claims of breach of fiduciary duty, once the
existence of a fiduciary duty is proved by the plaintiff, the burden of proof shifts to the defendant
fiduciary to prove that its conduct was fair to the beneficiary plaintiff. See Texas Bank and Trust
Company v. Moore, 595 S.W.2d 502, 508-09 (Tex. 1980); Ginther v. Taub, 570 S.W.2d 516, 525
(Tex. Civ. App.—Waco 1978, writ ref’d n.r.e.). This reversal of the usual burden of proof,
justified by the high degree of trust and confidence placed in a fiduciary by its beneficiary, gives
a tremendous advantage to plaintiffs in fiduciary duty litigation

D.       Mesa Vista Case: “Justice or Shakedown”

        A recent California case demonstrates the lengths to which the law has been pushed to
find liability in connection with construction defects. Mesa Vista South Townhome Association
v. California Portland Cement Company, 12 Cal. Rptr.3d 863 (Cal. Ct. App. [4th Dist.] 2004)
pet. denied, 2004 Cal. LEXIS 7245 (Cal. 2004). In this case, the trial court found a concrete
manufacturer and supplier liable to a condominium homeowners association for negligence when
the only damage suffered was “submicroscopic” damage to the concrete foundations of the
buildings. The condominium complex was constructed on soils with a severe sulfate condition,
which the court found (based on expert testimony) caused damage to the concrete as a result of
failure of the concrete mix design to comply with the Uniform Building Code’s requirements for
severe sulfate exposure. The Court found that the evidence in the case was insufficient to show
that the unsuitable concrete mix was the cause of any damage to the post-tension cables, cable
fasteners, stucco, flooring, framing, or any part of the buildings except the concrete itself.
Nevertheless, the court determined that although the damage was largely submicroscopic at the
time, “the concrete would disintegrate in time unless somehow prevented.” The judgment of the
trial court for over $5.3 million dollars was affirmed by the California court of appeals. The
engineering defendants had settled out of the Mesa Vista case by contributing to a settlement of

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some $400,000; however, the holding of the court would clearly have exposed those defendants
to potential liability for professional negligence to the extent they designed the concrete mix,
approved the concrete mix, or failed to notify the owner or the contractor of the unsuitability of
the concrete mix.

                            IV. TIPS FOR MINIMIZING EXPOSURE

A.     Satisfy the Client

         A great many defect claims are asserted by unhappy clients. A great many clients are
made unhappy, not by the lack of the quality of the work (they are unable to judge the quality of
the design work), but by their perception that the cost of the design work is excessive, and/or
their perception that the design professionals are unresponsive. It is of the greatest importance in
minimizing exposure for professional liability that the design professional demonstrate to the
client that all reasonable efforts are being made to hold down costs and to get the work done as
quickly and thoroughly as possible. Return the client’s calls immediately. Keep the client
informed, and by all means, give the client any bad news immediately. A relationship of trust,
once earned, can enable problems to be resolved on a professional and businesslike basis, rather
than in the costly and unpredictable litigation process.

B.     Choose Your Client and Your Project Carefully

        Some clients are constitutionally incapable of ever being satisfied by anyone’s work.
Avoid these clients. Some clients have a history of litigation over their projects. Avoid these
clients if possible. Some clients have a habit of firing their engineer in the middle of the project
over one complaint or another. Be extremely wary of accepting employment in replacement of
another professional.

        It is always tempting to take on a project in an area where you do not have much (or any)
experience. The challenge is invigorating, and the opportunity to build a new line of business is
attractive. These projects are litigation traps. Do not take on work you are not able to staff with
competent, experienced professionals. Make certain all junior engineers and engineers in
training are adequately supervised and managed. Inefficiency by first-timers not only wreaks
havoc with internal budgets, but also is the cause of many design errors. Perhaps worse, it just
does not play well to a judge or jury when it comes out that the real work on the job was done by
an engineer in training because three different supervising engineers were transferred to other
jobs during the project.

C.     Document the File

         If, despite your best efforts at building a great relationship with the client, a lawsuit is
filed, the relative impact of the main forms of evidence should be kept in mind. Testimony of
witnesses, that is, what the witnesses say, is the least credible of all. Much more credible is the
contemporaneous written record. When the specifications, submittals, shop drawings, and
emails contradict the witness’s memory, the witness will never be believed. Keep your files
complete, organized, and intact, and you will have a much better chance of successfully

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defending any professional liability claim. Also, send follow-up emails to clients after sharing
important information with them over the telephone or in person. This practice, if followed
routinely, can help reduce confusion regarding what information was actually shared or what the
instructions of the client were. Of course, the third main form of evidence is pictures; that is,
plans, drawings, photos, and videotapes. A picture is still worth a thousand words, and visual
evidence is extremely powerful. All construction jobs should be regularly photographed
digitally, and the digital images filed in an organized fashion for ready access when the lawsuit is

D.     Dilemma: Neither Underdesign Nor Overdesign

        The rules of professional conduct and ethics promulgated by the Texas Board of
Professional Engineers declare that actions of engineers shall be competent. 22 TEX. ADMIN.
CODE § 137.59. An engineer shall not perform any engineering assignment for which the
engineer is not qualified by education or experience to perform adequately and competently. Id.
Moreover, the law demands that the engineer exercise care and skill commensurate with the
requirements of the profession. I.O.I. Systems, Inc. v. City of Cleveland, 615 S.W.2d 786, 790
(Tex. Civ. App.—Houston [1st Dist.] 1980, writ ref’d n.r.e.). These rules and common sense
dictate that any structural design or specification must be adequate for the loads and performance
reasonably anticipated. Failure to meet this standard of care could cause a catastrophic failure,
property damage and even bodily injury or death, along with definite liability for such damages.
But another ethical canon, of equal dignity, requires that the engineer refrain from “performance
of unnecessary work.” 22 TEX. ADMIN. CODE § 137.63 (b) (5). This canon can come into play
in an ugly manner in “time-and-materials” or hourly fee projects. What is considered
“unnecessary work” is not defined in the regulations, leaving the term subject to multiple
interpretations. For example, some plaintiffs may argue that any design work performed that is
not absolutely essential, or that does not yield the lowest possible cost of construction, is
“unnecessary,” whereas the engineer may consider the work performed necessary to conform
with the client’s design instructions and stated needs. Invariably, problem clients at some point
in time will complain that the design professional exceeded the scope of the job by designing a
“Cadillac,” when the job allegedly called for something less. The lack of precise statutory or
regulatory guidance on what is considered “unnecessary work” provides plaintiff clients
substantial leverage in litigation against engineers for overdesign/overcharging.

E.     Check Your Coverage

        As suggested earlier, regardless of the safeguards put in place, human mistakes will be
made, and claims will follow. Two of the most devastating impacts of legal claims against an
organization are the cost of defense and the disruption to the organization by the distraction and
uncertainty of the potential liability. These problems can be effectively managed only by a
carefully structured set of insurance coverages, including both CGL and Professional Liability
forms. Competent insurance counsel should be consulted in placing the insurance, and
coverages should be reviewed at least annually, as well as the solvency of the chosen carriers.

        By developing a firm culture that values client satisfaction, carefully choosing clients and
projects, diligently documenting files, balancing adequate design and project parameters, and

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maintaining appropriate insurance coverages, Texas engineers should be able to sleep at night,
despite the inevitability of construction defect claims.

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