What is a Design Professional’s Tort Duty?

The 2014 Legislative Session brought new possibilities for large construction projects under the Public Contract Law. Generally, a public entity is required to separately hire a design professional to design the project, and let the project out for public bid for the construction work. "Design-build" contracts, in which the public owner contracts with one entity for the design and construction of the facility, are prohibited under Public Contract Law. However, the Legislature has now given public entities another option under the Public Bid Law: Construction Management at Risk Delivery Method (CMAR).

As a precursor to the new law, the Legislature granted special approval for use of the construction management at risk delivery method for several projects, to include the new airport terminal for the New Orleans Aviation Board at the Armstrong International Airport. This CMAR delivery method required two separate contracts for design and construction, but allowed selection of the construction contractor based on factors other than lowest construction cost. In other words, the design professional was selected in accordance with Public Contract Law, and the owner secured a lead construction firm during the design phase through an evaluation of the contender construction firms' qualifications, experience and history.

Under a construction management at risk delivery method, the selected lead contracting firm commits to deliver the final project for a maximum price. The owner has the option to award the construction contract to the firm after the design phase. Because the design professionals and the contractor are on the same team during the design phase, many industry leaders believe the construction management at risk method will help public entities control costs by allowing the contractor and designer to work together on scheduling, budgeting and constructability during the design phase. The goal also is to minimize the risk of construction and design disputes through the collaborative effort.

In 2014, via Act 782, the Legislature enacted La. R.S. 2225.2.4 which allows a public entity to use the CMAR method for projects estimated to cost 25 million dollars or more. The statute defines a CMAR contractor as one who is properly licensed, bonded and insured and can provide construction experience to the owner or its design professional and/or contracts with the owner to construct the project for a guaranteed maximum price, thus eliminating the need for a separate bid phase.

Under the statute, the public entity must advertise a request for qualifications to award a contract to a CMAR contractor for preconstruction and construction services in the official journal and website of the public entity. After the responses to the RFQ are received, a selection review committee makes a recommendation to the owner. This committee consists of one design professional not involved in the contract, one licensed contractor not involved in the contract, a representative of the owner and two members from the general public.

Once the CMAR contractor is awarded the contract, the contractor and the design professional are required to furnish the owner with a probable cost of the project at the 60% and 90% design completion phases. The CMAR contractor must provide the public entity a guaranteed maximum price for construction of the project. If the owner agrees with the guaranteed maximum price and the construction phasing and sequencing, the owner can award the construction contract to the CMAR contractor. If the public entity and the CMAR contractor cannot agree, the construction phase of the project will be re-advertised and let out for public bid.

The longstanding rule that the analysis for "piercing the corporate veil" of an LLC is substantially the same as the analysis for piercing the veil of corporations has been called into question by the recent Louisiana Supreme Court decision in Ogea v. Travis Merritt and Merrit Construction, LLC, 2013-1085, --- So.3d ---. In Ogea, the Court addressed "the extent of the limitation of liability afforded to a member of an LLC" and the statutory basis for exceptions to this limited liability.

Typical of a veil piercing case, the Ogea Court began its discussion by citing familiar Louisiana cases on the topic: Riggins v. Dixie Shoring Co., Inc., 590 So.2d 1164 (La. 1991) and the more recent Charming Charlie, Inc. v. Perkins Rowe Associates, L.L.C., 11-2254 (La. App. 1 Cir. 7/10/12), 97 So.3d 595. However, the similarities stopped there.

The Court noted that traditional veil piercing doctrine was not invoked by the lower courts or the plaintiff. Instead, the Court's analysis turned on the interpretation of an infrequently cited statute within Title 12 that addresses the limitation of liability for LLC members. La. R.S. 12:1320(A) states that the liability of members and managers of an LLC "shall at all times be determined solely and exclusively by the provisions of this Chapter." Subsection (B) provides that members and managers are generally not liable for the debts, obligations, or liabilities of the LLC. Subsection (D) prescribes the exceptions to this limitation of liability, to include fraud, breach of professional duty, and any other negligent or wrongful act by the member or manager.

Addressing this statute as a matter of first impression, the Ogea Court applied the statute to the facts of the case. Merritt Construction, LLC was hired to build a home for plaintiff, Mary Ogea. As part of the process, Ms. Ogea requested that she have a friend prepare the site for the foundation. Travis Merritt, the sole member of Merritt Construction, LLC, informed Ms. Ogea that having someone else prepare the site would waive the warranty. Mr. Merritt subsequently operated the bulldozer to prepare the site for a subcontractor to pour the concrete slab. A dispute arose when a concrete contractor informed Ms. Ogea of problems with the home's foundation. Under these facts, the Court concluded Mr. Merritt was not personally liable under the exclusive exceptions to limited liability found in La. R.S. 12:1320(D).

The first exception, fraud, was rejected because no evidence in the record supported a finding that Mr. Merritt committed fraud.

Turning to the next exception, the Court also rejected the argument that plaintiff breached a professional duty as the sole member of the construction company. The professions recognized in Louisiana's corporate laws do not include individuals who perform construction work. Thus, Mr. Merritt could not breach a "professional duty" as contemplated by the statute. The Court also noted that the contract at issue only recognized Merritt Construction, LLC as a licensed contractor and did not reference any contractor's license held by Mr. Merritt personally.

Finally, the Court addressed the final exception to limited liability: "negligent or wrongful act." Plaintiff asserted that the term "negligence" in the statute only required proof of a tort by the individual. The Court quickly rejected this argument, noting that such an interpretation would improperly expand the liability of LLC members.

Rather, the Court set forth four factors to assist in the analysis under the last "negligence" exception: 1) whether a member's conduct could be fairly characterized as a traditionally recognized tort; 2) whether a member's conduct could be fairly characterized as a crime, for which a natural person, not a juridical person, could be held culpable; 3) whether the conduct at issue was required by, or was in furtherance of, a contract between the claimant and the LLC; and 4) whether the conduct at issue was done outside the member's capacity as a member.

It appears from the Ogea Court's focus that the prior analysis for "piercing the veil" of an LLC has perhaps been set aside and replaced with a new analysis which considers the exceptions to limited liability listed in La. R.S. 12:1320. However, the Court failed to expressly state that the prior analysis is improper and therefore no longer applicable. For now, it appears that the rules for piercing the veil of an LLC have changed but the true impact of Ogea remains to be seen.

The question addressed in MR Pittman Group, LLC versus Plaquemines Parish Government, 2015-0396 (La.App. 4 Cir. 12/2/15) was whether the five-year peremptive period set by La. R.S. 9:5607 displaces Louisiana’s general one-year prescriptive period set by La. C.C. art. 3492, when applied to tort claims against design professionals. Finding a contractor’s claim against the project engineers prescribed, the MR Pittman court held that the one-year prescriptive period governs tort claims against design professionals.

La. R.S. 9:5607 explicitly provides a peremptive period that extinguishes all claims against architects, engineers and other design professionals five years after the project is completed, thus limiting design professional liability associated with the project. The MR Pittman plaintiff/contractor argued that the statute also eliminates the one-year prescriptive period and instead creates a special five-year prescriptive period, which allowed the contractor up to five years to bring its claim against the engineers to recover for delay and other extra costs allegedly resulting from deficiencies in the construction plans. This interpretation effectively expands tort liability by increasing the time period for bringing a tort claim from one to five years. In rejecting this argument, the MR Pittman court clarified that under the statute any claimant has no more than five years after project completion to bring suit against the design professional for any cause. However, a tort claimant still has only one year to file suit from the date he “knew or should have known” of damage caused by the alleged wrongful actions of the design professional.

A secondary question addressed in MR Pittman was the date of commencement of the one-year prescriptive period, which under La. C.C. 3492 commences to run from the day damage is sustained. The defendant/engineers argued that prescription commenced when the contractor first became aware of the alleged design deficiencies early in construction, as evidenced by the contractor’s notice to the owner of the deficiencies. The contractor argued that it could not fully appreciate its damages until the change orders were resolved later in the project. Citing Louisiana Supreme Court precedent holding that the quantum of damages need not be certain or fully incurred to trigger commencement of prescription, Harvey v. Dixie Graphics, Inc., 593 So.2d 351, 354 (La. 1992), the court agreed with the engineers’ position and dismissed the claims.