When this gets into the legal system very often logic and reason goes out the window in favor of deep pockets, but the way the industry works, and the language of the International Building Code reflects this, is that the liability rests with the engineer of record. In this case it is the engineer who sealed the foundation plans. That person may rely on a sealed report by another licensed professional, in this case a geotechnical report, but the geotech is only technically liable if his report is incorrect.
It is the city's job, as the Code Enforcement Official, to check that the building plans meet Code. So unless the Code requires foundations to be founded on bedrock they have to approve, a better term would be accept, the sealed plans. In other words, it's not the CEO's job to oversee the engineer. Most of the time (always) they lack the training and qualifications to do that. Very few CEOs are licensed engineers or architects. And that's OK because the system isn't set up that way.
In my state there have been several instances where a municipality has been sued based on the negligence of the CEO. But these have been around failure to adequately inspect a project in accordance with the sealed plans. In other words negligence during the construction phase, approving construction that was not done or not done adequately. Although I don't have all the details, my suspicion is that is not the case here.
As I said earlier owners, developers are always trying to reduce costs and I have been asked numerous times to negotiate physics. I know and have known many engineers that will do that just to keep themselves employed, so that this is a very plausible scenario.