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Construction Defect

The following cases address mutiple issues that arise in construction defect litigation. For more information about construction defect litigation, visit our selection of educational articles on construction defects and our construction defect litigation practice area.

  • Aas v. Superior Court

    Aas v. Superior Court

    Summary by Mary M. Howell, Esq.:

    Facts

    This matter involved two construction defect actions brought by a condominium homeowners association and owners of single-family homes in a subdivision (collectively, “Plaintiffs”) against a developer, a contractor, and subcontractors (collectively, “Defendants”). Plaintiffs alleged their dwellings suffered from a variety of construction defects. Plaintiffs asserted causes of action for negligence, strict liability, and breach of express and implied warranty. In pretrial proceedings, Defendants moved to exclude evidence of those alleged construction defects that had not caused property damage. The trial court granted Defendants’ motions as to the tort claims. Plaintiffs sought review of the rulings by petition for writ of mandate. The Court of Appeal denied the petition. The California Supreme Court granted review of that decision and affirmed.

    Held

    The California Supreme Court concluded that Plaintiffs could not recover damages in negligence or strict liability from the developer, contractor or subcontractors who built their homes for existing construction defects that had not yet caused either property damage or personal injury. The court explained that while tort law provides a remedy for construction defects that cause property damage or personal injury, the “economic loss rule” precludes recovery for defects that have not yet resulted in property damage or personal injury.

    NOTE

    In response to the holding in Aas, the California Legislature enacted Civil Code §895 et seq., also known as the Right to Repair Act (the “Act”). The Act establishes a set of building standards pertaining to new residential construction, and provides homeowners with a cause of action against, among others, builders and individual product manufacturers for violation of the standards. The Act makes clear that upon a showing of violation of an applicable standard, a homeowner may recover economic losses from a builder without having to show that the violation caused property damage or personal injury. In such an instance, the Act abrogates the economic loss rule, thus legislatively superseding Aas.

    *** End Summary ***

    Affan v. Portofino Cove
    (2010) 189 Cal.App.4th 930

    719*719 Procopio, Cory, Hargreaves & Savitch, Steven M. Strauss, Edward I. Silverman and Victor M. Felix, San Diego, for Petitioners Alan O. Aas et al.

    Epsten & Grinnell, Douglas W. Grinnell, San Diego, Luis E. Ventura, El Centro; The Law Offices of Duane E. Shinnick, Silldorf, Shinnick & Duignan and Duane E. Shinnick, San Diego, for Petitioner Provencal Community Association and for Consumer Attorneys of California as Amicus Curiae on behalf of Petitioners Alan O.Aas et al.

    Ian Herzog, Santa Monica; Douglas Devries, Sacramento; Roland Wrinkle, Woodland Hills; Harvey R. Levine, San Diego; Robert Steinberg, Los Angeles; Thomas G. Stolpman, Long Beach; William D. Turley, San Diego; Mary E. Alexander, Menlo Park; Joseph Harbison III, Sacramento; Bruce Broilett; Wayne McClean, Woodland Hills; Leonard Sacks, Granada Hills; Tony Tanke, Redwood City; Lea-Ann Tratten; Steven J. Kleifield, Los Angeles; David Rosen; Moses Lebovits, Los Angeles; Christine Spagnoli; James Sturdevant, San Francisco; Daniel Smith; Deborah David, Los Angeles; Lawrence Drivon; Thor Emblem, Escondido; Rick Simons; David Casey, Jr., San Diego, Kasdan, Simonds, McIntyre, Epstein & Martin and Kenneth S. Kasdan, Irvine, for Consumer Attorneys of California as Amicus Curiae on behalf of Petitioners Alan O. Aas et al.

    720*720 Verboon, Whitaker & Peter, Mark A. Milstein and Michael T. Whitaker, Los Angeles, for Southern California Apartment Owners Association as Amicus Curiae on behalf of Petitioners Alan O. Aas et al.

    Wolf, Rifkin & Shapiro, Leslie S. Marks, Los Angeles, and Douglas A. Lusson, San Diego, for League of California Homeowners as Amicus Curiae on behalf of Petitioners Alan O. Aas et al.

    Berding & Weil and James O. Devereaux, Alamo, for the Executive Council of Homeowners as Amicus Curiae on behalf of Petitioners Alan O. Aas et al.

    Berger & Hopkins, Jane Francis Hopkins and A. Alan Berger, San Jose, for the Structural Engineers Association of California as Amicus Curiae on behalf of Petitioners Alan O. Aas et al.

    Orbach & Huff, David M. Huff and Eric P. Weiss, Los Angeles, for Coalition of American Structural Engineers, Park Purdue Homeowners Association, Angelina Heights Homeowners Association and Silverado Oaks Homeowners Association as Amici Curiae on behalf of Petitioners Alan O. Aas et al.

    Williams, Wester, Hall & Nadler and Scott A. Williams, Greenbrae, as Amici Curiae on behalf of Petitioners Alan 0. Aas et al.

    Burdman & Benson and Linda Angle-Keny, San Diego, as Amici Curiae on behalf of Petitioners Alan 0. Aas et al.

    No appearance for Respondent.

    Newmeyer & Dillion, Gregory L. Dillion, Timothy S. Menter, Gene M. Witkin, Newport Beach; Lincoln, Gustafson & Cercos, Thomas J. Lincoln and Charles K. Egan, San Diego, for Real Parties in Interest the William Lyon Company and Lyon Communities, Inc.

    Dale, Braden & Hinchcliffe and Suzanne M. Martin, for Real Parties in Interest Ben F. Smith, Inc., and B & L Plastering.

    Wilson, Elser, Moskowitz, Edelman & Dicker, Andrew J. Blackburn, Long Beach, and William S. Roberts, San Diego, for Real Parties in Interest West Coast Sheet Metal, Inc., and Ben F. Smith, Inc.

    Kring & Brown, Jeffrey A. Lake, San Diego, and Jon H. Van de Grift, for Real Parties in Interest Ben F. Smith, Inc., and New Continental Tile & Marble Co., Inc.

    Maxie Rheinheimer Stephens & Vrevich, Barry M. Vrevich, Darin L. Wessel, San Diego, Kelegian & Thomas and Michael Paul Thomas, Newport Beach, for Real Party in Interest Branco Corporation.

    Bullard & Olin, Robert M. Granafei and Lee H. Graham, Orange, for Real Party in Interest Cal West Nurseries, Inc.

    Brownwood, Rice & Zurawski and Michael F. Saydah, San Diego, for Real Parties in Interest C.R.E. Electric and Ghianni Corporation.

    Acker, Kowalick & Whipple, Anthony H. Whipple, W. Frederck Kowalick, Linwood Warren, Jr., Catherine L. Rhodes and Tawnya L. Southern, for Real Party in Interest Premier Window Products, Inc.

    Farmer, Weber & Case, David Weber; The Law Office of Mark Siegel and Mark Siegel, for Real Party in Interest Sun Plumbing Company, Inc.

    Kolod, Wager & Gordon, Scott M. Kolod, Jerome A. Wager, San Diego, Vekeno Kennedy; Law Offices of Elisa J. Nemeth and Elisa J. Nemeth, for Real Party in Interest Allstate Plumbing.

    Cozad & Krutcik and Ronald J. Cozad, Mission Viejo, for Real Party in Interest Schmid Insulation Contractors, Inc.

    Berger, Kahn, Safton, Moss, Figler, Simon & Gladstone, Timothy A. Nicholson and Stephen L. Weber, Irvine, for Real Party in Interest Surecraft Supply, Inc.

    Perkins & Miltner, San Diego, and Timothy E. Salter, for Real Party in Interest Bowers Construction Co.

    Callahan, McCune & Willis and Norma Marshal, San Diego, for Real Party in Interest Frank Bowers Construction.

    721*721 Balestreri, Pendleton & Potocki, Thomas A. Balestreri, Jr., Mary B. Pendleton, Michael M. Freeland, San Diego, Maurine P. Brand; Kring and Brown, Irvine, and Jeffrey A. Lake, San Diego, for South Coast Framers, Inc., Alta Drywall, Inc., West Coast Sheet Metal and D.J. Drywall, Inc., as Amici Curiae on behalf of Real Parties in Interest.

    Lewis, D’Amato, Brisbois & Bisgaard, Costa Mesa, Robert V. Closson, San Diego, Terrell A. Quealy and Judith A. Lewis for United National Insurance Company as Amicus Curiae on behalf of Real Parties in Interest.

    John H. Findley, Sharon L. Browne, Sacramento, and Stephen R. McCutcheon, Jr., for Pacific Legal Foundation as Amicus Curiae on behalf of Real Parties in Interest.

    Dale, Braden & Hinchcliffe, George D. Dale, Suzanne M. Martin; Perkins & Miltner, San Diego, Timothy E. Salter; and Kathryn Turner-Arsenault, Escondido, for the Construction Defect Defense Action Coalition as Amicus Curiae on behalf of Real Parties in Interest.

    Fred J. Hiestand, Sacramento, for the Association for California Tort Reform as Amicus Curiae on behalf of Real Parties in Interest.

    COX, Castle & Nicholson, Sandra C. Stewart, Jeffrey D. Masters, Debbie L. Freedman, Los Angeles; Gray, Cary, Ware & Freidenrich, San Diego, and Jonathan B. Sokol, Los Angeles, for the Building Industry Legal Defense Foundation and the California Building Industry Association as Amici Curiae on behalf of Real Parties in Interest.

    White, Gentes & Garcia, Timothy S. Noon and Charles R. Bongard, San Diego, for the Associated General Contractors of America, San Diego Chapter, Inc., as Amicus Curiae on behalf of Real Parties in Interest.

    Thelen Reid & Priest, Gary L. Fontana, Hilary N. Rowen, James A. Riddle, San Francisco; Craig A. Berrington and Laura L. Kersey, Washington, D.C., for American Insurance Association as Amicus Curiae on behalf of Real Parties in Interest.

    Parker & Stanbury, Jenna L. Price and Mary-Tyler Crenshaw, for West Coast Sheet Metal and H & D Construction as Amici Curiae on behalf of Real Parties in Interest.

    Morris, Polich & Purdy, Randy Koenig and Gary L. Jacobsen, San Diego, as Amici Curiae on behalf of Real Parties in Interest.

    Gibbs, Giden, Locher & Turner, Barry C. Vaughan and Michael I. Giden, Los Angeles, for CalMat Co. as Amicus Curiae.

    WERDEGAR, J.

    In this case we are asked to decide whether homeowners and a homeowners association may recover damages in negligence from the developer, contractor and subcontractors who built their dwellings for construction defects that have not caused property damage. Plaintiffs would find an affirmative answer in the tort of “negligent interference with prospective economic advantage” described in J’Aire Corp. v. Gregory (1979) 24 Cal.3d 799, 804-805, 157 Cal.Rptr. 407, 598 P.2d 60. Applying settled law limiting the recovery of economic losses in tort actions (Seely v. White Motor Co. (1965) 63 Cal.2d 9, 18, 45 Cal.Rptr. 17, 403 P.2d 145), we answer the question in the negative and, thus, affirm the decision of the Court of Appeal.

    I. Background

    This matter comes to us on review of consolidated writ proceedings affecting two cases in the superior court. Plaintiffs in Aas et al. v. William Lyon Company et al.(Super.Ct. San Diego County, 1996, No. 695611) (Aas own the single-family homes in the Belle Fleur subdivision. Plaintiff in Provencal Community Association v. William Lyon Company et al. (Super.Ct. San Diego County, 1996, No. 694688) (Provencal) is the homeowners association 722*722 responsible for managing and maintaining the Provencal condominium project. Defendants (as relevant here) include the William Lyon Company and Lyon Communities, Inc. (collectively Lyon), which served as developer and general contractor of Belle Fleur and Provencal, and the many subcontractors who participated in those projects.

    Plaintiffs in each case allege their dwellings suffer from a variety of construction defects affecting virtually all components and aspects of construction. Based on these defects, plaintiffs assert causes of action for negligence, strict liability, breach of implied warranty and, in the Aas case alone, breach of contract and express warranty. Plaintiffs in both cases seek, among other things, the cost of repairing the alleged defects. Additionally, plaintiffs in Aas expressly seek damages representing the diminution in Value of their residences.

    Trial has not yet commenced. In pretrial proceedings, defendants in both cases moved for orders in limine excluding evidence of those alleged construction defects that have not caused property damage. (There is no claim of personal injury.) Plaintiff in Provencal responded with an offer of proof asserting that some of the alleged defects violate provisions of the applicable building codes intended to prevent harm to life, health and property.[1] Plaintiff acknowledged, however, that many of the defects enumerated in defendants’ motions have not actually caused property damage. The same is true in Aas. After extensive oral argument in each case, the trial court granted defendants’ motions as to plaintiffs’ tort claims only.[2] With thecourt’s encouragement, plaintiffs sought review of the rulings in limine by petition for writ of mandate. The Court of Appeal, after issuing an alternative writ, denied the petitions. We granted review of that decision.

    In granting defendants’ motions, the trial court did not create or adopt a definitive list of construction defects to be excluded at trial. Instead, the court simply excluded “evidence of [defects] … that have not resulted in bodily injury or physical property damage, i.e., [defects causing only] `economic loss’….” The trial court illustrated the possible effect of its ruling with the example of “a home with no resultant damages at all, but everybody agrees that the flashing’s not lapped properly under the industry standards, the [Uniform Building Code], whatever, but it hasn’t resulted in any leaks; everybody agrees that the tile is overextended, that is, it doesn’t have the overlap of three inches that’s called for by the manufacturer; that 723*723 you have a nailing pattern on the shear walls which does not comply with the applicable provision in the [Uniform Building Code], but the house is still standing and hasn’t started swaying….” The court and the parties seemed to recognize that further hearings (see generally Evid.Code, § 402 [procedure for determining preliminary facts]) would be necessary to determine which alleged defects would, and would not, be submitted to the trier of fact in connection with plaintiffs’ tort claims.[3]

    The absence of a definitive list of excluded defects is of no consequence because the issue before us is one of law. While a ruling excluding evidence is not ordinarily subject to review by writ (People v. Municipal Court (Ahnemann) (1974) 12 Cal.3d 658, 660, 117 Cal.Rptr. 20, 527 P.2d 372) and typically is reviewed for abuse of discretion on appeal (People v. Williams (1997) 16 Cal.4th 153, 197, 66 Cal.Rptr.2d 123, 940 P.2d 710), a motion to exclude all evidence on a particular claim is subject to independent review as the functional equivalent of a common law motion for judgment on the pleadings (Edwards v. Centex Real Estate Corp. (1997) 53 Cal.App.4th 15, 26-27, 61 Cal.Rptr.2d 518; Clemens v. American Warranty Corp.(1987) 193 Cal.App.3d 444, 451-52, 238 Cal.Rptr. 339; see generally 6 Witkin, Cal. Procedure (4th ed. 1997) Proceedings Without Trial, § 176, pp. 589-591) or, if decided in light of evidence produced during discovery, a motion for nonsuit (Edwards v. Centex Real Estate Corp., at p. 27, 61 Cal.Rptr.2d 518). Understood as a motion for judgment on the pleadings, the dispositive question is whether plaintiffs may state a cause of action for construction defects that have not caused property damage. (Cf. id. at p. 26, 61 Cal.Rptr.2d 518.) Understood as a motion for nonsuit, the question is whether, disregarding conflicting evidence, indulging in every legitimate inference that may be drawn from the evidence, and viewing the record in the light most favorable to plaintiffs, evidence of construction defects that have not caused property damage will support a judgment in plaintiffs’ favor. (Cf. id. at pp. 27-28, 61 Cal.Rptr.2d 518; see also Casey v. Overhead Door Corp. (1999) 74 Cal.App.4th 112, 123-124, 87 Cal.Rptr.2d 603 [offer of proof may defeat nonsuit based on exclusion of evidence].) Accordingly, however we view the orders on review, the sole question before us is one of law.

    II. Discussion

    We turn, then, to the question at hand: May plaintiffs recover in negligence from the entities that built their homes a money judgment representing the cost to repair, or the diminished value attributable to, construction defects that have not caused property damage? Plaintiffs define construction defects as deviations from the applicable building codes or industry standards. Strict liability is not here at issue. While plaintiffs have asserted strict liability claims, they no longer argue that strict liability provides a remedy for defects that have not caused property damage. We need not address liability for construction defects that have caused property damage, if any have, because the trial court’s ruling does not prevent plaintiffs from introducing evidence of such defects. Nor, finally, does the ruling prevent plaintiffs from introducing any evidence relevant to their claims for breach of contract or warranty, assuming those claims survive to trial, even if that evidence has been excluded for the purposes of plaintiffs’ tort claims.

    This procedural posture makes the question we address fairly narrow. The question,724*724 however, is not simple, because it arises from the nebulous and troublesome margin between tort and contract law. (See generally Erlich v. Menezes (1999) 21 Cal.4th 543, 550-551, 87 Cal.Rptr.2d 886, 981 P.2d 978; Freeman & Mills, Inc. v. Belcher Oil Co. (1995) 11 Cal.4th 85, 105-107, 44 Cal.Rptr.2d 420, 900 P.2d 669(cone. & dis. Opn. of Mosk, J.).) Speaking very generally, tort law provides a remedy for construction defects that cause property damage or personal injury. Focusing on the conduct of persons involved in the construction process, courts in this state have found such a remedy in the law of negligence.[4] Viewing the home as a product, courts have also found a tort remedy in strict products liability,[5] even when the property damage consists of harm to a sound part of the home caused by another, defective part.[6] For defective products and negligent services that have caused neither property damage nor personal injury, however, tort remedies have been uncertain. Any construction defect can diminish the value of a house. But the difference between price paid and value received, and deviations from standards of quality that have not resulted in property damage or personal injury, are primarily the domain of contract and warranty law or the law of fraud, rather than of negligence. In actions for negligence, a manufacturer’s liability is limited to damages for physical injuries; no recovery is allowed for economic loss alone. (Seely v. White Motor Co., supra, 63 Cal.2d 9, 18, 45 Cal. Rptr. 17, 403 P.2d 145.) This general principle, the so-called economic loss rule, is the primary obstacle to plaintiffs’ claim.[7]

    Plaintiffs contend the decision in J’Aire Corp. v. Gregory, supra, 24 Cal.3d 799, 157 Cal.Rptr. 407, 598 P.2d 60 (J’Aire ) overcomes this obstacle. According to plaintiffs, when the parties occupy the “special relationship” defined in J’Aire (id. at p. 804, 157 Cal.Rptr. 407, 598 P.2d 60), there is both a duty to avoid negligently 725*725 injuring a person’s economic interests and a right to recover for such injury, even though unaccompanied by any injury to person or property. Before addressing J’Aire’ssignificance and application to this case, we review the law to which J’Aire is said to constitute an exception.

    Formerly, after a builder had completed a structure and the purchaser had accepted it, the builder was not liable to a third party for damages suffered because of the work’s condition, even though the builder was negligent. (E.g., Fanjoy v. Seales(1865) 29 Cal. 243, 249-250; see also Hale v. Depaoli, supra, 33 Cal.2d 228, 230, 201 P.2d 1 [reviewing the former law].) The purchaser, of course, had remedies against the builder in contract and warranty. But injured third parties had no clear remedy until we, following the trend that began with MacPherson v. Buick Motor Co.(1916) 217 N.Y. 382, 111 N.E. 1050, qualified the general rule exonerating manufacturers from third party claims with an exception applicable whenever “`the nature of a [manufactured] thing is such that it is reasonably certain to place life and limb in peril when negligently made….'” (Kalash v. Los Angeles Ladder Co. (1934) 1 Cal.2d 229, 231-232, 34 P.2d 481, quoting MacPherson v. Buick Motor Co., supra,111 N.E. 1050,1053.) Having already held that the manufacturers of defective ladders (Kalash v. Los Angeles Ladder Co., at pp. 231-233, 34 P.2d 481), elevators (Dahms v. General Elevator Co. (1932) 214 Cal. 733, 737-742, 7 P.2d 1013), and tires (Nebelung v. Norman (1939) 14 Cal.2d 647, 654, 96 P.2d 327) could be liable to persons not in contractual privity with them yet foreseeably injured by their products, we easily applied the same rule to someone responsible for part of a house, i.e., a defective railing (Hale v. Depaoli at pp. 230-232, 201 P.2d 1).

    We first recognized a remedy in the law of negligence for construction defects causing property damage, as opposed to personal injury, in Stewart v. Cox, supra,55 Cal.2d 857, 13 Cal.Rptr. 521, 362 P.2d 345. There, we upheld a homeowner’s judgment against a subcontractor who had negligently applied concrete to the inside of a swimming pool, thereby causing the release of water that damaged the pool, lot and house. In our opinion we noted, and seemingly were influenced by, the “`decisions … plac[ing] building contractors on the same footing as sellers of goods, and … [holding] them to the general standard of reasonable care for the protection of anyone who may foreseeably be endangered by the negligence, even after acceptance of the work.'” (Id. at p. 862, 13 Cal.Rptr. 521, 362 P.2d 345, (quoting Prosser, Torts (2d ed.1955) pp. 517-519.) The deciding factor in finding liability, however, appears to have been our own then recent decision in Biakanja v. Irving(1958) 49 Cal.2d 647, 320 P.2d 16 (Biakanja). In Biakanja, we had held that the intended beneficiary of a failed testamentary gift could recover damages from a notary public who, practicing law without a license, negligently prepared the will and failed to have it properly solemnized. Because Biakanja is the acknowledged basis for the later decision in J’Aire, supra, 24 Cal.3d 799, 804, 157 Cal.Rptr. 407, 598 P.2d 60, the case on which plaintiffs here primarily rely, it will be discussed in more detail later (101 Cal.Rptr.2d at p. 730, 12 P.3d at p. 1136, post). At this point, it suffices to note that Biakanja held that the negligent performance of a contractual obligation, resulting in damage to the property or economic interests of a person not in privity, could support recovery if the defendant was under a duty to protect those interests. (Biakanja, at pp. 648-650, 320 P.2d 16.) “The determination whether in a specific case the defendant will be held liable to a third person not in privity,” we wrote, “is a matter of policy and involves the balancing of various factors….” (Id. at p. 650, 320 P.2d 16.)[8] 726*726 Applying those factors to the negligent concrete subcontractor inStewart v. Cox, supra, 55 Cal.2d 857, 13 Cal.Rptr. 521, 362 P.2d 345), we determined that he should not be exempted from liability proximately caused by his negligence. His work, we explained, was specifically intended to affect the plaintiffs; damage to their property was foreseeable if the work were negligently done; and serious damage actually occurred. (Id at p. 863, 13 Cal.Rptr. 521, 362 P.2d 345.)

    Two years later, we again applied Biakanja, supra, 49 Cal.2d 647, 320 P.2d 16, to uphold a judgment for property damage caused by negligent residential construction. (Sabella v. Wisler, supra, 59 Cal.2d 21, 29, 27 Cal.Rptr. 689, 377 P.2d 889 (Sabella).) The defendant had built a house and offered it for sale to the general public. As it turned out, the defendant’s negligent preparation of the lot, in combination with a subcontractor’s careless plumbing work, later caused leaks, subsidence and damage to the house. The purchasers sued for negligence. The builder, arguing against the imposition of tort liability, sought to distinguish the recent decision inStewart v. Cox, supra, 55 Cal.2d 857, 13 Cal.Rptr. 521, 362 P.2d 345 (Stewart), on the ground “that damage to property other than the swimming pool [in Stewart] was foreseeable, [whereas] … the only harm foreseeable [in Sabella] … was damage to the house itself.” (Sabella, at p. 29, 27 Cal.Rptr. 689, 377 P.2d 889.) We rejected the asserted distinction because we had already determined “in the Stewart case that the liability of a contractor should be determined by the consideration and weighing of the various factors bearing upon liability [i.e., the factors set out in Biakanja at page 650, 320 P.2d 16], rather than by resort to special rules or distinctions.” (Sabella, at pt 29, 27 Cal. Rptr. 689, 377 P.2d 889.)

    In the years following Sabella, supra, 59 Cal.2d 21, 27 Cal.Rptr. 689, 377 P.2d 889,the law governing tort remedies for construction defects diverged into two distinct theories: (l) strict products liability; and (2) the theory of negligence outlined inBiakanja, supra, 49 Cal.2d 647, 320 P.2d 16, and further developed in J’Aire, supra,24 Cal.3d 799, 157 Cal.Rptr. 407, 598 P.2d 60.

    We first embraced the doctrine of strict products liability in Greenman v. Yuba Power Products, Inc. (1963) 59 Cal.2d 57, 27 Cal.Rptr. 697, 377 P.2d 897, just a week after deciding Sabella, supra, 59 Cal.2d 21, 27 Cal.Rptr. 689, 377 P.2d 889. A few years later, the court in Kriegler v. Eichler Homes, Inc., supra, 269 Cal.App.2d 224, 74 Cal.Rptr. 749 (Kriegler ), applied the new tort to mass-produced homes, reasoning that in “today’s society, there are no meaningful distinctions between [the] mass production and sale of homes and the mass production and sale of automobiles and that the pertinent overriding policy considerations are the same.” (Id. at p. 227, 74 Cal.Rptr. 749; see also Avner v. Longridge Estates, supra, 272 Cal.App.2d 607, 609-615, 77 Cal.Rptr. 633 [examining and following Kriegler].) The relevant policy considerations, the Kriegler court explained, were the average home buyer’s reliance on the builder’s skill and implied representations of fitness, and the public interest in assigning the cost of foreseeable injuries to the developer who created the danger. (Kriegler, at p. 228, 74 Cal. Rptr. 749; cf. Greenman v. Yuba Power Products, Inc., at pp. 63-64, 27 Cal.Rptr. 697, 377 P.2d 897.)

    While these decisions applied the doctrine of strict liability to mass-produced homes,[9] they did not create a remedy for 727*727 defects that have not caused property damage or personal injury. Whatever the product, whether homes or automobiles, strict liability affords a remedy only when the defective product causes property damage or personal injury. The tort does not support recovery of damages representing the lost benefit of a bargain, such as the cost of repairing a defective product or compensation for its diminished value. We explained this principle in Seely v. White Motor Co., supra, 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145 (Seely ). “The distinction that the law has drawn between tort recovery for physical injuries and warranty recovery for economic loss,” we wrote, “is not arbitrary and does not rest on the `luck’ of one plaintiff in having an accident causing physical injury. The distinction rests, rather, on an understanding of the nature of the responsibility a manufacturer must undertake in distributing his products.” (Id. at p. 18, 45 Cal.Rptr. 17, 403 P.2d 145.) A manufacturer “can appropriately be held liable for physical injuries caused by defects by requiring his goods to match a standard of safety,” but not “for the level of performance” of its products unless the manufacturer “agrees that the product was designed to meet the consumer’s demands.” (Ibid.) Similarly, “[a] consumer should not be charged at the will of the manufacturer with bearing the risk of physical injury when he buys a product on the market. He can, however, be fairly charged with the risk that the product will not match his economic expectations unless the manufacturer agrees that it will.” (Ibid.)

    Applying these principles, we concluded in Seely, supra, 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145, that the plaintiff could not recover in strict liability or negligence for the cost of repairing a defective truck or for business income lost because the truck could not make deliveries. “Even in actions for negligence,” we wrote, “a manufacturer’s liability is limited to damages for physical injuries and there is no recovery for economic loss alone.” (Id. at p. 18, 45 Cal.Rptr. 17, 403 P.2d 145.) Plaintiffs argue that this statement, and Seely’s other observations about damages for negligence, were dictum because the court actually upheld, on a breach of express warranty theory, an award of damages representing the purchase price of the truck and lost profits. (Id. at p. 13, 45 Cal.Rptr. 17, 403 P.2d 145.) Indeed, the statement can be seen either as dictum or as part of the court’s rationale for permitting the Seely plaintiff to recover his economic losses in warranty rather than in tort. Which label we attach to the statement is of no consequence. This is because the principle articulated in Seely has by critical examination and application in subsequent cases been confirmed as law. Courts routinely apply Seely in strict liability and negligence cases alike to distinguish recoverable damages for physical injury from unrecoverable damages representing the benefit of a contractual bargain.

    In Zamora v. Shell Oil Co. (1997) 55 Cal.App.4th 204, 208-211, 63 Cal.Rptr.2d 762,for example, homeowners were not allowed to recover in negligence or strict liability for the cost of replacing water pipes known to be defective, but which had not yet leaked. In Fieldstone v. Briggs Plumbing Products, Inc. (1997) 54 Cal. App.4th 357, 363-367, 62 Cal.Rptr.2d 701, a strict liability general contractor was not awarded the cost of replacing installed sinks that rusted and chipped prematurely, because no other property had been damaged. In San Francisco Unified School Dist. v. W.R. Grace & Co. (1995) 37 Cal.App.4th 1318, 1327-1330, 44 Cal.Rptr.2d 305, a public school district could not state a cause of action in negligence or strict liability based on the presence of asbestos products in its buildings, when the products had not contaminated 728*728 the buildings by releasing friable asbestos. In Sacramento Regional Transit Dist. v. Grumman Flxible (1984) 158 Cal.App.3d 289, 293-298, 204 Cal.Rptr. 736, the court held a transportation district could not recover in negligence or strict liability for the cost of repairing defective bus parts that had not caused further damage. “We believe,” the court explained, that “the line between physical injury to property and economic loss reflects the line of demarcation between tort theory and contract theory.” (Id at p. 294, 204 Cal.Rptr. 736.) As one final example, significant because of its similarity to the case before us, the court in Casey v. Overhead Door Corp., supra, 74 Cal.App.4th 112, 123-124, 87 Cal.Rptr.2d 603, a negligence case based on defective windows in mass-produced housing, relied onSeely, supra, 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145, to uphold an order excluding testimony about damages representing the cost to replace defective windows that had not caused property damage and a nonsuit based on that order. “A consumer,” the court explained, “may not recover economic loss damages against the manufacturer of a defective product in a cause of action for strict liability or negligence. (Seely supra, at p.] 18 [45 Cal.Rptr. 17, 403 P.2d 145]) [¶] Since plaintiffs could not recover economic losses [i.e., the cost of repairing and replacing the defective windows], testimony on that item of damages would have been irrelevant.” (Casey v. Overhead Door Corp., at p. 123, 87 Cal.Rptr.2d 603.)

    Over time, the concept of recoverable physical injury or property damage expanded to include damage to one part of a product caused by another, defective part. Examples include cases in which poorly prepared lots subsided, damaging the houses built thereon (Stearman v. Centex Homes, supra, 78 Cal.App.4th 611, 615, 616-623, 92 Cal.Rptr.2d 761), in which defective bottle caps ruined wine (International Knights of Wine, Inc. v. Ball Corp. (1980) 110 Cal.App.3d 1001, 1003-1005, 168 Cal.Rptr. 301 (lead opn. of Roth, P.J.); see also id. at p. 1008, 168 Cal.Rptr. 301 (conc. opn. of Fleming, J.)), and in which an unknown defect in an engine compartment started a fire that destroyed the entire automobile (Gherna v. Ford Motor Co. (1966) 246 Cal.App.2d 639, 644, 649-651, 55 Cal.Rptr. 94). Indeed, the decision in Seely, supra, 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145, suggested these results by intimating that further damage to a truck caused by a manufacturing defect might be recoverable in strict liability or negligence, even though the cost of repairing the original defect was not. (Id. at p. 19, 45 Cal. Rptr. 17, 403 P.2d 145; see generally Stearman v. Centex Homes, at pp. 616-623, 92 Cal.Rptr.2d 761[extensively discussing the point].)

    Plaintiffs argue no requirement of property damage exists, at least in the context of residential construction. The cases discussed above do not support the argument. They go only so far as to hold that property damage compensable in tort can exist when a defective component damages other parts of the same product. Plaintiffs attempt to find a more favorable rule in the two older cases noted above, Stewart, supra, 55 Cal.2d 857, 13 Cal.Rptr. 521, 362 P.2d 345, and Sabella, supra, 59 Cal.2d 21, 27 Cal.Rptr. 689, 377 P.2d 889. (See ante, 101 Cal.Rptr.2d at p. 725, 12 P.3d at p. 1131 et seq.) Those cases, however, do not establish the rule plaintiffs seek. We held in Stewart that the plaintiff homeowners could recover from a subcontractor for damages to their house and lot caused by water escaping from a negligently built swimming pool. (Stewart, at p. 860, 13 Cal.Rptr. 521, 362 P.2d 345.) No question was presented of a defect without resulting property damage. Likewise, Sabellaconcerned a house damaged by the subsidence of an improperly compacted lot. (Sabella, at pp. 23-27, 27 Cal.Rptr. 689, 377 P.2d 889.) Today, after Seely, supra, 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145, the plaintiffs in those cases would argue that defective components of the property (in Stewart the concrete in the swimming pool, and in Sabella the lot) had damaged 729*729 other components, including the houses. (See, e.g., Stearman v. Centex Homes, supra, 78 Cal.App.4th 611, 622-623, 92 Cal. Rptr.2d 761.) Because Stewart and Sabella clearly involved property damage, we find nothing in those decisions to cast doubt on the requirement of property damage later articulated in Seely and the many cases following Seely. (See ante, 101 Cal.Rptr.2d at p. 726, 12 P.3d at p. 1132, et seq.)[10]

    Plaintiffs also contend the court in Seely, supra, 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145, was concerned exclusively with commercial losses or lost business profits, rather than economic losses in a broader sense. To the contrary, the court inSeely was unmistakably concerned not just with lost profits but also with the fundamental difference between, on the one hand, the consumer’s contractual interest in having a product of the expected, bargained-for value and quality, and, on the other hand, the consumer’s tort interest in not suffering property damage or personal injury due to negligence in the manufacturing process. Chief Justice Traynor could not have articulated the point more clearly: “A consumer should not be charged at the will of the manufacturer with bearing the risk of physical injury when he buys a product on the market. He can, however, be fairly charged with the risk that the product will not match his economic expectations unless the manufacturer agrees that it will. Even in actions for negligence, a manufacturer’s liability is limited to damages for physical injuries and there is no recovery for economic loss alone.” (Id at p. 18, 45 Cal.Rptr. 17, 403 P.2d 145.) Certainly the opinion also speaks of the manufacturer not being “held for the level of performance of his products in the consumer’s business unless he agrees that the product was designed to meet the consumer’s demands.” (Ibid., italics added.) After all, the immediate factual context of the case before the court included a claim for lost profits. (Id at p. 13, 45 Cal.Rptr. 17, 403 P.2d 145.) But to read this court’s seminal decision in Seely as speaking only to claims for lost profits, and not more generally to the distinction between tort and contract, is to mistake the particular application for the governing principle.

    An uncertain number of plaintiffs purchased their houses directly from defendant Lyon. As to these plaintiffs, it is argued, privity of contract offers an additional reason for rejecting any requirement of property damage in an action for negligence based on construction defects. It has been said that “[a] contract to perform services gives rise to a duty of care which requires that such services be performed in a competent and reasonable manner” and that “[a] negligent failure to do so may be both a breach of contract and a tort.” (North American Chemical Co. v. Superior Court (1997) 59 Cal.App.4th 764, 774, 69 Cal.Rptr.2d 466.) Therefore, plaintiffs argue, defendant Lyon’s negligent breach of contractual duties owed directly to plaintiffs to deliver homes in compliance with the applicable building codes is a tort, for which plaintiffs may recover “the amount which will compensate for all the detriment proximately caused thereby….” (Civ.Code, § 3333.)

    The argument is not persuasive. A person may not ordinarily recover in tort for the breach of duties that merely restate contractual obligations. Instead, “`[c]ourts will generally enforce the breach of a contractual promise through contract 730*730 law, except when the actions that constitute the breach violate a social policy that merits the imposition of tort remedies.'” (Erlich v. Menezes, supra, 21 Cal.4th 543, 552, 87 Cal.Rptr.2d 886, 981 P.2d 978, quoting Freeman & Mills, Inc. v. Belcher Oil Co., supra, 11 Cal.4th 85, 107, 44 Cal. Rptr.2d 420, 900 P.2d 669 (cone. & dis. opn. of Mosk, J.).) This court recently rejected the argument that the negligent performance of a construction contract, without more, justifies an award of tort damages. (Erlich v. Menezes at pp. 550-554, 87 Cal.Rptr.2d 886, 981 P.2d 978 [reversing an award of damages for emotional distress for negligent construction].) In so doing, however, we reiterated that conduct amounting to a breach of contract becomes tortious when it also violates a duty independent of the contract arising from principles of tort law. (Id.at p. 551, 87 Cal. Rptr.2d 886, 981 P.2d 978.) The strict liability and negligence cases discussed above, which hold the builders of homes liable for construction defects causing property damage, may be understood as recognizing such an independent duty. But that duty is limited by the rule in Seely, supra, 63 Cal.2d 9, 18, 45 Cal.Rptr. 17, 403 P.2d 145, which bars recovery of economic damages representing the lost benefit of a bargain.

    We noted earlier that the law of construction defects after Sabella, supra, 59 Cal.2d 21, 27 Cal.Rptr. 689, 377 P.2d 889, diverged into two theories: strict products liability, which we have discussed, and the tort recognized in J’Aire, supra, 24 Cal.3d 799, 157 Cal.Rptr. 407, 598 P.2d 60. Apart from the arguments that Seely, supra, 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145, does not apply to negligent construction (see ante, 101 Cal.Rptr.2d at pp. 728-729, 12 P.3d at pp. 1134-1135) and that plaintiffs in privity may recover tort damages for breach of contract (see ante, at p. 729, 12 P.3d at p. 1135), plaintiffs base their claim exclusively on J’Aire and cases following that decision.

    J’Aire, supra, 24 Cal.3d 799, 157 Cal. Rptr, 407, 598 P.2d 60, as mentioned, relied on this court’s 1958 decision in Biakanja, supra, 49 Cal.2d 647, 320 P.2d 16. InBiakanja, we held that a defendant’s negligent performance of a contractual obligation resulting in damage to the property or economic interests of a person not in privity could support recovery if the defendant was under a duty to protect those interests. The court articulated a case-by-case test for identifying such a duty. “The determination whether in a specific case the defendant will be held liable to a third person not in privity,” we wrote, “is a matter of policy and involves the balancing of various factors….” (Biakanja, at p. 650, 320 P.2d 16.) The six factors were: “[1] the extent to which the transaction was intended to affect the plaintiff, [2] the foreseeability of harm to him, [3] the degree of certainty that the plaintiff suffered injury, [4] the closeness of the connection between the defendant’s conduct and the injury suffered, [5] the moral blame attached to the defendant’s conduct, and [6] the policy of preventing future harm.” (Ibid.) In concluding the defendant notary owed a duty to an intended beneficiary not to mishandle the will’s drafting and solemnization, we attached particular importance to the fact that the “`end and aim'” of the notary’s service to the testator was “to provide for the passing of [the] estate to [the] plaintiff (ibid.), and to the high impropriety of, and need to prevent, the unlicensed practice of law (id. at p. 651, 320 P.2d 16).

    Twenty-one years later, the court in J’Aire, supra, 24 Cal.3d 799, 157 Cal. Rptr. 407, 598 P.2d 60, applied the Biakanja (supra, 49 Cal.2d 647, 650, 320 P.2d 16) factors to conclude that the tenant of a building used as a restaurant could state a cause of action for negligence against a renovation contractor hired by the building’s owner for business income lost when the contractor “fail[ed] to complete the project with due diligence.” (J’Aire, at pp. 802, 804-805, 157 Cal.Rptr. 731*731 407, 598 P.2d 60.) Applying the Biakanja factors, the court held that a “special relationship” (J’Aire, at p. 804, 157 Cal. Rptr. 407, 598 P.2d 60) permitting recovery of economic losses (i.e., the relationship defined by the Biakanja test) existed between the contractor and the tenant. The court dismissed concerns that such a theory of recovery would threaten liability, out of proportion to fault, for remote consequences and speculative damages. (J’Aire, at pp. 807-808, 157 Cal.Rptr. 407, 598 P.2d 60.) In the court’sview, the Biakanja factors, in combination with “ordinary principles of tort law such as proximate cause,” were “fully adequate to limit recovery” of purely economic damages “without the drastic consequence of an absolute rule which bars recovery in all such cases.” (J’Aire, at p. 808, 157 Cal. Rptr. 407, 598 P.2d 60.)

    The lower courts have applied the theory of liability articulated in J’Aire, supra, 24 Cal.3d 799, 157 Cal.Rptr. 407, 598 P.2d 60, in a wide variety of cases. To mention just a few, courts have relied on J’Aire to assess a chemical manufacturer’s claim against a transportation company for business losses caused by the contamination of its product in shipment (North American Chemical Co. v. Superior Court, supra,59 Cal.App.4th 764, 781-785, 69 Cal.Rptr.2d 466); a dairy’s claim against the manufacturer of an allegedly defective milking machine for lost profits and property damage (Ott v. Alfa-Laval Agri, Inc. (1995) 31 Cal.App.4th 1439, 1448-1457, 37 Cal. Rptr.2d 790); a construction lender/mortgagee’s claim against a builder for construction defects (Sumitomo Bank v. Taurus Developers, Inc., supra, 185 Cal. App.3d 211, 223-226, 229 Cal.Rptr. 719); an abalone packer’s claim for lost profits against the manufacturer of unusable cans (Ales-Peratis Foods Internat, Inc. v. American Can Co. (1985) 164 Cal.App.3d 277, 284-290, 209 Cal.Rptr. 917); and real estate investors’ claims for the cost of repairing construction defects in an apartment building (Huang v. Garner, supra, 157 Cal.App.3d 404, 422-425, 203 Cal.Rptr. 800; see post, 101 Cal.Rptr.2d at p. 734, 12 P.3d at p. 1139 et seq.).

    The lower courts have also expanded upon J’Aire, supra, 24 Cal.3d 799, 157 Cal.Rptr. 407, 598 P.2d 60. While the court in J’Aire purported only to address duties owed to persons not in contractual privity with the defendant (id. at p. 804, 157 Cal.Rptr. 407, 598 P.2d 60), courts subsequently have applied J’Aire to cases in which privity did exist. These courts have concluded that “the reasoning of J’Aire is wholly incompatible with a limitation of the cause of action to those instances in which the plaintiff and defendant are not in privity….” (Ott v. Alfa-Laval Agri, Inc., supra, 31 Cal.App.4th 1439, 1448, 37 Cal.Rptr.2d 790; see also North American Chemical Co. v. Superior Court, supra, 59 Cal.App.4th 764, 783, 69 Cal. Rptr.2d 466; Pisano v. American Leasing (1983) 146 Cal.App.3d 194, 197, 194 Cal. Rptr. 77[both applying J’Aire in cases apparently involving privity].)

    Plaintiffs contend that J’Aire, supra, 24 Cal.3d 799, 157 Cal.Rptr. 407, 598 P.2d 60,when it applies, displaces the general rule (Seely, supra, 63 Cal.2d 9, 18, 45 Cal.Rptr. 17, 403 P.2d 145) that damages are not recoverable for product defects that have not caused property damage.[11] Plaintiffs base the contention on the following statement in J’Aire: “Where the risk of harm is foreseeable, … an injury to the plaintiffs 732*732 economic interests should not go uncompensated merely because it was unaccompanied by any injury to his person or property.” (J’Aire, at p. 805, 157 Cal. Rptr. 407, 598 P.2d 60.) The validity of the orders on review depends largely on the significance of that statement. Paraphrasing it, one might ask the dispositive question this way: Does the law of negligence protect plaintiffs’ economic interests in having houses that fully comply with the building codes, measured by the cost of repairs or diminished value associated with noncompliance, even though the asserted harm to those interests is unaccompanied by any injury to person or property?

    To apply the multifactored balancing test set out in J’Aire, supra, 24 Cal.3d 799, 804, 157 Cal.Rptr. 407, 598 P.2d 60, tends to involve a court in making fairly subjective judgments. In this case, however, a relatively objective obstacle to plaintiffs’ claim appears in factor (3), which looks to “the degree of certainty that the plaintiff suffered injury….” (Ibid.) Construction defects that have not ripened into property damage, or at least into involuntary out-of-pocket losses, do not comfortably fit the definition of “`appreciable harm'”—an essential element of a negligence claim. (Dairies v. Krasna(1975) 14 Cal.3d 502, 513, 121 Cal.Rptr. 705, 535 P.2d 1161; see San Francisco Unified School Dist. v. W.R. Grace & Co., supra, 37 Cal.App.4th 1318, 1327-1331, 44 Cal. Rptr.2d 305 [the presence of asbestos products in buildings did not, prior to the release of friable asbestos, constitute actual and appreciable harm under Davies v. Krasna]; Zamora v. Shell Oil Co., supra, 55 Cal.App.4th 204, 208-211, 63 Cal. Rptr.2d 762 [finding no cognizable damage in the cost of replacing defective pipes that had not yet leaked].) The breach of a duty causing only speculative harm or the threat of future harm does not normally suffice to create a cause of action. (Davies v. Krasna, at p. 513, 121 Cal.Rptr. 705, 535 P.2d 1161.) For the same reason—because the physical harm traditionally compensable in tort is lacking—to ask in the words of factor (2) whether the harm to plaintiffs was “foreseeable]” (J’Aire, at p. 804,157 Cal.Rptr. 407, 598 P.2d 60) simply begs the question: What harm?

    Plaintiffs argue that the cost of repairs is an accepted measure of damage for construction defects and that plaintiffs could make the cost of repairs certain within the meaning of J’Aire, supra, 24 Cal.3d 799, 804, 157 Cal.Rptr. 407, 598 P.2d 60, by voluntarily repairing defects and obtaining a receipt for money spent. This confuses the measurement of alleged damages with the ability of particular facts to support a tort action. To say that one’s house needs repairs costing a certain amount is not necessarily to say that one has suffered the type of harm cognizable in tort, as opposed to contract. Plaintiffs also argue that “the degree of certainty that the plaintiff suffered injury” (ibid.) is merely a factor to be balanced with the other factors set out in J’Aire for determining a person’s liability for negligently injuring another’s economic interests. We do not believe, however, that the J’Aire court intended to dispense with the rule that appreciable, nonspeculative, present injury is an essential element of a tort cause of action. (Davies v. Krasna, supra, 14 Cal.3d 502, 513, 121 Cal.Rptr. 705, 535 P.2d 1161; cf. Romano v. Rockwell Internal, Inc. (1996) 14 Cal.4th 479, 500-503, 59 Cal.Rptr.2d 20, 926 P.2d 1114 [plaintiff suffered appreciable harm sufficient to support a tort claim for wrongful discharge upon actual termination rather than upon prospective notification].) Lacking that fundamental prerequisite to a tort claim, it is difficult to imagine what other factors, singly or in combination, might justify the court in finding liability.

    Turning to the other factors, we find no adequate justification. We may assume for argument’s sake that the conduct of a person engaged in construction is “intended to affect” all foreseeable purchasers of the property. (J’Aire, supra, 24 Cal.3d 799, 804, 157 Cal.Rptr. 407, 598 P.2d 60 733*733 [factor (1)]; see also Sumitomo Bank v. Taurus Developers, Inc., supra, 185 Cal. App.3d 211, 224, 229 Cal.Rptr. 719; Huang v. Garner, supra, 157 Cal.App.3d 404, 423-424, 203 Cal.Rptr. 800; Cooper v. Jevne, supra, 56 Cal.App.3d 860, 869, 128 Cal.Rptr. 724.) We may also assume that a sufficiently “close[ ] connection [exists] between … defendant’s conduct” and the alleged defects. (J’Aire, at p. 804, 157 Cal.Rptr. 407, 598 P.2d 60 [factor (4)].) Also, while some “moral blame” arguably “attach[es]” to many deviations from the building codes (ibid, [factor (5)]), the degree of blame would appear to depend upon the nature of the deviation. Thus, even if significant moral blame inheres in negligent construction creating a risk of likely structural failure leading to a notice of abatement (Huang v. Garner, at p. 424 & fn. 13, 203 Cal.Rptr. 800), we may still reasonably assign reduced moral blame to less serious defects not presenting that degree of risk, and to such flaws as doors that are out of plumb, discolored drain stoppers, and inoperable garbage disposals, to take a few examples from this case. Factor (6), the last factor, looks to “the policy of preventing future harm.” (J’Aire, at p. 804, 157 Cal.Rptr. 407, 598 P.2d 60.) Certainly, as plaintiff in Provencal noted in its offer of proof, the express purpose of the building codes is to “provide minimum standards to safeguard life or limb, health, property and public welfare….” (U. Bldg.Code, § 102, Cal.Code Regs., tit, 24, former § 2-102.) Plaintiffs have not shown, however, that any of the alleged defects actually poses a serious risk of harm to person or property. To say, as plaintiffs do, that the purpose, of construction standards for shear walls is to “minimize property damage and personal injury in the event of seismic and wind forces,” is not to say that any given defect is sufficiently grave to pose a realistic risk of structural failure. In conclusion, applying the J’Aire factors, we do not find they justify a broad rule permitting recovery of repair costs unaccompanied by property damage or personal injury.

    Plaintiffs contend precedent requires a different result. “[E]very reported decision applying the J’Aire[, supra, 24 Cal.3d 799, 804, 157 Cal.Rptr. 407, 598 P.2d 60] factors to residential construction,” they argue, “has allowed the recovery of economic loss,” meaning, in this context, the cost of repairing defects that have not caused property damage. The decisions plaintiffs cite, however, do not strongly support their position. The courts in Sumitomo Bank v. Taurus Developers, Inc., supra, 185 Cal.App.3d 211, 229 Cal. Rptr. 719, and Cooper v. Jevne, supra, 56 Cal.App.3d 860, 128 Cal.Rptr. 724 (which predated J’Aire and relied on Biakanja, supra, 49 Cal.2d 647, 320 P.2d 16), simply held that the plaintiffs in those cases had stated causes of action and, thus, reversed judgments of dismissal entered after demurrers were erroneously sustained. The court in Sumitomo Bank v. Taurus Developers, Inc., did not address the distinction between economic damages and physical harm; no such issue was raised. The court in Cooper v. Jevne held that the plaintiff homeowners had stated a cause of action in negligence against the architects of their houses, with whom the plaintiffs were not in privity. As damages for their negligence cause of action, the plaintiffs sought the cost of repairs, compensation for lost use and income, and “[p]ast and future damage to personal property,” among other things. (Cooper v. Jevne, supra, 56 Cal.App.3d at p. 867, fn. 2, 128 Cal.Rptr. 724.) That the plaintiffs had stated a cause of action was established by the architects’ concession that their professional liability to the plaintiffs not in privity of contract with them extended to property damage. (Id. at p. 868, fn. 3, 128 Cal.Rptr. 724.) For this reason, and because the question was not before the courton demurrer, the court’s conclusion that Seely’s economic loss rule does not apply to professional negligence claims (Cooper v. Jevne, at p. 869, 128 Cal.Rptr. 724) is dictum. The court, in any event, acknowledged Seely’s continuing relevance 734*734 to the liability of a manufacturer for product defects. (Cooper v. Jevne, at p. 868, 128 Cal.Rptr. 724.) Furthermore, unlike the judgments of dismissal on appeal inSumitomo Bank v. Taurus Developers, Inc., and Cooper v. Jevne, the instant rulings in limine do not preclude plaintiffs from presenting to the trier of fact whatever claims for property damage may exist.[12]

    Plaintiffs place particular emphasis on Huang v. Garner, supra, 157 Cal.App.3d 404, 203 Cal.Rptr. 800 (Huang). The court in that case relied on J’Aire, supra, 24 Cal.3d 799, 157’Cal.Rptr. 407, 598 P.2d 60, to reverse a nonsuit for the defendants (a developer and a contractor) on the plaintiff real estate investors’ claims for the cost of repairing defects in an apartment building. Some of the alleged defects had caused property damage, and some had not. (Huang, at pp. 419-425, 203 Cal.Rptr. 800.) The Huang court found the “certainty” of injury required by J’Aire (at p. 804, 157 Cal.Rptr. 407, 598 P.2d 60) in plaintiffs’ duty to comply with a notice of abatement citing likely structural failure and requiring specific repairs. (Huang, at p. 424 & fn. 13,203 Cal.Rptr. 800.) Yet Huang’s analysis is not entirely satisfactory because other alleged construction defects in that case had neither caused property damage nor been cited in the notice of abatement. (Compare id. at pp. 419-420, 203 Cal.Rptr. 800[summary of alleged defects] with id. at p. 424, fn. 13, 203 Cal.Rptr. 800 [order of abatement].) Even accepting for the sake of argument the Huang court’s suggestion that a notice of abatement might suffice to convert repair costs into tort damages, the decision offers no adequate explanation for permitting the plaintiffs, consistently withSeely, supra, 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145, to recover repair costs for the other defects that had neither appeared in the notice nor resulted in property damage. Accordingly, we disapprove Huang to the extent it is inconsistent with the views set out in this opinion.

    Whether viewed as part of the test set out in J’Aire, supra, 24 Cal.3d 799, 804, 157 Cal.Rptr. 407, 598 P.2d 60, or as an independent argument for extending tort liability, the “policy of preventing future harm” (ibid, [factor (6)]) is probably plaintiffs’ strongest argument. In some sense, 735*735 that policy might be served by a rule of tort liability making builders, in effect, the insurers of building code compliance, even as to defects that have not caused property damage or personal injury. Moreover, as plaintiffs argue, to require builders to pay to correct defects as soon as they are detected rather than after property damage or personal injury has occurred might be less expensive. On the other hand, such a rule would likely increase the cost of housing by an unforeseeable amount as builders raised prices to cover the increased risk of liability. Such a rule should also be unnecessary to the extent buyers timely enforce their contract, warranty and inspection rights, and to the extent building authorities vigorously enforce the applicable codes for new construction.

    The Chief Justice, in his concurring and dissenting opinion, proposes to resolve these conflicting policy considerations with a complex new rule of tort liability (1) barring recovery for minor defects and building code violations that have not caused personal injury or property damage; (2) permitting recovery for serious defects and code violations posing a significant risk of death, personal injury, or considerable property damage; and (3) requiring court-supervised disbursement of all damages awarded to ensure that repairs are actually made. (Cone. & dis. opn. of George, C.J.,post, 101 Cal.Rptr.2d at pp. 738, 751, 752, 12 P.3d at pp. 1143, 1154, 1155.)

    The proposal entails serious difficulties. First among these is that the Chief Justice, while asserting that our holding “offends … established common law” (cone. & dis. opn. of George, C.J., post, 101 Cal. Rptr.2d at p. 738, 12 P.3d at p. 1143), nevertheless “agree[s] with the majority to the extent it declines to allow recovery in [negligence for the cost of repairing construction defects that pose no significant risk of serious personal injury or property damage” (id. at p. 752, 12 P.3d at p. 1155). As we have explained, whether the economic loss rule applies depends on whether property damage has occurred rather than on the possible gravity of damages that have not yet occurred. While the Chief Justice rejects our understanding of the economic loss rule, his concurring and dissenting opinion offers no other rationale for denying recovery for minor defects. Although the Chief Justice advances policy considerations to justify providing recovery for serious defects, his narrow conception of the economic loss rule as applicable only to commercial losses (cone. & dis. opn. of George, C.J., post, at pp. 740-741, 12 P.3d at pp. 1145-1146; but see this opn., ante, at pp. 728-729, 12 P.3d at pp. 1134-1135) would seem to compel thecourt to permit recovery for minor defects, as well. In short, the proposed rule lacks coherence.

    The Legislature, whose lawmaking power is not encumbered by precedent, is free to adopt a rule like that proposed in the Chief Justice’s concurring and dissenting opinion. Yet even if the proposed rule could plausibly be defended as a logical development of the common law, and thus appropriate for judicial rather than legislative promulgation, the rule’s shortcomings would counsel its rejection. The distinction between serious and minor defects has a superficial theoretical appeal that evaporates in practice. Amicus curiae Structural Engineers Association of California, which supports plaintiffs’ position in this court, aptly demonstrates that almost any building code violation can, under the right set of assumptions and circumstances, be considered serious.[13] 736*736 “[T]here is no mechanism at this level to separate life safety defects from cosmetic defects,” amicus curiae argues; such questions, in its view, are “better left to the trier of fact after a complete presentation of expert testimony on both sides.” If experts claim to be unable before trial to rule out any building code violations as trivial, then a rule looking to the potential seriousness of possible property damage, rather than the existence of actual damage, is very likely to frustrate the pretrial disposition of claims based on trivial defects. Such a rule, by forcing judges to attempt to predict the likelihood that any given defect will cause property damage and, if so, its likely seriousness, will make it difficult for them to screen out trivial claims as a matter of law. Because, moreover, the rule invites a speculative inquiry, any pretrial dispositions based thereon are likely to be inconsistent[14] and challenged on appeal. In short, the practical effect of a rule permitting recovery for “serious” defects only, however well intentioned, would likely be to insulate from demurrer and summary judgment virtually all complaints containing allegations of building code violations.

    The Chief Justice’s suggestion that courts should supervise the disbursement of tort damages (cone. & dis. opn. of George, C.J., post, 101 Cal.Rptr.2d at pp. 745, 753, 12 P.3d at pp. 1149, 1156) highlights a final difficulty with the rule he proposes. Ordinarily, nothing compels a successful plaintiff to spend money recovered in construction defect litigation on repairs. Indeed, plaintiffs in Aas expressly seek in their complaint, in addition to the cost of repairs, damages representing the “diminution in value” of their residences.[15] The possibility that tort dam 737*737 ages will not actually be spent on repairs, defendants contend, weakens the argument that imposing liability for construction defects without resulting damage will serve the policy goal of improving the state’s housing stock. The rule the Chief Justice proposes would address this concern by requiring court-supervised disbursement of all damages awarded to ensure that repairs are actually made. (Cone. & dis. opn. of George, C.J., 101 Cal.Rptr.2d at p. 753, 12 P.3d at p. 1156.) Again, while such a rule might be appropriate as legislation, to reconcile it with the traditional role of the judiciary is very difficult, indeed. While there have been exceptions, courts do not ordinarily tell successful plaintiffs how to spend their tort recoveries.[16] That judicial control over the proceeds might be necessary to render the proposed liability rule fair suggests the rule tries the limits of our power to expound the common law.

    In our view, the many considerations of social policy this case implicates, rather than justifying the imposition of liability for construction defects that have not caused harm of the sort traditionally compensable in tort (Seely, supra, 63 Cal.2d 9, 18, 45 Cal.Rptr. 17, 403 P.2d 145), serve instead to emphasize that certain choices are better left to the Legislature. That body has at its disposal a wider range of options and superior access to information about the social costs and benefits of each. “Legislatures, in making such policy decisions, have the ability to gather empirical evidence, solicit the advice of experts, and hold hearings at which all interested parties may present evidence and express their views….” (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 694, fn. 31, 254 Cal.Rptr. 211, 765 P.2d 373; see alsoMoore v. Regents of University of California (1990) 51 Cal.3d 120, 147, 271 Cal.Rptr. 146, 793 P.2d 479.)[17]

    Home buyers in California already enjoy protection under contract and warranty law for enforcement of builders’ and sellers’ obligations; under the law of negligence and strict liability for acts and omissions that cause property damage or personal injury; under the law of fraud for misrepresentations about the property’s condition; and an exceptionally long 10-year statute of limitations for latent construction defects (Code Civ.Proc, § 337.15). While the Legislature may add 738*738 whatever additional protections it deems appropriate, the facts of this case do not present a sufficiently compelling reason to preempt the legislative process with a judicially created rule of tort liability.

    III. Disposition

    The judgment of the Court of Appeal is affirmed.

    KENNARD, J., BAXTER, J., CHIN, J., and BROWN, J., concur.

    Concurring and Dissenting Opinion by GEORGE C.J.

    Other courts faced with the question we address today have asked: Why should a homeowner have to wait for a personal tragedy to occur in order to recover damages to repair known serious building code safety defects caused by negligent construction? (E.g., Council of Co-Owners v. Whiting Turner (Md.1986) 308 Md. 18, 517 A.2d 336, 345.) Perhaps because those courts have addressed the matter from such a commonsense perspective, they have reached conclusions very different from that adopted by the majority in the present case. In determining that a negligently constructed home must first collapse or be gutted by fire before a homeowner may sue in tort to collect costs necessary to repair negligently constructed shear walls or fire walls, the majority today embraces a ruling that offends both established common law and basic common sense.

    In this case, we must decide whether, under California law, when a building contractor has breached its duty of care by constructing a home that violates significant building safety code provisions that are designed to protect health and safety, and the homeowner has discovered these safety code violations before a personal injury has occurred or before the home has suffered any physical property damage, the homeowner, in a negligence action, may recover those costs of repair that a reasonably prudent homeowner would incur under the circumstances, or whether the “economic loss” rule of Seely v. White Motor Co. (1965) 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145 (Seely)—a rule designed to limit recovery of such business-related losses as lost profits or lost commercial opportunities—bars a homeowner from recovering such repair costs in a negligence action.

    I agree with the majority that many if not most of the defects listed in the underlying complaints—items such as “discolored drain stoppers, and inoperable garbage disposals” (maj. opn., ante, 101 Cal. Rptr.2d at p. 733, 12 P.3d at p. 1138)—do not pose a risk of personal injury or property damage sufficient to warrant recognition of a right to recover repair costs in negligence, and hence to this extent I concur in the judgment. At the same time, however, I conclude, consistent with California authority and with the courts of other jurisdictions, that a homeowner may maintain a cause of action in negligence to recover the costs of correcting the most significant building safety code violations conceded in this litigation (e.g., shear walls that were improperly constructed or fastened and that put the structure at risk of Collapse during high winds or an earthquake; improperly constructed fire walls that would allow a fire to spread rapidly from one part of the structure to another), but that have not yet manifested themselves in physical damage to the property or resulted in personal injury. To the extent the majority bars such recovery, I dissent. Recognizing a right to recover costs to repair the serious safety defects here at issue—defects that pose a risk of serious personal injury or considerable property damage—would not require us to break new ground; all of the established factors traditionally used to assess building defect cases militate strongly in favor of such relief. And allowing such limited recovery also best comports with rational economic policy, as well as common sense: It obviously is preferable to pay a relatively few dollars at an early date to correct a serious safety risk that may cost millions 739*739 or billions of dollars to redress if the inhabitants of dwellings are forced to wait for disaster to strike and for death, personal injury, or physical property damage to ensue.

    I.

    A.

    In Connor v. Great Western Sav. & Loan Assn. (1968) 69 Cal.2d 850, 73 Cal. Rptr. 369, 447 P.2d 609 (Connor), Chief Justice Roger Traynor, upholding a negligence action by homeowners against a lending institution that had financially backed and extensively controlled a new housing development, observed that “the usual buyer of a home is ill-equipped with experience or financial means to discern … structural defects.” (Id., at p. 867, 73 Cal.Rptr. 369, 447 P.2d 609.) The Connor opinion rejected as “conjectural claims” assertions that recognizing a duty on the part of the defendant to the homeowners would “increase housing costs, drive marginal builders out of business, and decrease total housing at a time of great need” (ibid.), observing that “[i]n any event, there is no enduring social utility in fostering the construction of seriously defective homes. If reliable construction is the norm, the recognition of a duty on the part of tract financiers to home buyers should not materially increase the cost of housing or drive small builders out of business.” (Id., at pp. 867-868, 73 Cal.Rptr. 369, 447 P.2d 609, fn. omitted.) Finally, the court observed in Connor that “a home is not only a major investment for the usual buyer but also the only shelter he has. Hence it becomes doubly important to protect him against structural defects that could prove beyond his capacity to remedy.” (Id., at p. 867, 73 Cal.Rptr. 369, 447 P.2d 609, italics added.)

    As implied in the above italicized observation, tort law offers the most effective, and often the only realistic, nonstatutory remedy for consumers in this area. Although technically available to at least some of the plaintiffs in this and similar litigation, contract or warranty claims in this setting are difficult to prove and to enforce, and our decisions have recognized that problems with privity, disclaimers inserted into contracts by developers or contractors, and notice requirements, often frustrate the ability to recover on contract or warranty theories. (See, e.g., Greenman v. Yuba Power Products, Inc. (1963) 59 Cal.2d 57, 61, 27 Cal.Rptr. 697, 377 P.2d 897 [notice requirement under implied warranty is a “`booby-trap for the unwary'” and “`consumers are] seldom “steeped in the business practice which justifies the rule”‘”];Anthony v. Kelsey-Hayes Co. (1972) 25 Cal.App.3d 442, 448, 102 Cal.Rptr. 113[lack of privity defeats implied warranty claim].) As observed in Kriegler v. Eichler Homes, Inc. (1969) 269 Cal.App.2d 224, 228, 74 Cal.Rptr. 749 (Kriegler ), because the purchaser of a “`development house'” “`has no real competency to inspect on his own, his actual examination is, in the nature of things, largely superficial, and his opportunity for obtaining meaningful protective changes in the conveyancing documents prepared by the builder vendor is negligible….’ [¶] `Buyers of mass produced development homes are not on an equal footing with the builder vendors and are no more able to protect themselves in the deed than are automobile purchasers in a position to protect themselves in the bill of sale.'” Accordingly, as Chief Justice Traynor recognized in Connor, supra, 69 Cal.2d 850, 73 Cal.Rptr. 369, 447 P.2d 609, the inadequacy of contract and warranty law properly should inform our consideration of the role and use of tort law in this context. (Cf. Kaiser Steel Corp. v. Westinghouse Elec. Corp. (1976) 55 Cal.App.3d 737, 747-748, 127 Cal.Rptr. 838.)

    B.

    As the majority observes, the author of Connor’s rousing confirmation of the right of homeowners to sue in negligence in 740*740 order to remedy negligent construction also authored the majority opinion in Seely, supra, 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145—a decision that concerned not an action in negligence for repair of serious construction defects in residential housing, but, instead, an action under warranty and strict products liability for lost business profits arising from an assertedly defective commercial truck. The majority asserts that dictum in Seely, to the effect that “[e]ven in actions for negligence, a manufacturer’s liability is limited to damages for physical injuries and there is no recovery for economic loss alone” (id., at p. 18,45 Cal.Rptr. 17, 403 P.2d 145, italics added), supports a conclusion that there can be no recovery in negligence for any of the repair or correction costs here at issue. I disagree with the majority’s broad reading of the Seely dictum, and I agree with plaintiffs that Seely’s dictum should not be extended to bar recovery in negligence forcosts to correct serious safety violations in the construction of dwellings that pose a significant risk of personal injury or property damage. Because the majority relies heavily upon a broad reading of Seely’s dictum, and because I believe that reliance is misplaced, I review the decision in Seely in some detail.

    In Seely, supra, 63 Cal.2d 9, 45 Cal. Rptr. 17, 403 P.2d 145, the plaintiff sued the manufacturer in both warranty and strict liability after his truck, which he used in his commercial hauling business, was involved in an accident and needed to be repaired. Previously, the plaintiff had become dissatisfied with the truck; he informed the manufacturer that it was “galloping” (bouncing violently) and was difficult to handle. (Id., at p. 12, 45 Cal.Rptr. 17, 403 P.2d 145.) He used the truck in his business for approximately 11 months, during which time the manufacturer tried unsuccessfully on many occasions to correct the galloping problem to the plaintiffs satisfaction. During this period, the plaintiff paid off approximately half of the purchase price. Then one day, rounding a corner, the brakes failed and the truck overturned. The plaintiff was convinced that the accident was caused by the defective condition of the truck, and he also was dissatisfied with the overall performance of the truck, even before the accident. He had the truck repaired, ceased making payments, and sued for “(1) damages, related to the accident, for the repair of the truck, and (2) damages, unrelated to the accident, for the money he had paid on the purchase price and for the profits lost in his business because he was unable to make normal use of the truck.” (Id., at p. 13, 45 Cal.Rptr. 17, 403 P.2d 145.) The trial court found that the plaintiff had not proved that the galloping had caused the accident, and hence declined to award damages for repair costs. (Ibid.) The trial court did, however, award the other damages on the plaintiffs warranty cause of action. (Ibid.)

    In Seely, supra, 63 Cal.2d 9, 45 Cal. Rptr. 17, 403 P.2d 145, this court approved the award of those damages, based upon the plaintiffs warranty theory. Then, in dictum, we also addressed the plaintiffs’ strict liability claim. At this point in the analysis, we considered the damages described in item (2) above, finding them not allowable under strict liability theory. First, we noted concern about the prospect of permitting “unknown and unlimited” liability for such “commercial losses.” (Id, at p. 17, 45 Cal.Rptr. 17, 403 P.2d 145.) In this regard, we stated that a consumer (i.e., the plaintiff) is “fairly charged with the risk that the product will not match his economic expectations unless the manufacturer agrees that it will.”, (Id., at p. 18, 45 Cal.Rptr. 17, 403 P.2d 145.) The court then stated, in dictum within dictum that has been repeated in subsequent cases and is heavily relied upon by the majority: “Even in actions for negligence, a manufacturer’s liability is limited to damages for physical injuries and there is no recovery for economic loss alone.” (Ibid., italics added.)

    741*741 Clearly, this dictum in Seely, supra, 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145,was directed toward the issue presented in Seely—the recovery of lost profits and related liability for commercial expectation damages. The majority, however, readsSeely’s dictum much more broadly, as precluding recovery in either negligence or strict liability for the cost of repairing serious and potentially life-threatening defects reflecting building safety code violations in residential housing. I find no such suggestion in Seely. Although the court felt it important to explain that a manufacturer should not be liable in tort for commercial losses caused by the failure of a product to meet the specific needs of a purchaser’s business (id., at p. 17, 45 Cal. Rptr. 17, 403 P.2d 145), it did not assert, expressly or by implication, that there could be no damages in negligence for correction of serious safety violations in residential housing that pose a danger of personal injury or serious property damage. Such a conclusion, of course, would be quite at odds with the tenor of Chief Justice Traynor’s above quoted observations in Connor, supra, 69 Cal.2d at pages 867-868, 73 Cal.Rptr. 369, 447 P.2d 609, rendered just a few years thereafter.

    Recognition of a homeowner’s ability to recover repair costs necessary to remedy serious safety defects in residential housing would not substantially implicate Seely’sconcerns about “unknown and unlimited” liability for “commercial losses.” (Seely, supra, 63 Cal.2d at p. 17, 45 Cal. Rptr. 17, 403 P.2d 145.) As plaintiffs note in their joint opening brief, “[r]ecovery of costs of repair in negligence is adequately limited. Code violations or other negligent construction must be proven. Causation must be proven. Costs of repair are limited in amount, even if expert opinions may vary as to exact amounts. The number of claimants is limited to the number of homes sold. These factors distinguish recovery of such costs from the `economic loss’ cases in which concern was expressed about potentially limitless claims by potentially limitless claimants.”

    In short, Seely’s cautions against allowing recovery of commercial expectation damages for lost profits do not justify barring recovery of the cost of repairing serious construction defects involving dwelling code violations that pose a threat to life and property. Accordingly, I find the majority unpersuasive to the extent that it relies on a broad interpretation of the Seely dictum.

    C.

    The understanding of the limited reach of Seely, supra, 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145, set forth above is confirmed by numerous decisions described below, in which California courts repeatedly have allowed recovery of construction repair costs.

    Eleven years after Seely, the Court of Appeal in Cooper v. Jevne (1976) 56 Cal. App.3d 860, 128 Cal.Rptr. 724 (Cooper), allowed a negligence suit by condominium owners against architects, for “economic loss” damages (id., at p. 868, 128 Cal.Rptr. 724) that included “cost of repairs” (id., at p. 867, fn. 2, 128 Cal.Rptr. 724). Eight years later, the Court of Appeal decision in Huang v. Garner (1984) 157 Cal.App.3d 404, 203 Cal.Rptr. 800 (Huang), presented a situation essentially identical to the one that we address in this case. Apartment building owners sued the developer and contractor for costs to remedy serious safety code violations that, like the present case, fell into two categories: (i) building safety code violations that had manifested themselves in physical damage (id., at p. 419, 203 Cal.Rptr. 800 [these consisted of “deflected and cracked beams and dry rot damages to the balcony area”] ), and (ii) building safety code violations that had not yet manifested themselves in physical damage (id., at pp. 419-420, 203 Cal.Rptr. 800 [in Huang, as here, these consisted of inadequate or missing “firewalls, shear walls, fire stops, and other alleged defects in the structure which had not yet caused actual physical damages at the time of 742*742trial”]). The Court of Appeal in Huang, distinguishing Seely, ruled that the apartment owners could recover repair costs to remedy the serious building safety code violations that had not yet manifested themselves in physical damage. (Id., at pp. 421-425, 203 Cal.Rptr. 800.) Addressing the crucial question whether there was sufficient certainty that the plaintiffs in that case had suffered harm, the court noted in Huang that the defects were “dangerous, despite the fact that for approximately 17 years they have not caused personal injury to any tenant.” (Id., at p. 424, 203 Cal.Rptr. 800.) That court further observed: “Failure to comply with the Uniform Building Code by a developer-contractor involves potential risk of harm to later purchasers. In this case ample evidence was offered with respect to the cost of repairing the subject defects. Thus it is relatively certain that plaintiffs have suffered injury as a result of the defects…. [P]laintiffs have … suffered damages in being forced to repair the building.” (Ibid.)

    In Sumitomo Bank v. Taurus Developers, Inc. (1986) 185 Cal.App.3d 211, 229 Cal.Rptr. 719, a California appellate court followed Huang, supra, 157 Cal.App.3d 404, 203 Cal.Rptr. 800, and Cooper, supra, 56 Cal.App.3d 860, 128 Cal.Rptr. 724,allowing a purchaser of a condominium complex to pursue a negligence action against the builder for the cost to repair both then existing physical damage, e.g., cracking concrete and leaking roofs, and, apparently, detriment that had not yet manifested itself in physical damage, e.g., improperly designed drainage and structural retaining walls. (185 Cal.App.3d at pp. 216, 223-226, 229 Cal.Rptr. 719.) Subsequently, construction litigation decisions of our Courts of Appeal that have had occasion to address the aspect of Huang that is relevant here have uniformly treatedHuang’s analysis as accepted and established law. (See, e.g., Keru Investments, Inc. v. Cube Co. (1998) 63 Cal.App.4th 1412, 1421-1422, 74 Cal.Rptr.2d 744 [noting that in Huang the plaintiffs were not seeking lost opportunity costs, but instead, “`the cost to repair the defects in the structure in order to bring it into compliance with the Uniform Building Code'”]; Krusi v. S.J. Amoroso Construction Co. (2000) 81 Cal.App.4th 995, 1000-1001, 97 Cal.Rptr.2d 294 [describing with apparent approvalHuang’s conclusion that “the plaintiffs were entitled to economic damages” in order to correct building code violations “in addition to recovery for physical damage” and noting testimony in Huang that the defects were “`dangerous, despite the fact that for approximately 17 years they have not caused personal injury to any tenant'”]; cf.Stearman v. Centex Homes (2000) 78 Cal.App.4th 611, 618, 92 Cal.Rptr.2d 761[discussing with approval Huang’s definition and application of [Seely’s] economic loss rule”].)

    D.

    Finally, the above reading of Seely, supra, 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145, also is confirmed by numerous cases from other jurisdictions that permit recovery of construction repair costs essentially identical to those here at issue. Although the majority adopts a broad view of the Seely dictum as barring recovery of costs for repair of construction defects that pose a substantial risk to persons and property, the trend of well-reasoned sister-court decisions is in the opposite direction.

    Almost all of the out-of-state decisions in this area cite and discuss Seely and adopt in general a version of the rule set out in that case, restricting recovery for commercial expectation damages. These sisterstate decisions recognize that Seelywas concerned primarily with precluding potentially limitless damages for lost profits and/or lost commercial expectations in the context of suits for product liability, and these out-of-state cases also recognize, explicitly or implicitly, that suits for costs to repair and correct dwelling safety defects that pose a serious risk to life and limb are743*743 clearly distinguishable from Seely and do not similarly implicate concerns of limitless damages.

    The majority, ante, 101 Cal.Rptr.2d at page 724, footnote 7, 12 P.3d at page 1131, footnote 7, mentions three such out-of-state decisions. (Kennedy v. Columbia Lumber & Mfg. Co. (1989) 299 S.C. 335, 384 S.E.2d 730, 737 [a builder does not escape liability for building code violations merely because “luck has smiled upon him and no physical harm has yet occurred…. [W]e once again join those states which strive to protect the modern new home buyer”]; Oates v. Jag, Inc. (1985) 314 N.C. 276, 333 S.E.2d 222, 225-226 [allowing recovery of repair costs to correct building code violations that had apparently not caused physical damages, and noting, “[w]e must be realistic… The purchaser can ill afford to suddenly find a latent defect in his or her home … and have no remedy for recourse”]; Council of Co-Owners v. Whiting-Turner, supra, 308 Md. 18, 517 A.2d 336 (Whiting-Turner).)

    The Whiting-Turner case is especially well reasoned and particularly apt here. In that case the Maryland high court permitted the plaintiff in a negligence action to recover the costs necessary to correct the construction of 10 vertical utility shafts in a 22-story condominium complex. The shafts presented a fire hazard because of the absence of required insulation—a serious violation of applicable building codes. (Whiting-Turner, supra, 517 A.2d at pp. 338-339.) Although the defective shafts all posed a clear danger of death or personal injury, none of them yet had produced any personal injury or physical property damage.

    The Whiting-Turner decision held: “`We reject the contention by appellant that there can be no recovery in negligence absent proof of personal injury or property damage. We hold that there can be recovery for economic loss. Why should a buyer have to wait for a personal tragedy to occur in order to recover damages to remedy or repair defects? In the final analysis, the cost to the developer for a resulting tragedy could be far greater than the cost of remedying the condition.’ [¶] We conclude that the determination of whether a duty will be imposed in this type of case should depend upon the risk generated by the negligent conduct, rather than upon the fortuitous circumstance of the nature of the resultant damage. Where the risk is of death or personal injury the action will lie for recovery of the reasonable cost of correcting the dangerous condition.” (Whiting-Turner, supra, 517 A.2d at p. 345, fn. omitted.)[1]

    In addition to these authorities, it is instructive to consider another out-of-state decision relied upon by defendants to support their assertion that all repair and correction costs in the present case should be barred under Seely’s rule restricting recovery of commercial expectation damages. As defendants observe, the Florida Supreme Court’s closely divided decision in Casa Clara v. Charley Toppino and Sons, Inc. (Fla.1993) 620 So.2d 1244 (Casa Clara) does support defendants’ and the majority’s position. There, a condominium association sued the supplier of concrete for having provided defective concrete with a high salt content that caused it to crack, putting at risk the dwellings constructed with the concrete. The Florida highcourt, employing a broad interpretation of Seely’s dictum barring recovery of commercial expectation damages (Casa Clara, at p. 1245 et seq.), and ignoring Chief Justice Traynor caution against relying on contract law to protect homeowners744*744 in such circumstances (see ante, 101 Cal.Rptr.2d at pp. 722-723, 12 P.3d at pp. 1128-1130), concluded that home buyers should “`bear the cost of economic losses sustained by those who failed to bargain for adequate contract remedies'” (Casa Clara, at p. 1247), and denied the condominium association any recovery in negligence premised upon “the mere possibility” that the defective concrete “will cause physical injury.” (Id., at p. 1247.) The court reasoned in Casa Clara that the plaintiffs'”argument goes completely against the principle that injury must occur before a negligence action exists. Because an injury has not occurred, its extent and the identity of injured persons is completely speculative.” (Ibid., italics added.) Thecourt in Casa Clara was divided four to three, and reached its conclusion over the dissenting justices’ protestations that “it stretches reason to apply the [economic loss] doctrine in this context.” (Id., at p. 1248 (cone. & dis. opn. of Barkett, C.J.).)

    Defendants, however, overlook the subsequent history of Casa Clara. More than a year ago, the Florida Supreme Court, by a six-to-one vote, “effectively overruled” that case. (Moransais v. Heathman (Fla. 1999) 744 So.2d 973, 985 (dis. opn. of Overton, J.) [characterizing the majority opinion] (Moransais).)[2] The Florida highcourt’s analysis and observations in Moransais concerning the proper scope ofSeely’s rule barring recovery of commercial expectation damages are especially instructive and strongly repudiate the broad application of the rule proposed by defendants and the majority.

    Moransais, supra, 744 So.2d 973, was a suit by a homeowner against a professional engineer who had inspected the plaintiffs home prior to purchase. The inspection had failed to disclose various (unspecified) defects that “rendered the home uninhabitable” (id., at p. 975), but which had not yet caused any property damage or personal injury. The plaintiff was not in privity with the engineer, but was with the engineer’s employer. The plaintiff sued the engineer personally for his negligent inspection of the home.

    Consistent with Cooper, supra, 56 Cal.App.3d 860, 128 Cal.Rptr. 724, in which ourCourt of Appeal permitted a similar action against architects, the Florida high courtin Moransais, supra, 744 So.2d 973, allowed the negligence suit against the engineer. In the process, the Florida court explained that its prior decisions—including, most notably, Casa Clara— “[u]nfortunately” had extended the economic loss doctrine “beyond its principled origins and have contributed to applications of the rule … well beyond our original intent.” (Moransais, supra, 744 So.2d at p. 980, italics added).) The court held that henceforth, the doctrine would be limited in order to avoid precluding traditional and well-established actions in tort. (Id., at p. 983.)

    Underscoring its retreat from its prior applications of Seely’s economic loss rule, thecourt explained in Moransais: “Today, we again emphasize that by recognizing thatthe economic loss rule may have some genuine, but limited, value in our damages law, we never intended to bar well-established common law causes of action, such as those for neglect in providing professional services. Rather, the rule was primarily intended to limit actions in the product liability context, and its application should generally be limited to those contexts or situations where the policy considerations are substantially identical 745*745 to those underlying the product liability type analysis…. The rule, in any case, should not be invoked to bar well-established causes of actions in tort….” (Moransais, supra, 744 So.2d at p. 983, fn. omitted, italics added.) The court in Moransais concluded by stressing that “`[i]f” the doctrine were genuinely applied to bar “all tort claims for economic losses without accompanying personal injury or property damage,” the rule would wreak havoc on the common law of torts.'” (Ibid., italics added.)

    Instead of expanding the reach of Seely’s rule barring recovery of commercial expectation damages beyond its proper original and intended scope, and instead of reaching to distinguish and disapprove established California Court of Appeal decisions that appropriately have limited the scope of Seely’s dictum in the context of serious building code violations, we should, like the Florida Supreme Court, recognize the appropriate limited reach of the Seely doctrine so that it does not preclude application of traditional rules of negligence permitting limited and rational recovery of correction costs in the circumstances here presented.

    II.

    Even outside the construction defect context, past California decisions do not support the majority’s conclusion that the dictum in Seely, supra, 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145, properly should be interpreted to bar a plaintiff in a negligence action from recovering damages in the absence of personal injury or physical property damage.

    For example, in Potter v. Firestone Tire & Rubber Co. (1993) 6 Cal.4th 965, 25 Cal.Rptr.2d 550, 863 P.2d 795 (Potter), a case in which the plaintiffs were negligently exposed to carcinogens in their drinking water, we approved the plaintiffs’ recovery of costs for medical monitoring, prior to any actual manifestation of personal injury. (Id., at p. 974, 25 Cal.Rptr.2d 550, 863 P.2d 795.) Our reasoning in Potter in permitting the plaintiffs to recover the costs of medical monitoring is instructive here.

    First, Potter, supra, 6 Cal.4th 965, 25 Cal.Rptr.2d 550, 863 P.2d 795, employing established tort analysis, allowed recovery of costs to monitor an increased risk of future illness even though there was no “present physical injury or illness” (id, at p. 974, 25 Cal.Rptr.2d 550, 863 P.2d 795), upon a showing that the need for such monitoring was a reasonably necessary response to the defendant’s negligent acts. (Id., at p. 1009, 25 Cal.Rptr.2d 550, 863 P.2d 795.) The same reasoning applies here: Costs to remedy the most serious building code safety violations should be allowed to the extent they are a reasonably prudent and necessary response to the defendants’ negligent acts, incurred to avoid or minimize the damage that will result from such negligence.

    Second, Potter, supra, 6 Cal.4th 965, 25 Cal.Rptr.2d 550, 863 P.2d 795, approved the recovery of these limited damages, without regard to the majority’s broad reading of the Seely dictum. Potter is obviously distinguishable from Seely, in that Potteraddressed medical monitoring costs designed to guard against severe personal injury, whereas the Seely dictum was addressed to the question of allowing recovery of potentially limitless lost profits and lost commercial expectations. In the same fashion, the present case also is distinguishable from Seely—here we are concerned with repair costs designed to guard against severe personal injury and property damage caused by negligent construction of residential housing. Seely’s dictum did not stand in the way of allowing monitoring costs in Potter, and it does not stand in the way of allowing repair costs here.

    Third, as plaintiffs observe in their briefs, and as Potter, supra, 6 Cal.4th 965, 25 Cal.Rptr.2d 550, 863 P.2d 795, stressed (id., at pp. 1005-1006, 25 Cal.Rptr.2d 550, 863 P.2d 795), Civil Code section 3333 provides 746*746 that a plaintiff may recover in negligence damages “for all the detriment proximately caused thereby” (italics added)— the statute imposes no requirement of a showing of present physical injury or property damage.[3] This statute and comparable provisions of the Restatement Second of Torts (§§ 7, 910, & 917) are at odds with the majority’s broad application of the Seely dictum and with its holding that, in the absence of present physical injury or property damage, costs to remedy the most serious building code safety violations conceded here are not recoverable in negligence.

    Fourth, just as we acknowledged in Potter, supra, 6 Cal.4th 965, 25 Cal.Rptr.2d 550, 863 P.2d 795, with regard to the various policy reasons supporting recovery of medical monitoring costs in that case (id., at p. 1008, 25 Cal.Rptr.2d 550, 863 P.2d 795), here as well, policy factors relating to public safety, deterrence, mitigation of damages, economic efficiency, and “societal notions of fairness and elemental justice” (ibid.) all militate in favor of allowing the limited recovery proposed.

    Finally, as was true with regard to the medical monitoring costs at issue in Potter, supra, 6 Cal.4th 965, 25 Cal.Rptr.2d 550, 863 P.2d 795, the policy factors supporting the conclusion that we should allow recovery of costs to repair the most serious safety code defects here at issue—considerations aimed at ensuring that known safety risks in our housing stock are avoided, or at least corrected—in this case militate in favor of adopting a “fund remedy” procedure that we described with approval in Potter, supra, 6 Cal.4th at page 1010, footnote 28, 25 Cal.Rptr.2d 550, 863 P.2d 795.[4]

    III.

    As the majority implicitly concedes, the scope of Seely’s dictum, supra, 63 Cal.2d at page 18, 45 Cal.Rptr. 17, 403 P.2d 145, has been limited in a variety of contexts by decisions allowing such recovery upon a proper showing based upon the familiar six-factor test set out in Biakanja v. Irving (1958) 49 Cal.2d 647, 320 P.2d 16 (Biakanja)and J’Aire Corp. v. Gregory (1979) 24 Cal.3d 799,157 Cal.Rptr. 407, 598 P.2d 60 (J’Aire). In light of that authority, the majority finds it necessary to paraphrase the question before us as follows: “Does the law of negligence protect plaintiffs’ economic interests in having houses that fully comply with the building codes,measured by the cost of repairs or diminished value associated with noncompliance,even [though the asserted harm to those interests is unaccompanied by any injury to person or property?” (Maj. opn., 747*747 ante, 101 Cal.Rptr.2d at p. 732, 12 P.3d at p. 1137, italics added.)

    By reformulating the question in this manner, the majority skews the inquiry and fails adequately to consider that even if a negligence action cannot be maintained for the costs of remedying every minor building code violation, general common law negligence principles support a cause of action for the costs of correcting serious building code safety violations that pose a significant risk of death, serious personal injury, or considerable property damage if left unremedied.[5]

    In applying the traditional six-factor test, the majority determines with very little discussion that four of the six relevant factors set out in Biakanja, supra, 49 Cal.2d at page 650, 320 P.2d 16, and J’Aire, supra, 24 Cal.3d at page 804, 157 Cal.Rptr. 407, 598 P.2d 60, support plaintiffs’ right to sue in negligence for repair costs, but that two of the factors do not support a negligence action for costs of repair. The majority applies these factors out of their traditional order, and I shall do so here as well, addressing last the two assertedly problematic factors.

    A.

    Factor (1): The extent to which the transaction was intended to affect plaintiffs. The majority, in a single sentence, “assume[s] for argument’s sake that the conduct of a person engaged in construction is `intended to affect’ foreseeable purchasers of the property.” (Maj. opn., ante, 101 Cal.Rptr.2d at p. 732, 12 P.3d at p. 1138.) It is unclear why the majority includes that qualification; this factor is quite clearly met, and is in fact established law, as the Court of Appeal— which ultimately agreed with the majority’s conclusion that the repair costs sought by plaintiffs are not recoverable— readily acknowledged. The appellate court stated: “It is undisputed that the 162 unit residential condominium project at issue in the pending Provencal case was developed and built by [codefendant] Lyon. The subcontractors were also involved in the construction of Provencal. It is also undisputed that the Aas [plaintiffs’] 748*748single-family homes were developed and built by Lyon, and that Lyon subcontracted with several design and construction professionals to design and build the homes, [¶]These facts are sufficient to satisfy the first Biakanja factor under well-settled case law.” (Italics added.) I believe the majority should acknowledge, and not minimize, plaintiffs’ strong showing with regard to this factor.

    B.

    Factor (4): The closeness of the connection between defendants’ conduct and the injury suffered. The majority also “assume[s] that a sufficiently `close[ ] connection [exists] between … defendant’s conduct’ and the alleged defects.” (Maj. opn., ante,101 Cal.Rptr.2d at p. 733, 12 P.3d at p. 1138.) Again, the Court of Appeal expressed no hesitation on this point, stating: “Lyon and subcontractors do not vigorously contend their conduct is remote to [plaintiffs’] alleged harm. Their alleged conduct is sufficiently connected to the alleged construction defects alleged in the [plaintiffs’] pleadings.”

    C.

    Factor (5): The moral blame attached to defendants’ conduct. The majority concedes that “some `moral blame’ arguably `attach[es]’ to many deviations from the building codes,” but asserts that “the degree of blame would appear to depend upon the nature of the deviation.” (Maj. opn., ante, 101 Cal.Rptr.2d at p. 733, 12 P.3d at p. 1138, italics added.) Yet again, the Court of Appeal did not couch its review of this factor in such a grudging manner. It first quoted Chief Justice Traynor’s discussion inConnor, supra, 69 Cal.2d at page 867, 73 Cal.Rptr. 369, 447 P.2d 609, of the importance of providing a remedy in negligence for homeowner victims of defective construction, and then noted:

    “Chief Justice Traynor’s observations are relevant here in light of [plaintiffs’] allegations and offers of proof that the construction of their homes fell below the standard of care and failed to comply with the minimum requirements for shear walls and fire walls as set forth in the Uniform Building Code, and the minimum requirements set forth in the National Electrical Code. In Huang, supra, 157 Cal.App.3d at page 424, 203 Cal.Rptr. 800, the court addressed the moral blameworthiness of violating building codes and contracting regulations: `[Considering the importance of the minimum standards for housing set forth in the pertinent provisions of the Uniform Building Code, the violation of those standards involves sufficient “moral blame” to meet the fifth of the six criteria adopted inJ’Aire….’

    “[Plaintiffs] assert that assessing moral blame for violating building codes reflects California’s strong policy in favor of quality construction of homes. We agree…. `[N]egligent construction principles rest on a policy determination that purchasers of homes should not be harmed by defective housing caused by a breach of the duty to construct properly….”‘

    Once again, I submit that the majority ought to acknowledge, and not minimize, plaintiffs’ strong showing with regard to this factor.[6]

    D.

    Factor (6): The policy of preventing future harm. The majority concedes that this is “probably plaintiffs’ strongest argument.” (Maj. opn., ante, 101 Cal.Rptr.2d at p. 734, 12 P.3d at p. 1140.) The majority notes that the policy of preventing future 749*749 harm “might be served by a rule of tort liability” that permits recovery of repair costs on the facts alleged here. (Ibid., italics added.) The majority further acknowledges that it “might be less expensive,” as plaintiffs argue, “to require builders to pay to correct defects as soon as they are detected rather than after property damage or personal injury has occurred.” (Id. at p. 735, 12 P.3d at p. 1140, italics added.)

    After conceding these points, the majority proceeds, however, to diminish the weight of this factor by the majority’s depiction of the present suit, asserting that plaintiffs seek to make the “builders, in effect, the insurers of building code compliance, even as to defects that have not caused property damage or personal injury.” (Maj., opn.,ante, 101 Cal.Rptr.2d at p. 735, 12 P.3d at p. 1140, italics added.)

    Contrary to the majority’s mischaracterization, plaintiffs’ action in this case clearly does not attempt to make defendants “insurers.” The suit simply seeks to have defendants pay limited repair costs necessitated by defendants’ concededly negligent conduct in constructing plaintiffs’ homes. Moreover, the majority fails to acknowledge that any liability on the part of defendants plainly is limited in duration—it expires, by statute, 10 years after the completion of construction (Code Civ. Proc., § 337.15)—which period may have already elapsed in this litigation.[7]

    The majority also asserts that allowing the limited form of recovery sought here “should also be unnecessary to the extent buyers timely enforce their contract, warranty and inspection rights, and to the extent building authorities vigorously enforce the applicable codes for new construction.” (Maj., opn., ante, 101 Cal. Rptr.2d at p. 735, 12 P.3d at p. 1140, italics added.) That is true, but it begs the question that we are required to answer: What remedy is there when there is no privity, and hence there are no contract rights, or when there is privity, but disclaimers or technical notice rules preclude enforcement of contract rights (seeante, at pp. 722-723, 12 P.3d at pp. 1128-1130), or when there is inspection, but the defect cannot reasonably be noticed by the usual home buyer (see Connor, supra,69 Cal.2d at p. 867, 73 Cal.Rptr. 369, 447 P.2d 609; Kriegler, supra, 269 Cal.App.2d at p. 228, 74 Cal.Rptr. 749)—or when, as apparently has occurred with alarming frequency, local building inspectors (for whatever reason) fail to notice and require correction of serious building code safety violations? Does the “policy in favor of preventing future harm” call for recognition of a limited negligence action to fill the gaps in such circumstances? The majority never satisfactorily answers this crucial question.

    Again, the Court of Appeal had no trouble with this factor. It wrote:

    “The policy of preventing future harm is fundamental to the tort system, and California case law demonstrates this policy applies to safeguarding against preventable construction defects which result in physical injuries to people and property…. [As] our high court [has] stated: `[T]he prevention of future negligent construction of buildings upon insufficiently supportive material would not be furthered by exempting [the builder] from liability for his negligence. [Citations.]’

    “… [I]n Connor, supra, 69 Cal.2d at pages 867-868, 73 Cal.Rptr. 369, 447 P.2d 609,Chief Justice Traynor eloquently expressed the judiciary’s concern for proper construction of housing in California: `The admonitory policy of the law of torts calls for the imposition of liability on [defendant] for its conduct in this case. Rules that tend to discourage misconduct are particularly appropriate when applied to an established industry, [¶] By all the 750*750 foregoing tests, [defendant] had a duty to exercise reasonable care to prevent the construction and sale of seriously defective homes to plaintiffs…. In any event, there is no enduring social utility in fostering the construction, of seriously defective homes.

    Here, [plaintiffs] have alleged causes of action in negligence against a home developer, a general contractor, and various housing subcontractors for recovery of damages resulting, from numerous alleged construction defects, including but not limited to serious violations of minimum standards set forth in the, Uniform Building Code and other governing codes. The policy concern for ensuring proper construction of vital. structural housing components, such as shear walls, is meant to protect not only the physical structure, but also the personal safety of all homeowners.” (Italics added.)

    In an immediately following footnote, the Court of Appeal observed: “In this regard, we take judicial notice of one of the recommendations of the California State Seismic Commission, which investigated the Northridge earthquake under our Governor’s Earthquake Executive Order: `The greatest opportunity to ensure seismic safety is during a building’s design and construction…. The Northridge earthquake and other past earthquakes have clearly and repeatedly demonstrated the remarkable effectiveness of paying attention to quality in reducing earthquake losses. Quality assurance is the single most important policy improvement needed to manage California’s earthquake risk.’ (California Seismic Safety Commission, `Northridge Earthquake: Turning Loss To Gain,’ Dec. 1, 1994, at p. 22, italics added.)”[8]

    In my view, the policy of preventing future harm operates here as a factor that very strongly militates in favor of recognizing a right of action in negligence to recover costs to remedy safety code violations that pose a serious threat of injury to the residents of and visitors to the dwellings here at issue. Once again, I submit that the majority should frankly concede, rather than attempt to minimize, plaintiffs’ strong showing with regard to this factor.

    E.

    Factor (2): The foreseeability of harm to plaintiffs. The majority’s entire treatment of this factor is as follows: “[T]o ask . . . whether the harm to plaintiffs was `foreseeab[le]’ [citation] simply begs the question: What harm?” (Maj. opn., ante, 101, Cal.Rptr.2d at p. 732, 12 P.3d at p. 1138.)

    In contrast to the majority’s approach, the Court of Appeal stated: “[T]he SupremeCourt cases that have addressed the second Biakanja factor … in the construction defect context have held that harm to homeowners caused by negligent construction is foreseeable. [Citations.] [¶] … [Here,] as to the alleged violations of governing building codes, it is foreseeable that such code violations may result in otherwise preventable injury to persons or other property. For example, it is foreseeable that an insufficient fire wall in a condominium may fail in the event there is a fire in an adjoining unit, resulting in a conflagration that could have been prevented had the fire wall been constructed in compliance with the minimum building code safety standards.” (Italics added.)

    It is foreseeable that a reasonably prudent person, made aware of seriously deficient shear walls and fire walls in his or her home, would suffer appreciable present harm by virtue of being exposed to, and thereby having the legal duty to address (seepost, 101 Cal.Rptr.2d at pp. 751-752, 12 P.3d at pp. 1155-1156), a 751*751 known unreasonable risk to personal safety and to property.

    F.

    Factor (3): The degree of certainty that plaintiff’s suffered injury. This is the factor that the majority finds is both (i) the most important in this case, and (ii) the one that presents a “relatively objective obstacle to plaintiffs’ claim” to recover the cost of remedying the serious building code safety violations conceded on this record. (Maj. opn., ante, 101 Cal.Rptr.2d at p. 746, 12 P.3d at p. 1150.) The majority begins with the premise that “[c]onstruction defects that have not ripened into property damage, or at least into involuntary out-of-pocket losses, do not comfortably fit the definition of `”appreciable harm”‘—an essential element of a negligence claim.” (Id., at p. 732, 12 P.3d at p. 1137, citing Davies v. Krasna (1975) 14 Cal.3d 502, 513, 121 Cal.Rptr. 705, 535 P.2d 1161 (Davies).)

    Davies, supra, 14 Cal.3d 502, 121 Cal. Rptr. 705, 535 P.2d 1161, is not on point. That case addressed the question at what point, after a breach of duty, a plaintiff suffers damages sufficient to begin the running of the statute of limitations. Daviesdid not concern, and did not address, whether, and under what conditions, the incurring of reasonably necessary repair costs in the absence of personal injury or property damage would establish a sufficient degree of certainty that injury had been suffered. Of course, a decision does not stand for a proposition that it did not address or consider.

    The majority nevertheless relies upon Davies, supra, 14 Cal.3d 502, 121 Cal.Rptr. 705, 535 P.2d 1161, to support its implicit conclusion that on the facts presented, there exists an insufficient degree of certainty that plaintiffs have suffered harm.[9] I believe that under the standard of review articulated by the majority, the conclusion it reaches is incorrect.

    As the majority asserts, “the question is whether, disregarding conflicting evidence,indulging in every legitimate inference that may be drawn from the evidence, and viewing the record in the light most favorable to plaintiffs,” there is substantial evidence to support a judgment in plaintiffs’ favor. (Maj. opn., ante, 101 Cal. Rptr.2d at p. 723, 12 P.3d at p. 1130, italics added.) In my view, if we faithfully apply that standard, we must conclude that there is substantial evidence establishing with sufficient certainty that with regard to the most serious safety code violations at issue in this litigation, plaintiffs have suffered appreciable present injury or harm.

    The Court of Appeal below expressly found that the crucial “degree of certainty that plaintiffs suffered injury” factor was met on these facts. The Court of Appeal stated: “[W]e agree with the Huang court’s conclusion that evidence of a negligent failure by a developer or contractor to comply with the minimum standards set forth in governing building codes, supported by evidence of the cost to repair the building code violations, is sufficient to 752*752 satisfy the Biakanja `degree of certainty of harm’ factor.” The Court of Appeal quoted extensively from offers of proof by experts retained by both plaintiffs and defendants, to the effect that the dwellings contained inadequate shear walls and fire walls, and that repairs to correct these problems would cost “several hundreds of thousands of dollars;” and then concluded: “[Plaintiffs’] offer of proof, and the construction defect allegations in [the] complaint in connection with the negligence cause of action, are sufficient to show the requisite certainty … that [plaintiffs] have suffered latent harm.”

    As suggested above, I agree with the majority to the extent it declines to allow recovery in negligence for the cost of repairing construction defects that pose no significant risk of serious personal injury or property damage. Accordingly, I would not recognize a negligence action to recover the costs of repairing matters such as “discolored drain stoppers, and inoperable garbage disposals.” (Maj. opn., ante, 101 Cal.Rptr.2d at p. 733, 12 P.3d at p. 1138.) On the other hand, I believe that by being subjected to the risk posed by defective shear walls and fire walls, plaintiffs have suffered appreciable present compensable injury.[10] Indeed, plaintiffs’ knowledge of these defects places upon them a legal duty to make necessary repairs or corrections.

    Most of the plaintiffs in these consolidated cases (those who live in condominiums) are under legal compulsion, through their condominium association, to repair common areas—and this would certainly include, a duty to remedy known major safety violations in shear walls and fire walls located in common areas that had not yet caused actual physical damage or injury. (Civ.Code §§ 1364, subd. (a) [duty to repair common areas], 1351, subd. (b) [common area defined].)

    Similarly, all single-family-structure homeowner plaintiffs in this proceeding are under a duty to disclose known defects to potential purchasers, and perhaps more importantly, like any possessor of real property, they also are under a legal obligation to take reasonable steps to remedy known safety defects in or on their own property. A reasonably prudent homeowner, learning of, for example, the serious shear wall or fire wall defects in his or her home, would act to correct or repair those defects, in order to avoid unreasonable risk of collapse of the structure during a windstorm or earthquake, or in order to avoid rapid spread of a fire from one room to others.

    Plaintiffs’ showing here is no less than that found to be adequate in similar circumstances in Cooper, supra, 56 Cal. App.3d 860, 128 Cal.Rptr. 724, Huang, supra, 157 Cal.App.3d 404, 203 Cal.Rptr. 800, Sumitomo Bank v. Taurus Developers, 753*753 Inc., supra, 185 Cal.App.3d 211, 229 Cal. Rptr. 719, and in various out-of-state decisions—most notably, the Maryland high court’s decision in Whiting-Turner, supra, 308 Md. 18, 517 A.2d 336 and the Florida Supreme Court’s decision in Moransais, supra, 744 So.2d 973. Nor is plaintiffs’ showing any less than that found to be adequate in analogous circumstances in Potter, supra, 6 Cal.4th 965, 25 Cal. Rptr.2d 550, 863 P.2d 795.

    I submit that on these facts compensable present injury to plaintiffs is reasonably certain, because a reasonably prudent person, having become aware of the unreasonable risk posed by known building code safety defects such as inadequate shear walls and fire walls, would act to repair or correct those defects. I would recognize a limited negligence action as described above, and, in light of the public interest in ensuring that such repairs actually are undertaken, I would require court-supervised disbursement of damages awarded in such cases. (See Potter, supra, 6 Cal.4th at p. 1010, fn, 28, 25 Cal.Rptr.2d 550, 863 P.2d 795, quoted ante, fn. 4.)[11]

    IV.

    California is prone to earthquakes and, tragically, the negligent construction of residential housing almost surely will result in the deaths and injury of numerous current and future residents of this state, as it has in the past. In the context of a case such as the one now before us, the goal of tort law is to minimize, in an appropriate and balanced manner, the number of those deaths and injuries. In light of today’s majority opinion—which misapplies and improperly disapproves California’s established case law and, in failing to recognize an appropriate and limited right to recover costs to remedy serious safety code violations, rejects the reasoning of well-considered decisions of our sisterstate courts—the obligation falls upon the Legislature to correct this court’s unfortunate misstep in the development of the law, and to provide the protection that California residents deserve.

    Concurring and Dissenting Opinion by MOSK, J.

    Because I believe it is economically efficient to provide plaintiffs with a remedy to repair conditions that allegedly pose a serious safety hazard, I respectfully dissent from the majority’s contrary conclusion. I believe the Supreme Court of Indiana pointed out quite well the inefficiency inherent in the economic loss rule as applied to such conditions: “If there is a defect in a stairway and the purchaser repairs the defect and suffers an economic loss, should he fail to recover because he did not wait until he or some member of his family fell down the stairs and broke his neck?” (Barnes et ux. v. Mac Brown & Co., Inc. et al, (1976) 264 Ind. 227, 230 [342 N.E.2d 619, 621].) Thus, to answer the majority’s rhetorical question, “What harm?” (maj. opn, ante, 101 Cal.Rptr.2d at p. 732, 12 P.3d at p. 1138), I would say, the harm that will arise when homeowners, believing, as humans are wont to do, that injury only befalls others, fail to repair hazardous conditions.

    It is evident that many Californians live in modern mass-market housing. It appears, moreover, that cutting corners is a prevailing problem in the development industry. The descriptions of construction defects in the numerous letter briefs we have received from the construction law bar suggest as much. The briefs describe the willingness of some developers to evade or stint the Uniform Building Code’s safety requirements, among other elements. In this context, the majority’s result 754*754 is likely, as one litigant put it, to create “an invitation for developers, general contractors and subcontractors to ignore [construction] Code requirements when building and developing homes.”

    The majority tacitly acknowledge the risks of inefficiency their rule generates: “[T]o require builders to pay to correct defects as soon as they are detected rather than after property damage or personal injury has occurred might be less expensive. On the other hand, such a rule would likely increase the cost of housing by an unforeseeable amount as builders raised prices to cover the increased risk of liability.” (Maj. opn., ante, 101 Cal. Rptr.2d at p. 735, 12 P.3d at p. 1140.) The first sentence in the quotation is almost certainly correct, as it is less costly to society to require a contractor to nail down the loose stair than to pay for hospitalization after a needless tumble down the flight of steps. The second sentence, by contrast, even if correct, assumes that builders are inadequately constructing mass-market housing—there is no: risk of liability if the housing is correctly built. And it can only be correct if builders pass along the savings realized by poor construction to their customers, rather than realizing increased profits from deficient building practices. I do not share the majority’s evident assumption that the former is correct.

    I would adopt a view similar to that of Judge Richard Posner in Eljer Mfg., Inc. v. Liberty Mut. Ins. Co. (7th Cir.1992) 972 F.2d 805 (Eljer). Interpreting comprehensive general liability insurance policies that defined the term “property damage” as “`physical injury to … tangible property'” (id. at p. 807), but considering facts similar to those of this case, Posner wrote that physical injury to property occurs when it “results from … physical linkage, as when a potentially dangerous product is incorporated into another and, because it is incorporated and not merely contained (as a piece of furniture is contained in a house but can be removed without damage to the house), must be removed, at some cost, in order to prevent the danger from materializing. There is an analogy to fixtures in the law of real and personal property—improvements to property that cannot be removed without damaging it. See, e.g., UCC § 9-313.” (Id. at p. 810, italics added.)[1]

    The Eljer approach obviates the need to consider the Biakanja factors (Biakanja v. Irving (1958) .49 Cal.2d 647, 650, 320 P.2d 16; see Ott v. Alfa-Laval Agri, Inc. (1995) 31 Cal.App.4th 1439, 1449, 37 Cal.Rptr.2d 790)—although even under those factor’s I believe, like the Chief Justice but unlike the majority, that damages are sufficiently ascertainable to justify liability. The rule I favor would state that property damage occurs when what may be termed “fixtures” for purposes of discussion, inseparable from the structure of the houses or condominiums and inaccessible for repair without destroying existing features, are negligently built or installed. (Cf. Cal. U. Com. Code, § 9102, subd. (a)(41).)[2]

    We here consider alleged latent defects, capable of causing serious injury or major property damage, that may only be found years or decades after the developer caused them, yet require repair to avoid 755*755 later injury or major property loss. (In this regard, Code Civ.Proc, § 337.15 permits recovery for property damage caused by latent defects in construction only for 10 years after the work is substantially completed. The statute of limitations is already a substantial bar to any threat of limitless liability.) I believe a narrow rule could be drawn to provide a tort remedy for such defects. It seems that a finely crafted rule would not need to apply to such items as negligent heating, air conditioning, and ventilation work, or, to refer to the majority’s rather dismissive examples, “doors that are out of plumb, discolored drain stoppers, and inoperable garbage disposals” (maj. opn, ante, 101 Cal.Rptr.2d at p. 733, 12 P.3d at p. 1138). (See Council of Co-Owners v. Whiting Turner (1986) 308 Md. 18, 35, fn. 5 [517 A.2d 336, 345] [limiting recovery to fixing defects that pose “a clear danger of death or personal injury”].)[3] I regret the majority’s unwillingness to adopt even a minimal safeguard. The proper view, I believe, is that articulated inBiakanja: “Liability has [been] imposed, in the absence of privity, upon suppliers of goods and services which, if negligently made or rendered, are `reasonably certain to place life and limb in peril.'” (Biakanja v. Irving, supra, 49 Cal.2d 647, 649, 320 P.2d 16.)

    [1] The following is a representative excerpt from plaintiff’s offer of proof:

    “5. During the investigation at Provencal in this case, engineers … observed violations of the Uniform Building Code, including failures to properly construct shear walls and failures to properly connect shear walls to other building components. Such shear walls and connections are required under the Uniform Building Code to prevent or minimize property damage and personal injury in the event of seismic and wind forces….

    “6. During the investigation at Provencal in this case, architects . . . observed violations of the Uniform Building Code, including failures to properly construct one-hour and two-hour fire protection in party walls. Such fire protection measures are required under the Uniform Building Code to prevent or minimize property damage and personal injury in the event of a fire….[¶] … [¶]

    “8. During the investigation of Provencal in this case, [an] electrical engineer … observed numerous violations of the National Electrical Code, including failures to support electrical cables, improperly supported light fixtures, and improperly labeled electrical circuits…. [¶] … [¶]

    “10. For many of the Uniform Building Code and National Electrical Code violations described in paragraphs 5, 6, and 8, there has not yet been any physical property damage or personal injury….”

    [2] Plaintiff in Provencal subsequently moved to amend its complaint to allege a cause of action for breach of implied warranty. Plaintiff’s request for judicial notice of defendant Lyon’s memorandum in opposition to the motion, filed after the Court of Appeal affirmed the trial court’s ruling, is denied.

    [3] The trial court explained: “I would address [at trial] any issues that are over and above my ruling that you felt were close calls and listen to what your proffer might be at the appropriate time.” There is, thus, no basis for assuming that every item on the exhaustive lists of construction defects attached to defendants’ motions in limine is deemed excluded, even if plaintiffs are able to prove that a particular defect has actually caused property damage.

    [4] Sabella v. Wisler (1963) 59 Cal.2d 21, 27-30, 27 Cal.Rptr. 689, 377 P.2d 889; Stewart v. Cox(1961) 55 Cal.2d 857, 861-863, 13 Cal. Rptr. 521, 362 P.2d 345; Hale v. Depaoli (1948) 33 Cal.2d 228, 230-232, 201 P.2d 1; Sumitomo Bank v. Taurus Developers, Inc. (1986) 185 Cal.App.3d 211, 223-224, 229 Cal. Rptr. 719; Huang v. Garner (1984) 157 Cal. App.3d 404, 419-425, 203 Cal.Rptr. 800; Cooper v. Jevne (1976) 56 Cal.App.3d 860, 867-869, 128 Cal.Rptr. 724.

    [5] Stearman v. Centex Homes (2000) 78 Cal. App.4th 611, 613, 92 Cal.Rptr.2d 761 (citing the many decisions applying strict liability to construction defects); Avner v. Longridge Estates (1969) 272 Cal.App.2d 607, 609-615, 77 Cal.Rptr. 633; Kriegler v. Eichler Homes, Inc. (1969) 269 Cal.App.2d 224, 227-229, 74 Cal. Rptr. 749.

    [6] Stearman v. Centex Homes, supra, 78 Cal. App.4th 611, 613-614, 617-623, 92 Cal. Rptr.2d 761.

    [7] Courts in other jurisdictions have reached various conclusions on this subject. South Carolina broadly holds builders liable in tort for all deviations from applicable building code and industry standards that diminish the value of a house. (Kennedy v. Columbia Lumber & Mfg. Co. (1989) 299 S.C. 335, 384 S.E.2d 730, 736-738.) Maryland more narrowly permits homeowners to recover in a negligence action the reasonable cost of correcting construction defects that present “a clear danger of death or personal injury,” but not conditions that present merely “a risk to general health, welfare, or comfort…” (Council of Co-Owners v. Whiting Turner (1986) 308 Md. 18, 517 A.2d 336, 344-345 & fn. 5). A North Carolina decision does not clearly identify the circumstances that will support recovery, but holds that the plaintiffs stated a cause of action for negligence by alleging they “were forced to undergo extensive demolition and repair work to correct the defective, dangerous and unsafe conditions caused by the defendant’s negligence.” (Oates v. Jag (1985) 314 N.C. 276, 333 S.E.2d 222, 224-226.)

    In contrast, the Supreme Court of Nevada, after tentatively rejecting the economic loss rule in construction defect cases (Calloway v. City of Reno (1997) 113 Nev. 564, 939 P.2d 1020, 1024-1026), reversed course on rehearing and held that no liability exists for defects that cause damage only to the house and its components. (Calloway v. City of Reno (Nev. 2000) 993 P.2d 1259, 1263-1270 [trial court properly dismissed negligence claims alleging that defective framing caused water intrusion, damage to flooring and ceilings, and structural and wood decay].)

    [8] The six factors were: “the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant’s conduct and the injury suffered, the moral blame attached to the defendant’s conduct, and the policy of preventing future harm.” (Biakanja, supra, 49 Cal.2d 647, 650, 320 P.2d 16.)

    [9] See generally Stearman v. Centex Homes, supra, 78 Cal.App.4th 611, 613, 92 Cal. Rptr.2d 761. Compare Peterson v. Superior Court (1995) 10 Cal.4th 1185, 1200, 43 Cal. Rptr.2d 836, 899 P.2d 905, Cronin v. J.B.E. Olson Corp. (1972) 8 Cal.3d 121, 130, 104 Cal.Rptr. 433, 501 P.2d 1153, andPrice v. Shell Oil Co. (1970) 2 Cal.3d 245, 251 and footnote 6, 85 Cal.Rptr. 178, 466 P.2d 722 (all acknowledging the doctrine’s potential applicability to persons in the business of residential construction).

    [10] The concurring and dissenting justices would hold that property damage occurs when a defective component is incorporated into a house. (Cone. & dis. opn. of Mosk, J., 101 Cal.Rptr.2d at pp. 754-755, 12 P.3d at pp. 1157-1158; see also cone. & dis. opn. of George, C.J., at p. 753, fn. 11, 12 P.3d at p. 1156, fn. 11.) The decision offered as support for that view, Eljer Mfg., Inc. v. Liberty Mut. Ins. Co.(7th Cir.1992) 972 F.2d 805, however, offers its conclusion not as a rule of tort liability but as an interpretation of contractual language in an insurance policy. While we intimate no view as to Eljer’s correctness as a matter of California law, we find the decision insufficiently relevant to the question before us to be of any assistance.

    [11] Plaintiffs also argue that Seely, supra, 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145, does not apply to the negligent performance of services, as distinguished from the negligent manufacture of products,but the basis for that argument appears, once again, to be that J’Aire, supra, 24 Cal.3d 799, 157 Cal.Rptr. 407, 598 P.2d 60, takes precedence over Seely. (See North American Chemical Co. v.Superior Court, supra, 59 Cal.App.4th 764, 778-785, 69 Cal.Rptr.2d 466, and Huang v. Garner, supra, 157 Cal.App.3d 404, 421-424, 203 Cal.Rptr. 800 [both concluding that liability under J’Aire is unaffected by Seely]; cf. Cooper v. Jevne, supra, 56 Cal.App.3d 860, 867-869, 128 Cal.Rptr. 724[relying on Biakanja, supra, 49 Cal.2d 647, 320 P.2d 16, rather than J’Aire, to reach the same conclusion].)

    [12] In addition to these cases cited by plaintiffs, the Chief Justice relies on Connor v. Great Western Sav. & Loan Assn. (1968) 69 Cal.2d 850, 73 Cal.Rptr. 369, 447 P.2d 609, Krusi v. S.J. Amoroso Construction Co. (2000) 81 Cal.App.4th 995, 97 Cal.Rptr.2d 294, Stearman v. Centex Homes, supra,78 Cal. App.4th 611, 92 Cal.Rptr.2d 761, and Keru Investments, Inc. v. Cube Co. (1998) 63 Cal. App.4th 1412, 74 Cal.Rptr.2d 744. None of these cases purports to hold that a plaintiff may recover for construction defects that have not caused damage to other property.

    In Connor v. Great Western Sav. & Loan Assn., supra, 69 Cal.2d 850, 73 Cal.Rptr. 369, 447 P.2d 609,this court held that persons whose homes “suffered serious damage from cracking caused by ill-designed foundations” (id. at p. 856, 73 Cal.Rptr. 369, 447 P.2d 609) could sue the construction lender as the joint venturer of the developer on the theory that it owed the plaintiffs a duty to “exercise reasonable care to protect them from damages caused by major structural defects” (id. at p. 866, 73 Cal.Rptr. 369, 447 P.2d 609). Thus, to the extent Connor might be thought relevant to the case before us, it is entirely consistent with the rule we apply today. (The Legislature has rejected Connor’sholding that construction lenders are liable in negligence for construction defects. See Civ.Code, § 3434.)

    The courts in Krusi v. S.J. Amoroso Construction Co., supra, 81 Cal.App.4th 995, 1005, 97 Cal.Rptr.2d 294, and Keru Investments, Inc. v. Cube Co., supra, 63 Cal.App.4th 1412, 1423-1425, 74 Cal.Rptr.2d 744, held simply that causes of action for construction defects accrued when the defects caused damage and belonged to the persons who owned the buildings at that time, rather than to the subsequent purchasers. Because the courts in both cases held the plaintiffs lacked standing to sue, neither court faced any question of liability for purely economic damages. In any event, the buildings at issue in both cases had actually suffered major structural damage as a result of construction defects. (Krusi, at p. 998, 97 Cal.Rptr.2d 294; Keru, at p. 1415, 74 Cal.Rptr.2d 744.) The court inStearman v. Centex Homes, supra, 78 Cal. App.4th 611, 616-623, 92 Cal.Rptr.2d 761, held merely that strict liability applies when a defective component of a house damages a nondefective component. (See 101 Cal. Rptr.2d p. 728, 12 P.3d p. 1134, ante.)

    [13] Amicus curiae explains in detail how alleged defects that might on “[i]nitial impression[]” seem “trivial, nitpickey and even ridiculous,” might cause or indicate serious problems. “Closet shelving, interior doors not fitting properly, sagging roof rafters, spalling plaster, [and] GFI [ground fault interrupt] receptacles missing” are cited as examples. Expert testimony at trial, amicus curiae speculates, might show that “the location of the closet shelving in conjunction with the lighting poses a fire hazard and violates the National Electrical Code. The interior doors may not fit properly because the buildings/homes have moved due to structural problems or soil issues. The roof rafters may be sagging because they were not attached properly, and their installation violates the Uniform Building Code. The plaster could be spalling due to missing structural components, and by the way, maybe the plaster is supposed to serve as some shear. The missing GFI receptacles pose a fire hazard and a life safety threat to adults and children and the fact that they are missing violates the National Electrical Code.”

    [14] This case illustrates the problem. The Chief Justice apparently concludes that the defects alleged in this case put plaintiffs’ homes at risk of collapse or fire. (Cone. & dis. opn. of George, C.J., post, 101 Cal. Rptr.2d at p. 738, 12 P.3d at p. 1143.) To be sure, plaintiffs have alleged that shear and fire walls do not comply with the applicable building codes, and that the purpose of codes for these components is to protect against those sorts of harm. (See ante, at p. 722 & fn. 1, 12 P.3d p. 1129 & fn. 1.) Yet, as the trial court recognized (see ante, at p. 722, 12 P.3d p. 1129), this does not necessarily mean that any given defect is sufficiently grave to pose a realistic risk of serious damage. (See alsoante, at pp. 732-734, 12 P.3d pp. 1137-1140.)

    [15] Plaintiffs may be surprised to read in the Chief Justice’s concurring and dissenting opinion that he believes they have abandoned this claim. Plaintiffs did abandon a claim for so-called stigma damages, representing the residual loss of market value after repairs have been made, after losing on this issue in the Court of Appeal. As that court explained, no reported decision in this state appears to authorize such recovery; we intimate no view on the matter.

    In contrast, diminished value is simply one of the standard alternative measures of damage for injury to property. The successful plaintiff in such cases ordinarily recovers either the diminution in market value attributable to the injury or the cost of repairs, whichever is less (Mozzetti v. City of Brisbane(1977) 67 Cal.App.3d 565, 576, 136 Cal.Rptr. 751), although the rule is not rigid and the court may award the greater amount in appropriate circumstances (Heninger v. Dunn (1980) 101 Cal.App.3d 858, 863-864, 162 Cal. Rptr. 104; see generally 6 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, §§ 1461-1462, pp. 934-935). Plaintiffs understandably emphasize the cost of repairs in their briefs and argument because damages measured by the cost of repairs typically exceed damages measured by diminution in value.

    This case is being remanded for further proceedings, possibly including a trial on any alleged defects that have caused property damage. (See ante, 101 Cal.Rptr.2d at pp. 722, 723, 12 P.3d at pp. 1129, 1130.) Because plaintiffs have not expressly abandoned the right to recover the diminished value of their homes, should that turn out to be the appropriate measure of damages, we see no basis on which to preclude the court from applying the ordinary law of remedies.

    [16] Arguing that courts should do so, the Chief Justice cites Potter v. Firestone Tire & Rubber Co.(1993) 6 Cal.4th 965, 25 Cal.Rptr.2d 550, 863 P.2d 795. (Cone. & dis. opn. of George, C.J., 101 Cal.Rptr.2d at pp. 746, 753, 12 P.3d at pp. 1150, 1156.) The plaintiffs in Potter sought, among other things, medical monitoring costs following their exposure to carcinogenic toxic waste. In a footnote, we noted the suggestion of “[v]arious commentators and courts … that creation of court-supervised funds to pay medical monitoring claims as they accrue, rather than the award of a lump-sum verdict, may be a more appropriate mechanism for compensating plaintiffs in a toxic exposure case.” (Id. at p. 1010, fn. 28, 25 Cal.Rptr.2d 550, 863 P.2d 795.) Nothing in the Potter decision, which we painstakingly limited to its specific factual and legal context, suggests that courts have a broad, general role in supervising the disbursement of tort recoveries.

    [17] In fact, the Legislature in this term has considered and rejected proposals to make persons engaged in residential construction liable for the cost of bringing homes into compliance with the building codes, without regard to the existence of property damage (Assem. Bill. No. 1669 (1999-2000 Reg. Sess.), as introduced Mar. 15, 1999) and to create a state-sanctioned home warranty program (Assem. Bill No. 1221 (1999-2000 Reg. Sess.)). We note the Legislature is also considering a bill that would recognize a lack of “empirical data on the incidence of construction defects, the amount of construction defects litigation, and whether there is any causal relationship between shoddy construction, construction defect litigation, and the construction of new condominium and affordable housing,” and commission a comprehensive study to collect such data. (Sen. Bill No. 1882 (1999-2000 Reg. Sess.).) Defendants’ motion for judicial notice of these bills is granted.

    [1] In the omitted footnote, the court wrote in Whiting-Tumer: “It is the serious nature of the risk that persuades us to recognize the cause of action in the absence of actual injury. Accordingly, conditions that present a risk to general health, welfare, or comfort but fall short of presenting a clear danger of death or personal injury will not suffice. A claim that defective design or construction has produced a drafty condition that may lead to a cold or pneumonia would not be sufficient.” (Whiting-Turner, supra,517 A.2d at p. 345, fn. 5.)

    [2] The opinion in Moransais was filed after briefing in the present case was completed. On August 28, 2000, however, codefendant William Lyon Company filed a “Supplemental Brief of Additional Authorities,” citing and discussing the recent subsequent history of a Nevada case cited in earlier briefs, and citing three other recent (and distinguishable) cases from other jurisdictions. Nonetheless, the supplemental brief failed to note that, more than one year earlier, the Florida Supreme Courteffectively had overruled Casa Clara, supra, 620 So.2d 1244, the primary out-of-state case upon which Lyon had relied in its “Answer Brief on the Merits.”

    [3] That statute provides: “For the breach of an obligation not arising from contract, the measure of damages, except where otherwise expressly provided by this code, is the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not.” (Civ.Code, § 3333.)

    [4] Our opinion in Potter stated in this regard: “Various commentators and courts have suggested that creation of court-supervised funds to pay medical monitoring claims as they accrue, rather than the award of a lump-sum verdict, may be a more appropriate mechanism for compensating plaintiffs in a toxic exposure case. [Citation.] [¶] In Ayers [v. Jackson Tp. (1987)] 106 N.J. 557, 525 A.2d 287, 314, the court observed: `Although conventional damage awards do not restrict plaintiffs in the use of money paid as compensatory damages, mass-exposure toxic tort cases involve public interests not present in conventional tort litigation. The public health interest is served by a fund mechanism that encourages regular medical monitoring for victims of toxic exposure.’ [Citation.] Thus, in contrast to a lump-sum payment, a fund remedy will encourage plaintiffs to spend money to safeguard their health by not allowing them the option of spending the money for other purposes. The fund remedy will also assure that medical monitoring damages will be paid only to compensate for medical examinations and tests actually administered, thus serving to limit the liability of defendants to the amount of expenses actually incurred. (Ibid.) In turn, this should tend to reduce insurance costs, both to potential defendants and the general public alike.” (Potter, supra, 6 Cal.4th at p. 1010, fn. 28, 25 Cal.Rptr.2d 550, 863 P.2d 795.)

    [5] Although plaintiffs’ complaint sought, among other things, damages for the diminution in value of their homes, plaintiffs’ briefing and argument before this court make it quite clear that they have abandoned any such claim and that they now limit their negligence claim regarding code violations that have not manifested themselves in physical injury or property damage to recovery of repair costs. Plaintiffs’ joint opening brief states the issue as follows: “Can homeowners and a homeowners association . . . recover in negligence for the cost to repair violations of governing building codes . . . even though the violations have not yet caused physical property damage?” (Italics added.) This phrasing of the issue and this singular focus of recovery sought at this stage in the litigation is repeated throughout the briefing. Indeed, plaintiffs specifically assert, “the measure of damages for negligent construction is limited to the cost of repair. Imaginative consequential damages are not applicable.” (Italics added.) And plaintiffs also argue that defendants in this case should be responsible “only . . . for compliance with governing building codes” and “will not be exposed to monetary damages beyond the cost of repair.” Similarly, at oral argument, counsel for plaintiffs asserted that at this stage plaintiffs do not seek lost profits or any other such difficult-to-define form of damages, but instead, and only, funds necessary to address “very specific code violations for which specific repairs are designed and for which there is a known measure of damages”—namely, the specific “costs to repair code violations.”

    Thus, the matter in contention, at this point, is simply whether, with respect to code violations that have not manifested themselves in physical injury or property damage, we should recognize a limited negligence action for recovery of specific and definable repair costs. In my view it does not advance this inquiry for the majority to invoke repeatedly plaintiffs’ now abandoned claim for damages relating to the diminished value of their homes.

    [6] At the same time, I completely agree with the majority’s additional assertion that “we may … reasonably assign reduced moral blame to less serious defects … such … as … discolored drain stoppers, and inoperable garbage disposals.” (Maj. opn., ante, 101 Cal.Rptr.2d at p. 733, 12 P.3d at p. 1138.) Indeed, as explained below, I believe that we should distinguish between allowing recovery for correction of serious life- and property-endangering code violations, and repair of defects such as those just listed.

    [7] The record indicates that defendants may yet challenge plaintiffs’ claims based upon the statute of limitations.

    [8] In this regard, codefendant Lyon conceded at oral argument that “it is reasonable to assume that the percentage [of Northridge earthquake homeowners] that did suffer damage probably included a lot of … homes that did not have Compliance with the [prevailing] safety code[s].”

    [9] In the process, the majority rejects plaintiffs’ assertion that the cost of repairs is an “accepted measure of damage for construction defects and that plaintiffs could make the cost of repairs certain . . . by voluntarily repairing defects and obtaining a receipt for money spent.” (Maj. opn., ante, 101 Cal. Rptr.2d at p. 732, 12 P.3d at p. 1138, italics added.) Although this point was expressly conceded by codefendant Branco Corporation at oral argument, the majority refuses to accept that concession, asserting simply that to do so would confuse “the measurement of alleged damages with the ability of particular facts to support a tort action.” (Ibid.) Of course, reasonable certainty in both (i) the need to make repairs, and (ii) the amount of money required to accomplish repairs, must be proved. I view codefendant Branco Corporation’s concession as recognizing that, if a homeowner reasonably were to undertake and pay for repairs in order to avoid the risk posed by serious building safety code violations such as the shear wall and fire protection violations here at issue, a court should conclude with a high degree of certainty that the homeowner has suffered injury, and that the thirdBiakanja/J’Aire factor is met.

    [10] In this regard, I find helpful Morris v. Osmose Wood Preserving (1995) 340 Md. 519, 667 A.2d 624, in which the Maryland high court explained that its decisions in this area “reveal a two part approach to determine the degree of risk required to circumvent the economic loss rule. We examine both the nature of the damage threatened and the probability of damage occurring to determinewhether the two, viewed together, exhibit a clear, serious, and unreasonable risk of death or personal injury. Thus, if the possible injury is extraordinarily severe, [e.g.,] multiple deaths, we do not require the probability of the injury occurring to be as high as we would require if the injury threatened were less severe, [e.g.,] a broken leg or damage to property. Likewise, if the probability of the injury occurring is extraordinarily high, we do not require the injury to be as severe as we would if the probability of injury were lower.” (Id., at pp. 631-632, italics added.)

    The majority hypothesizes that distinguishing between “serious” and “minor” defects would “in practice” prove to be difficult and would “likely … insulate from demurrer and summary judgment virtually all complaints containing allegations of building code violations.” (Maj. opn., ante, 101 Cal.Rptr.2d at pp. 735-736, 12 P.3d at pp. 1140-1141.) As noted above, such a distinction has been recognized for more than 14 years (Whiting-Turner, supra, 308 Md. 18, 517 A.2d 336, 345, fn. 5), but the majority fails to cite any authority suggesting that such problems have occurred in practice.

    [11] As Justice Mosk explains in his separate dissent, and as codefendant Lyon argued in the alternative in the Court of Appeal, the theory advanced in Judge Posner’s opinion in Eljer Mfg., Inc. v. Liberty Mut. Ins. Co. (7th Cir.1992) 972 F.2d 805, provides, by analogy, additional and separate support for recognition of a right to recover repair costs in the present case.

    [1] I italicize must because the word prefigures cautionary language in the Eljer opinion. The risk of harm-in Eljer, the “expected failure rate” (Eljer, supra, 972 F.2d at p. 812)— “must be sufficiently high … to induce a rational owner to replace it” (ibid.) or repair it.

    [2] Eljer relied on Illinois law in interpreting the insurance policies. The Appellate Court of Illinois later rejected its interpretation. (Travelers Ins. Co. v. Eljer Mfg., Inc. (1999) 307 Ill.App.3d 872 [241 Ill.Dec. 178, 718 N.E.2d 1032, 1039-1041], review granted (1999) 186 Ill.2d 590 [243 Ill.Dec. 569, 723 N.E.2d 1170].) Leaving aside the policies’ definition of “property damage,” however, Eljer’s conclusion favoring the so-called incorporation doctrine-that property damage occurs when defective installation or construction requires that walls be torn out or the like-is persuasive and should be applied here.

    [3] Like the Chief Justice, I concur in the majority’s conclusion regarding trivial and nonhazardous alleged defects of the type to which the majority refer.

     

    ×
  • Creekridge v. Whitten

    Creekridge v. Whitten

    177 Cal.App.4th 251 (2009)

    253*253 Angius & Terry, Paul P. Terry, Jr., Bradley J. Epstein and Sam Y. Chon for Plaintiff and Appellant.

    Klinedinst, G. Dale Britton, Natalie P. Vance and Jason W. Schaff for Defendant and Respondent C. Scott Whitten.

    Law Offices of Robles & Castles, William A. Robles and Ranjani Ramakrishna for Defendant and Respondent Monier Inc.

    Anwyl, Scoffield & Stepp, Lindy H. Scoffield and Pamela A. Lewis for Defendant and Respondent REO Roofing Company.

    OPINION

    BUTZ, J.—

    This is a construction defect case involving a reroofing of 11 buildings that house 61 units in a townhome community. The trial court granted summary judgment to the roofing defendants. The trial court found that the plaintiff townhome association did not meet the statute of limitations because the association had notice of a water moisture problem inside the window of one unit as a result of the new roof, and this unit reported several broken roof tiles.

    (1) We shall reverse. We conclude there are triable issues of material fact on the two statute of limitations issues: (1) whether the alleged defect was patent (i.e., apparent to an average consumer from a reasonable inspection); 254*254 and (2) whether the defect can be deemed discovered in the latent defect context because the damage was sufficiently appreciable so that plaintiff suspected or reasonably should have suspected that defendants had done something wrong to plaintiff.

    FACTUAL AND PROCEDURAL BACKGROUND

    On June 18, 2004, plaintiff Creekridge Townhome Owners Association, Inc. (plaintiff), filed a construction defect lawsuit, concerning a reroofing project, against defendants C. Scott Whitten, Inc. (Whitten), REO Roofing Company (REO), and Monier Inc. (Monier). Whitten was the roofing manager and inspector, REO was the roofer, and Monier was the roofing supplier.

    The lawsuit involves the reroofing of 11 buildings, comprising 61 units, in plaintiff’s townhome community. The reroofing was completed in early 1997, and replaced the buildings’ old shake roofs with Cedarlite concrete tile roofs.[1]

    In late June 1997, one owner in plaintiff’s community described in a letter to plaintiff’s board that she had a water moisture problem inside her second-story bedroom window as a result of the new tile roof; she also reported several broken roof tiles. The summary judgment record contains no other evidence of any other roof problems until 2003.

    In the winter of 2003, plaintiff suffered numerous roof leaks. The following spring, plaintiff hired a roofing consultant, Randy Davis, who found multiple causes for the leaks and multiple types of roof defects.

    As noted, on June 18, 2004, plaintiff sued Whitten, REO and Monier for these alleged roof defects. Plaintiff set forth causes of action for breach of warranty (express and implied), breach of contract, and negligence.

    Whitten moved for summary judgment on statute of limitations grounds. After tentatively denying this motion, the trial court reversed course and 255*255 granted it, citing an opinion decided during the summary judgment proceedings, Landale-Cameron Court, Inc. v. Ahonen (2007) 155 Cal.App.4th 1401 [66 Cal.Rptr.3d 776](Landale).

    REO and Monier in turn obtained a stipulated judgment in their favor on the same grounds as the Whitten summary judgment.[2] This stipulated judgment resulted in a second appeal by plaintiff, C059458, which we have consolidated with the Whitten appeal, C058300.

    DISCUSSION

    We uphold a summary judgment if all the evidentiary papers associated with it—which we review independently—show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law. We do not resolve factual issues but ascertain whether there are any to resolve. (Code Civ. Proc., § 437c, subd. (c);[3] Colores v. Board of Trustees (2003) 105 Cal.App.4th 1293, 1305 [130 Cal.Rptr.2d 347] (Colores); Flait v. North American Watch Corp.(1992) 3 Cal.App.4th 467, 475 [4 Cal.Rptr.2d 522].)

    Because a summary judgment denies the losing party its day in court, we liberally construe the evidence in support of that party and resolve doubts concerning the evidence in that party’s favor. (Wiener v. Southcoast Childcare Centers, Inc. (2004) 32 Cal.4th 1138, 1142 [12 Cal.Rptr.3d 615, 88 P.3d 517]; Colores, supra, 105 Cal.App.4th at p. 1305.)

    Whitten based its summary judgment motion entirely on two interrogatory answers that plaintiff furnished, as read in light of the gravamen of plaintiff’s complaint.

    The two interrogatories, propounded by Monier to plaintiff, were:

    “No. 14: Identify the date when you first became aware that the Cedarlite tile roof was leaking.

    256*256 “No. 15: Referencing your previous response, how did you become aware that the Cedarlite tile roof was leaking[?]”

    Plaintiff provided the same answer to both interrogatories:

    “Homeowner Heidi Goodman of 7434 Creekridge Lane wrote a letter to the Board that was discussed in open session at the 6/24/97 board meeting minutes describing a water moisture problem inside her second[-]story bedroom window as a result of the tile roofs, in addition to reporting several broken roof tiles.”

    The gravamen of plaintiff’s complaint alleges that the reroofing “deficiencies include, among other things, the following: [¶] a. Water infiltration through roofs and roof materials, and within roof systems.”

    With this background in mind, we now turn to the two statute of limitations issues of patent defect and latent defect/discovery.

    I. Patent Construction Defect

    (2) Section 337.1 sets forth a statute of limitations of four years for a “patent” construction defect, which starts running when the construction is substantially completed. (§ 337.1, subd. (a)(1).)

    (3) The test to determine whether a construction defect is patent is an objective test that asks “whether the average consumer, during the course of a reasonable inspection, would discover the defect. The test assumes that an inspection takes place.” (Geertz v. Ausonio (1992) 4 Cal.App.4th 1363, 1370 [6 Cal.Rptr.2d 318]; see § 337.1, subd. (e); 3 Witkin, Cal. Procedure (5th ed. 2008) Actions, § 606, pp. 787-788.) This test generally presents a question of fact, unless the defect is obvious in the context of common experience; then a determination of patent defect may be made as a matter of law (including on summary judgment). (Preston v. Goldman(1986) 42 Cal.3d 108, 110-111, 123 [227 Cal.Rptr. 817, 720 P.2d 476] (Preston);Mills v. Forestex Co. (2003) 108 Cal.App.4th 625, 644 [134 Cal.Rptr.2d 273] (Mills);Tomko Woll Group Architects, Inc. v. Superior Court (1996) 46 Cal.App.4th 1326, 1339 [54 Cal.Rptr.2d 300] (Tomko); Geertz, supra, 4 Cal.App.4th at p. 1368.)

    Here, the only evidence of defect presented by defendant Whitten in its summary judgment motion regarding the 1997 reroof construction was an interrogatory answer that referenced a letter a homeowner in plaintiff’s community had written to plaintiff’s board. According to the interrogatory answer, this letter “was discussed in open session at the 6/24/97 board 257*257 meeting . . . [and] describ[ed] a water moisture problem inside [the homeowner’s] second[-]story bedroom window as a result of the tile roofs, in addition to reporting several broken roof tiles.”

    Plaintiff countered this evidence with a declaration from the roofing consultant whom plaintiff had hired after incurring many roof leaks in 2003. The consultant found multiple defects regarding the 1997 reroofing, and stated that these defects “would not be readily apparent to a lay person.”

    Based on this evidence, we cannot say that the reroofing defects alleged here were patent defects as a matter of law. Only one roof-related “water moisture problem” in one unit of a 61-unit, 11-building complex—and that problem was inside a window—coupled with a report of several broken roof tiles from that unit’s owner, were presented. That is it. This evidence pales in comparison to situations involving obvious defects in the context of common experience, in which a patent defect has been found as a matter of law: for example, a backyard pond with only a one-foot-high wall around it, into which a toddler fell (Preston, supra, 42 Cal.3d at pp. 110-111, 121-123); and a visible defect in pedestrian pavement substantial enough to cause a pedestrian to trip and fall (Tomko, supra, 46 Cal.App.4th at p. 1339).

    The four-year statute of limitations for a patent construction defect does not provide a basis on which to grant summary judgment here. That leads us to the statute of limitations concerning a latent construction defect and the discovery of such a defect.

    II. Latent Construction Defect/Discovery

    (4) A “latent” construction defect is one that is “not apparent by reasonable inspection.” (§ 337.15, subd. (b).) As to a latent defect that is alleged in the context of the challenged causes of action here—negligence, breach of warranty, and breach of contract—three statutes of limitations are in play: sections 338, 337 and 337.15. “The interplay between these [three] statutes sets up a two-step process: (1) actions for a latent defect must be filed within three years (§ 338 [injury to real property]) or four years (§ 337 [breach of written contract]) of discovery, but (2) in any event must be filed within ten years (§ 337.15) of substantial completion.” (North Coast Business Park v. Nielsen Construction Co. (1993) 17 Cal.App.4th 22, 27 [21 Cal.Rptr.2d 104] (North Coast); see Regents of University of California v. Hartford Acc. & Indem. Co.(1978) 21 Cal.3d 624, 640-641 [147 Cal.Rptr. 486, 581 P.2d 258*258 197]; Landale, supra, 155 Cal.App.4th at p. 1407; Mills, supra, 108 Cal.App.4th at pp. 643-644.)[4]

    (5) As noted, the limitations periods of sections 337 and 338 start to run upon “discovery.” Discovery occurs when the plaintiff suspects, or reasonably should suspect, that someone has done something wrong to the plaintiff, causing the injury (here, “wrong” is not used in a technical sense, but in a lay one). (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 397-398 [87 Cal.Rptr.2d 453, 981 P.2d 79]; Landale, supra, 155 Cal.App.4th at p. 1407; Mills, supra, 108 Cal.App.4th at pp. 643-644.) “A plaintiff has reason to suspect when he has notice or information of circumstances to put a reasonable person on inquiry.” (Landale, supra, 155 Cal.App.4th at pp. 1407-1408; see Norgart, supra, 21 Cal.4th at p. 398.) In other words, “sections 337 and 338 begin to run only after the damage is sufficiently appreciable to give a reasonable man notice that he has a duty to pursue his remedies.” (North Coast, supra, 17 Cal.App.4th at p. 27, italics added; see Mills, supra, 108 Cal.App.4th at p. 646.)

    Again, though, we cannot say, as a matter of law, that “a water moisture problem” inside a window as a result of the tile roofs—in just one unit of a complex that comprises 61 units and 11 buildings—along with a report of several broken roof tiles by that unit’s owner, constitutes sufficiently appreciable damage to give a reasonable person notice that remedies must be pursued.

    It was the recent decision in Landale that prompted the trial court to change its mind and grant the summary judgment. We are not similarly persuaded.

    Landale was a summary judgment construction defect case involving an eight-unit condominium complex that incurred various water leaks during rains. (Landale, supra, 155 Cal.App.4th at p. 1403.) The central issue was whether the three-year statute of limitations for injury to real property (§ 338) had been tolled. (Landale, at p. 1404.) To decide that issue, the court first had to decide whether the statute had run absent tolling. (Id. at pp. 1403-1404, 1407-1410.)

    The Landale court concluded that the three-year statute of limitations had run on the complaint filed in January 2001 based on the following evidence: 259*259 The former board president of the plaintiff homeowners association admitted in her deposition (1) that there were heavy rains in 1997, which caused rainwater to collect on the roofs and resulted in leaks where there had not been any leaks before, and that in 1997 a handyman applied some tar to the roof and other areas; and (2) that she received a letter in June 1998 that specifically mentioned leaks in her unit and at least two other units during the 1996-1997 rainy season, as well as a problem with waterproofing of the walls in another unit, roof and deck problems, and stairway leaks. (Landale, supra, 155 Cal.App.4th at pp. 1404-1405, 1408.)

    Based on this evidence, Landale concluded: “Here, at some unspecified date in 1997, . . . the . . . president [of the board of the plaintiff homeowners association (HOA)] . . . noticed water intrusion and observed a handyman trying to repair roof leaks. The HOA thus had notice or information that should have prompted further inquiry `through the exercise of reasonable diligence.’ [Citation.] Indeed, the June 1998 letter . . . to [the HOA board president] indicated that during the 1997 heavy El Niño rains several other units had leaks, and there were also `roof and deck problems’ and `stairway leaks.’ Such other damage would no doubt have been revealed to the HOA with the exercise of reasonable diligence. [¶] Thus, in the present case, the [three-year, section 338] statute of limitations began to run at the latest by the end of 1997 . . . and the complaint filed on January 19, 2001, was therefore untimely—unless the statute of limitations was tolled. . . .” (Landale, supra,155 Cal.App.4th at p. 1408.)

    In Landale, then, by the end of 1997, there were leaks in at least three of the complex’s eight units, including the unit of the board president of the plaintiff homeowners association. Furthermore, at this point, the president had observed a handyman trying to repair roof leaks, and there was a problem with waterproofing of the walls in another unit as well as roof and deck problems and stairway leaks. In short, at least half of the units in the Landale complex were leaking, and repair attempts had been observed by the homeowners association board president. This stands in stark contrast to the evidence presented here: One of 61 units had a window “water moisture problem” as a result of the tile roofs; the owner of that unit reported several broken concrete roof tiles; and no repairs had been observed.

    Finally, the sharp distinction between the Landale facts and the facts here highlights a significant concern raised by plaintiff. If we were to find in favor of defendants, that would force property owner associations across the state to conduct extensive investigations for possible construction defects based on any report of a small problem. This could prove very expensive for the associations, and would often be futile. We decline to impose such a burden.

    260*260 DISPOSITION

    The judgments (order granting summary judgment in favor of Whitten, No. C058300, and the subsequent stipulated judgment in favor of REO and Monier, No. C059458) are reversed. Plaintiff is awarded its costs on both appeals. (Cal. Rules of Court, rule 8.278(a)(1)-(3).)

    Sims, Acting P. J., and Robie, J., concurred.

    [1] A different roofer reroofed the remaining six buildings in plaintiff’s townhome community, and is not a party to this appeal. Also, there was another roofer besides REO who worked on some of the 11 buildings at issue here; that roofer went bankrupt and is not part of this appeal.

    [2] Plaintiff also sued defendant Monier for strict liability. There is hardly any mention of this cause of action in the briefs. Nevertheless, judgment was granted in favor of Monier based on the statute of limitations grounds on which defendant Whitten obtained summary judgment. We are reversing the summary judgment in favor of Whitten and, consequently, the stipulated judgment in favor of Monier and REO. To the extent the strict liability cause of action against Monier was summarily foreclosed on these statute of limitations grounds, it has been revived with this reversal as well.

    [3] Undesignated statutory references are to the Code of Civil Procedure.

    [4] Because the motion for summary judgment was brought by defendant Whitten, who was the roofing manager and inspector, the motion focused on defects in construction rather than on defects in the roofing product itself. The decision in Mills notes that “[n]either section [referring to both § 337.1 (patent construction defect) and § 337.15 (latent construction defect)] applies to the manufacturer of a product incorporated into the improvement. . . .” (Mills, supra, 108 Cal.App.4th at p. 643.) (See fn. 2,ante.)

     

    ×
  • Erlich v. Menezes

    Erlich v. Menezes

    Summary by Mary M. Howell, Esq.:

    Facts

    Plaintiffs Barry and Sandra Erlich contracted with defendant John Menezes, a licensed general contractor, to build a “dream house” on their ocean-view lot. The Erlichs moved into their house in December 1990. In February 1991, the rains came. The house leaked from every conceivable location. Mr. Menezes’s efforts to remedy the situation were to no avail. The Erlichs testified that they suffered emotional distress as a result of the defective condition of the house and Menezes’s invasive and unsuccessful repair attempts. Mr. Erlich even developed a permanent heart condition. The Erlichs sought recovery against Mr. Menezes on several theories, including breach of contract, fraud, negligent misrepresentation, and negligent construction. At trial, the Erlichs were awarded emotional distress damages along with compensatory damages. The Court of Appeal affirmed. The Supreme Court reversed the judgment of the Court of Appeal and remanded for further proceedings.

    Held

    Mr. Menezes’s negligence directly caused only economic injury and property damage and breached no duty independent of the contract. As such, the Erlichs could not recover damages for emotional distress based upon breach of the contract to build the house.

    *** End Summary ***

    Erlich v. Menezes

    87 Cal.Rptr.2d 886 (1999)

    888*888 Edward J. Horowitz, Claudia Ribet, Los Angeles; Knapp, Petersen & Clarke, Daniels, Baratta & Fine, Alan J. Carnegie, James L. Hsu and Stephen M. Harris, Glendale, for Defendant, Cross-complainant and Appellant.

    Sonnenschein, Nath & Rosenthal, Paul E.B. Glad, Paula M. Yost and Cheryl Dyer Berg, San Francisco, for American Insurance Association and Crum & Forster Insurance Company as Amici Curiae on behalf of Defendant, Cross-complainant and Appellant.

    Alister McAlister, Wilton, for National Association of Independent Insurers as Amicus Curiae on behalf of Defendant, Cross-complainant and Appellant.

    Crosby, Heafey, Roach & May, Kathy M. Banke, Oakland, and Kay Long-Marin, for Continental Metroplex as Amicus Curiae on behalf of Defendant, Cross-complainant and Appellant.

    Fred J. Hiestand, Sacramento, for the Association for California Tort Reform as Amicus Curiae on behalf of Defendant, Cross-complainant and Appellant.

    Cox, Castle & Nicholson, Sandra C. Stewart and Debbie L. Freedman, Los Angeles, for the Building Industry Legal Defense Foundation and the California Building Industry Association as Amici Curiae on behalf of Defendant, Cross-complainant and Appellant.

    Morgenstein & Jubelirer, James L. McGinnis and Laura E. Gasser, San Francisco, for Centex Homes as Amicus Curiae on behalf of Defendant, Cross-complainant and Appellant.

    Songstad, Randall & Ulich, Andrew K. Ulich, Irvine, and Thomas D. Deardorff, II, for Taylor Woodrow Homes, Inc., as Amicus Curiae on behalf of Defendant, Cross-complainant and Appellant.

    Chapin Fleming McNitt Shea & Carter, Craig H. Bell, San Diego, and Keith A. Turner, Los Angeles, for Truck Insurance Exchange as Amicus Curiae on behalf of Defendant, Cross-complainant and Appellant.

    John R. DeLoreto; Law Offices of Victor G. Zilinskas, Zilinskas & Jacobs, Victor G. Zilinskas and Michael L. Smith, Santa Barbara, for Plaintiffs and Respondents.

    Williams, Wester & Hall and Scott A. Williams, Greenbrae, as Amici Curiae on behalf of Plaintiffs and Respondents.

    Kasdan, Simonds, McIntyre, Epstein & Martin and David G. Epstein, Irvine, for Consumer Attorneys of California as Amicus Curiae on behalf of Plaintiffs and Respondents.

    Keppleman & Associates and Richard D. Keppleman, San Luis Obispo, for Cross-defendant and Respondent Ron Rebaldo.

    Borton, Petrini & Conron, Craig R. McCollum and Gary A. Bixler, for Cross-defendant and Respondent John Cravens Plastering, Inc.

    BROWN, J.

    We granted review in this case to determine whether emotional distress damages are recoverable for the negligent breach of a contract to construct a house. A jury awarded the homeowners the full cost necessary to repair their home as well as damages for emotional distress caused by 889*889 the contractor’s negligent performance. Since the contractor’s negligence directly caused only economic injury and property damage, and breached no duty independent of the contract, we conclude the homeowners may not recover damages for emotional distress based upon breach of a contract to build a house.

    I. Factual And Procedural Background

    Both parties agree with the facts as ascertained by the Court of Appeal. Barry and Sandra Erlich contracted with John Menezes, a licensed general contractor, to build a “dreamhouse” on their ocean-view lot. The Erlichs moved into their house in December 1990. In February 1991, the rains came. “[T]he house leaked from every conceivable location. Walls were saturated in [an upstairs bedroom], two bedrooms downstairs, and the pool room. Nearly every window in the house leaked. The living room filled with three inches of standing water. In several locations water `poured in … streams’ from the ceilings and walls. The ceiling in the garage became so saturated … the plaster liquefied and fell in chunks to the floor.”

    Menezes’s attempts to stop the leaks proved ineffectual. Caulking placed around the windows melted, “`ran down [the] windows and stained them and ran across the driveway and ran down the house [until it] … looked like someone threw balloons with paint in them at the house.'” Despite several repair efforts, which included using sledgehammers and jackhammers to cut holes in the exterior walls and ceilings, application of new waterproofing materials on portions of the roof and exterior walls, and more caulk, the house continued to leak — from the windows, from the roofs, and water seeped between the floors. Fluorescent light fixtures in the garage filled with water and had to be removed.

    “The Erlichs eventually had their home inspected by another general contractor and a structural engineer. In addition to confirming defects in the roof, exterior stucco, windows and waterproofing, the inspection revealed serious errors in the construction of the home’s structural components. None of the 20 shear, or load-bearing walls specified in the plans were properly installed. The three turrets on the roof were inadequately connected to the roof beams and, as a result, had begun to collapse. Other connections in the roof framing were also improperly constructed. Three decks were in danger of `catastrophic collapse’ because they had been finished with mortar and ceramic tile, rather than with the light-weight roofing material originally specified. Finally, the foundation of the main beam for the two-story living room was poured by digging a shallow hole, dumping in `two sacks of dry concrete mix, putting some water in the hole and mixing it up with a shovel.'” This foundation, required to carry a load of 12,000 pounds, could only support about 2,000. The beam is settling and the surrounding concrete is cracking.

    According to the Erlichs’ expert, problems were major and pervasive, concerning everything “related to a window or waterproofing, everywhere that there was something related to framing,” stucco, or the walking deck.

    Both of the Erlichs testified that they suffered emotional distress as a result of the defective condition of the house and Menezes’s invasive and unsuccessful repair attempts. Barry Erlich testified he felt “absolutely sick” and had to be “carted away in an ambulance” when he learned the full extent of the structural problems. He has a permanent heart condition, known as superventricular tachyarrhythmia, attributable, in part, to excessive stress. Although the condition can be controlled with medication, it has forced him to resign his positions as athletic director, department head and track coach.

    Sandra Erlich feared the house would collapse in an earthquake and feared for her daughter’s safety. Stickers were placed on her bedroom windows, and 890*890 alarms and emergency lights installed so rescue crews would find her room first in an emergency.

    Plaintiffs sought recovery on several theories, including breach of contract, fraud, negligent misrepresentation, and negligent construction. Both the breach of contract claim and the negligence claim alleged numerous construction defects.

    Menezes prevailed on the fraud and negligent misrepresentation claims. The jury found he breached his contract with the Erlichs by negligently constructing their home and awarded $406,700 as the cost of repairs. Each spouse was awarded $50,000 for emotional distress, and Barry Erlich received an additional $50,000 for physical pain and suffering and $15,000 for lost earnings.

    By a two-to-one majority, the Court of Appeal affirmed the judgment, including the emotional distress award. The majority noted the breach of a contractual duty may support an action in tort. The jury found Menezes was negligent. Since his negligence exposed the Erlichs to “intolerable living conditions and a constant, justifiable fear about the safety of their home,” the majority decided the Erlichs were properly compensated for their emotional distress.

    The dissent pointed out that no reported California case has upheld an award of emotional distress damages based upon simple breach of a contract to build a house. Since Menezes’s negligence directly caused only economic injury and property damage, the Erlichs were not entitled to recover damages for their emotional distress.

    We granted review to resolve the question.

    II. DISCUSSION

    A.

    In an action for breach of contract, the measure of damages is “the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom” (Civ. Code, § 3300), provided the damages are “clearly ascertainable in both their nature and origin” (Civ.Code, § 3301). In an action not arising from contract, the measure of damages is “the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not” (Civ.Code, § 3333).

    “Contract damages are generally limited to those within the contemplation of the parties when the contract was entered into or at least reasonably foreseeable by them at that time; consequential damages beyond the expectation of the parties are not recoverable. [Citations.] This limitation on available damages serves to encourage contractual relations and commercial activity by enabling parties to estimate in advance the financial risks of their enterprise.” (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 515, 28 Cal. Rptr.2d 475, 869 P.2d 454 (Applied Equipment ).) “In contrast, tort damages are awarded to [fully] compensate the victim for [all] injury suffered. [Citation.]” (Id. at p. 516, 28 Cal.Rptr.2d 475, 869 P.2d 454.)

    “`[T]he distinction between tort and contract is well grounded in common law, and divergent objectives underlie the remedies created in the two areas. Whereas contract actions are created to enforce the intentions of the parties to the agreement, tort law is primarily designed to vindicate “social policy.” [Citation.]’ “(Hunter v. Up-Right, Inc. (1993) 6 Cal.4th 1174, 1180, 26 Cal.Rptr.2d 8, 864 P.2d 88, quoting Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 683, 254 Cal. Rptr. 211, 765 P.2d 373 (Foley).) While the purposes behind contract and tort law are distinct, the boundary line between them is not (Freeman & Mills, Inc. v. Belcher Oil Co. (1995) 11 Cal.4th 85, 106, 44 Cal.Rptr.2d 420, 900 P.2d 669 (cone, and 891*891 dis. opn. of Mosk, J.) (Freeman & Mills )) and the distinction between the remedies for each is not “‘found ready made.'” (Ibid., quoting Holmes, The Common Law (1881) p. 13.) These uncertain boundaries and the apparent breadth of the recovery available for tort actions create pressure to obliterate the distinction between contracts and torts — an expansion of tort law at the expense of contract principles which Grant Gilmore aptly dubbed “contorts.” In this case we consider whether a negligent breach of a contract will support an award of damages for emotional distress — either as tort damages for negligence or as consequential or special contract damages.

    B.

    In concluding emotional distress damages were properly awarded, the Court of Appeal correctly observed that “the same wrongful act may constitute both a breach of contract and an invasion of an interest protected by the law of torts.” (North American Chemical Co. v. Superior Court (1997) 59 Cal.App.4th 764, 774, 69 Cal.Rptr.2d 466, citing 3 Witkin, Cal. Procedure (4th ed. 1996) Actions, § 139, pp. 203-204.) Here, the court permitted plaintiffs to recover both full repair costs as normal contract damages and emotional distress damages as a tort remedy.[1]

    The Court of Appeal also noted that “[a] contractual obligation may create a legal duty and the breach of that duty may support an action in tort.” This is true; however, conduct amounting to a breach of contract becomes tortious only when it also violates a duty independent of the contract arising from principles of tort law. (Applied Equipment, supra, 7 Cal.4th at p. 515, 28 Cal.Rptr.2d 475, 869 P.2d 454.) “` “An omission to perform a contract obligation is never a tort, unless that omission is also an omission of a legal duty.”‘” (Ibid., quoting Jones v. Kelly (1929) 208 Cal. 251, 255, 280 P. 942.)

    Tort damages have been permitted in contract cases where a breach of duty directly causes physical injury (Fuentes v. Perez (1977) 66 Cal.App.3d 163, 168, fn. 2, 136 Cal.Rptr. 275); for breach of the covenant of good faith and fair dealing in insurance contracts (Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 433-134, 58 Cal. Rptr. 13, 426 P.2d 173); for wrongful discharge in violation of fundamental public policy (Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 175-176, 164 Cal. Rptr. 839, 610 P.2d 1330); or where the contract was fraudulently induced. (Las Palmas Associates v. Las Palmas Center-Associates (1991) 235 Cal.App.3d 1220, 1238-1239, 1 Cal.Rptr.2d 301.) In each of these cases, the duty that gives rise to tort liability is either completely independent of the contract or arises from conduct which is both intentional and intended to harm. (See, e.g., Christensen v. Superior Court(1991) 54 Cal.3d 868, 885-886, 2 Cal. Rptr.2d 79, 820 P.2d 181.)

    Plaintiffs theory of tort recovery is that mental distress is a foreseeable consequence of negligent breaches of standard commercial contracts. However, foreseeability alone is not sufficient to create an independent tort duty. “`Whether a defendant owes a duty of care is a question of law. Its existence depends upon the foreseeability of the risk and a weighing of policy considerations for and against imposition of liability.’ [Citation.]” (Burgess v. Superior Court (1992) 2 Cal.4th 892*892 1064, 1072, 9 Cal.Rptr.2d 615, 831 P.2d 1197.) Because the consequences of a negligent act must be limited to avoid an intolerable burden on society (Elden v. Sheldon (1988) 46 Cal.3d 267, 274, 250 Cal.Rptr. 254, 758 P.2d 582), the determination of duty “recognizes that policy considerations may dictate a cause of action should not be sanctioned no matter how foreseeable the risk.” (Ibid, fn. omitted.) “[T]here are clear judicial days on which a court can foresee forever and thus determine liability but none on which that foresight alone provides a socially and judicially acceptable limit on recovery of damages for [an] injury.” (Thing v. La Chusa (1989) 48 Cal.3d 644, 668, 257 Cal.Rptr. 865, 771 P.2d 814.) In short, foreseeability is not synonymous with duty; nor is it a substitute.

    The question thus remains: is the mere negligent breach of a contract sufficient? The answer is no. It may admittedly be difficult to categorize the cases, but to state the rule succinctly: “[C]ourts will generally enforce the breach of a contractual promise through contract law, except when the actions that constitute the breach violate a social policy that merits the imposition of tort remedies.” (Freeman & Mills, supra, 11Cal.4th at p. 107, 44 Cal.Rptr.2d 420, 900 P.2d 669 (cone, and dis. opn. of Mosk, J.).) The familiar paradigm of tortious breach of contract in this state is the insurance contract. There we relied on the covenant of good faith and fair dealing, implied in every contract, to justify tort liability. (Foley, supra, 47 Cal.3d at pp. 689-690, 254 Cal.Rptr. 211, 765 P.2d 373.) In holding that a tort action is available for breach of the covenant in an insurance contract, we have “emphasized the `special relationship’ between insurer and insured, characterized by elements of public interest, adhesion, and fiduciary responsibility.” (Freeman & Mills, supra, 11 Cal.4th at p. 91, 44 Cal.Rptr.2d 420, 900 P.2d 669; see Louderback & Jurika, Standards for Limiting the Tort of Bad Faith Breach of Contract (1982) 16 U.S.F. L.Rev. 187, 227.)

    The special relationship test, which has been criticized as illusory and not sufficiently precise (Putz & Klippen, Commercial Bad Faith: Attorneys Fees—Not Tort Liability—Is the Remedy for “Stonewalling” (1987) 21 U.S.F. L.Rev. 419, 478-479), has little relevance to the question before us. Menezes is in the business of building single-family homes. He is one among thousands of contractors who provide the same service, and the Erlichs could take their choice among any contractors willing to accept work in the area where their home would be constructed. Although they undoubtedly relied on his claimed expertise, they were in a position to view, inspect, and criticize his work, or to hire someone who could. Most significantly, there is no indication Menezes sought to frustrate the Erlichs’ enjoyment of contracted-for benefits. He did build a house. His ineptitude led to numerous problems which he attempted to correct. And he remains ultimately responsible for reimbursing the cost of doing the job properly.

    Moreover, since, as Foley noted, the insurance cases represented “a major departure from traditional principles of contract law,” any claim for automatic extension of that exceptional approach whenever “certain hallmarks and similarities can be adduced in another contract setting” should be carefully considered. (Foley, supra, 47 Cal.3d at p. 690, 254 Cal.Rptr. 211, 765 P.2d 373.)

    Our previous decisions detail the reasons for denying tort recovery in contract breach cases: the different objectives underlying tort and contract breach; the importance of predictability in assuring commercial stability in contractual dealings; the potential for converting every contract breach into a tort, with accompanying punitive damage recovery, and the preference for legislative action in affording appropriate remedies. (Freeman & Mills, supra, 11 Cal.4th at p. 98, 44 Cal. Rptr.2d 420, 900 P.2d 669, citing approvingly 893*893 Harris v. Atlantic Richfield Co. (1993) 14 Cal.App.4th 70, 81-82, 17 Cal. Rptr.2d 649.) The same concerns support a cautious approach here. Restrictions on contract remedies serve to protect the “`freedom to bargain over special risks and [to] promote contract formation by limiting liability to the value of the promise.’ “(11 Cal.4th at p. 98, 44 Cal.Rptr.2d 420, 900 P.2d 669,quoting Harris, supra, 14 Cal.App.4th at p. 77, 17 Cal.Rptr.2d 649.)

    Generally, outside the insurance context, “a tortious breach of contract … may be found when (1) the breach is accompanied by a traditional common law tort, such as fraud or conversion; (2) the means used to breach the contract are tortious, involving deceit or undue coercion or; (3) one party intentionally breaches the contract intending or knowing that such a breach will cause severe, unmitigable harm in the form of mental anguish, personal hardship, or substantial consequential damages.” (Freeman & Mills, supra, 11 Cal.4th at p. 105, 44 Cal.Rptr.2d 420, 900 P.2d 669(cone, and dis. opn. of Mosk, J.).) Focusing on intentional conduct gives substance to the proposition that a breach of contract is tortious only when some independent duty arising from tort law is violated. (Applied Equipment, supra, 7 Cal.4th at p. 515, 28 Cal.Rptr.2d 475, 869 P.2d 454.) If every negligent breach of a contract gives rise to tort damages the limitation would be meaningless, as would the statutory distinction between tort and contract remedies.

    In this case, the jury concluded Menezes did not act intentionally; nor was he guilty of fraud or misrepresentation. This is a claim for negligent breach of a contract, which is not sufficient to support tortious damages for violation of an independent tort duty.

    It may ultimately be more useful, in attempting to develop a common law of tortious breach, to affirmatively identify specific practices utilized by contracting parties that merit the imposition of tort remedies (Freeman & Mills, supra, 11 Cal.4th at p. 107, 44 Cal.Rptr.2d 420, 900 P.2d 669 (cone, and dis. opn. of Mosk, J.)) instead of comparing each new claim to a template for exceptions. In the interim, however, it is sufficient to note that more than mere negligence has been involved in each case where tort damages have been permitted. The benefits of broad compensation must be balanced against the burdens on commercial stability. “[C]ourts should be careful to apply tort remedies only when the conduct in question is so clear in its deviation from socially useful business practices that the effect of enforcing such tort duties will be … to aid rather than discourage commerce.” (Freeman & Mills, supra, 11Cal.4th at p. 109, 44 Cal.Rptr.2d 420, 900 P.2d 669 (cone, and dis. opn. of Mosk, J.).)

    C.

    Even assuming Menezes’s negligence constituted a sufficient independent duty to the Erlichs, such a finding would not entitle them to emotional distress damages on these facts. “The fact that emotional distress damages may be awarded in some circumstances (see Rest.2d Torts, § 905, pp. 456-57) does not mean they are available in every case in which there is an independent cause of action founded upon negligence.” (Merenda v. Superior Court (1992) 3 Cal.App.4th 1, 7, 4 Cal. Rptr.2d 87 (Merenda).) “No California case has allowed recovery for emotional distress arising solely out of property damage” (Cooper v. Superior Court (1984) 153 Cal.App.3d 1008, 1012, 200 Cal.Rptr. 746); moreover, a preexisting contractual relationship, without more, will not support a recovery for mental suffering where the defendant’s tortious conduct has resulted only in economic injury to the plaintiff. (Smith v. Superior Court (1992) 10 Cal. App.4th 1033, 1040, fn. 1, 13 Cal.Rptr.2d 133; Mercado v. Leong (1996) 43 Cal. App.4th 317, 324, 50 Cal.Rptr.2d 569[emotional distress damages are unlikely when 894*894 the interests affected are merely economic]; Camenisch v. Superior Court (1996) 44 Cal.App.4th 1689, 1691, 52 Cal.Rptr.2d 450 (Camenisch) [emotional distress damages are not recoverable when attorney malpractice leads only to economic loss].)

    Although the Court of Appeal, plaintiffs, and their amici curiae rely substantially onPotter v. Firestone Tire & Rubber Co. (1993) 6 Cal.4th 965, 25 Cal.Rptr.2d 550, 863 P.2d 795 (Potter), that case does not assist our inquiry. Potter, a toxic tort case, is readily distinguishable. First, the analysis there was narrowly circumscribed by the issue presented: “whether … emotional distress engendered by the fear of developing cancer in the future as a result of a toxic exposure is a recoverable item of damages in a negligence action.” (Id. at p. 981, 25 Cal.Rptr.2d 550, 863 P.2d 795.) Thus, the language of Potter cannot be read in support of some larger proposition affording emotional distress damages for any other type of fear of future harm in actions involving negligent breach of contract.

    Second, the water supply of the plaintiffs in Potter had already been contaminated. The prolonged exposure could not be undone. In contrast, the Erlichs could have avoided the threatened injury by moving out of the house until necessary repairs had been completed. If they had, relocation expenses would have been part of their damages. In any event, the general measure of damages where injury to property is capable of being repaired is the reasonable cost of repair together with the value of lost use during the period of injury. (6 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, § 1462, pp. 934-935.)

    In short, Potter permitted recovery, within stringent limits, for emotional distress resulting from a personal injury directly caused by the defendant’s tortious conduct. The Erlichs seek recovery for emotional distress engendered by an injury to their property.

    To the extent Potter is relevant here, it reiterates that “unless the defendant has assumed a duty to plaintiff in which the emotional condition of the plaintiff is an object, recovery is available only if the emotional distress arises out of the defendant’s breach of some other legal duty and the emotional distress is proximately caused by [breach of the independent duty]. Even then, with rare exceptions, a breach of the duty must threaten physical injury, not simply damage to property or financial interests. [Citations.]” (Potter, supra, 6 Cal.4th at p. 985, 25 Cal.Rptr.2d 550, 863 P.2d 795.) Although the Erlichs feared physical injury, Menezes’s negligent breach of contract resulted in only damage to their property, and they could have avoided any threat of harm.

    The question was thoroughly explored in Merenda, supra, 3 Cal.App.4th 1, 4 Cal. Rptr.2d 87, a legal malpractice action in which the plaintiff sought damages for the severe emotional distress she suffered when her attorney’s negligence caused the loss of expected damages from her claim for sexual assault and battery. “It is true that the `transaction,’ a contract for legal services, was intended to affect the plaintiff. However, the foreseeability of serious emotional harm to the client and the degree of certainty that the client suffered such injury by loss of an economic claim are tenuous. Litigation is an inherently uncertain vehicle for advancing one’s economic interests. The expectation of a recovery is rarely so certain that a litigant would be justified in resting her peace of mind upon the assurance of victory.” (Id. at p. 10, 4 Cal.Rptr.2d 87.)

    In Camenisch, supra, 44 Cal.App.4th 1689, 52 Cal.Rptr.2d 450, the plaintiff sought emotional distress damages because the lawyer’s negligent estate planning advice thwarted his tax avoidance goals. The complaint alleged the attorney had been hired “`for the express purpose of providing for [the plaintiffs’ family] and obtaining repose regarding their financial 895*895 security.'” (Id. at p. 1692, 52 Cal.Rptr.2d 450.) The trial court overruled the attorney’s demurrer. The Court of Appeal rejected the claim for emotional distress damages. Acknowledging that Merenda dealt with malpractice related to litigation, the court nevertheless found its reasoning dispositive. “Public policy reasons do not support a different result when the alleged malpractice is committed in a tax advice context, even if the tax advice is part of an estate plan, [¶] As in a litigation context, the client’s primary protected interest is economic in a tax planning situation. The prospect of paying taxes is generally considered distressing, and the prospect of paying a greater levy than necessary is even more disquieting. However, the emotional upset derives from an inherently economic concern.” (Id. at p. 1697, 52 Cal.Rptr.2d 450.)

    In Lubner v. City of Los Angeles (1996) 45 Cal.App.4th 525, 53 Cal.Rptr.2d 24, two artists lost a substantial portion of their life’s work when a city trash truck, which had been parked on a hilltop, rolled down and crashed into their home, damaging the house, two cars, and much of their artwork. The Lubners filed a negligence action and sought damages for their emotional distress. Recognizing that the artwork may have been extremely important to the Lubners, the court nevertheless found they were not entitled to recover for emotional distress caused by injury to property. (Id. at p. 532, 53 Cal.Rptr.2d 24.) The court based its ruling primarily on the absence of a preexisting relationship between the parties, but separately considered whether the defendant breached a duty of care to the plaintiffs. Noting that the moral blame on the defendant was only that which attends ordinary negligence and nothing in the record indicated bad faith or reckless indifference to the Lubners’ emotional tranquillity, the court concluded liability for negligent infliction of emotional distress was unwarranted. (Id. at p. 534, 53 Cal.Rptr.2d 24.)

    Public policy supports a similar limit where the negligence concerns the construction of a home. In Blagrove v. J.B. Mechanical, Inc. (Wyo.1997) 934 P.2d 1273 (Blagrove), the homeowners sued a plumbing contractor to recover damages for mental anguish caused when flooding from a faulty plumbing connection damaged their home and destroyed personal possessions. The Wyoming Supreme Court held that, absent physical injury, emotional distress damages can be recovered only in limited circumstances involving intentional torts, constitutional violations, and the breach of the covenant of good faith and fair dealing in insurance contracts, and concluded a contrary rule would be poor public policy.

    “In deciding whether the plaintiffs interests are entitled to legal protection against the defendant’s conduct, we must balance the interest of the injured parties against the view that a negligent act should have some end to its legal consequences…. We are persuaded that the concerns which have acted to prevent recovery for emotional distress when property is damaged remain relevant and weigh against permitting recovery. While we do not doubt that the Blagroves were justifiably and seriously distressed over the damage to [their home], adopting a rule allowing trial on the issue and recovery if proved would result in unacceptable burdens for both the judicial system and defendants. We therefore hold that emotional distress damages in connection with property damages are not compensable.” (Blagrove, supra, 934 P.2d at pp. 1276-1277; see also Caradonna v. Thorious (1969) 17 Mich.App. 41, 169 N.W.2d 179, 182; Jankowski v. Mazzotta (1967) 7 Mich. App. 483, 152 N.W.2d 49, 51 [no mental anguish remedy available for ineptly constructed home].)

    Here, the breach — the negligent construction of the Erlichs’ house — did not cause physical injury. No one was hit by a falling beam. Although the Erlichs state they feared the house was structurally unsafe 896*896 and might collapse in an earthquake, they lived in it for five years. The only physical injury alleged is Barry Erlich’s heart disease, which flowed from the emotional distress and not directly from the negligent construction.

    The Erlichs may have hoped to build their dream home and live happily ever after, but there is a reason that tag line belongs only in fairy tales. Building a house may turn out to be a stress-free project; it is much more likely to be the stuff of urban legends — the cause of bankruptcy, marital dissolution, hypertension and fleeting fantasies ranging from homicide to suicide. As Justice Yegan noted below, “No reasonable homeowner can embark on a building project with certainty that the project will be completed to perfection. Indeed, errors are so likely to occur that few if any homeowners would be justified in resting their peace of mind on [its] timely or correct completion….” The connection between the service sought and the aggravation and distress resulting from incompetence may be somewhat less tenuous than in a malpractice case, but the emotional suffering still derives from an inherently economic concern.

    D.

    Having concluded tort damages are not available, we finally consider whether damages for emotional distress should be included as consequential or special damages in a contract claim. “Contract damages are generally limited to those within the contemplation of the parties when the contract was entered into or at least reasonably foreseeable by them at the time; consequential damages beyond the expectations of the parties are not recoverable. [Citations.] This limitation on available damages serves to encourage contractual relations and commercial activity by enabling parties to estimate in advance the financial risks of their enterprise.” (Applied Equipment, supra, 7 Cal.4th at p. 515, 28 Cal.Rptr.2d 475, 869 P.2d 454.)

    “`[W]hen two parties make a contract, . they agree upon the rules and regulations which will govern their relationship; the risks inherent in the agreement and the likelihood of its breach. The parties to the contract in essence create a mini-universe for themselves, in which each voluntarily chooses his contracting partner, each trusts the other’s willingness to keep his word and honor his commitments, and in which they define their respective obligations, rewards and risks. Under such a scenario, it is appropriate to enforce only such obligations as each party voluntarily assumed, and to give him only such benefits as he expected to receive; this is the function of contract law.'” (Applied Equipment, supra, 7 Cal.4th at p. 517, 28 Cal.Rptr.2d 475, 869 P.2d 454.)

    Accordingly, damages for mental suffering and emotional distress are generally not recoverable in an action for breach of an ordinary commercial contract in California. (Kwan v. Mercedes-Benz of North America, Inc. (1994) 23 Cal.App.4th 174, 188, 28 Cal.Rptr.2d 371 (Kwan); Sawyer v. Bank of America (1978) 83 Cal.App.3d 135, 139, 145 Cal.Rptr. 623.) “Recovery for emotional disturbance will be excluded unless the breach also caused bodily harm or the contract or the breach is of such a kind that serious emotional disturbance was a particularly likely result.” (Rest.2d Contracts, § 353.) The Restatement specifically notes the breach of a contract to build a home is not “particularly likely” to result in “serious emotional disturbance.” (Ibid.)

    Cases permitting recovery for emotional distress typically involve mental anguish stemming from more personal undertakings the traumatic results of which were unavoidable. (See, e.g., Burgess v. Superior Court, supra, 2 Cal.4th 1064, 9 Cal.Rptr.2d 615, 831 P.2d 1197 [infant injured during childbirth]; Molien v. Kaiser Foundation Hospitals (1980) 27 Cal.3d 916, 167 Cal.Rptr. 831, 616 P.2d 813[misdiagnosed venereal disease and subsequent 897*897 failure of marriage]; Kately v. Wilkinson (1983) 148 Cal.App.3d 576, 195 Cal.Rptr. 902 [fatal water skiing accident];Chelini v. Nieri (1948) 32 Cal.2d 480, 196 P.2d 915 [failure to adequately preserve a corpse].) Thus, when the express object of the contract is the mental and emotional well-being of one of the contracting parties, the breach of the contract may give rise to damages for mental suffering or emotional distress. (See Wynn v. Monterey Club(1980) 111 Cal.App.3d 789, 799-801, 168 Cal.Rptr. 878 [agreement of two gambling clubs to exclude husband’s gambling-addicted wife from clubs and not to cash her checks]; Ross v. Forest Laum Memorial Park (1984) 153 Cal.App.3d 988, 992-996, 203 Cal.Rptr. 468 [cemetery’s agreement to keep burial service private and to protect grave from vandalism]; Windeler v. Scheers Jewelers (1970) 8 Cal.App.3d 844, 851-852, 88 Cal.Rptr. 39 [bailment for heirloom jewelry where jewelry’s great sentimental value was made known to bailee].)

    Cases from other jurisdictions have formulated a similar rule, barring recovery of emotional distress damages for breach of contract except in cases involving contracts in which emotional concerns are the essence of the contract. (See, e.g.,Hancock v. Northcutt (Alaska 1991) 808 P.2d 251, 258 [“contracts pertaining to one’s dwelling are not among those contracts which, if breached, are particularly likely to result in serious emotional disturbance”; typical damages for breach of house construction contracts can appropriately be calculated in terms of monetary loss]; McMeakin v. Roofing & Sheet Metal Supply (Okla.Ct. App.1990) 807 P.2d 288[affirming order granting summary judgment in favor of defendant roofing company after it negligently stacked too many brick tiles on roof, causing roof to collapse and completely destroy home, leading to plaintiffs heart attack one month later]; Day v. Montana Power Company (1990) 242 Mont. 195, 789 P.2d 1224 [owner of restaurant that was destroyed in gas explosion allegedly caused by negligence of utility company employee not entitled to recover damages for emotional distress]; Creger v. Robertson (La.Ct.App.1989) 542 So.2d 1090 [reversing award for emotional distress damages caused by foul odor emanating from a faulty foundation, preventing plaintiff from entertaining guests in her residence]; Groh v. Broadland Builders, Inc.(Mich. Ct.App.1982) 120 Mich.App. 214, 327 N.W.2d 443 [reversing order denying motion to strike allegations of mental anguish in case involving malfunctioning septic tank system, and noting adequacy of monetary damages to compensate for pecuniary loss of “having to do the job over,” as distinguished from cases allowing recovery because situation could never be adequately corrected].)

    Plaintiffs argue strenuously that a broader notion of damages is appropriate when the contract is for the construction of a home. Amici curiae urge us to permit emotional distress damages in cases of negligent construction of a personal residence when the negligent construction causes gross interference with the normal use and habitability of the residence.

    Such a rule would make the financial risks of construction agreements difficult to predict. Contract damages must be clearly ascertainable in both nature and origin. (Civ.Code, § 3301.) A contracting party cannot be required to assume limitless responsibility for all consequences of a breach and must be advised of any special harm that might result in order to determine whether or not to accept the risk of contracting. (1 Witkin, Summary of Cal. Law, supra, Contracts, § 815, p. 733.)

    Moreover, adding an emotional distress component to recovery for construction defects could increase the already prohibitively high cost of housing in California, affect the availability of insurance for builders, and greatly diminish the supply of affordable housing. The potential for such broad-ranging economic consequences — costs likely to be paid by the public generally — means the task of fashioning 898*898appropriate limits on the availability of emotional distress claims should be left to the Legislature. (See Tex. Prop.Code Ann. § 27.001 et seq. (1999); Hawaii Rev. Stat. § 663-8.9 (1998).)

    Permitting damages for emotional distress on the theory that certain contracts carry a lot of emotional freight provides no useful guidance. Courts have carved out a narrow range of exceptions to the general rule of exclusion where emotional tranquillity is the contract’s essence. Refusal to broaden the bases for recovery reflects a fundamental policy choice. A rule which focuses not on the risks contracting parties voluntarily assume but on one party’s reaction to inadequate performance, cannot provide any principled limit on liability.

    The discussion in Kwan, a case dealing with the breach of a sales contract for the purchase of a car, is instructive. “[A] contract for [the] sale of an automobile is not essentially tied to the buyer’s mental or emotional well-being. Personal as the choice of a car may be, the central reason for buying one is usually transportation…. [¶] In spite of America’s much-discussed `love affair with the automobile,’ disruption of an owner’s relationship with his or her car is not, in the normal case, comparable to the loss or mis-treatment of a family member’s remains [citation], an invasion of one’s privacy [citation], or the loss of one’s spouse to a gambling addiction [citation]. In the latter situations, the contract exists primarily to further or protect emotional interests; the direct and foreseeable injuries resulting from a breach are also primarily emotional. In contrast, the undeniable aggravation, irritation and anxiety that may result from [the] breach of an automobile warranty are secondary effects deriving from the decreased usefulness of the car and the frequently frustrating process of having an automobile repaired. While [the] purchase of an automobile may sometimes lead to severe emotional distress, such a result is not ordinarily foreseeable from the nature of the contract.” (Kwan, supra, 23 Cal. App.4th at p. 190, 28 Cal.Rptr.2d 371.)

    Most other jurisdictions have reached the same conclusion. (See Sanders v. Zeagler(La.1997) 686 So.2d 819, 822-823 [principal object of a contract for the construction of a house was to obtain a place to live and emotional distress damages were not recoverable]; Hancock v. Northcutt, supra, 808 P.2d at pp. 258-259 [no recovery for emotional distress as a result of defective construction; typical damages for breach of house construction contracts can appropriately be calculated in terms of monetary loss]; City of Tyler v. Likes (Tex.1997) 962 S.W.2d 489, 497 [mental anguish based solely on property damage is not compensable as a matter of law].)

    We agree. The available damages for defective construction are limited to the cost of repairing the home, including lost use or relocation expenses, or the diminution in value. (Orndorff v. Christiana Community Builders (1990) 217 Cal. App.3d 683, 266 Cal.Rptr. 193.) The Erlichs received more than $400,000 in traditional contract damages to correct the defects in their home. While their distress was undoubtedly real and serious, we conclude the balance of policy considerations — the potential for significant increases in liability in amounts disproportionate to culpability, the court’s inability to formulate appropriate limits on the availability of claims, and the magnitude of the impact on stability and predictability in commercial affairs — counsel against expanding contract damages to include mental distress claims in negligent construction cases.

    DISPOSITION

    The judgment of the Court of Appeal is reversed and the matter is remanded for further proceedings consistent with this opinion.

    GEORGE, C.J., KENNARD, J., BAXTER, J., and CHIN, J., concur.

    899*899 Concurring and Dissenting Opinion by WERDEGAR, J.

    I concur in the majority opinion insofar as it holds that a plaintiff may not recover damages for emotional distress based on a defendant’s negligent breach of a contract to build a house when the defendant has breached no duty independent of the contract. Although I read the record differently as to whether these plaintiffs did, in fact, present an independent claim for negligence, in view of the majority’s conclusion that plaintiffs did not present such a claim (see maj. opn., ante, 87 Cal.Rptr.2d at pp. 888, 893, 981 P.2d at pp. 980, 984), the discussion in part C of the majority opinion (id., at pp. 893-896, 981 P.2d at pp. 985-987) is unnecessary. I therefore express no opinion on the circumstances under which a tort plaintiff may recover damages for emotional distress.

    MOSK, J., concurs.

    [1] At oral argument, plaintiff cited Sloane v. Southern Cal. Ry. Co. (1896) 111 Cal. 668, 44 P. 320, a case involving a passenger wrongly ejected from a train, for the proposition that emotional distress damages arising out of breach of contract have been permitted in California for many years. In fact,Sloane specifically recognized the distinction between contract and tort remedies and held plaintiff could either “bring an action simply for the breach of . . . contract, or she could sue … in tort” for the carrier’s violation of the duty, as a common carrier, which it assumed upon entering into the contract. (Id. at p. 677. 44 P. 320.)

     

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  • Kriegler v. Eichler Homes

    Kriegler v. Eichler Homes

    269 Cal.App.2d 224 (1969)

    David Freidenrich, Leonard Ware, Eleanor M. Kraft and Kraft & Kraft for Defendants, Cross-complainants and Appellants.

    No appearance for Plaintiff and Respondent.

    Hoge, Fenton, Jones & Appel, James B. Eggert, Whitney & Lariviere and John P. Whitney for Cross-defendants and Respondents.

    TAYLOR, J.

    Respondent Kriegler filed this action for physical damage sustained as the result of the failure of a radiant heating system in a home constructed by appellants, Eichler Homes, Inc. and Joseph L. Eichler (hereafter Eichler), who cross-complained against the supplier, respondent, General Motors Corporation (hereafter General Motors) and the heating contractors, respondents, Anderson and Rother, individually and doing business as Arro Company (hereafter collectively referred to as Arro).Eichler appeals from the judgment in favor of Kriegler on the complaint and in favor of General Motors and Arro on the cross-complaint.

    The questions presented are: 1) whether Eichler was liable to Kriegler on the theory of strict liability; 2) the sufficiency of the evidence to sustain the judgment in favor of Kriegler on the basis of Eichler’s negligence in installing the radiant heating system; and 3) the propriety of the trial court’s conclusions that General Motors and Arro were not liable to Eichler for breach of any implied warranties and that, in any event, recovery on the cross-complaint was barred by Eichler’s negligence.

    The basic facts are not in dispute. In April 1957 Kriegler purchased a home in Palo Alto that had been constructed by Eichler in the last quarter of 1951 and sold to Kriegler’s predecessors, the Resings, in January 1952. Eichler employed Arro as the heating contractor. Because of a copper shortage caused by the Korean war, Arro obtained terne coated steel tubing from General Motors. In the fall of 1951, Arro installed this steel tubing in the Kriegler home and guaranteed the radiant heating system in writing. Arro installed steel 226*226 tubing radiant heating systems in at least 4,000 homes for Eichler.

    The method used to install the steel tubing was the same as that used for copper. After Eichler prepared the building site by providing a four-inch fill covered with a vapor-proof membrane of Sisal-Kraft paper and putting a net of steel mesh over the paper, Arro shaped the tubing, laid it on the mesh and tied it to the mesh. Then, Arro pumped the piping up to the hydrostatic pressure of not less than 250 and generally to 300, put a guage on it and left it for the approval of the city and the Federal Housing Administration inspectors (hereafter F.H.A.). After a hydrostatic pressure check by these inspectors, Eichler or its other subcontractors poured the concrete with the pressure gauge still operating, while the workers lifted the wire mesh and tubing up into the concrete with hooks. The objective of this process was to place the tubing into the center of the concrete slab to insure optimum heat distribution.

    At this time, F.H.A. required either a double slab or use of a membrane with a single slab, and had approved both the above method of installation and the use of General Motors steel tubing.

    In November 1959, as a result of the corrosion of the steel tubing, the radiant heating system of the Kriegler home failed. The emergency and final repairs required removal and storage of furniture, as well as the temporary acquisition by Krieglerand his family of other shelter. When Arro first attempted to repair the system, it discovered that the tubing was corroded from the outside. Arro first attempted to splice in a new pipe but after the system continued to leak, concluded that the tubing was probably corroded throughout and replaced the entire heating system with a new one.

    The trial court found on the complaint, so far as pertinent, that: as a result ofEichler’s negligence, Kriegler’s home suffered a diminution in value of $5,073.18; and that regardless of negligence, Eichler was liable to Kriegler in the above amount on the theory of strict liability because the radiant heating system, as installed, was defective.

    [1] Eichler first contends that the trial court erred in finding Eichler liable to Krieglerregardless of negligence. The question is one of first impression in this state. Although Kriegler has not filed any brief and we are under no duty to look up the law (Roth v. Keene, 256 Cal.App.2d 725, 727 [64 Cal.Rptr. 399]; Cal. Rules of Court, rule 17 (b)), Eichler still 227*227 has the burden of demonstrating error (Perfection Paint Products v. Johnson, 164 Cal.App.2d 739 [330 P.2d 829]).

    Eichler concedes that the doctrine of strict liability in tort applies to physical harm to property (Gherna v. Ford Motor Co., 246 Cal.App.2d 639, 649 [55 Cal.Rptr. 94]) but argues that the doctrine cannot be applied to homes or builders. We do not agree. As set forth in Greenman v. Yuba Power Products, Inc., 59 Cal.2d 57 [27 Cal.Rptr. 697, 377 P.2d 897, 13 A.L.R.3d 1049], and Vandermark v. Ford Motor Co., 61 Cal.2d 256 [37 Cal.Rptr. 896, 391 P.2d 168], the strict liability doctrine applies when the plaintiff proves that he was injured while using the instrumentality in a way it was intended to be used as a result of a defect in design and manufacture of which plaintiff was not aware and which made the instrumentality unsafe for its intended use. So far, it has been applied in this state only to manufacturers, retailers and suppliers of personal property and rejected as to sales of real estate (Conolley v. Bull, 258 Cal.App.2d 183, 195 [65 Cal.Rptr. 689]). We recently pointed out in Barth v. B. F. Goodrich Tire Co., 265 Cal.App.2d 228, at pp. 252-253 [71 Cal.Rptr. 306], that the reasoning behind the doctrine applies to any case of injury resulting from the risk-creating conduct of a seller in any stage of the production and distribution of goods.

    We think, in terms of today’s society, there are no meaningful distinctions betweenEichler’s mass production and sale of homes and the mass production and sale of automobiles and that the pertinent overriding policy considerations are the same. Law, as an instrument of justice, has infinite capacity for growth to meet changing needs and mores. Nowhere is this better illustrated than in the recent developments in the field of products liability. The law should be based on current concepts of what is right and just and the judiciary should be alert to the never-ending need for keeping legal principles abreast of the times. Ancient distinctions that make no sense in today’s society and that tend to discredit the law should be readily rejected as they were step by step in Greenman and Vandermark.

    We find support in our view in the comments of our most eminent authority in the law of torts (see Prosser, Strict Liability to the Consumer in California, 18 Hastings L.J., 9, 20, and the exceptionally able and well-thought out opinion of the Supreme Court of New Jersey, in a case almost on all fours with the instant one (Schipper v. Levitt & Sons, Inc. (1965) 228*228 44 N.J. 70 [207 A.2d 314]). [fn. 1] In Schipper, the purchaser of a mass-produced home sued the builder-vendor for injuries sustained by the child of a lessee. The child was injured by excessively hot water drawn from a faucet in a hot water system that had been installed without a mixing valve, a defect as latent as the incorrect positioning of the pipes in the instant case. In reversing a judgment of nonsuit, the Supreme Court held that the builder-vendor was liable to the purchaser on the basis of strict liability. In language equally applicable here, the court said: “When a vendee buys a development house from an advertised model, as in a Levitt or in a comparable project, he clearly relies on the skill of the developer and on its implied representation that the house will be erected in reasonably workmanlike manner and will be reasonably fit for habitation. He has no architect or other professional adviser of his own, he has no real competency to inspect on his own, his actual examination is, in the nature of things, largely superficial, and his opportunity for obtaining meaningful protective changes in the conveyancing documents prepared by the builder vendor is negligible. If there is improper construction such as a defective heating system or a defective ceiling, stairway and the like, the well-being of the vendee and others is seriously endangered and serious injury is foreseeable. The public interest dictates that if such injury does result from the defective construction, its cost should be borne by the responsible developer who created the danger and who is in the better economic position to bear the loss rather than by the injured party who justifiably relied on the developer’s skill and implied representation.” (Pp. 325-326.)

    “Buyers of mass produced development homes are not on an equal footing with the builder vendors and are no more able to protect themselvs in the deed than are automobile purchasers in a position to protect themselves in the bill of sale.” (P. 326.) The court then pointed out that the imposition of strict liability principles on builders and developers would not make them insurers of the safety of all who thereafter came on the premises. In determining whether the house was defective, the test would be one of reasonableness rather than perfection.

    As it cannot be disputed that Kriegler here relied on the skill of Eichler in producing a home with a heating system 229*229 that was reasonably fit for its intended purpose, the trial court properly concluded that Eichler was liable to Kriegler on the basis of strict liability, and the judgment in favor of Kriegler must be affirmed on that ground alone.

    [2] Since we have concluded above that a sufficient basis appears for sustaining the judgment in favor of Kriegler, we will only briefly discuss Eichler’s remaining contention in relation to that judgment. Eichler contends that the evidence does not support the findings concerning its negligence in the installation of the heating system. The detailed findings are set forth in the footnote below. [fn. 2]

    As Kriegler has not seen fit to file a brief in this case, we assume that: 1) the facts as stated in Eichler’s brief are true; 2) the evidence is insufficient to support material findings of the trial court; and 3) Kriegler has abandoned any attempt to support the judgment and the ground urged by Eichler for reversing the judgment is meritorious (Roth v. Keene, supra).

    Applying the above rule, we assume that the evidence is insufficient to support the findings concerning Eichler’s negligence in the installation of the heating system. Accordingly, the findings and conclusions declaring Eichler’s negligence are hereby stricken, and the judgment in favor of Kriegler otherwise affirmed.

    [3] We turn then to Eichler’s appeal from that portion of the judgment denying relief on its cross-complaint against General Motors and Arro. As indicated above, the trial court found as to General Motors that the steel tubing was suitable for such use if properly installed, that there was no breach of the implied warranties of fitness for intended use or merchantability, and that there were no express warranties. As to Arro, the court found there was an express warranty for five years but that no implied warranties were made. The court also found that Arro did not breach its express warranty but 230*230 that the damages were caused by Eichler’s negligence in positioning the heating system.

    Eichler complains only of the findings relating to implied warranty, and the further superfluous finding that in any event, Eichler was barred from any recovery on its cross-complaint because of its negligence. Eichler does not attack the sufficiency of the evidence [fn. 3] as to the findings that no implied warranties were breached by General Motors or Arro, but only states that the trial court failed to indicate whether General Motors made any implied warranties of fitness as to the tubing. This contention borders on the frivolous, as implied warranties are created by operation of law.

    The uncontroverted evidence established that the steel tubing was sold by General Motors to Arro in May 1951. The applicable provision of law at this time was section 1735 of the Civil Code (set forth below). [fn. 4]

    This section imposes an absolute liability regardless of negligence (Vaccarezza v. Sanguinetti, 71 Cal.App.2d 687 [163 P.2d 470]) and in a similar situation has been held to include a prospective warranty that tubing would not, within a reasonable period of time, corrode and leak (Aced v. Hobbs-Sesack Plumbing Co., 55 Cal.2d 573, 583-585 [12 Cal.Rptr. 257, 360 P.2d 897]). We must assume that the trial court was familiar with these rules and based its conclusions of non-liability on the evidence presented. Accordingly, the judgment 231*231 in favor of Arro and General Motors on the cross-complaint is affirmed. As Eichler failed to establish a cause of action on its cross-complaint, we need not discuss the contentions concerning the finding that it was barred from any relief on the cross-complaint by its own negligence.

    Affirmed.

    Shoemaker, P. J., and Agee, J., concurred.

    “(1) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, and it appears that the buyer relies on the seller’s skill or judgment (whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be reasonably fit for such purpose.”

    “(2) Where the goods are bought by description from a seller who deals in goods of that description (whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be of merchantable quality.”

    “(3) If the buyer has examined the goods, there is no implied warranty as regards defects which such examination ought to have revealed.”

    “(4) In the case of a contract to sell or a sale of a specified article under its patent or other trade name, there is no implied warranty as to its fitness for any particular purpose.”

    “(5) An implied warranty or condition as to the quality or fitness for a particular purpose may be annexed by the usage of trade.”

    “(6) An express warranty or condition does not negative a warranty or condition implied under this act unless inconsistent therewith.”

    [fn. 1] 1. Cited with approval in Connor v. Great Western Sav. & Loan Assn. (1968) 69 Cal.2d 850 [73 Cal.Rptr. 369, 447 P.2d 609], which, although not directly in point, supports our view.

    [fn. 2] 2. The court found that at the time of the installation of the heating system in the Kriegler home, the building and construction industry had knowledge of methods whereby steel tubing could be used as a substitute for copper tubing with reasonable protection against corrosion. An essential element in such methods was the control positioning of the tubing well within the cement slab. Because of the susceptibility to the rust and corrosion in such steel tubing, it was good practice in the building and construction industry, both as to custom homes and tract developments, to take precautions to insure controlled and uniform positioning of the tubing well within the concrete slab. This was usually accomplished by other builders of custom and tract homes through the use of (1) double slab construction, (2) concrete blocks, or (3) wire clips. Eichler was negligent in not using any of these methods then known and used in the industry.

    [fn. 3] 3. Accordingly, as to the appeal from the judgment on the cross-complaint, the usual assumptions concerning the sufficiency of the evidence to support the findings and judgment apply.

    [fn. 4] 4. “Subject to the provisions of this act and of any statute in that behalf, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract to sell or a sale, except as follows:

     

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  • Palm Valley HOA v. Design

    Palm Valley HOA v. Design

    102 Cal.Rptr.2d 350 (2000)

    351*351 Edwards, Sooy & Byron and Michael M. Edwards, San Diego, for Objector and Appellant.

    Thorsnes, Bartolotta & McGuire, C. Brant Noziska, Neal H. Rockwood and Timothy J. Tatro, San Diego, for Plaintiff and Respondent.

    352*352 OPINION

    WARD, J.

    Appellant law firm Edwards, Sooy & Byron (the firm) appeals after the trial court imposed sanctions upon it for asserted bad faith acts and Discovery abuses in the underlying construction defect litigation. The basis for the imposition of sanctions was that the firm pursued litigation activities on behalf of its client, even after the firm knew that the client was a suspended corporation.

    The firm contends that the trial court abused its discretion in imposing sanctions: The rule is clear that a corporation suspended for nonpayment of taxes may not defend itself in litigation. The firm’s client, however, was suspended for failure to file a required information statement with the Secretary of State, and not for nonpayment of taxes. Whether these two types of corporate suspensions both result in a disqualification from litigation appears to be a question of first impression.

    We conclude that, although the statutory provisions suspending a corporation for failure to file a required statement have not yet been so construed in any published California case, those provisions would make clear to any reasonable attorney that a corporation suspended under the Corporations Code, like a corporation suspended under the Revenue and Taxation Code, is also disabled from participating in litigation activities. At the least, the facts before the trial court support the view that the firm did not rely upon any purported distinction between a Corporations Code suspension and a Revenue and Taxation Code suspension in deciding to conceal its knowledge of the client’s suspended status from the court and opposing counsel. Thus, the court did not abuse its discretion in finding that the firm acted in bad faith, and in assessing sanctions accordingly. We therefore affirm the award of sanctions.

    FACTS AND PROCEDURAL HISTORY

    Plaintiff and respondent, Palm Valley Homeowners Association, Inc. (homeowners), filed a construction defect lawsuit against the developer of their homes. The developer in turn cross-complained against subcontractors and suppliers that had worked on the project. In 1996, homeowners named a company called Design MTC in place of one of the subcontractor Doe defendants. The firm represented Design MTC.

    The firm, on behalf of Design MTC, answered both the developer’s cross-complaint and the homeowners’ complaint by June 16, 1997. In March of 1998, the firm learned that its client, Design MTC, was a suspended corporation. Design MTC’s suspension was not for nonpayment of taxes, however, as provided under Revenue and Taxation Code section 23301; rather, Design MTC was suspended after failing to file a required informational statement with the Secretary of State, as provided in Corporations Code section 2205.

    The firm did not report the suspension to the court or to any other parties; the firm continued to represent Design MTC in the litigation, filing and responding to pleadings and motions. In July 1998, for example, the firm filed motions for summary judgment on Design MTC’s behalf, against both the homeowners on the complaint and the developer on its cross-complaint.

    On August 5, 1998, the homeowners’ investigator discovered that Design MTC was a suspended corporation. The homeowners’ attorneys notified the firm on August 27, 1998, that it had learned of Design MTC’s suspension. At a court hearing on August 28, 1998, the homeowners’ attorneys reported to the court that Design MTC was a suspended corporation, erroneously stating that it had been suspended under the Revenue and Taxation Code. The court granted the homeowners an order shortening time for bringing a motion to strike Design MTC’s answer, and also 353*353took Design MTC’s summary judgment motions off calendar.

    Homeowners moved for sanctions against Design MTC and the firm. The firm appeared for Design MTC at the sanctions hearing, and objected to the proceedings. The court ruled that neither Design MTC nor the firm had the right to appear at the hearing on account of Design MTC’s suspended status. The court granted the motion for sanctions and set a further date for a prove-up hearing.

    On or about September 25, 1998, homeowners filed their memorandum of costs, and requested $89,490.02 in sanctions. On or about September 29, 1998, the firm filed a petition for writ of mandate in this court. (Edwards, Sooy & Byron v. Superior Court(Sept. 29, 1998, E023496) [nonpub].) On October 5, 1998, this court stayed proceedings on the sanctions. We thereafter issued a writ commanding the trial court to vacate its earlier sanctions order, and to hold a new hearing, affording the firm both notice and an opportunity to appear and defend itself against the request for sanctions. At the firm’s request, we have taken judicial notice of our file in the earlier writ proceeding, Edwards, Sooy & Byron v. Superior Court, supra.

    On December 4, 1998, the court again heard the homeowners’ motion for sanctions. The firm opposed the motion, arguing that, because Design MTC was not suspended for nonpayment of taxes, the disabilities applicable to a tax-suspended corporation (Rev. & Tax.Code, § 23301) should not apply. The firm argued that it had believed in good faith that a suspension under the Corporations Code did not impose the same litigation disabilities as a tax suspension.

    The court took the matter under submission and, on February 3, 1999, ruled that the firm had violated both Code of Civil Procedure sections 128.5 (frivolous actions taken in bad faith) and 2023 (discovery abuses), and imposed sanctions of $14,241.35.

    The firm appeals the sanctions order.

    ANALYSIS

    I. Standard of Review

    “We review the imposition of monetary sanctions for a prejudicial abuse of discretion.” (20th Century Ins. Co. v. Choong (2000) 79 Cal.App.4th 1274, 1277, 94 Cal.Rptr.2d 753.)

    II. The Trial Court Did Not Abuse Its Discretion in Imposing Sanctions on the Firm for Continuing to Represent a Suspended Corporation

    The firm argues that the trial court abused its discretion in imposing sanctions. There are two prongs to the argument.

    First, sanctions were imposed in part under Code of Civil Procedure section 128.5, for alleged bad faith acts, which were frivolous or undertaken for delay. The firm contends that its client was suspended under the Corporations Code, and not under the Revenue and Taxation Code for nonpayment of taxes. The statutory suspension provisions of the Corporations Code have never been interpreted expressly to indicate that a corporation suspended for failure to file the required information statement is legally disabled from acting to the same extent as a corporation suspended under the Revenue and Taxation Code for nonpayment of taxes. The firm argues that the court below erred in (1) finding a Corporations Code suspension the same as a Revenue and Taxation Code suspension, and (2) finding that the firm acted in bad faith in believing the two kinds of suspensions should be treated differently.

    A finding of abuse of discretion in imposing sanctions under Code of Civil Procedure section 128.5 thus depends in part upon whether the trial court correctly interpreted the relevant statutes, and in part upon its assessment of the firm’s good faith or bad faith in taking the positions it did.

    354*354 The second prong of the firm’s argument is that the court abused its discretion in imposing sanctions under Code of Civil Procedure section 2023, for discovery abuse. That is, the firm contends that its conduct in Representing its client during ongoing discovery is not, in itself, an abuse of the discovery process. Neither the client nor the firm, for example, refused to provide relevant requested discovery, interposed abusive discovery requests, or did anything to harm or delay the regular processes of discovery. The sole bad act claimed was the fact of participating in discovery while the corporation was suspended.

    We address each argument in turn.

    A. A Corporation Suspended Under Corporations Code Section 2205 for Failure to File a Required Information Statement Is Disabled From Participating in Litigation, As Is a Corporation Suspended Under Revenue and Taxation Code Section 23301 for Nonpayment of Taxes

    Corporations Code section 1502 provides that every corporation must file a statement every two years[1] containing such information as the corporation’s current directors, the number of board vacancies, if any, the current officers, and the name and address of a person in the state, designated to receive service of legal process upon the corporation. Corporations Code section 2204 provides that, if a corporation fails to file its required information statement under section 1502, the Secretary of State shall give notice of the delinquency; 60 days after notice of the delinquency, the Secretary of State must certify the name of the corporation to the Franchise Tax Board, and the Franchise Tax Board imposes a penalty upon the corporation.[2]

    If a corporation fails to file a statement under Corporations Code section 1502, fails to file a statement for 24 months, and has been assessed a penalty under Corporations Code section 2204 during that 24-month period, then the corporation is subject to suspension under Corporations Code section 2205. The Secretary of State must notify the corporation that “its corporate powers, rights, and privileges” will be suspended after an additional 60 days, if it fails to file a statement under section 1502. If the corporation fails to comply within 60 days, the Secretary of State certifies to the Franchise Tax Board that the corporation is suspended, and mails a notice to the suspended corporation. “[T]hereupon, except for the purpose of amending the articles of incorporation to set forth a new name, the corporate powers, rights, and privileges of the corporation are suspended.” (Corp.Code, § 2205, subd. (c).)

    Corporations Code section 2205, former subdivision (d), provides that, notwithstanding the suspension, the corporation is empowered to file a statement Under section 1502; if it does so, the Secretary of State “shall certify that fact to the Franchise Tax Board and the corporation may thereupon be relieved from suspension” unless it is also suspended by the Franchise Tax Board for nonpayment of taxes. Before Corporations Code section 2205 was amended in 1999, it provided that the Secretary of State must certify the suspended corporation’s compliance with section 1502 to the Franchise Tax Board, and that the corporation may “thereupon, in accordance with Section 23305a of the Revenue and Taxation Code, be relieved from suspension. . . .” (Italics added. See Stats.1999, ch. 1000, § 23, p. 5976.) The italicized language was in effect at the time of all the events herein.

    We think it plain upon a reading of the statutory provisions that a corporation 355*355 suspended for failure to file a required statement under Corporations Code section 1502 is, like a corporation suspended for failure to pay taxes under Revenue and Taxation Code section 23301, disabled from participating in any litigation activities.

    The firm concedes that a corporation suspended for nonpayment of taxes is disabled from resort to the courts for any purpose. “The purpose of Revenue and Taxation Code section 23301 is to `prohibit the delinquent corporation from enjoying the ordinary privileges of a going concern’ [citation], and to pressure it to pay its taxes [citation].” (Grell v. Lad Le Beau Corp. (1999) 73 Cal.App.4th 1300, 1306, 87 Cal.Rptr.2d 358.) The firm argues that such a statutory purpose, i.e., collection of taxes, does not apply when a corporation is suspended for failure to file a statement, and not for nonpayment of taxes. Thus, the firm argues, it could reasonably believe that a suspension under the Corporations Code did not disqualify it from access to or use of the courts.

    We disagree. Corporations Code section 2205, subdivision (b) expressly states that the failure to file the required statement will result in suspension of a corporation’s “corporate powers, rights, and privileges.” This parallels the language of Revenue and Taxation Code section 23301, which provides that “the corporate powers, rights and privileges of a domestic taxpayer may be suspended” for nonpayment of taxes. (Italics added.)

    Corporations Code section 2205, subdivision (c) makes clear that, “except for the purpose of amending the articles of incorporation to set forth a new name,” the suspended corporation may transact no business of any kind. Conducting litigation is not “amending the articles of incorporation to set forth a new name.”

    Corporations Code section 2205, subdivision (d), at all times relevant herein, provided that a suspended corporation could be restored Upon filing the required statement “in accordance with Section 23305a of the Revenue and Taxation Code.” Section 23305a of the Revenue and Taxation Code sets forth the prerequisites to issuance of a certificate of revivor by the Franchise Tax Board.

    All these statutory provisions should strongly indicate to any reasonable attorney that a corporation suspended for failure to file a statement under Corporations Code section 1502 is indeed disqualified from litigation and all other activities. All its “corporate powers, rights, and privileges” are suspended; the only exceptions provided by statute are to change the name of the corporation, and to cure the default by filing the missing statement.

    Cross-references to the Revenue and Taxation Code also clearly indicate that a corporation suspended under the Corporations Code is equally disabled from acting as a corporation suspended under the Revenue and Taxation Code. Indeed, the penalty provided under Corporations Code section 2204 is imposed under Revenue and Taxation Code section 19141; the $250 penalty imposed under that provision is expressly made “a final assessment due and payable at the time of assessment,” and it “shall be collected as other taxes, interest, and penalties are collected by the Franchise Tax Board. . . .”

    Just as the state may wish to persuade its corporate citizens to pay their taxes, it also may wish to persuade them to comply with basic filing requirements, requirements that are fundamental to holding a corporation accountable for its actions.

    The statutory language of the relevant sections, as well as legislative policy, are more than sufficient to put any reasonable attorney on notice—or at least to entertain a reasonable suspicion—that a corporation suspended under the Corporations Code, like a corporation suspended for nonpayment of taxes, is well and truly suspended, and disabled from participating in any litigation activities.

    356*356 The trial court did not err in so construing the statutes, and thus did not abuse its discretion in determining that the firm knew or should have known that Design MTC was disqualified from representing itself in the litigation.

    Our conclusion is further buttressed by Signal Data Proc. v. Rex Humbard Found.(Ohio App. 9 Dist.1994) 99 Ohio App.3d 646, 651 N.E.2d 498. There the Ohio Court of Appeals held that a California corporation suspended pursuant to Corporations Code section 2205, for failure to file a statement, lacked authority to register a California judgment in Ohio, or to authorize an attorney to act in Its behalf, and would remain so unless and until it cured the deficiency which had caused its suspension.

    B. The Trial Court Did Not Abuse Its Discretion in Determining that the Firm. Had Acted in Bad Faith in Pursuing Litigation Activities While Its Client Was Suspended

    The firm argues that, although we now have construed the Corporations Code suspension provisions in the same manner as the Revenue and Taxation Code suspension provisions, it could in good faith have believed that there was a legitimate difference in the effect of the two suspensions, and thus properly continued to represent its client despite its knowledge of the suspension.

    The record belies the firm’s assertions of good faith. The firm knew as of March 1998 of Design MTC’s suspended status. Giving the benefit of any doubt to the firm, that it in fact researched the matter at that time and discovered that Design MTC was suspended for failure to file a section 1502 statement, and not for nonpayment of taxes, we think it inescapable that any reasonable attorney reviewing the relevant statutes would entertain a strong suspicion that Design MTC was disqualified from exercising any powers, including the right to resort to the courts in litigation. Nevertheless, the firm chose to conceal its knowledge of the suspension, and probable disability of its client, from both the court and opposing counsel. Knowing concealment of material facts is not the hallmark of good faith.

    The firm urges that it could not discharge its ethical duties to represent its client, if it had to reveal the client’s suspended status to the court and counsel. Not so. If the corporation had been suspended for nonpayment of taxes, the client’s disability would have been clear, and the attorney’s duty to report that to the court would also have been clear. The attorney’s obligation to its client would be to advise the client to pay its back taxes. If the client corporation is in such financial straits that it has been unable to pay its taxes, to the degree that it has become suspended, such advice may ring hollow. Where a corporation has been suspended for noncompliance with filing requirements, however, curing the default is simple. All the client corporation must do is file the required statement under Corporations Code section 1502. The firm did not, however, make any such recommendation to its client, Design MTC. This failure supports the inference that the firm in fact made no investigation at the time it discovered its client’s suspended status, and that it therefore likely believed Design MTC was suspended for failure to pay taxes. If so, then the firm’s willful concealment of the suspension militates toward a finding of bad faith.

    Other evidence supports this conclusion. Remarks made by the firm’s attorneys at hearings on the sanctions motion indicate that the firm did not consciously decide that Design MTC’s suspension was not of a kind that should disable it from litigation. Rather, it appears that this theory was a post hoc rationalization, and did not occur to the firm’s attorneys until the eve of the sanctions hearing. At the hearing on August 28, 1998, Design MTC’s counsel stated that he had “had no time to look into” the question whether the corporate suspension resulted in the corporation’s 357*357 lack of standing to litigate. At the first sanctions hearing on September 4, 1998, the firm’s representative stated to the court: “When we appeared [on August 28], we were not prepared to address the issue of the suspension with the Court. . . . [¶] After we had the opportunity to look at the documents . . . it was learned that in fact MTC Design was not suspended for failure to pay taxes. [¶] Therefore, it’s our position that the tax and revenue codes that provide that a suspended corporation cannot represent itself in court do not apply.”

    The record fully supports the conclusion that the firm did not continue representing Design MTC based on its good-faith belief in the difference between a Corporations Code suspension and a Revenue and Taxation Code suspension; it supports the conclusion, rather, that the firm suspected its client was disabled from litigation, but deliberately concealed this fact from the court and the other parties, and continued to litigate vigorously, even seeking summary proceedings to terminate the case before the corporation’s suspended status was discovered. The firm’s actions on behalf of its client served only to delay and avoid an otherwise inevitable default judgment, in the absence of any acts by Design MTC to cure its suspended status.

    The trial court did not abuse its discretion in taking this view of the evidence and record before it; consequently, it did not abuse its discretion in imposing sanctions therefor.

    C. The Court Did Not Abuse Its Discretion in Imposing Discovery Sanctions

    The firm argues that imposition of sanctions in reliance on Code of Civil Procedure section 2023 was improper, because the firm did not engage in any abuse of the discovery process itself.

    The homeowners note, as the firm concedes, that the conduct listed in Code of Civil Procedure section 2023 as sanctionable discovery abuses is not exclusive. In our view, participating in discovery on behalf of a suspended corporation, knowing that the corporation is suspended, and having reason to know or suspect that such suspension disabled the corporation from participating in the litigation, qualifies as conduct abusive of the discovery process, and thus sanctionable. We cannot see any abuse of discretion in so holding, particularly if the sanctions order was also fully justified on other grounds.

    DISPOSITION

    For the reasons stated, we find no abuse of discretion in imposing the order for sanctions on the firm. The order for sanctions is affirmed.

    HOLLENHORST, Acting P.J., and GAUT J., concur.

    [1] In 1999, the Legislature amended Corporations Code section 1502 to require biennial instead of annual statements. (Stats. 1999, ch. 1000, § 20, p. 5974.)

    [2] The penalty imposed by the Franchise Tax Board is made as provided in section 19141 of the Revenue and Taxation Code, and is currently $250.

     

    ×
  • Pinnacle Museum v. Pinnacle

    Pinnacle Museum v. Pinnacle

    55 Cal.4th 223 (2012)

    231*231 Wood, Smith, Henning & Berman, Daniel A. Berman, Sheila E. Fix, R. Gregory Amundson, Nicholas M. Gedo; Hecht Solberg Robinson Goldberg & Bagley, Jerold H. Goldberg, Richard A. Schulman, Gregory S. Markow and Amanda A. Allen for Defendants and Appellants.

    Luce, Forward, Hamilton & Scripps, and Kathleen F. Carpenter for California Building Industry Association as Amicus Curiae on behalf of Defendants and Appellants.

    Feinberg Grant Mayfield Kaneda & Litt, Fenton Grant Mayfield Kaneda & Litt, Daniel H. Clifford, Joseph Kaneda, Charles Fenton and Bruce Mayfield for Plaintiff and Respondent.

    Berding & Weil, Matt J. Malone, Tyler P. Berding; Epsten Grinnell & Howell, Anne L. Rauch, Jon Epsten, Douglas Grinnell; Niddrie Fish & Addams and David A. Niddrie for Executive Council of Homeowners and Consumer Attorneys of California as Amici Curiae on behalf of Plaintiff and Respondent.

    OPINION

    BAXTER, J. —

    An owners association filed the instant construction defect action against a condominium developer, seeking recovery for damage to its property and damage to the separate interests of the condominium owners who compose its membership. In response, the developer filed a motion to compel arbitration, based on a clause in the recorded declaration of covenants, conditions, and restrictions providing that the association and the individual owners agree to resolve any construction dispute with the developer through binding arbitration in accordance with the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.).

    232*232 We granted review to determine whether the arbitration clause is binding on the association, and if so, whether it must be invalidated as unconscionable. As we shall explain, even though the association did not exist as an entity independent of the developer when the declaration was drafted and recorded, it is settled under the statutory and decisional law pertaining to common interest developments that the covenants and terms in the recorded declaration reflect written promises and agreements that are subject to enforcement against the association. We conclude that the arbitration clause binds the association and is not unconscionable.

    FACTUAL AND PROCEDURAL BACKGROUND

    Pinnacle Market Development (US), LLC, and others (collectively Pinnacle) developed a mixed-use residential and commercial common interest community in San Diego known as the Pinnacle Museum Tower Condominium (the Project). Pursuant to the Davis-Stirling Common Interest Development Act (Civ. Code, § 1350 et seq.; the Davis-Stirling Act or the Act), Pinnacle, as the owner and developer of the Project property, drafted and recorded a “Declaration of Restrictions” to govern its use and operation (the Project CC&R’s). The Project CC&R’s contains a number of easements, restrictions and covenants, which it describes as “enforceable equitable servitudes” and “binding on all parties having any right, title or interest” in the property, and their heirs, successors and assigns. The Project CC&R’s also provided for the creation of a nonprofit mutual benefit corporation called the Pinnacle Museum Tower Association (the Association) to serve as the owners association responsible for managing and maintaining the Project property.

    In selling the Project units, Pinnacle conveyed to each buyer an airspace condominium in fee and a proportionate undivided interest in the common area as a tenant in common. All other real property (including the property in the tower module, the parking structure, and other appurtenances) was deeded directly to the Association in fee.[1] Pursuant to the Project CC&R’s, each condominium owner is a member of the Association with certain voting rights, and each agrees to pay assessments for all purposes described in the declaration, including the Association’s maintenance and improvement of the Association’s property and the common areas.

    As relevant here, article XVIII of the Project CC&R’s (article XVIII) recites that, by accepting a deed for any portion of the Project property, the Association and each condominium owner agree to waive their right to a jury trial and to have any construction dispute resolved exclusively through 233*233 binding arbitration in accordance with the FAA and the California Arbitration Act (CAA; Code Civ. Proc., § 1280 et seq.).[2] Article XVIII specifies that it applies only to a construction dispute in which Pinnacle has been named as a party, and provides that no amendment may be made to its terms without Pinnacle’s written consent.

    The individual owners bought condominium units in the Project pursuant to a standard purchase agreement. The agreement anticipated creation of the Association and explicitly provided: “By acceptance of the Grant Deed to the Condominium, Buyer shall be deemed to have accepted and agreed to comply” with the recorded Project CC&R’s. Section 8 of the purchase agreement stated that, by agreeing to resolve all disputes as provided in article XVIII, the parties give up their respective rights to have such disputes tried before a jury. Section 8 also required the parties to initial a provision reciting their agreement “TO COMPLY WITH ARTICLE XVIII OF THE DECLARATION WITH RESPECT TO THE DISPUTE REFERENCED THEREIN.”[3]

    The Association filed the instant action against Pinnacle, alleging that construction defects caused damage to the Project. As the sole plaintiff, the Association seeks recovery not only for damage to its own property, but also for damage to the interests held by its individual members. The Association claims standing to represent the owners’ interests pursuant to Civil Code section 1368.3, which grants an owners association the requisite standing to sue a developer in its own name for damage to the common areas and damage to the separate interests the association is obligated to maintain or repair. (See Windham at Carmel Mountain Ranch Assn. v. Superior Court (2003) 109 Cal.App.4th 1162, 1172, 1174-1175 [135 Cal.Rptr.2d 834][addressing predecessor to Civ. Code, § 1368.3]; see also Civ. Code, § 945.)

    234*234 Pinnacle filed a motion to compel arbitration, contending the FAA mandates enforcement of article XVIII’s arbitration provisions. The trial court determined that the FAA is applicable and that article XVIII embodies an agreement to arbitrate between Pinnacle and the Association. Nonetheless, the court invalidated the agreement upon finding it marked by slight substantive unconscionability and a high degree of procedural unconscionability.

    The Court of Appeal affirmed. Although finding unanimously that the FAA is applicable, the court concluded, by a split vote, that the arbitration clause in the Project CC&R’s does not constitute an agreement sufficient to waive the Association’s constitutional right to jury trial for construction defect claims. The majority additionally held that, even assuming the Association is bound by the jury waivers in the purchase agreements signed by the individual condominium owners, the waivers are unconscionable and unenforceable.

    We granted Pinnacle’s petition for review.

    DISCUSSION

    Article XVIII of the Project CC&R’s provides that Pinnacle and, by accepting a deed to any portion of the Project property, the Association and each individual condominium owner agree to submit any construction dispute to binding arbitration in accordance with the FAA (and with the CAA to the extent it is consistent with the FAA). (See ante, fn. 2.) To determine whether article XVIII is binding upon and enforceable against the Association, we consider the rules governing compelled arbitration of claims, the principles relating to the contractual nature of the covenants and restrictions in a declaration recorded pursuant to the Davis-Stirling Act, and the doctrine of unconscionability.

    A. Arbitration Under the FAA

    Consistent with the express terms of article XVIII, both the trial court and the Court of Appeal determined that the FAA applies in this case because materials and products incorporated into the Project were manufactured in other states. (9 U.S.C. § 2; seeAllied-Bruce Terminix Cos. v. Dobson (1995) 513 U.S. 265, 281-282 [130 L.Ed.2d 753, 115 S.Ct. 834].) Although the Association currently disputes the FAA’s applicability, we accept the determination of the lower courts because the issue was not preserved for review.

    (1) Section 2 of the FAA provides in relevant part: “A written provision in … a contract evidencing a transaction involving commerce to settle by 235*235 arbitration a controversy thereafter arising out of such contract or transaction… shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (9 U.S.C. § 2.) This statute stands as “a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary.” (Moses H. Cone Hospital v. Mercury Constr. Corp. (1983) 460 U.S. 1, 24 [74 L.Ed.2d 765, 103 S.Ct. 927] (Moses H. Cone).)[4]

    To ensure that arbitration agreements are enforced according to their terms, “the FAA pre-empts state laws which `require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.'” (Volt Info. Sciences v. Leland Stanford Jr. U. (1989) 489 U.S. 468, 478 [103 L.Ed.2d 488, 109 S.Ct. 1248] (Volt); see, e.g., Perry v. Thomas (1987) 482 U.S. 483 [96 L.Ed.2d 426, 107 S.Ct. 2520] [FAA preempts Cal. Lab. Code provision allowing maintenance of wage collection actions despite private agreement to arbitrate]; Southland Corp. v. Keating(1984) 465 U.S. 1 [79 L.Ed.2d 1, 104 S.Ct. 852] [FAA preempts Cal. statute rendering agreements to arbitrate franchise claims unenforceable].) Likewise, the FAA precludes a court from construing an arbitration agreement “in a manner different from that in which it otherwise construes nonarbitration agreements under state law. Nor may a court rely on the uniqueness of an agreement to arbitrate as a basis for a state-law holding that enforcement would be unconscionable, for this would enable the court to effect what … the state legislature cannot.” (Perry, at pp. 492-493, fn. 9.)

    One of the consequences of the FAA’s applicability is its effect on Code of Civil Procedure section 1298.7, which allows a purchaser to pursue a construction and design defect action against a developer in court, even when the parties have signed a real property purchase and sale agreement containing an arbitration clause.[5]Even assuming this California statute might otherwise extend to a recorded condominium declaration, the FAA would preempt its application here because it discriminates against arbitration. (See Shepard v. Edward Mackay Enterprises, Inc.(2007) 148 Cal.App.4th 1092, 236*236 1095 [56 Cal.Rptr.3d 326].) The Court of Appeal agreed on this point, and the Association does not rely on this statute to avoid arbitration.

    (2) Nonetheless, it is a cardinal principle that arbitration under the FAA “is a matter of consent, not coercion.” (Volt, supra, 489 U.S. at p. 479.) Thus, “`a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.'” (AT&T Technologies v. Communications Workers (1986) 475 U.S. 643, 648 [89 L.Ed.2d 648, 106 S.Ct. 1415]; see Cronus Investments, Inc. v. Concierge Services(2005) 35 Cal.4th 376, 384-385 [25 Cal.Rptr.3d 540, 107 P.3d 217].) In determining the rights of parties to enforce an arbitration agreement within the FAA’s scope, courts apply state contract law while giving due regard to the federal policy favoring arbitration. (Volt, at p. 474; see Moses H. Cone, supra, 460 U.S. at p. 24.)

    (3) In California, “[g]eneral principles of contract law determine whether the parties have entered a binding agreement to arbitrate.” (Craig v. Brown & Root, Inc. (2000) 84 Cal.App.4th 416, 420 [100 Cal.Rptr.2d 818]; see Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 972-973 [64 Cal.Rptr.2d 843, 938 P.2d 903].) Generally, an arbitration agreement must be memorialized in writing. (Fagelbaum & Heller LLP v. Smylie (2009) 174 Cal.App.4th 1351, 1363 [95 Cal.Rptr.3d 252].) A party’s acceptance of an agreement to arbitrate may be express, as where a party signs the agreement. A signed agreement is not necessary, however, and a party’s acceptance may be implied in fact (e.g., Craig, at p. 420 [employee’s continued employment constitutes acceptance of an arbitration agreement proposed by the employer]) or be effectuated by delegated consent (e.g., Ruiz v. Podolsky (2010) 50 Cal.4th 838, 852-854 [114 Cal.Rptr.3d 263, 237 P.3d 584] (Ruiz).) An arbitration clause within a contract may be binding on a party even if the party never actually read the clause. (24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th 1199, 1215 [78 Cal.Rptr.2d 533].)

    (4) The party seeking arbitration bears the burden of proving the existence of an arbitration agreement, and the party opposing arbitration bears the burden of proving any defense, such as unconscionability. (Engalla v. Permanente Medical Group, Inc., supra, 15 Cal.4th at p. 972.) Where, as here, the evidence is not in conflict, we review the trial court’s denial of arbitration de novo. (Service Employees Internat. Union, Local 1021 v. County of San Joaquin (2011) 202 Cal.App.4th 449, 455 [135 Cal.Rptr.3d 844].)

    B. Contractual Nature of Terms in a Recorded Declaration

    (5) The Davis-Stirling Act governs the creation and operation of common interest developments such as the condominium development here. Pursuant to the Act, a condominium development may be created when a developer of 237*237 land records a declaration and other documents to that effect and thereafter conveys one of the units in the development. (Civ. Code, § 1352.)

    As one of the primary documents governing the development’s operation, the declaration must set forth a legal description of the development, the name of the owners association that will own or operate the development’s common areas and facilities, and the covenants and use restrictions that are intended to be enforceable equitable servitudes. (Civ. Code, §§ 1351, 1353.) In addition, the declaration may “contain any other matters the original signator of the declaration [(e.g., the developer)] or the owners consider appropriate.” (Civ. Code, § 1353, subd. (b); see Cal. Code Regs., tit. 10, § 2792.8, subd. (a).)

    (6) Terms commonly included in a declaration concern membership and voting rights in the owners association, maintenance responsibilities, procedures for calculating and collecting assessments, accounting and insurance requirements, architectural and/or design control, and enforcement of the declaration. Pursuant to state regulatory law, a declaration may also include provisions for binding or nonbinding arbitration of disputes between a developer and an owners association, so long as the designated process for arbitration satisfies certain regulatory requirements. (Bus. & Prof. Code, §§ 11001, 11004.5, 11018.5; Cal. Code Regs., tit. 10, § 2791.8; seepost, fn. 7.) When terms have been included for the benefit of the declarant (developer), an association’s ability to delete them is limited. That is, although an association may freely amend a declaration to remove certain types of restrictions once the developer has completed its construction and marketing activities (Civ. Code, § 1355.5, subds. (a), (b)), no court may approve an amendment that will “eliminate any special rights, preferences, or privileges designated in the declaration as belonging to the declarant, without the consent of the declarant” (Civ. Code, § 1356, subd. (e)(2)).

    (7) Once the first buyer manifests acceptance of the covenants and restrictions in the declaration by purchasing a unit, the common interest development is created (Civ. Code, § 1352), and all such terms become “enforceable equitable servitudes, unless unreasonable” and “inure to the benefit of and bind all owners of separate interests in the development” (Civ. Code, § 1354, subd. (a); see Bus. & Prof. Code, § 11018.5, subd. (c)). For this reason, we have described recorded declarations as “the primary means of achieving the stability and predictability so essential to the success of a shared ownership housing development.” (Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal.4th 361, 382 [33 Cal.Rptr.2d 63, 878 P.2d 1275] (Nahrstedt).) Having a single set of recorded covenants and restrictions that applies to an entire common interest development protects the intent, expectations, and wishes of those buying into the development and the 238*238 community as a whole by ensuring that promises concerning the character and operation of the development are kept. (See Citizens for Covenant Compliance v. Anderson (1995) 12 Cal.4th 345, 364 [47 Cal.Rptr.2d 898, 906 P.2d 1314] (Citizens for Covenant Compliance); Nahrstedt, at p. 383.)

    One important feature contributing to the stability and success of condominium developments is that actual notice is not required for enforcement of a recorded declaration’s terms against subsequent purchasers. (Nahrstedt, supra, 8 Cal.4th at p. 379.) Rather, the recording of a declaration with the county recorder “provides sufficient notice to permit the enforcement” of the covenants and restrictions contained therein (ibid.; see Citizens for Covenant Compliance, supra, 12 Cal.4th at pp. 364-365; Villa Milano Homeowners Assn. v. Il Davorge (2000) 84 Cal.App.4th 819, 825 [102 Cal.Rptr.2d 1] (Villa Milano)), and condominium purchasers are “deemed to agree” to them. (Citizens for Covenant Compliance, at p. 365; see Villa Milano, at p. 825.)

    In this regard, the Legislature has provided various protections to help ensure that condominium purchasers know what they are buying into. For example, developers and subsequent sellers must provide copies of the declaration and other governing documents to prospective purchasers. (Bus. & Prof. Code, § 11018.6; Civ. Code, § 1368, subd. (a).) Additionally, developers generally must provide prospective purchasers with a copy of the Department of Real Estate’s public report approving the particular condominium development and a copy of a statutory statement outlining general information regarding common interest developments. (Bus. & Prof. Code, § 11018.1, subds. (a), (c); see Bus. & Prof. Code, § 11018.2.) The statutory statement informs prospective purchasers that their ownership in the development and their rights and remedies as members of its association “`will be controlled by governing instruments'” such as the “`Declaration of Restrictions (also known as CC&R’s),'” and that they should “`[s]tudy these documents carefully before entering into a contract to purchase a subdivision interest.'” (Bus. & Prof. Code, § 11018.1, subd. (c).) Hence, condominium owners should not be surprised by the covenants and restrictions in a recorded declaration, which ordinarily are given binding effect even if they would not fulfill the common law requirements for creation of an equitable servitude or a restrictive covenant (Villa De Las Palmas Homeowners Assn. v. Terifaj (2004) 33 Cal.4th 73, 87 [14 Cal.Rptr.3d 67, 90 P.3d 1223]), or the privity requirements of a contract (Civ. Code, §§ 1350-1378; Nahrstedt, supra, 8 Cal.4th at p. 380).

    (8) Another significant way in which the Act promotes stability and predictability is by providing that the “covenants and restrictions in the declaration shall be enforceable equitable servitudes, unless unreasonable, and shall inure to the benefit of and bind all owners of the separate interests 239*239 in the development.” (Civ. Code, § 1354, subd. (a), italics added.) This statutory presumption of reasonableness requires that recorded covenants and restrictions be enforced “`unless they are wholly arbitrary, violate a fundamental public policy, or impose a burden on the use of affected land that far outweighs any benefit.'” (Villa De Las Palmas Homeowners Assn. v. Terifaj, supra, 33 Cal.4th at p. 88, quoting Nahrstedt, supra, 8 Cal.4th at p. 382.)

    (9) In Nahrstedt, supra, 8 Cal.4th 361, we elaborated upon the contractual nature of a declaration and the enforcement of its terms as equitable servitudes under the Davis-Stirling Act. “[E]quitable servitudes permit courts to enforce promises restricting land use when there is no privity of contract between the party seeking to enforce the contract and the party resisting enforcement. Like any promise given in exchange for consideration, an agreement to refrain from a particular use of land is subject to contract principles, under which courts try `to effectuate the legitimate desires of the covenanting parties.’ [Citation.] When landowners express the intention to limit land use, `that intention should be carried out.'” (Nahrstedt, at pp. 380-381.) AlthoughNahrstedt spoke specifically in terms of land use restrictions, its analysis logically extends to all covenants in a declaration, which by statute are also enforceable as equitable servitudes unless unreasonable. (Civ. Code, § 1354, subd. (a); e.g., Arias v. Katella Townhouse Homeowners Assn., Inc. (2005) 127 Cal.App.4th 847 [26 Cal.Rptr.3d 113] [condominium owner who prevailed in enforcement action entitled to recover contractual attorney fees under covenants, conditions, and restrictions].)

    Moreover, settled principles of condominium law establish that an owners association, like its constituent members, must act in conformity with the terms of a recorded declaration. (See Civ. Code, § 1354, subd. (a); Lamden v. La Jolla Shores Clubdominium Homeowners Assn. (1999) 21 Cal.4th 249, 268 [87 Cal.Rptr.2d 237, 980 P.2d 940] [homeowner can sue association to compel enforcement of declaration’s provisions]; Ritter & Ritter, Inc. Pension & Profit Plan v. The Churchill Condominium Assn. (2008) 166 Cal.App.4th 103, 124 [82 Cal.Rptr.3d 389].) There is, of course, no question that an owners association functions as an entity distinct and separate from its owner members and may hold title to real property in a condominium development in its own name. However, an association must exercise its property rights and its right of management over the affairs of a development in a manner consistent with the covenants, conditions, and restrictions of the declaration (CC&R’s). That a declaration operates to bind an association is both logical and sound, for the success of a development would be gravely undermined if the association were allowed to disregard the intent, expectations, and wishes of those whose collective interests the association represents. (See Citizens for Covenant Compliance, supra, 12 Cal.4th at p. 364; Nahrstedt, supra, 8 Cal.4th at pp. 382-384.)

    240*240 In light of the foregoing, it is no surprise that courts have described recorded declarations as contracts. (E.g., Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490, 512-513 [229 Cal.Rptr. 456, 723 P.2d 573] [CC&R’s as contract between condominium owners association and unit owner]; Villa Milano, supra, 84 Cal.App.4th at pp. 824-826 [CC&R’s as contract between developer and homeowners association]; see Barrett v. Dawson (1998) 61 Cal.App.4th 1048, 1054 [71 Cal.Rptr.2d 899] [right of neighbors to enforce a recorded restrictive covenant limiting the neighboring property’s use was “clearly contractual”]; Harbor View Hills Community Assn. v. Torley (1992) 5 Cal.App.4th 343, 346-349 [7 Cal.Rptr.2d 96][amendment to Civ. Code, § 1717, which governs contractual attorney fees, was applicable to CC&R’s of homeowners association]; see also Franklin v. Marie Antoinette Condominium Owners Assn. (1993) 19 Cal.App.4th 824, 828, 833 [23 Cal.Rptr.2d 744] [accepting parties’ assumption that CC&R’s formed a contract between condominium owners and owners association].)

    In the proceedings below, the Court of Appeal held the arbitration clause in the Project CC&R’s was not binding on the Association. Specifically, the court observed that the Association could not have agreed to arbitrate or waive its constitutional right to a jury trial, because “for all intents and purposes, Pinnacle was the only party to the `agreement,’ and there was no independent homeowners association whenPinnacle recorded the CC&R’s.” This reasoning is not persuasive in light of the statutory and contract principles at play.

    (10) “It is true we have emphasized that arbitration derives its legitimacy from the fact that the parties consent to resort to the arbitral forum rather than to litigation, with its possibility of a jury trial. [Citation.] Such consent is generally required.” (Ruiz, supra,50 Cal.4th at p. 852.) As we have previously recognized, however, various legal theories allow for delegated authority to consent. Not only do common law principles such as fiduciary duty and agency permit enforcement of arbitration agreements against nonsignatory third parties, but the Legislature can also provide for the reasonable delegation of authority to consent. (Id. at pp. 852-854.)

    In Ruiz, supra, 50 Cal.4th 838, we addressed the operation of Code of Civil Procedure section 1295, which allowed, but did not require, a patient to contract with a health care provider to resolve all medical malpractice claims through binding arbitration. The question presented was whether an arbitration agreement signed by a patient applied to the resolution of wrongful death claims, which are not considered derivative of a patient’s claims, even though the wrongful death claimants were not themselves signatories to the arbitration agreement. (See Ruiz, at p. 841.) After observing that the statute intended to create “a capacity of health care patients to bind their heirs to arbitrate 241*241 wrongful death actions,” we found that binding the heirs “does not in any sense” extinguish or restrict their claims, “but merely requires that the claims `be resolved by a common, expeditious, and judicially favored method.'” (Id. at p. 852.) We firmly rejected the argument that a rule permitting a person to bind his or her adult children to arbitration would violate the state constitutional right to a jury trial. (Cal. Const., art. I, § 16.) As we explained, “the Legislature may devise reasonable rules in civil litigation to permit the delegation to another party of the power to consent to arbitration instead of a jury trial…. In the present case, the Legislature by statute has created the right of certain heirs to a wrongful death action and may also by statute place reasonable conditions on the exercise of that right.” (Ruiz, at p. 853.)

    (11) While not directly on point, the principles articulated in Ruiz support a similar result in the context of recorded declarations. As discussed, the Legislature has crafted a statutory scheme providing for the capacity of a developer to create a condominium development subject to covenants and restrictions governing its operation and use. There appears no question that, under the Davis-Stirling Act, each owner of a condominium unit either has expressly consented or is deemed by law to have agreed to the terms in a recorded declaration. As the exclusive members of an owners association, the owners have every right to expect that the association, in representing their collective interests, will abide by the agreed-upon covenants in the declaration, including any covenant to invoke binding arbitration as an expeditious and judicially favored method to resolve a construction dispute, in the absence of unreasonableness. That a developer and condominium owners may bind an association to an arbitration covenant via a recorded declaration is not unreasonable; indeed, such a result appears particularly important because (1) the Davis-Stirling Act confers standing upon an association to prosecute claims for construction damage in its own name without joining the individual condominium owners (Civ. Code, § 1368.3) and (2) as between an association and its members, it is the members who pay the assessments that cover the expenses of resolving construction disputes. Given these circumstances, an association should not be allowed to frustrate the expectations of the owners (and the developer) by shunning their choice of a speedy and relatively inexpensive means of dispute resolution. Likewise, condominium owners should not be permitted to thwart the expectations of a developer by using an owners association as a shell to avoid an arbitration covenant in a duly recorded declaration. (Villa Milano, supra, 84 Cal.App.4th at pp. 825-826, fn. 4.)

    Amici curiae in support of the Association point to a portion of Civil Code section 1353, subdivision (a), providing that a declaration shall set forth “the restrictions on the use or enjoyment of any portion of the common interest development that are intended to be enforceable equitable servitudes.” Focusing on this statutory language, amici curiae assert that the Davis-Stirling Act 242*242 limits a developer’s authority to impose on an owners association only provisions commonly understood as equitable servitudes, that is, restrictions relating to the use or maintenance of the property. (Civ. Code, §§ 1353, subd. (a), 1468, subd. (c).) In their view, an arbitration clause pertaining to construction disputes has no relationship to the use of property and therefore no place in a recorded declaration.

    (12) Even assuming that a covenant requiring arbitration of construction disputes does not fall within traditional notions of an equitable servitude, the Davis-Stirling Act, considered as a whole, does not support amici curiae’s narrow construction of its provisions. As discussed, the Act specifies that a declaration “may contain any other matters the original signator of the declaration [the developer] or the owners consider appropriate.” (Civ. Code, § 1353, subd. (b).) The Act also bars a court from approving an amendment to a declaration that would “eliminate any special rights, preferences, or privileges designated in the declaration as belonging to the declarant, without the consent of the declarant.” (Civ. Code, § 1356, subd. (e)(2).) Thus, notwithstanding the traditional uses to which equitable servitudes and recorded declarations have been put, the Act grants developers latitude to place in declarations any term they deem appropriate, including provisions that afford them special rights and privileges, so long as such terms are not unreasonable.

    It bears emphasis that placement of arbitration covenants in a recorded declaration violates none of the Davis-Stirling Act’s proscriptions.[6] To the contrary, their inclusion is consistent with the Department of Real Estate’s contemplation that a recorded declaration may feature a provision for binding arbitration between a developer and an owner’s association. (Cal. Code Regs., tit. 10, § 2791.8.)[7] In short, there is nothing in the Act itself that prohibits a recorded declaration from containing arbitration covenants.

    243*243 (13) Moreover, we find the inclusion of article XVIII in the Project CC&R’s is consistent with provisions of the Act that contemplate an alternative dispute resolution process as a prerequisite to construction defect litigation. Civil Code section 1375 provides that before an owners association may file suit against a developer for construction or design defects, the parties must either attempt to settle the dispute or attempt to agree to submit the matter to alternative dispute resolution presided over by a neutral facilitator. One court described these provisions as demonstrating that “the Legislature has chosen to encourage alternative dispute resolution between homeowners associations and developers, but not to require it.” (Villa Milano, supra, 84 Cal.App.4th at p. 831, italics added.) We agree with that specific observation, but see nothing in the language or history of Civil Code section 1375 that purports to prohibit a covenant for binding arbitration of construction defect claims.[8] Indeed, we perceive no legitimate reason to frustrate the expectations of purchasers who choose to buy into a development where binding arbitration is the designated process for resolving such claims. Like other methods of alternative dispute resolution, binding arbitration benefits both the developer and the entire common interest community by providing a speedy and relatively inexpensive means to address allegations of defect damage to the common areas and other property interests.

    (14) In addition to imposing prelitigation procedures for construction disputes, the Davis-Stirling Act requires that an owners association provide “a fair, reasonable, and expeditious procedure” for resolving disputes between an association and a member involving their rights, duties, or liabilities under the governing documents or the applicable statutes. (Civ. Code, § 1363.820, subd. (a); see Civ. Code, §§ 1363.810, 1363.830.[9]) The Act also requires that the association and its members use a separate alternative dispute resolution 244*244 procedure involving a neutral decision maker as a prerequisite to filing an “enforcement action” seeking declaratory, injunctive, or writ relief, either alone or in conjunction with a claim falling within the jurisdiction of the small claims court. (Civ. Code, § 1369.510 et seq.; see generally 12 Witkin, Summary of Cal. Law (10th ed. 2005) Real Property, § 125, p. 185.) We observe that article XVIII comports with these legislative efforts to encourage resolution of condominium matters out of court.

    In holding to the contrary, the Court of Appeal made reference to the foregoing dispute resolution schemes and focused on Civil Code section 1369.510, subdivision (a), which states in part: “The form of alternative dispute resolution chosen pursuant to this article [(governing enforcement actions filed by an owner or an association)] may be binding or nonbinding, with the voluntary consent of the parties.” (Italics added.) According to the Court of Appeal, the italicized clause signifies that “the waiver of the right to a jury requires an actual `agreement'” and that therefore arbitration provisions in a recorded declaration are not binding as an agreement to arbitrate. We disagree.

    (15) The language in Civil Code section 1369.510, subdivision (a), simply adheres to the familiar principle that arbitration is a matter of consent, not coercion. The provision does nothing to undermine the conclusion that terms calling for binding arbitration between a developer, condominium owners, and an owners association are properly included in a recorded declaration. (See Cal. Code Regs., tit. 10, § 2791.8.) As explained above, giving force to such terms in a development’s originating declaration protects the expectations of the individual owners and the community as a whole (Citizens for Covenant Compliance, supra, 12 Cal.4th at p. 364), as well as those of the developer (Civ. Code, § 1356, subd. (e)(2)).

    Finally, we see nothing in Treo @ Kettner Homeowners Assn. v. Superior Court(2008) 166 Cal.App.4th 1055 [83 Cal.Rptr.3d 318] (Treo) that compels a different result. In Treo, the CC&R’s of a condominium development contained a requirement that all disputes between a developer and a homeowners association be decided by a general judicial reference. The question was whether that requirement was enforceable under Code of Civil Procedure 245*245 section 638, which allows appointment of a referee (and hence waiver of a jury trial) if a reference agreement exists between the parties. Relying on Grafton Partners v. Superior Court (2005) 36 Cal.4th 944 [32 Cal.Rptr.3d 5, 116 P.3d 479] (Grafton), Treo determined that a waiver of the constitutional right to trial by jury requires “actual notice and meaningful reflection.” (Treo, supra, 166 Cal.App.4th at p. 1066.) Because the jury waiver in the subject CC&R’s did not meet those requirements, Treo held it was “not a written contract as the Legislature contemplated the term in the context of [Code of Civil Procedure] section 638.” (Treo, at p. 1067.) The Treo court was particularly troubled that the CC&R’s were lengthy and adhesive in nature, and that the jury waiver was not signed by the parties and could not be modified by the association. (Ibid.) Persuaded by Grafton‘s observation that any statutory ambiguity in permitting a jury waiver must be resolved in favor of affording a jury trial (Grafton, at p. 956), Treoconcluded that, even though CC&R’s “can reasonably be `construed as a contract’ … when the issue involved is the operation or governance of the association or the relationships between owners and between owners and the association,” CC&R’s do not “suffice as a contract when the issue is the waiver pursuant to [Code of Civil Procedure] section 638 of the constitutional right to trial by jury.” (Treo, at p. 1066.)

    (16) The Association’s reliance on that decision misplaced for at least two reasons. First, neither Treo nor Grafton concerned an agreement to arbitrate. Notably, Graftonexplicitly distinguished predispute jury waivers from predispute arbitration agreements, observing that arbitration agreements are specifically authorized by Code of Civil Procedure section 1281, and, unlike jury waivers, “represent an agreement to avoid the judicial forum altogether.” (Grafton, supra, 36 Cal.4th at p. 955.) Because public policy strongly favors arbitration as “`”`a speedy and relatively inexpensive means of dispute resolution'”‘” (Schatz v. Allen Matkins Leck Gamble & Mallory LLP, supra, 45 Cal.4th at p. 564), we decline to read additional unwritten procedural requirements, such as actual notice and meaningful reflection, into the arbitration statute.[10]

    (17) Second, whether or not a reference agreement must be evaluated differently from other types of agreements, state laws that discriminate against arbitration are preempted where, as here, the FAA applies. That is, the FAA precludes judicial invalidation of an arbitration clause based on state law requirements that are not generally applicable to other contractual clauses, such as proof of actual notice, meaningful reflection, signature by all parties, and/or a unilateral modification clause favoring the nondrafting party. 246*246 (Doctor’s Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 687-688 [134 L.Ed.2d 902, 116 S.Ct. 1652] (Doctor’s Associates)[FAA preempts state’s first-page notice requirement for arbitration agreements].) It stands to reason that the FAA would preempt state decisional law singling out an arbitration clause as the only term in a recorded declaration that may not be regarded as contractual in nature. For this reason, we shall not selectively target article XVIII as containing the only clause of the recorded declaration that does not memorialize an agreement binding the Association.[11]

    (18) In sum, even though the Association did not bargain with Pinnacle over the terms of the Project CC&R’s or participate in their drafting, it is settled under the statutory and decisional law pertaining to common interest developments that the covenants and terms in the recorded declaration, including those in article XVIII, reflect written promises and agreements that are subject to enforcement against the Association. (Civ. Code, § 1350 et seq.; Nahrstedt, supra, 8 Cal.4th at pp. 378-384.)

    C. The Doctrine of Unconscionability

    Having determined that article XVIII of the Project CC&R’s is binding on the Association, we next determine whether the article’s provisions for arbitration are unenforceable as unconscionable.

    (19) “[G]enerally applicable contract defenses, such as … unconscionability, may be applied to invalidate arbitration agreements without contravening” the FAA. (Doctor’s Associates, supra, 517 U.S. at p. 687; accord, Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114 [99 Cal.Rptr.2d 745, 6 P.3d 669] (Armendariz).) (20) Unconscionability consists of both procedural and substantive elements. The procedural element addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power. (See Armendariz, at p. 114; Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071 [130 Cal.Rptr.2d 892, 63 P.3d 979] [procedural unconscionability “generally takes the form of a contract of adhesion”].) Substantive unconscionability pertains to the fairness of an agreement’s actual terms and to assessments of whether they are overly harsh or one-sided. (Armendariz, at p. 114; Mission Viejo Emergency Medical Associates v. Beta Healthcare Group (2011) 197 Cal.App.4th 1146, 1159 [128 Cal.Rptr.3d 330].) A contract term is not substantively unconscionable when it merely gives one side a greater benefit; rather, the term must be “so one-sided as to `shock the conscience.'” (24 Hour Fitness, Inc. v. Superior Court, supra, 66 Cal.App.4th at p. 1213.)

    247*247 (21) The party resisting arbitration bears the burden of proving unconscionability. (Engalla v. Permanente Medical Group, Inc., supra, 15 Cal.4th at p. 972; Mission Viejo Emergency Medical Associates v. Beta Healthcare Group, supra, 197 Cal.App.4th at p. 1158.) Both procedural unconscionability and substantive unconscionability must be shown, but “they need not be present in the same degree” and are evaluated on “`a sliding scale.'” (Armendariz, supra, 24 Cal.4th at p. 114.) “[T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Ibid.)

    (22) As indicated, procedural unconscionability requires oppression or surprise. “`Oppression occurs where a contract involves lack of negotiation and meaningful choice, surprise where the allegedly unconscionable provision is hidden within a prolix printed form.'” (Morris v. Redwood Empire Bancorp (2005) 128 Cal.App.4th 1305, 1317 [27 Cal.Rptr.3d 797].) Here, the trial court found no evidence of surprise.[12] Nonetheless, the court perceived a high degree of procedural unconscionability, because the Project CC&R’s were drafted and recorded by Pinnacle before any unit was purchased and before the Association was formed. Noting the Association had no opportunity to participate in the drafting of the recorded declaration, the court determined it was oppressive. (See Villa Milano, supra, 84 Cal.App.4th at p. 828[finding procedural unconscionability “obvious” where condominium purchasers had no opportunity to negotiate declaration’s terms].) This analysis is off the mark.

    That the Project CC&R’s were drafted and recorded before the sale of any unit and without input from the Association was a circumstance dictated by the legislative policy choices embodied in the Davis-Stirling Act. (Civ. Code, § 1352; see Bus. & Prof. Code, §§ 11018.1, 11018.2, 11018.5, subd. (c).) The intent of the Act is to permit landowners such as Pinnacle to develop and market their properties to purchasers as condominium developments operating under certain CC&R’s. By providing for Pinnacle’s capacity to record a declaration that, when accepted by the first purchaser binds all others who accept deeds to its condominium properties, the Act ensures that the terms 248*248 reflected in the declaration — i.e., the CC&R’s governing the development’s character and operation — will be respected in accordance with the expectations of all property owners and enforced unless proven unreasonable. (Nahrstedt, supra, 8 Cal.4th at pp. 378-384; see Citizens for Covenant Compliance, supra, 12 Cal.4th at p. 365.) Thus, while a condominium declaration may perhaps be viewed as adhesive, a developer’s procedural compliance with the Davis-Stirling Act provides a sufficient basis for rejecting an association’s claim of procedural unconscionability.[13]

    Moreover, the arbitration provisions of article XVIII are not substantively unconscionable. Preliminarily, we observe the Association has not shown that article XVIII fails to conform to the minimum regulatory standards for protection of the public interest. (Cal. Code Regs., tit. 10, § 2791.8; see ante, fn. 7.) Here, in fact, the Department of Real Estate reviewed and approved the Project CC&R’s before issuing the required public report for the Project. (Bus. & Prof. Code, §§ 11004.5, subd. (c), 11018.2, 11018.5.) On this point, the Association correctly asserts that neither the public report’s issuance nor the regulation itself binds us in determining enforceability of the arbitration provisions. Nonetheless, as discussed below, the Association neglects to identify any aspect of article XVIII that is overly harsh or so one-sided that it shocks the conscience. (24 Hour Fitness, Inc. v. Superior Court, supra, 66 Cal.App.4th at p. 1213.)

    In arguing that article XVIII is substantively unconscionable, the Association invokes the following passage in Armendariz, supra, 24 Cal.4th 83: “[A]n arbitration agreement imposed in an adhesive context lacks basic fairness and mutuality if it requires one contracting party, but not the other, to arbitrate all claims arising out of the same transaction or occurrence or series of transactions or occurrences.” (Id. at p. 120.) The Association then posits that article XVIII lacks basic fairness and mutuality because it allows Pinnacle to require arbitration of all construction disputes related to the Project, without requiring Pinnacle to arbitrate any claims it may have against the Association or the owners. This contention fails to persuade.

    (23) In the same part of Armendariz, we made clear that arbitration clauses may be limited to a specific subject or subjects and that such clauses are not required to “mandate the arbitration of all claims between [the parties] in order to avoid invalidation on grounds of unconscionability.” (Armendariz, supra, 24 Cal.4th at p. 120.) Here, the challenged clause is limited to construction disputes. To the extentPinnacle wishes to allege the 249*249 Association’s comparative fault as an affirmative defense with respect to damages (Civ. Code, § 1368.4, subd. (a)),[14] such issue would fall within the scope of article XVIII. Apart from that, the Association fails to identify any potential construction-related claim Pinnacle might assert against it that would not be subject to arbitration. Accordingly, there appears no support for the Association’s claims of unfairness and absence of mutuality.

    The Association next complains of a clause in article XVIII that provides: “Each of the parties shall bear its own attorney’s fees and costs (including expert witness costs) in the arbitration.” Notwithstanding the facial neutrality of this costs provision, the Association asserts it is evidence of substantive unconscionability because it effectively limits the Association’s right to full recovery of damages. (SeeArmendariz, supra, 24 Cal.4th at p. 121.)

    (24) The costs provision does no such thing. In court proceedings, a prevailing party generally may not recover expert witness fees as an item of costs unless the expert witness was appointed by the court. (Code Civ. Proc., § 1033.5, subd. (b)(1);Carwash of America-PO v. Windswept Ventures No. I (2002) 97 Cal.App.4th 540, 543-544 [118 Cal.Rptr.2d 536]; Stearman v. Centex Homes (2000) 78 Cal.App.4th 611, 623-624 [92 Cal.Rptr.2d 761]; cf. Code Civ. Proc., § 1033.5, subd. (a)(8) [“[f]ees of expert witnesses ordered by the court” are allowable as costs].) By its terms, the costs provision will neutrally benefit whichever party does not prevail in arbitration by barring the prevailing party from recovering such fees as an item of costs. At the same time, article XVIII elsewhere specifies that “[t]he arbitrator is authorized to provide all recognized remedies available at law or in equity for any cause of action.”Pinnacle confirms that the costs provision does not alter the Association’s “potential remedies as a litigant,” and that the Project CC&R’s “were drafted so that the parties’ remedies would not change.” Accordingly, the costs provision does not limit the availability of expert investigation expenses that are otherwise recoverable asdamages. (E.g., Stearman, at pp. 624-625 [even when expert witness fees are not recoverable as costs, expert investigation fees may be recovered as an item of damages under Civ. Code, § 3333].) In light of the foregoing, the costs provision provides little, if any, evidence of substantive unconscionability. (See Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 711 [131 Cal.Rptr. 882, 552 P.2d 1178] [upholding an arbitration provision that did not purport to limit a party’s substantive obligations or liabilities, but “merely substitute[d] one forum for another”]; see also Ruiz, supra, 50 Cal.4th at p. 852.)

    250*250 The Association further points out that the Project CC&R’s imposes a requirement that the Association obtain Pinnacle’s written consent before amending the arbitration provisions. Emphasizing that Pinnacle drafted the document before the Association existed as an independent entity, the Association claims the consent provision demonstrates that Pinnacle was “looking after its own self-interests” and playing “unfairly to its unilateral benefit.” The Association also argues the consent provision “virtually eliminates the Association’s right to amend the [Project CC&R’s] pursuant to Civil Code sections 1355 and 1356.”

    These arguments lack merit. First, Civil Code section 1355 specifically contemplates that a recorded declaration may restrict or even eliminate the authority of an owners association and owners to amend its terms. (Civ. Code, § 1355, subd. (b) [permitting amendment “[e]xcept to the extent that a declaration provides by its express terms that it is not amendable”].) Second, and more to the point, Civil Code section 1356 flatly prohibits a court from approving any amendment to a declaration that “[w]ould eliminate any special rights, preferences, or privileges designated in the declaration as belonging to the declarant, without the consent of the declarant.” (Civ. Code, § 1356, subd. (e)(2).) Far from evidencing substantive unconscionability, the consent provision reflects a restrictive term that the Legislature, for policy reasons, has determined is reasonably and properly included in a recorded declaration.

    We conclude that article XVIII of the Project CC&R’s is consistent with the provisions of the Davis-Stirling Act and is not procedurally or substantively unconscionable. Its terms requiring binding arbitration of construction disputes are therefore enforceable.[15]

    CONCLUSION AND DISPOSITION

    Even when strict privity of contract is lacking, the Davis-Stirling Act ensures that the covenants, conditions, and restrictions of a recorded declaration — which manifest the intent and expectations of the developer and those who take title to property in a community interest development — will be 251*251 honored and enforced unless proven unreasonable. Here, the expectation of all concerned is that construction disputes involving the developer must be resolved by the expeditious and judicially favored method of binding arbitration.

    We hold that article XVIII’s covenant to arbitrate is not unconscionable and is properly enforced against the Association. Accordingly, we reverse the judgment of the Court of Appeal and remand the matter for further proceedings consistent with the views herein.

    Cantil-Sakauye, C. J., Chin, J., Corrigan, J., and Liu, J., concurred.

    WERDEGAR, J., Concurring. —

    Can the developer of a condominium project unilaterally impose arbitration on the condominium’s homeowners association by recording a mandatory arbitration clause for construction-related claims at or before the association’s inception? Because the Legislature has elected to permit developers to do so, I agree with the majority that a developer can and that the arbitration clause at issue here is enforceable. Because I think the clause’s validity rests on narrower grounds than those invoked by the majority, I write separately.

    I.

    Pinnacle Market Development (US), LLC (Pinnacle Development), built a condominium project. As required under the Davis-Stirling Common Interest Development Act (Civ. Code, § 1350 et seq.; Davis-Stirling Act),[1] it recorded a declaration containing easements, covenants, and restrictions on use of the property (see §§ 1352, subd. (a), 1353). Included among these covenants and restrictions,Pinnacle Development inserted a clause that compelled arbitration of one specific type of claim — construction disputes — with the homeowners association, thePinnacle Museum Tower Association (the Homeowners Association), and individual homeowners each bound as a condition of accepting an interest in the property.

    The Homeowners Association evidently was incorporated around the same time the declaration was recorded. That the Homeowners Association had no meaningful independent existence at the time the declaration and arbitration clause were first recorded, and that the clause was drafted unilaterally by Pinnacle Development, are undisputed.

    252*252 The initial question for us is whether the arbitration clause is binding on the Homeowners Association. In concluding that it is, the majority never clearly states whether the grounds for enforcement lie in contract or real property law. In my view, only real property law supports enforcement.

    A.

    Considered as contracts, the recorded declaration and the arbitration clause are adhesive vis-à-vis individual homeowners, but adhesive contracts can still be enforced. (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 113 [99 Cal.Rptr.2d 745, 6 P.3d 669].) Individual homeowners can elect to buy property subject to the recorded declaration and the arbitration clause, or not; some semblance of a choice is still present, and courts have properly found such individual owners bound as a matter of contract law. (E.g., Villa Milano Homeowners Assn. v. Il Davorge (2000) 84 Cal.App.4th 819, 824-826 [102 Cal.Rptr.2d 1].)

    But the rationale that would make recorded covenants and restrictions contractually enforceable against individual owners does not extend to a homeowners association. Vis-à-vis such an association, the recorded declaration is more than adhesive; no opportunity for meaningful consent exists at all. A homeowners association cannot refuse to accept title to the development’s common areas or the responsibilities of management; once it comes into existence, it is automatically subject to whatever the developer has seen fit to insert in the declaration, without any opportunity to reject those terms. To treat this scenario as involving consent rather than compulsion is to disregard the realities of the situation. I thus agree with the Court of Appeal that the scenario here does not fit within traditional bilateral, or even unilateral, contract formation principles.

    The majority states that we have in the past treated covenants in declarations as contractual (see maj. opn., ante, at p. 239, citing Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal.4th 361, 380-381 [33 Cal.Rptr.2d 63, 878 P.2d 1275], and Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490, 512-513 [229 Cal.Rptr. 456, 723 P.2d 573]), thus implying that to do so here is unexceptional. In Nahrstedt, we applied contract interpretation principles to a recorded restriction; inFrances T., we assumed the truth of an individual owner’s allegation that covenants in a recorded declaration were part of a contract between her and her homeowners association. In neither case did we analyze whether contract formation principles, as applied to the terms of a recorded declaration, supported treating those terms as a binding contract between a developer and a homeowners association. Nor do any of the other cases the majority cites, ante, at page 240, articulate a rationale for treating the covenants, conditions, 253*253 and restrictions in a recorded declaration as a binding contract between a developer and a homeowners association. Indeed, the one case most clearly to conclude that the covenants in a declaration form a binding contract between a developer and a homeowners association expressly acknowledged that, unlike for individual owners, who have notice at the time of purchase of a declaration’s terms, the extant case law does “not provide an analytical framework for addressing the issue why the homeowners association, which makes no purchase, is also bound contractually.” (Villa Milano Homeowners Assn. v. Il Davorge, supra, 84 Cal.App.4th at p. 825, fn. 4, italics added.)[2]

    The majority suggests declarations should be enforced as contracts to protect the expectations of the individual owners who buy property in a given development. (E.g., maj. opn., ante, at p. 243 [“[W]e perceive no legitimate reason to frustrate the expectations of purchasers who choose to buy into a development where binding arbitration is the designated process for resolving such claims.”].) This emphasis on the supposed expectations and wishes of homeowners appears disingenuous. While owners may have agreed to the arbitration clause, they did so only in the context of an adhesive, take-it-or-leave-it transaction. That the presence of such a clause would play much, if any, of a favorable role in as momentous a decision as the choice of a home to purchase is not readily apparent.

    Accordingly, to the extent the majority rests enforcement of the arbitration clause against the Homeowners Association on contract principles, I part company.

    B.

    That a covenant in a declaration is unenforceable as a contract is not dispositive if another ground for enforcement exists. Here, one does.

    At common law, enforceable equitable servitudes and covenants running with the land were confined to restrictions that benefited or burdened land. (Citizens for Covenant Compliance v. Anderson (1995) 12 Cal.4th 345, 352-355 [47 Cal.Rptr.2d 898, 906 P.2d 1314].) The same holds true today; whether described as a covenant running with the land or an equitable servitude, a restriction enforceable under these doctrines and the statutes 254*254 embodying them must involve a restriction governing land use. (Nahrstedt v. Lakeside Village Condominium Assn., supra, 8 Cal.4th at p. 380 [“[E]quitable servitudes permit courts to enforce promises restricting land use when there is no privity of contract ….”]; Anthony v. Brea Glenbrook Club (1976) 58 Cal.App.3d 506, 510 [130 Cal.Rptr. 32] [“[T]he covenant `… must affect the parties as owners of particular estates in land, or must relate to the use of land.‘”]; § 1461 [only those covenants specified by statute may “run with the land”]; § 1462 [“Every covenant contained in a grant of an estate in real property, which is made for the direct benefit of the property, or some part of it then in existence, runs with the land.”]; § 1468 [covenant enforceable as running with the land is one which is “for the benefit of the land”].)

    However, the Legislature is free to abrogate these common law requirements if it sees fit. If the Davis-Stirling Act expands the universe of provisions enforceable as equitable servitudes beyond those that would qualify under the common law, that the arbitration clause might not be enforceable in contract or at common law as a covenant running with the land or an equitable servitude is immaterial: a provision that qualifies under the act may be enforced as a matter of statute.

    Under the Davis-Stirling Act, “[t]he covenants and restrictions in [a] declaration shall be enforceable equitable servitudes ….” (§ 1354, subd. (a).) In Villa De Las Palmas Homeowners Assn. v. Terifaj (2004) 33 Cal.4th 73, 87 [14 Cal.Rptr.3d 67, 90 P.3d 1223], we considered and rejected a condominium owner’s argument that recorded covenants and restrictions “must meet the common law requirements of equitable servitudes” in order to be enforceable. We concluded that under section 1354, subdivision (a) recorded covenants and restrictions are either deemed enforceable equitable servitudes, whether or not they satisfy the common law requirements, or are enforceable in the same manner as equitable servitudes. We had no occasion to decide which interpretation was correct because “[e]ither reading precludes the conclusion that the Legislature intended to incorporate the technical requirements of equitable servitudes into the statutes.” (Terifaj, at p. 87.)

    Terifaj establishes that the Davis-Stirling Act makes the covenants in a recorded declaration enforceable without regard to whether they satisfy common law requirements for covenants running with the land or equitable servitudes. Accordingly, irrespective of whether the arbitration clause before us does or does not satisfy the traditional requirements for equitable servitudes, the clause is enforceable as an equitable servitude, or in the same manner as an equitable servitude, as a matter of statute. (Villa De Las Palmas Homeowners Assn. v. Terifaj, supra, 33 Cal.4th at p. 87.)

    255*255 The majority reaches the same conclusion, but relies in heavy part on section 1353, subdivision (b), which authorizes a developer or homeowners to include in the declaration “any other matters [they] consider appropriate.” (See maj. opn., ante, at p. 242.) In contrast to the restrictions included pursuant to subdivision (a) of section 1353, however, it does not follow that any matter included under subdivision (b) thereby becomes an enforceable equitable servitude. Indeed, subdivision (a) gives examples of just the sort of extra matters a developer might elect to include that would be permitted by subdivision (b) but are nevertheless not equitable servitudes; subdivision (a) mandates inclusion of standard notices for all subdivisions in proximity to an airport or falling within a particular conservation district. (§ 1353, subd. (a)(1)-(3).) A developer might elect to include, under subdivision (b), similar notices of other circumstances that would affect the decision to purchase property, without such notices becoming equitable servitudes. Accordingly, I would rest enforcement of the arbitration clause on section 1353, subdivision (a) and section 1354, not on section 1353, subdivision (b).

    II.

    The question remains whether the arbitration clause, though facially enforceable against the Homeowners Association, is valid. Because the clause’s enforceability derives from statute, not contract law, I would conclude the limits on its validity also derive from statute, not contract law. I therefore would focus on whether the clause is reasonable as required by statute, not whether it is unconscionable and thus contractually unenforceable. (See § 1354, subd. (a) [“The covenants and restrictions in the declaration shall be enforceable equitable servitudes, unless unreasonable ….].) Under section 1354, covenants or restrictions in a declaration will “be enforced unless they are wholly arbitrary, violate a fundamental public policy, or impose a burden on the use of affected land that far outweighs any benefit.” (Nahrstedt v. Lakeside Village Condominium Assn., supra, 8 Cal.4th at p. 382.)

    The Homeowners Association bears the burden of establishing unreasonableness under section 1354. (Nahrstedt v. Lakeside Village Condominium Assn., supra, 8 Cal.4th at p. 380.) It has not sought to do so expressly, instead framing its argument against enforcement in terms of contract principles of procedural and substantive unconscionability. Even treating that argument as applying equally to the reasonableness requirement, i.e., as an argument that the arbitration clause is unconscionable, and thus against public policy and thus unreasonable, the Homeowners Association has not carried its burden.

    256*256 To be sure, the adoption of the arbitration clause has elements of procedural unconscionability. Contrary to the majority’s view, that the Davis-Stirling Act contemplates a developer will draft and record covenants and restrictions before a homeowners association has any realistic opportunity to consent does not mean any resulting procedural unconscionability is categorically excused. (See maj. opn., ante,at p. 247.) Nothing is to stop a developer from providing a homeowners association a meaningful opportunity, once it achieves independence, to ratify or reject covenants and restrictions touching on the developer’s interests. In the absence of such an opportunity, we should make clear that provisions inserted unilaterally for the developer’s benefit must receive careful scrutiny under section 1354 to prevent abuse of the unilateral drafting power required by the nature of common interest developments.

    That said, the Homeowners Association has not shown in this case that the arbitration clause constitutes such an abuse. The Homeowners Association objects to a provision that each side shall bear its own costs and attorney fees, but I agree with the majority that nothing in that clause evidences substantive unconscionability. (See maj. opn., ante, at p. 249.) The Homeowners Association also raises the clause’s limited scope — construction claims-as proof of the lack of “`a modicum of bilaterality'” we have in the past demanded. (Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th at p. 119.) An arbitration clause is not, however, required to sweep in every possible claim either of two parties might have against each other; bilaterality is satisfied if, for the particular transaction or transactions covered, each side must submit its possible claims to the arbitral forum. (Id. at p. 120.) As the majority holds (maj. opn., ante, at pp. 248-249), an arbitration clause that covers all claims arising from construction of a development does not, because it excludes nonconstruction claims, offend public policy and become unenforceable under section 1354.

    For these reasons, I concur in the judgment of the court.

    LIU, J., Concurring. —

    I join the court’s opinion. I also find much that is persuasive in Justice Werdegar’s concurrence. In my view, the court’s opinion and Justice Werdegar’s concurrence are not that far apart.

    This case requires us to answer two questions. The first is whether a provision of a declaration of restrictions for a common interest development requiring arbitration of any construction defect disputes between a homeowners association and a developer can ever be enforceable against the association. The conceptual difficulty is that this provision defies easy categorization. 257*257 Both the court and Justice Werdegar acknowledge that there was no privity of contract between the homeowners association, Pinnacle Museum Tower Association, and the developer,Pinnacle Market Development, and that the provision is thus not a contractual arbitration agreement in the strict sense. (Maj. opn., ante, at p. 251; conc. opn. of Werdegar, J., ante, at p. 252.) Both appear to recognize that the provision is not one of the typical property restrictions running with the land that are enforceable as equitable servitudes. (Maj. opn., ante, at p. 241; conc. opn. of Werdegar, J., ante, at p. 252.)

    Further, both acknowledge that the developer’s authorization to include such a provision arises primarily from the Davis-Stirling Common Interest Development Act (Davis-Stirling Act; Civ. Code, § 1350 et seq.). (Maj. opn., ante, at p. 242; conc. opn. of Werdegar, J., ante, at p. 254.) Justice Werdegar would locate that authorization in Civil Code sections 1353, subdivision (a) and 1354, subdivision (a) (all statutory references are to this code). Section 1353, subdivision (a) pertains to “restrictions on the use or enjoyment of any portion of the common interest development.” Because the arbitration provision in question does not neatly fit into that category, I agree with the court that authorization for the provision is more appropriately located in section 1353, subdivision (b): “The declaration may contain any other matters the original signator of the declaration or the owners consider appropriate.”

    The court affirms that arbitration is binding only insofar as both parties consent in some fashion to the waiver of the right to a jury trial. Despite the fact that the homeowners association came into existence already bound by the arbitration provision, the court still finds the arbitration provision to be consensual: “There appears no question that, under the Davis-Stirling Act, each owner of a condominium unit either has expressly consented or is deemed by law to have agreed to the terms in a recorded declaration. As the exclusive members of an owners association, the owners have every right to expect that the association, in representing their collective interests, will abide by the agreed-upon covenants in the declaration, including any covenant to invoke binding arbitration as an expeditious and judicially favored method to resolve a construction dispute, in the absence of unreasonableness.” (Maj. opn., ante, at p. 241.)

    I agree with Justice Werdegar that, in reality, it is doubtful that the presence of an arbitration clause was a salient feature of a home purchase transaction. (Conc. opn. of Werdegar, J., ante, at p. 253.) But I agree with the court that in the unique statutory context of the Davis-Stirling Act, the notice 258*258 of the arbitration provision given to homeowners who became the members of the homeowners association rendered the arbitration provision sufficiently consensual to legitimately bind the association.

    Because these types of arbitration provisions may lawfully be applied to homeowners associations under the Davis-Stirling Act, the second question we are asked to address is whether the terms of this particular arbitration provision are lawful. I agree with Justice Werdegar that the proper inquiry is whether the terms of the provision are “unreasonable.” (§ 1354, subd. (a).) The inquiry under that statute, however, has been keyed to whether a property restriction has a “rational relationship to the protection, preservation, operation or purpose of the affected land.” (Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal.4th 361, 381 [33 Cal.Rptr.2d 63, 878 P.2d 1275].) Because what is at issue here is not a property restriction in the usual sense but rather an arbitration clause for resolving construction defect disputes, the court properly recognizes that the appropriate inquiry is whether the arbitration clause is unreasonably one sided in favor of the party imposing the arbitration — that is, whether the arbitration clause is substantively unconscionable. The court is also correct in stating that “while a condominium declaration may perhaps be viewed as adhesive, a developer’s procedural compliance with the Davis-Stirling Act provides a sufficient basis for rejecting an association’s claim of procedural unconscionability.” (Maj. opn., ante, at p. 248.)

    In sum, I understand today’s opinion to hold that whether or not the arbitration provision is contractual in the strict sense, it is appropriate in this case to use the substantive unconscionability inquiry from contract law to determine whether the arbitration clause is reasonable and hence lawful. With that understanding, I join the opinion of the court.

    KENNARD, J., Dissenting. —

    A condominium owners association sued the project’s developer over construction defects. The developer sought to have the dispute arbitrated.

    The majority holds that the owners association is bound by an arbitration provision in the declaration of covenants, conditions, and restrictions (CC&R’s) drafted by the developer before the association came into existence as an independent entity. I disagree, because of the association’s lack of consent to the arbitration provision.

    I

    Defendant condominium developer drafted and recorded CC&R’s that, among other things, provided for the creation of a nonprofit corporation to be 259*259 called the “Pinnacle Museum Tower Association,” plaintiff here. The CC&R’s also stated that acceptance of any property deed would indicate agreement to have any construction dispute against the developer resolved through binding arbitration. When the developer recorded the CC&R’s, the owners association, as the majority acknowledges, had no existence independent of the developer.

    After the developer completed construction and disposed of its interests in the condominium project, and after the association became an independent entity, the association sued the developer over various construction defects, including drainage and electrical problems. Relying on the arbitration provision in the CC&R’s, the developer asked the trial court to compel arbitration. The trial court denied the petition. The Court of Appeal upheld that ruling. This court then granted defendant’s petition for review.

    II

    Arbitration, which is an alternative to the judicial process (Berglund v. Arthroscopic & Laser Surgery Center of San Diego, L.P. (2008) 44 Cal.4th 528, 539 [79 Cal.Rptr.3d 370, 187 P.3d 86]), “is a matter of consent, not coercion” (Volt Info. Sciences v. Leland Stanford Jr. U. (1989) 489 U.S. 468, 479 [103 L.Ed.2d 488, 109 S.Ct. 1248]). Thus, an arbitration provision is binding only if the parties have agreed to it. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 10 [10 Cal.Rptr.2d 183, 832 P.2d 899].)

    When defendant developer here recorded the CC&R’s, plaintiff owners association had no independent existence (see ante, at p. 258) and hence no say in the developer’s unilateral decision to have any construction disputes decided by binding arbitration. Lacking therefore is the association’s consent to the arbitration provision in the CC&R’s.

    According to the majority, however, the owners association’s consent to the arbitration provision can be inferred from consent to it by the developer and individual condominium owners. (Maj. opn., ante, at pp. 240-241.) In support, the majority cites this court’s decision in Ruiz v. Podolsky (2010) 50 Cal.4th 838 [114 Cal.Rptr.3d 263, 237 P.3d 584] (Ruiz). But that decision is not on point here.

    The issue in Ruiz was whether an arbitration agreement between a physician and a patient (who consented to arbitration) applied to wrongful death claims brought by the deceased patient’s heirs against the physician. A majority of this court concluded that the arbitration agreement extended to the patient’s heirs. The majority relied on Code of Civil Procedure section 1295, which states that any arbitration provision in a contract for medical 260*260 services must be mentioned in the contract’s first article. The statute also requires the contract to state that by agreeing to arbitration the parties give up their constitutional right to a jury trial. This statute, the Ruiz majority asserted, was designed “to permit patients who sign arbitration agreements to bind their heirs in wrongful death actions.” (Ruiz, supra, 50 Cal.4th at p. 849.) I dissented, expressing the view that the statute said nothing about a deceased patient’s heirs’ wrongful death claims, which are independent claims of the heirs, rather than being derivative of any claim by the patient. (Id. at pp. 855-858 (dis. opn. of Kennard, J.).)

    The majority in Ruiz expressly limited its holding to wrongful death claimants. (Ruiz, supra, 50 Cal.4th at p. 854, fn. 5.) Such claimants are not involved in this case, in which a developer seeks to compel an owners association to arbitrate construction defect claims.

    Moreover, Ruiz involved a statute that, as described by the majority, reflected a legislative intent that supported the majority’s holding. (Ruiz, supra, 50 Cal.4th at p. 849.) In contrast, the legislative scheme governing condominium developments, as involved here, indicates that the developer cannot unilaterally bind the owners association to arbitrate its construction defect claims. As expressed in Civil Code section 1369.510, subdivision (a), whether parties in common interest developments are bound by alternative dispute resolution procedures, such as arbitration, requires “the voluntary consent of the parties.” Thus, consent by the developer alone is insufficient.

    Also unconvincing is the majority’s assertion that individual owners can consent to arbitration on behalf of the owners association. (Maj. opn., ante, at p. 241.) According to the majority, because the individual owners are the exclusive members of the association, the owners have the right to expect the association to be bound by the binding arbitration provision. (Ibid.) The association and the individual owners are not the same, however. The majority itself acknowledges that: “There is, of course, no question that an owners association functions as an entity distinct and separate from its owner members and may hold title to real property in a condominium development in its own name.” (Maj. opn., ante, at p. 239.) Thus, consent by the owners association itself is necessary before it can be compelled to submit to binding arbitration.

    As I have explained, lacking here is the owners association’s consent to an arbitration provision in the CC&R’s drafted and recorded by the developer before the association’s independent existence. In compelling arbitration, which offers no right to a jury, the majority deprives the owners association of its constitutional right to have its construction defect dispute decided by a jury. In the words of our state Constitution: “Trial by jury is an inviolate right 261*261 and shall be secured to all….” (Cal. Const., art. I, § 16.) This constitutional right, this court has said, “may not be abridged by act of the Legislature.” (People v. Collins (1976) 17 Cal.3d 687, 692 [131 Cal.Rptr. 782, 552 P.2d 742].)

    I would affirm the judgment of the Court of Appeal.

    [1] The condominium owners have easements over the Association’s property.

    [2] Section 18.3(j) of article XVIII states in relevant part: “WAIVER OF JURY TRIAL AND RIGHT TO APPEAL. DECLARANT [PINNACLE], AND BY ACCEPTING A DEED FOR ANY PORTION OF THE TOWER ASSOCIATION PROPERTY, THE ASSOCIATION AND EACH OWNER, AGREE (I) TO HAVE ANY CONSTRUCTION DISPUTE DECIDED BY NEUTRAL ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT AND THE CALIFORNIA ARBITRATION ACT, TO THE EXTENT THE CALIFORNIA ARBITRATION ACT IS CONSISTENT WITH THE FEDERAL ARBITRATION ACT; (II) TO GIVE UP ANY RIGHTS THEY MIGHT POSSESS TO HAVE THE CONSTRUCTION DISPUTE LITIGATED IN A COURT OR JURY TRIAL; (III) TO GIVE UP THEIR RESPECTIVE RIGHTS TO APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE APPLICABLE ARBITRATION RULES OR STATUTES. IF ANY PARTY REFUSES TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, SUCH PARTY MAY BE COMPELLED TO ARBITRATE….”

    [3] The Association does not dispute that section 8 of the purchase agreement and article XVIII of the Project CC&R’s together constitute an agreement to arbitrate between Pinnacle and the original condominium owners. Likewise, Pinnacle does not challenge the trial court’s determination that section 8 does not bind the Association, which was not a party to the purchase agreements.

    [4] The CAA’s comprehensive statutory scheme also expresses a “`”`strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution.'”‘” (Schatz v. Allen Matkins Leck Gamble & Mallory LLP (2009) 45 Cal.4th 557, 564 [87 Cal.Rptr.3d 700, 198 P.3d 1109].) In terms similar to the FAA, the CAA provides that “[a] written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” (Code Civ. Proc., § 1281.)

    [5] Code of Civil Procedure section 1298.7 provides in relevant part: “In the event an arbitration provision is included in a contract or agreement covered by this title it shall not preclude or limit … any right of action to which Section 337.1 [(limitations period for patent design or construction defects)] or 337.15 [(limitations period for latent design or construction defects)] is applicable.”

    [6] E.g., Civil Code sections 1352.5 (restrictive covenants may not violate Gov. Code, § 12955), 1353.5 (governing display of the U.S. flag), 1353.6 (governing display of noncommercial signs, posters, flags, or banners on or in an owner’s separate interest), 1353.7 (governing roof installation or repair), 1353.8 (governing low water-using plants and landscaping), 1353.9 (governing installation and use of electric vehicle charging stations), 1376 (governing installation and use of video or television antenna), 1360.2 (governing rental or leasing of separate interests), 1360.5 (governing pets).

    [7] One of the primary objectives of the Department of Real Estate is the protection of the public interest with regard to offerings of subdivided lands. (See generally Frisella & Nichols, Department of Real Estate (2001) 17:2 Cal. Reg. L.Rep. 313.) Pursuant to its rulemaking authority (Bus. & Prof. Code, § 11001), the Real Estate Commissioner promulgated section 2791.8 of title 10 of the California Code of Regulations, which provides in relevant part: “(a) … [A] provision in the covenants, conditions and restrictions setting forth terms, conditions and procedures for resolution of a dispute of claim between a homeowners association and a subdivider shall, at a minimum, provide that the dispute or claim resolution process, proceeding, hearing or trial to be conducted in accordance with” specified rules regarding (1) “costs and fees,” (2) timely appointment of a neutral person to administer and preside over the dispute resolution process, (3) venue of the proceeding, (4) “prompt and timely commencement” and “prompt and timely conclusion” of the process, (5) conduct of the process “in accordance with rules and procedures that are reasonable and fair to the parties,” and (6) authority of the presiding neutral person to provide all recognized remedies available in law or equity for any cause of action that is the basis of the proceeding. (Cal. Code Regs., tit. 10, § 2791.8, subd. (a).) Although the regulation contemplates that an arbitration process in a declaration may be binding or nonbinding, a process that “provides or allows for a judicial remedy in accordance with the laws of this state” presumptively satisfies the regulation’s minimum terms. (Cal. Code Regs., tit. 10, § 2791.8, subd. (c).)

    [8] In any event, the FAA’s applicability would preempt any statutory provision that specifically discriminates against arbitration. (Perry v. Thomas, supra, 482 U.S. 483; Southland Corp. v. Keating, supra, 465 U.S. 1; Shepard v. Edward Mackay Enterprises, Inc., supra, 148 Cal.App.4th at p. 1095.)

    [9] Civil Code section 1363.830 provides in relevant part: “A fair, reasonable, and expeditious dispute resolution procedure shall at a minimum satisfy all of the following requirements: [¶] (a) The procedure may be invoked by either party to the dispute…. [¶] … [¶] (c) If the procedure is invoked by a member, the association shall participate in the procedure. [¶] (d) If the procedure is invoked by the association, the member may elect not to participate in the procedure. If the member participates but the dispute is resolved other than by agreement of the member, the member shall have a right of appeal to the association’s board of directors. [¶] (e) A resolution of a dispute pursuant to the procedure, that is not in conflict with the law or the governing documents, binds the association and is judicially enforceable. An agreement reached pursuant to the procedure, that is not in conflict with the law or the governing documents, binds the parties and is judicially enforceable. [¶] … [¶] (g) A member of the association shall not be charged a fee to participate in the process.” (See Civ. Code, § 1363.840 [setting forth a comparable procedure for “an association that does not otherwise provide a fair, reasonable, and expeditious dispute resolution procedure”].)

    [10] Grafton also distinguished predispute jury waivers from the very type of predispute reference agreement at issue in Treo, noting that Code of Civil Procedure section 638 authorizes reference agreements. (Grafton, supra, 36 Cal.4th at p. 959.)

    [11] Likewise, we shall not, as the Association urges, target the arbitration clause as the only covenant in the recorded declaration that requires ratification by the Association’s governing board in order to bind the Association and its members.

    [12] We agree. The record reflects that the arbitration provisions of the Project CC&R’s appear in a separate article under a bold, capitalized, and underlined caption titled “ARTICLE XVIII CONSTRUCTION DISPUTES,” and within a separate section with the bold and underlined title, “Section 18.3. Resolution of Construction Disputes by Arbitration.” The provision referring to FAA applicability, and the provision describing the waivers of jury trial and right to appeal, are set forth in separate subsections of section 18.3, with the latter appearing in bold and capital letters. (See ante,fn. 2.) Additionally, the recitals on page 2 of the Project CC&R’s state, in capital letters, that article XVIII of the declaration “refers to mandatory procedures for the resolution of construction defect disputes, including the waiver of the right to a jury trial for such disputes.”

    [13] Indeed, if an association could avoid an arbitration covenant in a recorded declaration on the ground that it did not negotiate for the covenant, then it would follow that, notwithstanding the Act’s operation, the association would not be bound by any of the covenants, conditions, or restrictions in the declaration. The position is untenable.

    [14] Pursuant to Civil Code section 1368.4, subdivision (a), an owners association’s recovery of damages in a construction defect action “shall be reduced by the amount of damages allocated to the association or its managing agents in direct proportion to their percentage of fault based upon principles of comparative fault.”

    [15] We are aware that Villa Milano, supra, 84 Cal.App.4th 819, concluded that arbitration provisions in a recorded declaration are categorically unenforceable as unconscionable and against public policy in light of Code of Civil Procedure section 1298.7. (Villa Milano, at pp. 829-833.) Villa Milano,however, preceded Shepard v. Edward Mackay Enterprises, Inc., supra, 148 Cal.App.4th 1092, which held that the FAA, when applicable, preempts operation of that antiarbitration statute. (See ante, pt. A.) Thus, Villa Milano erred in relying on Code of Civil Procedure section 1298.7 as a basis for finding substantive unconscionability. (See Marmet Health Care Center v. Brown (2012) 565 U.S. ___, ___ [182 L.Ed.2d 42, 132 S.Ct. 1201, 1204].) We hereby disapprove Villa Milano Homeowners Assn. v. Il Davorge, supra, 84 Cal.App.4th 819, to the extent it is inconsistent with any of the views expressed herein.

    [1] All further statutory references are to the Civil Code.

    [2] Although Villa Milano acknowledged that existing precedent did not explain why a homeowners association should be bound as a matter of contract, because the parties did not raise this point the court simply assumed that a homeowners association exclusively represented individual owners’ interests and should not be permitted to avoid what the owners themselves could not avoid. (Villa Milano Homeowners Assn. v. Il Davorge, supra, 84 Cal.App.4th at p. 825, fn. 4.) Not so; the Homeowners Association has its own separate property interests and its own potential claims.

     

    ×
  • Seahaus La Jolla v. Sup Ct

    Seahaus La Jolla v. Sup Ct

    224 Cal.App.4th 754 (2014)

    759*759 Epsten Grinnell & Howell, Anne L. Rauch; Rockwood & Noziska, Brant Noziska, Neal Rockwood; Law Offices of William A. Bramley and William A. Bramley for Petitioner.

    Simpson Delmore & Greene, Paul J. Delmore, Elizabeth A. Donovan and Brook T. Barnes for Real Parties in Interest CLB Partners Ltd. and La Jolla View Ltd., LLC.

    Gordon & Rees, Sandy M. Kaplan, R. Scott Sokol and Matthew G. Kleiner for Real Parties in Interest Webcor Development, Inc., Webcor Builders, Inc., and Webcor Construction, L.P.

    Bryan Cave, Robert E. Boone III, Edward M. Rosenfeld, Tony Tootell and David Harford for Real Parties in Interest Bank of America Corporation, Bank of America, N.A., and Countrywide Home Loans, Inc.

    OPINION

    HUFFMAN, J. —

    Petitioner Seahaus La Jolla Owners Association (Association) is the plaintiff in a construction defect action alleging water and other damage to the common areas of a common interest development. The Association sued the developers and builders of the complex, La Jolla View Ltd., LLC, and Webcor Construction L.P. (Defendants), who, among others, are the real parties in interest in this mandamus proceeding. The Association contends the trial court erred and abused its discretion in overruling the Association’s claim of attorney-client privilege in this discovery dispute over Defendants’ efforts to depose individual homeowners regarding disclosures made at informational meetings about the litigation.

    The record shows that counsel for the Association’s board of directors (the Board) gave notice to the individual homeowners in June 2009 that the Board was pursuing mediation but was also contemplating filing construction defect 760*760 litigation. (Civ. Code, former § 1368.5, now § 6150.)[1] Such litigation was filed in July of 2009, and the Board and its counsel subsequently conducted meetings with many individual homeowners of the 140 units to apprise them of the status and goals of the litigation. Pursuant to the provisions of the governing documents, at one such litigation update meeting, the Board sought and obtained majority approval by the homeowners for pursuing the action. (Civ. Code, § 6150, subd. (b); Association’s Declaration of Covenants, Conditions and Restrictions (CCRs), § 4.4.11, “Members’ Approval of Certain Actions.”)

    By the time of the later litigation update meetings, a subgroup of individual homeowners had filed its own companion action in which they seek damages for construction defects in their private individual units, and their action was coordinated for discovery purposes with the Association’s action. (Sarnecky v. La Jolla View Ltd., LLC (Super. Ct. San Diego County, No. 37-2010-00092634-CU-OR-CTL) (Sarnecky action).)[2]

    Defendants’ contested discovery requests were made during depositions of many individual homeowners, and seek to inquire into the content and disclosures made at those informational litigation update meetings, which were conducted by the Association’s counsel. The Association objected, invoking the attorney-client privilege under Evidence Code[3] section 952 and the “common interest” doctrine. (See OXY Resources California LLC v. Superior Court (2004) 115 Cal.App.4th 874, 887-888 [9 Cal.Rptr.3d 621] (OXY Resources) [parties who possess common legal interests may share privileged information without losing the protection afforded by the privilege].) However, several rulings by the trial court have declined to allow such a privilege to be asserted by the Association, or have concluded any privilege was waived, regarding the communications received at the meetings by 761*761 individual homeowners who are not the actual clients of the Association’s retained counsel. This petition ensued.

    “Confidential communications” between client and lawyer are defined in section 952 as meaning “information transmitted between a client and his or her lawyer in the course of that relationship and in confidence by a means which, so far as the client is aware, discloses the information to no third persons other than those who are present to further the interest of the client in the consultation or those to whom disclosure is reasonably necessary for the transmission of the information or the accomplishment of the purpose for which the lawyer is consulted, and includes a legal opinion formed and the advice given by the lawyer in the course of that relationship.” (Italics & underscoring added.)

    (1) We evaluate this discovery dispute in the context of the usual first principles, that parties may obtain discovery regarding any unprivileged matter that is relevant to the subject of the pending action or motions, but subject to the rule that “the matter either is itself admissible in evidence or appears reasonably calculated to lead to the discovery of admissible evidence.” (Code Civ. Proc., § 2017.010, italics added.) Defendants’ claim to entitlement to information about the litigation update meetings is apparently based upon the claim of some of the individual plaintiffs to stigma damages for their units (apparently in the Sarnecky action). Defendants argue that in the Association’s common area action, they should be able to inquire into the beliefs of the individual homeowner plaintiffs about damages and the source of their beliefs (such as any perceptions gained from information given to them by the Association’s attorneys at the Board’s litigation update meetings).

    To the extent this record reveals anything about the purpose of the requested discovery, it shows that counsel for Defendants is seeking to develop information about the litigation strategy of the Association’s counsel, including the legal opinions formed and the advice given by the lawyers in the course of that relationship, and such disclosures would not likely lead to the discovery of admissible evidence. (§ 952; Code Civ. Proc., § 2017.010; Mitchell v. Superior Court (1984) 37 Cal.3d 591, 609-610 [208 Cal.Rptr. 886, 691 P.2d 642] (Mitchell) [public policy concerns outlined against unwarranted invasions of privilege].)

    (2) In the Act governing common interest developments, the Legislature placed certain obligations on homeowners association governing boards to communicate with individual owners about proposed construction defect litigation by the association regarding the common areas. (Civ. Code, § 6150, subd. (a).) The association may sue developers over common area defects and 762*762 also over alleged damage to the separate interests that the association must maintain or repair, or damage to the separate interests that is integrally related to damage to the common areas. (Ibid.; Civ. Code, § 5980.) By the same token, individual owners have economic interests in the value of not only their own individual units, but also in the state of the development as a whole. (Ostayan v. Nordhoff Townhomes Homeowners Assn., Inc. (2003) 110 Cal.App.4th 120, 126-127 [1 Cal.Rptr.3d 528] (Ostayan).)

    As we will show, the challenged orders in the Association’s action represent an overly technical definition of the attorney-client privilege, and do not account for the protection of client confidentiality as it operates through the common interest doctrine, in this factual and legal context surrounding common interest developments. We grant relief on the petition to allow the attorney-client privilege to be asserted under these circumstances.

    FACTUAL AND PROCEDURAL SUMMARY

    A. Nature of Meetings Held by Board for Individual Homeowners; Legal Representation

    The Board hired the Epsten Grinnell & Howell law firm to represent it in pursuing mediation with the developer and general contractor of the development. On June 23, 2009, the Association’s counsel sent a letter to all homeowners notifying them that mediation was pending, no lawsuit had been filed, and a preliminary list of defects was enclosed, reflecting that the Association was currently investigating the nature, extent and severity of the defects at the site. The letter stated that if an owner was selling or refinancing a unit, “you may be required to provide this document to escrow, buyer, or a lending institution.”

    The next letter from the Association’s attorneys was dated August 17, 2009, and provided homeowners with an update regarding the status of the construction defect claims involving the common areas of the development. This letter notified homeowners that (1) the Association had just filed its lawsuit on July 31, 2009, due to limitations concerns and bankruptcy of one defendant, and (2) the homeowners might be required to disclose that filing in connection with any pending sale or refinance of a unit. Mediation was continuing, but the legal action filing had been deemed to be essential to preserve the claims. Counsel stated that members of the firm would be present at the Association’s annual meeting on September 16, 2009, to answer questions and discuss the Association’s legal options and the status of the investigation and mediation efforts.

    On January 13, 2010, the Board and its mediation and litigation committee sent out a notice of an informational meeting to all homeowners, at which 763*763 counsel for the Association would be present to provide owners with information about the status of the claims against the developers and builders of the complex. The meeting was scheduled for January 26, 2010, for presentations by the attorneys and some of the consultants retained to assist in connection with pursuing the claims.

    Next, counsel for the Association sent all homeowners another status update on the claims against the developers and builders dated March 1, 2010. This letter referenced the homeowner meeting held January 26, 2010, and stated that additional defects had been identified and were being investigated. The homeowners were told that additional meetings would be scheduled when the results of the current investigation were obtained.

    On March 20, 2012, counsel for the Association notified the individual homeowners that an upcoming open forum meeting was scheduled for March 24, 2012, to answer individual homeowners’ questions regarding the litigation, particularly its relationship to the separate Sarnecky individual homeowners’ action. Only some of the individual homeowners were parties to the separate action, and they were represented by their own attorneys (the Aguirre firm). The letter also stated that the Association’s structural engineer would be attending the meeting to answer questions.

    B. Discovery Dispute; Referee

    Defendants pursued discovery in the Association’s action, requesting that several individual homeowners be produced for deposition and questioned about the litigation meetings’ content, and any basis they might have learned there about any stigma damages being claimed for their units. Defendants argued that the meetings were not held in a confidential context and any applicable privileges had been waived.

    The Association objected to the questions and asserted that the information was protected from disclosure by the attorney-client privilege. The Association did not claim that the individual homeowners were also clients of its counsel, but rather that they were “third persons … to whom disclosure is reasonably necessary for the … accomplishment of the purpose for which the lawyer is consulted.” (§ 952.) Thus, it claimed the individual homeowners were present to further the interests of the Association, as client, in the consultation.

    When Defendants continued to seek information about the content of the meetings, the Association brought the issue before the appointed discovery referee, James A. Roberts. After a tentative ruling and hearing, the referee issued a report and recommendations for a protective order to be issued by 764*764 the court. The referee concluded that the information requested about the content of the meetings was not subject to discovery because it was neither directly relevant to the action nor reasonably likely to lead to relevant evidence. In his June 4, 2012 letter decision, he stated his opinion that the Association had the better argument as to why such communications should be determined to be privileged. In his formal recommendation dated July 13, 2012, issued after a request for reconsideration, the referee stated that even though some of the letters from the Association’s counsel to the homeowners, about the status of the litigation and the claims being made, were stated on their face not to be confidential and thus could be shown to lenders or prospective purchasers, the public content of those letters was different from the content of the confidential information being discussed at the homeowner litigation meetings.

    C. Court Proceedings on Referee’s Recommendation

    Defendants brought their objections to the referee’s recommendations to the trial court (Judge Vargas), who held several hearings. In a series of proposed orders and rulings, Judge Vargas stated he “sustains defendant’s objection” to the recommendation, but also stated “[t]he court overrules all other objections.” Although the order granted the protective order proposed by the referee, it was stamped “granted with modifications” (which were unclear), and the same order was stamped as “Rejected — Defective (Courtesy Copy Not Received by Court).” Meanwhile, some of the individual homeowners’ depositions were proceeding, out of over 30 that were set.

    At the end of 2012, Judge Vargas retired and the case was reassigned to Judge Meyer. In July 2013, Defendants moved to compel further answers, claiming that the information sought about the meetings at the individual homeowners’ depositions was not protected by the attorney-client privilege, since there were no attorney-client relationships between the Association’s counsel and the individual homeowners.

    The Association responded that there was not any attorney-client relationship between its own counsel and the individual homeowners, but that nevertheless, its counsel’s disclosures to those homeowners were privileged under section 952, as reasonably necessary for “the accomplishment of the purpose” for which the Association’s lawyer was consulted.

    At the hearing on the motion to compel, Judge Meyer stated that he could not understand Judge Vargas’s orders, which were ambiguous and contradictory. The matter was taken under submission and the motion to compel granted on September 4, 2013: “This court cannot change Judge Vargas’s order 765*765 reversing the Discovery Referee’s determination regarding an attorney-client relationship between the Association’s counsel and individual homeowners.”

    This petition followed, asserting that the court erred in granting the motion to compel solely on the ground that it had to follow Judge Vargas’s earlier order, which was ambiguous. Petitioner seeks orders compelling the trial court to vacate its orders allowing the requested discovery, and asks that we direct the trial court to order adoption of the referee’s report. The Association contends this privilege question is one of first impression that should be considered by this court before the Association or witnesses are required to disclose information it claims is privileged.[4]

    We issued a stay, received additional briefing, and issued an order to show cause. Oral argument was held and the matter submitted.

    DISCUSSION

    In this context of Association litigation seeking recovery for construction defects in the common areas, we are asked to decide whether attorney-client privileges extend to communications, for which confidentiality was intended or preserved, between the Association’s counsel and third party nonclients (individual homeowners), at Association update meetings about the common area litigation, which were held for the individual homeowners. Although there may be some differences between the procedural posture of some of these third party nonclients (i.e., only some of the individual homeowners have filed the separate Sarnecky action seeking damages to their private units), we will treat the Association and its litigation counsel’s communications to individual homeowners at the meetings as raising the same legal issue. Were such communications sufficiently confidential, and “reasonably necessary for the accomplishment of the purpose for which the [Association’s] lawyer is consulted,” based on common interests in the subject matter of the Association’s litigation updates? (See §§ 912, 952.)

    766*766 I

    APPLICABLE STANDARDS

    A. Review of Privilege Rulings

    “Extraordinary review of a discovery order will be granted when a ruling threatens immediate harm, such as loss of a privilege against disclosure, for which there is no other adequate remedy. [Citation.] `”We review discovery orders under the abuse of discretion standard, and where the petitioner seeks relief from a discovery order that may undermine a privilege, we review the trial court’s order by way of extraordinary writ. [Citation.]”‘” (Zurich American Ins. Co. v. Superior Court (2007) 155 Cal.App.4th 1485, 1493 [66 Cal.Rptr.3d 833] (Zurich).) Each challenged discovery ruling concerning the recognition of a privilege is considered on a “`case-by-case'” basis, and we decide only the issues before us. (Upjohn Co. v. United States (1981) 449 U.S. 383, 396-397 [66 L.Ed.2d 584, 101 S.Ct. 677].)

    In this context, “`[t]he trial court’s determination will be set aside only when it has been demonstrated that there was “no legal justification” for the order granting or denying the discovery in question.'” (OXY Resources, supra, 115 Cal.App.4th 874, 887.) A trial court has abused its discretion in determining the applicability of a privilege when it utilizes the wrong legal standards to resolve the particular issue presented. (Zurich, supra, 155 Cal.App.4th 1485, 1493-1494.)

    (3) The party claiming privilege has the burden of establishing the preliminary fact that the communications were made during the course of an attorney-client relationship. (D. I. Chadbourne, Inc. v. Superior Court (1964) 60 Cal.2d 723, 729 [36 Cal.Rptr. 468, 388 P.2d 700]; Costco Wholesale Corp. v. Superior Court (2009) 47 Cal.4th 725, 740 [101 Cal.Rptr.3d 758, 219 P.3d 736].)

    (4) The overarching standards for the scope and applicability of a privilege are statutory in nature. (§ 911.) “The privileges set out in the Evidence Code are legislative creations; the courts of this state have no power to expand them or to recognize implied exceptions.” (Wells Fargo Bank v. Superior Court (2000) 22 Cal.4th 201, 206 [91 Cal.Rptr.2d 716, 990 P.2d 591] (Wells Fargo); see Roberts v. City of Palmdale (1993) 5 Cal.4th 363, 373 [20 Cal.Rptr.2d 330, 853 P.2d 496];Zurich, supra, 155 Cal.App.4th 1485, 1494.) Public policy supports the proper scope of application of attorney-client privileges, to ensure “`the right of every person to freely and fully confer and confide in one having knowledge of the law, and skilled in767*767 its practice, in order that the former may have adequate advice and a proper defense.'” (Mitchell, supra, 37 Cal.3d 591, 599.)

    (5) The proper purposes of discovery are to obtain information on unprivileged matters that are relevant to the subject of the pending action, “if the matter either is itself admissible in evidence or appears reasonably calculated to lead to the discovery of admissible evidence.” (Code Civ. Proc., § 2017.010.) “For discovery purposes, information is relevant if it `might reasonably assist a party in evaluating the case, preparing for trial, or facilitating settlement.’ [Citation.] Admissibility is not the test and information, unless privileged, is discoverable if it might reasonably lead to admissible evidence. [Citation.] … [T]he scope of discovery extends to any information that reasonably might lead to other evidence that would be admissible at trial. `Thus, the scope of permissible discovery is one of reason, logic and common sense.'” (Lipton v. Superior Court (1996) 48 Cal.App.4th 1599, 1611-1612 [56 Cal.Rptr.2d 341] (Lipton); italics omitted.)

    B. Procedural Status: No Reliance on Laches

    Before analyzing the record in light of the above legal principles, we acknowledge that the sequence of discovery referee recommendations and two sets of superior court rulings have created some confusion on the basis for the rulings and the exact issues to be resolved. Defendants complain that the Association could have sought mandamus relief earlier, but did not do so until well into the discovery and litigation process, and thus, the petition arguably should be barred by laches. (See, e.g.,Johnson v. City of Loma Linda (2000) 24 Cal.4th 61, 68 [99 Cal.Rptr.2d 316, 5 P.3d 874]; Planned Parenthood Golden Gate v. Superior Court (2000) 83 Cal.App.4th 347, 356 [99 Cal.Rptr.2d 627].)

    Writ review on the merits is appropriate to evaluate the rulings granting the motion to compel brought by Defendants, since they effectively disallowed the claims of attorney-client privilege raised by the Association with respect to the proposed questioning of individual homeowners. It is not necessary to enter into the debate about what Judge Vargas meant in the rulings he made before he retired in 2012, or about Judge Meyer’s subsequent interpretation of what Judge Vargas must have meant, when Judge Meyer found it determinative that there was no attorney-client relationship between the Association’s counsel and individual homeowners. In light of the novel and important issues raised by the petition on the interpretation of section 952, we decline to take the route of relying on principles of laches to resolve this matter. (See Lipton, supra, 48 Cal.App.4th 1599, 1612.)

    Moreover, the Association has requested in its petition that this court direct the trial court to order adoption of the referee’s report. Such an intermediate 768*768 step is not necessary, and instead we exercise our discretion to reach the merits of the privilege questions presented.

    II

    ELIGIBILITY FOR PRIVILEGE COVERAGE

    A. Basic Statutory Criteria: Evidence Code

    (6) Two basic situations arise under section 952 for determining whether a “confidential communication” between a client and lawyer will retain its privileged character. Most importantly to the case before us, section 952 provides that confidentiality is retained if such an attorney-client communication is transmitted in confidence “to no third persons other than those who are present to further the interest of the client in the consultation ….” (§ 952, italics added.) Together, sections 912 and 952 will “permit sharing of privileged information when it furthers the attorney-client relationship; not simply when two or more parties might have overlapping interests.” (McKesson HBOC, Inc. v. Superior Court (2004) 115 Cal.App.4th 1229, 1237 [9 Cal.Rptr.3d 812], italics added, citing Raytheon Co. v. Superior Court (1989) 208 Cal.App.3d 683 [256 Cal.Rptr. 425].)

    In general, section 912, subdivision (a) provides guidance for when disclosures operate to waive a privilege. One of its exceptions, section 912, subdivision (d) expressly clarifies it is not a waiver of privilege under the following circumstances: “`A disclosure in confidence of a communication that is protected by a privilege provided by [attorney-client privilege, section 954], when disclosure is reasonably necessary for the accomplishment of the purpose for which the lawyer … was consulted, is not a waiver of the privilege.'” (OXY Resources, supra, 115 Cal.App.4th at p. 890, italics added; see First Pacific Networks, Inc. v. Atlantic Mutual Ins. Co.(N.D.Cal. 1995) 163 F.R.D. 574, 581 [both §§ 912 and 952 contain the same concept, i.e., whether there is a reasonable necessity for disclosure to a third party, in order to accomplish the purpose of consulting the lawyer].)

    (7) Accordingly, section 952 allows privileges to be preserved when a family member, business associate or joint client (and/or the attorney for same) meets with the client and attorney who claim privilege, in regard to a matter of joint concern, “`when disclosure of the communication is reasonably necessary to further the interest of the [claimant/litigant].'” (Insurance Co. of North America v. Superior Court(1980) 108 Cal.App.3d 758, 767 [166 769*769 Cal.Rptr. 880], italics added; see 2 Witkin, Cal. Evidence (5th ed. 2012) Witnesses, § 124, pp. 423-424.)[5]

    In a related situation, public policy considerations were enunciated to assist in defining the proper scope of statutory protections of attorney-client confidential communications. The Supreme Court in Mitchell, supra, 37 Cal.3d 591, 611, was confronted with a defendant’s discovery requests that were nominally intended to produce evidence relating to a plaintiff’s claimed damages, in the form of questioning of the plaintiff about the nature and content of any warnings or information she had received from her attorney about the potential damages she was asserting. (Id. at p. 597.) In that case, the plaintiff was claiming injury from the defendants’ wrongful environmental contamination, including her emotional distress stemming from fears of future physical harm that might be caused from the contamination. (Id. at p. 595.)

    In the requested discovery in Mitchell, defense counsel arguably was seeking to inquire into whether the plaintiff and her counsel had discussed any potential physical harm to her from the contamination, “and if so, whether that discussion had contributed to plaintiff’s distress.” (Mitchell, supra, 37 Cal.3d 591, 610.) In considering privilege, the Supreme Court balanced the respective interests and concluded that such questioning went too far, because it “might very well reveal much of plaintiff’s investigative efforts and trial strategy.” (Ibid.) The plaintiff’s attorney-client privilege should protect against any such investigation by opposing counsel into confidential client communications about injury and damages. (Id. at pp. 610-611.)

    Moreover, allowing such proposed discovery into attorney-client discussions would “potentially uphold a harassment tactic whereby defendants … are able to shift the focus of the case from damages caused by [their actions] to damages caused by allegedly inflammatory or false information provided by self-serving attorneys…. [T]his technique not only obfuscates many of the substantive issues in a case but also frequently places the wrong `defendant’ on trial.” (Mitchell, supra, 37 Cal.3d 591, 610-611.) Permitting such discovery would constitute “an unwarranted abrogation of the attorney-client privilege,” that would unjustifiably undermine the proper functioning of the judicial system. (Id. at p. 611.)

    770*770 Having set forth these basic principles and policy limitations regarding the protected scope of the attorney-client privilege, we turn to the more specific questions presented about the application of the common interest doctrine in this situation.

    B. Common Interest Doctrine Definition

    (8) “Although the protection of the attorney-client privilege is absolute, the protection afforded by the common interest doctrine is qualified, because it depends on the content of the communication…. [T]here is `no absolute brightline [sic] test which distinguishes between the parties [sic] “adversarial” interests and their “common” interests.'” (OXY Resources, supra, 115 Cal.App.4th 874, 896.)

    Not only the content of the communication must be considered, but also the circumstances of the communication. “Applying these waiver principles in the context of communications among parties with common interests, it is essential that participants in an exchange have a reasonable expectation that information disclosed will remain confidential. If a disclosing party does not have a reasonable expectation that a third party will preserve the confidentiality of the information, then any applicable privileges are waived. An expectation of confidentiality, however, is not enough to avoid waiver. In addition, disclosure of the information must be reasonably necessary for the accomplishment of the purpose for which the lawyer was consulted. (Evid. Code, § 912, subd. (d).) Thus, `[f]or the common interest doctrine to attach, most courts seem to insist that the two parties have in common an interest in securing legal advice related to the same matter — and that the communications be made to advance their shared interest in securing legal advice on that common matter.’ [Citations.]” (OXY Resources, supra, 115 Cal.App.4th at p. 891, italics added.)

    (9) In Citizens for Ceres v. Superior Court (2013) 217 Cal.App.4th 889, 915 [159 Cal.Rptr.3d 789], the court expounded on the rules regarding the nonwaiver principles of sections 912 and 952. A communication to a lawyer, even when made in the presence of another person (e.g., a business associate or joint client, who is present to further the interest of the client in the consultation), and on a matter of joint concern, may retain a privileged character, within the existing scope of the privilege statutes. “Evidence Code sections 912 and 952, however, make no reference to common interests or joint concerns; they refer instead to a reasonable necessity of disclosure. Those two sections give rise to the common-interest doctrine…. [T]he alignment of the parties’ common interests may mean disclosures between 771*771 them are reasonably necessary to accomplish the purposes for which they are consulting counsel.” (Citizens for Ceres, supra, at p. 916.)[6]

    (10) In Smith v. Laguna Sur Villas Community Assn. (2000) 79 Cal.App.4th 639, 642 [94 Cal.Rptr.2d 321] (Smith), the court analyzed discovery demands for attorney-client privileged information that were made by appellants as condominium owners and members of their Association, regarding litigation materials created by the Association. Those owners were not individually named as plaintiffs in the Association’s construction defect litigation against the developers, so that the owners were not equivalent to the Association client that had retained the attorney to bring the lawsuit, and thus the owners could not be allowed to access the privileged information. The court explained, “Like closely held corporations and private trusts, the client [(association)] is the entity that retained the attorney to act on its behalf.” (Ibid.; see id. at p. 643 [§ 951 defines “`client'” as the “`person'” who “`directly or through an authorized representative, consults a lawyer for the purpose of retaining the lawyer ….'”].) Thus, “[w]here the association sues in its own name without joining with it the individual unit owners, the association, not the unit owners, holds the attorney-client privilege.” (9 Miller & Starr, Cal. Real Estate (3d ed. 2011) § 25B:110, p. 25B-233 (rel. 10/2007).)

    In reaching its conclusions, the court in Smith, supra, 79 Cal.App.4th 639, relied on Wells Fargo, supra, 22 Cal.4th 201, 209, in which no “fiduciary” exception to the attorney-client privilege was allowed on behalf of beneficiaries of a trust, who had sought to discover confidential communications between their trustee and the outside trust counsel hired by the trustee. It was immaterial that the trust had paid the attorney; such payments “do not suffice to create an attorney-client relationship.” (Smith, supra, at p. 645.) Courts “do not enjoy the freedom to restrict California’s statutory attorney-client privilege based on notions of policy or ad hoc justification.” (Wells Fargo, supra, at p. 209.)

    772*772 In Smith, supra, 79 Cal.App.4th 639, the court colorfully addressed concerns about group client confidentiality and potentially conflicting loyalties of association counsel, by stating: “It is no secret that crowds cannot keep them. Unlike directors, the residents owed no fiduciary duties to one another and may have been willing to waive or breach the attorney-client privilege for reasons unrelated to the best interests of the association. Some residents may have had no defects in their units or may have had familial, personal or professional relationships with the defendants. Indeed, it is likely that the developer in the underlying litigation itself may have owned one or more unsold units within the complex. As [association] points out, `[o]ne can only imagine the sleepless nights an attorney and the Board of Directors may incur if privileged information is placed in the hands of hundreds of homeowners who may not all have the same goals in mind.’ With the privilege restricted to an association’s board of directors, this is one worry, at least, that their lawyers can put to rest.” (Id. at p. 645.)

    C. Homeowners Associations’ Obligations: Civil Code Criteria

    (11) For purposes of evaluating the proper scope of the attorney-client privilege, we turn to the statutes governing the Association’s obligations to its members. In Civil Code former section 1368.3 (now Civ. Code, § 5980), an association that was established to manage a common interest development is granted standing to sue in its own name on matters concerning damage to the common area, or damage to separate interests that are affected by damage to the common areas, etc. (Civ. Code, § 5980; former § 1368.3, repealed by Stats. 2012, ch. 180, § 1, operative Jan. 1, 2014.)[7] As previously explained, after the Association filed its construction defect action in 2009 alleging damage to the common areas, individual homeowners hired their own attorneys to file a separate but coordinated action for damage to individual units (the Samecky action). However, the Association can seek redress for damage to separate interests that are affected by damage to the common areas, etc. (Civ. Code, § 5980.)

    773*773 (12) “The duties and powers of a homeowners association are controlled both by statute and by the association’s governing documents.” (Ostayan, supra, 110 Cal.App.4th 120, 126-127.) In that case, the appellate court observed that the “complex” relationship between the individual owners and the managing association of a common interest development may “`”depend[] on the function the association is fulfilling under the facts of each case.”‘” (Id. at p. 126.) Although the individual owner “`has an economic interest in the proper business management of the development as a whole for the sake of maximizing the value of his or her investment,'” in other ways, “`each individual owner, at least while residing in the development, has a personal, not strictly economic, interest in the appropriate management of the development….'” (Id. at pp. 126-127, quoting Lamden v. La Jolla Shores Clubdominium Homeowners Assn. (1999) 21 Cal.4th 249, 266-267 [87 Cal.Rptr.2d 237, 980 P.2d 940].)

    (13) As explained already, the Act places certain obligations on an association to communicate with individual owners about any proposed construction defect litigation. Civil Code section 6150, subdivision (a), part of the Act, requires the board of an association to provide a written notice to each current member of the association, 30 days prior to the filing of any civil action by the association against the developer, “for alleged damage to the common areas, alleged damage to the separate interests that the association is obligated to maintain or repair, or alleged damage to the separate interests that arises out of, or is integrally related to, damage to the common areas or separate interests that the association is obligated to maintain or repair.” Such a notice shall specify (1) a meeting will take place to discuss problems that may lead to the filing of a civil action; (2) what are the options available to address the problems; and (3) the time and place of the meeting. (Ibid.) (If there are potential statute of limitations problems imminent, the association may give such notice within 30 days after the filing of the action (Civ. Code, § 6150, subd. (b)); this method was evidently used here.)

    In the CCRs applicable to this property, the Association is required not only to give such written notice of intended litigation to Association members, but also to obtain a vote of approval by more than 50 percent of the members, before filing the action. (CCRs, § 4.4.11.) This provision implements the protections of the individual homeowners’ economic interests in the value of not only their own individual units, but also the development as a whole. (Ostayan, supra, 110 Cal.App.4th 120, 126-127.) It anticipates that investigation of common area defects could require individual homeowners to permit access and testing that affect their units.

    774*774 III

    ANALYSIS; NO WAIVER FOUND

    In light of the above principles of law, we turn to the record and request for relief in this case.

    A. Was Confidentiality of Communications Maintained at Meetings?

    (14) The common interest doctrine is properly characterized under California law “as a nonwaiver doctrine, analyzed under standard waiver principles applicable to the attorney-client privilege and the work product doctrine.” (OXY Resources, supra, 115 Cal.App.4th at p. 889, fn. omitted.) “`[F]or the common interest doctrine to attach, most courts seem to insist that the two parties have in common an interest in securing legal advice related to the same matter — and that the communications be made to advance their shared interest in securing legal advice on that common matter.’ [Citations.]” (Id. at p. 891.)

    Defendants argue that any confidentiality of communications at the meetings was initially waived through several different sets of circumstances. First, persons employed by or affiliated with Defendants, and who were also individual homeowners, were allowed to attend, and expert consultants attended and spoke at the meetings. (But see fn. 5, ante.) Second, a few homeowners later discussed issues raised at the meetings with their relatives and friends. Third, the letters announcing the meetings stated that the letters could be shared with potential buyers or lenders. Also, the Association had not kept confidential, but had made available to others, the numerous e-mails its counsel had received from individual homeowners about the defects they were experiencing in their units.

    In response, the Association provided the declaration of its managing agent, Nina McCarthy, stating that the Association and its counsel gave instructions that attendance at the litigation meetings was to be restricted to Seahaus owners only, not tenants, prospective buyers, real estate agents or other such third parties.

    The concerns expressed in Smith, supra, 79 Cal.App.4th 639, about the difficulty of preserving confidentiality when a large crowd of homeowners is involved were outlined by the court in that case, in response to the individual homeowners’ efforts to access privileged material created by the association’s lawyers. Such access was not necessarily intended to further the purpose of the association’s lawyers’ job, but was adverse to it. (Id. at p. 645.) Our 775*775 situation is the converse, in which the Association and its Board and lawyers perceive that the Board has a duty to keep all the individual homeowners informed about common area litigation that might affect the value of the individual units.

    Likewise, in Wells Fargo, supra, 22 Cal.4th 201, the individual beneficiaries were seeking to force disclosure of the trustee’s privileged information, for their own dissident reasons. Again, our situation is the converse, in which the corporate entity is attempting to offer confidential legal information to other interested persons about matters in which the entity (the Association) and its members (individual homeowners) have some common interests, and which the attorneys for the Association are attempting to protect. Concededly, the interests of the Association and the individuals will not always be aligned, and it can be difficult to draw a line between their allied interests and their adverse interests. (See OXY Resources, supra, 115 Cal.App.4th at p. 896.) However, the Association was seeking to share its privileged information with homeowners, to the extent that it believes that they “`all have the same goals in mind.'” (Smith, supra, 79 Cal.App.4th at p. 645.)

    (15) To determine the scope of the privilege, we look to the content of the subject communications, as well as the circumstances, for indications on whether the meetings will advance the common interests in the representation by counsel. (OXY Resources, supra, 115 Cal.App.4th at p. 891.) In considering the Civil Code sections listed above about the initiation of construction defect litigation, together with the Association’s governing documents, we conclude that the Association’s duties and powers include communicating with those parties who have closely aligned common interests, and the individual homeowners at the development have such common interests in this particular context. On balance, these circumstances show that the Association and its counsel, and the individual homeowners who participated in the litigation meetings, maintained a reasonable expectation that information to be disclosed about the status of the litigation was confidential in nature. “Clearly, the fundamental purpose behind the privilege is to safeguard the confidential relationship between clients and their attorneys so as to promote full and open discussion of the facts and tactics surrounding individual legal matters.” (Mitchell, supra, 37 Cal.3d 591, 599.) In the role of client, the Association could properly take into account not only its own goals of protecting the common areas, but also the interests of its individual member homeowners in their units, as related to the common areas that the Association was seeking to repair. The relationship of the two construction defect actions was close enough so that the individual homeowners had common interests in the legal status of the Association’s action. (See Civ. Code, § 6150, subd. (a).) Moreover, the presence of some homeowners who may have had conflicting loyalties (homeowners who were affiliated with Defendants) did not destroy all other common interests.

    776*776 We conclude that the subject litigation meetings were held to accomplish the purpose for which the Association’s lawyers were consulted. (§ 912, subd. (d); OXY Resources, supra, 115 Cal.App.4th at p. 891.) The common interest doctrine and its protection of confidentiality of these communications apply as a matter of law to these circumstances.

    B. Was “Reasonable Necessity” Shown for Disclosures at Meetings?

    We turn to the related question of whether the record supports the conclusion that it was “reasonably” necessary to the purpose of the Association’s attorney retention for such disclosures to be made at the subject meetings, to the individual homeowners. (§§ 952, 912, subd. (d).) Defendants appear to argue that even if the original meeting, seeking individual voter approval of the Board’s decision to pursue the litigation, was required by the CCRs and therefore was reasonably necessary, any subsequent meetings lost that protected status. We disagree. Both the content and the circumstances of each set of communications made about the Association’s legal strategy or advice support conclusions that each stage of these disclosures was intended to carry out the purpose of pursuing the Association’s lawsuit (to recover for asserted damage to the common areas) in such a way that would be consistent with and not interfere with the rights of the individual homeowners.

    Although the two sets of plaintiffs involved here have some common interests in obtaining legal advice about their respective and distinct property rights, those rights will ultimately differ and are being resolved in separate lawsuits. Nevertheless, the Association’s attorney was attempting to communicate in the subject meetings with other stakeholders, the individual homeowners, in a manner that would advance their shared interests in securing advice on similar legal and factual issues. (OXY Resources, supra, 115 Cal.App.4th at pp. 887-888.) These circumstances were enough to connect the disclosure of the litigation update information with the statutorily required “reasonably necessary” steps toward accomplishing the purpose for which the lawyers were consulted. (§ 912, subd. (d).)

    If we agree with the position taken by Defendants, which is that the Association’s attorneys’ communications to individual homeowners were not confidential and merely served to create inflated expectations of individualized stigma damages, we run the risk of offending the public policy considerations set out in Mitchell, supra, 37 Cal.3d at pages 609 through 610. Even if discovery into privileged discussions between attorneys and clients would nominally be intended to produce some evidence relating to the issues about damages, “it might very well reveal much of plaintiff’s investigative efforts and trial strategy.” (Id. at p. 610.) Such discovery about attorney-client 777*777 communications regarding potential damage evaluations or items “would potentially uphold a harassment tactic whereby defendants … are able to shift the focus of the case from damages caused by [their actions] to damages caused by allegedly inflammatory or false information provided by self-serving attorneys…. [T]his technique not only obfuscates many of the substantive issues in a case but also frequently places the wrong `defendant’ on trial.” (Id. at pp. 610-611.)

    (16) In reaching this conclusion and granting the petition, we do not expand the scope of statutory privileges, but instead apply recognized rules to an unusual set of facts. (Wells Fargo, supra, 22 Cal.4th 201, 206.) The trial court erred in granting Defendants’ motion to compel deposition answers from individual homeowners about the content and strategies disclosed to them by the Association or its counsel at the litigation update meetings, and the trial court must deny the motion and issue a protective order concerning the attorney-client privilege in light of the common interest doctrine.

    DISPOSITION

    Let a peremptory writ of mandate issue directing the superior court to vacate its September 4, 2013 order denying assertion of the attorney-client privilege and compelling discovery, and enter a new order issuing a protective order and denying the motion to compel. The stay issued on September 17, 2013 is vacated. Petitioner is entitled to costs in the writ proceeding.

    McConnell, P. J., and Irion, J., concurred.

    [1] Both Civil Code former section 1368.5 and current Civil Code section 6150 are provisions contained in the Davis-Stirling Common Interest Development Act (the Act), which was recently repealed, reenacted and renumbered by Statutes 2012, chapter 180, section 1, operative January 1, 2014; see Civil Code section 4000 et seq. on residential properties, and Civil Code section 6500 et seq. for commercial and industrial properties. We utilize the current Civil Code section designations. The Association is a nonprofit mutual benefit corporation managing the common interest development.

    [2] The Sarnecky action was brought by a group of approximately 30 unit homeowners against not only the developers and builders, but also the lenders and escrow holders. One real party in interest here, defendant Bank of America, was never sued in this Association action, but only in the individual homeowners’ coordinated action. Bank of America recently obtained summary judgment in theSarnecky action and has notified this court that it is no longer a real party in interest and will not be filing a return. However, its previous filings were properly before this court, and have been relied on by the other real parties in interest, and may be considered here.

    [3] All further statutory references are to the Evidence Code unless noted.

    [4] We assume that only those individual homeowners who are litigants in the Sarnecky action could be seeking stigma damages, and that the Association is not doing so regarding the common areas. In any case, the parties each assume that the same privilege questions apply to the Association and each individual homeowner deponent.

    [5] Parenthetically, we need not discuss at length the other statutory concept in section 952, that privileges remain when confidences are disclosed to persons “to whom disclosure is reasonably necessary for the transmission of the information or the accomplishment of the purpose for which the lawyer is consulted.” (§ 952, italics added; see 2 Witkin, Cal. Evidence, supra, Witnesses, § 125, pp. 424-425 [rule covers various kinds of agents and intermediaries, e.g., secretary, accountant, other expert, etc.].) The expert consultants who attended the litigation update meetings would fall into this category.

    [6] In Citizens for Ceres v. Superior Court, supra, 217 Cal.App.4th 889, the appellate court was addressing an arcane question under the California Environmental Quality Act (Pub. Resources Code, § 21000 et seq.), about whether a developer and a municipality have any “common interest” in the creation of a legally defensible environmental impact report about the developer’s application. The appellate court was analyzing whether those two entities had waived the attorney-client and other privileges, with respect to the communications they disclosed to each other before the project was approved. This required interpretation of the terms of Public Resources Code section 21167.6, subdivision (e) (governing the preparation of the administrative record). The court held that the administrative record statute does not impliedly abrogate the lead agency’s attorney-client privilege, but any privilege is nevertheless waived as to any documents shared with the developer’s counsel before the project is approved. (See 9 Miller & Starr, Cal. Real Estate (2013-2014 supp.) § 25A:6, pp. 100-101.) That case is factually distinguishable. Its general statement of the common interest doctrine is useful, although the court’s application of it has been criticized by commentators. (Ibid.)

    [7] Cf. Wardleigh v. Second Judicial Dist. Court In & For County of Washoe (1995) 111 Nev. 345 [891 P.2d 1180, 1185], applying Nevada law that a homeowners association lacks standing to file an action, but when it “acts as an agent or facilitator for homeowners who have retained counsel, Association officials so acting on behalf of the Association would be drawn into the privilege enjoyed by the homeowner clients,” despite a lack of a direct attorney-client relationship with the homeowners in litigation sponsored by the association. Further, “such representation by the Association will be privileged only to the extent that the Association acts on behalf of the homeowner clients in a setting where it is clear that the communications with the homeowners’ counsel were intended to be privileged and confidential.” (Ibid.) We need not rely on out-of-state law, as California law is sufficient.

     

    ×
  • Smith v. Superior Ct

    Smith v. Superior Ct

    217 Cal.App.3d 950 (1990)

    952*952 COUNSEL

    Robie & Matthai, James R. Robie, Michael J. O’Neill and Pamela E. Dunn for Petitioner.

    No appearance for Respondent.

    Thorsnes, Bartolotta, McGuire & Padilla and Neal H. Rockwood for Real Party in Interest.

    OPINION

    TODD, J.

    Bonita Park Homeowners Association (Association), a nonprofit corporation, filed an action on January 21, 1986, against Bonita Park developer McMillin Construction Company. The Association sought damages for latent construction defects in the condominium homes. Upon a motion for summary adjudication the court found the Association failed to timely file suit before 10 years after recordation of valid notices of completion, as required by Code of Civil Procedure section 337.15, subdivision (g) (2).[1] All causes of action except the fraud cause of action were time-barred. McMillin recorded the notices of completion on February 25, 1974, for buildings one through eight and on April 4, 1974, for buildings nine through twelve.

    953*953 On April 27, 1987, the Association then filed an action for breach of fiduciary duty and negligence against its board of directors and individual directors, including former board president Don Smith (Smith). The Association alleged the board allowed the statute of limitations to run, barring recovery for damages to the common areas. Smith moved to adjudicate the issue “[the Association’s] action for damage to buildings 1-12 of the Bonita Park Condominium Project is conclusively barred by the controlling three-year statute of limitations provided in the Code of Civil Procedure section 359.[[2]]” Smith argued the Association admitted in the complaint the 10-year statutory limitations period expired on April 4, 1984, thus the liability was “created” on that date, and any action against him must have been brought by April 4, 1987. The court denied the motion finding section 359 does not apply to actions for breach of a duty or negligence against directors of a corporation.

    (1) A “liability created by law” is one which exists by virtue of an express statute but does not extend to actions arising under the common law. (Coombes v. Getz (1933)217 Cal. 320, 333 [18 P.2d 939].) By its plain language, the three-year statute of limitations in section 359 applies where there is a statutory basis for actions against directors, shareholders, or members of a corporation.

    In 1975 the Legislature enacted section 309 of the Corporations Code which codified the standard of care for corporate directors. Subdivision (c) of Corporations Code section 309[3] precludes liability if the standard is met: “A person who performs the duties of a director in accordance with subdivisions (a) [the standard] and (b) [information relied upon] shall have no liability based upon any alleged failure to discharge the person’s obligations as a director.” (2) “The purpose … is to relieve a person from any liability by reason of being or having been a director of a corporation, if that person has exercised his duties in the manner contemplated by this section.” (Legis. committee com., 24 West’s Ann. Corp. Code (1990 pocket supp.) p. 34.) By codifying the standard of care and precluding further liability, the statute conveys the Legislature’s intent that any action by a beneficiary of the fiduciary relationship must necessarily flow from the statute. The 954*954 fiduciary duty is distinguished from common law duty to third parties. (See Frances T. v. Village Green Owners Assn., supra, 42 Cal.3d 490, 506.) As Mosk, J., in his concurring and dissenting opinion in Frances T. observes, “the potential liability of the directors here – which is created by the duty imposed on them and the standard of care to which they are held – is governed not by the common law but rather by statute. [Citations, including Corp. Code, §§ 309, 7231.]” (42 Cal.3d at p. 525.)

    (3) Here the Association alleges Smith failed to “reasonably inquire and properly investigate the cause of the distress and damage to the common area” and timely file suit. The Association stands as a corporate beneficiary to Smith, and his alleged failure to act was in his capacity as a voting director. Even though Corporations Code section 309 is not specifically mentioned in the complaint, the action is based on the statutory standard. We conclude a breach of the statutory standard is a “liability created by law” and thus is governed by the three-year time limitation of section 359.

    (4) The Association argues the statute of limitations was tolled during Smith’s “adverse domination and control” of the board. A statute of limitations tolls when a claim arises from a director’s or employee’s defalcation and the wrongdoers’ control makes discovery impossible. (San Leandro Canning Co., Inc. v. Perillo (1931) 211 Cal. 482, 487 [295 P.2d 1126]; Admiralty Fund v. Peerless Ins. Co. (1983) 143 Cal. App.3d 379, 387 [191 Cal. Rptr. 753].) In the record before us the only evidence offered in support of tolling is that Smith remained on the board until December 31, 1985. There is no showing Smith dominated the board, or any control he asserted was “adverse” or fraudulent. Nor is there evidence the Association or any member made a demand Smith institute an action against McMillin, or evidence a demand would have been futile. A demand is necessary unless conspiracy, fraud, or criminal conduct is charged. (See Reed v. Norman (1957) 152 Cal. App.2d 892, 898 [314 P.2d 204].) Furthermore, by the Association’s evidence, Smith was off the board for over 15 months before the statute of limitations expired. We find no basis for equitable tolling of the statute.

    An alternative writ or order to show cause would add nothing to the presentation. A peremptory writ is proper. (Code Civ. Proc., § 1088; United Nuclear Corp. v.Superior Court (1980) 113 Cal. App.3d 359 [169 Cal. Rptr. 827]; Goodenough v.Superior Court (1971) 18 Cal. App.3d 692, 697 [96 Cal. Rptr. 165].)

    955*955 Let a peremptory writ of mandate issue directing the superior court to vacate its order denying the motion for summary adjudication of issue and enter a new order granting the motion.

    Work, Acting P.J., and Nares, J., concurred.

    A petition for a rehearing was denied February 27, 1990, and the petition of real party in interest for review by the Supreme Court was denied April 26, 1990.

    [1] All statutory references are to the Code of Civil Procedure unless otherwise specified.

    [2] Section 359 provides “This title does not affect actions against directors, shareholders, or members of a corporation, to recover a penalty or forfeiture imposed, or to enforce a liability created by law; but such actions must be brought within three years after the discovery by the aggrieved party of the facts upon which the penalty or forfeiture attached, or the liability was created.”

    [3] Corporations Code section 7231, applicable to nonprofit mutual benefit corporations, incorporates the standard of care defined in Corporations Code section 309. (See Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490, 506, fn. 13 [229 Cal. Rptr. 456, 723 S.Ct. 573, 59 A.L.R.4th 447].)

     

    ×
  • Stearman v. Centex

    Stearman v. Centex

    Summary by Mary M. Howell, Esq.:

    Facts

    Defendant Centex Homes was a mass producer of homes in Southern California. In February 1990, plaintiffs bought a Centex tract house in San Clemente. Problems with the property began to appear shortly after plaintiffs moved in and continued over the next few years. In 1993, plaintiffs sued Centex Homes, stating only one cause of action, for strict liability in tort. Plaintiffs alleged defendant constructed the home on inadequately compacted soil, causing slab movement and deformation which, in turn, damaged the structure and yard improvements, diminished the property’s value, and required plaintiffs to incur expenses for remedial measures, including employing various professionals to assess the situation and make recommendations. Following a judgment in favor of homeowners, the trial court denied defendant’s motions for a new trial and judgment notwithstanding the verdict. The Court of Appeal modified the judgment to award plaintiffs expert fees as damages and affirmed as modified.

    Held

    Plaintiffs can recover under strict liability when a defect in one component part of a house causes injury to other component parts of the house, even though the damage is not to persons or property apart from the structure. Further, plaintiffs are entitled to recover as damages, fees paid to experts who investigated the foundation problems in order to formulate an appropriate repair plan. The expenses were damages due for a portion of the cost of repair, which is an appropriate measure of damages in cases based on damage to real property.

    *** End Summary ***

    Stearman v. Centex

    92 Cal.Rptr.2d 761 (2000)

    Rodarti, Feld & Gelfer, Richard G. Feld and Scott H. Gelfer, Newport Beach, for Plaintiffs and Appellants.

    762*762 Epsten & Grinnell, Douglas W. Grinnell and Luis E. Ventura, El Centro, for Consumer Attorneys of California as Amicus Curiae on behalf of Plaintiffs and Appellants.

    Morgenstein & Jubelirer, Jean L. Bertrand and Natasha L. Golding, San Francisco, for Defendant and Appellant.

    Paul B. Campos, San Ramon, for Home Ownership Advancement Foundation as Amicus Curiae on behalf of Defendant and Appellant.

    Gordon & Rees, Douglas B. Harvey, Robert V. Dugoni and David Collins, San Francisco, for Building Industry Legal Defense Foundation as Amicus Curiae on behalf of Defendant and Appellant.

    OPINION

    RYLAARSDAM, J.

    Defendant Centex Homes appeals from a judgment in favor of plaintiffs Jeffrey and Linda Stearman in a strict liability action arising out of defendant’s defective construction of the foundation of plaintiffs’ tract home, resulting in severe slab movement and deformation. The defects caused extensive cracks throughout the interior and exterior surfaces of the home.

    The issue is not whether a defendant builder of mass produced housing may be held strictly liable for construction defects. The affirmative answer to that question is firmly established in California cases beginning 30 years ago with Kriegler v. Eichler Homes, Inc. (1969) 269 Cal.App.2d 224, 74 Cal.Rptr. 749. (See, inter alia, Fleck v. Bollinger Home Corp. (1997) 54 Cal.App.4th 926, 63 Cal.Rptr.2d 407; Alcal Roofing & Insulation v. Superior Court (1992) 8 Cal.App.4th 1121, 10 Cal.Rptr.2d 844;Becker v. McMillin Construction Co. (1991) 226 Cal.App.3d 1493, 277 Cal.Rptr. 491;Orndorff v. Christiana Community Builders (1990) 217 Cal.App.3d 683, 266 Cal.Rptr. 193; GEM Developers v. Hallcraft Homes of San Diego, Inc. (1989) 213 Cal.App.3d 419, 261 Cal.Rptr. 626; Gentry Construction Co. v. Superior Court (1989) 212 Cal.App.3d 177, 260 Cal.Rptr. 421; Oliver v. Superior Court (1989) 211 Cal. App.3d 86, 259 Cal.Rptr. 160; Huang v. Garner (1984) 157 Cal.App.3d 404, 203 Cal. Rptr. 800; Del Mar Beach Club Owners Assn. v. Imperial Contracting Co. (1981) 123 Cal.App.3d 898, 176 Cal.Rptr. 886; Raven’s Cove Townhomes, Inc. v. Knuppe Development Co. (1981) 114 Cal.App.3d 783, 171 Cal.Rptr. 334; Stuart v. Crestview Mut. Water Co. (1973) 34 Cal.App.3d 802, 110 Cal.Rptr. 543; and Avner v. Longridge Estates (1969) 272 Cal.App.2d 607, 77 Cal. Rptr. 633.)

    Rather, the question is whether a plaintiff can recover under strict liability when a defect in one component part of a house causes injury to other component parts of the house, but not to persons or property apart from the structure. Defendant asserts such damage constitutes nothing more than “injury to the product itself,” a loss for which strict liability compensation is barred by the economic loss rule of Seely v. White Motor Co. (1965) 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145. It argues damage to a defective product itself is simply the product’s failure to function properly, for which the only remedy lies in a warranty action through which the disappointed buyer can seek to recoup the benefit of its bargain.

    Defendant contends the precise issue here has not been directly decided in California, but to the extent Seely and other appellate courts of this state have touched upon it, they have reached the wrong conclusion, or are poorly reasoned, inapt and nonbinding. We are invited to depart from our own longstanding judicial tradition and, in its place, adopt “the strong majority rule” of other jurisdictions which, according to defendant, have interpreted Seely correctly and would prohibit strict liability recovery under the facts of this case.

    Plaintiffs, on the other hand, assert our own courts have considered the economic loss rule in construction and non-construction 763*763 cases alike, and have uniformly allowed recovery of strict liability damages where, as here, a defect has caused physical damage to the property. They further note a number of other states have applied strict liability to mass-produced housing defects, and thus California is not the “odd-ball” defendant purports it to be. (Plaintiffs have also filed a cross-appeal to which we will turn after concluding our discussion of the appeal.)

    Amici curiae expand upon the positions of both parties. From divergent viewpoints, they trace the development of the strict liability doctrine in this state and others, offering sharply conflicting analyses of a dizzying array of authorities (several hundred of them). In the end, after having laboriously trudged our way through the labyrinth, we do not find this to be a particularly complex or close case.

    Defendant’s premise that the economic loss rule bars strict liability recovery for physical damage to plaintiffs’ home is unsupported and indeed contradicted by Seelyand other California decisions. (See International Knights of Wine, Inc. v. Ball Corp.(1980) 110 Cal.App.3d 1001, 168 Cal.Rptr. 301 and Gherna v. Ford Motor Co. (1966) 246 Cal.App.2d 639, 55 Cal.Rptr. 94.) Moreover, we are not convinced “the strong majority” of other jurisdictions would, as defendant claims, find plaintiffs confined to a warranty recovery. Indeed, defendant and its amici could cite no more than six out-of-state decisions dealing with analogous facts. Our own research confirms the paucity of cases.

    But it really doesn’t matter: The answer lies within our state. California authorities read together represent a considerable body of law, expressly or by implication rejecting defendant’s assertion that owners whose residences are constructed on defective lots and foundations may not recover in strict liability for resulting physical injury to their homes. We step in line with this law in holding the damage plaintiffs sustained to their home is physical injury falling outside the parameters of economic loss and is thus compensable under strict liability in tort.

    FACTS

    Defendant is a mass producer of homes in Southern California. In February 1990, plaintiffs bought a Centex tract house in San Clemente. Problems with the property began to appear shortly after plaintiffs moved in and continued over the next few years. In 1993, plaintiffs sued the builder, stating only one cause of action, for strict liability in tort. They alleged defendant constructed the home on inadequately compacted soil, causing slab movement and deformation which, in turn, damaged the structure and yard improvements, diminished the property’s value, and required plaintiffs to incur expenses for remedial measures, including employing various professionals to assess the situation and make recommendations.

    At trial, plaintiffs and their experts testified to post-construction movement and continuing deformation of the slab foundation which resulted in, inter alia: a significant separation between the ceiling and wall joints over the entire length of the house; cracks in the drywall throughout virtually every room; separation and cracks in tile counters in the bathrooms and kitchen; and cracks in the exterior stucco. Each of these problems worsened over time. Plaintiffs’ engineering experts opined the slab foundation would have to be replaced. Plaintiffs’ cost estimator testified that replacing the slab would require emptying out the house, disconnecting utility lines, removing appliances, ripping out floors, removing windows and doors, and jacking up the structure. After replacement of the slab, the house would be lowered onto it and virtually rebuilt. Including moving and alternate housing costs for 764*764 the four months it would take to complete the repairs, the total cost would exceed $260,000.

    There is no issue regarding the sufficiency of the evidence to establish the defective construction or resultant damage to the home. However, defendant contended throughout the proceedings that the economic loss rule barred plaintiffs from recovering under strict liability when only damages “to the product itself were claimed. The court rejected this assertion at every juncture, denying defendant’s motions for nonsuit and directed verdict and refusing defendant’s proposed special instruction which stated, “Plaintiffs are not permitted to recover damages under a strict liability cause of action for purely economic loss or for mere damage to the product itself. [¶] If the only evidence of damages presented by plaintiff[s] establishes purely economic injury or damage to the product itself resulting in the reduction in fair market value of plaintiffs’ residence, then you may not award damages to plaintiffs.”

    The jury returned a special verdict finding plaintiffs’ house was defectively constructed, causing plaintiffs damages of $135,000. Defendant then renewed its challenge, reprising the same theme in motions for judgment notwithstanding the verdict and for a new trial, both of which the trial court denied.

    DISCUSSION

    Defendant’s Appeal

    In Seely v. White Motor Co., supra, 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145,widely recognized as the progenitor of the economic loss rule, the court held a commercial trucker who purchased a defective truck was entitled to breach of express warranty damages for lost profits from his heavy-duty hauling business and for money paid on the purchase price, but could not recover these economic losses under strict product liability. (Id. at pp. 13-17, 45 Cal.Rptr. 17, 403 P.2d 145.) Tracing the development of warranty and strict liability law, the Seely court observed “warranty `grew as a branch of the law of commercial transactions and was primarily aimed at controlling the commercial aspects of these transactions.’ [Citations.]” (Id. at p. 16, 45 Cal.Rptr. 17, 403 P.2d 145.) It concluded warranty rules “function well in a commercial setting.” (Ibid.) Warranty adequately protected the Seely plaintiff, a trucker who “could have shopped around until he found the truck that would fulfill hisbusiness needs,” and “could be fairly charged with the risk that the product would not match his economic expectations, unless the manufacturer agreed that it would.” (Id.at p. 19, 45 Cal.Rptr. 17, 403 P.2d 145, italics added.)

    On the other hand, the Seely court reasoned, strict liability for purely economic losses would unjustifiably expose the manufacturer “for damages of unknown and unlimited scope.” (Seely v. White Motor Co., supra, 63 Cal.2d at p. 17, 45 Cal.Rptr. 17, 403 P.2d 145.) Explaining, it observed commercial enterprises have widely varying needs which are ordinarily communicated to the dealer, not the manufacturer, who would be liable even though it never agreed the product would perform as a particular purchaser needed it to perform. (Id. at pp. 16-17, 45 Cal.Rptr. 17, 403 P.2d 145.) (In Seely, for instance, the truck proved unsatisfactory for plaintiffs heavy-duty hauling business, but performed well for the subsequent purchaser, who, after the dealer made only minor alterations to the truck, drove it 82,000 miles for a less demanding enterprise.) (Id. at pp. 16-17, 45 Cal.Rptr. 17, 403 P.2d 145.) For this reason and others which we need not reiterate, the court found, “Without an agreement, defined by practice or otherwise, defendant should not be liable for these commercial losses.” (Id. at p. 17, 45 Cal.Rptr. 17, 403 P.2d 145, italics added.)

    765*765 The Seely court did not end its discussion there, however. It added a final paragraph regarding plaintiffs contention the trial court erred in denying strict liability recovery for physical damage to the truck itself. Significantly, the court agreed with plaintiffs argument that “even though the law of warranty governs the economic relations between the parties, the doctrine of strict liability in tort should be extended to govern physical injury to plaintiffs property, as well as personal injury.” (Seely v. White Motor Co., supra, 63 Cal.2d at p. 19, 45 Cal.Rptr. 17, 403 P.2d 145, italics added.) The court found “[p]hysical injury to property is so akin to personal injury that there is no reason to distinguish them. [Citations.]” (Ibid.) Plaintiff was barred from recovering strict liability damages for physical injury to the truck not by the economic loss rule, but only because he failed to prove causation. (Ibid.)

    Definition and Application of the Economic Loss Rule

    The Seely court, drawing a distinction between “tort recovery for physical injuries and warranty recovery for economic loss” (Seely v. White Motor Co., supra, 63 Cal.2d at p. 18, 45 Cal.Rptr. 17, 403 P.2d 145), defines the difference primarily by implication. As we have noted, the decision contains dicta that, had plaintiff proved the truck itself was damaged by the defective condition (the truck tended to “gallop”), he could have recovered strict liability damages. (Id. at p. 19, 45 Cal. Rptr. 17, 403 P.2d 145.)

    Other courts in our jurisdiction have articulated the rule more definitively. For instance, Huang v. Gamer, supra, 157 Cal. App.3d 404, 203 Cal.Rptr. 800 instructs, “[E]conomic loss [is] marked by the loss of the benefit of the bargain for the goods purchased, lost profits, and replacement costs for ineffective goods. Physical damage to property and personal injury, however, are not considered to be economic loss.” (Id. at p. 420, 203 Cal.Rptr. 800, internal citation and quotation marks omitted, italics added.) In Huang, it was “undisputed … that the court properly drew the line between economic and physical damages, determining the cost to repair structural and other alleged defects which had not actually caused physical damage to be economic damage.” (Mat p. 420, 203 Cal.Rptr. 800, italics added.)

    With regard to defects, the Huang plaintiffs presented evidence “that the plans and specifications for the building were defective in several ways, including insufficient fire retardation walls, insufficient shear walls and inadequate structure…. Additional evidence indicated that deviation from the building plans during construction also contributed to faulty construction.” (Huang v. Garner, supra, 157 Cal.App.3d at p. 411.) The plaintiffs sought recovery “for physical damages to their property including damages to the structure caused by deflected and cracked beams and dry rot damages to the balcony area. [They] also sought recovery of economic losses including the cost to repair firewalls, shear walls, fire stops, and other alleged defects in the structure which had not caused actual physical damages at the time of trial.” (Id. at pp. 419-420, 203 Cal.Rptr. 800, italics added.) The Huang court noted, “Apparently it was agreed by the parties that damages such as the cost to repair allegedly insufficient shear walls, insufficient fire retardation, and defects in the structure which did not cause actual physical damage were in fact economic damages.” (Id. at p. 420, 203 Cal.Rptr. 800.)

    Huang‘s definition and application of the economic loss rule, albeit in the context of a negligence theory, demonstrates defendant is just plain wrong in contending the physical damage to plaintiffs’ real property caused by defective construction of the foundation is only “an injury to the product itself,” and thus barred by the 766*766economic loss rule of Seely. Huang does not stand alone. As we will discuss, other cases compel the conclusion that under California law, the physical damages to plaintiffs’ property are entirely distinct from economic losses and are thus recoverable in strict liability.

    In Gherna v. Ford Motor Co. (1966) 246 Cal.App.2d 639, 55 Cal.Rptr. 94, the product was an automobile in which defective design or manufacture (relating to wiring or placement of the transmission dipstick next to the exhaust manifold) caused a fire, destroying the vehicle. The court did not suggest the product had injured only itself, thus rendering the loss purely economic. Rather, it found the law “settled that the doctrine of strict liability applies to physical harm to person or property.” (Id. at p. 649, 55 Cal.Rptr. 94, italics added.)

    Anthony v. Kelsey-Hayes Co. (1972) 25 Cal.App.3d 442, 102 Cal.Rptr. 113 expands the analysis. The Anthony plaintiffs did not seek damages arising out of any personal injury to themselves or any physical damage to their vehicles attributable to the wheels they contended were defective. (Id. at p. 445, 102 Cal.Rptr. 113.) Rather, they sought recovery for “(1) general depreciation in the value of the vehicles,” which the court categorized as “loss of bargain,” “(2) cost of inspections, repairs, and replacements” of the wheels themselves, and “(3) loss of use prior to and during inspections and repairs.” (Id. at p. 446, 102 Cal.Rptr. 113.) Any issue as to the second item was moot because plaintiffs had accepted new wheels from the vehicle manufacturer. (Ibid.) In regard to the third claim, the Anthony court observed, “Loss of use is an item of incidental damage. It appears appropriate, therefore, to characterize it according to the nature of the damage of which it is an incident.Unless incidental to physical property damage, it would appear that it may be properly classified as a type of economic loss.” (Ibid., italics added.) Harkening toSeely‘s call, it concluded neither depreciation (“definitely a complaint that the trucks with defective wheels were not of the quality bargained for”), nor loss of use could be recovered under strict liability because plaintiffs did not claim either item was caused by physical property damage. (Id. at p. 447, 102 Cal.Rptr. 113.) Finally, the court distinguished the plaintiffs’ case from Gherna and Kriegler v. Eichler Homes, Inc., supra, 269 Cal.App.2d 224, 74 Cal.Rptr. 749, where strict liability recovery was available because “there was ponderable physical property damage to the property sold and purchased.” (Anthony v. Kelsey-Hayes Co., supra, 25 Cal.App.3d at p. 448, 102 Cal.Rptr. 113, italics added.)

    Sacramento Regional Transit Dist. v. Grumman Flxible (1984) 158 Cal.App.3d 289 (Grumman) sheds additional light on the subject. Plaintiff purchased 103 busses, with the manufacturer’s standard written warranty. (Id. at p. 292, 204 Cal.Rptr. 736.) “[P]laintiff discovered a broken fuel tank support during routine maintenance on one of the busses…. Further inspection of all the busses … revealed that at least 26 … had the same or similar damage, i.e., cracked fuel tank supports. As a result of further inspection plaintiff determined that all the busses it purchased from defendant would likely suffer the same type of damage unless certain remedial repairs were undertaken.” (Ibid.) In addition, plaintiff found “structural defects in the undercarriage battery frame area of certain other busses [previously] purchased from defendant….” (Id. at p. 292, fn. 2, 204 Cal.Rptr. 736.) Plaintiff sought strict liability damages based on these latent defects (Id. at p. 292, 204 Cal.Rptr. 736.)

    The Grumman court began its analysis stating, “[Strict liability is imposed not only where the defective product causes personal injury, but also where the defective product causes physical damage to property. [Citations.] The damaged 767*767 property may consist of the product itself. [Citing Seely, International Knights of Wine, Inc. v. Ball Corp. (1980) 110 Cal. App.3d 1001, 1005 [168 Cal.Rptr. 301] (IKW) and Gherna v. Ford Motor Co., supra, 246 Cal.App.2d at p. 649 [55 Cal. Rptr. 94].]” (Sacramento Regional Transit Dist. v. Grumman Flxible, supra, 158 Cal.App.3d at p. 293, 204 Cal.Rptr. 736, italics added.) It further noted, however, “where damage consists solely of `economic losses,’ recovery on a theory of products liability is precluded. [Citations.]” (Id. at p. 293, 204 Cal.Rptr. 736.)

    The Grumman court observed, “[T]he line between physical injury to property and economic loss reflects the line of demarcation between tort theory and contract theory.” (Sacramento Regional Transit Dist. v. Grumman Flxible, supra, 158 Cal.App.3d at p. 294, 204 Cal.Rptr. 736.) Noting plaintiff did not claim any physical injury to the busses “apart from the manifestation of the defect itself (ibid.), it found the expenses the plaintiff had incurred and would incur for repair of the defects was not recoverable in strict liability, which “presupposes (1) a defect and (2) furtherdamage to plaintiffs property caused by the defect.” (Ibid, original italics.) For lack of the requisite damage to the property apart from the defect, the court concluded plaintiffs repair costs were “purely economic damages.” (Ibid.)

    Responding to plaintiffs reliance on Gherna, supra, 246 Cal.App.2d 639, 55 Cal. Rptr. 94, and IKW, supra, 110 Cal.App.3d 1001, 168 Cal.Rptr. 301, the court distinguished both cases. The Gherna plaintiff had avoided a nonsuit by presenting sufficient evidence “that defective wiring or a design defect consisting of the [improper juxtaposition of component engine/transmission parts] caused a fire which damaged plaintiffs automobile.” (Sacramento Regional Transit District v. Grumman Flxible, supra, 158 Cal.App.3d at p. 296, 204 Cal.Rptr. 736, italics added.) The Grummancourt impliedly agreed with the Gherna court’s conclusion “that products liability affords a remedy to one whose property has been physically injured and … the remedy is available where the property injured is the defective product.” (Ibid.) Moreover, IKW was distinguishable because the plaintiff there alleged “that due to defective caps or defective application of caps the wine became unusable and economic loss was incurred.” (Sacramento Regional Transit District v. Grumman Flxible, supra, 158 Cal.App.3d at p. 297, 204 Cal.Rptr. 736, internal quotations marks and citation omitted.) The Grumman court added, “To the extent that IKW may stand for the proposition that a merchant may sue in products liability for physical injury to its property where that injury consists of nothing more than the product defect upon which liability is founded, we decline to follow it.” (Ibid., italics added.)

    The case of San Francisco Unified School Dist. v. W.R. Grace & Co. (1995) 37Cal.App.4th 1318, 44 Cal.Rptr.2d 305 (Grace) presented the issue in the hybrid context of a statute of limitations question regarding plaintiffs’ ability to state a claim arising from the presence of asbestos materials used in construction of the school building. Noting the limitations period did not begin to run until damage occurred, the court considered “what constitutes the element of damage for purposes of strict liability and negligence.” (Id. at p. 1327, 44 Cal.Rptr.2d 305.) It stated, “Until physical injury occurs—until damage rises above the level of mere economic loss—a plaintiff cannot state a cause of action for strict liability or negligence.” (Ibid., fn. omitted.)

    Alluding to the rule enunciated in Seely, the Grace court defined economic loss as: “[T]he diminution in value of the product because it is inferior in quality and does not work for the general purposes for which it was manufactured and sold…. [It] generally means pecuniary damage that occurs through loss of value or use of 768*768 the goods sold or the cost of repair together with consequential lost profits when there has been no claim of personal injury or damage to other property.” (San Francisco Unified School Dist. v. W.R. Grace & Co., supra, 37 Cal.App.4th at p. 1327, fn. 5, 44 Cal.Rptr.2d 305, internal quotation marks, italics and citations omitted.) It explained that under Seely, “the reduction of fair market value of buildings found to contain asbestos building materials may constitute an economic loss that cannot be recovered in tort in a strict liability or negligence action. Under the Seely analysis, no physical harm to persons or property has yet occurred— only [unrecoverable] economic losses.” (Ibid.)

    Summarizing asbestos-in-building cases from all over the country, the Grace court noted the issue presented itself in two distinct situations: Cases involving the merepresence of asbestos in the buildings and those in which asbestos contamination had occurred. (San Francisco Unified School District v. W.R. Grace & Co., supra, 37Cal.App.4th at pp. 1328-1329, 44 Cal.Rptr.2d 305.) It noted in the latter category, “jurisdictions that adopt Seely‘s physical injury/economic loss distinction routinely find that asbestos contamination constitutes the physical injury element of strict liability or negligence causes of action…. The injury for which asbestos plaintiffs are being recompensed has been found to be the contamination of their buildings, not the mere presence of asbestos.” (Ibid.) It concluded, “In order to be consistent with the principles of Seely, it appears that until contamination occurs, the only damages that arise are economic losses that do not constitute physical injury to property recoverable in strict liability[]. Physical injury resulting from asbestos contamination, not the mere presence of asbestos, must have occurred before a cause of action for strict liability … can accrue….” (Id. at p. 1330, 44 Cal. Rptr.2d 305.)

    Although there is a generous supply of other authorities illustrating the difference between physical damage and economic loss, a brief notation regarding one more recent decision should be sufficient to hammer the point home. Casey v. Overhead Door Corp. (1999) 74 Cal.App.4th 112, 87 Cal.Rptr.2d 603 involved, inter alia, defectively constructed windows in a residential tract. Plaintiffs argued the trial court had improperly precluded their cost estimator expert from testifying to certain damages. The Casey court noted the ruling had correctly barred testimony regarding “economic losses,” i.e., the removal and replacement of the windows, but it had not prevented plaintiffs from eliciting testimony “regarding damages which were not `economic losses,'” i.e., the physical damage caused by the defective windows “to the drywall and framing,” and the resultant “insect infestation and damage to personal property.” (Casey v. Overhead Door Corp., supra, 74 Cal.App.4th at p. 123, 87 Cal.Rptr.2d 603.) For some unknown reason, plaintiffs had simply stipulated “that the cost estimator would not testify that repair would include new drywall, new framing and removal of the insects.” (Id. at p. 124, 87 Cal.Rptr.2d 603.) The reviewing court found appellants bound by the admission “they had no evidence to support a claim for any measure of damages other than economic loss.” (Ibid.)

    Against the background of these decisions, it becomes abundantly clear the case before us does not, in the strict sense, present an issue of first impression. Courts of this state have fully examined the economic loss rule, drawn the line of demarcation between such loss and physical injury to property, including to the defective product itself, and allowed recovery of strict liability damages in the latter instance. Of course, as defendant accurately notes, some cases have apparently assumedphysical damages were recoverable. (See, for instance, Kriegler v. Eichler 769*769Homes, Inc., supra, 269 Cal.App.2d 224, 74 Cal.Rptr. 749, [California’s cornerstone strict liability construction case permitting recovery of strict liability damages where defectively-fabricated radiant heat tubes installed in substandard concrete slab of plaintiffs residence caused failure of the heating system, emergency and permanent repairs, removal of storage and furniture and the need for plaintiff and his family to find temporary replacement shelter]; Avner v. Longridge Estates, supra, 272 Cal. App.2d 607, 77 Cal.Rptr. 633 [no physical injury, but strict liability recovery permissible where portion of rear slope of plaintiffs’ tract lot failed twice, lot pad upon which home was built settled due to improper soil compaction and inadequate drainage, and only apparent injury was to the property]; Stuart v. Crestview Mut. Water Co., supra, 34 Cal.App.3d 802, 110 Cal.Rptr. 543 [plaintiffs could maintain strict liability action and recover for loss of home and orchard destroyed in fire as a result of a developer’s failure to design and install a system which could deliver an adequate supply and flow of water].) But the fact that these and like cases have not directly discussed the economic loss/physical injury to property dichotomy does not lessen the import of the cases which have. Indeed, the assumption that physical damages to the property are recoverable tends to reinforce, rather than undermine, our conclusion regarding the state of the law in California.

    We will not belabor the obvious by engaging in the intellectual nit-picking defendant presses upon us. Moreover, it would it serve no purpose to examine the decisions of other jurisdictions or plumb the niceties of the Restatement Fourth of Torts, Products Liability, section 21, or its predecessor. Here, there is no dispute the defectively constructed foundation resulted in slab movement and deformation causing physical damage to plaintiffs’ property, i.e., cracks all over the residence. In light of the these facts, the authorities we have discussed, and the Supreme Court’s repeated citing ofKriegler (see, e.g., Peterson v. Superior Court (1995) 10 Cal.4th 1185, 1200, 43 Cal. Rptr.2d 836, 899 P.2d 905; Becker v. IRM Corp. (1985) 38 Cal.3d 454, 460, 213 Cal. Rptr. 213, 698 P.2d 116, overruled in part by Peterson v. Superior Court, supra, 10 Cal.4th at p. 1210, 43 Cal.Rptr.2d 836, 899 P.2d 905; Price v. Shell Oil Co. (1970) 2 Cal.3d 245, 251, 85 Cal.Rptr. 178, 466 P.2d 722), without so much as a hint of the disapproval defendant insists is warranted, we have no difficulty at all finding plaintiffs suffered physical injury to their property, In so concluding, we reject defendant’s strained argument that for purposes of product liability law, a home is the equivalent of, for instance, a toaster which, when it catches fire due to faulty wiring, can be said to have injured only itself. The analogy just doesn’t fit: When a defective foundation results in cracked walls, ceilings and counter tops throughout the home, recovery of strict liability damages is not barred by the economic loss rule.

    Plaintiffs’ Cross-Appeal

    Plaintiffs contend the trial court erred in denying them recovery of the costs and fees they incurred in employing “geotechnical and structural experts to obtain and analyze soils samples and perform the necessary design calculations” to enable plaintiffs to determine “an appropriate repair methodology to correct the defect.” They argue, “These `investigative’ costs were completely distinct from the `litigation’ costs due these experts,” and were properly recoverable as part of the cost of repair. Because the cross-appeal presents a pure question of law, we conduct a de novo review. (Stratton v. First Nat. Life Ins. Co. (1989) 210 Cal.App.3d 1071, 1083, 258 Cal.Rptr. 721.)

    During the trial, Glenn Tofani, plaintiffs’ soils expert, distinguishing between litigation770*770 and investigative costs, testified his firm billed plaintiffs $35,000 for the investigative work performed by it and its subcontractors. Florian Barth, a concrete and structural expert for plaintiffs, testified to between $2,500 and $3,500 in investigative billings and, like Tofani, separated that amount from costs relating to the litigation. Defendant did not cross-examine the experts or otherwise try to contradict the evidence.

    Plaintiffs initially proposed a modified BAJI No. 14.20 instruction for including investigative costs as part of the cost of repair. However, the parties subsequently agreed to let the court decide whether these costs were recoverable. After the jury rendered its verdict, plaintiffs filed a memorandum of costs seeking to recover the investigative fees as costs to the prevailing party. However, on the court’s instruction, they later filed a motion to recover the fees as cost of repairs damages. Plaintiffs challenge the trial court’s denial of that motion.

    Expert Fees as Costs

    Expenses relating to expert witness fees can arise in two contexts. Under Code of Civil Procedure section 1033.5, subdivision (a)(8), the prevailing party may recover as costs “[f]ees of expert witnesses ordered by the court.” (All further statutory references are to the Code of Civil Procedure unless otherwise stated.) The court here did not order plaintiffs’ experts to testify, thus expert fees were not recoverable by plaintiffs as costs unless expressly authorized by law elsewhere. (§ 1033.5, subd. (b)(1).) Inter alia, section 998 gives the court discretion to order a defendant to pay “a reasonable sum to cover costs of the services of [plaintiffs] expert witnesses” if the defendant rejects plaintiffs statutory offer to compromise and fails to obtain a more favorable judgment at trial. (§ 998, subd. (d).)

    Plaintiffs perforce contend the fees and costs they seek are not expert fees under sections 998 and 1033.5. The argument is necessary because, prior to trial, plaintiffs served a section 998 offer to compromise their claims against defendant in exchange for $225,000. Defendant rejected the offer, and the jury awarded plaintiffs $90,000 less than the statutory offer. Thus, under section 998, defendant obtained “a more favorable judgment” than the statutory offer, depriving the trial court of discretion to order defendant to pay plaintiffs’ expert fees.

    Expert Fees as Damages

    Having eliminated any potential consideration of the expert witness fees as costs, plaintiffs contend they are entitled to recover the fees as damages. Citing Raven’s Cove Townhomes, Inc. v. Knuppe Development Co., supra, 114 Cal.App.3d 783, 171 Cal.Rptr. 334, they argue, and for purposes of the cross-appeal defendant concedes, the cost of repair is the proper measure of damages in a construction defect case. (Id. at p. 802, 171 Cal.Rptr. 334.) Civil Code section 3333 provides, “For the breach of an obligation not arising from contract, the measure of damages, except where otherwise expressly provided by this code, is the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not.” As the Raven’s Cove court concluded, since tort damages are intended to make the injured plaintiff whole, “the proper measure of damages [in a construction defect case] is the cost of remedying the defects … together with the value of the lost use (if any) during the period of injury.” (Raven’s Cove Toumhomes, Inc. v. Knuppe Development Co., supra, 114 Cal.App.3d at p. 802,171 Cal.Rptr. 334.)

    Regan Roofing Co. v. Superior Court (1994) 21 Cal.App.4th 1685, 27 Cal.Rptr.2d 62is informative. There, the issue arose in the context of a good faith settlement motion involving the nonsettling defendants’ 771*771 objection to allocation of $250,000 for expert investigation fees. (Id. at p. 1694, 27 Cal.Rptr.2d 62.) The court correctly reasoned, “It would be proper to view this $250,000 expert expense as damages due for a portion of the cost of repair, which is an appropriate measure of damages in cases based on damage to real property. [Citations.]” (Id. at p. 1709, 27 Cal.Rptr.2d 62.) Defendant asks us to disregard Regan Roofing because it involved a settlement, not a trial. We find no meaningful distinction.

    The record is clear the court denied plaintiffs’ motion, not because it doubted the credibility of the expert witnesses, but because it believed the law did not allow it to require defendant to pay the expert fees, even if they were incurred solely in relation to the costs of repair. The court was wrong. Plaintiffs were entitled to be made whole.

    Defendant protests that all litigation expenses are at least arguably caused by the wrong out of which the lawsuit arises, and yet the Legislature has determined expert expenses are recoverable, if at all, as costs, not as damages. In support of their argument, they cite Ripley v. Pappadopoulos (1994) 23 Cal.App.4th 1616, 28 Cal.Rptr.2d 878, which states, “[Compensation of an expert is, in the first instance, the responsibility of the party who hires the expert.” (Id. at p. 1624.) Ripley is inapt: It considers the issue of costs under sections 1032 and 1033.5, not damages under Civil Code section 3333.

    Because the uncontradicted testimony established plaintiffs were billed $37,500 by professionals who investigated the problems in order to formulate an appropriate repair plan, it would serve no purpose to remand the issue for further consideration. Sections 43 and 906 give an appellate court power to modify a judgment and direct the trial court to enter the proper judgment. That authority will be exercised when, as here, the record shows the parties’ rights can be determined fully on appeal. (See 9 Witkin, Cal. Procedure (4th ed. 1997) Appeal, § 744, p. 773 and eases cited therein.)

    DISPOSITION

    The order denying plaintiffs’ motion to recover expert fees as damages is reversed. The judgment in favor of plaintiffs is modified to include an additional $37,500 representing those damages. As so modified, the judgment is affirmed. Plaintiffs shall recover their costs on appeal.

    CROSBY, Acting P.J., and BEDSWORTH, J., concur.

    ×
  • Stonegate HOA v. Staben

    Stonegate HOA v. Staben

    (2006) 144 Cal.App.4th 740

    Robertson & Vick, Jonathan S. Vick and Robert Nation for Plaintiff and Appellant.

    Horvitz & Levy, Curt Cutting and Daniel J. Gonzalez; Bremer Whyte Brown & O’Meara, Matthew J. Eschenburg, Keith G. Bremer and Raymond Meyer, Jr., for Movant and Appellant and for Cross-complainant and Appellant.

    Sabaitis • O’Callaghan, Frank T. Sabaitis and Louis R. Chao for Defendant and Respondent and for Cross-defendant and Respondent.

    DOI TODD, J.

    In this construction defect case, the general contractor hired a subcontractor to waterproof retaining walls and install back drains in a large residential development. After discovering seepage and drainage problems, the homeowners association sued the general contractor and the subcontractor for negligence. During a jury trial, the subcontractor’s motion for nonsuit was granted and judgment was entered in its favor. On appeal, the homeowners association and the general contractor contend that the trial court erroneously precluded expert testimony on the subcontractor’s standard of care and erred in granting nonsuit. We agree and reverse the judgment in favor of the subcontractor. We also reverse the summary judgment granted in favor of the subcontractor on the general contractor’s cross-complaint for indemnity because we find there are triable issues of material fact as to whether the subcontractor was negligent. In light of our rulings, the costs awarded to the subcontractor must also be set aside.

    FACTUAL AND PROCEDURAL BACKGROUND

    This action arises out of the construction of a 238-home residential development in the West Hills section of Los Angeles (the Stonegate project). The developer entered into a written contract with appellant R&R Palacios Construction, Inc. (Palacios) for construction of retaining walls. Palacios, by oral agreement, subcontracted the waterproofing and drainage work on the retaining walls to respondent T.A. Staben (Staben), a company with which Palacios had previously worked.

    At trial, Ron Palacios testified that he told Tom Staben to “waterproof [the walls] with Thoroseal,” install four-inch subsurface drain lines, backfill the walls with sand and lay “v-ditches.” Mr. Palacios testified that he did not know how to apply Thoroseal and that he told Mr. Staben to apply it according to the manufacturer’s specifications. He later testified that he never had a conversation with Mr. Staben about how the Thoroseal should be applied. He also testified that he did not tell Mr. Staben how to install the drains. Mr. Palacios further testified: “I don’t tell him [Mr. Staben] how to do his job,” explaining that Mr. Staben was a “professional.”

    Mr. Staben testified that he was not given any specifications as to how to apply the Thoroseal to the walls at the Stonegate project and that he was only told to apply it “the same way” he had at the “Moorpark project,” which involved the same developer. But Mr. Palacios testified he had not worked on the Moorpark project and that he was unaware of how Staben did the work on the Moorpark project.

    In late 1989, Staben completed the waterproofing and drainage installation on the walls Palacios built at the Stonegate project. Palacios paid Staben for its work and did not have any problems with the work. After the work was completed, homeowners in the development began to notice wet soil or boggy conditions in their yards together with dampness on the downhill side of the retaining walls and a white powdery substance on the walls called “efflorescence.” In 1999, appellant TheStonegate Homeowners Association (Stonegate) filed suit against the developer and others for negligence, strict liability and implied warranty, alleging that the retaining walls had been defectively waterproofed and drained. Stonegate later substituted Palacios and Staben in place of fictitiously-named defendants. The trial court dismissed the strict liability and warranty claims, leaving only the negligence cause of action to be tried. Palacios cross-complained against Staben for indemnity, contribution and declaratory relief.

    Stonegate eventually settled or disposed of its claims against all defendants exceptStaben. Palacios entered into a sliding scale or “Mary Carter” settlement agreement with Stonegate, whereby Palacios guaranteed a global payment of $3.3 million that would be reduced by the amount recovered by Stonegate from nonsettling parties through settlement or judgment. Prior to trial, Stonegate dismissed Palacios as a defendant, and the court severed Palacios’s indemnity cross-complaint. Trial proceeded only against Staben on Stonegate’s claim for negligence.

    During trial, Stonegate attempted to present expert witness testimony on the standard of care in applying Thoroseal and in installing a subsurface back drain and that Staben’s work fell below those standards. The trial court precluded the testimony, ruling that the relevant issue was not the standard of care, but the oral contract between Palacios and Staben and what Staben was told to do under that agreement. The court deemed Palacios to be the “gatekeeper” and stated that Palacios should be responsible for any defects.

    At the close of Stonegate’s evidence, Staben orally moved for nonsuit on the grounds that “there is no conflict in the evidence that Mr. Staben’s duty was to do what Mr. Palacios asked him to do pursuant to what he had done for the same . . . developer in the project called Moorpark” and that Staben did not owe a duty toStonegate. The trial court granted the motion for nonsuit, stating: “The court’s basis for the nonsuit is that there was a lack of any testimony by the plaintiff as to the specific duties the defendant had regarding his oral contract with Palacios.” The court further stated: “The bottom line of the situation is that the plaintiff just did not present any evidence of facts with regard to the contract between Palacios and Staben to raise any duty or obligation for Staben to perform other than he did.” The court then entered judgment in favor of Staben. Both Stonegate and Palacios filed motions for a new trial, which the court denied. Stonegate and Palacios have separately appealed from the judgment in favor of Staben. Stonegate also appeals from the trial court’s award of costs to Staben.

    Following entry of judgment in its favor, Staben moved for summary judgment on Palacios’s severed cross-complaint for indemnity, arguing that because Staben fulfilled its obligations under the oral agreement with Palacios, the requisite predicate tort to maintain an action for equitable indemnity was absent. The trial court agreed, granting the motion and entering summary judgment in favor of Staben. The court then awarded costs to Staben in the amount of $78,937.52—the same amount the court had awarded against Stonegate. Palacios appeals from both the summary judgment on its cross-complaint and the award of costs. Stonegate’s and Palacios’s appeals have been consolidated.

    DISCUSSION

    I. THE NONSUIT MOTION

    Stonegate and Palacios contend the trial court erred in granting the nonsuit because expert testimony on Staben’s standard of care should have been admitted.[1]

    A. Standard of Review

    “A motion for nonsuit allows a defendant to test the sufficiency of the plaintiff’s evidence before presenting his or her case. Because a successful nonsuit motion precludes submission of plaintiff’s case to the jury, courts grant motions for nonsuit only under very limited circumstances.” (Carson v. Facilities Development Co.(1984) 36 Cal.3d 830, 838.) “A defendant is entitled to a nonsuit if the trial court determines that, as a matter of law, the evidence presented by plaintiff is insufficient to permit a jury to find in his favor. [Citation.] `In determining whether plaintiff’s evidence is sufficient, the court may not weigh the evidence or consider the credibility of witnesses. Instead, the evidence most favorable to plaintiff must be accepted as true and conflicting evidence must be disregarded. The court must give “to the plaintiff[‘s] evidence all the value to which it is legally entitled, . . . indulging every legitimate inference which may be drawn from the evidence in plaintiff[‘s] favor.”‘ [Citation.] A mere `scintilla of evidence’ does not create a conflict for the jury’s resolution; `there must be substantial evidence to create the necessary conflict.’ [Citation.]” (Nally v. Grace Community Church (1988) 47 Cal.3d 278, 291.)

    In reviewing a grant of nonsuit, we are “guided by the same rule requiring evaluation of the evidence in the light most favorable to the plaintiff.” (Carson v. Facilities Development Co., supra, 36 Cal.3d at p. 839; Pinero v. Specialty Restaurants Corp.(2005) 130 Cal.App.4th 635, 639.) “We will not sustain the judgment `”unless interpreting the evidence most favorably to plaintiff’s case and most strongly against the defendant and resolving all presumptions, inferences and doubts in favor of the plaintiff a judgment for the defendant is required as a matter of law.”‘ [Citations.]” (Nally v. Grace Community Church, supra, 47 Cal.3d at p. 291.) “Although a judgment of nonsuit must not be reversed if plaintiff’s proof raises nothing more than speculation, suspicion, or conjecture, reversal is warranted if there is `some substance to plaintiff’s evidence upon which reasonable minds could differ . . . .'” (Carson v. Facilities Development Co., supra, at p. 839.) As below, we do not weigh the evidence or consider the credibility of witnesses. (Alpert v. Villa Romano Homeowners Assn. (2000) 81 Cal.App.4th 1320, 1327.) “Where there is no evidence to review because the trial court excluded it, we review the trial court’s evidentiary rulings to determine if the evidence was properly excluded. If relevant and material evidence was excluded which would have allowed the plaintiff to overcome a nonsuit, the judgment must be reversed. [Citation.]” (Castaneda v. Bornstein (1995) 36 Cal.App.4th 1818, 1825, disapproved on another point in Bonds v. Roy (1999) 20 Cal.4th 140, 149, fn. 4.)

    B. The Trial Court Erred in Precluding Expert Testimony on Staben’s Duty of Care

    1. Trial Court Proceedings

    It was Stonegate’s position at trial that Staben was responsible for two major defects in construction of the retaining walls: Inadequate waterproofing and improper placement of back drains.

    a. Inadequate Waterproofing

    Stonegate argued that inadequate waterproofing with Thoroseal permitted hillside drainage to seep into and through the concrete blocks of the walls and caused the formation of sulfate efflorescence that threatened the structural integrity of the walls. Tom Staben acknowledged that the goal in applying Thoroseal was “total coverage,” and that “the more thorough the coverage, the better water deterring effect it would have.” Stonegate’s waterproofing expert, Warren Kelly Roberts, testified that when properly applied, Thoroseal “develops a hard shell that’s impervious to water.” Roberts testified that during his excavation and physical inspection of the retaining walls at several places, he observed areas where the Thoroseal application was too thin and other areas where no Thoroseal had been applied. Of the 11 sites he observed, Roberts found the coverage faulty or inadequate in “all but one,” and the coverage was not effective in preventing water from passing through the Thoroseal barrier.

    Roberts tried to explain the standard of care in applying Thoroseal to the walls, and that Staben’s work fell below that standard. But the trial court ruled that standard of care in the industry was not relevant based on its conclusion that the terms of the oral contract between Palacios and Staben established Staben’s responsibilities. The court sustained objections to Roberts’s testimony that would have explained how a contractor would ordinarily go about preparing and applying Thoroseal.

    The day following Roberts’s testimony, Stonegate filed a motion for reconsideration, which included an offer of proof that Roberts would testify that Staben failed to meet the manufacturer’s specifications for applying Thoroseal that appeared on every bag of Thoroseal when Staben did his work. Among these specifications was the requirement for application of two coats to assure complete coverage. The court denied the motion, stating that it had no recollection that Ron Palacios had told Tom Staben to apply the Thoroseal according to the manufacturer’s instructions.

    b. Improper Placement of Drains

    Stonegate sought to establish that Staben installed the subsurface back drains too high above the foundation, which rendered the drains largely useless because water would accumulate behind the walls and flow through “weep” holes or “open head” joints before rising to the level of the back drains. This created wet or boggy soil conditions in the owners’ yards. Mr. Staben admitted that it was his “personal feeling” that the drains should have been placed right on top of the footing. He testified that he believed a city building inspector told him to install the drains at an angle, which he did, though he thought such placement was “incorrect.” Stonegate’s drainage expert, Mohammad Joolezadah, testified that during his inspection of the site he observed drains placed at various heights above the footing, with one drain as high as 22 inches above the footing.

    Joolezadah was prepared to testify that the standard of care was to place the drains horizontally along the footing with a two-inch bed of gravel below and that Staben’s placement of the subsurface back drains was too high and fell below the standard of care. But the trial court precluded this testimony, refusing to allow Stonegate’s experts to “go beyond” the oral contract to establish any standard of care on Staben’s part.

    2. Subcontractor’s Standard of Care

    Appellants contend that the court erred in narrowing its focus on the words of the oral agreement to the exclusion of evidence on the standard of care. We agree. “The subcontractor has a duty to perform work in a good and workmanlike manner. A subcontractor who is careless and negligent in the performance of the work is liable to the general contractor, to the owner, and to third persons for any damages proximately caused. [¶] When the work is performed in a defective manner, the measure of liability is the same as the damages that the owner can recover from the contractor. . . . [¶] The owner ordinarily has a cause of action against the subcontractor arising from the subcontractor’s defective work, even though there is no privity of contract between the owner and the subcontractor. The owner usually has a cause of action in negligence as a party within the area of foreseeable risk.” (11 Miller & Starr, Cal. Real Estate (3d ed. 2001) § 29:18, pp. 29—115 to 29—116, fns. omitted; see also La Jolla Village Homeowners’ Assn. v. Superior Court (1989) 212 Cal.App.3d 1131, 1145, disapproved on another point in Jimenez v. Superior Court (2002) 29 Cal.4th 473, 484 [“imposition of liability is still available against the subcontractor based upon the conventional theories of breach of contract, warranty or negligence”]; 1 C.E.B., Cal. Construction Contracts and Disputes (Cont.Ed.Bar 2d ed. 2005) § 6.8, p. 591 [“subcontractors . . . are held to a standard of due care . . . for their performance”].)

    In Stewart v. Cox (1961) 55 Cal.2d 857, homeowners pursued a negligence action against a subcontractor hired to install concrete in their swimming pool. The court stated that the “question is whether a subcontractor such as Cox may be liable to the owner, with whom he was not in privity of contract, for damage occurring after his work had been accepted by the contractor and the owner.” (Id. at pp. 861—862.) The court concluded that the subcontractor “should not be exempted from liability if negligence on his part was the proximate cause of the damage to plaintiffs.” (Id. at p. 863.) “`Accompanying every contract is a common-law duty to perform with care, skill, reasonable expedience, and faithfulness the thing agreed to be done, and a negligent failure to observe any of these conditions is a tort as well as a breach of the contract.'” (Kuitems v. Covell (1951) 104 Cal.App.2d 482, 485 [finding that contract to install roofing material contained an implied warranty that such material would be fit for its intended use].)

    Standard of care and its breach in the construction defect context must usually be established through expert testimony, though lay testimony may suffice where construction defects “are of such common knowledge that men of ordinary education could easily recognize them.” (Raven’s Cove Townhomes, Inc. v. Knuppe Development Co. (1981) 114 Cal.App.3d 783, 797; Miller v. Los Angeles County Flood Control Dist. (1973) 8 Cal.3d 689, 702—703.)

    We conclude that the trial court erred in precluding Stonegate from presenting expert testimony on Staben’s standard of care. Staben agreed to perform the waterproofing and drainage work on the retaining walls built by Palacios and had the duty to perform those tasks in a good and workmanlike manner. As such, the testimony of Stonegate’s experts was relevant to the issue of whether Staben met the standard of care expected within the industry. The trial court’s focus on the terms of the oral agreement to the exclusion of the standard of care evidence puts contractors like Palacios in an untenable position. The evidence showed that Palacios did not know how to do portions of the work subcontracted to Staben and therefore did not tell Staben how to perform its work. But under the trial court’s theory, Staben would only be liable for defects in its work if Palacios had given it detailed instructions on how to do the work. In other words, according to the court, the more the contractor must rely on the subcontractor, the less the subcontractor will be held accountable. This is not sound public policy and is not the law in California. Indeed, that Palacios did not tellStaben how to waterproof the walls or how to install the back drains underscores why Staben was under a duty to adhere to the standard of care in the industry. Without adherence to the standard of care, Staben could not have achieved the desired objective of its work.

    Because evidence that Staben’s work fell below the standard of care in the construction industry could have enabled Stonegate to overcome the nonsuit on its negligence claim, the judgment in favor of Staben must be reversed. (Castaneda v. Bornstein, supra, 36 Cal.App.4th at p. 1825.)

    II. SUMMARY JUDGMENT MOTION

    Palacios also challenges the trial court’s grant of summary judgment in favor of Staben on Palacios’s cross-complaint for indemnity.

    A. Standard of Review

    “The motion for summary judgment shall be granted if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” (Code Civ. Proc., § 437c, subd. (c).) “To secure summary judgment, a moving defendant may prove an affirmative defense, disprove at least one essential element of the plaintiff’s cause of action [citations] or show that an element of the cause of action cannot be established [citation].” (Sanchez v. Swinerton & Walberg Co. (1996) 47 Cal.App.4th 1461, 1465; Code Civ. Proc., § 437c, subd. (p)(2).) Once the defendant or cross-defendant has made this showing, “the burden shifts to the plaintiff or cross-complainant to show that a triable issue of one or more material facts exists as to that cause of action . . . .” (Code Civ. Proc., § 437c, subd. (p)(2).)

    We independently review the trial court’s decision to grant summary judgment, using the same three-step analysis as the trial court: (1) Identifying the issues framed by the pleadings; (2) determining whether the defendant negated the plaintiff’s claims; and (3) deciding whether the plaintiff demonstrated the existence of a triable, material factual issue. (Silva v. Lucky Stores, Inc. (1998) 65 Cal.App.4th 256, 261.)

    B. The Cross-Complaint and Motion for Summary Judgment

    Palacios filed a cross-complaint against Staben asserting causes of action for indemnity, contribution and declaratory relief. Palacios alleged that if it were found liable to Stonegate or settled with Stonegate, it was entitled to indemnity or contribution from Staben by reason of Staben’s “negligence or other fault” in its work on the Stonegate project.

    Following entry of judgment in favor of Staben on its nonsuit, Staben moved for summary judgment on Palacios’s cross-complaint. Staben asserted that its motion was “based on the fact that the evidence in the case has established that in performing its work at the Stonegate project, Staben fulfilled all of its obligations under its oral agreement with R&R Palacios, and therefore the predicate tort necessary for Palacios to maintain these causes of action is absent.” Specifically, Staben relied on the deposition testimony of Tom Staben that Ron Palacios told him the developer “wanted to use Thoroseal like they had used in Moorpark,” “to [his] knowledge” Thoroseal was used on each of the retaining walls built by Palacios and that Palacios had paid Staben for the work, as well as Ron Palacios’s testimony that he had no problems with Staben’s work at the Southgate project.

    Palacios opposed the motion by presenting evidence that Staben did not apply the Thoroseal in compliance with the standard of care in the industry. Specifically, Palacios relied on the deposition testimony of its waterproofing expert, Warren Kelly Roberts, that Thoroseal was to be applied in a two-coat uniform manner; Staben did not apply the Thoroseal in a two-coat uniform manner; there were areas where the Thoroseal application was too thin or was missing all together; and Staben either oversaturated the Thoroseal when preparing it or oversaturated the walls before application. Palacios also relied on the deposition testimony of its drainage expert, Mohammad Joolezadah, that improper waterproofing and the absence of waterproofing led to wall deterioration.

    The trial court granted the motion for summary judgment, stating: “For equitable indemnity against the indemnitor there must be a basis for tort liability against the proposed indemnitor. [Staben] having performed under the oral contract to the satisfaction of [Palacios], there is no tort liability.”

    C. There Were Triable Issues of Material Fact as to Whether Staben Was Negligent

    “[T]he doctrine of comparative equitable indemnity is designed to do equity among defendants. Under the equitable indemnity doctrine, defendants are entitled to seek apportionment of loss between the wrongdoers in proportion to their relative culpability so there will be `equitable sharing of loss between multiple tortfeasors.'” (Gem Developers v. Hallcraft Homes of San Diego, Inc. (1989) 213 Cal.App.3d 419, 426.) A condition of equitable indemnity is that “there must be some basis for tort liability against the proposed indemnitor,” usually involving breach of a duty owed to the underlying plaintiff. (BFGC Architects Planners, Inc. v. Forcum/Mackey Construction, Inc. (2004) 119 Cal.App.4th 848, 852.) The doctrine applies only among defendants who are jointly and severally liable to the plaintiff. (Ibid.)

    The trial court granted the motion for summary judgment based on its determination that there could be no basis for tort liability on Staben’s part because Palacios was satisfied with the work Staben had performed under the parties’ oral agreement. But Palacios’s satisfaction with Staben’s work does not absolve Staben of liability for the damage Stonegate may have suffered as a result of Staben’s work if it was negligently performed. As Palacios notes, the issue on Palacios’s cross-complaint for indemnity was an equitable sharing of responsibility for the loss that Stonegatesuffered, for which Palacios is obligated to pay compensation as part of its settlement with Stonegate. (Gem Developers v. Hallcraft Homes of San Diego, Inc., supra, 213 Cal.App.3d at p. 429 [a “claim for equitable indemnification derives from the [plaintiff’s] loss and award of damages”].)

    In moving for summary judgment, Staben produced no evidence regarding its duty of care or the quality of its work on the Stonegate project. In its separate statement of undisputed material facts, Staben merely asserted that it had performed its work on the Stonegate project “in the same manner” as it did at the prior Moorpark project. But the only “evidence” Staben cited to support this asserted fact was TomStaben’s testimony that Ron Palacios told him the developer “wanted to use Thoroseal like they had used in Moorpark” and that “to [his] knowledge” “Thoroseal [was] used on each and every one of the retaining walls constructed by Mr. Palacios.” But, as Palacios notes, this evidence says nothing about the manner in which Staben performed its work at either location. Because Staben presented no evidence on the quality or manner of its work at the Stonegate project, it failed to meet its initial burden of showing that an element of the negligence claim could not be established (i.e., breach of duty). Staben therefore failed to establish the absence of a predicate tort. The burden of producing evidence never shifted to Palacios to overcome the motion for summary judgment.

    But even if it had, Palacios’s evidence in opposition to the motion for summary judgment as to the correct way to apply Thoroseal and Staben’s failure to apply it in a manner necessary to prevent the passage of water through the retaining walls was sufficient to create a triable issue of material fact as to whether Staben’s work on theStonegate project fell below the standard of care in the industry. We have already concluded that a subcontractor like Staben owes a duty of care to homeowners likeStonegate, and that evidence of Staben’s standard of care is relevant to the question of its liability for negligence. The trial court therefore erred in granting the motion for summary judgment on Palacios’s cross-complaint for indemnity.

    III. APPEAL OF THE COST AWARDS

    Both Stonegate and Palacios filed notices of appeal from the postjudgment orders awarding costs to Staben as the prevailing party. In light of our decision reversing the judgment in favor of Staben following the nonsuit and reversing the summary judgment in favor of Staben on the cross-complaint for indemnity, Staben is no longer the prevailing party. We reverse the postjudgment cost orders. (Peerless Lighting Corp. v. American Motorists Ins. Co. (2000) 82 Cal.App.4th 995, 1017;Kalivas v. Barry Controls Corp. (1996) 49 Cal.App.4th 1152, 1163, fn. 6.)

    DISPOSITION

    The judgment in favor of Staben following the nonsuit and the summary judgment in favor of Staben, as well as the postjudgment orders regarding costs, are reversed and the matter is remanded for retrial. Appellants Stonegate and Palacios are awarded costs on appeal.

    We Concur:

    BOREN, P. J.

    ASHMANN-GERST, J.

    [1] Staben argues that Palacios lacks standing to challenge the nonsuit. We disagree. “`Any party aggrieved’ may appeal from an adverse judgment. (Code Civ. Proc., § 902.) The test is twofold—one must be both a party of record to the action and aggrieved to have standing to appeal. The first requirement, that one be a party of record, is subject to an exception under which a nonparty who moves to vacate the judgment is permitted to appeal as if he were a party. We think the exception should equally encompass a nonparty who moves for judgment notwithstanding the verdict and a new trial, . . . .” (Shaw v. Hughes Aircraft Co. (2000) 83 Cal.App.4th 1336, 1342 [Nonparent corporation had standing to appeal where it filed motions for judgment notwithstanding verdict and for new trial and was aggrieved by adverse judgment against its subsidiary because it had assumed obligation to pay judgment]; Lippman v. City of Los Angeles (1991) 234 Cal.App.3d 1630, 1634 [“[W]e see no reason why, if an aggrieved person can become a party to the record by moving to vacate the judgment, he or she cannot accomplish the same result by moving for a new trial”].)

    Here, Palacios filed a motion for new trial, which was denied. Palacios therefore became a party of record. Palacios was also aggrieved by the judgment in favor of Staben because pursuant to Palacios’s sliding scale “Mary Carter” settlement agreement with Stonegate, any recovery by Stonegate against Staben would reduce the amount of Palacios’s liability to Stonegate “dollar for dollar.” The judgment in favor of Staben precluded Palacios from reducing its liability to Stonegate. But even if we were mistaken in finding that Palacios had standing to challenge the nonsuit on appeal, Stonegate has joined in Palacios’s brief on this issue, adopting it by reference. (Cal. Rules of Court, rule 13(a)(5).) Thus, we would be able to address Palacios’s challenge to the nonsuit in any event.

     

    ×
  • Treo @ Kettner Homeowners Association v. Superior Court

    Treo @ Kettner Homeowners Association v. Superior Court

    Summary by Mary M. Howell, Esq.:

    Facts

    The association brought a claim for construction defects alleging common area claims for construction defect. The CC&Rs had a provision purporting to require the association to submit its claims to judicial reference, which is a form of a jury trial waiver in which a private referee makes all decisions in the case instead of a judge and jury. The developer filed a motion to compel the association’s claims to judicial reference, citing the CC&R provision as the “contract” for judicial reference between the association and developer.

    Held

    The right to a jury trial is a fundamental right protected by the California constitution. It can only be waived in a manner expressly provided for by statute. The statute allowing for judicial reference of claims requires a contract between the parties with a judicial reference provision. Because of the manner in which the CC&Rs are created (years before the association is created), the CC&Rs are not the type of document in which there is the free and voluntary consent on the part of the association as required to support a waiver of the association’s Constitutional right to a jury trial.

    *** End Summary ***

    Treo @ Kettner Homeowners Association v. Superior Court

    166 Cal.App.4th 1055 (2008)

    1059*1059 Epsten Grinnell & Howell, Jon H. Epsten, Anne L. Rauch and Bryan M. Garrie for Petitioner.

    No appearance for Respondent.

    Luce, Forward, Hamilton & Scripps, Charles A. Bird, Valentine S. Hoy VIII and Anne Morrison Epperly for Real Parties in Interest.

    OPINION

    BENKE, Acting P. J.

    Petitioner Treo @ Kettner Homeowners Association (Association), a homeowners association of a condominium project in downtown San Diego, sued real party in interest Intergulf Construction Corporation, developer of the project, and other real parties in interest (collectively Intergulf) for alleged construction defects. A provision of Association’s covenants, conditions and restrictions (CC&R’s) required that all disputes between it and Intergulf be decided by a general judicial reference pursuant to Code of Civil Procedure section 638.[1] Intergulf moved for an order submitting the case to a judicial referee. Association opposed the order, arguing that the provision of its CC&R’s cited by Intergulf was not a contract as required by section 638 and that if it was, it was unconscionable and unenforceable. The trial court granted Intergulf’s motion and ordered the matter to a general judicial reference. Association petitioned this court for a writ of mandate, directing the trial court to set aside that order. We issued an order to show cause.

    PROCEDURAL BACKGROUND

    Intergulf prepared and on January 12, 2001, recorded a Declaration of Covenants, Conditions and Restrictions of Treo @ Kettner. The recording occurred before any purchase agreements were signed. Before the first close of escrow, Intergulf, on January 8, 2003, recorded an Amended and Restated Declaration of Covenants, Conditions and Restrictions of Treo @ Kettner.[2]

    1060*1060 By a complaint dated May 25, 2007, Association sued Intergulf and numerous other entities alleging construction defects.

    Citing section 17.4.5 of Association’s CC&R’s, Intergulf moved for an order of general reference pursuant to section 638. Article 17 of the CC&R’s, entitled “Enforcement,” deals both with disputes between Association and owners of units (owners) and disputes between Association or owners and Intergulf. The Enforcement sections describe various nonjudicial procedures for the resolution of disputes. Section 17.4.5 states that if those procedures are unsuccessful, the dispute shall be resolved by general judicial reference pursuant to section 638.

    Association opposed the motion. It argued that the CC&R’s, drafted by Intergulf before Association had an independent board of directors, was not a contractual waiver of its right to trial by jury as required by section 638. Association argued that because Intergulf retained no enforcement rights under the CC&R’s, it could not move for a reference pursuant to section 638. It noted its claims were against not only Intergulf but also against numerous other entities, none of which were subject to the claimed reference agreement contained in the CC&R’s. Finally, Association argued that the alleged reference agreement was unenforceable because it was substantively and procedurally unconscionable.

    The trial court rejected Association’s arguments and granted Intergulf’s motion for order of general reference.

    Association petitioned for writ of mandate; we issued an order to show cause.

    DISCUSSION

    Association argues that its CC&R’s are not a contract within the meaning of section 638, and the trial court erred when it compelled it to resolve its action against Intergulf by judicial reference. Association argues that even if its CC&R’s are a contract, its judicial reference provision is unconscionable and unenforceable, and the trial court erred in concluding to the contrary.

    A. Contract Analysis

    1. Section 638

    Section 638 in relevant part states: “A referee may be appointed upon the agreement of the parties filed with the clerk, or judge, or entered in the minutes, or upon the motion of a party to a written contract or lease that 1061*1061 provides that any controversy arising therefrom shall be heard by a referee if the court finds a reference agreement exists between the parties . . . .” (Italics added.)

    (1) In a judicial reference, a pending court action is sent to a referee for hearing, determination and a report back to the court. A general reference directs the referee to try all issues in the action. The hearing is conducted under the rules of evidence applicable to judicial proceedings. In a general reference, the referee prepares a statement of decision that stands as the decision of the court and is reviewable as if the court had rendered it. The primary effect of such a reference is to require trial by a referee and not by a court or jury. (Trend Homes, Inc. v. Superior Court (2005) 131 Cal.App.4th 950, 955-956 [32 Cal.Rptr.3d 411].)

    2. CC&R’s

    a. Association’s CC&R’s

    Association’s CC&R’s are 86 pages long. They deal with a myriad of matters ranging, for example, from the right of owners to the exclusive use of their balconies to Association’s governance and operation. Most provisions are mundane. A few relate to Intergulf, its rights and obligations and its relationship with Association.

    Article 17 of the CC&R’s deals with their enforcement and with actions by the Association or an owner against Intergulf. The article first allows for inspection and corrective action by Intergulf. Any dispute not so resolved must be submitted to mediation. If mediation fails, section 17.4.5 of article 17 requires the dispute be resolved by a general judicial reference.

    Section 17.4.6 of article 17 is set out in capital letters and is entitled, “AGREEMENT TO DISPUTE RESOLUTION; WAIVER OF JURY TRIAL.” The section states Intergulf and, by accepting a deed for Association property or a condominium, Association and each owner agree to resolve disputes as required by article 17. In doing so, the section states Intergulf, Association and owners acknowledge they give up their rights to have the dispute tried before a jury. The section states that the dispute resolution system described may not be amended without Intergulf’s written consent.

    b. Creation of CC&R’s

    (2) Among the requirements for the creation by a developer of a common interest development is the recording of a declaration. (Civ. Code, § 1352, subd. (a).) The declaration includes several parts, including the “restrictions 1062*1062 on the use or enjoyment of any portion of the common interest development that are intended to be enforceable equitable servitudes [i.e., CC&R’s].” (Civ. Code, § 1353, subd. (a)(1).) The declaration also must provide for and name an association that will manage the development. (Civ. Code, §§ 1353, subd. (a)(1), 1363, subd. (a).) These covenants and restrictions, unless unreasonable, “inure to the benefit of and bind all owners of the separate interests in the development.” (Civ. Code, § 1354, subd. (a).)

    (3) A common interest development is created with the recording of the declaration, and other required documents, and there is a conveyance of a separate interest coupled with an interest in the common area or membership in the association. (Civ. Code, § 1352.) Each owner in a condominium project is a member of the association. (Civ. Code, § 1358, subd. (b).)

    (4) The developer and any subsequent seller of an interest in a common interest development must provide a prospective purchaser with, among other documents, the governing documents of the development including the CC&R’s. (Civ. Code, §§ 1351, subd. (j), 1368, subd. (a)(1); Bus. & Prof. Code, § 11018.6, subd. (a).)

    3. Equitable Servitudes

    (5) Civil Code section 1354, subdivision (a), states that CC&R’s “shall be enforceable equitable servitudes, unless unreasonable, and shall inure to the benefit of and bind all owners of separate interests in the development.” The section declares that unless the CC&R’s state otherwise, the servitudes may be enforced “by any owner of a separate interest or by the association, or by both.” (Ibid.)

    In Nahrstedt v. Lakeside Village Condominium Assn. (1994) 8 Cal.4th 361 [33 Cal.Rptr.2d 63, 878 P.2d 1275] our Supreme Court noted the popularity and advantages of common interest developments and traced the evolution of the legal concepts that make them possible. It noted that the viability of such shared ownership communities rests on the existence of extensive reciprocal equitable servitudes. (Id. at pp. 370-375.)

    (6) The court stated the declaration in Civil Code section 1354, subdivision (a), that CC&R’s are enforceable equitable servitudes evidence the Legislature’s intent that recorded use restrictions are to be treated as such servitudes. The court noted under general law a subsequent purchaser of land must have actual notice of restrictions; actual notice is not required to enforce a recorded use restriction covered by section 1354 against a subsequent purchaser. The inclusion of such restrictions in the recorded declaration is sufficient notice to permit their enforcement as equitable servitudes. 1063*1063 (Nahrstedt v. Lakeside Village Condominium Assn., supra, 8 Cal.4th at pp. 378-379.)

    (7) In Nahrstedt the court noted that under the law of equitable servitudes courts may enforce a promise about the use of land even though the person who made the promise has transferred title to another. The court stated: “The underlying idea is that a landowner’s promise to refrain from particular conduct pertaining to land creates in the beneficiary of that promise `an equitable interest in the land of the promisor.’ [Citations.]” (Nahrstedt v. Lakeside Village Condominium Assn., supra, 8 Cal.4th at p. 379.)

    (8) The court stated that when the owner of a subdivided tract conveys parcels with restrictions on each parcel as part of a general plan of restrictions common to all the parcels and designed for their mutual benefit, equitable servitudes are created in favor of each parcel and against the others. The court noted that equitable servitudes permit courts to enforce promises restricting land use when there is no privity of contract between parties seeking to enforce the promise and the party resisting enforcement. (Nahrstedt v. Lakeside Village Condominium Assn., supra, 8 Cal.4th at pp. 379-380.)

    (9) The court stated: “Like any promise given in exchange for consideration, an agreement to refrain from a particular use of land is subject to contract principles, under which courts try `to effectuate the legitimate desires of the covenanting parties.’ [Citation.]” (Nahrstedt v. Lakeside Village Condominium Assn., supra, 8 Cal.4th at pp. 380-381.)

    4. Waiver of Trial by Jury in Civil Cases

    (10) As our law has evolved, parties with legal disputes may resolve them in a variety of ways. They may simply, alone or with the assistance of a neutral party, agree to settle their dispute. On the other hand, one party may sue the other with the matter eventually decided in a courtroom before a jury. Between these two approaches are others that, while eliminating some or all of the traditional judicial forum, nonetheless are adversarial and the decision made binding on the parties, e.g., arbitration and general and special judicial references. One effect of these devices is that no part of the decision is made by a jury.

    In Grafton Partners v. Superior Court (2005) 36 Cal.4th 944 [32 Cal.Rptr.3d 5, 116 P.3d 479] our Supreme Court discussed the constitutional, statutory and policy considerations relevant to the waiver of trial by jury in 1064*1064 civil cases. Grafton does not deal, as does this case, with jury waivers resulting from prelitigation contracts agreeing to general judicial references pursuant to section 638. It deals rather with prelitigation contractual waivers of jury trial in the traditional judicial forum pursuant to section 631. While not precisely on point, Grafton, nonetheless, discusses the policy considerations that underpin any pretrial contractual waiver of jury trial in civil matters and is useful in reviewing the issues raised here.

    Grafton Partners hired an accounting firm. The engagement letter confirming the terms of the retainer agreement stated that in the event of a dispute, the parties, to facilitate judicial resolution and save time and money, agreed not to demand trial by jury. A dispute arose. Grafton Partners sued and demanded a jury trial. The issue was whether the parties’ pretrial contractual waiver of trial by jury was enforceable. (Grafton Partners v. Superior Court, supra, 36 Cal.4th at pp. 950-951.)

    The court began by noting that article I, section 16 of the California Constitution states that trial by jury is “`an inviolate right'” that in civil cases may be “`waived by the consent of the parties expressed as prescribed by statute.‘” (Grafton Partners v. Superior Court, supra, 36 Cal.4th at p. 951, fn. 3.) When a party, based on a contract, asserts that a dispute be decided by some entity other than a jury, it must identify a statutory basis allowing such waiver and the consent of the opposing party to so proceed.

    The court in Grafton noted that section 631 provides six means by which trial by jury can be forfeited or waived in the traditional judicial forum. None of the six states that jury trial may be waived by prelitigation contract. The court concluded it was not enough that section 631 did not forbid such waivers nor was it determinative that other statutes allow for predispute contractual agreements that result in a waiver of trial by jury, e.g., contracts to arbitrate (§ 1281) or submit matters to judicial reference (§ 638). (Grafton Partners v. Superior Court, supra, 36 Cal.4th at pp. 951-952, 957.)

    In Grafton the court held that the rules under which the parties to a lawsuit may waive jury trial must be prescribed by the Legislature and that the power to do so may not be delegated to the courts. (Grafton Partners v. Superior Court, supra, 36 Cal.4th at pp. 952-955.) The court noted this restriction existed because the right to trial by jury is “`too sacred in its character to be frittered away or committed to the uncontrolled caprice of every judge or magistrate in the State.'” (36 Cal.4th at p. 956,quoting Exline v. Smith (1855) 5 Cal. 112, 113.) The court also noted that the right to trial by jury is “considered so fundamental that ambiguity in the statute permitting such 1065*1065 waivers must be `resolved in favor of according to a litigant a jury trial.’ [Citation.]” (Grafton Partners v. Superior Court, supra, 36 Cal.4th at p. 956.) The court noted the right is so important it must be “`zealously guarded’ in the face of a claimed waiver.” (Ibid.) The court observed that doubts in interpreting the waiver provisions of section 631 had been resolved in favor of a litigant’s right to jury trial. (Grafton Partners, at pp. 956, 958.)

    The court noted that “even those jurisdictions permitting predispute waiver of the right to jury trial do not uncritically endorse unregulated freedom of contract; rather, they seek to protect the constitutional right to jury trial with a number of safeguards not typical of commercial law, including requirements that the party seeking to enforce the agreement bear the burden of proving that the waiver clause was entered into knowingly and voluntarily, restrictions on the type of contracts that may contain jury waivers, presumptions against a finding of voluntariness, inquires regarding the parties’ representation by counsel as well as relative bargaining power and sophistication, and consideration of font size and placement of waiver clause within the contract.” (Grafton Partners v. Superior Court, supra, 36 Cal.4th at pp. 965-966.)

    5. Discussion

    In Villa Milano Homeowners Assn. v. Il Davorge (2000) 84 Cal.App.4th 819 [102 Cal.Rptr.2d 1], a case decided before Grafton, the court held that, in the abstract, an arbitration clause contained in the CC&R’s of a condominium homeowners association was a sufficient agreement within the meaning of sections 1281 and 1281.2 to require the association’s construction defect claims against the developer be submitted to arbitration. The court, however, found the agreement unconscionable and unenforceable.

    In finding the arbitration clause in the CC&R’s a sufficient agreement to require the matter be submitted to arbitration, the court noted that individual owners “`are deemed to intend and agree to be bound by'” (Villa Milano Homeowners Assn. v. Il Davorge, supra, 84 Cal.App.4th at p. 825) the written and recorded CC&R’s inasmuch as they have constructive notice of the CC&R’s when they purchase their homes. The court stated: “CC&R’s have thus been construed as contracts in various circumstances.” (Ibid., at p. 825, italics added.) The court gave as examples treating the CC&R’s as a contract with respect to the installation of common area lighting,[3]prohibiting the use of a residence for business purposes[4] and for the maintenance and repair of 1066*1066 common area plumbing.[5] (Villa Milano, at p. 825; see also 1 Sproul & Rosenberry, Advising Cal. Common Interest Communities (Cont.Ed.Bar 2003) §§ 4.74-4.76, pp. 272-274 [questioning whether CC&R’s should be treated as contracts].)

    (11) We agree with Villa Milano insofar as it holds that CC&R’s can reasonably be “construed as a contract” and provide a means for analyzing a controversy arising under the CC&R’s when the issue involved is the operation or governance of the association or the relationships between owners and between owners and the association; we do not believe, however, they suffice as a contract when the issue is the waiver pursuant to section 638 of the constitutional right to trial by jury.

    The question here, as it was in Grafton, is to ascertain the intention of the Legislature with regard to prelitigation contractual waiver of the right to trial by jury. When the Legislature stated in section 638 that the right could be waived by written contract, did it mean the term “contract” to include equitable servitudes created by the CC&R’s of common interest communities? We do not believe that it did.

    Section 638 was amended in 1982 to allow parties by written contract or lease to agree that any controversy arising therefrom be heard by reference. We have reviewed the legislative history applicable to that amendment. The amendment was sponsored by the State Bar and was an attempt to lessen judicial delays that were at the time a serious problem. Nothing in the legislative history, however, defines or illuminates what the Legislature meant by the term “contract” or whether an equitable servitude arising from the CC&R’s or a common interest community suffices.

    Grafton provides an analysis of the right to trial by jury anchored in our Constitution and the policy that the right is a fundamental one and that, while it may be waived, the circumstances and manner of its waiver are serious matters requiring actual notice and meaningful reflection. Certainly, the Legislature was concerned with these considerations in enacting section 638.

    The difficulty here is the manner in which the “contract” between Intergulf and Association waiving the right to trial by jury came about. As we have noted, an association, with its obligations and restrictions as defined in the CC&R’s, essentially springs into existence when there is a conveyance by the developer of a separate interest coupled with an interest in the common area or membership in the association.

    1067*1067 It is at least arguable that there is some meeting of the minds between the developer and the party to whom the first conveyance is made. The problem, however, is that later purchasers and their successors, who will make up almost all association members, effectively have no choice but to accept the CC&R’s prepared by the developer, including in this case the waiver of the right to trial by jury.

    We conclude this is not the situation the Legislature contemplated when it enacted section 638 to allow parties to waive by contract the “inviolate” constitutional right to trial by jury. As Grafton suggests, legislatures when providing for the contractual waiver of that right are particularly concerned with the formalities of the process and the actual existence of a mutual agreement to waive the right. (See Grafton Partners v. Superior Court, supra, 36 Cal.4th at pp. 956, 958, 965-966.)

    Treating CC&R’s as a contract such that they are sufficient to waive the right to trial by jury does not comport with the importance of the right waived. CC&R’s are notoriously lengthy, are adhesive in nature, are written by developers perhaps years before many owners buy, and often, as here with regard to the waiver of trial by jury, cannot be modified by the association. Further, the document is not signed by the parties.

    Treating CC&R’s as equitable servitudes makes possible the existence of common interest communities because they allow the continued governance of the community when multiple parties own the property and when such ownership changes over time. The very nature, however, of the creation of CC&R’s creates a distance in time and control between the parties that are bound by them. While it may be reasonable under such circumstances to bind owners and the association concerning the governance of the community and the placement of restrictions on the use of property, we conclude the Legislature did not intend that CC&R’s be sufficient to effectively and permanently waive the constitutional right to trial by jury.

    (12) We conclude that a developer-written requirement in an association’s CC&R’s that all disputes between owners and the developer and disputes between the association and the developer be decided by a general judicial reference is not a written contract as the Legislature contemplated the term in the context of section 638. The trial court erred in finding to the contrary. Because of this conclusion, it is unnecessary we reach Association’s claim the jury waiver provision is unconscionable.

    1068*1068 DISPOSITION

    Let a peremptory writ of mandate issue directing the superior court to vacate its November 30, 2007, order granting the motion for general reference and enter an order denying the motion. The stay issued by this court on February 27, 2008, is vacated. Petitioner is entitled to costs in the writ proceeding.

    McIntyre, J., and Aaron, J., concurred.

    [1] All further statutory references are to the Code of Civil Procedure unless otherwise specified.

    [2] The purchase contracts between Intergulf and the purchasers of individual units also included judicial reference provisions. Those provisions are not applicable to the present matter.

    [3] Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490, 512-513 [229 Cal.Rptr. 456, 723 P.2d 573].

    [4] Barrett v. Dawson (1998) 61 Cal.App.4th 1048, 1054 [71 Cal.Rptr.2d 899].

    [5] Franklin v. Marie Antoinette Condominium Owners Assn. (1993) 19 Cal.App.4th 824, 828, 833-834 [23 Cal.Rptr.2d 744].

     

    ×
  • Villa Milano v. Il Davorge

    Villa Milano v. Il Davorge

    Summary by Mary M. Howell, Esq.:

    Facts

    The association brought a claim for construction defects alleging common area claims as a representative of its members. The CC&Rs had a provision requiring the association to submit construction defect claims to arbitration. The developer filed a motion to compel the association’s claims to arbitration, citing the CC&R provision as an “arbitration agreement.”

    Held

    While the CC&Rs may be construed as an “arbitration agreement,” it was unenforceable because it was recorded against the property as part of the CC&Rs in a manner which precluded a finding the association had voluntarily agreed to arbitration. In addition, there are statutes in California suggesting that the legislature does not favor binding arbitration of claims in purchase contracts for new homes, so by analogy to purchase contracts, the mandatory arbitration clauses in CC&Rs are also against public policy.

    *** End Summary ***

    Villa Milano v. Il Davorge

    102 Cal.Rptr.2d 1 (2000)

    2*2 Cooksey, Howard, Martin & Toolen, Thomas F. Zimmerman, Costa Mesa, and Wilson E. Yurek for Defendant and Appellant.

    Duke, Gerstel, Shearer, and Dawn R. Brennan, San Diego, for Plaintiff and Respondent.

    OPINION

    SILLS, P.J.

    In this case of first impression, we decide whether a developer can use a declaration of covenants, conditions and restrictions (CC & R’s) containing a binding arbitration clause as a device to preclude homeowners, and the homeowners association of which they are members, from pursuing an action for construction or design defect damages in a court of law. When homeowners purchase property subject to CC & R’s, they agree to be bound by those CC & R’s, including any arbitration clause contained therein. But that agreement, like any other, will not be enforced if it is unconscionable. Code of 3*3 Civil Procedure section 1298.7 provides home buyers the right to bring a judicial action for construction or design defect damages even when the purchase agreement contains a binding arbitration clause. Public policy will not permit a developer, who is unable to use a purchase agreement to block a home buyer’s access to a judicial forum, to cut off that access by circuitous means—the CC & R’s.

    I

    FACTS

    II Davorge, a California limited partnership, was the developer of the Villa Milano condominium complex located in Huntington Beach. In order to create a “condominium project” governed by the Davis Stirling Common Interest Development Act (Civ.Code, § 1350 et seq.), it recorded CC & R’s governing the use and maintenance of the property within the complex (Civ. Code, §§ 1351-1353). As the sole owner of the property at the time of recordation, II Davorge was the only party to sign the CC & R’s. More than two years after the CC & R’s were recorded, and before any units were sold, II Davorge lost the project through foreclosure by its construction lender. The units were sold thereafter.

    The CC & R’s provided for the creation of the Villa Milano Homeowners Association (Association), a nonprofit corporation. Every owner of a condominium unit is a member of the Association, as required by the CC & R’s. The Association is governed by applicable statutes, its articles of incorporation, its bylaws, and most notably, the CC & R’s. (2 Hanna & Van Atta, Cal. Common Interest Developments: Law and Practice (1999) § 18:40, p. 46 (hereafter Hanna & Van Atta).) The CC & R’s, by their terms, are imposed as equitable servitudes against the property and bind all owners of interests in the property, both the individual unit owners and the Association as the holder of an easement interest in the common area.

    Eventually, the homeowners and the Association discovered that both the individual units and the common area suffered from what they believed to be various construction and design defects. Hence, the Association filed a complaint against II Davorge seeking compensation for damages to the project. While the Association filed the suit in its own name, pursuant to Code of Civil Procedure section 383,[1] it sought recovery for damages suffered by the individual unit owners as to their separate interests in the project. In this way, it represented the interests of the individual homeowners.

    II Davorge filed a petition to compel arbitration (Code Civ.Proc., § 1281.2), based on an arbitration clause contained in the CC & R’s. That clause provides that any dispute between II Davorge on the one hand, and either a unit owner or the Association on the other hand, will be submitted to binding arbitration.[2]Controversies 4*4 concerning the construction or design of the project are specifically identified as being subject to arbitration. The trial court denied the petition, likening the arbitration clause to an adhesion contract and calling it “un-American.”[3] II Davorge appealed. (Code Civ.Proc., § 1294, subd. (a).) We affirm.

    II

    CONTRACT LAW

    A. Agreement to Arbitrate

    In its petition to compel arbitration, II Davorge contended that a written agreement to arbitrate, between II Davorge and the Association, was memorialized in the CC & R’s. A written agreement to arbitrate is fundamental, because Code of Civil Procedure section 1281.2 permits a court to order the parties to arbitrate a matter only if it determines that an agreement to arbitrate exists. (Banner Entertainment, Inc. v. Superior Court (1998) 62 Cal.App.4th 348, 356, 72 Cal.Rptr.2d 598; Berman v. Renart Sportswear Corp. (1963) 222 Cal.App.2d 385, 388-389, 35 Cal.Rptr. 218.) Indeed, when the trial court reviews a petition to compel arbitration, the threshold question is whether there is an agreement to arbitrate. (Cheng-Canindin v.Renaissance Hotel Associates (1996) 50 Cal.App.4th 676, 683, 57 Cal.Rptr.2d 867.)

    The Association claims there is no agreement to arbitrate, relying on Badie v. Bank of America (1998) 67 Cal.App.4th 779, 79 Cal.Rptr.2d 273. In Badie, a bank attempted to unilaterally impose an arbitration provision on its customers by sending them bill stuffers notifying them of a change in terms. The bank asserted it had the right to add the arbitration provision to the customer agreements because it had retained the right to unilaterally change the terms of those agreements. The court struck down the arbitration clause, having determined that the original customer agreements did not contemplate the addition of any new terms of that nature. (Id. at p. 803, 79 Cal.Rptr.2d 273.)

    However, Badie is distinguishable for a couple of reasons. First, by use of the bill stuffers, the bank in Badie sought to change the terms to which the customers had already agreed. But here, there is no change in terms. Rather, the arbitration clause has been a part of the CC & R’s since the date of recordation. Second, Badie did not have to do with condominium units and recorded CC & R’s at all. As to those, a separate body of law applies.

    Individual condominium unit owners “are deemed to intend and agree to be bound by” the written and recorded CC & R’s, inasmuch as they have constructive notice of the CC & R’s when they purchase their homes. (Citizens for Covenant Compliance v. Anderson (1995) 12 Cal.4th 345, 349, 47 Cal.Rptr.2d 898, 906 P.2d 1314.) CC & R’s have thus been construed as contracts in various circumstances. (See, e.g.,Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490, 512-513, 229 Cal.Rptr. 456, 723 P.2d 573 [CC & R’s as contract between homeowner and homeowners association with respect to installation of common area lighting]; Barrett v. Dawson (1998) 61 Cal.App.4th 1048, 1054, 71 Cal.Rptr.2d 899 [CC & R’s as contract between neighboring property owners prohibiting use of residential property for business activities]; and Franklin v. Marie Antoinette Condominium Owners Assn.(1993) 19 Cal.App.4th 824, 828, 5*5 833-834, 23 Cal.Rptr.2d 744 [CC & R’s as contract between homeowner and homeowners association with respect to homeowners association’s obligation to maintain and repair common area plumbing].)[4] The arbitration clause, as a provision of the Villa Milano CC & R’s, is therefore a part of the contract between the parties. This, then, answers the threshold question: There is an agreement to arbitrate.

    B. Enforceability

    This is only the beginning of our inquiry, however. The trial court concluded the CC & R’s were an adhesion contract and the arbitration provision was unenforceable because it was unconscionable. Faced with that determination, II Davorge argues the CC & R’s very simply are not a contract at all, so contract law concerning enforceability is irrelevant.[5] More specifically, II Davorge contends CC & R’s are equitable servitudes and the court should have applied real property law instead of contract law. As we stated in Barrett v. Dawson, supra, 61 Cal.App.4th at p. 1054, 71 Cal.Rptr.2d 899, “We need not get bogged down in the metaphysics of where property ends and contract rights begin to know that, [in some contexts], the right . . . to enforce a restrictive covenant [in CC & R’s] is clearly contractual.” This is one of those contexts. The right to enforce the covenant to arbitrate must necessarily be contractual in this case. Unless a valid agreement to arbitrate exists, as determined under contract law, the petition to compel arbitration must be denied. (Banner Entertainment, Inc. v. Superior Court, supra, 62 Cal.App.4th at pp. 356-357, 72 Cal.Rptr.2d 598; Cheng-Canindin v. Renaissance Hotel Associates, supra, 50 Cal. App.4th at p. 683, 57 Cal.Rptr.2d 867.)

    Clearly then, the enforceability of the contractual arbitration clause must be addressed. The only argument II Davorge makes relating to this point is that even if the CC & R’s did constitute a contract, they could not be characterized as an adhesion contract, because the homeowners could have purchased property elsewhere in a condominium development whose governing CC & R’s did not contain an arbitration clause. However, II Davorge provides no citation of authority in support of the proposition that a contract can never be adhesive if the weaker party could have rejected the agreement and gone elsewhere.

    In Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 711, 131 Cal. Rptr. 882, 552 P.2d 1178, our Supreme Court stated: “In the characteristic adhesion contract case, the stronger party drafts the contract, and the weaker has no opportunity . . . to negotiate concerning its terms. [Citations.]” It added: “In manycases of adhesion contracts, the weaker party lacks not only the opportunity to bargain but also any realistic opportunity to look elsewhere for a more favorable contract; he must either adhere to the standardized agreement or forego the needed service. [Citation.]” (Ibid., italics added.) In other words, the court left open the possibility that, in a given case, a contract might be adhesive even if the weaker party could reject the terms and go elsewhere. (See Jones v. Crown Life Ins. Co.(1978) 86 Cal.App.3d 630, 637, 150 Cal.Rptr. 375.)

    6*6 As our Supreme Court stated more recently in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 113, 99 Cal.Rptr.2d 745, 6 P.3d 669,[6] an adhesion contract “`relegates to the subscribing party only the opportunity to adhere to the contract or reject it.’ [Citation.]” In evaluating whether a mandatory employment arbitration agreement was adhesive, the court concluded that there was “little dispute that it [was]. It was imposed on employees as a condition of employment and there was no opportunity to negotiate.” (Id. at pp. 114-115, 99 Cal.Rptr.2d 745, 6 P.3d 669.) The prospective employees had to either sign the arbitration agreement or decline employment. Similarly, the United States District Court for the Central District of California, subsequent to Armendariz, held that certain promissory notes were adhesion contracts “because they [were] form contracts imposed by the party with superior bargaining power and [the borrowers] could not negotiate terms, but could only `take them or leave them.'” (Gray v. Conseco, Inc. (C.D.Cal., Sept. 29, 2000, No. SACV00-322DOC(EEX) 2000 WL 1480273, p. *4.))

    Like the employees in Armendariz and the borrowers in Gray, the purchasers of units at the Villa Milano condominium complex faced a “take it or leave it” proposition: They either purchased subject to the CC & R’s, or they did not purchase at all. As prospective home buyers, they had no opportunity to negotiate the provisions of the recorded CC & R’s at the time of purchase. Yet a major distinction between the typical adhesion contract and CC & R’s is that, once the homeowners have made their purchases, they ordinarily have the collective power to amend the CC & R’s to suit their changing needs. (Civ. Code, § 1355.) This is because the CC & R’s, unlike most contracts, establish a system of governance. (See Chantiles v. Lake Forest II Master Homeowners Assn. (1995) 37 Cal.App.4th 914, 922, 45 Cal. Rptr.2d 1.) In the case before us, the Villa Milano CC & R’s specifically provide that they are amendable, pursuant to section 13.2 thereof. However, as II Davorge maintains, section 16.6 of the CC & R’s limits that amendment right, and provides that the arbitration provision cannot be amended without the consent of the developer, even when the developer no longer owns property in the complex. With respect to the arbitration provision in question, then, it truly is a “take it or leave it” proposition, with no opportunity for subsequent amendment at the sole discretion of the homeowners.

    This notwithstanding, whether the arbitration clause contained in the CC & R’s is characterized as an adhesion contract or not, the question of the enforceability of the clause remains, for even an adhesion contract may be enforceable. (Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th at p. 113, 99 Cal.Rptr.2d 745, 6 P.3d 669; Graham v. Scissor-Tail, Inc. (1981) 28 Cal.3d 807, 819-820, 171 Cal.Rptr. 604, 623 P.2d 165.) But no contract, whether adhesive or otherwise, will be enforced if it is unconscionable. (Graham v. Scissor-Tail, Inc., supra, 28 Cal.3d at p. 820, 171 Cal.Rptr. 604, 623 P.2d 165.)

    C. Unconscionability

    1. Procedural unconscionability

    In determining whether an arbitration clause is unconscionable, courts generally apply a two-prong test. (Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th at p. 114, 99 Cal. Rptr.2d 745, 6 P.3d 669; U Hour Fitness, Inc. v. Superior Court (1998) 66 Cal. App.4th 1199, 1212-1213, 78 Cal.Rptr.2d 533.) They determine whether the clause is 7*7 procedurally unconscionable and whether it is substantively unconscionable. (Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th at p. 114, 99 Cal.Rptr.2d 745, 6 P.3d 669.) Both procedural and substantive unconscionability must be present for a contract to be unenforceable. (Ibid.) `”Procedural unconscionability’ concerns the manner in which the contract was negotiated and the circumstances of the parties at that time. [Citation.] It focuses on factors of oppression and surprise. [Citation.] The oppression component arises from an inequality of bargaining power of the parties to the contract and an absence of real negotiation or a meaningful choice on the part of the weaker party. [Citations.]” (Kinney v. United HealthCare Services, Inc. (1999) 70 Cal.App.4th 1322, 1329, 83 Cal.Rptr.2d 348.) The surprise component comes into play when “the terms to which the party supposedly agreed [are] hidden in a prolix printed form drafted by the party seeking to enforce them. [Citations.]” (Id. at pp. 1329-1330, 83 Cal.Rptr.2d 348.)

    The procedural unconscionability in this case is obvious. The Villa Milano CC & R’s were drafted in toto by the developer and recorded years before the purchasers ever came to buy. There was no possibility that individual buyers could negotiate CC & R’s amendments applicable only to their own properties. Rather, it was an all or nothing proposition. Each and every buyer took subject to the same set of CC & R’s, or made no purchase at the development at all. There being absolutely no opportunity to negotiate, there was no meaningful choice, or for that matter any choice, as to the terms of the CC & R’s.[7]

    As for the surprise component, the CC & R’s are 70 pages long and the arbitration clause appears on pages 67 to 68. The arbitration clause was decidedly well buried in a heap of paper. To top it off, at the same time that the purchasers received copies of the CC & R’s they most likely received a thick stack of additional documents—copies of the Association’s bylaws and articles of incorporation, in addition to the purchase agreement and the escrow instructions. In short, it is unlikely the arbitration clause popped right out to the purchasers’ attention so they became immediately aware that by purchasing a home subject to the CC & R’s they were agreeing to the binding arbitration of disputes with the developer.

    2. Substantive unconscionability

    The second element of unconscionability—the substantive element—is present here as well. “While courts have defined the substantive element in various ways, it traditionally involves contract terms that are so one-sided as to `shock the conscience,’ or that impose harsh or oppressive terms. [Citation.]” (24 Hour Fitness, Inc. v. Superior Court, supra, 66 Cal.App.4th at p. 1213, 78 Cal.Rptr.2d 533.) Here, the homeowners, by agreeing to CC & R’s that include a binding arbitration clause, waive their constitutional right to a jury trial. (Cal.Const., art. I, § 16.) While this they certainly may do (Lagatree v. Luce, Forward, Hamilton & Scripps (1999) 74 Cal.App.4th 1105, 1116-1117, 88 Cal.Rptr.2d 664), “the right to pursue claims in a judicial forum is a substantial right and one not lightly to be deemed waived. [Citations.]” (Marsch v. Williams (1994) 23 Cal.App.4th 250, 254, 28 Cal. Rptr.2d 398.) In this case, the homeowners’ waivers are obtained by way of a stealthy device of the developer that is prohibited by public policy.

    Public policy is enunciated in constitutional or statutory provisions, and sometimes in administrative regulations that serve statutory objectives. (Green v. Ralee Engineering Co. (1998) 19 Cal.4th 66, 71, 8*8 80, 78 Cal.Rptr.2d 16, 960 P.2d 1046.) Here, both statutory (Code Civ.Proc., §§ 1298-1298.8; Civ.Code, § 1375) and regulatory (Cal.Code Regs., tit. 10, § 2791.8) provisions bear upon the applicable public policy.

    Code of Civil Procedure sections 1298 through 1298.8 are of most particular concern. In these provisions, the Legislature has addressed the form, content, and effect of arbitration clauses contained in real property sales documentation. Specifically, Code of Civil Procedure section 1298 requires arbitration provisions contained in contracts to convey real property, including marketing contracts, deposit receipts, real property sales contracts, leases coupled with options to purchase, and ground leases coupled with improvements, to meet certain requirements. An arbitration clause must be clearly titled “ARBITRATION OF DISPUTES,” meet certain print size and capitalization requirements, and contain a prominent notice provision as set forth in section 1298. (Code Civ.Proc., § 1298, subds. (a) & (c).) The notice provision must be initialed by the parties if they agree to arbitration. (Code Civ.Proc., § 1298, subd. (c).)

    The obvious intent of these requirements is to call to the buyer’s attention the fact that he or she is being requested to agree to binding arbitration and to make certain that he or she does so voluntarily, if at all. By placing the arbitration provision in the CC & R’s, which contain no notice provision and are not signed by the buyer, the developer avoids informing the buyer that he or she is waiving the right to a jury trial. We can hardly condone this mechanism for circumventing the protections of a statute.

    Even more compelling to the analysis is Code of Civil Procedure section 1298.7, which provides that even when an arbitration provision is included in an agreement to convey real property, “it shall not preclude or limit any right of action to which [Code of Civil Procedure] Section 337.1 or 337.15 is applicable.”[8] Code of Civil Procedure sections 337.1 and 337.15 pertain to litigation to recover damages for construction and design defects. In other words, the net effect of section 1298.7 is to permit a purchaser to pursue a construction and design defect action against the developer in court, even if the purchaser signed an agreement to convey real property containing an arbitration clause.[9] (Knight et al., Cal.Practice Guide: Alternative Dispute Resolution (The Rutter Group 1999) ¶ 5:106, p. 5-46.)

    II Davorge recorded the Villa Milano CC & R’s in 1992, more than three years after the July 1, 1989 effective date of Code of Civil Procedure section 1298.7. (Code Civ. Proc, § 1298.8.) It maintains that doing so was perfectly appropriate, because CC & R’s are not among the enumerated types of real property sales documentation to which section 1298.7 applies. (Code Civ. Proc, §§ 1298, 1298.7.) It appears II Davorge sought to accomplish by way of the CC & R’s that which section 1298.7 blocked it from doing via a purchase agreement. It intended to bar the individual unit owners from filing construction or design defect actions against it in court. This flies in the face of the obvious legislative intent to permit home buyers to have their construction and design defects claims heard in a judicial forum. It is a blatant attempt to curtail the statutory rights of the home buyers and simply shocks the conscience.

    9*9 In addition, while Code of Civil Procedure section 1298.7 does not address homeowners associations directly, it would be absurd to construe the provision as permitting individual home buyers to pursue their construction and design defect claims in court only when they file the actions themselves and not when the claims are brought by the homeowners association on their behalves, as authorized by Code of Civil Procedure section 383. This would place an unfounded limitation on the right to judicial access as provided by Code of Civil Procedure section 1298.7. We must construe a “statute in a reasonable and commonsense manner consistent with the legislative intent. [Citation.]” (C & C Partners, Ltd. v. Department of Industrial Relations (1999) 70 Cal.App.4th 603, 608, 82 Cal.Rptr.2d 783.) The interpretation must be practical, resulting in “`”wise policy rather than mischief or absurdity. . . .”‘ [Citation.]” (Ibid.)

    Furthermore, the Legislature has not overlooked the issue of whether homeowners associations should be compelled to engage in the binding arbitration of construction and design defect disputes. Civil Code section 1375 [10] establishes a set of pre-litigation procedures to be followed before a homeowners association may file suit against a builder for construction or design defects. (Civ.Code, § 1375, subd. (a).) Those procedures require a homeowners association and a builder to either “attempt to settle the dispute or attempt to agree to submit it to alternative dispute resolution.” (Civ.Code, § 1375, subd. (b)(2).) But if the attempts are unsuccessful, section 1375 permits the association to file a judicial action against the developer. (Civ.Code, § 1375, subds.(a), (g) & (h).) The provision demonstrates that the Legislature has chosen to encourage alternative dispute resolution between homeowners associations and developers, but not to require it. In the end, a homeowners association has access to the courts.

    In construing public policy with respect to arbitration clauses, our final consideration is the effect of California Code of Regulations, title 10, section 2791.8,[11] governing the contents of arbitration clauses contained in CC & R’s. The Department of Real Estate (DRE) adopted the regulation pursuant to Business and Professions Code section 11001. That section permits the adoption of regulations as reasonably necessary for the enforcement of the Subdivided Lands Act (Bus. & Prof. Code, § 11000 et seq.). “The purpose of the Subdivided Lands Act `is to protect individual members of the public who purchase lots or homes from subdividers and to make sure that full information will be given to all purchasers concerning . . . essential facts with reference to the land.’ [Citation.] The law seeks to prevent fraud and sharp practices in a type of real estate transaction which is peculiarly open to such abuses. [Citation.]” (Manning v. Fox (1984) 151 Cal.App.3d 531, 541-542, 198 Cal.Rptr. 558.) In furtherance of this purpose, a subdivider is required to obtain a DRE-issued public report concerning a development before it may commence sales. (Bus. & Prof.Code, § 11018.2.) As part of the public report application and review process, the subdivider must submit to the DRE copies of documentation it proposes to use in connection with the subdivision, such as the articles of incorporation and bylaws of the homeowners association, and 10*10 the CC & R’s. (Bus. & Prof.Code, §§ 11010, 11018.5, subd. (c).)

    Via California Code of Regulations, title 10, section 2791.8, the DRE has informed public report applicants that if they submit CC & R’s that contain arbitration clauses, those arbitration clauses must include certain provisions[12] in order to receive DRE approval. Consistent with the purpose of the Subdivided Lands Act to protect home buyers, the regulation evidences an intent to ensure that arbitration provisions, if contained in CC & R’s, be fair. It does not require that CC & R’s contain arbitration provisions and it certainly is not a proclamation that binding arbitration is the favored method for resolving construction and design defect disputes between the subdivider and the home buyer.[13] With respect to the resolution of that narrow category of disputes, the Legislature has spoken. (Code Civ.Proc., § 1298.7.) Moreover, the fact that the DRE permits subdividers to utilize CC & R’s containing certain types of arbitration clauses does not mean those clauses are necessarily binding in every conceivable context.

    Our review of the applicable statutory and regulatory provisions convinces us public policy disfavors the binding arbitration clause in the context of the case before us. With respect to construction and design defect claims, the clause is substantively unconscionable as an attempt to evade the statutory protections of Code of Civil Procedure sections 1298 through 1298.8. While Civil Code section 1375 does not address situations in which the parties have signed an arbitration clause already, it demonstrates that, at least in other contexts, arbitration of construction and design defects is encouraged but not mandatory. Finally, California Code of Regulations, title 10, section 2791.8, merely indicates that arbitration clauses must be fair and meet certain minimum criteria in order to receive DRE approval.

    III

    REAL PROPERTY LAW

    Even though the enforceability of the arbitration agreement is a matter of contract law (Banner Entertainment, Inc. v. Superior Court, supra, 62 Cal.App.4th at pp. 356-357, 72 Cal.Rptr.2d 598; Code Civ.Proc., § 1281), we will address II Davorge’s real property arguments. II Davorge contends Civil Code section 1354, subdivision (a), should be applied to enforce the arbitration provision against the Association as an equitable servitude. However, even if that statutory provision were applied, the result would be the same.

    Civil Code section 1354, subdivision (a), provides as follows: “The covenants and restrictions in the declaration shall be enforceable equitable servitudes, unless unreasonable, and shall inure to the 11*11 benefit of and bind all owners of separate interests in the development. Unless the declaration states otherwise, these servitudes may be enforced by any owner of a separate interest or by the association, or by both.”[14] As II Davorge points out, restrictions in recorded CC & R’s are presumed reasonable and the burden is on the party challenging a given restriction to prove otherwise. (Nahrstedt v. Lakeside Village Condominium Assn.(1994) 8 Cal.4th 361, 380, 33 Cal.Rptr.2d 63, 878 P.2d 1275.) In order to do so, that party must show the restriction “violates public policy; . . . bears no rational relationship to the protection, preservation, operation or purpose of the affected land; or . . . otherwise imposes burdens on the affected land that are so disproportionate to the restriction’s beneficial effects that the restriction should not be enforced.” (Id. at p. 382, 33 Cal.Rptr.2d 63, 878 P.2d 1275.) In this case, the Association met its burden by showing that the arbitration provision violates public policy.

    II Davorge disagrees, reminding us that public policy generally favors arbitration. (Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th at p. 97, 99 Cal.Rptr.2d 745, 6 P.3d 669.) But in this case, a more specific public policy controls. Public policy concerning the arbitration of home buyer construction and design defect claims is established by Code of Civil Procedure sections 1298 through 1298.8, as discussed above. Arbitration clauses, while generally favored, are against public policy when hidden by a developer in that prolix form called CC & R’s, in a deliberate attempt to circumvent statutory protections for home buyers with construction and design defect claims.

    In addition to public policy as established by Code of Civil Procedure sections 1298 through 1298.8, Civil Code section 1354 itself sheds light on public policy with respect to the enforcement of CC & R’s. Civil Code section 1354, subdivision (b), provides that before either a homeowners association or a homeowner in a common interest development files a civil action “solely for declaratory relief or injunctive relief, or for declaratory relief or injunctive relief in conjunction with a claim for monetary damages . . . not in excess of five thousand dollars ($5,000), related to the enforcement of the governing documents, the parties shall endeavor . . . to submit their dispute to a form of alternative dispute resolution such as mediation or arbitration. . . .” Section 1354, subdivision (b), also gives each party the right to reject a proposal for alternative dispute resolution, and once that has been done, subdivision (c) provides the manner in which the parties proceed in court.

    Clearly, the Legislature has contemplated alternative dispute resolution with respect to the enforcement of CC & R’s as equitable servitudes and has chosen to encourage alternative dispute resolution only with respect to certain limited kinds of disputes, i.e., those seeking declaratory relief, injunctive relief, or either declaratory or injunctive relief in combination with a damages claim not to exceed $5,000. Even as to those categories of disputes, alternative dispute resolution is not mandatory. Perhaps most significant in the context before us is the fact that the Legislature has not seen fit to even encourage alternative dispute resolution with respect to CC & R’s disputes involving claims in excess of $5,000. Civil Code section 1354 itself, then, does not lend support to II Davorge’s assertion that mandatory arbitration is favored in this situation.

    IV

    CONCLUSION

    The applicable provision of the Villa Milano CC & R’s constitutes a written agreement to arbitrate within the meaning of Code of Civil Procedure section 1281.2. However, that agreement to arbitrate is unconscionable and therefore unenforceable (Civ.Code, § 1670.5, subd. (a)) to the extent it applies to construction and design 12*12defect claims. We do not address whether an arbitration provision contained in CC & R’s would be unconscionable were a different type of claim at issue—for example a dispute over a homeowners association’s right to control the kind of improvements made to a home or a disagreement about whether a homeowners association could compel a homeowner to remove a boat from his or her driveway. Whether the application of an arbitration clause would be substantively unconscionable in such other circumstances is not before us. However, it is easy to conceive of many contexts in which an arbitration clause in CC & R’s would not circumvent statutory protections, violate public policy, or otherwise pose issues of substantive unconscionability. In fact, we observe that Civil Code section 1354, subdivisions (b) through (d), encourages alternative dispute resolution with respect to certain disputes related to the enforcement of CC & R’s.

    Our holding is very narrow. It speaks only to the enforcement of a CC & R’s provision compelling binding arbitration of construction and design defects claims against the developer who drafted, signed and recorded the CC & R’s. It is not intended to cast doubt upon the enforceability of CC & R’s in general. To the contrary, CC & R’s “should be enforced unless they are wholly arbitrary, violate a fundamental public policy, or impose a burden on the use of affected land that far outweighs any benefit.” (Nahrstedt v. Lakeside Village Condominium Assn., supra, 8 Cal.4th at p. 382, 33 Cal.Rptr.2d 63, 878 P.2d 1275.) Moreover, “recorded CC & R’s are the primary means of achieving the stability and predictability so essential to the success of a [common interest] development.” (Ibid.) The presumption of validity afforded to recorded CC & R’s “provides substantial assurance to prospective condominium purchasers that they may rely with confidence on the promises embodied in the . . . CC & R’s.” (Id. at p. 383, 33 Cal.Rptr.2d 63, 878 P.2d 1275.)

    CC & R’s are beneficial forms of governance and the homeowners associations that enforce them provide valuable services. Indeed, the homeowners associations function almost “as a second municipal government, regulating many aspects of [the homeowners’] daily lives.” (Chantiles v. Lake Forest II Master Homeowners Assn., supra, 37 Cal.App.4th at p. 922, 45 Cal.Rptr.2d 1; accord, Duffey v. Superior Court(1992) 3 Cal.App.4th 425, 434, 4 Cal.Rptr.2d 334.) “`”[U]pon analysis of the association’s functions, one clearly sees the association as a quasi-government entity paralleling in almost every case the powers, duties, and responsibilities of a municipal government. As a `mini-government,’ the association provides to its members, in almost every case, utility services, road maintenance, street and common area lighting, and refuse removal. In many cases, it also provides security services and various forms of communication within the community. There is, moreover, a clear analogy to the municipal police and public safety functions. . . .”‘ [Citation.]” (Chantiles v. Lake Forest II Master Homeowners Assn., supra, 37 Cal.App.4th at p. 922, 45 Cal.Rptr.2d 1.) In short, homeowners associations, via their enforcement of the CC & R’s, provide many beneficial and desirable services that permit a common interest development to flourish.

    This notwithstanding, not all CC & R’s provisions will be enforced. CC & R’s may not be used to unwittingly strip a homeowner of his or her right to have a construction or design defect claim heard in a judicial forum. Public policy dictates otherwise.

    V

    DISPOSITION

    The order is affirmed. The Association shall recover its costs on appeal.

    RYLAARSDAM, J., and BEDSWORTH, J., concur.

    [1] Code of Civil Procedure section 383, subdivision (a), provides: “An association established to manage a common interest development shall have standing to institute, defend, settle, or intervene in litigation, arbitration, mediation, or administrative proceedings in its own name as the real party in interest and without joining with it the individual owners of the common interest development, in matters pertaining to the following: [¶] . . . [¶] (2) Damage to the common areas[;] [¶] (3) Damage to the separate interests which the association is obligated to maintain or repair[; and] [¶] (4) Damage to the separate interests which arises out of, or is integrally related to, damage to the common areas or separate interests that the association is obligated to maintain or repair.”

    [2] Section 16.1 of the Villa Milano CC & R’s provides in pertinent part as follows: “In the event of an arbitrable dispute between or among Declarant, its builder, general contractor or broker, or their agents or employees, on the one hand, and any Owner(s) or the Association, on the other hand, the matter will be submitted to binding arbitration. Arbitrable disputes include any controversy or claim between the parties, including any claim based on contract, tort, or statute, arising out of or relating to the rights or duties of the parties under this Declaration or other Project documents or the design or construction of the Project. . . .”

    [3] As the trial court aptly stated: “[I]t’s a sad commentary on the American justice system that we are farming everything out of the courts through A.D.R., through arbitration clauses and, . . . if this is a matter of freedom of choice rather than scarce resources [then] fine.” “[But] [t]his certainly is a contract of adhesion. [When] [s]omebody buys a house, they certainly don’t expect that buried . . . on page 66 of the CC & R’s [is] an innocuous little provision: `If you have a problem with the developer, by the way, you don’t get your right to a trial. You have to go to arbitration.'”

    [4] While a homeowner is deemed to agree to abide by the recorded CC & R’s because he or she has constructive notice of them before he or she purchases the home, we observe that the cited cases do not provide an analytical framework for addressing the issue why the homeowners association, which makes no purchase, is also bound contractually. However, neither the Association nor II Davorge raises the point, so we need not address it at length. Suffice it to say that the Association here is representing the collective interests of the homeowners, per Code of Civil Procedure section 383. The individual unit owners cannot be permitted to use the Association as a shell to avoid the application of the arbitration clause.

    [5] Conversely, in its petition to compel arbitration, II Davorge argued the CC & R’s constituted a written agreement.

    [6] After the opinion in Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th 83, 99 Cal.Rptr.2d 745, 6 P.3d 669 was published, this court invited the parties to file supplemental briefing concerning the significance of the case and the parties did file supplemental briefing.

    [7] As noted previously, the homeowners collectively may amend the CC & R’s only after they own property in the complex (Civ.Code, § 1355), and in this particular case, the Villa Milano CC & R’s provide that the homeowners may not amend the arbitration clause at all without the developer’s consent.

    [8] Code of Civil Procedure section 1298.7 provides: “In the event an arbitration provision is included in a contract or agreement covered by this title [sections 1298-1298.8], it shall not preclude or limit any right of action for bodily injury or wrongful death, or any right of action to which [Code of Civil Procedure] Section 337.1 or 337.15 is applicable.”

    [9] We are aware that in Izzi v. Mesquite Country Club (1986) 186 Cal.App.3d 1309, 231 Cal.Rptr. 315, the court held a purchase agreement containing an arbitration provision bound a condominium purchaser to arbitrate. However, that case preceded the enactment of Code of Civil Procedure section 1298.7 and did not involve construction or design defects.

    [10] The Villa Milano CC & R’s were recorded in 1992 and Civil Code section 1375 was enacted subsequently (Stats. 1995, ch. 864, § 1, pp. 5117-5121). While section 1375 is not indicative of public policy at the time the CC & R’s were recorded, it reflects current public policy with respect to court access for the resolution of construction and design defect claims.

    [11] This regulation became operative July 15, 1998 (Cal.Code Regs., tit. 10, § 2791.8, Register 98, No. 25 (June 15, 1998)), and therefore does not dictate the content of the CC & R’s before us, which were recorded in 1992. However, we address the regulation in order to explore its potential significance as a current expression of public policy.

    [12] California Code of Regulations, title 10, section 2791.8, subdivision (a), provides in part: “A . . . provision in the covenants, conditions and restrictions requiring arbitration of a dispute or claim between a homeowners association and a subdivider, shall provide that the arbitration will be conducted in accordance with the following rules and procedures: [¶] (1) For the subdivider to advance the fees necessary to initiate the arbitration . . .; [¶] (2) For administration of the arbitration by a neutral and impartial person(s); [¶] (3) For the appointment of a neutral and impartial individual(s) to serve as arbitrator(s) . . . [;] [¶] (4) For the venue of the arbitration to be in the county where the subdivision is located . . . [;] [¶] (5) For the prompt and timely commencement of the arbitration . . .; [¶] (6) For the arbitration to be conducted in accordance with rules and procedures which are reasonable and fair to the parties[;] [¶] (7) For the prompt and timely conclusion of the arbitration and] [¶] (8) For the arbitrators to be authorized to provide all recognized remedies available in law or equity for any cause of action that is the basis of the arbitration….”

    [13] To the contrary, as some commentators tell it, the DRE followed a policy of disapproving mandatory binding arbitration provisions in CC & R’s until a disgruntled developer successfully challenged the policy. (2 Hanna & Van Atta, supra, §§ 21:107-21:108, pp. 126-129.) Unfortunately, it appears the DRE did not seek review of the unfavorable trial court decision. (Id., § 21:108, p. 127.)

    [14] Because we conclude the arbitration provision is unenforceable, we need not consider whether 11 Davorge has standing to enforce the CC & R’s.

     

    ×
  • Windham at Carmel Mountain Ranch v. Superior Court

    Windham at Carmel Mountain Ranch v. Superior Court

    Summary by Mary M. Howell, Esq.:

    Facts

    Plaintiff condominium association brought a breach of implied warranty action against defendant condominium developer. Claims for breach of implied warranty are considered contractual in nature and such claims generally require a showing of “privity” between two parties. The Superior Court of San Diego County dismissed the association’s claim, concluding that the association lacked the requisite privity of contract with the developer. The association appealed.

    Held

    Reversed (for association). The association has sufficient “privity” with the developer, by statute. Code of Civil Procedure §383 provides that associations have standing to sue in their own names as real parties in interest for damage to common areas and it deems associations to be owners of causes of action for damage to common areas with the right to relief for that damage. As such, the association had the requisite privity of contract not because privity was transferred from the owner of the condominium, but because the legislature by statute deemed the association to have the requisite privity of contract. Accordingly, the trial court erred by sustaining the developer’s demurrer.

    *** End Summary ***

    Windham at Carmel Mountain Ranch v. Superior Court

    135 Cal.Rptr.2d 834 (2003)

    836*836 Epsten, Grinnell & Howell, Douglas W. Grinnell, San Diego, and Luis E. Ventura, El Centro, for Petitioner.

    No appearance for Respondent.

    Koeller, Nebeker, Carlson & Haluck, Keith D. Koeller and Joseph J. Cullen, Irvine, for Real Parties in Interest.

    835*835 McDONALD, J.

    Plaintiff Windham at Carmel Mountain Ranch Association, a California nonprofit mutual benefit corporation (Association), filed this petition for writ of mandate challenging the trial court’s order sustaining without leave to amend the demurrer of defendants The Presley Companies, Presley Homes, Presley CMR, Inc., William Lyon Homes, Inc., Carmel Mountain Ranch, Home Capital Corporation, and Humboldt Financial Services Corporation (collectively Presley) to Association’s breach of implied warranty cause of action alleged in its construction defect action against them. Association contends the trial court erred by concluding Association did not have the requisite privity of contract with Presley to state a cause of action for breach of implied warranty. Because Code of Civil Procedure section 383[1] provides Association with the requisite privity, we conclude the trial court erred and grant the petition.

    FACTUAL AND PROCEDURAL BACKGROUND[2]

    From about 1994 through 1997, Presley designed, developed, constructed, marketed and sold 120 residential condominiums in a common interest development known as Windham (Project).[3] Presley conveyed to each buyer of a Project condominium title to a living unit and an undivided 837*837 fractional interest in the common areas appurtenant to the living unit. Presley formed Association to manage, maintain, and repair Project’s common areas. Presley filed a declaration of covenants, conditions and restrictions (CCR’s) that: (1) provides Association with the authority and duty to maintain and repair the common areas; (2) provides Association with an easement over the common areas for the purpose of maintaining and repairing the common areas; (3) prohibits owners from constructing, reconstructing, or refurbishing any part of the common areas, except for exclusive use common areas, without Association’s permission; and (4) provides that each owner must be a member of Association and pay assessments to Association for its repair of the common areas.

    In February 2002 Association and Bernie Kastner, an owner of a Project condominium, filed a complaint against Presley, alleging causes of action for breach of implied warranty, strict liability, negligence and declaratory relief. The complaint generally alleges: “[P]ursuant to [section] 383 [Association] is the real party in interest to bring any and all causes of action concerning defective construction of the common areas and separate interests integrally related thereto.” In the first cause of action for breach of implied warranty, Association alleges: “[Presley] impliedly warranted to [Association] that the condominiums and common areas of [Project] were designed and constructed in a reasonably workmanlike manner; that the condominiums and common areas of [Project] were constructed in accordance with the applicable plans and specifications; and that the condominiums and common areas of [Project] were designed and constructed in accordance with applicable building codes.” It alleges that Presley breached those implied warranties, citing a litany of alleged defects in Project’s building components and systems, landscaping, and other improvements. It further alleges those defects caused property damage, present health and safety risks to Project’s residents, and interfere with the owners’ use and enjoyment of their property.

    Presley demurred to the first cause of action, arguing the complaint did not allege facts showing Association had the requisite privity of contract with Presley to maintain a cause of action against Presley for breach of implied warranty.[4]Association opposed the demurrer, arguing it had privity of contract with Presley under section 383 and case law. Presley replied to Association’s opposition, arguing, inter alia, that section 383 allows Association to allege only tort causes of action for defective construction and breach of an implied warranty is a contract cause of action.

    The trial court sustained without leave to amend Presley’s demurrer to the first cause of action for breach of implied warranty, concluding Association did not allege facts showing it had the requisite privity of contract with Presley.[5]

    Association filed this petition for writ of mandate, challenging the trial court’s order. On August 22 we denied the petition.[6] On October 16 the California Supreme 838*838Court granted Association’s petition for review and transferred the matter to us with directions to vacate our order denying the petition and issue an order to show cause. On November 4 we vacated our August 22 order, issued an order to show cause and scheduled oral argument.

    DISCUSSION

    I

    Demurrer Standard of Review

    “A demurrer tests the legal sufficiency of factual allegations in a complaint. [Citation.]” (Rakestraw v. California Physicians’ Service (2000) 81 Cal.App.4th 39, 42-43, 96 Cal.Rptr.2d 354.) In reviewing an order sustaining a demurrer to a cause of action, we exercise independent judgment in determining whether the complaint’s factual allegations are sufficient to state a cause of action as a matter of law. (Lazar v. Hertz Corp. (1999) 69 Cal. App.4th 1494, 1501, 82 Cal.Rptr.2d 368.) We treat the demurrer as admitting all material facts properly pleaded. (Aubry v. Tri-City Hospital Dist.(1992) 2 Cal.4th 962, 966-967, 9 Cal.Rptr.2d 92, 831 P.2d 317; Blank v. Kirwan(1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.) However, we do not assume the truth of contentions, deductions, or conclusions of fact or law. (Aubry, supra, at p. 967, 9 Cal.Rptr.2d 92, 831 P.2d 317; Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125, 271 Cal.Rptr. 146, 793 P.2d 479.) We also consider matters that may be judicially noticed. (Rakestraw, supra, at p. 43, 96 Cal.Rptr.2d 354.) If the complaint does not allege facts sufficient to state a cause of action, a trial court nevertheless abuses its discretion by sustaining a demurrerwithout leave to amend if the plaintiff shows there is a reasonable possibility any defect can be cured by amendment of the complaint. (Aubry, supra, at p. 967, 9 Cal.Rptr.2d 92, 831 P.2d 317; Blank, supra, at p. 318, 216 Cal.Rptr. 718, 703 P.2d 58.)

    II

    Implied Warranties and Privity of Contract Generally

    “A warranty is a contractual term concerning some aspect of the sale, such as title to the goods, or their quality or quantity. The warranty may be express [citation] or implied [citation].” (3 Witkin, Summary of Cal. Law (9th ed. 1987) Sales, § 50, p. 46.) Implied warranties are based on implied representations rather than on promises. (18 Lord, Williston on Contracts (4th ed.2001) § 52:35, p. 178.) Implied warranties may be created by statute or case law. (See, e.g., Comm. Code, §§ 2314, 2315; Pollard v. Saxe & Yolles Dev. Co. (1974) 12 Cal.3d 374, 380, 115 Cal.Rptr. 648, 525 P.2d 88.)Pollard established an implied warranty of reasonable workmanship in design and construction that applies to the sale of newly constructed real property. (Id. at pp. 378-380, 115 Cal.Rptr. 648, 525 P.2d 88.) Pollard stated:

    “The doctrine of implied warranty in a sales contract is based on the actual and presumed knowledge of the seller, reliance on the sellers skill or judgment, and the ordinary expectations of the parties. [Citation.] [¶] In the setting of the marketplace, the builder or seller of new construction—not unlike the manufacturer or merchandiser of personalty—makes implied representations, ordinarily indispensable to the sale, that the builder has used reasonable skill and judgment in constructing the building. On the other hand, the purchaser does not usually possess the knowledge of the builder and is unable to fully examine a completed house and its components without disturbing the finished product. Further, unlike the purchaser of an older 839*839 building, he has no opportunity to observe how the building has withstood the passage of time. Thus he generally relies on those in a position to know the quality of the work to be sold, and his reliance is surely evident to the construction industry. [¶] Therefore, we conclude builders and sellers of new construction should be held to what is impliedly represented—that the completed structure was designed and constructed in a reasonably workmanlike manner.” (Id. at pp. 379-380, 115 Cal. Rptr. 648, 525 P.2d 88, fn. omitted, italics added.)

    “The general rule is that privity of contract [between the plaintiff and defendant] is required in an action for breach of either express or implied warranty and that there is no privity between the original seller and a subsequent purchaser who is [not] a party to the original sale. [Citations.]” (Burr v. Sherwin Williams Co. (1954) 42 Cal.2d 682, 695, 268 P.2d 1041.) “A demurrer is properly sustainable in an action predicated upon a breach of an implied warranty when lack of privity between plaintiff and defendant is disclosed on the fact of the complaint. [Citation.]” (Anthony v. Kelsey-Hayes Co. (1972) 25 Cal.App.3d 442, 448, 102 Cal.Rptr. 113.) Exceptions to the privity requirement have been established in cases involving foodstuffs, drugs and pesticides.[7] (Ibid.; Klein v. Duchess Sandwich Co., Ltd. (1939) 14 Cal.2d 272, 283-284, 93 P.2d 799; Gottsdanker v. Cutter Laboratories (1960) 182 Cal.App.2d 602, 607, 6 Cal.Rptr. 320; Arnold v. Dow Chemical Co. (2001) 91 Cal.App.4th 698, 720-721, 110 Cal.Rptr.2d 722.) Furthermore, an expansion of the privity concept has been established for certain employees who are injured while using dangerous products purchased by their employers. (Peterson v. Lamb Rubber Co. (1960) 54 Cal.2d 339, 347-348, 5 Cal.Rptr. 863, 353 P.2d 575.) Peterson stated: “[T]he term `privity’ itself appears to be of uncertain origin and meaning and to have been developed by the courts and applied in various contexts. [Citations.] One of the customary definitions is that `privity’ denotes mutual or successive relationship to the same thing or right of property; it implies succession. [Citation.] Thus, in the present context, the employe[e] had the successive right to the possession and use of the grinding wheel handed over to him by his purchaser-employer, and, we believe, should fairly be considered to be in privity to the vendor-manufacturer with respect to the implied warranties of fitness for use and of merchantable quality upon which recovery is here sought.” (Ibid.)

    III

    Section 383

    Association contends the trial court erred by concluding that because there was no contract between Association and Presley and the common areas were not conveyed to Association by Presley, Association did not have the requisite privity of contract with Presley to state a cause of action against Presley for breach of implied warranty with respect to the common areas. Association argues section 383 statutorily provides the requisite privity.

    A

    “We independently construe statutory law, as its interpretation is a question of 840*840law on which we are not bound by the trial court’s analysis. [Citations.]” (Lazar v. Hertz Corp., supra, 69 Cal.App.4th at p. 1502, 82 Cal.Rptr.2d 368.) The fundamental goal of statutory construction is to ascertain the intent of the Legislature so as to effectuate the purpose of the statute. (Renee J. v. Superior Court (2001) 26 Cal.4th 735, 743, 110 Cal.Rptr.2d 828, 28 P.3d 876; Wilcox v. Birtwhistle (1999) 21 Cal.4th 973, 977, 90 Cal.Rptr.2d 260, 987 P.2d 727.) “`In construing a statute, our first task is to look to the language of the statute itself. [Citation.] When the language is clear and there is no uncertainty as to the legislative intent, we look no further and simply enforce the statute according to its terms. [Citation.] [¶] Additionally, however, we must consider the [statutory language] in the context of the entire statute [citation] and the statutory scheme of which it is a part.'” (Phelps v. Stostad (1997) 16 Cal.4th 23, 32, 65 Cal. Rptr.2d 360, 939 P.2d 760.) “If the [statutory] language is clear and unambiguous[,] there is no need for construction, nor is it necessary to resort to indicia of the intent of the Legislature….” (Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735, 248 Cal.Rptr. 115, 755 P.2d 299.) “If the language permits more than one reasonable interpretation, however, the court looks `to a variety of extrinsic aids, including the ostensible objects to be achieved, the evils to be remedied, the legislative history, public policy, contemporaneous administrative construction, and the statutory scheme of which the statute is a part.’ [Citation.] After considering these extrinsic aids, we `must select the construction that comports most closely with the apparent intent of the Legislature, with a view to promoting rather than defeating the general purpose of the statute, and avoid an interpretation that would lead to absurd consequences.’ [Citation.]” (Wilcox, supra, at pp. 977-978, 90 Cal.Rptr.2d 260, 987 P.2d 727.)

    B

    Section 383, subdivision (a) provides:

    “An association established to manage a common interest development shall have standing to institute, defend, settle, or intervene in litigation, arbitration, mediation, or administrative proceedings in its own name as the real party in interest and without joining with it the individual owners of the common interest development, in matters pertaining to the following:

    “(1) Enforcement of the governing documents.

    “(2) Damage to the common areas.

    “(3) Damage to the separate interests which the association is obligated to maintain or repair.

    “(4) Damage to the separate interests which arises out of, or is integrally related to, damage to the common areas or separate interests that the association is obligated to maintain or repair.” (Italics added.)[8]

    Section 383 (formerly section 374) was originally enacted in 1976 in response to Friendly Village Community Assn., Inc. v. Silva & Hill Constr. Co. (1973) 31 Cal. App.3d 220, 107 Cal.Rptr. 123, which held a condominium owners’ association could not pursue a construction defect action 841*841 against a grading contractor because the association did not own, possess, or have the right to possess, the common area property allegedly damaged and therefore lacked standing to sue. (Id. at pp. 224-225, 107 Cal.Rptr. 123; see Orange Grove Terrace Owners Assn. v. Bryant Properties, Inc. (1986) 176 Cal.App.3d 1217, 1221-1222, 222 Cal.Rptr. 523.) Section 383 does not limit the theory of liability an association may pursue. Orange Grove stated:

    “We perceive no reason for distinguishing between the Association and other similarly situated plaintiffs with respect to the recovery it may seek once its standing is established. [Section 383] does not suggest that the Association’s recovery is limited to damages caused by negligent acts occurring during the Association’s existence. In fact, the cases and textwriters suggest just the opposite, assuming that [section 383] empowers an association to bring an action against a developer for damages to common areas arising out of defective workmanship or materials. [Citations.]” (Orange Grove Terrace Owners Assn., supra, at pp. 1222-1223, 222 Cal.Rptr. 523.)

    C

    Applying the rules of statutory construction, we conclude section 383 statutorily provides Association with the requisite privity to state a cause of action against Presley for breach of implied warranty with respect to the common areas of a condominium owned by a member of the Association. The relevant language of section 383, subdivision (a) provides:

    “An association established to manage a common interest development shall have standing to institute … litigation … in its own name as the real party in interest and without joining with it the individual owners of the common interest development, in matters pertaining to … [d]amage to the common areas.[9] (Italics added.)

    Because section 383 grants an association standing to sue as a real party in interest for damage to a common interest development’s common areas, we conclude the plain meaning of section 383’s language provides Association with the requisite privity for maintaining a cause of action for breach of implied warranty for alleged damage to the common areas within the Project. Section 367 provides: “Every action must be prosecuted in the name of the real party in interest, except as otherwise provided by statute.” A “real party in interest” is generally defined as “the person possessing the right sued upon by reason of the substantive law. [Citation.]” (Killian v. Millard (1991) 228 Cal.App.3d 1601, 1605, 279 Cal.Rptr. 877.) “The question of standing to sue is one of the right to relief and goes to the existence of a cause of action against the defendant [citation].”[10] (Payne v. United California Bank (1972) 23 Cal.App.3d 850, 859, 100 Cal.Rptr. 672.) “[T]he real party in interest is the party who has title to the cause of action, i.e., the one who has the right to maintain the cause of action.” (Vaughn v. Dame Construction Co. (1990) 223 Cal. App.3d 144, 147, Cal.Rptr. 261.) A real party in interest “is the owner of the cause of action.” (Id.at p. 148, 272 Cal. Rptr. 261.) For example, “[s]omeone who is not a party to [a] contract has no standing to enforce the contract or to recover 842*842 extra-contract damages for wrongful withholding of benefits to the contracting party.” (Hatchwell v. Blue Shield of California (1988) 198 Cal.App.3d 1027, 1034, 244 Cal.Rptr. 249.) Therefore, because section 383 provides that associations have standing to sue in their own names as real parties in interest for damage to common areas, it deems associations to be owners of causes of action for damage to common areas with the right to relief for that damage. Section 383’s language gives associations the right to maintain causes of action for damage to common areas, including causes of action for damage based on an alleged breach of implied warranty. Because section 383 gives associations the right to maintain breach of implied warranty causes of action as real parties in interest, its plain meaning necessarily includes the grant to associations of status as parties with the requisite privity of contract.

    To the extent section 383’s language is ambiguous and reasonably susceptible of alternative meanings, we nevertheless conclude extrinsic aids support our conclusion that the Legislature intended section 383 to give associations the right to maintain as real parties in interest causes of action for breach of implied warranty for damage to common areas, including the requisite privity of contract. The parties do not cite, and we are unaware of, any legislative history regarding section 383 (or former section 374) that discusses or otherwise relates to causes of action by associations for breach of implied warranty.[11] Absent relevant legislative history, we consider the statute’s apparent purpose and public policy factors. “The rationale for allowing homeowners’ associations to bring suit [under section 383] is that `if the association does not have standing, the costs of prosecution of the case would not be a common expense, thus greatly increasing the difficulty of individual owners seeking redress against a corporate defendant’ [citation].” (Raven’s Cove Townhomes, Inc. v. Knuppe Development Co., supra, 114 Cal.App.3d at p. 792, 171 Cal. Rptr. 334.) Furthermore, it would be a waste of resources of the courts and litigants if each individual owner were required to join in an action for damage to common areas arising out of an alleged breach of implied warranty. Because associations generally are required to manage, maintain and repair a project’s common areas (see Civ.Code, § 1364, subd. (a)),[12] it would be illogical to deprive associations of the ability to sue to recover for damage to common areas they are obligated to repair. Because individual owners generally do not have the right to repair common areas, it would be inefficient to require or allow only those owners, rather than their association, to sue for breach of implied warranty to recover for damage to common areas. One commentator noted: “There can be little doubt of the utility of [section 383] actions for the presentation of major construction defect issues.” (2 Acret, Cal. Construction Contracts and Disputes (Cont.Ed.Bar 3d ed. 1999) Construction Defects: Theories of Liability and Special Procedures, § 8:37, p.843*843 641.) Furthermore, to require individual owners to be named plaintiffs in an action for damage to common areas would be contrary to section 383’s express provision that the association may sue “in its own name as the real party in interest and without joining with it the individual owners.” (Italics added.)

    Our construction of section 383 as impliedly including the requisite privity for breach of implied warranty causes of action is consistent with recently enacted Civil Code section 945, which applies to construction defect actions regarding new residential construction sold on or after January 1, 2003.[13] Civil Code section 945 provides: “The provisions, standards, rights, and obligations set forth in this title are binding upon all original purchasers and their successors-in-interest. For purposes of this title, associations and others having the rights set forth in Section 383 … shall be considered to be original purchasers and shall have standing to enforce the provisions, standards, rights, and obligations set forth in this title.” (Italics added.) Civil Code section 945 makes explicit what section 383 implies—i.e., that associations have the requisite privity of contract to assert breach of implied warranty causes of action for damage to common areas. The Legislature’s enactment of Civil Code section 945 shows an overall legislative scheme and purpose to allow associations to sue as real parties in interest for damage to common areas whether for breach of implied warranty or on any other theory of liability. Presley argues that the enactment of Civil Code section 945 by expressly providing contractual privity between common interest development associations and the developer shows that section 383 does not provide that privity; otherwise Civil Code section 945 would be unnecessary. However, Senate Bill No. 800, which includes Civil Code section 945, was a comprehensive codification of residential construction defect law. Its provisions incorporated many existing legal principles as well as creating new principles. Under these circumstances we are not persuaded that Civil Code section 945 enunciates a new law rather than a clarification of existing law.

    Considering these extrinsic aids for statutory construction, we conclude the legislative intent of section 383 is to give associations the standing to sue as real parties in interest in all types of actions for damage to common areas, including breach of implied warranty causes of action, and therefore section 383 necessarily grants associations the requisite privity of contract to state causes of action for breach of implied warranty. (Renee J. v. Superior Court, supra, 26 Cal.4th at p. 743, 110 Cal. Rptr.2d 828, 28 P.3d 876; Wilcox v. Birtwhistle, supra, 21 Cal.4th at pp. 977-978, 90 Cal.Rptr.2d 260, 987 P.2d 727.)

    D

    Presley argues that section 383 applies only to tort causes of action and therefore does not apply to Association’s cause of action for breach of implied warranty. However, the language of section 383 does not restrict the type of cause of action or theory of liability that associations may allege as real parties in interest in actions for damage to common areas. Furthermore, we conclude it cannot reasonably be inferred from the language of section 383 that it is intended to apply only to tort causes of action.[14] Presley notes 844*844 section 383, subdivision (a)(2) refers to “damage” to the common areas and argues that term necessarily implies only tort causes of action are included within section 383’s provisions. However, we do not read the term “damage” so restrictively. In its common usage, “damage” includes harm, loss, injury, detriment, or diminution in value. Damage could be caused by any breach of duty, whether that duty arises under contract, tort, or implied warranty.[15]Presley also argues the enactment of section 383, subdivisions (b) and (c) in 1993 shows an intent to restrict section 383’s provisions to only tort causes of action. Although those new subdivisions relate to comparative negligence principles in tort law, they do not limit the broad language of section 383, subdivision (a), which was originally enacted in 1976 without any comparative negligence language. We are not persuaded that those subdivisions have the effect of limiting section 383’s provisions to only tort causes of action.[16]

    Presley also argues that if Association were deemed to have the requisite privity to state a breach of implied warranty cause of action, individual owners would be deprived of their individual privity of contract with Presley and therefore could not maintain individual actions against it. Presley’s argument is premised on the assumption that our interpretation of section 383 would effect a transfer of an individual owner’s privity of contract with the seller to Association. Privity of contract is a relationship that is a prerequisite for maintaining certain causes of action, including breach of implied warranty. Association has the requisite privity of contract not because privity is transferred from the owner of the condominium, but because the Legislature by statute has deemed Association to have the requisite privity of contract. An individual owner is not deprived of his or her privity of contract by our interpretation of section 383 giving Association the requisite privity to maintain as a real party in interest a cause of action for breach of implied warranty. In fact, an individual owner who is an original purchaser from Presley, including Kastner in this case, continues to have a privity of contract relationship with Presley and may maintain an individual cause of action against it for breach of implied warranty regardless of Association’s section 383 cause of action for breach of implied warranty.

    Presley argues Association would potentially have a conflict of interest with individual owners who have privity of contract with Presley. It construes our interpretation of section 383 as giving Association the right to derivatively assert the rights of original purchasers who have privity of contract with Presley. However, our construction of section 383 is not that Association has a derivative or representational 845*845 right to allege the privity relationships of individual owners who were original purchasers. Rather, section 383 grants Association the requisite privity of contract, independent of any individual owner’s privity of contract with Presley. Therefore, there is no conflict of interest between Association and any individual owners that would require a different interpretation of section 383.

    Presley also argues Association’s complaint is deficient because it does not expressly allege Association has privity of contract with Presley. However, the complaint alleges Association “brings this action under Sections 367 and 383.” It also alleges Association is the real party in interest “pursuant to [section] 383.” Therefore, the complaint is not deficient. Association’s privity is not dependent on the privity of individual owners and therefore the complaint need not allege a derivative or representational privity on behalf of the individual owners.[17]

    Finally, Presley argues that our interpretation of section 383 would circumvent the holding of Aas v. Superior Court (2000) 24 Cal.4th 627, 101 Cal.Rptr.2d 718, 12 P.3d 1125. Aas concluded that homeowners and homeowners associations may not “recover damages in negligence from the developer, contractor and subcontractors who built their dwellings for construction defects that have not caused property damage.” (Id. at pp. 632, 643, 653, 101 Cal.Rptr.2d 718, 12 P.3d 1125.) It noted other causes of action, including those for breach of contract and breach of warranty, would remain available for recovery of those types of damages. (Id. at pp. 636, 652, 101 Cal.Rptr.2d 718, 12 P.3d 1125.) Aas did not address or otherwise impact causes of action for breach of implied warranty or its requirement of privity. Therefore, Aas is not applicable to our construction of section 383 in this matter.

    E

    Because we conclude section 383 provides the Association with the requisite privity to state a cause of action against Presley for breach of implied warranty, the trial court erred by sustaining Presley’s demurrer to the first cause of action.[18]

    DISPOSITION

    Let a peremptory writ of mandate issue directing the San Diego County Superior Court to vacate its order of June 7, 2002, sustaining the demurrer of the real party in interest to the breach of implied warranty cause of action and enter a new order overruling the demurrer. Costs are awarded to the prevailing party.

    WE CONCUR: HUFFMAN, Acting P.J, and O’ROURKE, J.

    [1] All statutory references are to the Code of Civil Procedure unless otherwise specified.

    [2] The factual summary in this opinion is based on the allegations in Association’s complaint.

    [3] Those 120 condominiums are now owned by about 200 individuals.

    [4] Presley also demurred to Kastner’s separate cause of action for breach of implied warranty and the cause of action for declaratory relief alleged by Association and Kastner.

    [5] The trial court overruled Presley’s demurrers to the other causes of action.

    [6] In our order denying the petition, we granted Association’s request for judicial notice of certain orders and writ petitions filed in unrelated construction defect cases. We do not rely on those orders and petitions in deciding the instant matter.

    [7] These exceptions generally were created by courts before the establishment of, and possibly as a precursor to, the doctrine of strict liability in tort. (Greenman v. Yuba Power Products, Inc. (1963) 59 Cal.2d 57, 62-64, 27 Cal.Rptr. 697, 377 P.2d 897; 2 Dobbs, The Law of Torts (2001) Products Liability, § 353, pp. 972-974; Prosser & Keeton, Torts (5th ed.1984) §§ 97-98, pp. 690-694.)

    [8] Section 383 was formerly numbered section 374, which as originally enacted provided: “An owners’ association established in a project consisting of condominiums . . . shall have standing to sue as the real party in interest for any damages to the commonly owned lots, parcels, or areas occasioned by the acts or omissions of others, without joining with it the individual owners of such project.” (Stats. 1976, ch. 595, § 2, p. 1439.) In 1985 former section 374 was repealed and replaced with language that remains substantially the same as that in the current version of section 383, subdivision (a). (Stats.1985, ch. 874, §§ 17, 18, pp. 2786-2787.)

    [9] The parties do not dispute that Project qualifies as a common interest development under section 383 or that Association was established to manage the Project.

    [10] “`Standing’ refers to the requisite interest to support an action or the right to relief. …” (Raven’s Cove Townhomes, Inc. v. Knuppe Development Co. (1981) 114 Cal.App.3d 783, 793, fn. 8, 171 Cal.Rptr. 334.)

    [11] We grant Association’s supplemental request for judicial notice of certain documents relating to the legislative history of section 383 and of a trial court order in an unrelated construction defect case. (Evid.Code, §§ 451, subd. (a), 452, subd. (c).) However, we do not rely on those documents in deciding the instant matter.

    [12] Civil Code section 1364, subdivision (a) provides: “Unless otherwise provided in the declaration of a common interest development, the association is responsible for repairing, replacing, or maintaining the common areas, other than exclusive use common areas, and the owner of each separate interest is responsible for maintaining that separate interest and any exclusive use common area appurtenant to the separate interest.”

    [13] We grant Presley’s request for judicial notice of Senate Bill No. 800 (2001-2002 Reg. Sess.), which resulted in the enactment of Civil Code section 945 and related provisions, and Association’s complaint, but deny its request for judicial notice of the CCR’s and Bernie Kastner’s grant deed. (Evid.Code, § 451, subd. (a).)

    [14] For purposes of this discussion, we assume that a cause of action for breach of implied warranty is not a tort cause of action.

    [15] Furthermore, as originally enacted in 1976, section 383 (then former section 374) did not use the term “damage,” but rather “damages.” That original term supports an inference the Legislature did not intend to limit section 383 to only tort causes of action. As Presley notes, the term “damages” refers to monetary compensation for detriment caused by a breach of an obligation, whether in contract (Civ.Code, § 3300) or tort (Civ. Code, § 3333).

    [16] In Raven’s Cove, the association alleged causes of action for strict liability and breach of warranty. (Raven’s Cove Townhomes, Inc. v. Knuppe Development Co., supra, 114 Cal. App.3d at p. 787, 171 Cal.Rptr. 334.) The court concluded the association had standing under section 383 (then former section 374) to sue for damage to commonly owned areas. (Id. at p. 790, 171 Cal.Rptr. 334.) Although the association in that case also owned the common areas and therefore presumably independently had privity of contract without the necessity of relying on section 383, the court did not consider a breach of warranty claim to be excluded from section 383’s provisions.

    [17] Presley also argues the second cause of action by Bernie Kastner, individually, against it for breach of implied warranty constitutes an admission by Association that it does not have the requisite privity. However, individual owners, including Kastner, may state their own causes of action for breach of implied warranty regardless of Association’s section 383 cause of action. Therefore, the first and second causes of action are not mutually exclusive or inconsistent.

    [18] Because we dispose of the petition on this ground, we need not address Association’s other contentions.

     

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