2011-00111747-CU-BC

Michael C Yang Trustee vs. Michael J Cimorelli Trustee

Nature of Proceeding:     Motion for Summary Judgment (Cimcon Industries)

Filed By:   Fairbrook, John D.

Defendant Cimcon Industries, Inc.’s (“Cimcon”) motion for summary judgment is
DENIED.

Background Facts/Procedure
This is a construction defect case encompassing allegations of water intrusion in a
single-family residence.  Plaintiffs Michael C. Yang, Holly H. Zhao and The 2007 My
Family Trust (collectively “Plaintiffs”) allege that Cimcon constructed the property for
the sellers, Co-Defendants Michael J. Cimorelli (“Mr. Cimorelli”) and Lynne R.
Cimorelli.  In addition, Plaintiffs have leveled limited alter ego allegations, i.e., that Mr.
Cimorelli is Cimcon’s alter ego.  (Compl., ¶¶ 14 [general allegations], 22 [Mr. Cimorelli
was Cimcon’s sole shareholder, and Cimcon was undercapitalized].)  As to Cimcon,
Plaintiffs have pleaded causes of action or negligence, strict liability, breach of implied
warranty and violation of B&P Code §§ 17200 et seq.

Cimcon now moves for summary judgment without any alternative motion for summary
adjudication of issues.  Cimcon argues that it is entitled to entry of judgment because
all the causes of action against it are barred by the 10-year statute of repose governing
latent defects in real property.  Thus, Cimcon’s motion depends on the nonexistence of
any triable issue of fact as to one of its affirmative defenses.  (See Answer filed
04/23/12.)

Discussion

The 10-year statute of repose at CCP § 337.15 provides, in relevant part:

(a) No action may be brought to recover damages from any person…who
develops real property or performs…observation of construction or
construction of an improvement to real property more than 10 years
after the substantial completion of the development or improvement
for any of the following:

(1) Any latent deficiency in the…observation of construction or
construction of an improvement to, or survey of, real property.

(2) Injury to property, real or personal, arising out of any such latent
deficiency.

[…]

(e) The limitation prescribed by this section shall not be asserted by way
of defense by any person in actual possession or the control, as owner,
tenant or otherwise, of such an improvement, at the time any deficiency
in the improvement constitutes the proximate cause for which it is
proposed to bring an action.

[…]

(g) The 10-year period specified in subdivision (a) shall commence upon
substantial completion of the improvement, but not later than the date of
one of the following, whichever first occurs:

(1) The date of final inspection by the applicable public agency.

(2) The date of recordation of a valid notice of completion.  (Ellipses
added.)
There is no dispute that the 10-year statute applies to all claims involving property
damage due to latent construction defects, whether sounding in contract or tort.  (See
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San Diego Unified Sch. Dist. v. County of San Diego (2009) 170 Cal.App.4   288, 302-
303.)  Moreover, there is no dispute that the defects about which Plaintiffs complain
are latent.  Thus, if there is no triable issue as to whether (1) Plaintiffs brought this
lawsuit more than 10 years after substantial completion of the project and (2) Cimcon
developed or constructed the property, then Cimcon is entitled to summary judgment.

Cimcon has produced evidence that a building inspector signed off on a final
inspection of the property on June 21, 2000, and that a valid Notice of Completion was
recorded three days later.  (See UMF 3-4.)  Given this evidence, Plaintiffs were
required to commence a lawsuit against Cimcon no later than late June 2010–before
they filed their complaint–unless an exception to the 10-year statute applies.  Plaintiffs
argue that the exception at subdivision (e) applies because Mr. Cimorelli is/was
Cimcon’s alter ego.  They reason that, since Mr. Cimorelli was an owner/occupier
when the construction defects materialized, he was the real contractor and, therefore,
cannot rely on the 10-year statute as a defense.

Cimcon has not met its initial burden of demonstrating the nonexistence of any triable
issue whether Mr. Cimorelli is/was Cimcon’s alter ego.  Before discussing the reasons
for this conclusion, the court disposes of Cimcon’s argument Plaintiffs’ allegations are
insufficient to raise alter ego as an issue to be addressed on summary judgment.  In
Cimcon’s view, these allegations do not place alter ego at issue because they cannot
be construed to establish the essential elements of alter ego, viz., that (1) there is a
unity of interest such that there is no separation between Cimcon and Mr. Cimorelli
and (2) if Cimcon were treated as a distinct corporate entity, inequitable results would
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follow.  (See, e.g.,  Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4   1269,
1285.)

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In Leek v. Cooper (2011) 194 Cal.App.4   399, California’s third appellate district
addressed the impact of inadequate alter ego allegations upon a defendant’s motion
for summary judgment.  The only alter ego allegations in the complaints in that
consolidated appeal were that an individual defendant was the sole owner of a
corporation, owned all the corporation’s stock and made all the corporation’s business
th
decisions.  (194 Cal.App.4   at 406-407, 415.)  In his summary judgment motion, the
individual defendant did not address the issue of alter ego, but the plaintiffs raised an
alter ego argument in their opposition.  In addition, based on evidence of alter ego
submitted with their opposition papers, the plaintiffs moved to amend their complaint to
allege alter ego.  (Id. at 405-406.)  Because alter ego was not alleged in the complaint,
the Court of Appeal determined that the defendant bore no summary judgment burden
of producing evidence negating alter ego as a basis for liability.  (Id. at 406.)  Thus, the
Leek court observed that, “[o]nly if the allegations were adequate to apprise Cooper
that he was being held accountable as an alter ego, was it necessary for him to
produce evidence that he could not be held liable under such a theory.”  (Id. at 412.)
Furthermore, the court held that the plaintiffs were not entitled to amend their
complaint because the trial court properly determined that the proffered evidence of
alter ego was insufficient as a matter of law.  (Id. at 418.)

Leek is distinguishable from the instant case for a few reasons.  First, Cimcon has
obviously been aware that alter ego is an issue in the case because, unlike the
defendant’s motion for summary judgment in Leek, its motion contains evidence meant
to negate alter ego.  (See UMF 9-11, 14-15.)  Thus, the Leek court’s observation that  the defendant there was not on notice of alter ego when he moved for summary
judgment does not apply to Cimcon’s motion.

Furthermore, because Cimcon has enumerated in its moving separate statement facts
intended to negate alter ego, it has admitted the materiality of such facts and may not
contradict itself by arguing that the facts are somehow immaterial to the motion.  (See
Nazir v. United Airlines, Inc. (2009) 178 Cal.App.4th 243, 252 [citing Weil & Brown,
Civ. Proc. Before Trial, ch. 10:95.1].)  When a party moving for summary judgment
inserts facts into its moving separate statement, it broadcasts to the court and the
opposing party which facts must be disputed to overcome the motion.  It would be
inequitable for Cimcon to raise the issue of alter ego in its separate statement only to
argue that the issue is outside the scope of the motion.

Finally, unlike the Leek plaintiffs, Plaintiffs in the instant case have used the term “alter
ego” in their complaint and have alleged both that Mr. Cimorelli owns all Cimcon’s
shares and undercapitalized the corporation.  Undercapitalization is evidence that a
corporation is a mere shell and is a factor to consider when assessing an alter ego
allegation.  (See, e.g., Harris v. Curtis (1970) 8 Cal.App.3d 837, 843.)     Although
Plaintiffs could have alleged additional facts to support a theory of alter ego, their
allegations can be construed to establish the unity of interest and inequitable results
needed to allege alter ego.  For this reason and the reasons stated above, alter ego is
at issue in the instant motion, and Cimcon’s burden of production includes the burden
to demonstrate the nonexistence of any triable issue whether alter ego triggers the
exception to the 10-year statute at CCP § 337.15(e).

Cimcon has not met its initial burden vis-à-vis the issue of alter ego.  Among the
material facts in Cimcon’s separate statement is UMF 10, which reads:

Cimcon was initially capitalized with the assets of Michael Cimorelli’s
existing construction company. The assets included construction
equipment, tools, office equipment and supplies and the ongoing projects
of the company. It is estimated that the assets in 1997 had a value in
excess of $350,000.00.

This evidence was meant to negate Plaintiffs’ allegation that Cimcon is/was Mr.
Cimorelli’s alter ego due to the former’s undercapitalization.  UMF 10 does not
preclude a reasonable inference of undercapitalization, however, because whether a
corporation’s capital suffices for alter ego purposes depends on the relationship
between the corporation’s assets and liabilities.  (See Platt v. Billingsley (1965) 234
Cal.App.2d 577, 583.)  Because Cimcon has not produced any evidence of its
liabilities while it was capitalized with $350,000, is has not demonstrated the
nonexistence of any triable issue as to the sufficiency of its capital, and
undercapitalization remains a triable issue.

Even if Cimcon had met its burden on the issue of Mr. Cimorelli’s status as Cimcon’s
alter ego, Plaintiffs have produced evidence demonstrating the existence of a triable
issue.  Plaintiffs’ Additional Material Fact 4 reads, “Michael Cimorelli’s employees did
maintenance work on the building including buying the supplies.”  The deposition
testimony establishing this fact supports an inference that Cimcon, not Mr. Cimorelli,
bore the cost of supplies used to paint his house.  Consequently, the evidence
supports an inference that Mr. Cimorelli has used Cimcon assets to fund his personal
obligations.  Such evidence further renders the issue of alter ego a factual one for a
jury.

Having denied the motion for the reasons above, the court need not address and does
not address Plaintiffs’ further argument that the motion should be denied based on the
fraud exception to CCP § 337.15(f).

The court disregards Cimcon’s evidence submitted for the first time with the Reply.

Judicial Notice

Plaintiffs’ request for judicial notice of contacting licenses is DENIED as irrelevant.

Conclusion

The motion is DENIED.

The minute order is effective immediately.  No formal order pursuant to CRC 3.1312 or
further notice is required.

Item   4     2011-00111747-CU-BC

Michael C Yang Trustee vs. Michael J Cimorelli Trustee

Nature of Proceeding:     Motion for Summary Judgment and/or Adjudication (Michael J Cimorelli)

Filed By:   Fairbrook, John D.

**If any party requests oral argument, then at the time the request is made, the
requesting party must inform the court and opposing counsel of the specific
issue(s) on which oral argument is sought.**

The motion of Defendants Michael J. Cimorelli (“Mr. Cimorelli”) and Lynne R. Cimorelli
(“Mrs. Cimorelli”) (collectively “the Cimorellis”) for summary judgment or, in the
alternative, summary adjudication of issues is DENIED.

Background Facts/Procedure

This is a construction defect case encompassing allegations of water intrusion in a
single-family residence.  Plaintiffs Michael C. Yang, Holly H. Zhao and The 2007 My
Family Trust (collectively “Plaintiffs”) allege that Co-Defendant Cimcon Industries, Inc.
(“Cimcon”) constructed the property for the Cimorellis, who sold the property to
Plaintiffs in 2010.  In addition, Plaintiffs have leveled limited alter ego allegations, i.e.,
that Mr. Cimorelli is Cimcon’s alter ego.  (Compl., ¶¶ 14, 22.)  As to one or both of the
Cimorellis, Plaintiffs have pleaded causes of action or negligence, strict liability, breach
of implied warranty, breach of contract, intentional misrepresentation, negligent
misrepresentation and violation of B&P Code §§ 17200 et seq.  The Cimorellis now
move for summary adjudication of each cause of action and, therefore, summary
judgment.

Discussion

The court’s discussion roughly tracks the order of issues presented in the Cimorellis’
Moving Memorandum of Points and Authorities.
The Fourth Cause of Action for Breach of Contract

Summary adjudication is DENIED.

By the fourth cause of action, Plaintiffs allege that the Cimorellis breached the
applicable purchase and sale agreement (“Agreement”).  Paragraphs 44 and 46 of the
complaint frame the alleged promises and breaches.  In paragraph 44, Plaintiffs allege
that the Cimorellis promised either to sell the property free from defects–including
water intrusion, defects in household appliances, and defects in surveillance cameras,
the automatic garage door opener and spa tub–or disclose the same.  In paragraph
46, Plaintiffs allege that the Cimorellis breached the Agreement by failing either to
deliver a home free from defects or disclose the defects.  Paragraph 46 also includes
an allegation that the Cimorellis failed to maintain or repair elements of the property.

The Cimorellis challenge the fourth cause of action by arguing that (1) it is based on
promises that are not within the Agreement and (2) there were no breaches because
they made the required disclosures.  The court addresses the second, dispositive
argument first and rejects it.

The Cimorellis concede that they had a duty to disclose defects in the property that
they actually knew about and which Plaintiffs either were not aware of or could not
easily discover.  (See Moving Memo. at 10:7-24 [citing authorities].)  Central to the
Cimorellis’ position that they made all required disclosures is their assertion that, after
Plaintiffs home inspection report disclosed the possibility of water intrusion, the
Cimorellis’ subsequent disclosures incorporated that report by reference and,
therefore, effectively disclosed the existence of water intrusion.  (See UMF 14.)
Plaintiffs take issue with this assertion.

Plaintiffs counter that, between the time they obtained their home inspection report and
the point at which the Cimorellis incorporated that report into their own disclosures,
they met with Mr. Cimorelli at the property.  During this meeting, Mr. Cimorelli assured
Plaintiffs that one of the water leaks had been “fixed,” when in fact there was
significant dry rot needing repair.  (See Opp. Sep. Stmt., UMF 14 at ¶ (D), Z. Yang
Depo. at 58:11-22; UMF 20.)  Plaintiffs’ evidence demonstrates that whether the
Cimorellis accurately disclosed the defects associated with this leak presents a triable
issue of material fact.  Even if the Cimorellis’ disclosures elsewhere and Plaintiffs’ own
home inspection report raised the possibility of water intrusion, evidence that, at an in-
person meeting, Mr. Cimorelli downplayed the existence or magnitude of water
damage supports a reasonable inference that he did not disclose the defect.  As a
consequence, summary adjudication must be denied.

In reaching its conclusion, the court is aware of the Cimorellis’ assertion in the Reply
that they sent Plaintiffs an e-mail prior to close of escrow indicating, not that the water
leak was “fixed,” but that they “thought it was fixed.”  (See Reply at 3:21-4:8.)  At this
juncture, the court may not weigh the evidence, make credibility determinations, or
resolve any doubts in the Cimorellis’ favor.  (See, e.g., Hernandez v. Department of
Transp. (2003) 114 Cal.App.4th 376, 382, 388.)  Because there is evidence that Mr.
Cimorelli told Plaintiffs that at least one source of water intrusion has been “fixed”
when damage remained, whether the Cimorellis breached their duty to disclose
involves a triable issue of fact and must go to a jury. The court is also aware of the Cimorellis’ argument that, once their home inspection
disclosed potential water damage, the Cimorellis were relieved any separate duty to
disclose the same.  (Se Reply at 3:13-17 [citing authorities].)  Because Plaintiffs’
evidence can be construed such that Mr. Cimorelli verbally negated part of their home
inspection report, the court rejects this argument as well.

Finally, the court rejects any suggestion that the Cimorellis had no duty to disclose
water intrusion to Plaintiffs because, once Plaintiffs received their own inspection
report, evidence of water intrusion was readily accessible to them. (See Reply 3:17-
18.)  The Cimorellis appear to acknowledge that destructive testing–at Plaintiffs’ cost–
would have been required to determine the extent of water intrusion.  Absent an
authority to the contrary, the court will not conclude as a matter of law that information
available through destructive testing is “readily accessible.”

Because the court denies summary adjudication for the reasons above, it does not
address the parties’ further arguments in support of and in opposition to the request for
summary adjudication of the fourth cause of action.

The Sixth and Seventh Causes of Action for Intentional Misrepresentation and
Negligent Misrepresentation

Summary adjudication is DENIED.

The Cimorellis challenge the sixth and seventh causes of action based on a single set
of 24 undisputed material facts.  They argue that both causes of action should be
summarily adjudicated because Plaintiffs cannot establish any affirmative
representation or, in the case of the sixth cause of action, any concealment.  The
Cimorellis further argue that, as to the sixth cause of action, Plaintiffs cannot establish
the element of intent to defraud.  As to both causes of action, they argue that Plaintiffs
cannot establish reasonable reliance.  The court rejects all these arguments.

As discussed in the preceding section, there is evidence that Mr. Cimorelli told
Plaintiffs in person that a water leak has been repaired, when in fact there was
significant damage. This evidence supports a reasonable inference that the Cimorellis
misrepresented the state of the property.

Contrary to the Cimorellis’ suggestion, the fact that Plaintiffs’ home inspection report
could be considered “consistent with” Mr. Cimorelli’s assertion that the leak had been
“fixed” does not alter the analysis.  Even if the home inspection report was otherwise
“consistent,” it did not represent that any water leak had been repaired.

The issue of intent to defraud does not entitle the Cimorellis to summary adjudication
either.  The only evidence that the Cimorellis cite to support their no-intent argument is
Mr. Cimorelli’s assertion that he and Mrs. Cimorelli “had no knowledge of significant
water intrusion problems until they received [Plaintiffs’] Home Inspection Report.”  (See
UMF 23; Cimorelli Decl., ¶ 4.)  Pursuant to CCP § 437c(e), the court may deny
summary adjudication “where a material fact is an individual’s state of mind, or lack
thereof, and that fact is sought to be established solely by the individual’s affirmation
thereof.”  Such being the case here, the court exercises its discretion and will allow a
jury to assess the credibility of Mr. Cimorelli’s denial of knowledge in light of all the
other evidence, including the fact that the Cimorellis had the home built and were the
only occupants between the time the home was constructed and the time it was sold to
Plaintiffs.

Finally, the issue of reasonable reliance involves a triable issue of material fact.  In
arguing the opposite, the Cimorellis emphasize that Plaintiffs’ home inspection report
cautioned that a water leak should have been investigated further to ensure that there
was no ongoing damage or mold, and to correct any such issues.  (See Moving Memo.
at 16:24-17:5.)  Given the evidence that (1) after Plaintiffs received the home
inspection report they met with Mr. Cimorelli and (2) Mr. Cimorelli represented that the
leak was “fixed,” whether it was reasonable for Plaintiffs to forego any destructive
testing at their cost, at least as to the leak in question, presents an issue for a jury.

The Remaining Causes of Action

Summary adjudication is DENIED.

The balance of the motion turns on the Cimorellis’ arguments that the 10-year statute
of repose at CCP § 337.15 bars Plaintiffs claims and the owner-occupier exception
does not apply because Cimcon is not Mr. Cimorelli’s alter ego.  In a concurrent ruling
denying Cimcon’s motion for summary judgment, this court rejects these arguments.
The court incorporates its concurrent order herein and denies the balance of the
Cimorellis’ motion for the reasons stated therein.

Judicial Notice

Plaintiffs’ request for judicial notice is DENIED as irrelevant.

Conclusion

The motion is DENIED.

The minute order is effective immediately.  No formal order pursuant to CRC 3.1312 or
further notice is required.