Case Name:   Berryessa Light Industrial Center Commercial Condominium Association, Inc. vs. Berryessa Development Company, LLC

Case No.:       1-13-CV-245832

 

This is a construction defect action by plaintiff Berryessa Light Industrial Center Commercial Condominium Association, Inc. (“Plaintiff” or the “Association”) against defendants Berryessa Development Company, LLC (“BDC”) and Borelli Development Company (“Borelli”) (collectively the “Developer Defendants”) in connection with the “Berryessa Light Industrial Center Commercial Condominium Project” (the “Development”).[1]  The Development consists of five commercial concrete tilt-up construction structures on Berryessa Road in San Jose, California, with addresses of 919, 921, 927, 929, and 933 Berryessa Road.[2]

 

Plaintiff alleges it is a nonprofit mutual benefit corporation organized under California law and created by the Developer Defendants to accept management, operation and control of various aspects of the Development, its common areas, common facilities and improvements, and private units for the benefit of Plaintiff’s members.[3]

 

The original Complaint was filed on May 3, 2013.

 

The operative First Amended Complaint (“FAC”), filed September 23, 2013, alleges various defects in the Deveopment, including cracking of concrete tilt-up walls damaging interior and exterior finishes of the structures in the Project, deterioration of the concrete tilt-up walls, roofing and flashing defects and deficiencies allowing water intrusion into the interior of the structures within the Project and damaging interior finishes, and window systems and assemblies and related flashing assemblies allowing water intrusion into the interior of structures within the Project and damaging interior finishes.[4]  The FAC asserts three causes of action for: (1) negligent design, engineering, construction, design and planning (against all defendants, Does 2-50 and 52-500); (2) strict liability in tort (against the Developer Defendants and Does 2-50); and (3) breach of implied warranty (against the Developer Defendants and Does 2-50).

 

On April 28, 2014, the Developer Defendants filed a Cross-Complaint against San Jose Construction Co., Inc. (“SJCC”) for:  (1) breach of contract; (2) breach of express indemnity; (3) equitable indemnity and contribution; (4) negligence; and (5) declaratory relief.

 

The Developer Defendants now move for summary judgment, or in the alternative, summary adjudication of the FAC.  SJCC demurs to the Cross-Complaint.

 

Judicial Notice

 

In support of their motion for summary judgment/adjudication, the Developer Defendants request judicial notice of: (1) Plaintiff’s Complaint; (2) Plaintiff’s FAC; (3) the Court’s February 21, 2014 order sustaining the demurrer to the second cause of action for strict liability; and (4) “Final Permit Records” from the City of San Jose for 919, 921, 927, 929 and 933 Berryessa Road.[5]  SJCC requests judicial notice of these same records, as well as a copy of Plaintiff’s dismissal of SJCC in the underlying action, entered December 13, 2013, and the Developer Defendants’ Cross-Complaint.

 

All of these court records filed in this action are subject to judicial notice under California Evidence Code section 452 subdivision (d).  The “Final Permit Records” by the City of San Jose are judicially noticeable as official acts of a public entity under Evidence Code section 452 subdivision (c).  The requests for judicial notice are GRANTED.

 

Plaintiff requests judicial notice of: (1) Declaration of Covenants and Restrictions Establishing a Plan for Condominium Ownership for the Berryessa Light Industrial Center Commercial Condominium Project, dated June 2, 2003; (2) Permit Record #2003-117660-CI for 919 Berryessa Rd.; (3) Permit Record #2003-126924-CI for 921 Berryessa Rd.; (3) Permit Record #2004-132034-CI for 927 Berryessa Rd.; (4) Imaging index cover sheet, Certificate of Permit and signature page concerning a permit issued April 30, 2004 concerning 920 Berryessa Rd.; (5) Permit Record #2004-102391-CI for 933 Berryessa Rd.; (6) Permit Inspection Record on City of San Jose letterhead as to 921 Berryessa Rd.[6]

 

The permit inspection records are judicially noticeable as official acts of a public entity under Evidence Code section 452 subdivision (c).  The request for judicial notice of the CC&Rs is not opposed, and appellate courts have taken judicial notice of recorded documents such as CC&Rs.  (See Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1367, fn. 8 [taking judicial notice of “the covenants, conditions, and restrictions” under Cal. Evid. Code § 452, subds. (c) and/or (h)]; Palacin v. Allstate Ins. Co. (2004) 119 Cal.App.4th 855, 862 [unopposed judicial notice of CC&Rs].)  Plaintiff’s request for judicial notice is also GRANTED.

 

Motion for Summary Judgment/Adjudication

 

Summary judgment involves a three step process: (1) identify the issues as framed by the pleadings; (2) determine whether the moving party has established facts negating the opposing party’s claims and justifying judgment in the movant’s favor; and (3) determine whether the opposition demonstrates the existence of a triable issue of material fact.  (Lease & Rental Management Corp. v. Arrowhead Central Credit Union (2005) 126 Cal.App.4th 1052, 1057-1058.)  “[T]he party moving for summary judgment bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact.”  (Aguilar v. Atl. Richfield Co. (2001) 25 Cal.4th 826, 850.)  “A defendant seeking summary judgment must show that at least one element of the plaintiff’s cause of action cannot be established, or that there is a complete defense to the cause of action.”  (Alex R. Thomas & Co. v. Mutual Service Casualty Ins. Co. (2002) 98 Cal.App.4th 66, 72.)  The court must liberally construe evidence in support of the party opposing summary judgment and resolve all doubts concerning the evidence in favor of that party.  (Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 389.)

 

The Developer Defendants argue the entire action is time-barred under California Code of Civil Procedure section 337.15’s ten-year statute of limitations for latent construction defects because the shell buildings were completed and signed-off after inspection by building inspectors for the City of San Jose more than ten years before Plaintiff filed this action.  The Developer Defendants submit the following material facts:

 

• Defendants’ Material Fact (“DMF”) 1 – Plaintiff filed its Complaint on May 3, 2013;
• DMF 2 – The Developer Defendants acted as the developers of the Project;
• DMF 3 – SJCC was the general contractor for the construction of the Project;
• DMF 4 – Plaintiff filed a FAC on September 23, 2013;
• DMF 5 – The Developer Defendants filed a demurrer to Plaintiff’s second cause of action for strict liability on October 31, 2013;
• DMF 6 – On February 21, 2014, the Court sustained the demurrer to Plaintiff’s second cause of action for strict liability;
• DMF 7 – The remaining causes of action asserted against the Developer Defendants are the first and third causes of action in the FAC;
• DMF 8 – The only specific claims which Plaintiff has alleged in the FAC are: (a) cracking of concrete tilt-up walls damaging interior and exterior finishes of the structures of the Project; (b) deterioration of the concrete tilt-up walls damaging exterior finishes and improvements of the structures in the Project; (c) roofing and flashing defects and deficiencies allowing water intrusion into the interior of the structures within the Project and damaging interior finishes; and (d) window systems and assemblies and related flashing assemblies allow water intrusion into the interior of structures within the Project and damaging interior finishes;
• DMF 9 – The final inspections for the buildings at 919, 921 and 933 Berryessa Road at the Project were conducted and signed off by Senior Building Inspector for the City of San Jose, Greg Rindfleisch on November 21, 2002;
• DMF 10 – The final inspections for the buildings at 927 and 929 Berryessa Road at the Project were conducted and signed off by Building Inspector for the City of San Jose, James Law on April 12, 2002.

 

In opposition, Plaintiff argues there are triable issues as to whether the statute of limitations was triggered after the inspection of the shell buildings due to additional inspections and work conducted at the Development by the Developer Defendants.  Plaintiff argues the inspections were limited to “shell buildings” not completed structures with completed exteriors, interiors and electrical, mechanical and plumbing services, and the Developer Defendants’ own records indicate that construction of the Development to market and inspections continued well after May 3, 2003, and thus, the Developer Defendants fail to carry their burden to establish that the purported inspections are really “final inspections.”  Plaintiff argues the significant construction work included SJCC directing structural modifications and roof penetrations to be made through the roof systems at a building of the development for the installation of large air conditioning units.  Plaintiff contends that the Developer Defendants’ deponents testified that the contract documents for the construction required compliance with Uniform Building Code, which defines “final inspection” as being “made after finish grading and the building is completed and ready for occupancy”, and the Developer Defendants acknowledge the work could not be complete until after the Association was formed, and the Association only received the property, common areas and common building areas on June 2, 2003.

 

Plaintiff submits the following Additional Material Facts (“AMF”):

 

• AMF 11 – The instant action involves Plaintiff’s claims for (1) negligence and (2) breach of implied warranties as against developer relating to construction defects existing within the Project;
• AMF 12 – Common area of the Association is comprised of exterior walls of the five (5) buildings, windows, exterior doors, roofs, and all other common areas set forth in the governing documents;
• AMF 13 – Plaintiff’s claims relate to damage resulting from concrete impurities existing within the tilt-up concrete exterior walls of the development causing damage to the structures and within the components themselves, as well as claims for water intrusion at the exterior roofs and window assembles at the buildings comprising the development;
• AMF 14 – Plaintiff received the common areas of the development on June 2, 2003 by recordation of the Declaration of Covenants And Restrictions Establishing A Plan For Condominium Ownership For The Berryessa Light Industrial Center Commercial Condominium Project dated June 2, 2003 and recorded with the Santa Clara County Recorder’s office June 3, 2003;
• AMF 15 –City of San Jose permit records are available online;
• AMF 16 – Inspections of 919 Berryessa Rd. occurred on September 3, 2003 and September 18, 2003 for permit dated July 29, 2003, requested by SJCC for Developer Defendants;
• AMF 17 – Inspections of 921 Berryessa Rd. occurred on November 13, 2003 and December 4, 2003 for a permit pulled October 30, 2003 by SJCC for Developer Defendants;
• AMF 18 – Inspections of 927 Berryessa Rd. occurred on November 15, 2004, November 30, 2005, December 3, 2004, December 8, 2004, December 28, 2004, and December 29, 2004 for a permit pulled November 10, 2004 by Vince Vincent of Kozba & Associates, the architect hired by the Developer Defendants;
• AMF 19 – As to 929 Berryessa Rd., a permit was pulled on April 30, 2004 signed by Ralph Borelli on behalf of the Developer Defendants;
• AMF 20 – Inspections of 933 Berryessa Rd. occurred on February 11, 2004 and February 9, 2004 for a permit pulled February 2, 2004 by SJCC for Developer Defendants;
• AMF 21 – Permit Inspection Record of 921 Berryess Rd. with four different “final” dates during August and September 2003;
• AMF 22 – Warranties from one year of the acceptance of work at the development, dated June 13, 2003 for 921 Berryessa Rd.;
• AMF 23 – Invoice records for $92,309.80 worth of work at the development invoiced on August 21, 2003 to Developer Defendants for work at 919 Berryessa Rd.;
• AMF 24 – Invoice records for $47,587.90 worth of work at the development invoiced on November 30, 2003 to Developer Defendants for work at 921 Berryessa Rd.;
• AMF 25 – Invoice records for $138,643.66 worth of work at the development invoiced on February 27, 2003 to Developer Defendants for work at 933 Berryessa Rd.;
• AMF 26 – Final Retention billing for 933 Berryessa Rd. invoice dated February 20, 2004 for $32,497.60 billed to Developer Defendants;
• AMF 27 – Documents maintained by Developer Defendants and the City of San Jose confirm that original construction to complete the development occurred on the Project after May 3, 2003, until 2004 and beyond, under the direction of Developer Defendants;
• AMF 28 – Developer Defendants declare they still own the development and “plans to develop the property” as of the signing of the declaration on June 2, 2003;
• AMF 29 – Significant construction work included SJCC directing structural modifications and roof penetrations to be made through the roof systems at a building of the development for the installation of large air conditioning units;
• AMF 30 – Hundreds of thousands of dollars of work on the Project was performed at the direction of Developer Defendants by their contractors to complete the development after May 3, 2003;
• AMF 31 – Contract documents for the construction of the development required compliance with building codes including the Uniform Building Code;
• AMF 32 – The 1997 UBC, substantially adopted as the 2001 California Building code, defines “Final Inspection” as “To be made after finish grading and the building is completed and ready for occupancy.”
• AMF 33 – Developer Defendants acknowledge the work at the development could not be complete until after the Association was formed;
• AMF 34 – Plaintiff only received its property, the common areas and common building areas on June 2, 2003;
• AMF 35 – Developer Defendants always knew they would have to finish the buildings of the development at sale;
• AMF 36 – Developer Defendants had one construction lender, Heritage bank, for the construction of the development.

 

In reply, the Developer Defendants argue that inspections related to tenant improvement work performed at the interior of the individual units at the Development conducted subsequent to the final inspections of the shell buildings are irrelevant because Plaintiff’s Complaint/FAC pleads claims related to the common area exterior concrete tilt-up structures only.  The Developer Defendants argue that Plaintiff has no standing to pursue claims related to the building interiors because they are not part of the common areas controlled by Plaintiff.  The Developer Defendants argue that concrete tilt-up structures are severable improvements and are the sole subject of this litigation, and the Developer Defendants’ role in construction was to contract with others to facilitate the construction of these improvements.  Thus, the Court need not go any further than the date of final inspections of these building shells.  According to the Developer Defendants, the subsequent inspection records submitted by Plaintiff are inspections related to different permits for interior improvements, while the April 12, 2002 and November 21, 2002 final inspection dates relate to the permits for construction of the building shells at issue here.

 

The Developer Defendants argue that under Liptak v. Diane Apartments, Inc. (1980) 109 Cal.App.3d 762, the date of substantial completion must not be calculated based on the date of completion of the development as a whole merely because the Developer Defendants are “developers.”  The Developer Defendants contend that the court in Liptak rejected a “double standard” between developers and non-developers.  The Developer Defendants argue that under Schwetz v. Minnerly (1990) 220 Cal.App.3d 296, the court rejected the argument that the statute of limitations is not triggered as to the developer until the entire home community was completed, noting that “Liptak did not hold a developer could not be an improver, and the court did not exclude development as an improvement.”

 

Finally, the Developer Defendants argue that if the Court finds that Plaintiff has brought claims related to anything other than the building exteriors, summary adjudication must be granted as to all claims related to the building exteriors because these are time-barred.[7]

 

Analysis:  “No action may be brought to recover damages from any person, or the surety of a person, who develops real property or performs or furnishes the design, specifications, surveying, planning, supervision, testing, or 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 design, specification, surveying, planning, supervision, or 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.”  (Cal. Code Civ. Proc., § 337.15, subd. (a).)

 

“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. [¶] (3) The date of use or occupation of the improvement. [¶] (4) One year after termination or cessation of work on the improvement. [¶] The date of substantial completion shall relate specifically to the performance or furnishing design, specifications, surveying, planning, supervision, testing, observation of construction or construction services by each profession or trade rendering services to the improvement.”  (§ 337.15, subd. (g).)

 

The statute of limitations in section 337.15 is for the benefit of the contractor.  “A contractor is in the business of constructing improvements and must devote his capital to that end; the need to provide reserves against an uncertain liability extending indefinitely into the future could seriously impinge upon the conduct of his enterprise . . . .”  (Regents of University of California v. Hartford Acc. & Indem. Co. (1978) 21 Cal.3d 624, 633, fn. 2.)
In Liptak, supra, 109 Cal.App.3d 762, homeowners sued a tract developer and grading contractor for land subsidence damages.  The grading work was performed in 1967.  The developer constructed the homes in June 1972.  The home was damaged by earth movement in 1978.  The Court of Appeal held that the action against the grading contractor was barred by section 337.15 because “[t]he 10-year period commences to run in respect to a person who has contributed towards ‘an improvement’ when such improvement has been substantially completed irrespective of whether or not the improvement is part of a development.”  (Liptak, supra, 109 Cal.App.3d at p. 772.)

 

In so ruling, the appellate court in Liptak did not, as the Developer Defendants contend here, seek to prevent a double-standard between developers and non-developers, but rather, between improvers who work for a developer and those who work for other than a developer.

 

In the matter at bench if we were to hold that the 10-year period provided for in section 337.15 commenced to run at the time the development was substantially completed, the period of respondents’ liability would extend for 15 years beyond the time their work on the improvement had actually been completed.  By adopting such a construction, the period could be extended even longer, depending upon the activities of the developer.  However, if the same work had been performed for one other than a developer, the period would begin to run upon substantial completion of the work.

….

The construction which appellants wish placed upon section 337.15 could result in extending a contractor’s liability for an indefinite period, long beyond the 10-year period anticipated by the section, and create a double standard for determining when the 10-year period was to commence.

 

(Liptak, supra, 109 Cal.App.3d at pp. 772-773, emphasis added.)  In fact, the court in Liptak distinguished developers from those contributing to an improvement, holding that “[a] developer has the overall control over the development of a ‘tract of raw land’ and the myriad of improvements to the land which eventually complete the development.  A person contributing to ‘an improvement’ carries out only one of many steps towards completion of the development.  [¶]  Section 337.15 provides that the starting date for the 10-year period commences upon ‘substantial completion of such development or improvement.’  In the context in which it is used ‘such development’ relates to the development undertaken by any ‘person who develops’ real property.  In respect to a developer, it is clear that the 10-year period does not commence until substantial completion of the development.”  (Id. at p. 771, emphasis added.)

 

Regarding this portion of Liptak, the court in Schwetz held it was “clearly dicta” and that Liptak “does not address the meaning of ‘development’ or ‘developer’ for purposes of applying section 337.15.”  (Schwetz, supra, 220 Cal.App.3d at p. 301.)  The court in Schwetz further held that “Liptak did not hold a developer could not be an improver, and the court did not exclude development as an improvement.”  (Id. at p. 306.)  “The particular development or work of improvement can be one ‘improvement’ such as grading.  It can also be a ‘particular development,’ i.e., a completed structure or dwelling.  When the work of improvement meets one of the four criteria of section 337.15, subdivision (g), the ‘improver’ – whether an architect, engineer, subcontractor, contractor, or developer – is entitled to raise the provisions of section 337.15, subdivision (g) as a bar to an action which seeks damages for latent defects after the 10-year period has passed.”  (Id. at p. 308.)

 

Notably however, in Schwetz, the developers had recorded a notice of completion on a completed structure or dwelling.  “The ultimate ‘work of improvement’ to real property is the development or construction of a dwelling for use by the public.”  (Schwetz, supra, 220 Cal.App.3d at p. 309.)  The instant matter is not clearly analogous because it does not involve a completed separate structure in a development, but rather, the completion of the exterior building shell of a five-building condominium complex.

 

The Developer Defendants argue that the exterior concrete tilt-up structures are severable improvements, and these are the subject of this litigation.  The Developer Defendants also argue that Plaintiff’s opposition evidence focuses on irrelevant work performed at the interior of individual units, not the common area exterior concrete tilt-up structures.  In a related argument, the Developer Defendants argue that Plaintiff has no standing to pursue claims related to the building interiors because they are not part of the common areas controlled by Plaintiff.

 

While Schwetz does hold that a “particular development or work of improvement can be one ‘improvement’” (Schwetz, supra, 220 Cal.App.3d at p. 308), the Developer Defendants cite no authority that would support limiting the scope of a particular “work of improvement” for statute of limitations purposes based on the allegations of the Complaint.  The evidence in the record could support the inference that “[t]he particular development or work of improvement” at issue in this case went beyond “one ‘improvement’”, e.g., the exterior building shells.  The Developer Defendants were developers of “the project located at 919, 921, 927, 929, and 933 Berryessa Road[.]”  (DMF 2.)  They still owned and “plan[ned] to develop the Property as ten (10) commercial/industrial Condominiums…consisting of Units…, as separate interests…and the Common Area” as of June 2, 2003, as stated in the Association CC&Rs.[8]  Plaintiff’s evidence shows that inspections and construction work were performed at the Development after May 3, 2003 based on permits by SJCC, the general contractor for the Developer Defendants.  (Pltf’s AMF 16-34.)  There is no basis to conclude that the Developer Defendants were mere contributors to one improvement, e.g., the exterior building shells.  Instead, a trier of fact could find that the Developer Defendants had “overall control over the development of a ‘tract of raw land’ and the myriad of improvements to the land which eventually complete the development” and therefore, “the 10-year period does not commence until substantial completion of the development.”  (Liptak, supra, 109 Cal.App.3d at p. 771.)

 

Nor is it clear to the Court that the subject of this litigation does not involve interior common areas.  The definition of “Building Common Area” in the Association CC&Rs includes interior improvements within each building.[9]  The FAC alleges damage to interior finishes, and nothing in the FAC suggests that the interior damage was limited to individual units only.[10]  Furthermore, the Developer Defendants do not demonstrate that the work and inspections performed after May 3, 2003 were only for interiors of individual units and did not relate at all to interior common areas.

 

The parties have not cited, and the Court has not found, any published California authority interpreting the “final inspection” language in section 337.15 subdivision (g)(2).

Schwetz did not deal with the “final inspection” language of section 337.15 subdivision (g)(2), and the Court is reluctant to apply Schwetz in order to hold that final permit records pertaining to the completion of building exteriors in a multi-structure development triggers the statute of limitations against developers for defects alleged in the exterior portions of the development.  Section 337.15(g)(2)’s phrase “date of final inspection”, when read in context with the entire subsection, pertains to the final inspection of “the improvement”, which suggests a fact-specific inquiry about what “the improvement” entails for a given development or contributor to the development.  Furthermore, subdivision (g) goes on to say that “[t]he date of substantial completion shall relate specifically to the performance or furnishing design, specifications, surveying, planning, supervision, testing, observation of construction or construction services by each profession or trade rendering services to the improvement.”  (Cal. Code Civ. Proc., § 337.15, subd. (g).)  “[T]he reasonably plain meaning of this sentence is that the limitations period commences as to each profession on the date its services to the improvement are substantially complete.”  (Indus. Risk Insurers v. Rust Eng’g Co. (1991) 232 Cal.App.3d 1038, 1042.)  Here, the evidence could support the conclusion that the Developer Defendants’ “profession or trade” was to complete the entire Development, not merely to contribute to one improvement.  The evidence does not support limiting the specific performance of construction services or observation thereof by the Developer Defendants to merely the exterior building shells.

 

For all of these reasons, the motion for summary judgment, or in the alternative, summary adjudication is DENIED.

 

Both parties’ evidentiary objections are OVERRULED.

 

Demurrer

 

SJCC demurs to the Developer Defendants’ Cross-Complaint on the same grounds as the Developer Defendants’ motion for summary judgment.  SJCC argues the buildings were completed in 2002, more than 10 years prior to the filing of the original Complaint on May 13, 2013, and the Cross-Complaint, which is purely derivative of the Complaint in that it seeks to transfer risk and damages to SJCC, is likewise untimely.

 

For the same reasons discussed above regarding the Developer Defendants’ motion for summary judgment, the Court finds that SJCC’s statute of limitations defense to the Cross-Complaint does not clearly and affirmatively appear on the face of the pleadings to support sustaining the instant demurrer.  (See Marshall v. Gibson, Dunn & Crutcher (1995) 37 Cal.App.4th 1397, 1403.)  The demurrer is OVERRULED.

[1] First Amended Complaint (“FAC”) ¶¶ 1, 3.

[2] FAC ¶ 3.

[3] FAC ¶¶ 1, 4, 5.

[4] FAC ¶ 31.

[5] Exhibits A-H to Decl. Jessica L. Clouse ISO Developer Defs’ MSJ/MSA.

[6] Exhibits 1-9 to Decl. Mark R. Kirkland In Opp. to Developer Defs’ MSJ/MSA.

[7] This alternative request for summary adjudication of only the exterior claims is facially improper because it would not “completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty.”  (Cal. Code Civ. Proc., § 437c, subd. (f)(1).)

[8] Kirk Exh. 1, CC&Rs at p. 1.

[9] See Kirk Exh. 1, CC&Rs at ¶ 2.2.B(2).

[10] See FAC ¶ 31.a, d, e.