Case Name:   Cilker Apartments, LLC vs. Western National Construction, et al.

Case No.:       1-13-CV-258281

 

The underlying action alleges construction defects at One Pearl Place Apartments, a 182-unit residential apartment building in the San Jose, California.  Plaintiff Cilker Apartments, LLC (“Plaintiff”) alleges it entered into a written contract with defendant/cross-complainant/cross-defendant Western National Construction (“Western”) on July 1, 2000 to construct the apartment project.[1]  Plaintiff alleges there are defects in various areas of the building including exterior decks, exterior walkways, breezeways, elevated courtyards and pathways, planters, structural components, doors, doorways and door thresholds, concrete, stucco and exterior building elevations, wood framing, waterproofing, windows, railings, roofing, plumbing/storm drainage, sheet metal flashings, mechanical/flashing, and miscellaneous steel and structural steel.[2]  In the First Amended Complaint, filed March 20, 2014, Plaintiff sues Western, various named professional firms and subcontractors, and Doe defendants, for (1) breach of contract; (2) breach of implied warranty; (3) breach of express warranty (all defendants except “professional entity” defendants); (4) negligence; (5) strict liability (professional entity defendants); (6) express contractual indemnity; and (7) breach of third party beneficiary contract (except Western and McLarland, Varquez & Partners, Inc.).

 

On April 30, 2014, Western filed a Cross-Complaint against various cross-defendants including Jeld-Wen, Inc. (“Jeld-Wen”) for: (1) breach of contract; (2) express indemnity; (3) implied indemnity; (4) equitable indemnity; (5) comparative negligence and contribution; (6) breach of implied warranty; (7) breach of express warranty; (8) negligence; (9) declaratory relief; and (10) declaratory relief re duty to defend.

 

Jeld-Wen now demurs to the third, fourth, fifth, eighth, ninth  and tenth causes of action in Western’s Cross-Complaint on the grounds of failure to state sufficient facts.[3]

 

Defendant California Classic Paver Designs, Inc. (“CCPD”), a dissolved California corporation incorrectly sued as California Classic Pavers and defendant-in-intervention Liberty Mutual Insurance Company (“LMIC”) apply for intervention.

 

1. Demurrer

 

1. Contractual vs. Equitable Indemnity

 

With regard to the equitable claims (third cause of action for implied indemnity, fourth cause of action for equitable indemnity, and fifth cause of action for comparative negligence and contribution), Jeld-Wen argues that Western is precluded from asserting an entitlement to equitable relief where it already alleges an express indemnity provision in the alleged contract.

 

“Indemnity may be defined as the obligation resting on one party to make good a loss or damage another party has incurred.  [Citation.]  This obligation may be expressly provided for by contract [citation], it may be implied from a contract not specifically mentioning indemnity [citation], or it may arise from the equities of particular circumstances [citations].”  (Rossmoor Sanitation, Inc. v. Pylon, Inc. (1975) 13 Cal.3d 622, 628.)

 

Equitable indemnity allows for allocation of loss or damages among multiple tortfeasors whose liability to the plaintiff is joint and several.  (See American Motorccle v. Sup. Ct. (1978) 20 Cal.3d 578, 583.)  Because equitable indemnity is a restitutionary concept, it is premised on a joint legal obligation to another for damages.  Thus, there can be no indemnity without joint and several liability by the prospective indemnitor and indemnitee. (See Fieldstone Co. v. Briggs Plumbing Products, Inc. (1997) 54 Cal.App.4th 357, 367.)  “One factor is necessary, however….[T]here must be some basis for tort liability against the proposed indemnitor.”  (BFGC Architects Planners, Inc. v. Forcum/Mackey Construction, Inc. (2004) 119 Cal App 4th 848, 852.)

 

Here, Western alleges it is entitled to both contractual and equitable indemnity from Jeld-Wen and allocation of Jeld-Wen’s proportionate liability on equitable grounds in the event Plaintiff establishes liability against Western.[4]  Fundamentally, these positions are inconsistent because where the parties have expressly contracted with respect to the duty to indemnify, the extent of that duty must be determined from the contract and not by reliance on the independent doctrine of equitable indemnity.  (See Rossmoor, supra, 13 Cal.3d at p. 628.)  However, from a pleading standpoint, “a party may plead in the alternative and may make inconsistent allegations.”  (Adams v. Paul (1995) 11 Cal.4th 583, 593.)  Although Western does not expressly allege that its claims for equitable indemnity and contribution are brought in the alternative to its contractual indemnity claims, the alternative nature of these allegations is reasonably inferred.

 

The case of Regional Steel Corp. v. Superior Court (1994) 25 Cal.App.4th 525 cited by Jeld-Wen is distinguishable because it involved a particular “caused in whole” indemnity clause that the court found to preclude joint tortfeasor liability, and it was a summary judgment case where the general contractor acknowledged the existence of the express indemnity clause in the contract.  At this early stage, Western should be permitted to plead an equitable basis for indemnity in the alternative to its alleged contractual claims.

 

For these reasons, the demurrer to the third, fourth and fifth causes of action is OVERRULED.

 

1. Negligence

 

Jeld-Wen argues the eighth cause of action for negligence is defective because (1) it merely restates the contractual obligations alleged in Western’s breach of contract claim; and (2) it is barred by the economic loss rule because Western fails to allege a compensable injury beyond economic damages.

 

In Aas v. Superior Court (2000) 24 Cal.4th 627, the California Supreme Court held that “[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 law, except when the actions that constitute the breach violate a social policy that merits the imposition of tort remedies.  [Citation.]  This court recently rejected the argument that the negligent performance of a construction contract, without more, justifies an award of tort damages.  [Citation.]”  (Aas, supra, 24 Cal.4th at p. 643, internal quotation marks omitted.)

 

However, Aas also reiterates 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.  [Citation.]”  (Ibid.)  Here, Jeld-Wen does not argue that a subcontractor has no duty to perform its work and services in a good and workmanlike manner based on principles of tort law.  Even if that duty is stated in a contract, this is not the same as seeking to recover in tort for breach of mere contractual obligations not recognized as duties in tort law.  Jeld-Wen does not otherwise argue that it owes no duty of care to Western.

 

Furthermore, a number of cases hold that “[e]ven where there is a contractual relationship between parties, a cause of action in tort may sometimes arise out of the negligent manner in which the contractual duty is performed. . . .  [Citation.]  Conversely, where a contract gives rise to a duty of care, negligence in the performance of the duty may give rise to a cause of action for breach of contract.  [Citation.]  When such a hybrid cause of action arises, the plaintiff may pursue both legal theories of recovery until an occasion for an election of remedies arises.  [Citation.]”  (Perry v. Robertson (1988) 201 Cal.App.3d 333, 340, internal quotation marks omitted; see also North Am. Chem. Co. v. Superior Court (1997) 59 Cal.App.4th 764, 777-786 [negligent failure to perform services in competent and reasonable manner could be both breach of contract and tort]; Willdan v. Sialic Contractors Corp. (2007) 158 Cal.App.4th 47, 58 [“[a]ccompanying 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 contract.”].)

 

Jeld-Wen also challenges Western’s negligence claim based on the economic loss rule.  In Aas, the California Supreme Court held that in the area of construction defect litigation, where defective products or negligent services have caused neither property damage nor personal injury, and have merely diminished the value of the building, this loss is primarily the domain of contract and warranty law or the law of fraud, rather than of negligence or strict liability.  The Aas court’s holding was based on the “economic loss rule,” which states that “[i]n actions for negligence, a manufacturer’s liability is limited to damages for physical injuries; no recovery is allowed for economic loss alone.  (Aas, supra, 24 Cal.4th at p. 636, citing Seely v. White Motor Co. (1965) 63 Cal.2d 9, 18.)[5]

 

Here, Western alleges the following damages in the eighth cause of action: “As a result of the negligence of [Jeld-Wen],…Cross-Complainant is informed and believes and, based thereon, alleges that it will suffer damages including but not limited to any sums paid by way of settlement, or in the alternative judgment rendered against Cross-Complainant in the action herein.  Cross-Complainant has incurred further damages as a result of the negligence of Cross-Defendants, and each of them, including but not limited to, litigation costs, consultants’ fees, and other costs incurred in the defense of this action and the prosecution of the Cross-Complaint.[6]

 

Jeld-Wen argues these are allegations of mere economic loss.  In opposition, Western points out that the Cross-Complaint incorporates by reference the allegations of property damages in Plaintiff’s FAC.[7]  In response, Jeld-Wen argues that Plaintiff’s negligence claim is distinct from Western’s negligence claim.  However, to the extent that Western becomes liable to Plaintiff to satisfy a judgment, the amounts would go towards remedying Plaintiff’s property damages.  Thus, Western’s damages are sufficiently based on more than economic loss.

 

For these reasons, the demurrer to the eighth cause of action is OVERRULED.

 

1. Declaratory Relief

 

Jeld-Wen argues Western’s declaratory relief claims are simply a reiteration of Western’s previous insufficient claims for breach of contract and express indemnity, and declaratory relief is properly barred where the claim is fully engaged by other causes of action.

 

“Any person … who desires a declaration of his or her rights or duties with respect to another … may, in cases of actual controversy relating to the legal rights and duties of the respective parties, bring an original action or cross-complaint in the superior court for a declaration of his or her rights and duties in the premises, including a determination of any question of construction or validity arising under the instrument or contract.  He or she may ask for a declaration of rights or duties, either alone or with other relief; and the court may make a binding declaration of these rights or duties, whether or not further relief is or could be claimed at the time.  The declaration may be either affirmative or negative in form and effect, and the declaration shall have the force of a final judgment.  The declaration may be had before there has been any breach of the obligation in respect to which said declaration is sought.”  (Cal. Code Civ. Proc., § 1060.)

 

A court may refuse to exercise the power to grant declaratory relief in any case where its declaration or determination is not necessary or proper at the time under all the circumstances.  (See Cal. Code Civ. Proc., § 1061.)

Declaratory relief is improper procedure when the rights of the complaining party have crystallized into a cause of action for past wrongs, all relationship between the parties has ceased to exist and there is no conduct of the parties subject to regulation by the court.  (Roberts v. Los Angeles County Bar Association (2003) 105 Cal.App.4th 604, 618.)  “‘The declaratory relief statute should not be used for the purpose of anticipating and determining an issue which can be determined in the main action.  The object of the statute is to afford a new form of relief where needed and not to furnish a litigant with a second cause of action for the determination of identical issues.’ [Citations.]”  (Hood v. Superior Court (1995) 33 Cal.App.4th 319, 324.)

 

Here, the ninth cause of action is for a declaratory judgment regarding: the respective liability to any Plaintiff or any other party to this action; whether Jeld-Wen must defend Western against the claims and allegations of Plaintiff or any other cross-complainant; whether Jeld-Wen must pay for Western’s attorneys’ fees and costs incurred in defense of this action and in prosecution of the Cross-Complaint; whether Jeld-Wen is obligated to obtain the insurance policy and name Western as an additional insured; and whether Jeld-Wen must indemnify Western for any settlement and/or damages which it may be obligated to pay to Plaintiff or any other cross-complainant.[8]  The tenth cause of action is for a declaratory judgment regarding Jeld-Wen’s present duty to defend Western.[9]

 

Both the ninth and tenth causes of action allege an actual controversy over whether Jeld-Wen presently owes a duty to defend Western in the underlying case by Plaintiff.  This controversy has not crystallized into a past wrong.  In Crawford v. Weather Shield (2008) 44 Cal.4th 541, the California Supreme Court held that the contractual duty to defend is immediately triggered upon proper tender by the indemnitee (see Crawford, supra, 44 Cal.4th at pp. 553-554) and that the issue of the duty to defend in pending litigation may be addressed in a motion for summary adjudication.  (Id. at p. 565, fn. 12.)  Thus, Western’s declaratory relief causes of action do not simply duplicate Western’s other claims for damages flowing from Jeld-Wen’s breach of contract or comparative negligence, but provide a basis for Western to seek declaratory relief as to the duty to defend while the litigation is still in progress.  Thus, the Court does not find the declaratory relief causes of action to be unnecessary or improper for purposes refusing declaratory relief under section 1061.

 

The demurrer to the ninth and tenth causes of action is OVERRULED.

 

1. Application for Intervention

 

LMIC applies for intervention to defend the claims against its insured, CCPD.  LMIC argues it is potentially directly liable for a money judgment against CCPD and therefore has a direct interest in the adjudication of this case, and without LMIC’s participation, that interest would be impaired.  LMIC submits that CCPD was involved in the construction of the project at issue in the underlying action, and is a dissolved California corporation.

 

Under California Code of Civil Procedure section 387, a person may intervene if he/she/it “has an interest in the matter in litigation, or in the success of either of the parties.”  (Cal. Code Civ. Proc., § subd. (a).)  Furthermore, if the proposed intervenor “claims an interest relating to the property or transaction which is the subject of the action and that person is so situated that the disposition of the action may as a practical matter impair or impede that person’s ability to protect that interest, unless that person’s interest is adequately represented by existing parties, the court shall, upon timely application, permit that person to intervene.”  (Id., subd. (b).)  “Pursuant to section 387 the trial court has discretion to permit a nonparty to intervene where the following factors are met: (1) the proper procedures have been followed; (2) the nonparty has a direct and immediate interest in the action; (3) the intervention will not enlarge the issues in the litigation; and (4) the reasons for the intervention outweigh any opposition by the parties presently in the action.  [Citation.]”  (Reliance Ins. Co. v. Superior Court (2000) 84 Cal.App.4th 383, 386.)

 

Here, LMIC has a direct and immediate interest in the underlying action as the insurer of CCPD, which was substituted as Doe defendant 5 to Plaintiff’s Complaint on February 24, 2014.[10]  LMIC submits that CCPD held a commercial liability policy with LMIC that covers any judgment awarded to Plaintiff in this lawsuit.  LMIC’s intervention will not significantly enlarge the issues in this litigation, since LMIC will be acting on behalf of CCPD.  Finally, there is no opposition to LMIC’s intervention.  Because the requirements for intervention are met, the application is GRANTED.

 

[1] First Amend. Compl. (“FAC”) ¶ 18.

[2] FAC ¶ 21.

[3] Jeld-Wen originally demurred to all ten causes of action in the Cross-Complaint, but subsequently withdrew the demurrer as to the first, second, sixth, and seventh causes of action.  (See Jeld-Wen’s Reply at p. 2:3-5.)

[4] See Cross-Compl. ¶¶ 11, 17, 23, 25.

[5] In 2002, the California Legislature enacted the Right to Repair Act, abrogating the holding in Aas by allowing the recovery of damages for specified defects resulting in only economic loss.  (See Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 98, 103-104.)  However, Western’s eighth cause of action for negligence is not for specified construction defects under the Right to Repair Act.

[6] Cross-Compl. ¶ 43.

[7] See Cross-Compl. ¶ 8.

[8] Cross-Compl. ¶ 45.

[9] Cross-Compl. ¶¶ 49-52.

[10] See First Doe Amendment to Complaint for Damages, docket no. 7