Case Name:   The Irvine Company LLC vs. Douglas Ross Construction, Inc.

Case No.:       1-12-CV-234516

 

This is a construction defect case filed by plaintiff The Irvine Company LLC (“Irvine”), the owner of a 439-unit apartment project commonly known as “The Redwoods” located in San Jose, California (the “Project”).[1]  Irvine alleges that on or about June 20, 2005, its predecessor, Irvine Commercial Property Company (“ICPC”), entered into a written construction contract with defendant Douglas Ross Construction (“DRC”) for construction of all onsite buildings, common areas, and certain street improvements, sewer systems, water systems, storm drains, and other offsite improvements in connection with the Project.[2]  Irvine further alleges that between June 2005 and the “turn dates” when the work was turned over to Irvine for use, beginning in May 2007 and continuing until November 2007, DRC entered into written subcontracts with Does 1-100 whereby these subcontractor Doe defendants agreed to be bound to DRC in the same manner as DRC bound themselves to ICPC and agreed to defend, indemnify and save harmless Irvine and DRC from and against any liabilities, losses, damages, costs and expenses incurred by Irvine and DRC arising out of or in connection with the subcontractor’s operations to be performed under the subcontract, including to defend, indemnify and save harmless both Irvine and DRC from damage to property of anyone caused or alleged to be caused in whole or in part by any negligent act or omission of the subcontractor or anyone for whose acts the subcontractor may be liable.[3]

 

Irvine further alleges there were certain conditions at the Project resulting in water intrusion causing tangible property damage and loss of use at and around, but not limited to, the Project’s breezeways, private balconies, decks, podium common areas, expansion joints, stucco façade, ornamental railings, pool and stairwells.[4]

 

The original Complaint was filed on October 18, 2012.  In the operative First Amended Complaint (“FAC”), filed March 27, 2013, Irvine sues DRC and Doe defendants for (1) breach of prime contract; (2) breach of express warranty; (3) breach of implied warranty; (4) breach of subcontracts; (5) breach of express indemnity; (6) negligence; and (7) strict liability in tort.

 

On April 4, 2013, DRC filed its Cross-Complaint for breach of contract, negligence, contribution, express and implied indemnity, express and implied warranty, and declaratory relief.  On October 17, 2013, DRC filed a Moe Amendment to its Cross-Complaint, substituting cross-defendant Tara Coatings, Inc. (“Tara Coatings”) as Moe 5.
On August 13, 2014, Irvine filed an Amendment to the FAC, substituting Tara Coatings as Doe 20.

 

Tara Coatings now demurs to the second, third, fourth and fifth causes of action in Irvine’s FAC on the grounds of uncertainty and failure to state sufficient facts to constitute a cause of action.

 

Tara Coatings argues second and third causes of action for breach of warranty are time-barred because the claims are based on language in Section 5.3 of the Prime Contract that states the warranty is only for one-year from the date of “Final Completion,” and according to dates in the FAC, work on the apartment complex was completed by May 2007, so the warranty would have expired in May of 2008.  Tara Coatings argues the warranty claim is still untimely even if we assume the date of Final Completion to be November 2007 (which is the latest date when the work was allegedly “turned over” to Irvine).

 

Tara Coatings argues the fourth cause of action for breach of subcontracts fails because Irvine does not allege a breach that is separate and apart from the warranty or quality of the work, so it is duplicative of the negligence claim (which Tara Coatings is not challenging by demurrer).  Tara Coatings further argues that Irvine has not pleaded the material terms of the contract as they pertain to Tara Coatings, or how, when and by whom the contract was allegedly breached.  Tara Coatings argues that if the purported breach concerned the performance of the contract, then the four-year statute of limitations would have expired in 2011 since the work was completed in 2007.

 

Tara Coatings argues the fifth cause of action for express indemnity fails because Irvine does not allege any claim levied against it for which an obligation to defend, indemnify or hold harmless is triggered or applicable.  Tara Coatings argues that Irvine’s indemnity claim is based on Section 15 of the subcontract agreement between DRC and Tara Coatings, and given that Irvine is the one suing, and no one is suing Irvine, there is no claim, demand or cause of action to defend Irvine from or against or hold it harmless.  According to Tara Coatings, Irvine omits Section 15.1.3.1 of the subcontract which states that the indemnity obligation is to defend all claims “brought or instituted by third persons” so it does not contemplate Tara Coatings indemnifying Irvine for the damages it seeks to recover in the FAC arising from construction of the project.

 

Finally, Tara Coatings argues the fourth and fifth causes of action are duplicative of the sixth cause of action for negligence and add nothing to the theory of recovery, so they should be dismissed.

 

The demurrer is supported by the declaration of Robert A. Hufnagel attaching Section 15 of the subcontract between DRC and Tara Coatings as Exhibit 1.

 

Discussion

 

As Irvine points out in its opposition, a demurrer only challenges defects on the face of the pleading or from judicially-noticed matters (Blank v. Kirwan (1985) 39 Cal.3d 311, 318), and the subcontract agreement between DRC and Tara Coatings is neither attached to the FAC nor subject to a request for judicial notice.  Thus, the Court will not consider this extrinsic evidence in evaluating the demurrer.

 

Regarding the statute of limitations challenge to second and third causes of action, “[a] demurrer based on a statute of limitations will not lie where the action may be, but is not necessarily, barred.  [Citation.]  In order for the bar of the statute of limitations to be raised by demurrer, the defect must clearly and affirmatively appear on the face of the complaint; it is not enough that the complaint shows that the action may be barred.  [Citation.]”  (Marshall v. Gibson, Dunn & Crutcher (1995) 37 Cal.App.4th 1397, 1403.)  Here, Tara Coatings’ statute of limitations arguments relies on the warranty provision in section 5.3 of the Prime Contract between ICPC and DRC, but Tara Coatings overlooks the allegation in the FAC that “[d]efendants, and each of them, inclusive, issued written warranties, as stated in the Prime Contract, Subcontracts, and as provided, with supplies, materials, goods and products, including a warranty that all materials and equipment furnished and all work performed would be of good workmanship and qualify, and be free from defects.  THE IRVINE COMPANY relied on these warranties, and believed in good faith that the Project was of merchantable quality and was constructed in a good and workmanlike manner.”[5]  To the extent the breach of warranty claim is based on a different express warranty provision contained in a document other than the Prime Contract, Tara Coatings’ arguments based on the warranty provision in the Prime Contract do not clearly and affirmatively show that the warranty claim is time-barred.

 

Regarding the fourth cause of action for breach of subcontracts, the Court finds that the material terms of the contracts are sufficiently alleged.  For purposes of pleading, a written contract may be pled according to its legal effect.  (See Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198-199.)  Here, the FAC alleges the legal effect of the subcontracts as follows:  “[U]nder the terms of the written Subcontracts entered into between DRC and the Subcontractor Defendants, the SUBCONTRACTOR DOES 1-100 warranted that their work performed under their written Subcontract would be free from all material effects and in compliance with the contract documents and/or building codes.”[6]  Irvine further alleges that “at the time the Subcontracts were entered into between DRC and the SUBCONTRACTOR DOES 1-100, the SUBCONTRACTOR DOES 1-100 understood that DRC intended to benefit the owner of the Project through performance of Subcontract.”[7]  Irvine alleges that the subcontractors “breached their written Subcontract by failing to perform all work associated with the Project and related improvements at the Project in a workmanlike manner and in accordance with the terms of the Contract documents.”[8]  These allegations are sufficient to put Tara Coatings on notice of the nature of the claim.

 

Tara Coatings argues in the alternative that the breach of contract claim is untimely.  The statute of limitations for a claim of breach of written contract is four years (Cal. Code Civ. Proc., § 337(1)) and generally starts to run at the time of the breach (see Krieger v. Nick Alexander Imports, Inc. (1991) 234 Cal.App.3d 205, 221).  However, where a breach of contract forms the basis for an action seeking redress for latent injury to real property, accrual of the breach of contract cause of action is governed by the discovery rule.  (See Angeles Chemical Co. v. Spencer & Jones (1996) 44 Cal.App.4th 112, 119-120, citing April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d 805, 829-833.)  Here, it appears the claim for breach of subcontract arises out of latent injury to real property, so the discovery rule would apply.  In the FAC, Irvine alleges that it discovered the water intrusion defects at the Project “[w]ithin three (3) years of the filing of this Complaint and continuing to the present[,]”[9] and Tara Coatings does not challenge the timeliness of the FAC’s negligence claim or the FAC’s allegations of discovery.  Thus, Tara Coatings does not demonstrate that the running of the statute of limitations on the fourth cause of action clearly and affirmatively appears on the face of the FAC.

 

Regarding the fifth cause of action for express indemnity, as discussed above, the Court declines to consider the terms of the DRC-Tara Coatings subcontract because it is extrinsic to the FAC and not judicially-noticed.  On its face, the FAC alleges that the subcontractor defendants broadly agreed to indemnify Irvine from “any and all claims, demands, causes of action, damages, costs, expenses, actual attorneys’ fees, losses or liability, in law or in equity, of every kind and nature whatsoever…arising out of or in connection with SUBCONTRACTOR’S operations to be performed under this Agreement[.]”[10]  The alleged indemnity obligation is not, on the face of the FAC, limited to third party claims.  (See Zalkind v. Ceradyne, Inc. (2011) 194 Cal.App.4th 1010, 1024.)

 

Finally, regarding Tara Coatings’ argument that the contract and warranty causes of action are improperly “duplicative” of the claim for negligence, the cited authorities are distinguishable.  In Award Metals, Inc. v. Superior Court (1991) 228 Cal.App.3d 1128, the court held that an employee suing his employer under California Labor Code section 4558’s power press exception to workers’ compensation exclusivity could not bring claims for negligence, strict liability and intentional tort against his employer because these tort causes of action required a lesser showing of fault than required under section 4558.  Here, there is no statutory cause of action brought by Irvine that concerns the same contract and warranty claims but requires a higher standard of proof.

 

Rodrigues v. Campbell Industries (1978) 87 Cal.App.3d 494 involved a cause of action that merely “combine[d] all the preceding causes, alleging they are joint and concurrent causes of plaintiffs’ damages” (id. at p. 498), and the appellate court held that “[t]here is no authority for a pleading of this type and the demurrer was properly sustained without leave to amend as to that cause.”  (Id. at p. 501.)  Here, the challenged causes of action do not merely combine the allegations of the subcontractors’ negligence into a redundant cause of action; rather, they allege an alternative basis for recovery under the same facts.  “Contract and tort are different branches of law.  Contract law exists to enforce legally binding agreements between parties; tort law is designed to vindicate social policy.  [Citation.]”  (Applied Equip. Corp. v. Litton Saudi Arabia (1994) 7 Cal. 4th 503, 514-515.)  Concurrently pleading two causes of action in the alternative is permissible, subject to a later election of remedies.  (See Roam v. Koop (1974) 41 Cal.App.3d 1035, 1040, citing Steiner v. Rowley (1950) 35 Cal.2d 713, 720.)

 

Finally, “[a] demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities can be clarified under modern discovery procedures.  [Citation.]  (Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.)  Here, Tara Coatings does not adequately demonstrate that the FAC is so ambiguous or unintelligible that Tara Coatings is unable to determine what must be admitted or denied, or what counts or claims are directed against it.  At any rate, most of Tara Coatings’ arguments pertain to the sufficiency of the challenged causes of action, not their uncertainty.

 

For all of these reasons, the demurrer is OVERRULED.

[1] First Amended Compl. ¶ 2.

[2] FAC ¶ 14.  A copy of the Prime Contract between ICPC and DRC is attached as Exhibit A to the FAC.

[3] FAC ¶ 15.

[4] FAC ¶ 18.

[5] FAC ¶ 34.

[6] FAC ¶ 46.

[7] FAC ¶ 47.

[8] FAC ¶ 48.

[9] FAC ¶ 18.

[10] FAC ¶ 57.