Stearman v. Centex Homes
Stearman v. Centex Homes
Opinion of the Court
Opinion
Defendant Centex Homes appeals from a judgment in favor of plaintiffs Jeffrey N. 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, 25 A.L.R.4th 336]; 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
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 long-standing 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 nonconstruction 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 Seely and 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 curiae could cite no more than six out-of-state decisions dealing with analogous facts. Our own research confirms the paucity of cases.
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 postconstruction 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 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
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, 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.) 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.) 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 his business 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, 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.) 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.) In Seely, for instance, the truck proved unsatisfactory for the plaintiff’s heavy-duty hauling business, but performed well for the subsequent
The Seely court did not end its discussion there, however. It added a final paragraph regarding the plaintiff’s contention the trial court erred in denying strict liability recovery for physical damage to the truck itself. Significantly, the court agreed with the plaintiff’s 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 plaintiff’s property, as well as personal injury.” (Seely v. White Motor Co., supra, 63 Cal.2d at p. 19, italics added.) The court found “[pjhysical injury to property is so akin to personal injury that there is no reason to distinguish them. [Citations.]” (Ibid.) The 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), 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.)
Other courts in our jurisdiction have articulated the rule more definitively. For instance, Huang v. Garner, supra, 157 Cal.App.3d 404 instructs, “Economic 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, citation 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.” (Ibid., 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
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 economic 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., supra, 246 Cal.App.2d 639, 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, 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.) 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.) Any issue as to the second item was moot because the 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 appropriáte, therefore, to characterize it according to the nature of the d,amage of which it is an incident. Unless incidental to physical
Sacramento Regional Transit Dist. v. Grumman Flxible (1984) 158 Cal.App.3d 289 [204 Cal.Rptr. 736] (Grumman) sheds additional light on the subject. The plaintiff purchased 103 busses, with the manufacturer’s standard written warranty. (Id. at p. 292.) “[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, the plaintiff found “structural defects in the undercarriage battery frame area of certain other busses [previously] purchased from defendant . . . .” (Id. at p. 292, fn. 2.) The plaintiff sought strict liability damages based on these latent defects (Id. at p. 292.)
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 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.]” (Grumman, supra, 158 Cal.App.3d at p. 293, italics added.) It further noted, however, “where damage consists solely of ‘economic losses,’ recovery on a theory of products liability is precluded. [Citations.]” (Ibid.)
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.” (Grumman, supra, 158 Cal.App.3d at p. 294.) Noting the plaintiff did not claim any physical injury to the busses “apart from the manifestation of the defect itself’ (ibid.), it found the expenses the
Responding to the plaintiff’s reliance on Gherna, supra, 246 Cal.App.2d 639, and IKW, supra, 110 Cal.App.3d 1001, 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 plaintiff’s automobile.” (Grumman, supra, 158 Cal.App.3d at p. 296, italics added.) The Grumman court 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.” ’ . . .” (Grumman, supra, 158 Cal.App.3d at p. 297, 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) 37 Cal.App.4th 1318 [44 Cal.Rptr.2d 305] (Grace) presented the issue in the hybrid context of a statute of limitations question regarding the 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.) 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 do,es 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 the goods sold or the cost of repair together with consequential lost profits when there has been no claim of
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 mere presence of asbestos in the buildings and those in which asbestos contamination had occurred. (Grace, supra, 37 Cal.App.4th at pp. 1328-1329.) 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.)
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 [74 Cal.App.4th 123lg, 87 Cal.Rptr.2d 603] involved, inter alia, defectively constructed windows in a residential tract. The 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 the 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.) For some unknown reason, the 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.) The reviewing court found the appellants bound by the admission “they had no evidence to support a claim for any measure of damages other than economic loss.” (Ibid.)
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 of Kriegler (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, 48 A.L.R.4th 601], overruled in part by Peterson v. Superior Court, supra, 10 Cal.4th at p. 1210; 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 .alMinding.plaintiffs suffered physical injury to their
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 litigation 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
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, 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.) 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 Townhomes, Inc. v. Knuppe Development Co., supra, 114 Cal.App.3d at p. 802.)
Regan Roofing Co. v. Superior Court (1994) 21 Cal.App.4th 1685 [27 Cal.Rptr.2d 62] is informative. There, the issue arose in the context of a good faith settlement motion involving the nonsettling defendants’ objection to allocation of $250,000 for expert investigation fees. (Id. at p. 1694.) 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. [Citation's.]” (Id. at p. 1709.) Defendant asks us to disregard Regan Roofing
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 cases 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 Beds worth, J., concurred.
Reference
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