by Elias E. Guzman

In Acosta v. Glenfed Development Corp. (2005) 128 Cal.App.4th 1278, the court of appeal recently held that a developer/general contractor can be liable long after the 10 year statute of limitation period for the willful misconduct of subcontractors involved in the project.

In the case, fifty-nine plaintiffs were homeowners in a residential subdivision located in Palmdale, California. In or about 1989, they purchased their homes from defendants Glendfed Development Corp, who was both the developer and general contractor of the development and utilized a number of subcontractors. According to the complaint, the development’s soil and foundations were improperly prepared, structural framing was so defective it was dangerous, and the damage to the houses continuously existed since the construction. It would require extensive repair and replacement to fix these defects. Although initially filed as a class action, plaintiffs later filed individually against defendants for these construction defects in December 1999, alleging that the latent defects were the result of defendants’ willful misconduct.

Defendant filed a motion for summary judgment. In the motion, defendant argued that the 10-year statute of limitations began to run upon the recordation of the notices of completion of plaintiffs’ homes (Code Civ. Proc., § 337.15(g)(2)). Thus, by defendant’s calculation, 47 of the 59 named plaintiffs filed their complaints too late.

Plaintiffs opposed the motion by arguing that defects involved conspicuous failures to comply with building codes, plans, and industry standards and were of the type that would have been recognized by a competent construction supervisor. As such, plaintiffs argued that defendant’s willful misconduct caused the defects because they were “so serious and prevalent that they were either the result of a deliberate decision to cut corners for cost savings or the result of near total, virtually reckless, failure by defendant to adequately supervise subcontractors.”

The trial court granted defendant’s motion because it was a complete defense and rejected plaintiffs’ argument that Code of Civil Procedure section 337.15, subdivision (f), precluded defendant’s reliance on the ten year statute of limitations period. Plaintiffs appealed.

Section 337.15, subdivision (a) states:

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

Section 337.15, subdivision (f) states:

This section shall not apply to actions based on willful misconduct or fraudulent concealment.

The court of appeal dealt with two issues on appeal: 1) When a defendant moves for summary judgment based on the statute of limitations in section 337.15, and the plaintiff’s complaint has alleged willful misconduct in connection with latent construction defects, who bears to burden of producing evidence on that issue?, and 2) Whether a finding of willful misconduct is sufficient to preclude reliance on section 337.15, even in the absence of evidence that the developer and general contractor had actual knowledge of the willful misconduct or had itself directly engaged in such willful misconduct in some manner?

Section 337.15, subdivision (f) precludes a court from applying such a limitation in defendant’s favor where the action is based on willful misconduct, which operates as an exception.

A defendant moving for summary judgment has the burden of establishing that a cause of action lacks merit by showing one or more elements of the cause of action cannot be proven, or, that there is a complete defense to that cause of action. Once defendant has met this burden, the burden shifts to plaintiff to show that a triable issue of one or more material facts as to that cause of action or defense thereto.

Defendant established through its separate statement of undisputed material facts that the section 337.15 statute of limitations ran for certain homeowners because ten years elapsed from the date the notice of completion was recorded and the date each homeowner was named plaintiff in the lawsuit. It was then plaintiff’s burden to show evidence to raise a triable issue of material fact as to whether their action was based on willful misconduct. Willful misconduct is more than mere negligence, “it involves a more positive intent actually to harm another or to do an act with a positive, active and absolute disregard of its consequences.” The trial court found that a contractor or developer cannot avoid application of section 337.15, subdivision (f), by a claim of ignorance of the existence of a serious latent defect where the evidence permits the reasonable inference that he knew or should have known otherwise.

The trial court acknowledged that plaintiffs’ expert declarations showed serious latent structural defects and created a substantial risk of injury. However, it also ruled that plaintiffs failed to specifically connect defendant with the willful misconduct plaintiffs’ experts opined took place during construction. Due to this lack of evidence, the trial court ruled plaintiffs’ claims were, as a matter or law, barred by the 10-year statute of limitations and granted defendant’s motion for summary judgment. The court of appeal came to a contrary conclusion.

A developer of “mass produced” homes is strictly liable for defects in the construction of such homes. Krieger v. Eichler Homes, Inc. (1969) 269 Cal.App.2d 224, 227-229. A developer may be held liable for defective construction on a strict liability theory, as well as theories of negligence, breach of warranty, nuisance, and fraud or negligent misrepresentation. In contrast, a contractor may be liable for negligence (his own or his subcontractors), implied warranty, and perhaps fraud. Whether or not a home is a “mass produced” home is determined on a case by case basis. Defendant’s motion improperly focused on whether they were entitled to rely on the 10-year statute of limitations, not whether they would otherwise be liable to plaintiffs for any latent construction defects in plaintiffs’ homes but for the expiration of such limitations period. The contractor, as does the owner of the property, has supervision over the entire building and its construction, including the work performed by a subcontractor – such supervisory obligation is a non-delegable duty and cannot be avoided by entrusting it to an independent contractor. California statutory law echoes the same (cf. Bus & Prof. Code, §§ 7068, 7109, 7110, 7068; Cal. Code Regs. tit. 16, § 823, subd. (b)), most significantly Civil Code section 2332. Section 2332 deems a contractor to have notice of the misconduct even if not informed of it. The court of appeal held that the duty of supervision is reasonably viewed as a non-delegable duty and the general contractor is not relieved of the supervisory duties by entrusting them to an independent contractor. Further, as a matter of public policy the court held that a developer was in a better economic position to shoulder the loss than the injured party who justifiably relied on the developer’s skill and implied representation. Accordingly, just because the willful misconduct is committed by its chosen subcontractors, it cannot escape the strict liability established by Kriegler.

Whether defendant or its subcontractors actually engaged in willful misconduct, whether the latent defects resulted from such acts, and whether the facts or circumstances presented at trial are sufficient to justify charging defendant with such willful misconduct must be resolved by the trier of fact upon remand. Summary judgment was reversed and the case remanded.

Elias E. Guzman is an associate with Abbott & Kindermann, LLP. For questions relating to this article or any other California land use, environmental and planning issues contact Abbott & Kindermann at (916) 456-9595.

The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, nor the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.