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Timestamp: 2018-08-20 01:40:08
Document Index: 224093001

Matched Legal Cases: ['§ 3333', '§ 10', '§ 1461', '§ 1462', '§ 10', '§ 10', '§ 1461', '§ 10', '§ 10', '§ 3333']

AAS v. SUPERIOR COURT | FindLaw
Alan O. AAS et al., Petitioners, v. The SUPERIOR COURT of San Diego County, Respondent;
The William Lyon Company et al., Real Parties in Interest. PROVENAL COMMUNITY ASSOCIATION, Petitioner, v. The SUPERIOR COURT of San Diego County, Respondent; The William Lyon Company et al., Real Parties in Interest.
Nos. D030218, D030399.
Procopio, Cory, Hargreaves & Savitch, Steven M. Strauss, Edward I. Silverman, Victor M. Felix, San Diego, for Petitioners in No. D030218; Epstein & Grinnell, Douglas W. Grinnell, Luis E. Ventura and Duane E. Shinnick, San Diego, for Petitioner in No. D030399 and as Amicus Curiae on behalf of Petitioners in D030218. Burdman & Benson, Linda Angle-Keny, San Diego, are Amicus on behalf of the Petitioners in No. D030218. No appearance for Respondent. Newmeyer & Dillion, Timothy S. Menter, Gregory L. Dillion, Gene M. Witkin, Lincoln, Gustafson & Cercos, Thomas J. Lincoln, Charles K. Egan, Newport Beach, Dale, Braden & Hinchcliffe, Walnut Creek, Suzanne M. Martin, Wilson, Elser, Moskowitz, Edelman & Dicker, San Diego, Andrew S. Blackburn, Long Beach, William S. Roberts, Kring & Brown, Jeffrey A. Lake, Jon A. Van de Grift, Maxie, Rheinheimer, Stephens & Vrecich, Barry M. Vrecich, San Diego, Kelegian & Thomas, Michael Paul Thomas, Newport Beach, Bullard & Olin, Robert M. Granafei, Lee H. Graham, Brownwood, Rice & Zurawski, Michael F. Saydah, San Diego, Acker, Kowalick & Whipple, Anthony H. Whipple, W. Frederick Kowalick, Linwood Warren, Jr., Los Angeles, Catherine L. Rhodes, Tawnya L. Southern, Mark S. Siegel, Farmer, Weber & Case, David C. Weber, San Diego, Berger, Kahn, Shafton, Moss, Figler, Simon & Gladstone, Timothy A. Nicholson, Stephen L. Weber, Irvine, Perkins & Miltner, Timothy E. Salter, Callahan, McCune & Willis, Norma Marshal, Kolod, Wager & Gordon, Jerome A. Wager, Scott Kolod, Vekeno Kennedy, and Elisa J. Nemeth, San Diego, for Real Parties in Interest. Balestreri, Pendleton & Potocki, Thomas A. Balestreri, Jr., Mary B. Pendleton, Michael M. Freeland, San Diego, Maurine P. Brand for Real Parties in Interest in D030399 and as Amicus Curiae on behalf of Real Parties in Interest in D030218. Fred J. Hiestand, Sacramento, as Amici Curiae on behalf of Real Parties in Interest in No. D030218. Lewis, D'Amato, Brisbois & Bisgaard, Robert V. Closson, Terrell A. Quealy, Judith A. Lewis, Morris, Polich & Purdy, Randy Koenig, Gary L. Jacobsen, Parker & Stanbury, Jenna L. Price and Mary-Tyler Crenshaw, San Diego, as Amici Curiae on behalf of Real Parties in Interest in Nos. D030218 and D030399.
These are consolidated proceedings in mandate commenced in construction defect actions after the trial court (1) ruled petitioners had not established a “special relationship” with real parties under J'Aire Corp. v. Gregory (1979) 24 Cal.3d 799, 157 Cal.Rptr. 407, 598 P.2d 60 (J'Aire ); (2) granted real parties' in limine motions excluding evidence of alleged construction defects which had not resulted in personal injury or physical damage to other property, and of related economic losses sustained by the petitioners; and (3) issued an order excluding evidence of post-repair “stigma” damages. Petitions denied.
These consolidated writ proceedings were brought by the plaintiffs in two separate construction defect actions. In the first action (the Provenal case), petitioner Provenal Community Association (the Association) is the homeowners association for a condominium project developed and built by real parties in interest The William Lyon Company and Lyon Communities, Inc. (together, Lyon). In the second action (the Aas case), the petitioners (Aas petitioners) are the owners of homes in a subdivision also developed and built by Lyon.
Both the Association and the Aas petitioners (collectively, petitioners) seek peremptory writs of mandate compelling the superior court to (a) vacate its orders granting the motions in limine brought by Lyon and the other real parties in interest (subcontractors) to exclude or limit petitioners' introduction of evidence (in support of their respective negligence claims) of construction defects (including governing building code violations and other defects resulting from allegedly negligent failures to meet the standard of care for reasonable and workerlike construction and deviations from approved plans and specifications) that have not caused present physical harm to persons or other property but have allegedly caused economic loss to the petitioners; and (b) to enter a new order denying the in limine motions.
The Aas petitioners also seek an order compelling the superior court to vacate its sua sponte pretrial order preventing petitioners from introducing evidence of post-repair “stigma” damages, and enter an order allowing the introduction of this evidence.
Three issues are presented. The first is whether developers, general contractors and subcontractors owe a duty of care to homeowners associations and individual homeowners with respect to the construction of mass-produced housing. We conclude they owe such a duty of care. We also conclude that the court, in ruling that petitioners had not established a “special relationship” with real parties in interest within the meaning of J'Aire, supra, 24 Cal.3d 799, 157 Cal.Rptr. 407, 598 P.2d 60, implicitly and erroneously found that real parties in interest did not owe petitioners a duty of care.
The second issue presented is whether homeowners associations and individual owners of mass-produced housing may recover damages in negligence actions against developers, general contractors and subcontractors for construction defects involving violations of minimum construction standards set forth in the Uniform Building Code and other codes, which defects have not resulted in personal injury or physical damage to other property, and thus have allegedly caused the plaintiffs to sustain only economic loss damages. We conclude homeowners associations and individual homeowners do not have a private right of action in negligence against developers, general contractors, and subcontractors for recovery of purely economic losses they sustain as a proximate result of construction defects in mass-produced housing (including but not limited to those involving violations of governing building codes) which have not yet caused personal injury or physical damage to property other than the defectively constructed portions of the residential structures themselves.
The third issue presented is whether homeowners associations and individual homeowners may recover damages for post-repair injury to the reputation of real property (“stigma” damages). For policy reasons we shall discuss, we conclude such “stigma” damages are not recoverable.
Accordingly, we deny both petitions.
Evidentiary rulings and orders on motions in limine are generally reviewed for an abuse of discretion. (Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1241-1242, 1 Cal.Rptr.2d 301.) However, where the facts are undisputed, the matters before us present pure questions of law subject to independent review. (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 799, 35 Cal.Rptr.2d 418, 883 P.2d 960.)
Here, the issues of duty, the recoverability in negligence of economic loss damages in construction defect cases absent personal injury or physical damage to other property, and the recoverability of “stigma” damages in such cases, are all questions of law. Accordingly, we independently review the trial court's in limine rulings on these issues. (Ghirardo v. Antonioli, supra, 8 Cal.4th at p. 799, 35 Cal.Rptr.2d 418, 883 P.2d 960.)
We agree with Lyon that the principal issue in these consolidated writ proceedings “is not one of duty, but rather of damage.” However, although Lyon apparently concedes in its supplemental letter briefing that it and subcontractors owed petitioners a duty of care,1 we note that Lyon contends in its original petition response in the Provenal case that a “special relationship” under J'Aire, supra, 24 Cal.3d 799, 157 Cal.Rptr. 407, 598 P.2d 60, does not exist between petitioners and Lyon and subcontractors because the criteria set forth in Biakanja v. Irving (1958) 49 Cal.2d 647, 320 P.2d 16 2 , as adopted by the J'Aire court (24 Cal.3d at p. 804, 157 Cal.Rptr. 407, 598 P.2d 60), are not met. We further note that the court, in granting Lyon's and subcontractors' in limine motions on the issue of the recoverability in negligence of pure economic loss damages (discussed post ), agreed with Lyon's contention that a “special relationship” under J'Aire does not exist between petitioners and real parties.3
In this regard, Lyon's diverging contentions illustrate the extent to which the J'Aire decision has resulted in analytical confusion in negligence actions involving claims for economic loss damages by suggesting the six Biakanja factors (see fn. 2, ante ) are to be applied in determining whether a “special relationship,” as distinguished from a duty of care, exists between plaintiffs and defendants such that plaintiffs in a given case may recover pure economic loss damages in negligence. (See J'Aire, supra, 24 Cal.3d at p. 804, 157 Cal.Rptr. 407, 598 P.2d 60 [“Where a special relationship exists between the parties, a plaintiff may recover for loss of expected economic advantage”], citing Biakanja v. Irving, supra, 49 Cal.2d 647, 320 P.2d 16 and other case authorities.)
We share the view of the court in Ott v. Alfa-Laval Agri, Inc. (1995) 31 Cal.App.4th 1439, 1450, 37 Cal.Rptr.2d 790 (hereafter Ott ), that the issue of whether a “special relationship” existed in a given case between a plaintiff and a defendant under J'Aire, is identical to the issue of whether that defendant owed the same plaintiff a duty of care under the Biakanja criteria. This view is confirmed by a close reading of the opinion in J'Aire. (See J'Aire, supra, 24 Cal.3d at p. 804, 157 Cal.Rptr. 407, 598 P.2d 60 [“Applying these [Biakanja ] criteria to the facts as pleaded, it is evident that a duty was owed by respondent to appellant in the present case.”].)
It would be inconsistent for a court to conclude, upon application of the Biakanja criteria to a given set of facts and allegations, that a defendant owed a duty of care to a plaintiff, but that a J'Aire “special relationship” did not exist between those same parties. In our view, the reference in J'Aire to a “special relationship” between a plaintiff and a defendant should be interpreted as a shorthand method of stating a defendant owed a duty of care to a plaintiff.
We now turn to the issue of whether real parties in interest owed a duty of care to petitioners. As we have indicated, we agree with Lyon's assertion that the issue in the present writ proceedings “is not one of duty, but rather of damages.” For reasons we shall discuss (see part II, post ), we hold that developers, general contractors, and subcontractors may not be held liable in negligence for construction defects in mass-produced housing unless the defective construction has resulted in physical injury to persons or property other than the defectively constructed portion of the real property itself. This holding, however, involves not the element of duty, but the element of damages that a plaintiff must establish in order to recover damages in a negligence cause of action.
In opposing the writ petitions at issue here, however, Lyon argues petitioners cannot meet the Biakanja balancing test adopted by J'Aire. We therefore must address the issue of whether real parties in interest owed petitioners a duty of care. Applying the Biakanja factors, we conclude for reasons we shall explain that real parties in interest owed a duty of care to petitioners in the pending actions.4
A. Intention to affect petitioners as a matter of law
It is undisputed that the 162-unit residential condominium project at issue in the pending Provenal case was developed and built by Lyon. The subcontractors were also involved in the construction of Provenal. It is also undisputed that the Aas petitioners' single-family homes were developed and built by Lyon, and that Lyon subcontracted with several design and construction professionals to design and build the homes.
These facts are sufficient to satisfy the first Biakanja factor under well-settled case law. In Sabella v. Wisler (1963) 59 Cal.2d 21, 27 Cal.Rptr. 689, 377 P.2d 889 (hereafter Sabella ) (a construction defect action by homeowners against a homebuilder-vendor), the Supreme Court held, in applying the first factor of the Biakanja balancing test, that “ while [the plaintiffs' home] was not constructed with the intention of ownership passing to these particular plaintiffs, the [plaintiffs] are members of the class of prospective home buyers for which [the builder] admittedly built the dwelling. Thus as a matter of legal effect the home may be considered to have been intended for the plaintiffs․ [Citations.]” (Id. at p. 28, 27 Cal.Rptr. 689, 377 P.2d 889.) Thus, it is sufficient that petitioners are “members of the class of prospective home buyers for which [Lyon] admittedly built the dwelling[s].” (Ibid.)
With respect to work performed by housing subcontractors, in Stewart v. Cox (1961) 55 Cal.2d 857, 13 Cal.Rptr. 521, 362 P.2d 345 (hereafter Stewart ) (an action for negligent construction of a swimming pool by homeowners against a subcontractor, with whom they were not in privity of contract), the high court reached a similar conclusion in applying the first factor of the Biakanja balancing test. (Id. at p. 863, 13 Cal.Rptr. 521, 362 P.2d 345 [“it was obvious that the pool for which [the subcontractor] provided the gunite work was intended for the plaintiffs.”].)
In the recent decisions in Zamora v. Shell Oil Co. (1997) 55 Cal.App.4th 204, 212, 63 Cal.Rptr.2d 762 (hereafter Zamora ), and Fieldstone Co. v. Briggs Plumbing Products, Inc. (1997) 54 Cal.App.4th 357, 368, 62 Cal.Rptr.2d 701 (hereafter Fieldstone ), this court relied on Ott, supra, 31 Cal.App.4th at page 1455, 37 Cal.Rptr.2d 790 in applying a more stringent “ ‘intended to affect’ the plaintiffs in any way particular to the plaintiffs” approach to the analysis regarding the first factor of the Biakanja balancing test. This approach was warranted by the fact that (1) Ott involved a negligence action against manufacturers of milking machines for recovery of lost profits suffered by the owners of a dairy farm as a result of alleged defects in the machines; and (2) like Ott, both Zamora and Fieldstone involved actions in negligence against manufacturers of allegedly defective chattels for recovery of alleged economic loss (resulting from defective plastic plumbing systems in Zamora, supra, 55 Cal.App.4th at p. 206, 63 Cal.Rptr.2d 762, and from defective bathroom sinks in Fieldstone, supra, 54 Cal.App.4th at p. 362, 62 Cal.Rptr.2d 701). Neither Zamora nor Fieldstone involved an action in negligence against a housing developer, general contractor or subcontractor. Thus, with respect to the first Biakanja factor, we conclude the decisions in Sabella and Stewart are controlling.
B. Foreseeability of harm to petitioners
For purposes of determining whether a defendant owed a duty of care to a plaintiff in a given case, the Supreme Court cases that have addressed the second Biakanja factor (“foreseeability of harm to the plaintiff”) in the construction defect context have held that harm to homeowners caused by negligent construction is foreseeable. (Stewart, supra, 55 Cal.2d at p. 863, 13 Cal.Rptr. 521, 362 P.2d 345 [“it was obvious that ․ property damage to [the homeowners] ․ was foreseeable in the event the [pool subcontractor's] work was so negligently done as to permit water to escape”]; Sabella, supra, 59 Cal.2d at p. 28, 27 Cal.Rptr. 689, 377 P.2d 889[“[i]t is apparent that harm was foreseeable to prospective owners when the home was constructed upon the inadequately compacted earth in the lot”].)
Here, it is unclear from the record which of the alleged construction defects in these actions have resulted in physical injury to other property. However, even as to the alleged violations of governing building codes, it is foreseeable that such code violations may result in otherwise preventable injury to persons or other property. For example, it is foreseeable that an insufficient fire wall in a condominium may fail in the event there is a fire in an adjoining unit, resulting in a conflagration that could have been prevented had the fire wall been constructed in compliance with the minimum building code safety standards. Thus, for purposes of determining whether Lyon and subcontractors owed petitioners a duty of care, we conclude the second Biakanja factor is met.
C. Degree of certainty petitioners suffered harm
Counsel for the Association explained during the hearing on the subject in limine motions that the Association was prepared to present evidence of Lyon's failure to comply with the Uniform Building Code and other governing codes. Although we disagree with the analysis in Huang v. Garner (1984) 157 Cal.App.3d 404, 203 Cal.Rptr. 800 (hereafter Huang), in other respects (for reasons we shall explain), we agree with the Huang court's conclusion that evidence of a negligent failure by a developer or contractor to comply with the minimum standards set forth in governing building codes, supported by evidence of the cost to repair the building code violations, is sufficient to satisfy the Biakanja “degree of certainty of harm” factor:
“Failure to comply with the Uniform Building Code by a developer-contractor involves potential risk of harm to later purchasers. In this case ample evidence was offered with respect to the cost of repairing the subject defects. Thus it is relatively certain that plaintiffs have suffered injury as a result of the defects․” (Id. at p. 424, 203 Cal.Rptr. 800.)
Unlike Huang, the record here is largely devoid of evidence on this question because Lyon and subcontractors elected to challenge petitioners' negligence causes of action by way of motions in limine, rather than by way of a motion for summary adjudication based on evidence. However, we are persuaded the Association's offer of proof, which identifies the parties' various expert witnesses and purports to summarize their expected expert opinion testimony at trial, is sufficient to show the requisite reasonable certainty of harm for purposes of determining whether Lyon and subcontractors owed petitioners a duty of care.
Here, the Association asserted in its proposed written offer of proof that the expert testimony of the engineers retained by both the Association and Lyon would establish that (1) during the investigation at Provenal, the engineers “observed violations of the Uniform Building Code, including failures to properly construct shear walls and failures to properly connect shear walls to other building components;” and (2) “[s]uch shear walls and connections are required under the Uniform Building Code to prevent or minimize property damage and personal injury in the event of seismic and wind forces.”
With respect to allegedly defective fire protection in party walls, the Association stated in its offer of proof that the expert testimony of the architects retained by both the Association and Lyon would establish that (1) during the investigation at Provenal, the architects “observed violations of the Uniform Building Code, including failures to properly construct one-hour and two-hour fire protection in party walls;” and (2) “[s]uch fire protection measures are required under the Uniform Building Code to prevent or minimize property damage and personal injury in the event of a fire.”
Finally, with regard to allegedly defective electrical installations, the Association asserted in its offer of proof that the expert testimony of the electrical engineers retained by both the Association and Lyon would establish that, during the investigation at Provenal, the electrical engineers “observed numerous violations of the National Electrical Code, including failures to support electrical cables, improperly supported light fixtures, and improperly labeled electrical circuits.”
The Association's offer of proof also asserts the cost estimators for both the Association and Lyon will testify that the repairs of these various code violations will cost several hundreds of thousands of dollars.
Petitioners, Lyon and subcontractors agree that many of the alleged building code violations have not resulted in physical injuries to persons or other property. However, it is clear even from the limited record before us that the Association's offer of proof does not constitute a comprehensive list of all the alleged construction defects.
With respect to its negligence cause of action, the Association alleges in paragraph 35 of its complaint that Lyon and subcontractors “negligently, carelessly, tortiously and wrongfully failed to use reasonable care in the design, development, manufacture, building, contracting, construction, installation, marketing, and mass production of the project, including the condominiums and common areas thereof.” The Association's construction defect allegations are set forth in paragraph 18 of its complaint:
“(a) The roofing, decking, railings, flooring, windows, doors, trim, stairs, landings, conduit, waterproofing, stucco, sheet metal, drywall, fire protection, carpentry, framing, painting[,] mechanical, acoustical and electrical systems and other systems and components throughout the project are defective, unsound, and are failing; they leak, and are staining, corroding, cracking, breaking down and deteriorating due to defective design, workmanship and materials, causing property damage.
“(b) The plumbing, piping, irrigation, ventilation, water and sewage systems at the project are defective, have failed, and are failing, causing property damage.
“(c) Site drainage and the drainage, waterproofing and weatherproofing systems throughout the project are improper, causing moisture and water to intrude and/or develop throughout the project [ ] causing deterioration and failure of building materials and other forms of property damage.”
In paragraph 19, the Association also alleges that “[t]he aforementioned deficiencies have caused damage and present health and safety risks to the residents of the Project.” 5
For purposes of our analysis as to whether Lyon and subcontractors owed petitioners a duty of care, it is immaterial whether some of the alleged construction defects have resulted in no physical injury to persons or other property. The Association's offer of proof, and the construction defect allegations in its complaint in connection with the negligence cause of action, are sufficient to show the requisite certainty under Biakanja that petitioners have suffered latent harm.
Citing our decisions in Zamora, supra, 55 Cal.App.4th 204, 63 Cal.Rptr.2d 762, and Fieldstone, supra, 54 Cal.App.4th 357, 62 Cal.Rptr.2d 701, as well as the decision in Khan v. Shiley, Inc. (1990) 217 Cal.App.3d 848, 266 Cal.Rptr. 106, Lyon contends petitioners are unable to show the requisite degree of certainty of harm because they cannot establish they have suffered “appreciable present damage.” While Lyon's contention is relevant to the issue of whether petitioners may recover economic loss damages in negligence for construction defects which have not resulted in personal injury or physical damage to other property, it is not relevant to the issue of whether Lyon and subcontractors owed petitioners a duty of care. Thus, for purposes of determining whether Lyon and subcontractors owed petitioners a duty of care, we conclude the third Biakanja factor is met.
D. Closeness of connection between the conduct of real parties in interest and the alleged injuries suffered
Lyon and subcontractors do not vigorously contend their conduct is remote to petitioners' alleged harm. Their alleged conduct is sufficiently connected to the alleged construction defects alleged in the petitioners' pleadings. (Stewart, supra, 55 Cal.2d at p. 863, 13 Cal.Rptr. 521, 362 P.2d 345 [“the court found, supported by ample evidence, that the injury was caused by [the pool subcontractor's] negligence”]; Sabella, supra, 59 Cal.2d at p. 28, 27 Cal.Rptr. 689, 377 P.2d 889 [“there was found to be a close connection between the negligent elements of workmanship for which defendant contractor must be held responsible.”]; and Huang, supra, 157 Cal.App.3d at p. 424, 203 Cal.Rptr. 800[“[c]ertainly defendants' defective construction of the building directly caused the injuries suffered by plaintiffs”].)
E. Moral blame attached to the conduct of Lyon and subcontractors
In Connor v. Great Western Sav. & Loan Assn. (1968) 69 Cal.2d 850, 867, 73 Cal.Rptr. 369, 447 P.2d 609 (hereafter Connor ), Chief Justice Traynor discussed the moral blame that attaches to a defendant's failure to exercise due care in the construction of homes:
“[Defendant] failed of its obligation to the buyers, the more so because it was well aware that the usual buyer of a home is ill-equipped with experience or financial means to discern such structural defects. [Citation.] Moreover a home is not only a major investment for the usual buyer but also the only shelter he has. Hence it becomes doubly important to protect him against structural defects that could prove beyond his capacity to remedy.”
Chief Justice Traynor's observations are relevant here in light of petitioners' allegations and offers of proof that the construction of their homes fell below the standard of care and failed to comply with the minimum requirements for shear walls and fire walls as set forth in the Uniform Building Code, and the minimum requirements set forth in the National Electrical Code. In Huang, supra, 157 Cal.App.3d at page 424, 203 Cal.Rptr. 800, the court addressed the moral blameworthiness of violating building codes and contracting regulations:
“[C]onsidering the importance of the minimum standards for housing set forth in the pertinent provisions of the Uniform Building Code, the violation of those standards involves sufficient ‘moral blame’ to meet the fifth of the six criteria adopted in J'Aire; particularly where, as here, there is no showing that functionally equivalent precautions were alternatively undertaken.”
Petitioners assert that assessing moral blame for violating building codes reflects California's strong policy in favor of quality construction of homes. We agree. This strong policy determination is reflected in the case law, from Chief Justice Traynor's observations in Connor, supra, 69 Cal.2d at page 867, 73 Cal.Rptr. 369, 447 P.2d 609 (discussed supra ), to the observation made by this court in Sumitomo Bank v. Taurus Developers, Inc. (1986) 185 Cal.App.3d 211, 225, 229 Cal.Rptr. 719 (hereafter Sumitomo Bank ), that “[n]egligent construction principles rest on a policy determination that purchasers of homes should not be harmed by defective housing caused by a breach of the duty to construct properly․ [Citation.]”
F. Policy of preventing future harm
The policy of preventing future harm is fundamental to the tort system, and California case law demonstrates this policy applies to safeguarding against preventable construction defects which result in physical injuries to people and property. In Sabella, supra, 59 Cal.2d at page 29, 27 Cal.Rptr. 689, 377 P.2d 889 (Traynor, C.J.concurring), our high court stated:
“[T]he prevention of future negligent construction of buildings upon insufficiently supportive material would not be furthered by exempting [the builder] from liability for his negligence. [Citations.]”
Five years later in Connor, supra, 69 Cal.2d at pages 867-868, 73 Cal.Rptr. 369, 447 P.2d 609, Chief Justice Traynor eloquently expressed the judiciary's concern for proper construction of housing in California:
“The admonitory policy of the law of torts calls for the imposition of liability on [defendant] for its conduct in this case. Rules that tend to discourage misconduct are particularly appropriate when applied to an established industry. [¶] By all the foregoing tests, [defendant] had a duty to exercise reasonable care to prevent the construction and sale of seriously defective homes to plaintiffs. ․ In any event, there is no enduring social utility in fostering the construction of seriously defective homes.”
Here, petitioners have alleged causes of action in negligence against a home developer, a general contractor, and various housing subcontractors for recovery of damages resulting from numerous alleged construction defects, including but not limited to serious violations of minimum standards set forth in the Uniform Building Code and other governing codes. The policy concern for ensuring proper construction of vital structural housing components, such as shear walls, is meant to protect not only the physical structure, but also the personal safety of all homeowners.6
G. Conclusion
Determining whether a defendant owes a duty of care is a policy determination to be made upon careful balancing of the Biakanja factors we have discussed. Upon careful consideration of these factors in light of the facts presented in the Aas case and Provenal case now before us, we conclude Lyon and subcontractors owed a duty of care to the Association and the Aas petitioners with respect to the construction of the condominiums and single-family tract homes which are the subjects of the construction defect actions involved in these writ proceedings. To the extent Lyon and subcontractors may have breached their duty of care, but such negligence in construction has only produced defects (such as building code violations) which have not resulted in physical injury to persons or other property, a cause of action in negligence will not have accrued under our holding regarding the recoverability in negligence of pure economic loss damages (discussed post ), because petitioners have not suffered cognizable, recoverable damage.
We note, however, that the 10-year statute of limitations for latent defects in planning or construction of improvements to real property as set forth in Code of Civil Procedure section 337.15 will continue to run. Should the alleged latent construction defects later result in physical harm to persons or other property within the 10-year limitations period, a cause of action in negligence would then accrue if the defects resulted from negligent construction.
RECOVERY OF DAMAGES FOR CONSTRUCTION DEFECTS NOT RESULTING IN PERSONAL INJURY OR DAMAGE TO OTHER PROPERTY
The second issue we decide is whether homeowners associations and individual owners of mass-produced housing have the right to recover economic loss damages in negligence against developers, general contractors and subcontractors for construction defects, including but not limited to those (such as insufficient shear walls, fire walls, and electrical installations) involving violations of minimum construction standards set forth in the Uniform Building Code and other governing building codes, that have not resulted in personal injury or physical damage to other property.
We hold that, under the “economic loss doctrine” adopted by the California Supreme Court in Seely v. White Motor Co. (1965) 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145 (hereafter Seely ), homeowners associations and individual homeowners do not have a private right of action in negligence against developers, general contractors and subcontractors for recovery of economic losses they sustain as a proximate result of construction defects in mass-produced housing, including but not limited to those involving violations of governing building codes, which have not yet caused personal injury or physical damage to property other than the defectively constructed portions of the residential structures themselves. In reaching this conclusion, we begin our analysis by examining both the meaning of “economic loss” and the nature and significance of the “economic loss doctrine.”
A. Definition of “economic loss”
Various attempts have been made to define the term “economic loss” and to distinguish “economic loss” from “property damage” and “physical damage to property.” 7 For example, two commentators in 1980 opined that “[t]here is no sound rationale for distinguishing property damage from economic loss, and the line between physical damage to property and economic loss due to product failure has proven impossible to draw.” (Rabin & Grossman, Defective Products or Realty Causing Economic Loss: Toward a Unified Theory of Recovery (1980-1981) 12 Sw.U.L.Rev. 5, 21, fns. omitted (hereafter Defective Products ).) These commentators examined cases in which there was neither express warranty by the builder or manufacturer nor privity of contract between the plaintiff and defendant, and in which the plaintiff was suing for “economic loss” in contrast to personal injury or physical damage to property. (Id. at pp. 5-6.) Noting again that “economic loss cases cannot easily be separated from cases involving physical damage,” 8 the commentators attempted to illustrate the meaning of the term “economic loss”:
“Typical cases involving economic loss without privity or express warranty are: 1) a house is poorly built and the second purchaser seeks the cost of repairs from the original builder (repair damages); and 2) a new truck purchased from a dealer does not run properly and the owner seeks from the manufacturer the difference in value between the truck as it is and the truck as it should be (direct economic loss), plus damages for loss of use of the truck while it is being repaired (consequential or indirect loss)․” (Id. at p. 6.)
The court in San Francisco Unified School Dist. v. W.R. Grace & Co. (1995) 37 Cal.App.4th 1318, 1327, footnote 5, 44 Cal.Rptr.2d 305 (San Francisco Unified ), offered this definition of “economic loss”:
“ ‘Economic loss' as enunciated in Seely has been defined as the diminution in value of the product because it is inferior in quality and does not work for the general purposes for which it was manufactured and sold. [Citation.] ‘ “․ [E]conomic loss 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 personal injury or damage to other property.” ’ [Citations, original italics.]․”
Noting that “the line between physical injury to property and economic loss reflects the line of demarcation between tort theory and contract theory,” the Court of Appeal in Sacramento Regional Transit Dist. v. Grumman Flxible (1984) 158 Cal.App.3d 289, 294, 204 Cal.Rptr. 736 (Sacramento Regional Transit ), deemed “economic loss” to be synonymous with “economic harm,” and defined these terms as “ ‘ ․ “damages for inadequate value, costs of repair and replacement of the defective product or consequent loss of profits --without any claim of personal injury or damages to other property․” ’ [Citations.]” (Ibid.)
In our recent decision in Fieldstone, supra, 54 Cal.App.4th at page 364, 62 Cal.Rptr.2d 701, we acknowledged with approval the definitions of “economic loss” set forth in Sacramento Regional Transit and San Francisco Unified. Following our decision in Fieldstone, we utilize this definition of “economic loss” for purposes of the present writ proceedings.
B. Seely “economic loss doctrine”
Under the “economic loss doctrine” adopted by the Supreme Court in dicta in the opinion authored by Chief Justice Traynor in Seely, supra, 63 Cal.2d at page 18, 45 Cal.Rptr. 17, 403 P.2d 145, a manufacturer may be held strictly liable for physical injuries to persons or property, but not for purely economic loss, caused by defective products. (Fieldstone, supra, 54 Cal.App.4th at p. 363, 62 Cal.Rptr.2d 701.) The high court in Seely explained its reasoning:
“The distinction that the law has drawn between tort recovery for physical injuries and warranty recovery for economic loss ․ rests ․ on an understanding of the nature of the responsibility a manufacturer must undertake in distributing his products. He can appropriately be held liable for physical injuries caused by defects by requiring his goods to match a standard of safety defined in terms of conditions that create unreasonable risks of harm. He cannot be held for the level of performance of his products in the consumer's business unless he agrees that the product was designed to meet the consumer's demands. A consumer should not be charged at the will of the manufacturer with bearing the risk of physical injury when he buys a product on the market. He can, however, be fairly charged with the risk that the product will not match his economic expectations unless the manufacturer agrees that it will.” (Seely, supra, 63 Cal.2d at p. 18, 45 Cal.Rptr. 17, 403 P.2d 145.)
The Seely court also reasoned that to allow consumers to recover for economic losses when the performance of products fails to meet their expectations would subject manufacturers to liability “for damages of unknown and unlimited scope.” (Id. at p. 17, 45 Cal.Rptr. 17, 403 P.2d 145.)
Of particular relevance to the present writ proceedings, the Seely court also extended the application of the economic loss doctrine to defective product actions sounding in negligence:
“․ Even in actions for negligence, a manufacturer's liability is limited to damages for physical injuries and there is no recovery for economic loss alone. (Wyatt v. Cadillac Motor Car Division, 145 Cal.App.2d 423, 426, 302 P.2d 665, disapproved on other grounds in Sabella v. Wisler, 59 Cal.2d 21, 31, 27 Cal.Rptr. 689, 377 P.2d 889․” (Seely, supra, 63 Cal.2d at p. 18, 45 Cal.Rptr. 17, 403 P.2d 145.)
It is widely recognized by the courts in California and commentators that this one-sentence statement by Chief Justice Traynor in Seely, extending the economic loss doctrine to defective product claims brought under a negligence theory of liability, was dicta, because Seely involved only a commercial truck buyer's breach of express warranty action against the manufacturer and retailer for lost profits and money paid on the purchase of the allegedly defective truck. (See, e.g., Zamora, supra, 55 Cal.App.4th at p. 211, 63 Cal.Rptr.2d 762 [“Seely involved a breach of warranty claim making the court's statement on negligence technically dictum”]; North American Chemical Co. v. Superior Court, supra, 59 Cal.App.4th at p. 779, 69 Cal.Rptr.2d 466 [“Although negligence was not an issue in Seely, the court purported to extend its limitation on recovery of economic losses to that theory as well. This, of course, was only dicta.”]; Rabin & Grossman, Defective Products, supra, 12 Sw.U.L.Rev. at p. 31 [“Chief Justice Traynor's statement was dictum, since plaintiff in Seely never relied on a negligence theory.”].)
Nevertheless, courts in California have applied Seely to negligence actions, thereby generally limiting a manufacturer's liability for negligence to physical injuries, and disallowing recovery in such actions for economic loss alone. (See, e.g., Sacramento Regional Transit Dist., supra, 158 Cal.App.3d at p. 298, 204 Cal.Rptr. 736; and Zamora, supra, 55 Cal.App.4th at p. 211, 63 Cal.Rptr.2d 762.)
The economic loss doctrine has been criticized on the ground that, to the extent it denies homeowners the right to recover in tort where a defect in construction has not resulted in physical harm to persons or other property, it leaves the average family's largest investment unprotected. (See, e.g., Rabin & Grossman, Defective Products, supra, 12 Sw.U.L.Rev. at p. 7.) The doctrine has also been criticized on the grounds there is no sound rationale for distinguishing property damage from economic loss (id. at p. 21, fn. 85, citing Justice Peters' diss. opn. in Seely, supra, 63 Cal.2d at p. 28, 45 Cal.Rptr. 17, 403 P.2d 145), and (as we discussed ante ) “the line between physical damage to property and economic loss due to product failure has proven impossible to draw” (Rabin & Grossman, Defective Products, supra, 12 Sw.U.L.Rev. at p. 21 & fn. 86, citing Ribstein, Guidelines for Deciding Product Liability Cases (1978) 29 Mercer L.Rev. 493).
However, one court has recognized that the economic loss doctrine “is necessary so that the Uniform Commercial Code, governing commercial transactions, is not completely subsumed by the law of tort. [Citations.]” (Sacramento Regional Transit Dist., supra, 158 Cal.App.3d at p. 298, 204 Cal.Rptr. 736, italics added.) The Sacramento Regional Transit court also stated that “the line between physical injury to property and economic loss reflects the line of demarcation between tort theory and contract theory.” (Id. at p. 294, 204 Cal.Rptr. 736; see also Fieldstone, supra, 54 Cal.App.4th at pp. 363-364, 62 Cal.Rptr.2d 701.)
C. The Seely economic loss doctrine-antecedents and progeny
In opposing these writ petitions, Lyon and subcontractors contend that mass-produced single-family homes and condominiums are treated as products for purposes of strict products liability, and, under the economic loss doctrine, damages for construction defects in such housing are not recoverable in negligence unless the defects have caused physical injury to persons or other property. Lyon also contends the petitioners cannot show that the alleged construction defects at issue in these writ proceedings have resulted in present physical injury to persons or other property, and thus the court properly granted the in limine orders preventing petitioners from introducing, in support of their negligence causes of action, evidence of the alleged construction defects and the petitioners' related economic losses. We agree.
In support of these contentions, Lyon and subcontractors properly rely on the earlier-cited statement in Seely, supra, 63 Cal.2d at page 18, 45 Cal.Rptr. 17, 403 P.2d 145, that “[e]ven in actions for negligence, a manufacturer's liability is limited to damages for physical injuries and there is no recovery for economic loss alone.” As authority for this dicta, the court in Seely cited Wyatt v. Cadillac Motor Car Division, supra, 145 Cal.App.2d at page 426, 302 P.2d 665 (Wyatt ). (Seely, supra, 63 Cal.2d at p. 18, 45 Cal.Rptr. 17, 403 P.2d 145.) In Wyatt, the purchasers of an automobile sued the manufacturer alleging a cause of action for negligence in the manufacture and assembly of the automobile, which the plaintiffs alleged caused a piece of paper to be sealed in what was known as a breather pipe, thereby causing the automobile to perform in an unsatisfactory manner. (Wyatt, supra, 145 Cal.App.2d at pp. 424-425, 302 P.2d 665.) In affirming the judgment of dismissal after the trial court sustained the defendant manufacturer's demurrer without leave to amend, the court in Wyatt stated that an action in negligence would lie only where the alleged defect “might be reasonably expected to produce bodily injury or damage to other property,” but the plaintiffs had failed to allege any such injury or damage in their complaint. (Id. at p. 426, 302 P.2d 665, italics added.) We proceed to discuss both the pre- and post-Seely decisions.
1. Sabella imposed liability for physical property damage resulting from negligent construction
Petitioners and amicus curiae Consumer Attorneys of California contend that, 35 years ago, our high court in Sabella, supra, 59 Cal.2d 21, 27 Cal.Rptr. 689, 377 P.2d 889 rejected the argument that a homeowner can recover damages in negligence for construction defects only if the alleged negligence has resulted in physical injury to persons or other property. We disagree.
In Sabella, with Chief Justice Traynor concurring, the Supreme Court allowed homeowners to recover damages in a negligence action against the builder who had negligently constructed their home on inadequately compacted soil. (Sabella, supra, 59 Cal.2d at pp. 27-28, 27 Cal.Rptr. 689, 377 P.2d 889, Traynor, C.J., conc. opn.)
The facts in Sabella, and the high court's treatment therein of the Wyatt requirement of proof of personal injury or property damage, merit close scrutiny in light of the fact that the statement two years later in Seely (“Even in actions for negligence, a manufacturer's liability is limited to damages for physical injuries and there is no recovery for economic loss alone”), upon which Lyon and subcontractors rely in the present writ proceedings, is based directly on Wyatt and the high court's pre-Seely treatment of Wyatt in Sabella.
In Sabella (as we have discussed), the owners of a home brought an action for negligent construction against the builder. (Sabella, supra, 59 Cal.2d at p. 27, 27 Cal.Rptr. 689, 377 P.2d 889.) The trial court found the builder negligently constructed the home on inadequately compacted soil. (Id. at p. 25, 27 Cal.Rptr. 689, 377 P.2d 889.) The trial court also found that the sewer pipe from the house broke and began to leak near the house, causing water to infiltrate the unstable earth below the foundation, causing the house to settle. (Id. at pp. 26-27, 27 Cal.Rptr. 689, 377 P.2d 889.) The trial court further found that the settling of the house caused the foundation and walls to crack, and that this “resultant damage to the house ․ was ․ the direct and proximate result of the negligence of [the builder].” (Id. at p. 27, 27 Cal.Rptr. 689, 377 P.2d 889.)
In affirming the judgment for the homeowners, the court in Sabella stated that its holding followed from its earlier holding in Stewart, supra, 55 Cal.2d at pages 860 and 863, 13 Cal.Rptr. 521, 362 P.2d 345. To fully understand the Sabella decision, we discuss Stewart.
In Stewart, the high court held a subcontractor liable for his negligent installation of gunite concrete material in a swimming pool, which cracked and leaked, resulting in physical damage to the pool and property damage to the surrounding yard and house from escaping water. (Stewart, supra, 55 Cal.2d at p. 863, 13 Cal.Rptr. 521, 362 P.2d 345.) In affirming the judgment in favor of the homeowner and against the subcontractor for all of the alleged damages, including the damage to the defective pool itself, the court in Stewart stated that whether a contractor or subcontractor will be held liable for damage to a third person without privity is a matter of policy which must be determined by applying and balancing the factors set forth in Biakanja v. Irving, supra, 49 Cal.2d 647, 320 P.2d 16.9 (Stewart, supra, 55 Cal.2d at p. 863, 13 Cal.Rptr. 521, 362 P.2d 345.) The Stewart court concluded that the pool for which the subcontractor provided the gunite work “was intended for the [homeowners],” the transaction between the general contractor and the subcontractor “was intended to specially affect plaintiffs,” and the property damage to the homeowners “was foreseeable in the event the work was so negligently done as to permit water to escape,” and thus “[u]nder all the circumstances [the subcontractor] should not be exempted from liability if negligence on his part was the proximate cause of the damage to [the homeowners].” (Ibid.)
The Stewart case thus involved physical damage to property other than the defective pool gunite itself. The Stewart decision is significant because it permitted the homeowners to recover in negligence against the pool subcontractor despite lack of privity, and the recovery was for the physical damage to the pool itself as well as for the resulting physical damage to surrounding property.
In deciding Sabella two years later, the high court noted its earlier statement in Stewart that whether in a specific situation a defendant will be held liable for negligence causing harm to the property of another “ ‘is a matter of policy and involves the balancing of various factors, among which are the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that he suffered injury, the closeness of the connection between the defendant's conduct and the injury suffered, and the policy of preventing future harm.’ [Citation.]” (Sabella, supra, 59 Cal.2d at p. 28, 27 Cal.Rptr. 689, 377 P.2d 889.)
The court in Sabella thus applied the Biakanja factors 10 (ante, fn. 2) and concluded the builder was properly held liable for negligent construction of the plaintiffs' home.11
Turning now to the high court's treatment of Wyatt in Sabella, the court first noted that the builder in Sabella was attempting to distinguish the Stewart case by arguing that damage to property other than the negligently constructed swimming pool was foreseeable in Stewart, whereas the only foreseeable harm in Sabella was damage to the house itself. (Sabella, supra, 59 Cal.2d at p. 29, 27 Cal.Rptr. 689, 377 P.2d 889.) In rejecting this argument, the high court reasoned that “the plaintiffs in the Stewart case recovered for damages to the swimming pool as well as for the damaged surrounding property.” (Ibid.)
The high court in Sabella also rejected the defendant builder's contention that imposition upon him of liability for his negligence in construction was contrary to the holding in Wyatt that the automobile manufacturer's duty to a purchaser not in privity was “confined to the exercise of reasonable care to see that the car was so manufactured and assembled as to be free from defects which might be reasonably expected to produce bodily injury or damage to other property.” (Sabella, supra, 59 Cal.2d at p. 29, 27 Cal.Rptr. 689, 377 P.2d 889, quoting from Wyatt, supra, 145 Cal.App.2d at p. 426, 302 P.2d 665, italics added.) Concluding that the holding in Wyatt was inconsistent with its own holding in Stewart, the high court in Sabella disapproved Wyatt “to any extent [it] might be applied to contractors as distinguished from conventional manufacturers of goods.” (59 Cal.2d at pp. 29-30, 27 Cal.Rptr. 689, 377 P.2d 889.)
Notwithstanding the high court's disapproval of the Wyatt decision, the facts in Sabella demonstrate the court's holding therein was consistent with the economic loss doctrine the court later adopted in Seely, supra, 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145. As we have discussed, the homeowners in Sabella sued the builder for negligently constructing their home on uncompacted soil. The builder's negligence in Sabella proximately caused “resultant damage” to the house in the form of cracks in the foundation and walls. (Sabella, supra, 59 Cal.2d at pp. 27-28, 27 Cal.Rptr. 689, 377 P.2d 889.) Because the builder's negligence had caused such “resultant damages,” 12 the homeowners were able to recover damages in negligence for the physical injury to the house itself.
Two years later, Chief Justice Traynor, who had concurred in the Stewart and Sabella decisions and was now writing for the Supreme Court in Seely (discussed supra ), acknowledged that the court had disapproved Wyatt “on other grounds in Sabella v. Wisler.” (Seely, supra, 63 Cal.2d at p. 18, 45 Cal.Rptr. 17, 403 P.2d 145.) As we have discussed, however, the high court's disapproval of Wyatt in Sabella does not permit homeowners to recover purely economic losses in actions against contractors for negligent construction. Rather, by disapproving Wyatt, the Sabella court was permitting homeowners to recover damages for “resultant” physical injuries to the home itself caused by a contractor's negligence.
2. Connor
The decision in Connor, supra, 69 Cal.2d 850, 73 Cal.Rptr. 369, 447 P.2d 609 does not support petitioners' contention that their alleged economic loss damages are recoverable in negligence. In 1968, three years after he authored the opinion in Seely, supra, 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145, Chief Justice Traynor authored the court's opinion in Connor, in which the court reaffirmed without modification its pre-Seely decision in Sabella, supra, 59 Cal.2d 21, 27 Cal.Rptr. 689, 377 P.2d 889. (Connor, supra, 69 Cal.2d at p. 869, 73 Cal.Rptr. 369, 447 P.2d 609.)
In Connor, the plaintiffs were homeowners who had purchased single-family homes in a residential tract development. The builder had negligently constructed the homes without regard to soil conditions, and had negligently laid slab foundations on expansive adobe soil without taking proper precautions recommended by soil engineers. (Connor, supra, 69 Cal.2d at pp. 856-857, 73 Cal.Rptr. 369, 447 P.2d 609.)
The homeowners in Connor brought suit seeking rescission or damages from the various parties involved in the tract development. (Connor, supra, 69 Cal.2d at p. 856, 73 Cal.Rptr. 369, 447 P.2d 609.) The homeowners sought to recover damages in negligence against the savings and loan association which had not only made the necessary construction loans to the developer, but had become an active participant in the home construction enterprise. (Id. at p. 864, 73 Cal.Rptr. 369, 447 P.2d 609.) In holding that the construction lender was under a duty to the buyers of the homes to exercise reasonable care to protect them from damages caused by major structural defects, and that “[t]he admonitory policy of the law of torts calls for the imposition of liability on [the lender] for its conduct in this case,” the court in Connor applied the six-factor balancing test announced in Biakanja v. Irving, supra, 49 Cal.2d at page 650, 320 P.2d 16, the same balancing test the court had previously applied in Sabella. (Connor, supra, 69 Cal.2d at pp. 865-867, 73 Cal.Rptr. 369, 447 P.2d 609.)
In reaching the decision to impose liability on the construction lender for its own negligence, Chief Justice Traynor made clear that, in the view of the Supreme Court, it was “doubly important” to protect homeowners against construction defects and provide redress in tort:
“[A] home is not only a major investment for the usual buyer but also the only shelter he has. Hence it becomes doubly important to protect him against structural defects that could prove beyond his capacity to remedy.” (Connor, supra, 69 Cal.2d at p. 867, 73 Cal.Rptr. 369, 447 P.2d 609.)
It is important to note that in Connor the negligent construction of the plaintiffs' homes on expansive soil did result in cracked foundations and other physical “resultant” damages to property. (Id. at p. 857, 73 Cal.Rptr. 369, 447 P.2d 609.) Although the high court in Connor referred to its Stewart and Sabella decisions to illustrate the expansion of liability in actions for negligent construction, Connor did not involve a claim in negligence for recovery of purely economic losses.
3. Kriegler v. Eichler Homes, Inc.
Lyon contends that, because strict products liability in tort applies to California homebuilders under the landmark decision in Kriegler v. Eichler Homes, Inc. (1969) 269 Cal.App.2d 224, 74 Cal.Rptr. 749 (Kriegler ) and its progeny, homebuilders are entitled to the same defenses available to producers of other mass-produced goods, including the “economic loss doctrine” defense that an alleged construction defect has not resulted in personal injury or damage to other property, and thus petitioners' attempt “to limit the application of the economic loss doctrine to homebuilders” is not justified.
In holding that homebuilders engaged in the mass production and sale of homes are strictly liable in tort for construction defects, the Kriegler court reasoned that, “in terms of today's society, there are no meaningful distinctions between Eichler's mass production and sale of homes and the mass production and sale of automobiles and that the pertinent overriding policy considerations are the same.” (Kriegler, supra, 269 Cal.App.2d at p. 227, 74 Cal.Rptr. 749.)
The Kriegler case involved a defective steel tubing radiant heating system installed in the concrete floor slab of a home. (Kriegler, supra, 269 Cal.App.2d at pp. 225-226, 74 Cal.Rptr. 749.) Due to corrosion, the steel tubing failed, causing the radiant heating system to fail with the result that the entire heating system had to be replaced with a new one. (Id. at p. 226, 74 Cal.Rptr. 749.) It is unclear from the opinion whether the defective heating system caused physical injury to other property. The Kriegler court did, however, rely on Schipper v. Levitt & Sons, Inc. (1965) 44 N.J. 70, 207 A.2d 314, which it characterized as being “a case almost on all fours with the instant one.” (Kriegler, supra, 269 Cal.App.2d at pp. 227, 74 Cal.Rptr. 749.) The court in Kriegler noted that the Supreme Court of New Jersey in Schipper stated that certain kinds of home construction defects endanger the well-being of homebuyers and others, serious injury is foreseeable, and “ ‘[t]he public interest dictates that if such injury does result from the defective construction, its cost should be borne by the responsible developer who created the danger and who is in the better economic position to bear the loss rather than by the injured party who justifiably relied on the developer's skill and implied representation.’ [Citation.]” (Kriegler, supra, 269 Cal.App.2d at p. 228, 74 Cal.Rptr. 749.)
4. Cooper v. Jevne
Petitioners and amicus curiae Consumer Attorneys of California cite the decision in Cooper v. Jevne (1976) 56 Cal.App.3d 860, 128 Cal.Rptr. 724 (Cooper ) for the proposition that Lyon and subcontractors may be held liable in negligence for building code violations which have not caused physical damage. We disagree.
In Cooper, individual owners of condominiums in a 100-unit condominium complex brought a negligence action against the architects seeking recovery of economic loss damages caused by construction defects resulting from the architects' alleged negligence in designing and supervising the construction of the complex. (Cooper, supra, 56 Cal.App.3d at pp. 864, 867, 128 Cal.Rptr. 724.) The plaintiffs alleged the complex was “constructed in a substandard manner with poor workmanship in violation of various minimum requirements of the Uniform Building Code and in significant deviation from the county-approved plans and specifications with the result that the project, as built, was hazardous to personal safety due to the possibility of structural failure of portions of the building and because of inadequate safeguards from fire.” (Id. at p. 865, 128 Cal.Rptr. 724.)
The trial court in Cooper entered a judgment of dismissal in favor of the defendant architects after sustaining their general demurrer without leave to amend. (Cooper, supra, 56 Cal.App.3d at p. 864, 128 Cal.Rptr. 724.)
The Court of Appeal reversed the judgment of dismissal, and held the condominium owners had stated facts sufficient to constitute a negligence cause of action against the architects for recovery of their alleged construction defect economic losses. (Cooper, supra, 56 Cal.App.3d at p. 869, 128 Cal.Rptr. 724.)
Relying on the Supreme Court's dicta in Seely, supra, 63 Cal.2d at page 18, 45 Cal.Rptr. 17, 403 P.2d 145 (“[e]ven in actions for negligence, a manufacturer's liability is limited to damages for physical injuries and there is no recovery for economic loss alone”), the architects in Cooper contended that a negligence cause of action for economic loss alone could not be stated against them. (Cooper, supra, 56 Cal.App.3d at pp. 867-868, 128 Cal.Rptr. 724.)
The court in Cooper rejected this contention, stating, “[u]nfortunately for the architects, the liability at issue in this case is the malpractice liability of a professional for negligence in the rendition of his services and not that of a manufacturer for defects in his product.” (Cooper, supra, 56 Cal.App.3d at p. 868, 128 Cal.Rptr. 724.) Thus, Cooper is factually distinguishable.
5. J'Aire and its progeny
As we recently acknowledged in Fieldstone, supra, 54 Cal.App.4th at page 367, 62 Cal.Rptr.2d 701, in 1979 the Supreme Court in J'Aire, supra, 24 Cal.3d at page 806, 157 Cal.Rptr. 407, 598 P.2d 60, “held economic damages are recoverable in a negligence action, despite the absence of physical or personal injury, if the parties have a ‘special relationship.’ [Citations.]” Noting the basic principle that “[l]iability for negligent conduct may only be imposed where there is a duty of care owed by the defendant to the plaintiff or to a class of which the plaintiff is a member [citation],” the court in J'Aire held that, in determining whether a defendant owed a plaintiff a duty of care, the courts apply the six Biakanja factors (see fn. 2, ante ). (J'Aire, supra, 24 Cal.3d at p. 804, 157 Cal.Rptr. 407, 598 P.2d 60.) As we have discussed, these are the same Biakanja criteria the high court applied in reaching its earlier decisions in Stewart, supra, 55 Cal.2d 857, 13 Cal.Rptr. 521, 362 P.2d 345; Sabella, supra, 59 Cal.2d 21, 27 Cal.Rptr. 689, 377 P.2d 889; and Connor, supra, 69 Cal.2d 850, 73 Cal.Rptr. 369, 447 P.2d 609.
The facts in J'Aire support Lyon and subcontractors' contention that the decisions in J'Aire and its progeny are inapplicable here. J'Aire involved a restaurant owner/tenant's negligence action against a general contractor for recovery of economic loss damages (in the form of lost profits) allegedly caused by the contractor's negligent delay in completion of a renovation of the leased premises contracted for by the county from whom the plaintiff leased the premises for the operation of his restaurant. (J'Aire, supra, 24 Cal.3d at p. 802, 157 Cal.Rptr. 407, 598 P.2d 60.) The trial court had entered a judgment of dismissal following entry of an order sustaining without leave to amend the defendant general contractor's general demurrer to the plaintiff tenant's negligence cause of action. (Id. at p. 803, 157 Cal.Rptr. 407, 598 P.2d 60.)
In reversing the judgment of dismissal, the Supreme Court first clarified that the only issue presented was “whether a cause of action for negligent loss of expected economic advantage may be maintained under these facts.” (J'Aire, supra, 24 Cal.3d at p. 803, 157 Cal.Rptr. 407, 598 P.2d 60.) The court then applied the six Biakanja factors and determined that the defendant general contractor owed the plaintiff tenant a duty of care to complete the construction work in a manner that would not cause unnecessary injury to the tenant's business. (Id. at pp. 804-805, 157 Cal.Rptr. 407, 598 P.2d 60) In holding the tenant had stated facts sufficient to constitute a cause of action against the general contractor for negligent loss of expected economic advantage, the court reasoned that, “[w]here the risk of harm is foreseeable ․ an injury to the plaintiff's economic interests should not go uncompensated merely because it was unaccompanied by any injury to his person or property.” (Id. at p. 805, 157 Cal.Rptr. 407, 598 P.2d 60.)
The court also stated that its holding in J'Aire “is consistent with the Legislature's declaration of the basic principle of tort liability, embodied in Civil Code section 1714, that every person is responsible for injuries caused by his or her lack of ordinary care. [Fn. and citation omitted.] That section does not distinguish among injuries to one's person, one's property or one's financial interests․ Recovery for injury to one's economic interests, where it is the foreseeable result of another's want of ordinary care, should not be foreclosed simply because it is the only injury that occurs.” (J'Aire, supra, 24 Cal.3d at p. 806, 157 Cal.Rptr. 407, 598 P.2d 60.)
The J'Aire case is factually distinguishable from the construction defect actions at issue here, and thus inapposite, in that it did not involve alleged negligent construction of mass-produced tract housing, but rather an allegedly negligent delay in construction that formed the basis for a cause of action for negligent interference with prospective economic advantage. In our view, the policy consideration which led our high court in Seely, supra, 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145, to apply the “economic loss doctrine” to negligence and strict liability actions against manufacturers (i.e., maintaining the distinction between tort recovery for physical injuries and warranty recovery for economic loss) is of no concern in negligence actions like J'Aire which do not involve defective manufactured products. In this regard it is significant that the court's post-Seely opinion in J'Aire does not mention Seely or the “economic loss doctrine.”
6. Huang
Petitioners rely strongly on Huang, supra, 157 Cal.App.3d 404, 203 Cal.Rptr. 800. Huang involved an action for negligence (and other causes of action) brought by the third set of buyers of an apartment building against the developer (and its related construction company), the architect, and the civil engineer to recover economic loss damages (i.e., cost of repair) resulting from the defendants' alleged negligence in designing and constructing the apartment building. (Id. at pp. 410-411, 203 Cal.Rptr. 800.) The plaintiffs had hired a civil engineer, who had discovered “extensive structural damage” in the garage area of the apartments, and other structural and design defects which had not caused actual physical damages. (Id. at p. 411, 203 Cal.Rptr. 800.) The plaintiffs sought recovery for “physical damages to their property including damages to the structure caused by deflected and cracked beams and dry rot damages to the balcony area.” (Id. at p. 419, 203 Cal.Rptr. 800.)
The plaintiffs in Huang, like the petitioners here, also sought to recover “economic losses including the cost to repair fire walls, shear walls, fire stops, and other alleged defects in the structure which had not caused actual physical damages at the time of trial.” (Huang, supra, 157 Cal.App.3d at pp. 419-420, 203 Cal.Rptr. 800.)
During the trial, the plaintiffs' engineer testified regarding the nature and extent of the damages, and the cost to repair the building to “bring it up to code requirements.” (Huang, supra, 157 Cal.App.3d at p. 411, 203 Cal.Rptr. 800.) Specifically, the 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, many of these claimed defects alleged to be in violation of the [governing] 1961 Uniform Building Code.” (Ibid.) The plaintiffs presented other evidence indicating “that deviation from the building plans during construction also contributed to faulty construction.” (Ibid.)
The Huang defendants made various motions for nonsuit. With respect to the plaintiffs' negligence claim for recovery of economic loss damages, the trial court agreed with the defendants that the plaintiffs could not recover in negligence for economic losses, and granted partial nonsuit in favor of the defendants. (Huang, supra, 157 Cal.App.3d at p. 410, 203 Cal.Rptr. 800.) The plaintiffs appealed.
The Court of Appeal in Huang reversed the judgment in favor of the developer, holding the trial court erred in limiting damages in the negligence cause of action as to plaintiffs' claims for economic damages. (Huang, supra, 157 Cal.App.3d at pp. 418-419, 203 Cal.Rptr. 800.) In so holding, the court noted that “the California Supreme Court in J'Aire Corp. v. Gregory [, supra ], 24 Cal.3d 799, 157 Cal.Rptr. 407, 598 P.2d 60, changed the traditional rule of nonrecovery of economic loss in negligence actions, provided that the plaintiff is able to prove that the risk of harm was reasonably foreseeable and was closely connected with the defendant's conduct and that the damages were not wholly speculative, nor the injury part of the plaintiff's ordinary business risk. [Citation.]” (Huang, supra, 157 Cal.App.3d at p. 420, 203 Cal.Rptr. 800.)
Relying on the Supreme Court's dicta in Seely, supra, 63 Cal.2d at page 18, 45 Cal.Rptr. 17, 403 P.2d 145 (“[e]ven in actions for negligence, a manufacturer's liability is limited to damages for physical injuries and there is no recovery for economic loss alone”), the developer contended the plaintiffs could not recover in negligence damages for economic losses they allegedly sustained as a result of defective construction of the building. (Huang, supra, 157 Cal.App.3d at p. 421, 203 Cal.Rptr. 800.) The Court of Appeal rejected this contention, reasoning that “our Supreme Court in J'Aire Corp. v. Gregory, supra, 24 Cal.3d 799, 157 Cal.Rptr. 407, 598 P.2d 60, has allowed recovery of economic loss to extend beyond the area of professional negligence in the rendition of services, by permitting plaintiffs to recover economic losses in actions for negligent interference with prospective economic advantage where a ‘special relationship’ exists between the parties as described in Biakanja v. Irving, supra, 49 Cal.2d 647, 320 P.2d 16. [Citations.]” (Huang, supra, 157 Cal.App.3d at p. 422, 203 Cal.Rptr. 800.)
With respect to the plaintiffs' negligence cause of action against the developer and his construction company, the court in Huang noted that the issue before it was “whether plaintiff[s] in this case [have] met the criteria set forth in Biakanja v. Irving, supra, 49 Cal.2d 647, 650, 320 P.2d 16, and adopted by the court in J'Aire for demonstrating the ‘special relationship’ between the parties required for recovery of economic losses where the parties are not in privity. Stated otherwise, the question is whether we can determine that defendants owed a duty of care to plaintiffs by applying the Biakanja criteria.” (Huang, supra, 157 Cal.App.3d at p. 423, 203 Cal.Rptr. 800.)
The Huang court applied the six-factor Biakanja balancing test and concluded “these criteria are met.” (Huang, supra, 157 Cal.App.3d at p. 424, 203 Cal.Rptr. 800.) Citing both Sabella and Kriegler (discussed supra ), the court specifically noted that, unlike Cooper, supra, 56 Cal.App.3d 860, 128 Cal.Rptr. 724, the case before it involved a negligence action against a developer standing in the position of a manufacturer of housing:
“It is not argued that the case against [the developer] is one for professional negligence. Rather it is apparently conceded that [the] developer [ ] and his wholly owned [construction company] stand in the position of a manufacturer or supplier of products. (See Kriegler v. Eichler Homes, Inc. (1969) 269 Cal.App.2d 224, 74 Cal.Rptr. 749[ ]; Sabella v. Wisler (1963) 59 Cal.2d 21, 30, 27 Cal.Rptr. 689, 377 P.2d 889.)” (Huang, supra, 157 Cal.App.3d at p. 422, 203 Cal.Rptr. 800.)
With respect to the first Biakanja factor (i.e., the extent to which the transaction was intended to affect the plaintiff), the Huang court cited Cooper, supra, 56 Cal.App.3d at page 869, 128 Cal.Rptr. 724, in concluding “the developer's duty of reasonable care is logically owed to those who subsequently purchase a housing structure allegedly designed and constructed in a defective manner.” (Huang, supra, 157 Cal.App.3d at p. 423, 203 Cal.Rptr. 800.) As we have discussed, the court concluded the other five Biakanja factors were met.
Finally, the Huang court also held the trial court erred in granting nonsuit as to the plaintiffs' negligence claims against the architect and the civil engineer. (Huang, supra, 157 Cal.App.3d at p. 413, 203 Cal.Rptr. 800.) The court concluded “the evidence regarding violations of the Uniform Building Code was sufficient to allow the case to go to the jury upon an instruction as to negligence per se.” (Id. at p. 412, 203 Cal.Rptr. 800.)
We decline to follow the Huang decision. As we have discussed, the analysis in Huang was based primarily on the decision in J'Aire. (See Huang, supra, 157 Cal.App.3d at pp. 420-424, 203 Cal.Rptr. 800.) As we have also discussed, however, J'Aire did not involve defective manufactured products. Rather, it involved a contractor's alleged delay in completing construction and a cause of action for negligent interference with prospective economic advantage. Thus, there was no occasion in J'Aire to address the fundamental policy consideration which led the court in Seely, supra, 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145, to apply the “economic loss doctrine” to negligence and strict liability actions against manufacturers (i.e., maintaining the distinction between tort recovery for physical injuries and warranty recovery for economic loss). In our view, J'Aire is inapplicable in actions (such as those now before us) involving negligent construction of mass-produced housing except to the extent of its analysis of the duty of care.
7. Sumitomo Bank
Our decision in Sumitomo Bank, supra, 185 Cal.App.3d 211, 229 Cal.Rptr. 719 does not support petitioners' contention that their alleged economic loss damages are recoverable in negligence. In Sumitomo Bank, a bank that had lent secured construction funds to the developer of a condominium project purchased the property at a trustee's sale after the developer defaulted on the loan. (Id. at p. 216, 229 Cal.Rptr. 719.) After the purchase, the bank discovered “latent defects, including improperly designed and built structural retaining walls, improperly designed drainage, inadequate water proofing, leaking roofs, and abnormal cracking of concrete slabs and pavement.” (Ibid.)
The bank in Sumitomo Bank sued the builder alleging various causes of action, including negligence. (Sumitomo Bank, supra, 185 Cal.App.3d at pp. 216-217, 229 Cal.Rptr. 719.) The trial court entered a judgment of dismissal after sustaining without leave to amend the builder's demurrer to the entire complaint. The trial court concluded the bank failed to state facts sufficient to constitute a negligence cause of action because the builder did not owe the bank a duty of care as a matter of law. (Id. at p. 217, 229 Cal.Rptr. 719.)
On appeal, the court in Sumitomo Bank reversed the portion of the judgment dismissing the bank's negligence cause of action against the builder. Citing Sabella, supra, 59 Cal.2d at page 24, 27 Cal.Rptr. 689, 377 P.2d 889, this court stated that, “[a]s a general rule, a builder must exercise reasonable care toward those who purchase a housing structure.” (Sumitomo Bank, supra, 185 Cal.App.3d at p. 223, 229 Cal.Rptr. 719.) The Sumitomo Bank court applied the Biakanja balancing test to determine the existence of a duty of care, and determined as a matter of policy that the condominium project developer could be held liable for the alleged construction defects. (Id. at pp. 223-224, 229 Cal.Rptr. 719.)
Further, the Sumitomo Bank case is factually distinguishable in that, like Stewart, Sabella, and Connor, it involved “resultant” physical injury to property, such as abnormal cracking of concrete slabs and pavement. (Sumitomo Bank, supra, 185 Cal.App.3d at pp. 216, 229 Cal.Rptr. 719.)
In conclusion, we hold that, under the “economic loss doctrine” adopted by the California Supreme Court in Seely, supra, 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145, homeowners associations and individual homeowners do not have a private right of action in negligence against developers, general contractors, and subcontractors for recovery of purely economic losses they sustain as a proximate result of construction defects in mass-produced housing (including but not limited to defects involving violations of governing building codes) which have not yet caused personal injury or physical damage to other property.
RECOVERY OF “STIGMA” DAMAGES
With respect to the final issue presented concerning the recoverability of “stigma” damages, the Aas petitioners seek an order compelling the superior court to (1) vacate its sua sponte pretrial order preventing the petitioners from introducing evidence of both cost of repair damages and post-repair “stigma” damages, and (2) enter an order allowing the introduction of this evidence. We conclude the court did not err.
A. Principles governing recovery of compensatory damages for injury to property
The general measure of damages in California for an injury caused by a tort is “the amount which will compensate for all the detriment proximately caused thereby.” (Civ.Code, § 3333.) This statute makes no distinction between the measure of damages for personal injury and the measure of damages for injuries to real and personal property.
In determining the amount of damages that will provide full compensation for an injury to property, the courts in California have generally employed two distinct measures of damages: diminution in value and cost of repair. (Miller, California Construction Defect Litigation: Residential and Commercial (2d ed. 1993) § 10.1, p. 378 (hereafter California Construction Defect Litigation).) In cases involving injury to real property, an injured party may recover under the diminution in value measure of damages the difference between the value of the real property before and immediately after an injury. (6 Witkin, Summary of Cal. Law (9th ed. 1988) § 1461, p. 934.) Under the cost of repair standard, an injured party is generally entitled to recover the cost of restoring the real property to its condition immediately before the injury, plus the value of loss of use of the property during the period of injury. (Id., § 1462, p. 934.)
Application of the two rules to a specific case often results in a disparity in the amount of damages recoverable under each rule. (Miller, California Construction Defect Litigation, supra, § 10.2, p. 378.) In cases involving injury to property caused by negligence, the general rule is that the measure of damages is the diminution in value (i.e., the difference in the value of the property immediately before and immediately after the injury) or the cost of repair, whichever is less. (Mozzetti v. City of Brisbane (1977) 67 Cal.App.3d 565, 576, 136 Cal.Rptr. 751.) This general rule in negligence cases has been referred to as the “lesser of” rule. (Miller, California Construction Defect Litigation, supra, § 10.2, p. 379.)
The “lesser of” rule is not a fixed, inflexible measure of property damage, and the courts have emphasized it is only a “general rule.” (Mozzetti v. City of Brisbane, supra, 67 Cal.App.3d at p. 576, 136 Cal.Rptr. 751.; Heninger v. Dunn (1980) 101 Cal.App.3d 858, 863, 162 Cal.Rptr. 104.) As one commentator has noted, “[t]he different kinds of real property and varying types of injury make it unwise to establish a fixed rule governing damages.” (6 Witkin, Summary of Cal. Law, supra, § 1461, p. 934.)
Coexisting with the “lesser of” rule is the principle that “[t]here is no fixed, inflexible rule for determining the measure of damages for injury to, or destruction of, property; whatever formula is most appropriate to compensate the injured party for the loss sustained in the particular case, will be adopted. [Citations.]” (Basin Oil Co. v. Baash-Ross Tool Co. (1954) 125 Cal.App.2d 578, 606, 271 P.2d 122.) Thus, in Heninger v. Dunn, supra, 101 Cal.App.3d at page 863, 162 Cal.Rptr. 104, the court held that cost of repair may be awarded even though it exceeds diminution in value if the plaintiff has a personal reason for restoring the property to its condition before the injury, or where there is reason to believe the plaintiff will, in fact, make the repairs. (See also our decision in Orndorff v. Christiana Community Builders (1990) 217 Cal.App.3d 683, 687-691, 266 Cal.Rptr. 193 [homeowners awarded cost of repair for a home in an amount greater than the diminution in value].)
B. “Stigma” damages
Post-remediation “stigma” damage is an emerging theory of property damage. (Miller, California Construction Defect Litigation, supra, § 10.7, p. 384.) “Stigma” damage is the residual loss of market value of damaged property after repairs have been made. (Ibid.; see also Stott, Stigma Damages: The Case for Recovery in Condominium Construction Defect Litigation (1988-1989) 25 Cal. Western L.Rev. 367, 374 (hereafter Stigma Damages).)
Petitioners have cited no California case law authority permitting the recovery of “stigma” damages in a case involving damage to real property. We also have found no such California authority.
One commentator has noted that “[s]tigma damage occurs when potential buyers fear that a disclosed problem may recur even though it has been repaired, and they consequently demand a lower selling price.” (Miller, California Construction Defect Litigation, supra, § 10.7, p. 384.) Another commentator has observed that “[t]he subjective nature of market value explains why stigma arises when the defect was in subsurface or structural components, but not when the defect was, for example, roofing or plumbing.” (Stott, Stigma Damages, supra, 25 Cal. Western L.Rev. at p. 374.) Despite repair, prospective buyers more rationally fear recurrence of problems from the former group than from the latter. The nature of leaky roofs and their repair are more easily appreciated by a layperson than the integrity of structural repair or soil compaction.” This commentator also opines that, in the context of construction defects, “stigma” may arise in the case of a single-family detached home because of fear of future damage to the home itself, whereas in the case of a condominium unit “stigma” may arise “not only because of fear of future damage to the unit itself, but more importantly, fear of future damage to the surrounding common areas.” (Id. at p. 375.)
In Santa Fe Partnership v. ARCO Products Co. (1996) 46 Cal.App.4th 967, 983-984, 54 Cal.Rptr.2d 214, the court recently explained that some courts in other states have entertained “stigma” damage claims in toxic contamination cases where there is substantial evidence the property suffers from permanent post-remediation physical injury, but other courts are reluctant to allow such claims:
“[C]laims for stigma damages are beginning to arise in cases throughout the nation in toxic contamination cases. Decisions from courts which have entertained such claims appear to suggest stigma damages could be a proper element of damages in cases presenting substantial evidence the property suffers permanent physical injury despite remediation efforts. [Citation.] However, some courts have been reluctant to entertain such claims due to the amorphous nature of public fears of contaminated land and the inherent uncertainty and speculativeness of the extent, as well as the existence, of the stigma. At least one court has suggested owners of contaminated land could not recover damages for diminution in market value caused by stigma absent proof (1) their land suffered physical injury from the contamination, (2) remediation would not restore market value to a precontamination level, and (3) the contamination presented an ongoing risk to their land. [Citation.]”
C. Petitioners' “stigma” damages claim and offer of proof
In their writ petition, the Aas petitioners request this court to issue a peremptory writ of mandate directing the superior court “to set aside and vacate ․ its sua sponte order directing the exclusion of evidence regarding [petitioners' alleged] post-cure stigma damages when sought in conjunction with, and in addition to, cost of repair measure of damages and enter an order allowing the introduction of said evidence instead.” Petitioners argue they are required under the provisions of Civil Code section 1102 et seq. to disclose to prospective buyers of their single-family homes that they were built with construction defects which had to be repaired. Petitioners also argue that, during the hearing, they made an offer of proof that their real estate appraisal expert would testify that homes with construction defects, even with full repairs, are worth 2.8 percent less than those without defects.
In support of their claim for “stigma” damages, the Aas petitioners cite two decisions from other states. The first case, McAlonan v. U.S. Home Corporation (1986) (Colo.App.1986) 724 P.2d 78 (McAlonan ), involved numerous construction defects in a condominium, including severe cracks in the foundation. (Id. at p. 79.) The Colorado Court of Appeals in McAlonan held that the trial court did not err in instructing the jury that, if they found in favor of the plaintiff, they must award her “ ‘the reasonable cost of repairing the property, together with the decrease in market value, if any, to the property, as repaired.’ ” (Ibid.) Thus, the court in McAlonan allowed recovery of cost of repair plus post-remediation diminution in value.
The second out-of-state case on which petitioners rely, Anderson v. Bauer (Wyo.1984) 681 P.2d 1316 (Anderson ), involved separate actions by eight homeowners against a land developer and the builders, alleging causes of action for negligence and breach of warranty, for damages to their homes and personal property caused by water seepage into their basements. (Id. at p. 1321.) The Supreme Court of Wyoming held that “[w]here the damage is to a dwelling house used for the personal purpose of the owner, it may be just that recovery be had for the amount of the repairs, even though that exceeds the entire value of the building, [citation]; the diminished value of the property, because of a public awareness of a water problem, is also recoverable, that damage being measured as of the date of the injury. [Citation.]” (Id. at p. 1324.) Thus, the court in Anderson also allowed recovery of cost of repair plus post-remediation diminution in value.
D. Exclusion of “stigma” damages evidence
We are mindful of the statutory principle that the general measure of damages in California for an injury to property caused by a tort is the amount which will compensate the plaintiff for “all the detriment proximately caused thereby.” (Civ.Code, § 3333.). However, “[i]t is black-letter law that damages which are speculative, remote, imaginary, contingent or merely possible cannot serve as a legal basis for recovery. [Citations.]” (Mozzetti v. City of Brisbane, supra, 67 Cal.App.3d at p. 577, 136 Cal.Rptr. 751.)
Here, the Aas petitioners' construction defect claims involve numerous alleged defects, including defects which constitute violations of governing building codes (such as insufficient shear walls). However, petitioners' claims do not involve toxic contamination which has been the basis in some states for recovery of “stigma” damages. (Santa Fe Partnership v. ARCO Products Co., supra, 46 Cal.App.4th at pp. 983-984, 54 Cal.Rptr.2d 214.) 13 Petitioners' construction defect claims do not involve soil subsidence, nor do they involve severely cracked foundations as in McAlonan, supra, 724 P.2d 78, or water seepage into basements as in Anderson, supra, 681 P.2d 1316. Petitioners have not alleged their single-family homes will suffer from permanent post-remediation damage, and their offer of proof that homes with construction defects, even with full repairs, are worth 2.8 percent less than those without defects is generic, and thus speculative, evidence with regard to any alleged “stigma” damage to their homes.
Accordingly, we conclude the court did not err in granting the sua sponte order preventing petitioners from introducing evidence of both cost of repair damages and post-repair “stigma” damages.
The petitions for writ of mandate are denied.
1. “Petitioners have a wide array of means to seek redress: They have strict liability (Kriegler ) and negligence (Sabella) where there is actual bodily injury or appreciable resultant property damage. They also have negligent misrepresentation and fraud and express and implied warranties (Pollard ) and administrative procedures whether or not bodily injury or resultant property damage has occurred․” (Italics added.)
2. The Supreme Court in Biakanja held that “[t]he determination whether in a specific case the defendant will be held liable to a third person not in privity is a matter of policy and involves the balancing of various factors, among which are the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant's conduct and the injury suffered, the moral blame attached to the defendant's conduct, and the policy of preventing future harm. [Citations.]” (Biakanja v. Irving, supra, 49 Cal.2d at p. 650, 320 P.2d 16.) We hereafter refer to these factors as the Biakanja factors, the Biakanja criteria, or the Biakanja balancing test.
3. Lyon and subcontractors filed motions in limine in the Provenal case (similar to those filed in the Aas case) seeking an order excluding, or limiting the introduction of, any evidence of alleged construction defects which had not caused any personal injury or physical damage to other property. The court heard and decided these in limine motions. The court expressly incorporated by reference the papers submitted by the parties in the Aas case, and granted the motions. In its written order, the court stated:“IT IS HEREBY ORDERED that Defendants'/Cross-Defendants' motions to exclude evidence of building code violations, of failures to meet the standard of care for reasonable and workmanlike construction, and of deviations from the approved plans and specifications (as summarized in part in Plaintiff's Offer of Proof) that have not resulted in bodily injury or physical property damage, i.e., ‘economic loss,’ are GRANTED. Plaintiff has not established a ‘special relationship’ with Defendants/Cross-Defendants and therefore may not present evidence of nor recover economic losses under its NEGLIGENCE cause of action.” (Italics added.)
4. Petitioners in the Aas case have settled their claims against Lyon, and have either dismissed or settled their claims against the various subcontractors.
5. While we do not examine here the Aas petitioners' construction defect allegations, we note they are similar to those alleged by the Association in the Provenal case.
6. In this regard, we take judicial notice of one of the recommendations of the California State Seismic Commission, which investigated Northridge earthquake under our Governor's Earthquake Executive Order: “The greatest opportunity to ensure seismic safety is during a building's design and construction․ The Northridge earthquake and other past earthquakes have clearly and repeatedly demonstrated the remarkable effectiveness of paying attention to quality in reducing earthquake losses. Quality assurance is the single most important policy improvement needed to manage California's earthquake risk.” (State of California Seismic Safety Commission, “Northridge Earthquake: Turning Loss To Gain,” December 1, 1994, at pg. 22, italics added.)
7. Citing Armstrong World Industries, Inc. v. Aetna Casualty & Surety Co. (1996) 45 Cal.App.4th 1, 90-94, 52 Cal.Rptr.2d 690, Lyon invites this court, in the event we grant these writ petitions on the issue of the recoverability in negligence of economic loss damages, to “do so on the ground that the incorporation of the defective part causes resultant damage to the product as a whole.” In other words, Lyon is conditionally inviting us to rule, in the context of the construction defect actions involved here, that “property damage” includes a loss that results from the physical incorporation into a residential structure of defective products which can be removed only by physically damaging the structure in order to prevent a danger created by the defective product from materializing. Lyon's invitation is rendered moot by our holding.We note, however, that this approach was cited with approval in Armstrong World Industries, Inc. v. Aetna Casualty & Surety Co.,supra, 45 Cal.App.4th at pages 91-92, 52 Cal.Rptr.2d 690 [“We agree with the formulation put forth by the Seventh Circuit Court of Appeals [in Eljer Mfg., Inc. v. Liberty Mut. Ins. Co. (7th Cir.1992) 972 F.2d 805, 810 cert. den. (1993) 507 U.S. 1005, 113 S.Ct. 1646, 123 L.Ed.2d 267] that the term ‘physical injury’ covers ‘a loss that results from physical contact, physical linkage, as when a potentially dangerous product is incorporated into another and, because it is incorporated and not merely contained (as a piece of furniture is contained in a house but can be removed without damage to the house), must be removed, at some cost, in order to prevent the danger from materializing.’ [Citation.]”]. We also note that the Association in the Provenal case concurs with Lyon's argument.We decline, however, to decide here the meaning of “physical injury” because, although the United National Insurance Company has filed an amicus curiae brief in the Aas case, no insurance policy is before us for construction.
8. One court has questioned the propriety of the language used in the term “economic loss.” The Seventh Circuit Court of Appeals in 1992 held, in an opinion by Circuit Judge Posner in Eljer Mfg., Inc. v. Liberty Mut. Ins. Co. (7th Cir.1992), 972 F.2d 805, 814 (a declaratory judgment action brought by the parent corporation of a plumbing system manufacturer against its primary liability insurer), that physical injury to tangible property occurred, for purposes of determining coverage under a comprehensive general liability policy, when the allegedly defective product was incorporated into a buyer's home or apartment, rather than when the product malfunctioned, causing physical damage to the structure. In Eljer, Judge Posner commented that “economic loss” is a “poor choice of words-all the losses for which tort victims sue are economic.” (Id. at p. 811.)Another court recently stated that “[a]lthough purely economic loss usually occurs in the form of lost profits, it may also include consequential damages, loss of expected proceeds, lost opportunities, diminution in the value of the allegedly defective property, the costs of repair and replacement, loss of use, loss of good will, and damages paid to third parties as a result of a defendant's negligence. [Citation.]” (North American Chemical Co. v. Superior Court (1997) 59 Cal.App.4th 764, 777, fn. 8, 69 Cal.Rptr.2d 466.)
9. See footnote 2, ante.
10. The court in Sabella, as in Stewart, did not address the fifth Biakanja factor (“the moral blame attached to the defendant's conduct”).
11. With respect to the first Biakanja factor, as we have discussed, the Sabella court concluded that, “while this house was not constructed with the intention of ownership passing to these particular plaintiffs, the [plaintiffs] are members of the class of prospective home buyers for which [the defendant contractor] admittedly built the dwelling;” and thus “as a matter of legal effect the home may be considered to have been intended for the plaintiffs, and [the defendant contractor] owed them a duty of care in construction.” (Sabella, supra, 59 Cal.2d at p. 28, 27 Cal.Rptr. 689, 377 P.2d 889.) The court also concluded that harm was foreseeable to the prospective owners when the home was constructed upon the inadequately compacted earth in the lot, it was undisputed the home was seriously damaged, there was a “close connection between the negligent elements of workmanship,” and “the prevention of future negligent construction of buildings upon insufficiently supportive material would not be furthered by exempting defendant [ ] from liability for his negligence. [Citations.]” (Id. at pp. 28-29, 27 Cal.Rptr. 689, 377 P.2d 889.)
12. The Sabella court also concluded that, “[a]s the general contractor [defendant] is held responsible for the defectively laid plumbing even though the work might have been completed by a subcontractor. [Citation.]” (Sabella, supra, 59 Cal.2d at p. 28, 27 Cal.Rptr. 689, 377 P.2d 889.)
13. Even in these cases, however, the courts have required substantial evidence the property suffers permanent physical injury despite remediation efforts. One commentator has recently opined that, even in toxic contamination cases, “[s]tigma damages are ‘simply too remote in the causal chain, too inherently speculative and too uncertain of measurement to permit recovery.’ ” (Johnson, Environmental Stigma Damages: Speculative Damages in Environmental Tort Cases (1996-1997) 15 UCLA J. Envtl. L. & Pol'y 185, 196.)