Opinion
G053859
04-30-2018
ADX COMPONENTS, INC., et al., Plaintiffs and Appellants, v. SBR CONSTRUCTION, INC., Defendant and Respondent.
Horwitz & Armstrong, John R. Armstrong and Matthew S. Henderson for Plaintiffs and Appellants. Schlichter & Shonack, Kurt A. Schlichter, Steven C. Shonack, Jamie L. Keeton and William A. Percy for Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2013-00657802) OPINION Appeal from a judgment of the Superior Court of Orange County, Nathan R. Scott, Judge. Affirmed. Horwitz & Armstrong, John R. Armstrong and Matthew S. Henderson for Plaintiffs and Appellants. Schlichter & Shonack, Kurt A. Schlichter, Steven C. Shonack, Jamie L. Keeton and William A. Percy for Defendant and Respondent.
I. INTRODUCTION
In 2012 ADX Components (ADX) was operating out of two units in a condominium industrial park in Santa Ana. It was the tenant of JEDA Investments, which in turn was part of the park's owner's association.
The owner's association wanted to sell two other units in the condominium, and thought a new roof was needed, so they hired roofing contractor SBR Construction (SBR) to do the work. The 10-day weather forecast looked dry, giving SBR adequate time to complete the roof. But when a Santa Ana inspector canceled an inspection, SBX could not complete the roof on time.
By now, a storm was brewing. SBX constructed a temporary roof (mostly plastic) to ride out the storm, but when it hit with unexpected ferocity, water got into ADX's units. SBX covered ADX's boxes of inventory, but the units were still exposed to moisture. ADX sued SBR, claiming it did not receive adequate shelter from the storm, and as a result lost the value of much of its inventory - so much so it eventually went out of business.
ADX was paid about $156,018 by SBX's insurer, plus another $18,750 from its own insurer, but felt its damage exceeded $174,768. A court-appointed referee requested by ADX didn't think so. The referee concluded ADX had inflated its claimed losses. He recommended a defense verdict, which the trial court accepted. From the ensuing defense judgment ADX now appeals.
We find there was substantial evidence SBR did not violate any tort standard of care in the way it handled the storm in light of the circumstances of the inspector's failure to arrive. And when the language and all the circumstances of the association's contract with SBR are looked at, we cannot say ADX was a third party beneficiary of that contract. We affirm.
II. FACTS
Dan DeForest and Jennifer Hagerman were the operators and sole shareholders of ADX, a legacy electronics parts business. ADX's business model involved buying, often in bulk, older out-of-production electronic parts and trying to sell them at much higher prices. DeForest and Hagerman operated ADX out of two business condominium units located in the Las Palmas Business Park in Santa Ana, California. The Las Palmas Business Park Owners Association operated the Las Palmas Business Park, overseeing its common areas. The Association retained Mar West as its property manager.
The business condominium units were owned by JEDA, which in turn was owned by DeForest and Hagerman.
On February 3, 2012, Mar West, on behalf of the Las Palmas Business Park Owners Association, entered into a written contract with SBR to replace the common roof over several units, including the units that housed ADX. The contract referred to Mar West as "Association or Owner" and did not mention either JEDA or ADX. The roofing project was scheduled to start in late January or early February 2012, in order to facilitate the sale of other units in the business park. SBR obtained permits for the project on January 11, 2012, but the project's start date was delayed multiple times due to weather. SBR finally started the project on February 8, 2012. At the time, the 10-day forecast was clear, with a 30 percent chance of rain on February 15, 2012. By Friday, February 10, 2012, the roof was ready for inspection, but the City of Santa Ana's inspector postponed it until after February 15, 2012. Without the inspection, SBR could not legally complete the permanent roof.
On Saturday, February 11, 2012, with rain now in the forecast, SBR placed a temporary roof covering of industrial grade Visqueen on the exposed roof. The plastic covering was wrapped around 1x2 boards that were nailed to the perimeter of the roof. On Monday, February 13, 2012, DeForest contacted Mar West to report some leaks in his roof, plus some discolored ceiling tiles. SBR again checked the temporary roof covering that Monday and the next day to ensure it was secure.
When Wednesday morning, February 15, dawned, rain had yet to commence. At seven that morning, SBR checked the covering and found it secure. Hours later, the storm began. The temporary roof covering blew off and water entered ADX's business condominiums. SBR tried to re-secure the temporary covering and also placed fans and dehumidifiers inside ADX's units.
The fans and dehumidifiers were later unplugged by ADX personnel because they were noisy.
There was no question at least some water entered ADX's units. However, the value of damage was unclear. Six weeks before the incident, ADX's inventory had been valued at $220,694. However, after the incident ADX provided an inventory list with a total value of approximately $800,000. Then the estimate then grew to over $4 million. ADX claimed that its entire inventory was a total loss and sold the entire inventory as salvage in July 2013.
At oral argument ADX's counsel insisted the figure was sales, not inventory. The record, however, shows it was indeed inventory, as shown by the testimony of Mark Lewinter, a CPA called by SBR. He said "ADX's inventory at the end of 2011 was 220,694."
ADX, DeForest and Hagerman filed this case on June 20, 2013. On January 7, 2014, they filed a motion seeking appointment of a referee. The motion was granted in August. Both sides stipulated to retired Judge Stephen Sundvold as the referee.
The case proceeded to trial. Judge Sundvoid heard the case over two days in February 2016, and in April of that year issued a statement of decision that came to the following conclusions:
- SBR's conduct did not fall below industry standards, perhaps most dramatically illustrated by ADX's expert's own admission (to quote from Judge Sundvoid's statement of decision) that the expert had himself used a "temporary roof covering like the one used here many times."
- The doctrine of res ipsa loquitur did not require a finding that SBR was negligent.
- ADX was not a third party beneficiary of the Mar West-SBR contract.
- ADX did not prove any substantial damages.
On April 29, 2016, in the wake of the referee's statement of decision, the trial court filed a defense judgment in favor of SBR. That judgment also provided that SBR would recover its costs against ADX, DeForest and Hagerman, though it left the amount blank.
Notice of entry of that judgment was filed May 5, 2016. ADX moved for a new trial and vacation of judgment. The trial court heard the new trial and vacation motions on June 17, 2016, and on June 20 made an order referring them back to the referee.
The record does not contain a formal document from the referee denying the new trial motion (we are told in the respondent's brief that ADX never tried to try to set a hearing before Judge Sundvold) so the new trial motion was denied by operation of law in early July. (See Code Civ. Proc., § 660.) ADX filed a notice of appeal from the April 29, 2016 judgment on August 2, 2016, making the appeal from the April 29, 2016 judgment timely. However, in October the referee awarded SBR $134,499.35 in costs against not only ADX, but DeForest and Hagerman as well. An amended judgment was filed in January 2017, which filled in the blank left open in the April 29, 2016 judgment. No one has appealed from the amended judgment.
In pertinent part the statute provides: "Except as otherwise provided in Section 12a of this code, the power of the court to rule on a motion for a new trial shall expire 60 days from and after the mailing of notice of entry of judgment by the clerk of the court pursuant to Section 664.5 or 60 days from and after service on the moving party by any party of written notice of the entry of the judgment . . . ." Sixty days from May 5, 2016 expired July 4, 2016.
These costs were itemized in an order signed by referee Sundvold. They included about $30,000 in fees and deposition costs, $41,000 in witness fees, $29,000 for the referee, and $35,000 for a trial technician.
III. DISCUSSION
A. The Referee's Jurisdiction
We first deal with ADX's jurisdiction argument aimed at the referee's authority to hear the case in the first place. The argument goes like this: The only authority for the appointment of a judicial referee was in the Mar West-SBR contract. But, notes ADX, the referee found that ADX was not a third party beneficiary of that contract. Thus, ADX reasons, there never was any authority to appoint a referee in the first place, i.e., the referee acted without jurisdiction.
It is, to be sure, a fairly creative argument - so much so that it relies on a kind of time-travel feedback loop: Nobody knew that ADX was not a beneficiary of the Mar West-SBR contract going into the trial by the referee, but, once the referee determined that ADX wasn't, his own jurisdiction went up in a puff of retroactive judicial smoke.
But the argument has a fatal flaw. ADX itself was the party who proposed the appointment of a referee. It is thus judicially estopped to argue, retroactively, that the appointment of a referee needed a contract to be valid. It didn't. In this case all such an appointment needed was the fact ADX proposed it. In the language of judicial estoppel, ADX is precluded from seeking an advantage by taking one position in court at time one, then taking an inconsistent position at a later time when the first position turns out to be disadvantageous. (See Aguilar v. Lerner (2004) 32 Cal.4th 974, 986-987.) B. Contract Versus Tort Standards of Care
The trial court found that SBR did not fall below the industry standard of care. And there is substantial evidence to support that finding: When rain was expected, SBR covered the exposed sections with industrial strength plastic - a practice commonly used by other roofing contractors - and checked on the security of the covering for three consecutive days.
ADX asserts that it was, as a matter of law, a third party beneficiary under the Mar West-SBR contract. As such, says ADX, it was entitled to an elevated standard of care from SBR. The referee, however, concluded that ADX was not a third party beneficiary.
We agree with the referee. The question of whether a party is a third party beneficiary of a contract made by two other entities depends on two things: the language of the contract and the circumstances under which the contract was made. "Reading the agreement as a whole in light of the circumstances under which it was made, the terms of the agreement must clearly manifest an intent to make the obligation inure to the benefit of the third party." (See Martin v. Bridgeport Community Assn., Inc. (2009) 173 Cal.App.4th 1024, 1034.)
Some cases say the issue of third party beneficiary is one of fact; others say it is an issue of law. Both can be true depending on the circumstances. Sometimes, for example, the language and circumstances of the contract are so clear - life insurance contracts are the prototypical example - that a court can determine as a matter of law that a person or entity is a third party beneficiary. (E.g., Souza v. Westlands Water Dist. (2006) 135 Cal.App.4th 879, 891.) But not always. Since the ultimate question on third party beneficiary issues is whether the parties to the contract intended to confer beneficiary status on a given entity, and intent can, in certain contexts, be a matter of fact, other cases say third party beneficiary is a question of fact. (E.g., Prouty v. Gores Technology Group (2004) 121 Cal.App.4th 1225, 1233.)
But there is one thing they all agree on. The party claiming third party beneficiary status bears the burden of proving an intent to make that party a beneficiary of the contract. "The party claiming to be a third party beneficiary bears the burden of proving that the contracting parties actually promised the performance which the third party beneficiary seeks." (Sessions Payroll Management, Inc. v. Noble Construction Co. (2000) 84 Cal.App.4th 671, 680.)
In the case before us, the language does not compel a finding that Mar West and SBR intended ADX to be a third party beneficiary of the roofing contract as a matter of law. And, more dispositively, the evidence bearing on the circumstances and intent behind the contract positively refutes the idea.
As to the language, we note that over and over again in the contract itself, there are only two beneficiaries specified - the association itself and "owner." The contract indicates that "owner" means the association, a conclusion underscored by the contract's exhibit No. D, which purports to be the party hiring the contractor (or "vendor"). Exhibit No. D lists only various property associations around the county (they include Koll Center Owners Association and the Old Newport Medical Owners Association), including Las Palmas Business Park Owners Association in Santa Ana. It does not list JEDA, much less ADX as the tenant of JEDA.
To be sure, there is a facial appeal to ADX's claim to third party status. The contract, after all, contemplated the repair of the roof of the building it was using. But we must stress that the referee received considerable testimony to the effect that if the tenants of the owners who made up the association were to be beneficiaries of some elevated standard of care (particularly to protect water sensitive electronic parts), SBR would have charged considerably more for the job. That testimony is sufficient to negate any general intuitive inference of an intent, particularly in a landlord-tenant context. In Spinks v. Equity Residential Briarwood Apartments (2009) 171 Cal.App.4th 1004, 1015, for example, the court specifically held that whether a tenant was a third party beneficiary of lease entered into between her employer and the landlord was question of fact because the question of intent could not be decided as a matter of law on summary judgment. C. Res Ipsa Loquitur
ADX requests judicial notice of several mechanics' liens filed by SBR in March 2012. The theory is that these liens show SBR had knowledge of the ownership of the various condominiums in the park. It appears that ADX is trying to show that these liens somehow establish that ADX was a third party beneficiary of the Mar West-SBR contract. The time to have brought up the significance of the liens was at the trial level, so the request is denied. We will say, however, that none of the liens mention ADX, though one does mention JEDA, so their absence at the trial level did not prejudice ADX's case. Everybody knew from the beginning that JEDA owned the units out of which ADX was working.
ADX asserts it was entitled to a negligence finding under the doctrine of res ipsa loquitur. Its position is simply that if water gets into a structure during a roofing job, it must be the roofer's fault.
Classically, res ipsa is a doctrine that contemplates some sort of damage that would not have occurred "but for negligence." (Reynolds v. Natural Gas Equipment, Inc. (1960) 184 Cal.App.2d 724, 732.) That is not the case here. A storm can be of unexpected ferocity - indeed SBR presented evidence to that effect - such that precautions consonant with industry standard of care would be overwhelmed. That is what the referee found. ADX's own expert testified that temporary roof coverings, like the one used in this case, are often no match for weather, stating that after installing a temporary covering you step back and "say a prayer."
Moreover, application of res ipsa loquitur only establishes a rebuttable presumption of negligence. As the court said in Baumgardner v. Yusuf (2006) 144 Cal.App.4th 1381, 1389, "If applicable, the doctrine of res ipsa loquitur establishes a presumption of negligence requiring the defendant to come forward with evidence to disprove it." In this case, however, SBR rebutted the doctrine's presumptive effect by showing it did not fall below the industry standard of care. D. Damages
The core of the referee's opinion is that ADX did not prove damages beyond the $174,768 threshold. Even if we indulge ADX's position on the contract and res ipsa issues, the fact remains there is substantial evidence to support the defense judgment,
ADX had a line item inventory consisting of 13,400 items. A prospective buyer offered $50,000 for the lot prior to finding out about possible water damage. That evidence alone could be dispositive.
ADX complains the referee ignored ADX's going concern value and the collateral damage to its reputation and ability to fill orders stemming from the water intrusion. ADX believes this is an issue that required a finding in the statement of decision and its absence demands a reversal.
But, since the briefing, our Supreme Court has handed down F.P. v. Monier (2017) 3 Cal.5th 1099, which holds that even if there is no statement of decision at all when one is otherwise required, the appellant must still show prejudicial error to obtain a reversal. In this case, there is no prejudice from any putative omission by the referee of ADX's going concern and reputational claims.
Indeed, the referee didn't actually omit those claims. The referee noted there was substantial evidence that only a "small number of boxes of inventory got wet," and found that almost all of ADX's inventory of 13,400 parts was still usable. He wrote: "Taking all of the evidence offered by ADX as a whole, it appears that a relatively small number of boxes of inventory got wet. There is no real evidence that ANY parts were actually damaged or unusable. Of the 13,400 line items that witness Underwood reviewed, only one item was found to be other than MSL 1 part." Inherent in this finding was one of causation: Any water intrusion attributable to SBR did not cause ADX to go out of business or lose reputation. E. Liability of DeForest and Hagerman
The reference to "MSL 1" is to a part's sensitivity to moisture (moisture sensitivity level).
Lastly, DeForest and Hagerman contend that their inclusion in the judgment making them liable for some $134,000 in costs is erroneous on the theory both individuals assigned their claims to ADX and thus were no longer parties to the action. We disagree. On its face, the assignment doesn't even mention ADX. It is undated and only seems to assign JEDA's claims to DeForest and Hagerman personally. Moreover, from the beginning to the end of the trial, DeForest and Hagerman continued as named plaintiffs. Neither was ever dismissed from or substituted out of the action. And the so-called "assignment" (quoted in footnote 1) proffered on appeal does not even say that all their claims were assigned to ADX.
It says: "We, Dan DeForest and Jennifer Hagerman, the undersigned managing members of JEDA Investments, LLC, who, together represent 100% of the membership, as part of the dissolution and winding up of the affairs of JEDA Investments, LLC, hereby assign all property, real or personal, including, but not limited to, all claims, causes of action, rights, title, privileges, etc., to the fullest extent allowed under California law, to Dan DeForest and Jennifer Hagerman personally. This assignment is executed to be effective as of May 1, 2013."
Then, underneath their signatures, there is another line: "We, the undersigned individuals, accept the above assignment, as part of the winding up and dissolution of JEDA Investments, Inc." and another set of DeForest's and Hagerman's signatures.
California law looks with disfavor on assignments when employed to attempt to evade exposure to costs and attorney fees. As one court put it, a strategic assignment cannot be used "as a get-out-of-jail-free card, to insulate the real party in interest from exposure to liability for costs and fees when the litigation they pursue concludes unfavorably." (Hearn Pacific Corp. v. Second Generation Roofing, Inc. (2016) 247 Cal.App.4th 117, 136). DeForest and Hagerman could have made a written request for dismissal of their claims prior to commencement of the trial and "upon payment of costs, if any" (see Code Civ. Proc., § 581, subd. (b)(1)), but they did not. Their inclusion in the judgment is correct.
IV. DISPOSTION
The judgment of April 29, 2016, providing for no liability on SBR's part and for assessment of costs against ADX, DeForest and Hagerman in an undetermined amount, is affirmed. We note there has been no separate notice of appeal from the judgment of January 2017, so there is no challenge to the amount of the costs in that amended judgment. As successful respondent, SBR will recover its costs on appeal as well.
BEDSWORTH, ACTING P. J. WE CONCUR: MOORE, J. ARONSON, J.