Minute OrderCal. Super. - 6th Dist.May 21, 2019SUPERIOR COURT OF CALIFORNIA COUNTY OF SANTA CLARA MINUTE ORDER Brosamer & Wall, Inc. vs Twining, Inc. Hearing Start Time: 9:00 AM 19CV348504 Hearing Type: Hearing: Demurrer Date of Hearing: 11/02/2021 Comments: 6 Heard By: Takaichi, Drew C Location: Department 2 Courtroom Reporter: - No Court Reporter Courtroom Clerk: Farris Bryant Court Interpreter: Court Investigator: Parties Present: Future Hearings: Exhibits: - to Twining Inc's Cross-Complaint by X-Def Ghirardelli Associates, Inc. (Gary L. Jacobsen) The following attorney(s) appear via CourtCaII: J. Andrew Lawson For: Defendant(s), Twining, Inc. Miles C. Holden For: Plaintiff(s), Brosamer & Wall, Inc. Gary L. Jacobsen for Cross-Defendant(s), Ghirardelli Associates Tentative Ruling was contested by Cross-Defendant, Ghirardelli, but now rescinds their contestation. Matter is heard/argued. The Tentative Ruling is adopted. See below. Calendar line 6 Case Name: Brosamer & Wall, Inc. v. Twining, Inc. Case No.2 19-CV-348504 Demurrer to the Cross-Complaint by Cross-Defendant Ghirardelli Associates, Inc. Factual and Procedural Background This is an action for breach of contract and professional negligence. Printed: 11/2/2021 11/02/2021 Hearing: Demurrer - 19CV348504 Page 1 of9 SUPERIOR COURT OF CALIFORNIA COUNTY OF SANTA CLARA MINUTE ORDER According to the operative complaint, on July 19, 2016, plaintiff Brosamer & Wall, Inc. ( BWI ) entered into a written contract ( Agreement ) wherein defendant and cross-complainant Twining, Inc. (Twining ) agreed to provide, in exchange for payment, materials testing and inspection services to support BWI s construction of levees for the Lower Berryessa Creek Flood Protection Project ( Project ) for the Santa Clara Valley District ( District ). (Complaint at 4, Ex. A.) Under the Agreement, Twining provided materials testing and inspection services. (Complaint at 6.) Among other things, Twining performed laboratory tests to determine whether soil materials would meet the District s specifications for use in the levees being constructed by BWI, including with respect to Atterberg Limits of the soil; and performed laboratory tests to provide BWI with guidance on meeting soil compaction requirements in construction of the levees. (|bid.) Following BWI s construction of the levees, the District claimed it observed cracks along the levees. (Complaint at 7.) The District also notified BWI that construction of the Project did not meet the District s specifications because soil materials placed by BWI did not meet the Atterberg Limits requirements when tested by independent consultants. (|bid.) Twining s services were deficient because, among other things, Twining s test results did not accurately report the Atterberg Limits of soil samples tested by Twining. (Complaint at 8.) Also, irrespective of whether Twining s laboratory testing provided accurate results, Twining did not correctly apply the pass/fail criteria from the District s Project specifications to the results it obtained. (|bid.) Thus, Twining s deficient services caused the levees to crack and become unusable. (|bid.) As a consequence, BWI is incurring losses to investigate and correct the non-conforming construction work. (Complaint at 9.) BWI notified Twining that it had performed deficient services, tendered claims to Twining and demanded Twining to defend and indemnify BWI from all losses resulting from Twining s deficient services. (|bid.) BWI also demanded that Twining participate in a mediation to resolve the dispute which took place on April 18, 2019. (|bid.) To date, Twining has failed or refused to comply with BWI s demands for defense and indemnity. (|bid.) On May 21, 2019, BWI filed a complaint against Twining alleging causes of action for: (1) breach of contract; (2) professional negligence; (3) express indemnity; (4) equitable indemnity; (5) declaratory relief duty to defend; and (6) declaratory relief duty to indemnify. On July 18, 2019, Twining answered the complaint alleging a general denial along with various affirmative defenses. On the same day, Twining also filed a cross-complaint against BWI and American Contractors Indemnity Company setting forth causes of action for: (1) breach of contract; (2) breach of prompt payment (Bus. & Prof. Code, 7108.5); (3) common counts; (4) quantum meruit; (5) money had & received; (6) foreclosure on contractors license bond & qualifying bond and payment bond; and (7) declaratory relief. On July 20, 2021, Twining filed another cross-complaint against cross-defendant Ghirardelli, Associates, Inc. ( GAI ) alleging causes of action for: (1) total equitable indemnity; (2) comparative equitable indemnity; (3) contribution; and (4) declaratory relief. Printed: 11/2/2021 11/02/2021 Hearing: Demurrer - 19CV348504 Page 2 of9 SUPERIOR COURT OF CALIFORNIA COUNTY OF SANTA CLARA MINUTE ORDER On August 16, 2021, cross-defendant GAI filed the motion presently before the court, a demurrer to the cross-complaint. GAI submitted a request forjudicial notice in conjunction with the motion. Twining filed written opposition. GAI filed reply papers. A trial setting conference is set for February 22, 2022. Demurrer to the Cross-Complaint Cross-Defendant GAI argues the cross-complaint is subject to demurrer on the grounds of uncertainty and failure to state a valid claim. (Code Civ. Proc., 430.10, subds. (e), (f).) Request for Judicial Notice In support of the demurrer, cross-defendant GAI requests judicial notice of the operative complaint, filed on May 21, 2019 and Twining s cross-complaint, filed on July 20, 2021. (See Request for Judicial Notice at Exs. A- B.) The court may take judicial notice of the complaint and cross-complaint as records filed in the superior court under Evidence Code section 452, subdivision (d). (Gbur v. Cohen (1979) 93 Cal.App.3d 296, 301 [a court may take judicial notice of its own records if they are relevant to issues of the case at hand].) Accordingly, the request for judicial notice is GRANTED. Legal Standard In reviewing the sufficiency of a complaint against a general demurer, we are guided by long settled rules. We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. We also consider matters which may be judicially noticed. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) A demurrer tests only the legal sufficiency of the pleading. It admits the truth of all material factual allegations in the complaint; the question of plaintiff s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court. (Committee on Children s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213 214.) The reviewing court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded. The court does not, however, assume the truth of contentions, deductions or conclusions of law. [|]t is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. And it is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment. (Gregory v. Albertson s, Inc. (2002) 104 Cal.App.4th 845, 850.) First and Second Causes of Action Total Equitable Indemnity and Comparative Equitable Indemnity Printed: 11/2/2021 11/02/2021 Hearing: Demurrer - 19CV348504 Page 3 of9 SUPERIOR COURT OF CALIFORNIA COUNTY OF SANTA CLARA MINUTE ORDER The first and second causes of action are separate claims for equitable indemnity. Cross-Defendant GAI argues the first and second causes of action fail to state a valid claim because: (1) the claims are barred by the economic loss rule; and (2) GAI is notjointly and severally liable to plaintiff BWI because a design professional does not owe a duty of care to non-clients. Indemnity Law In general, indemnity refers to the obligation resting on one party to make good a loss or damage another party has incurred. [Citation.] Historically, the obligation of indemnity took three forms: (1) indemnity expressly provided for by contract (express indemnity); (2) indemnity implied from a contract not specifically mentioning indemnity (implied contractual indemnity); and (3) indemnity arising from the equities of particular circumstances (traditional equitable indemnity). [Citations.] (Prince v. Pacific Gas & Electric Co. (2009) 45 Ca|.4th 1151, 1157 (Prince).) While the foregoing categories of indemnity were once regarded as distinct, courts now recognize there are only two basic types of indemnity: express indemnity and equitable indemnity. (Prince, supra, 45 Ca|.4th at p. 1157.) Though not extinguished, implied contractual indemnity is now viewed as a form of equitable indemnity. [Citations.] (|bid.) Express indemnity refers to an obligation that arises by virtue of express contractual language establishing a duty in one party to save another harmless upon the occurrence of specified circumstances. [Citation.] Express indemnity generally is not subject to equitable considerations or a joint legal obligation to the injured party; rather, it is enforced in accordance with the terms of the contracting parties agreement. [Citation.] (Prince, supra, 45 Ca|.4th at p. 1158.) Unlike express indemnity, traditional equitable indemnity requires no contractual relationship between an indemnitor and an indemnitee. Such indemnity is premised on a joint legal obligation to another for damages, but it does not invariably follow fault. [Citation.] Although traditional equitable indemnity once operated to shift the entire loss upon the one bound to indemnify, the doctrine is now subject to allocation of fault principles and comparative equitable apportionment of loss. [Citations.] (Prince, supra, 45 Ca|.4th at p. 1158) The doctrine of comparative equitable indemnity is designed to do equity among defendants. [Citation.] The purpose of equitable indemnification is to avoid unfairness, under the theory ofjoint and several liability, of holding one defendant liable for the plaintiff s entire loss while allowing another potentially liable defendant to escape any financial responsibility for the loss. [Citation.] (Bailey v. Safeway, Inc. (2011) 199 Cal.App.4th 206, 212.) A claim for equitable indemnity requires (1) a showing of fault on the part of the indemnitor and (2) resulting damages to the indemnitee for which the indemnitor is equitably responsible. (C.W. Howe Partners Inc. v. Printed: 11/2/2021 11/02/2021 Hearing: Demurrer - 19CV348504 Page 4 of9 SUPERIOR COURT OF CALIFORNIA COUNTY OF SANTA CLARA MINUTE ORDER Mooradian (2019) 43 Cal.App.5th 688, 700.) Economic Loss Rule The economic loss rule provides that where a purchaser s expectations in a sale are frustrated because the product he brought is not working properly, his remedy is said to be in contract alone, for he has suffered only economic losses. (Robinson Helicopter Company v. Dana Corporation (2004) 34 Cal.4th 979, 988 (Robinson).) This doctrine hinges on a distinction drawn between transactions involving the sales of goods for commercial purposes where economic expectations are protected by commercial and contract law, and those involving the sale of defective products to individual consumers who are injured in a manner which has traditionally been remedied by resort to the law of torts. (|bid.) The rule requires a purchaser to recover solely in contract for purely economic loss due to disappointed expectations, unless the purchaser can demonstrate harm above and beyond a broken contractual promise. (|bid.) Quite simply, the economic loss rule prevent[s] the law of contract and the law of tort from dissolving one into the other. [Citation.] (|bid.) Economic loss includes 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. (Robinson, supra, 34 Cal.4th at p. 988.) Cross-Defendant GAI argues the economic loss rule bars the first and second causes of action as they arise from contractual services alleged in the underlying complaint, not a separate tortious act. (See Complaint at 4-9, 12-13.) For example, paragraph 13 of the complaint appears to request only economic damages: As a direct and proximate result of Twining s breach of the Agreement, BWI has incurred expenses and continues to incur expenses, including but not limited to: investigative costs to identify the nature of the deficient services; construction costs to remediate construction work that had been performed following deficient services by defendants; and all other losses and/or settlements paid by BWI that result from Twining s breaches. The exact amount of BWI s loss has not yet been determined, but is estimated to exceed $4 million, and will be established according to proof at trial. Because the underlying complaint sounds in contract and seeks recovery of purely economic losses, with no showing of potential tort liability, cross-defendant GAI contends the first and second causes of action are barred by the economic loss rule. (See Stop Loss Ins. Brokers, Inc. v. Brown & Toland Med. Group (2006) 143 Cal.App.4th 1036, 1044 (Stop Loss) [ Because negligent performance of a contract gives rise to contract damages only, such alleged negligence will not support a claim for equitable indemnity. ].) As a preliminary matter, cross-defendant GAI argues in part that the underlying complaint makes no showing of any potential for tort liability. This contention is misplaced as the second cause of action in the complaint is a claim for professional negligence, a tort. (See Burgess v. Super. Ct. (1992) 2 Cal.4th 1064, 1077 [elements for tort of professional negligence].) The moving papers fail to even consider allegations of the professional negligence cause of action and why such a claim would not give rise to potential tort liability. Also, as the opposition points out, [a] contract to perform services gives rise to a duty of care which requires that such services be performed in a competent and reasonable manner. A negligent failure to do so may be Printed: 11/2/2021 11/02/2021 Hearing: Demurrer - 19CV348504 Page 5 of9 SUPERIOR COURT OF CALIFORNIA COUNTY OF SANTA CLARA MINUTE ORDER both a breach of contract and a tort. [Citation] In such a hybrid circumstance, the plaintiff is entitled to pursue both legal theories until an occasion for an election of remedies arises. [Citation.] (North American Chemical Co. v. Super. Ct. (1997) 59 Cal.App.4th 764, 774 (North American Chemical Co.).) Finally, because the underlying complaint concerns the negligent performance of services, the economic loss rule is inapplicable. (North American Chemical Co., supra, 59 Cal.App.4th at pp. 781-788.) As stated above, the economic loss rule applies to disappointed expectations in connection with defective products. To the extent that cross-defendant GAI relies on Stop Loss, that case did not address the applicability of the economic loss rule in the context of a contract for negligent performance of services and is therefore inapposite. (See Esparza v. Kaweah Delta Dist. Hospital (2016) 3 Cal.App.5th 547, 553 [cases are not authority for propositions not considered].) Accordingly, the demurrer is not sustainable on this ground. Duty of Care to Non-Clients Cross-Defendant GAI also argues it is not jointly and severally liable to plaintiff BWI since a design professional does not owe a duty of care to non-clients. Although the body of law defining and applying principles of equitable indemnity has not fully gelled but is still evolving, one thing is clear: The doctrine applies only among defendants who are jointly and severally liable to the plaintiff. (BFGC Architects Planners, Inc. v. Forcum/Mackey Construction, Inc. (2004) 119 Cal.App.4th 848, 852.) One factor is necessary, however. With limited exception, there must be some basis for tort liability against the proposed indemnitor. [Citation.] Generally, it is based on a duty owed to the underlying plaintiff (citations), although vicarious liability (citation) and strict liability (citation) also may sustain application of equitable indemnity. (|bid.) Neither vicarious liability nor strict liability are applicable here. Cross-Defendant GAI thus argues it did not owe a duty to plaintiff BWI, a third party, as there is no contractual relationship alleged between the parties. In support, cross-defendant GAI relies on the California Supreme Court decision in Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370 (Bily) and a decision from the Fourth Appellate District in Weseloh Family Ltd. Partnership v. K.L. Wessel Construction Co., Inc. (2004) 125 Cal.App.4th 152 (Weseloh). In Bily, the California Supreme Court considered whether an auditor owes a duty of care to third persons in preparation of an independent audit of a client s financial statements. (Bily, supra, 3 Cal.4th at p. 375.) In doing so, the Court employed a checklist of factors to consider in assessing legal duty in the absence of privity of contract between a plaintiff and defendant. These factors were discussed in the Court s prior decision in Biakanja v. Irving (1958) 49 Ca|.2d 647 (Biakanja) and are commonly known as the Biakanja factors. The determination whether in a specific case the defendant will be liable to a third person not in privity is a Printed: 11/2/2021 11/02/2021 Hearing: Demurrer - 19CV348504 Page 6 of9 SUPERIOR COURT OF CALIFORNIA COUNTY OF SANTA CLARA MINUTE ORDER matter of policy and involves balancing the Biakanja factors, among which are (1) the extent to which the transaction was intended to affect the plaintiff, (2) the foreseeability of harm to him, (3) the degree of certainty that the plaintiff suffered injury, (4) the closeness of the connection between the defendant s conduct and the injury suffered, (5) the moral blame attached to the defendant s conduct, and (6) the policy of preventing future harm. (Id. at p. 397.) The Supreme Court held that auditors, as a group, do not owe a duty of care to third parties: [A]n auditor s liability for general negligence in the conduct of an audit of its client financial statements is confined to the client, i.e., the person who contracts for or engages the audit services. Other persons may not recover on a pure negligence theory. (Bily, supra, 3 Cal.4th at p. 406, fn. omitted.) The Court stated its holding was viewed in light of the Biakanja factors, and was premised on three central concerns ; (1) an auditor exposed to negligence claims from all foreseeable third parties would face potential liability far out of proportion to its fault; (2) the generally more sophisticated class of plaintiffs in auditor liability cases permits the effective use of contract rather than tort liability to control and adjust the relevant risks through private ordering ; and (3) the asserted advantages of more accurate auditing and more efficient loss spreading relied upon by those who advocate a pure foreseeability approach are unlikely to occur. (Id. at p. 398.) In Weseloh, a property owner ( Weseloh ) contracted with a general contractor ( Wessel )to build an automobile dealership on the property. A subcontractor, Sierra Pacific Earth Retention Corporation ( Sierra ), built the retaining walls for the project. Sierra thereafter enlisted Charles Randle ( Randle ), an employee of Owen Engineering Company ( Owen ), to design two retaining walls for a fee of $1,500 or $2,200. Neither Randle nor Owen had a contractual relationship with Weseloh, nor did they supervise construction ofthe retaining walls. Per Sierra s request, Randle and Owen inspected the retaining walls following construction. When a portion of the retaining falls failed, causing $ 6 million in property damage, Weseloh sued Wessel, Sierra, Randle and Owen. Weseloh settled with Wessel and Sierra but moved forward with lawsuits against Randle and Owen. The trial court granted summaryjudgment in favor of Randle and Owen concluding they did not owe any duty to Weseloh. (Weseloh, supra, 125 Cal.App.4th at pp. 158-162.) The Fourth Appellate District affirmed, concluding Randle and Owen satisfied their burden on summary judgment in establishing they did not owe a duty to Weseloh. (Weseloh, supra, 125 Cal.App.4th at pp. 163- 164.) Finding no contractual privity between the parties, the appellate court addressed the Biakanja factors and determined plaintiffs failed to carry their burden in demonstrating a duty to care to defeat the motion for summaryjudgment. (Id. at pp. 164-173.) In the conclusion, the Fourth District stated that, despite its own research, it was not aware of any California authority holding that a design engineer who provides only professional services in a commercial construction project owes a duty of care to the property owner in the absence of contractual privity. (Id. at p. 172.) The court agrees with cross-defendant GAI that, to the extent there is no contractual relationship, there is no duty to third parties like plaintiff BWI. But, that is not the end of the inquiry as provided in cases like Bily and Weseloh cited in the moving papers. The next step, in the absence of privity of contract, is to go through the weighing and balancing of the Biakanja factors to determine if there is a duty of care under the circumstances of this case. The moving papers are devoid of any examination of the Biakanja factors and whether such analysis would result in no duty owed to third parties. (See Allen v. City of Sacramento (2015) 234 Cal.App.4th 41, 52 [We are not required to examine undeveloped claims or to supply arguments for the litigants. ]; see also Perry v. City of San Diego (2021) 65 Cal.App.5th 172, 188, fn. 8 [ It is not this court s role to connect the dots. ].) But, for the first time in reply, cross-defendant GAI addresses the Biakanja factors. (See Reply at pp. 5-8.) The court however declines to consider this argument as it is being raised for the first time in reply Printed: 11/2/2021 11/02/2021 Hearing: Demurrer - 19CV348504 Page 7 of9 SUPERIOR COURT OF CALIFORNIA COUNTY OF SANTA CLARA MINUTE ORDER papers. (See Reichardt v. Hoffman (1997) 52 Cal.App.4th 754, 764 [ Points raised for the first time in a reply brief will ordinarily not be considered, because such consideration would deprive the respondent of an opportunity to counter the argument. ].) As a final note, Weseloh is distinguishable as that case addressed a motion for summaryjudgment where the parties could present the court with evidence to address the issue of duty. By contrast, the instant demurrer considers only the well pleaded facts of the complaint (or cross-complaint) and materials subject to judicial notice. Nor did the appellate court foreclose the idea that a duty of care could not be established under different circumstances. Instead, the Fourth District upheld the trial court s ruling because plaintiffs did not satisfy their burden in opposing the motion for summaryjudgment: In light of the Weseloh plaintiffs and Wessel s failure to carry their burden under Code of Civil Procedure section 437C, subdivision (p)(2), the trial court properly concluded Randle and Owen did not owe them a duty of care. Our holding should not be interpreted to create a rule that a subcontractor who provides only professional services can never be liable for general negligence to a property owner or general contractor with whom no contractual privity exists. There might be a set of circumstances that would support such a duty, but is not presented here (Weseloh, supra, 125 Cal.App.4th at p. 173.) Accordingly, the demurrer to the first and second causes of action on the ground that they fail to state a claim is OVERRULED. Third and Fourth Causes of Action Contribution and Declaratory Relief The third and fourth causes of action are claims for contribution and declaratory relief. Cross-Defendant GAI challenges these claims based on the same arguments raised as to the first and second causes of action which the court rejected for reasons stated above. Consequently, the demurrer to the third and fourth causes of action on the ground that they fail to state a claim is OVERRULED. Uncertainty Cross-Defendant GAI also demurs to each cause of action in the cross-complaint on the ground of uncertainty. Uncertainty is a disfavored ground for demurrer; it is typically sustained only where the pleading is so unintelligible and uncertain that the responding party cannot reasonably respond to or recognize the claims alleged against it. (See Khoury v. Maly s of Ca|., Inc. (1993) 14 Cal.App.4th 612, 616.) A demurrer for uncertainty is strictly construed, even where a complaint is in some respects uncertain, because ambiguities Printed: 11/2/2021 11/02/2021 Hearing: Demurrer - 19CV348504 Page 8 of9 SUPERIOR COURT OF CALIFORNIA COUNTY OF SANTA CLARA MINUTE ORDER can be clarified under modern discovery procedures. (|bid.) [U]nder our liberal pleading rules, where the complaint contains substantive factual allegations sufficiently apprising defendant ofthe issues it is being asked to meet, a demurrer for uncertainty should be overruled or plaintiff given leave to amend. (Williams v. Beechnut Nutrition Corp. (1986) 185 Cal.App.3d 135, 139, fn. 2.) Cross-Defendant GAI argues the cross-complaint is uncertain as it fails to allege specific allegations connecting GAI to any equitable indemnity causes of action. The cross-complaint however incorporates factual allegations of the complaint to connect with claims in the cross-complaint. (See Cross-Complaint at 4.) Also, given the substantive arguments raised on general demurrer, cross-defendant GAI appears to have sufficient notice ofthe claims being raised in the cross-complaint. Nor does the court find the cross- complaint to be so ambiguous and unintelligible that cross-defendant GAI cannot provide a proper response. Accordingly, the demurrer to the cross-complaint on the ground of uncertainty is OVERRULED. Disposition The demurrer to the first, second, third, and fourth causes of action on the grounds of failure to state a valid claim and uncertainty is OVERRULED. The court will prepare the Order. Printed: 11/2/2021 11/02/2021 Hearing: Demurrer - 19CV348504 Page 9 of9