Opinion
NOT TO BE PUBLISHED
Superior Court County Ct. No. CV060844A, of San Luis Obispo, Charles S. Crandall, Judge.
Ogden & Fricks, Roy E. Ogden and Sue N. Carrasco for Plaintiffs and Respondents.
Horvitz & Levy, Peder K. Batalden and Dean Alan Bochner; Hager, Trippel, Macy & Jensen and Harry E. Macy for Defendant and Appellant.
COFFEE, J.
Four homeowners prevailed in a construction defect case against the developer of their homes and were awarded damages. At the close of trial, the court allowed the plaintiffs to amend their complaint to add a cause of action for negligent misrepresentation. The issues on appeal are (1) whether the homeowners provided adequate notice of the construction defect; (2) whether the trial court erred in granting the homeowners leave to amend to add a cause of action for negligent misrepresentation; and (3) whether the cost of replacing a home's foundation is recoverable in strict liability. We affirm.
FACTS
Respondents Cathy E. Kelly, Judy Rose, Cindy Cabales and Herberto and Leticia Gomez (homeowners) purchased homes on North Burton Street in Nipomo. Their homes were constructed by appellant Carriage Homes, a developer. After a severe rainstorm, the homes suffered flood damage due to their defective foundations. The homeowners brought suit against Carriage Homes alleging strict liability, negligence, and breach of implied warranty. After Carriage Homes rested, the trial court allowed the homeowners to amend their complaint to add a cause of action for negligent misrepresentation. The jury found in favor of the homeowners, and awarded damages totaling $993,800.
Drainage Plans and January 2001 Rainstorm
The four homes at issue are located on North Burton Street, in Nipomo. Adjacent to the homes is raw land, which contains a creek. An alley runs behind the homes and adjoins the creek.
When Carriage Homes bought the tract in 1999, it created a grading plan which would place a pipe beneath the creek. The pipe was to drain water from the alley, carry the water beneath the creek and through a culvert down Burton Street. Carriage Homes submitted this plan to the County of San Luis Obispo (County) for approval.
The Environmental Protection Agency and Army Corps of Engineers subsequently prevented Carriage Homes from removing vegetation from the creek and blocked additional improvements. Carriage Homes abandoned its plan, and created an alternative plan, which was rejected by the County. The County did, however, approve the building plans for drainage. The homes were completed and ready to be occupied in June 2000.
In January 2001, a heavy rainstorm caused water to "pond" in the backyards of the four homes. Carriage Homes developed a grading plan to prevent future ponding. It did not address the risk of flooding posed by the defective foundations.
March 2001 Rainstorm
In March 2001, another heavy rainstorm caused flooding in Nipomo. Water overflowed the banks of the creek as well as the culverts running through downtown. The Burton Street culvert also failed, flooding all four homes. The owners at that time (predecessors to the plaintiffs in the instant lawsuit) sued Carriage Homes, and the matter settled. Under its terms, Carriage Homes agreed to buy back the homes. To remediate future flooding, Carriage Homes built a retention basin and several catch basins, to collect and redirect water flow.
Two months after the March 2001 storm, Carriage Homes received County approval for a retrofit grading plan. A County civil engineering technician approved the plan, believing it would prevent ponding as well as flooding. The grading was performed in October through December 2002, and the homes were ready for occupancy in March 2003.
The homes at 210, 220, 230 and 240 North Burton Street were resold to the plaintiffs in the instant lawsuit (homeowners). The lot at 210 was only partially regraded. Carriage Homes sold the home on that lot to Cindy Cabales. Cabales canceled escrow after seeing a backhoe in the yard and observing that grading was incomplete.
Carriage Homes and Cabales later entered into an agreement in which Carriage Homes reduced the purchase price. In exchange, Cabales agreed to accept the property as is "with respect to drainage" and to hold Carriage Homes "harmless for any liability for future damage from flooding and from all costs of correcting the drainage."
Flood Disclosure
A Flood Disclosure document (Disclosure) dated October 30, 2002, was provided to three of the homeowners when they entered into their sales transactions with Carriage Homes. They were also given a copy of the grading plan. The Disclosure explained that there had been a storm in spring of 2001 in the Nipomo area which damaged the homes located at 210, 220, 230 and 240 Burton Street. Each home had been "completely refurbished and treated to remove moisture."
Cindy Cabales occupied the home at 210 North Burton Street; Jody Rose resided at 220 North Burton Street; and Herberto and Letecia Gomez lived at 230 North Burton Street. Cathy Kelly did not receive a Disclosure because she purchased her home from an individual homeowner, rather than Carriage Homes. Her home was located at 240 North Burton Street.
The Disclosure also stated, "Much of the damage... resulted from the failure of the area's community drainage system. That community wide problem has been addressed by public agencies. Problems specific to the Burton [Street] houses were compounded by inadequate drainage off the respective lots due to a delay in the permitting process. A revised grading plan for those lots was approved but could not be completed due to the storm."
Carriage Homes indicated that it had "re-acquired" the homes and stated that the "revised grading" would be finished before "resale is complete... [The grading] will allow drainage from each lot east to the back alley and then north to an established drainage channel. [¶]... The flood event of 2001 was most unusual. Nevertheless, the maintenance of proper drainage off property is essential for long-term safety from water damage. Once the new grading is completed by Carriage Homes, each homeowner must make provisions to maintain that designed drainage pattern. Landscaping, concrete work, fencing, debris or any other possible impediment to water flow off property must be avoided. [¶] Carriage Homes hereby presents to each buyer a copy of the revised grading plan. It is the responsibility of the home buyer to stay alert to the property's drainage needs and to work actively to insure the continued efficiency of the drainage plan. The homebuyer of [street number] Burton [Street] recognizes and accepts this responsibility." The homeowners were required to sign the Disclosure.
Cindy Cabales testified at trial that "agents" of Carriage Homes told her that her home "was not involved in the [March 2001] flood, " and that she relied on this representation in choosing to purchase it.
January 2006 Flood Gives Rise to the Instant Lawsuit
Nipomo was subject to another rainstorm in January 2006. Six inches of rain fell over a 24-hour period. Floodwater entered all four homes from the alley behind the lots. The homes were severely damaged and many of the homeowners' personal possessions were destroyed.
Complaint
In October 2006, the homeowners filed a complaint against Carriage Homes alleging causes of action for negligence, breach of implied warranty and strict liability. They asserted that Carriage Homes had (1) negligently designed, engineered and constructed their homes to prevent flooding and damage to their property; (2) implicitly warranted that the homes were designed, engineered and constructed "in a skillful manner, so as to be reasonably fit for their intended purpose as residences"; and (3) that Carriage Homes was strictly liable because the homes were subject to flooding and, therefore, defective.
Carriage Homes filed a cross-complaint against the homeowners, claiming they had breached their Disclosure agreements. They answered, alleging that Carriage Homes had fraudulently induced them to purchase their homes.
The matter proceeded to trial, and verdicts were rendered in favor of the homeowners. After Carriage Homes rested, the homeowners moved the court for leave to amend to add a claim for negligent misrepresentation. The court granted the motion, finding that Carriage Homes had not been prejudiced. It was given notice prior to trial that the homeowners would seek to introduce evidence of misrepresentations in the Disclosure, and the case had been tried on that theory. Carriage Homes moved for a nonsuit based on the statute of limitations. The motion was denied. Carriage Homes next moved for a new trial, which was also denied.
Damage Awards
The jury returned special verdicts for each of the four homeowners. Cathy Kelly was awarded $100,000 on her negligence claim and $100,000 on her strict liability claim. The jury found against her on her claims for negligent misrepresentation. The implied warranty claim was not sent to the jury. The trial court entered judgment in the amount of $100,000.
The remaining homeowners prevailed on all their claims. Jody Rose was awarded $281,000 on her negligent misrepresentation claim and $295,800 on her negligence, strict liability and implied warranty claims. Judgment was entered in the amount of $295,800.
Herberto and Letecia Gomez were awarded $281,000 on the negligent misrepresentation claim and $302,000 on their negligence, strict liability and breach of implied warranty claims. The trial court entered judgment in the amount of $302,000.
Cindy Cabales was awarded $281,000 on her negligent misrepresentation claim, and $296,000 on her on her negligence, strict liability and breach of implied warranty claims. Carriage Homes had separately alleged a breach of contract claim against Cabales. The trial court determined that Cabales was entitled to judgment on that claim. The trial court entered judgment in favor of Cabales in the amount of $296,000.
DISCUSSION
Breach of Implied Warranty
Carriage Homes argues that it is entitled to judgment on the breach of warranty claim because the homeowners offered no evidence that they gave Carriage Homes reasonable notice of the construction defect.
This argument is meritless because Carriage Homes had notice of the construction defect as early as 2001. This was demonstrated by (1) its repurchase of the homes after the March 2001 flood; (2) its failure to remediate the cause of the flood problems; and (3) its preparation of the Disclosure in 2002, excusing itself from liability for future damage and imposing a duty upon the homeowners to prevent further flooding. There was substantial evidence of notice introduced at trial. We also observe that Carriage Homes did not argue notice below, or make this argument in its motion for nonsuit or motion for a new trial.
Negligent Misrepresentation
Carriage Homes asserts the trial court abused its discretion by granting the homeowners' leave to amend to add a cause of action for negligent misrepresentation. In ruling on a motion for leave to amend a complaint, the trial court must consider whether the plaintiff has a reasonable excuse for the delay; whether facts or legal theories are being changed; and whether the opposing party will be prejudiced by the proposed amendment. (City of Stanton v. Cox (1989) 207 Cal.App.3d 1557, 1563-1564.) The trial court's ruling on a motion seeking leave to amend is subject to review for an abuse of discretion. (Id. at p. 1564.)
Carriage Homes acknowledges that the misrepresentation claims were based primarily on written statements made in the Disclosure. Cabales alleged that Carriage Homes made oral misrepresentations to her in 2002. The homeowners signed their Disclosures in February 2003, and filed their original complaint in October 2006. They sought leave to amend their complaint in July 2008, on the last day of trial.
On appeal, Carriage Homes contends that there is no reasonable excuse for the homeowners' failure to allege the negligent misrepresentation claim in their original complaint, filed several years after the alleged misrepresentations were made. Nor was there a reason for waiting another two years to seek leave to amend. Carriage Homes also asserts that the homeowners based their claim on facts not alleged in the original complaint. It maintains that there were no allegations that it made false representations, the complaint does not mention the Disclosure, nor does it contain the oral misrepresentations that Cabales alleged were made to her.
Claiming prejudice, Carriage Homes contends that it was prepared to defend "typical construction defect claims." It was not prepared to defend the veracity of the Disclosure or to present testimony or documentary evidence demonstrating the reasonableness of the statements in the Disclosure. It also argues that it was unprepared to defend itself against oral misrepresentations allegedly made to Cindy Cabales. Carriage Homes asserts that it would have presented evidence relating to the March 2001 storm and efforts made after that storm to prevent future flooding, had the negligent misrepresentation claims been alleged in the complaint.
Carriage Homes cites language in the Disclosure that the "community-wide problem has been addressed by public agencies." Had it been on notice of the negligent misrepresentation claim, it would have called County employees as witnesses to testify to the meaning of the statement. Carriage Homes would also have called as witnesses the individuals who allegedly made the oral misrepresentations to Cabales. It concedes that the homeowners challenged the accuracy of the Disclosure during trial. It asserts however, that the issue was collateral to the construction defect claims, and gave it "no reason to explore this issue further."
The record belies these assertions. The veracity of the Disclosure was at issue beginning with the filing of the answer to Carriage Homes' cross-complaint. In the answer, it was alleged that Carriage Homes had fraudulently induced the homeowners to purchase their homes. The contents of the Disclosure and its truthfulness were raised in the homeowners' trial brief. They alleged that the Disclosure induced Cabales to enter into the hold harmless agreement. In his opening statement, the homeowners' counsel described the untrue statements as inducements to the homeowners to purchase their homes.
The Disclosure was admitted into evidence. Letecia and Herberto Gomez, Jody Rose and Cynthia Cabales each testified that they relied on the Disclosure in deciding to purchase their homes. They believed that the County had corrected the community wide drainage failure, and any other problems would be addressed by Carriage Homes' retrofit grading plan. Engineer Bruce Elster testified that the 2006 flooding was due to the fact that the homes were built four-to-six inches above the ground, in violation of certain provisions of the Uniform Building Code and a County land use ordinance.
We agree with the trial court that the issue of negligent misrepresentation was fully litigated at trial. Both the theory and the facts concerning the contents of the Disclosure were squarely before the jury. Carriage Homes was not prejudiced by the amendment. The trial court did not abuse its discretion in granting the motion.
Application of Economic Loss Rule
The homeowners' construction expert, Mike Thomas, testified that Carriage Homes would need to raise the homes, pour a new slab foundation, then lower the homes onto the slab. Drywall would need to be removed and replaced once the home was back in position. At that time, finish work would need to be performed, which would include plumbing, electrical, painting, and repair to the damaged flooring, cabinetry and countertops. Thomas estimated the cost to be $281,311.77 per home.
Carriage Homes argues that we should reduce the judgments as to homeowners Letecia and Herberto Gomez, Jody Rose and Cindy Cabales, by $281,000--the amount awarded to raise the foundations of each home. This was based upon the fact that the homes were defective because they were not sufficiently elevated above street level.
Carriage Homes asserts that these sums are not recoverable in a construction defect case premised on strict liability or negligence. It contends that the homeowners are barred by the "economic loss" rule from recovering costs to raise the foundations or any diminution in value caused by the defective foundations. Carriage Homes argues that homeowners may only recover costs to repair or replace property damaged as a result of the defect, such as personal property.
The "economic loss" rule stands for the proposition that economic losses are recoverable only under contract or warranty claims. (Mills v. Forestex Co. (2003) 108 Cal.App.4th 625, 634-635, fn. 3.) A homeowner may not recover in negligence or strict liability for construction defects unless they have caused property damage or personal injury. The property damage must be to property other than the product itself. (Jimenez v. Superior Court (2002) 29 Cal.4th 473, 482-483; KB Home v. Superior Court (2003) 112 Cal.App.4th 1076, 1079.)
The economic loss rule, however, does not necessarily bar recovery when property damage consisting of harm to a home is caused by a defective component. "California decisional law has long recognized that the economic loss rule does not necessarily bar recovery in tort for damage that a defective product (e.g., a window) causes to other portions of a larger product (e.g., a house) into which the former has been incorporated. [Citation.]... "'[T]he concept of recoverable physical injury or property damage' ha[s] over time 'expanded to include damage to one part of a product caused by another, defective part.'" (Jimenez v. Superior Court, supra, 29 Cal.4th at pp. 483-484 [defective window caused damage to other parts of home]; KB Home v. Superior Court, supra, 112 Cal.App.4th 1076 [furnaces damaged by single defective component]; Stearman v. Centex Homes (2000) 78 Cal.App.4th 611, 622-623 [defectively constructed foundation resulted in physical damage to residence].)
In Stearman, the defective construction of a home's foundation resulted in severe slab movement and deformation causing extensive cracks throughout home. The remedy was to replace the slab foundation. This would require disconnecting utility lines, ripping out floors, removing windows and doors, and jacking up the structure. After the foundation was poured, the home would be lowered onto it and rebuilt. (Stearman v. Centex Homes, supra, 78 Cal.App.4th at p. 615.) Damage was not limited to the slab alone, but to other components of the home. Thus, recovery of strict liability damages was not barred by the economic loss rule. (Id. at pp. 622-623.)
Here, the defect was the manner in which Carriage Homes graded the lots and constructed the foundations. Their low elevations prevented rainwater from draining away from the homes and caused them to flood, resulting in severe damage. To remedy this defect, the homes must be elevated. This would be accomplished by lifting the framing of each home to pour concrete between the framing and existing foundation. The lots would need to be regraded so the ground meets the new elevation. Damaged materials would need to be replaced, and extensive finish work would be required.
We conclude that the economic loss rule does not bar recovery for the cost of raising the new foundations. We deny Carriage Homes' request to reduce the homeowners' recovery by $281,000.
Award to Cathy Kelly
Cathy Kelly had requested an award of $179,454.87. This included the loss of personal property and cleaning costs, as well as a $5,000 fee paid to Cuesta Title to submit her residential purchase agreement, her $81,100 down payment, and $52,250.71 in mortgage payments. The jury found in favor of Kelly on her negligence and strict liability claims and awarded her $100,000. The trial court entered judgment in that amount. Kelly was not awarded $281,000 to raise the foundation because she no longer owned the home, having lost it in foreclosure.
Carriage Homes argues that Kelly's award should be reduced to $41,104.16, representing her cleaning costs and the loss of her personal property. It apparently reached that figure by adding together a list of losses submitted by Kelly to the trial court. Carriage Homes acknowledges that the special verdict form did not require the jury to apportion Kelly's $100,000 award. Nevertheless, it contends that Kelly was not entitled to expenses relating to the financing and purchase of her home. This assertion is purely speculative. There is no indication that these amounts were included in the jury's calculations. Carriage Homes has made no claim of error, precluding us from considering any impropriety in the calculation of damages. There is no basis for us to disturb the trial court's award.
Carriage Homes next contends that Kelly's full recovery is barred by the economic loss rule. That rule is inapplicable here. Kelly's claimed damages arose, not from a defective component causing damage to a home, but from monies expended to obtain her home, which was damaged by flooding, then lost to foreclosure.
Attorneys Fee Award to Cindy Cabales
The appeal regarding attorneys fees, filed on September 10, 2009, was not briefed or argued. Appellant's counsel, upon questioning at oral argument, indicated that the appeal had been abandoned. It is therefore dismissed.
DISPOSITION
The judgment is affirmed. Costs on appeal are awarded to respondents. We dismiss the appeal of the attorneys fee award.
We concur: YEGAN, Acting P.J., PERREN, J.,