Edwards v. Centex Real Estate Corp.

• Decision Date: 27 February 1997
• Docket Number: Nos. A074435,A074430,s. A074435
• Citation: 53 Cal.App.4th 15,61 Cal.Rptr.2d 518
• Court: California Court of Appeals Court of Appeals
• Parties: , 97 Cal. Daily Op. Serv. 1481, 97 Daily Journal D.A.R. 2147 Gordon EDWARDS et al., Plaintiffs and Appellants, v. CENTEX REAL ESTATE CORPORATION et al., Defendants and Respondents. Paul PIPER et al., Plaintiffs and Appellants, v. CENTEX REAL ESTATE CORPORATION et al., Defendants and Respondents.

Page 518

61 Cal.Rptr.2d 518

53 Cal.App.4th 15, 97 Cal. Daily Op. Serv. 1481,

97 Daily Journal D.A.R. 2147

Gordon EDWARDS et al., Plaintiffs and Appellants, v. CENTEX REAL ESTATE CORPORATION et al., Defendants and Respondents.

Paul PIPER et al., Plaintiffs and Appellants, v. CENTEX REAL ESTATE CORPORATION et al., Defendants and Respondents.

Nos. A074435, A074430.

Court of Appeal, First District, Division 3, California.

Feb. 27, 1997.

Rehearing Denied March 26, 1997.

Review Denied May 28, 1997.

Nick T. Reckas, Frederick E. Watson, San Francisco, for appellants.

Gordon & Rees, Douglas B. Harvey, Robert V. Dugoni, Cooper, White & Cooper, Stephen Kaus, James M. Wagstaffe, Andrea B. Rubin, San Francisco, for respondents.

WALKER, Associate Justice.

In these consolidated appeals, plaintiffs and appellants ¹ appeal from adverse judgments in their action for damages based on alleged fraud, conspiracy and willful misconduct in the design, construction, inspection and repair of the concrete foundations underlying their homes in Foster City, and for rescission of settlement agreements and releases made in connection with their initial claims for repair of those foundations. The trial court granted motions in limine by respondents Centex Real Estate Corporation (Centex) and Donald H. Hillebrandt (Hillebrandt) pursuant to the litigation privilege of Civil Code section 47, subdivision (b) ² and the parol evidence rule, to exclude all evidence of oral and written communications they made

                in response to appellants' reports of damage to their home foundations, leading to the initial settlement of their dispute and execution of releases.  Appellants entered into a stipulated judgment pursuant to Building Industry Assn. v. City of Camarillo (1986) 41 Cal.3d 810, 815-817, 226 Cal.Rptr. 81, 718 P.2d 68, in order to obtain immediate appellate review of the issues raised by the trial court's grant of the motions in limine.   Appellants contend the trial court erred in ruling that (1) the litigation privilege bars admission in evidence of allegedly fraudulent statements made prior to the initiation of litigation or any actual proposal to initiate litigation;  and (2) the parol evidence rule bars the use of statements made prior to the execution of written releases to prove fraud in the inducement as a basis for rescission.  We conclude that the trial court erred in granting the motions in limine, and therefore reverse the judgment
                

FACTUAL AND PROCEDURAL BACKGROUND

Appellants are the owners of homes in the Plum Island subdivision (Plum Island) of Foster City. Appellants' homes were all constructed by respondent Centex. All the homes in Plum Island were built on land surrounded by a salt water lagoon connected with San Francisco Bay. Prior to development, Plum Island was a marsh used commercially for salt evaporation ponds.

In 1976, Centex employed defendant Wilsey & Ham (W & H) to plan the foundations for the Plum Island homes. W & H designed eight-and-a-half-inch steel-reinforced concrete mat slabs resting directly on the soil. Both Centex and W & H were aware from previous soil reports that the Plum Island site was composed of compressible San Francisco Bay mud characterized by differential soil settlement and a high groundwater table composed of highly corrosive salt water. Earlier soil studies had warned of the importance for foundation design of slab rigidity to prevent cracking, and a waterproof moisture barrier or membrane to prevent intrusion of groundwater into the concrete slab and corrosion of the interior steel reinforcement. After W & H performed its design work in 1977, construction of the homes was substantially completed by January 1978.

In 1986 and early 1987, Centex and its insurer, defendant The Travelers Indemnity Company of Illinois (Travelers), received complaints of cracking in the concrete foundations of various homes in Foster City. Centex obtained a chemical analysis of soil and concrete samples from one or more of these residences, indicating concentrations of highly corrosive minerals associated with the infiltration of brackish sea water. Centex and Travelers retained the engineering firm of respondent Hillebrandt to investigate the problem at one residence (the Mullins home) and recommend a solution. Hillebrandt undertook extensive site investigation at the Mullins home, including removing portions of the slab, taking several core samples to perform laboratory tests on the strength of the concrete, and excavating a portion of the soil underneath the foundation. In January 1987, Hillebrandt reported on his findings. He recommended removal of extensive portions of the concrete foundation and its replacement with a new, more heavily reinforced foundation system extending deeper than the original slab. The recommended work at the Mullins home was subsequently accomplished. ³

Beginning in 1987, appellants began to notice cracks and rust stains appearing in the foundations of their homes. They contacted Centex and asked that the problems be investigated and corrected. Centex and Travelers retained Hillebrandt and defendant Wiss, Janney, Elstner Associates, Inc. (Wiss), another engineering firm, to investigate appellants' complaints and recommend a solution.

Boris Bresler of Wiss personally inspected the cracking and rust stains at several of the affected homes, including the Mullins home. Bresler was aware that all the Plum Island Hillebrandt inspected the homes of each of the appellants between July 1987 and May 1988, and then reported to Travelers in writing. Hillebrandt's investigations of appellants' homes were not as thorough or extensive as those he had performed a few months earlier in connection with the foundation problems at the Mullins home. Hillebrandt's reports stated that the cracking and staining in the foundations of appellants' homes were caused by the placement of anchor bolts and perimeter steel reinforcing bars too close to the edge of the foundation slab. Rather than replacing the concrete slab system around the perimeter of the foundations, as it had earlier recommended for the Mullins home, Hillebrandt now proposed installing new concrete footing adjacent to portions of the foundation perimeters in accordance with the plans prepared by Wiss. Each appellant was provided with a copy of Hillebrandt's report on their respective homes.

homes were built on marine mud fill in former salt evaporation ponds with a very high water table, with the consequent danger of highly corrosive marine water penetrating the concrete slab foundations of the homes. He also knew that the plans for the original foundations did not include any moisture barrier membrane between the concrete [53 Cal.App.4th 24] slab and the underlying soil. Wiss prepared a proposal designed only to repair cracks at the perimeters of appellants' foundations, without addressing possible interior corrosion of metal rebar reinforcement within the concrete slabs.

In accordance with Hillebrandt's recommendations, Travelers solicited bids from defendant Soil Engineering Construction, Inc. (SEC), to carry out the proposed repairs. SEC submitted separate bids directly to the individual appellants for the repair work at each of the four homes. In exchange for appellants' execution of general releases, Travelers offered to pay appellants the exact amount of the cost of repair, plus up to $4,000 to cover the additional cost of engineering fees for inspection during the repair. Between February 1988 and May 1989, appellants executed their respective releases and accepted Travelers' settlement offer to pay for the repair work by SEC and the consulting engineer's inspection. ⁴

In the course of its inspection during the repair project, consulting engineer Neil Moore & Associates (Moore) became aware that the possible problems with the foundations were actually more extensive than indicated by Hillebrandt and Wiss. Moore was concerned that the problems had not been adequately investigated, and that the repair work would not solve the underlying defects and possible corrosion. Although Moore suspected Centex, Travelers and Hillebrandt were withholding important information from it and from appellants, it did not pursue its suspicions or inform appellants about its questions. SEC completed the repairs on the four homes in 1988 and 1989.

In late 1993 and early 1994, appellants discovered new large cracks in the foundations of their homes, and learned that the cracking in their foundations was caused by fundamental design problems not addressed by the repair project. Among other things, they discovered that the interior corrosion of reinforcing steel and resulting destruction of the concrete foundation slabs was more extensive and severe than suggested in Hillebrandt's reports.

Appellants filed suit against Centex, Hillebrandt, Wiss, Travelers, W & H and SEC in two separate actions in November 1993 and September 1994, alleging causes of action for Centex moved for judgment on the pleadings in the Edwards plaintiffs' case, and demurred in the case of the Piper plaintiffs. The trial court denied the motion for judgment on the pleadings and overruled the demurrer as to all causes of action with the exception of the second and third causes of action for negligent and reckless misrepresentation. Thereafter, the various defendants moved for summary adjudication and summary judgment as to all remaining causes of action against them. The trial court denied the motions of Hillebrandt and Centex as to the causes of action for fraud and willful misconduct on the grounds of triable issues of material fact. As to the causes of action for negligent and reckless misrepresentation, the trial court granted the motions on the ground that appellants' claims were barred by the litigation privilege for statements made in the context of judicial proceedings under section 47(b). Centex petitioned for writ of mandate separately as to the two sets...