Jaffe v. Huxley Architecture

• Decision Date: 29 April 1988
• Docket Number: No. D005373,D005373
• Citation: 200 Cal.App.3d 1188,246 Cal.Rptr. 432
• Court: California Court of Appeals Court of Appeals
• Parties: Allen JAFFE et al., Plaintiffs and Appellants, v. HUXLEY ARCHITECTURE et al., Defendants and Respondents.

Page 432

246 Cal.Rptr. 432

200 Cal.App.3d 1188

Allen JAFFE et al., Plaintiffs and Appellants, v. HUXLEY ARCHITECTURE et al., Defendants and Respondents.

No. D005373.

Court of Appeal, Fourth District, Division 1, California.

April 29, 1988.

MacDonald, Halsted & Laybourne, Thomas M. Shoesmith, Cecelia R. Wolfe, Higgs, Fletcher & Mack and Kenneth D. Huston, San Diego, for plaintiffs and appellants.

William D. Hughes, Raymond W. Noonan and Hughes & Campbell, San Diego, for defendants and respondents.

BENKE, Associate Justice.

We deal in this case with another variation on the application of the doctrine of equitable indemnification. In a construction defects case brought by a condominium homeowners association, may the parties responsible for the construction defects seek equitable indemnification from individual members of the association's board of directors based on the board's acts and omissions which contributed to the damage caused by the original defects? We conclude they may not.

A legal identity exists between the association and its board of directors. The acts and omissions alleged on the part of the individual members of the board were the acts of the association. Thus, a third party tortfeasor, sued by the association, could defend by claiming the association was contributorily negligent or by asserting the doctrine of avoidable consequences. Since equitable indemnification exists to allow a fair distribution of liability, the concept is unwise and unnecessary where, as here, a

sensitive relationship exists between the association and its board of directors, and when, as here, the relationship between the parties alone will, in the resolution of the lawsuit, result in the apportionment to defendant of only that liability for which he is responsible.

I FACTS

Appellant Allen Jaffe built the Lake Murray Terrace Apartments and later sold the complex to appellant Lake Murray Terrace Condos (collectively the Developers) which converted the complex to condominiums. In 1983 the Lake Murray Terrace Homeowners Association (Association) filed suit against the Developers claiming construction defects. The suit was settled for $2 million. In exchange for receiving $2 million from the Developers, the Association dismissed its lawsuit without prejudice to the Developers' right to sue the Association directors and officers for equitable indemnity. In turn, the Developers agreed to restrict their indemnity claim to the insurance limits of the directors errors and omissions policy. The Developers then filed cross-complaints against various entities, including members and former members of the Association's board of directors (board), seeking indemnification and declaratory relief. The Developers claimed the board had negligently managed the complex and had contributed to the damages suffered by the Association.

The board demurred, claiming the cross-complaints failed to state a cause of action, arguing it owed no duty to the Developers and could only be sued for a breach of duty owed to the Association by the Association. The demurrer was sustained without leave to amend.

II DISCUSSION

The question presented here is whether developers sued by a homeowners association for construction defects may seek equitable indemnification from the individual members of the association's board of directors for acts and omissions which contributed to the damages arising from the original defects.

The board claims it is not liable to indemnify the Developers since its only duty was to the Association and it can be sued for any breach of that duty only by the Association itself. The Developers respond that the rules of law concerning the limitation on the right of third parties to sue a board for a breach of duty owed by the board to its principal do not apply to indemnification. The Developers argue indemnification is concerned not with duties owed by one tortfeasor to another, but rather with the joint and several liability of tortfeasors--each of whom owes a duty to the party injured. While we conclude the Developers are correct with regard to their interpretation of the law of indemnification, we nonetheless find, that under the circumstances of this case, they may not seek indemnification from the board.

As a general rule, a board is not personally liable to third parties for negligence amounting to a breach of duty which the officer owes to the corporation alone. (Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490, 505-506, 229 Cal.Rptr. 456, 723 P.2d 573.) The Developers do not claim otherwise and assert no duty owed by the board to them. Rather, the Developers argue that based on the doctrine of equitable indemnification enunciated in American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578, 591-598, 146 Cal.Rptr. 182, 578 P.2d 899, they are entitled to indemnification for that part of the Association's damages attributable to the negligence of the board. To evaluate this claim, it is necessary to review the purposes and policies on which the doctrine of equitable indemnification is based.

Quite simply, equitable indemnification is a matter of fairness. " '(I)n the great majority of cases ... equity and fairness call for an apportionment of loss between the wrongdoers in proportion to their relative culpability, rather than imposition of the entire loss upon one or the other tortfeasor.' " (Tech-Bilt, Inc. v ...