Oakes v. McCarthy Co.

• Decision Date: 07 November 1968
• Court: California Court of Appeals Court of Appeals
• Parties: John C. OAKES and Grace Oakes, Plaintiffs and Respondents, v. The McCARTHY COMPANY, a California corporation, and Donald R. Warren Co., a California corporation, Defendants and Appellants. Civ. 31537.

Page 127

73 Cal.Rptr. 127

267 Cal.App.2d 231

John C. OAKES and Grace Oakes, Plaintiffs and Respondents, v. The McCARTHY COMPANY, a California corporation, and Donald R. Warren Co., a California corporation, Defendants and Appellants.

Civ. 31537.

Court of Appeal, Second District, Division 4, California.

Nov. 7, 1968.

Rehearing Denied Nov. 26, 1968.

Hearing Denied Dec. 30, 1968.

Pollock & Deutz, Pollock & Palmer, John P. Pollock, and William Elliott Viney, Los Angeles, for The McCarthy Co., defendant and appellant.

Russell & Schureman, Los Angeles, for Donald R. Warren Co., defendant and appellant.

Ball, Hunt, Hart & Brown and Frank C. Aldrich, Long Beach, for John C. Oakes and Grace Oakes, plaintiffs and respondents.

AISO, ^* Associate Justice Pro Tem.

Plaintiffs, John C. Oakes and Grace Oakes, husband and wife, brought this action to recover damages resulting from earth movement underlying their lot and in the Palos Verdes area of Los Angeles County, which they had acquired in 1956 as original purchasers in a subdivision.

The action, filed on December 20, 1960, was eventually tried to a jury against the defendants, The McCarthy Company, a California corporation (hereafter 'McCarthy'), the Rollingwood Estates Company, a co-partnership composed of nine other named corporations (hereafter 'Rollingwood'), the J. A. Thompson & Son, Inc., a California corporation (hereafter 'Thompson'), and the Donald R. Warren Co., a California corporation (hereafter 'Warren'). The jury returned verdicts against the plaintiffs and in favor of the defendants Rollingwood, its nine partner corporations, and Thompson. It returned three verdicts ¹ in favor of plaintiffs and against (1) defendant Warren for $14,825.00 compensatory damages, (2) defendant McCarthy for $14,825.00 compensatory damages, and (3) defendant McCarthy for $77,500.00 punitive damages. Judgment was entered on the verdicts.

Warren's motion for judgment notwithstanding the verdict was denied. It appeals from the judgment And from the order denying said motion. Defendant McCarthy's motion for new trial was denied, conditioned upon plaintiffs remitting punitive damages from $77,500.00 to $59,300.00. Plaintiffs filed a written consent to the remittitur. Defendant McCarthy appeals from the judgment, as thus modified.

Contentions on Appeal

Warren's contentions on appeal may be grouped under three main headings: (1) There was no legal duty from Warren to the plaintiffs upon which liability for negligence can be predicated. (2) The action was barred by the statute of limitations. (3) The jury fees' portion of the costs should have been apportioned by deducting the amount attributable to the trial time consumed by plaintiffs' unsuccessful attempt to establish claims against the other defendants who prevailed against plaintiffs. (4) The judgment, insofar, as it assesses compensatory damages in identical amounts of $14,825.00 against both defendants, is a joint and not a several judgment.

McCarthy contends: (1) The evidence is insufficient to support either the liability against it for fraud or the punitive damages awarded. (2) The negligence cause of action was barred by the statute of limitations. (3) Procedural errors were committed by the trial court in: (a) permitting a jury trial, (b) permitting an amendment to the pleadings of the fraud cause of action, (c) permitting evidence of earth movement under lots other than plaintiffs', and (d) refusing to submit its request for special findings to the jury. (4) It adopts the contentions (3) and (4) advanced by Warren as to costs and the judgment as to compensatory damages being joint, rather than several.

The Factual Background ²

Early in 1955, McCarthy purchased undeveloped acreage in the Palos Verdes section of Los Angeles County, undertook subdivision activities, and constructed homesites and residences thereon for sale to the general public. Tract 21270 (originally designated as Tentative Tract 21269) containing Lot 74 (hereafter 'Oakes' property'), later purchased by plaintiffs, was the first tract to be so subdivided.

McCarthy was a California corporation, its stock was owned by E. Avery McCarthy and his brother, James H. McCarthy, in equal shares, except that fifteen shares of E. Avery McCarthy's 50 percent were owned by his son, and five shares of James H. McCarthy's 50 percent were owned by James' wife. E. Avery McCarthy was the president. James H. McCarthy was the vice-president and secretary. The duties, responsibilities, and power of decision were divided between the two brothers.

McCarthy commenced development of the tract encompassing the Oakes' property in 1955, arranging for the civil engineering, the preparation of the tract map, and planning matters incident to normal subdivision activities, including the grading operations.

McCarthy employed the Engineering Service Corporation (apparently not joined in this action) for the purpose of preparing the tentative tract maps and a grading plan. On March 15, 1955, McCarthy filed an application with the Federal Housing Administration (hereafter 'FHA') to obtain that agency's commitment to give mortgage insurance in connection with homes to be sold in the tract. For such a commitment, the FHA required Inter alia: (1) a 'preliminary soils investigation' and (2) a 'report of compaction' prepared and submitted by a 'recognized soil or foundation engineer.'

McCarthy engaged Warren orally on April 22, 1955, for its engineering services in connection with this tract development. ³ A copy of the grading plan for Tract 21270 prepared by Engineering Service Corporation was furnished to Warren. On May 22, 1955, Warren submitted its written preliminary soils investigation report to McCarthy. McCarthy delivered the report to the FHA.

In August of 1955, McCarthy entered into a written contract with Thompson ⁴ to do the cutting, filling and grading 'according to the grading plans furnished by Engineering Service Corporation for said tract, and to carry out said work in accordance with the requirements of the office of the County Engineer of the County of Los Angeles and F.H.A. specifications.' McCarthy designated a George R. Sant, ⁵ as its agent to inspect the work. The contract also provided, Inter alia, 'When the Contractor (Thompson) is making a fill on lots, such work shall be prosecuted only in the presence of an engineer or inspector supplied by Donald Warren and Company, and any work done in the absence of such engineer or inspector shall be subject to rejection.' The contract containing this clause was received without restrictions as to any particular defendant.

The cutting, filling and grading operations on Tract 21270 (which included the Oakes' property) commenced in August, 1955, and continued until the latter part of April, 1956. The portion of such operations relating to the Oakes' property was performed on November 28--29, and December 12--13, 1955, and some additional grading work in the area of Lots 57--75 was done on February 15 and 23, 1956.

Warren had a field inspector in its employ, who was present at the tract for a substantial portion of each day that grading operations were in progress. It was his duty as Warren's representative to direct Thompson on how to place the fill and compact it and to generally supervise the job of cutting, filling, and benching the soil. This field inspector was subsequently discharged by Warren, partially for the reason that he failed to make sufficient tests of compaction on Tract 21270. No compaction test was run on Oakes' Lot 74.

Engineers and laboratory technicians employed by Warren also participated in the soils engineering activities which culminated in the report on compaction relating to Tract 21270.

On March 22, 1956, Warren issued its report on compaction of Tract 21270. Copies of said report were distributed by Warren to McCarthy, the FHA, the County of Los Angeles, and McCarthy's architect.

On March 26--28, 1956, after the report on compaction had been submitted, Thompson did some additional grading for driveways, garage pads and wall excavations on Lot 74 and an adjacent lot. Construction of Oakes' house began March 29, 1956, and was completed in early September, 1956. The plaintiffs took possession on September 7, 1956. The finish grading was done by a contractor other than Thompson while the house was under construction by use of dirt previously stockpiled by Thompson at the rear of the building pad area. While McCarthy was still the owner of the land which included Tract 21270, nine California corporations were formed on or about August 15, 1955. The nine corporations then formed a partnership under the name 'Rollingwood Estate Company.' All of these nine corporations and partnership had been dissolved prior to April 19, 1957.

During the existence of the partnership and the nine corporations, the common stockholders in each corporation were E. Avery McCarthy, James H. McCarthy, George R. Sant, Merlin W. Sant, W. E. Viney, and S. Edward Tomaso. E. Avery McCarthy and James H. McCarthy, who owned substantially all of the stock of McCarthy, also owned more than 50 percent of the common stock in each of the nine corporations. Mr. Viney, an attorney, and Mr. Tomaso, a certified public accountant, obtained their shares of the common stock in the nine corporations in lieu of fees for services rendered. The minority interests of George R. Sant and Merlin W. Sant in the nine corporations were acquired because the Sants, who were builders, desired to make the development of the tract a joint venture with McCarthy.

On or about September 15, 1955, McCarthy filed a subdivision map with the County of Los Angeles and obtained permission from the county to subdivide the tract into single family residential lots.

On or about October 17, 1955, McCarthy conveyed the land in Tract 21270, including the Oakes' property, to the nine corporations, each corporation obtaining a number of lots in the...