Salka v. Dean Homes of Beverly Hills, Inc.

• Decision Date: 20 September 1993
• Docket Number: No. B044814,B044814
• Citation: 18 Cal.App.4th 1145,22 Cal.Rptr.2d 902
• Court: California Court of Appeals
• Parties: Previously published at 18 Cal.App.4th 1145, 23 Cal.App.4th 952 18 Cal.App.4th 1145, 23 Cal.App.4th 952, 62 USLW 2211, Prod.Liab.Rep. (CCH) P 13,758 Robert SALKA et al., Plaintiffs and Respondents, v. DEAN HOMES OF BEVERLY HILLS, INC., Defendant and Appellant.

Page 902

22 Cal.Rptr.2d 902

Previously published at 18 Cal.App.4th 1145, 23 Cal.App.4th 952

18 Cal.App.4th 1145, 23 Cal.App.4th 952, 62 USLW 2211,

Prod.Liab.Rep. (CCH) P 13,758

Robert SALKA et al., Plaintiffs and Respondents, v. DEAN HOMES OF BEVERLY HILLS, INC., Defendant and Appellant.

No. B044814.

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

Sept. 20, 1993.

Review Granted Dec. 30, 1993.

Review Dismissed and Cause Remanded July 28, 1994.

Richard A. Grossman, Zemanek & Mills, and John D. Zemanek, Los Angeles, for defendant and appellant.

Tucker & Baum and Michael C. Baum, Beverly Hills, for plaintiffs and respondents.

CHARLES S. VOGEL, Associate Justice.

This action arises from the purchase of a residence that was defectively constructed. The parties stipulated to submit, on a theory of strict liability, claims for property damage and emotional distress to trial by a court-appointed referee. The referee recommended an award of property damages that included the cost of repairs plus damages for diminished value and an award of emotional distress in favor of plaintiff and respondent Nancy Salka. Defendant and appellant Dean Homes, Inc., contends that the referee applied the wrong measure for property damages and that damages for emotional distress arising from property damage are not recoverable. We hold that Dean Homes is barred from appealing the property damages award because it failed to take exception to the referee's report pursuant to Code of Civil Procedure section 645. We further conclude that purchaser of a defective residence may recover for emotional distress where the defect is so substantial as to be continuously disruptive of the use, comfort, and security which reasonably ensues from ownership of a personal residence.

FACTS

In 1980, Robert and Nancy Salka purchased a new home at 9832 Denbigh Drive, in the Deep Canyon area of Beverly Hills, California, from the builder, Dean Homes of Beverly Hills, Inc.

The area was developed by grading the natural topography to create building pads to accommodate the construction of residences. The Salka home is built on fill ranging from 40 to 80 feet in depth. Although the soils compaction report for the tract recommended houses be constructed on reinforced slabs, Dean Homes constructed the Salka home on a raised foundation with a subfloor of 18 to 24 inches below the exterior grade, thereby creating a basin for the collection of both surface and groundwater. The slope of the building pad exacerbated the accumulation of water.

From the beginning of their occupancy in 1981 the Salkas experienced flooding, standing water, and ground saturation. Dampness resulted in the floor buckling, condensation collecting in, under, and around the house causing the wallpaper to peel and producing a "damp, dungy smell." Water accumulated by the front door, invaded the windows, and affected the French doors. The Salkas hired various contractors to mitigate these problems. Ultimately, they moved out of their residence, leasing a condominium until the water problem could be corrected.

In 1982, the Salkas filed an action in the superior court against Dean Homes of Beverly Hills, Inc., for breach of warranty, negligence, fraud, and strict liability. Their complaint sought compensatory and punitive damages. Dean Homes answered, asserting various affirmative defenses.

In 1988, the Salkas and Dean Homes stipulated that the Salkas would bring to trial only the issue of compensatory damages on the assumption that Dean Homes's liability had been decided in the Salkas's favor based upon strict liability. The claims for breach of warranty negligence and fraud were dismissed. It was also stipulated that the trial would be conducted by reference according to Code of Civil Procedure section 638 et seq. On June 28, 1988, the Honorable Earl F. Riley, retired judge of the superior court, was appointed and proceeded to take evidence and hear argument. ¹

In compliance with Code of Civil Procedure section 643, the referee filed separate reports for the property damage claims and for the emotional distress claims. The recommended property damage award was composed of: (1) $202,391 for the costs of repair plus ancillary expenses to mitigate and correct the water problems while the condition remained unabated; and, (2) $65,000 "stigma" damages representing diminution of value. The total $267,391 recommended property damage award was reduced by 20 percent because of the Salkas's contribution to the water problem. In addition, the referee awarded Nancy Salka $50,000 as emotional distress damages but denied Robert Salka's claim for the same relief.

Dean Homes filed a Request to Referee to Modify Report, Findings, and Recommendations objecting to the award of emotional distress damages and a Notice of Motion and Motion to Set Aside Report, Findings and Recommendations of Referee (Phase II) and Motion for Judgment Regarding Emotional Distress Issues Notwithstanding the Referee's Findings and Recommendations pursuant to Code of Civil Procedure section 645. Both were denied. The trial court approved the referee's reports and recommendations and confirmed the award of property damages in favor of the Salkas in the amount of $213,913 and an award of $50,000 to Nancy Salka for emotional distress damages. Dean Homes did not file any objection or motion with the referee or trial court concerning the award of property damages.

DISCUSSION

Dean Homes contends that the award of property damages is contrary to established principles of law. It argues that the Salkas are entitled to recover as property damages only the lesser of the cost of repair or the diminution in value and that damages for emotional distress are not recoverable in an action for strict liability not involving physical injury.

I Waiver of Objection to Award of Property Damages

The Salkas contend that Dean Homes may not appeal the award of property damages because it did not comply with Code of Civil Procedure section 645 by objecting to the referee's findings or moving the trial court to set them aside. ² We agree and decline to review the award of property damages.

In Martino v. Denevi (1986) 182 Cal.App.3d 553, 227 Cal.Rptr. 354, the trial court ordered a reference under section 639 and appointed an accountant as a special referee to review financial records to determine the respective partnership interest of the parties. The report of the referee was approved over oral objection as a conclusive finding of the partnership interest. The trial court ruled that the plaintiff waived his right to object by failing to file a written objection pursuant to section 645. The appellate court upheld the ruling: "The failure to file a written objection to the contents of the referee's report or to properly move to set aside the report [in the trial court] results in the waiver of the right to object to the referee's findings. [Citation.]" (182 Cal.App.3d at p. 557, 227 Cal.Rptr. 354.) ³

Dean Homes argues that Martino is distinguishable because it involves a factual finding and not a question of law. It contends section 645 does not require a party to object when the referee applies the wrong measure of damages. In other words, because Dean Homes is appealing the issue of the measure of damages, and not a factual finding, it contends, as an issue of law, it is preserved on appeal whether or not it is raised in the underlying proceedings.

The requirement of raising an objection to the referee's report is not limited to findings of fact but is applicable to conclusions of law where a general reference is ordered.

The reference in Martino v. Denevi was made with the consent of the parties under section 639 ordering an examination of partnership records and the preparation of an accounting of partnership interests. Essentially, the accounting was ordered to provide the trial court with specific factual information and the referee was not directed to hear and decide the whole issue. The reference in Martino was by its terms a special reference. Therefore, the recommendation of the referee would pertain to a factual issue only. For that reason, any objection would necessarily be limited to a finding of fact.

Here the reference was ordered by stipulation of the parties under section 638, subdivision 1. ⁴ The stipulation provides: "The issue of compensatory damages relating to plaintiffs' strict liability cause of action against Dean Homes shall be tried through a retired judge of the Los Angeles Superior Court, pursuant to the specifications, terms and procedures set forth in the attached Settlement Agreement." By its terms, the parties consented to, and the court ordered, a general reference in which the referee was authorized to try any and all issues of fact and law and to report a statement of decision to the court. Since the referee was empowered to decide both issues of fact and law, it was incumbent on Dean Homes to file objections, if any, to both findings of fact and conclusions of law.

Our analysis is enhanced by the Martino court's reliance on Branger v. Chevalier (1858) 9 Cal. 351, which held "when the alleged error consists in the final conclusions of law or fact drawn from the testimony, and the evidence is certified to the Court by the referee, the proper course is to move to set aside the report, and for a new trial." (Id. at p. 362.) The vitality of Branger v. Chevalier is confirmed by Estate of Zucker (1990) 218 Cal.App.3d 1198, 268 Cal.Rptr. 4. There the trial court ordered a reference to determine if Corporations Code section 15042 did not apply where a partnership agreement specified a contrary method of valuation upon the death of a partner. The referee's report necessarily included a legal conclusion concerning the applicability of the Corporations Code to the agreement. On appeal one of the parties argued that the referee's conclusion was erroneous. The appellate court held that the issue was...