Stearman v. Centex Homes

• Decision Date: 31 January 2000
• Docket Number: No. G019311.,G019311.
• Citation: 78 Cal.App.4th 611,92 Cal.Rptr.2d 761
• Court: California Court of Appeals Court of Appeals
• Parties: Jeffrey N. STEARMAN et al., Plaintiffs and Appellants, v. CENTEX HOMES, Defendant and Appellant.

92 Cal.Rptr.2d 761

78 Cal.App.4th 611

Jeffrey N. STEARMAN et al., Plaintiffs and Appellants, v. CENTEX HOMES, Defendant and Appellant.

No. G019311.

Court of Appeal, Fourth District, Division 3.

January 31, 2000.

Rodarti, Feld & Gelfer, Richard G. Feld and Scott H. Gelfer, Newport Beach, for Plaintiffs and Appellants.

Epsten & Grinnell, Douglas W. Grinnell and Luis E. Ventura, El Centro, for Consumer Attorneys of California as Amicus Curiae on behalf of Plaintiffs and Appellants.

Morgenstein & Jubelirer, Jean L. Bertrand and Natasha L. Golding, San Francisco, for Defendant and Appellant.

Paul B. Campos, San Ramon, for Home Ownership Advancement Foundation as Amicus Curiae on behalf of Defendant and Appellant.

Gordon & Rees, Douglas B. Harvey, Robert V. Dugoni and David Collins, San Francisco, for Building Industry Legal Defense Foundation as Amicus Curiae on behalf of Defendant and Appellant.

OPINION

RYLAARSDAM, J.

Defendant Centex Homes appeals from a judgment in favor of plaintiffs Jeffrey and Linda Stearman in a strict liability action arising out of defendant's defective construction of the foundation of plaintiffs' tract home, resulting in severe slab movement and deformation. The defects caused extensive cracks throughout the interior and exterior surfaces of the home.

The issue is not whether a defendant builder of mass produced housing may be held strictly liable for construction defects. The affirmative answer to that question is firmly established in California cases beginning 30 years ago with Kriegler v. Eichler Homes, Inc. (1969) 269 Cal.App.2d 224, 74 Cal.Rptr. 749. (See, inter alia, Fleck v. Bollinger Home Corp. (1997) 54 Cal.App.4th 926, 63 Cal.Rptr.2d 407; Alcal Roofing & Insulation v. Superior Court (1992) 8 Cal.App.4th 1121, 10 Cal.Rptr.2d 844; Becker v. McMillin Construction Co. (1991) 226 Cal.App.3d 1493, 277 Cal.Rptr. 491; Orndorff v. Christiana Community Builders (1990) 217 Cal.App.3d 683, 266 Cal.Rptr. 193; GEM Developers v. Hallcraft Homes of San Diego, Inc. (1989) 213 Cal.App.3d 419, 261 Cal.Rptr. 626; Gentry Construction Co. v. Superior Court (1989) 212 Cal.App.3d 177, 260 Cal.Rptr. 421; Oliver v. Superior Court (1989) 211 Cal. App.3d 86, 259 Cal.Rptr. 160; Huang v. Garner (1984) 157 Cal.App.3d 404, 203 Cal. Rptr. 800; Del Mar Beach Club Owners Assn. v. Imperial Contracting Co. (1981) 123 Cal.App.3d 898, 176 Cal.Rptr. 886; Raven's Cove Townhomes, Inc. v. Knuppe Development Co. (1981) 114 Cal.App.3d 783, 171 Cal.Rptr. 334; Stuart v. Crestview Mut. Water Co. (1973) 34 Cal.App.3d 802, 110 Cal.Rptr. 543; and Avner v. Longridge Estates (1969) 272 Cal.App.2d 607, 77 Cal. Rptr. 633.)

Rather, the question is whether a plaintiff can recover under strict liability when a defect in one component part of a house causes injury to other component parts of the house, but not to persons or property apart from the structure. Defendant asserts such damage constitutes nothing more than "injury to the product itself," a loss for which strict liability compensation is barred by the economic loss rule of Seely v. White Motor Co. (1965) 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145. It argues damage to a defective product itself is simply the product's failure to function properly, for which the only remedy lies in a warranty action through which the disappointed buyer can seek to recoup the benefit of its bargain.

Defendant contends the precise issue here has not been directly decided in California, but to the extent Seely and other appellate courts of this state have touched upon it, they have reached the wrong conclusion, or are poorly reasoned, inapt and nonbinding. We are invited to depart from our own longstanding judicial tradition and, in its place, adopt "the strong majority rule" of other jurisdictions which, according to defendant, have interpreted Seely correctly and would prohibit strict liability recovery under the facts of this case.

Plaintiffs, on the other hand, assert our own courts have considered the economic loss rule in construction and non-construction cases alike, and have uniformly allowed recovery of strict liability damages where, as here, a defect has caused physical damage to the property. They further note a number of other states have applied strict liability to mass-produced housing defects, and thus California is not the "odd-ball" defendant purports it to be. (Plaintiffs have also filed a cross-appeal to which we will turn after concluding our discussion of the appeal.)

Amici curiae expand upon the positions of both parties. From divergent viewpoints, they trace the development of the strict liability doctrine in this state and others, offering sharply conflicting analyses of a dizzying array of authorities (several hundred of them). In the end, after having laboriously trudged our way through the labyrinth, we do not find this to be a particularly complex or close case.

Defendant's premise that the economic loss rule bars strict liability recovery for physical damage to plaintiffs' home is unsupported and indeed contradicted by Seely and other California decisions. (See International Knights of Wine, Inc. v. Ball Corp. (1980) 110 Cal.App.3d 1001, 168 Cal.Rptr. 301 and Gherna v. Ford Motor Co. (1966) 246 Cal.App.2d 639, 55 Cal.Rptr. 94.) Moreover, we are not convinced "the strong majority" of other jurisdictions would, as defendant claims, find plaintiffs confined to a warranty recovery. Indeed, defendant and its amici could cite no more than six out-of-state decisions dealing with analogous facts. Our own research confirms the paucity of cases.

But it really doesn't matter: The answer lies within our state. California authorities read together represent a considerable body of law, expressly or by implication rejecting defendant's assertion that owners whose residences are constructed on defective lots and foundations may not recover in strict liability for resulting physical injury to their homes. We step in line with this law in holding the damage plaintiffs sustained to their home is physical injury falling outside the parameters of economic loss and is thus compensable under strict liability in tort.

FACTS

Defendant is a mass producer of homes in Southern California. In February 1990, plaintiffs bought a Centex tract house in San Clemente. Problems with the property began to appear shortly after plaintiffs moved in and continued over the next few years. In 1993, plaintiffs sued the builder, stating only one cause of action, for strict liability in tort. They alleged defendant constructed the home on inadequately compacted soil, causing slab movement and deformation which, in turn, damaged the structure and yard improvements, diminished the property's value, and required plaintiffs to incur expenses for remedial measures, including employing various professionals to assess the situation and make recommendations.

At trial, plaintiffs and their experts testified to post-construction movement and continuing deformation of the slab foundation which resulted in, inter alia: a significant separation between the ceiling and wall joints over the entire length of the house; cracks in the drywall throughout virtually every room; separation and cracks in tile counters in the bathrooms and kitchen; and cracks in the exterior stucco. Each of these problems worsened over time. Plaintiffs' engineering experts opined the slab foundation would have to be replaced. Plaintiffs' cost estimator testified that replacing the slab would require emptying out the house, disconnecting utility lines, removing appliances, ripping out floors, removing windows and doors, and jacking up the structure. After replacement of the slab, the house would be lowered onto it and virtually rebuilt. Including moving and alternate housing costs for the four months it would take to complete the repairs, the total cost would exceed $260,000.

There is no issue regarding the sufficiency of the evidence to establish the defective construction or resultant damage to the home. However, defendant contended throughout the proceedings that the economic loss rule barred plaintiffs from recovering under strict liability when only damages "to the product itself were claimed. The court rejected this assertion at every juncture, denying defendant's motions for nonsuit and directed verdict and refusing defendant's proposed special instruction which stated, "Plaintiffs are not permitted to recover damages under a strict liability cause of action for purely economic loss or for mere damage to the product itself. [¶] If the only evidence of damages presented by plaintiff[s] establishes purely economic injury or damage to the product itself resulting in the reduction in fair market value of plaintiffs' residence, then you may not award damages to plaintiffs."

The jury returned a special verdict finding plaintiffs' house was defectively constructed, causing plaintiffs damages of $135,000. Defendant then renewed its challenge, reprising the same theme in motions for judgment notwithstanding the verdict and for a new trial, both of which the trial court denied.

DISCUSSION

Defendant's Appeal

In Seely v. White Motor Co., supra, 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145, widely recognized as the progenitor of the economic loss rule, the court held a commercial trucker who purchased a defective truck was entitled to breach of express warranty damages for lost profits from his heavy-duty hauling business and for money paid on the purchase price, but could not recover these economic losses under strict product liability. (Id. at pp. 13-17, 45 Cal.Rptr. 17, 403 P.2d 145.) Tracing the development of warranty and strict liability law, the Seely court observed "warranty `grew as a branch of the law of commercial transactions and was primarily aimed at controlling the commercial aspects of these transactions.' [Citations.]" (Id. at p. 16, 45 Cal.Rptr. 17, 403 P.2d 145.) It concluded warranty rules "function well in a...