As many are aware, the California legislature enacted in 1971 an outside
10 year limit in which to bring property damage claims arising from latent
construction defects. See, Code of Civil Procedure section 337.15. The "absolute
10 year period" applies regardless of when the defect is discovered. See, Lantzy
v. Centex Homes (2003) 31 Ca1.4th 363. However, there are three important
exceptions, one of which has been expanded by the Court of Appeal decision,
issued January 12, 2009, in Pine Terrace Apartments, L.P. v. Windscape, LLC
(2008) Westlaw 68877 ("Pine Terrace case" or "Pine Terracell
) as discussed herein.
The most important exceptions to the "10year absolute" limit are:
(1) where the defendant has induced plaintiffs to delay in filing suit, i.e.
equitable estoppel, Lantzy v. Centex Homes (2003)31 Ca1.4th363;
(2) where the suit against the developer or general contractor has been
brought timely, then a cross-complaint for indemnity may be brought
later on against a subcontractor even though a direct suit against the
subcontractor would be time barred at the time the cross-complaint for
indemnity was filed, Valley Circle Estates v. VTN Consolidated, Inc.
(1983)33 Ca1.3d604; and
(3) actions based on willful misconduct or fraudulent concealment, Code
of Civil Procedure, section 337.15(f).
The Court in Pine Terrace, in a case of first impression, ruled that the
exemption from the 10 year statute of limitations for "actions based on willful
misconduct" applies to cross-complaints for indemnity and that an indemnity
claim involving willful misconduct may be asserted against a subcontractor
merely' by incorporating by reference allegations contained in a complaint which
alleges willful misconduct against the developer.
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The facts of the Pine Terrace case are relatively routine: a 256 apartment
unit complex was developed in Fresno in or about 1989 and was completed in
the early 1990s (there were factual disputes involving notices of completion
which were recorded in 1990 or 1991). The complex was held by the developer
or related entities until 2003 when it was sold to the plaintiff buyer. In 2004, the
plaintiff buyer filed suit against the developer (and seller) and alleged that the
complex was so defectively built that the defendants' conduct amounted to
willful misconduct. The signature claim involving defects concerned a claim that
windows were installed without any flashing.
The developer defendant then filed suit in 2006 against the architect and
two subcontractors for indemnity. The developer defendant's cross-complaint
did not allege willful misconduct butdid incorporate the complaint by reference.
A series of dispositive motions followed. As pertinent here, the trial court ruled
that triable issues of material fact existed regarding the willful misconduct
exemption against the developer defendant but further ruled that the indemnity
cross-defendants were entitled to summary judgment as the 10 year statute of
limitations period had run as to them.
On appeal, the Court of Appeal ruled that, while the developer defendant
had not plead or provided evidence of willful misconduct on the part of the
subcontractors, the developer defendant's incorporation by reference of the
complaint in the indemnity cross-complaint was sufficient by itself to trigger the
exemption under Code. of Civil Procedure section 337.15(f) as against the
subcontractors. The Court of Appeal further ruled, consistent with the decision
in Valley Circle Estates v. VTN Consolidated, Inc. (1983)33 Ca1.3d604, that crosscomplaints
for indemnity are not barred by the ten year period so long as the
plaintiff has timely filed suit against the defendant seeking indemnity.
The Pine Terrace decision will certainly have its impacts. In cases where
there has been willful misconduct on the part of the developer, indemnity crosscomplaints
may be asserted against subcontractors by merely incorporating the
complaint by reference and without any evidence of willful misconduct against
them.
About the Authors: Edward F. Morrison, Jr. is the founding partner and Larry A.
Schwartz is of counsel to The Morrison Law Group, a professional corporation.
Their biographies can be viewed at www.morrisonlawgroup.com.
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