California Construction Alert Newsletter

McKenna & Cuneo, L.L.P., routinely provides its clients and contacts in the construction industry with recent developments in the law. Below are recent decisions and proposed legislation that may affect how you do business in California.

CASE AUTHORITY

Subcontractor Who Was Not Involved In Initial Construction Not Liable for Strict Liability and Breach of Implied Warranty

In an apparent reversal of the trend in California that "if ye touch it, ye may be sued," an appeals court has concluded that a subcontractor who was not involved in the initial construction of condominiums could not be held jointly liable as a tortfeasor for damages. In Newhall Land and Farming Company v. McCarthy Construction (March 27, 2001) 2001 DJDAR 4117, a homeowners association sued a condominium developer for negligence, strict liability, and breach of express and implied warranties. The developer in turn sued McCarthy Construction and other subcontractors for implied indemnity. However, unlike the other subcontractors, McCarthy had not been one of the original subcontractors on the project. Instead, McCarthy had been retained to repair earthquake damage to the condominiums caused by the 1994 Northridge earthquake, which occurred years after the original construction of the condominiums. The appeals court dismissed McCarthy from the case. The court concluded that McCarthy, unlike other original subcontractors, could not be held jointly liable for purposes of damages incurred in the faulty construction of the condominium project.

Comment: This case affords some protection to those entities who have been reluctant to undertake repair or remodeling work on condominium or residential housing projects for fear of becoming embroiled in expensive defect litigation. The case also demonstrates the importance of establishing at the outset of a case whether "defective construction" claims relate to the original construction or subsequent repairs/improvements.

Manufacturers of "Single Purpose" Products Are Also Subject to Strict Products Liability

In Acosta v. Synthetic Industries Inc. (April 30, 2001) 2001 DJDAR 4207, numerous homeowners sued Synthetic Industries, Inc., a manufacturer of a secondary reinforcement additive ("Fibermesh") to concrete that had been used in the slab foundations of their homes. The foundation slabs cracked. The homeowners, suing under a strict products liability theory, claimed that Fibermesh was a defective product that did not hold the concrete slab together. Synthetic Industries raised the "component supplier" doctrine in its defense. That being it could not be held strictly liable because it would be unfair to hold a supplier of safe raw materials and component parts liable for the defects in the finished product (e.g., the finished concrete slab in this case). The court disagreed, finding that Fibermesh was a "single purpose product, manufactured and marketed for a very discreet application in the construction of concrete structures." As a manufacturer of such a non-versatile, single purpose product used in mass-produced homes, Synthetic Industries was subject to strict products liability.

Comment: This case emphasizes the strict products liability exposure manufacturers of specialized construction products face in California, even in some situations when that product is a raw material or component part. This strict liability exposure may adversely impact others in the construction process, including the contractor or subcontractor who may inadvertently incorporate the defective raw material or component part into its finished work product.

Architect Does Not Have Right to Sue Under the Owner's Construction Management Contract

Most construction contracts have indemnification provisions requiring contractors or construction managers ("CMs") to indemnify owners and "its agents" from claims. The parameters of these types of provisions was recently tested in The Ratcliff Architects v. Vanir Construction Management, Inc. (April 19, 2001) 2001 DJDAR 3845, wherein the appeals court dismissed an architect's claims for breach of contract, indemnity, and negligence against the CM. The architect had argued that the contract between an owner (school district) and the CM required the CM to indemnify the owner's architects, as "agents," from and against any and all loss and claims arising out of or connected to a school construction project. The court determined that the architect had no right to enforce this provision in the contract because the contract did not specifically state that the architect had that right, even presuming it were an "agent" of the owner.

The court found that the architect's negligence claim against the CM was essentially a claim for indemnification and an attempt to avoid the consequences of a "good faith settlement" that had been reached between the owner and its CM. The court also stated that to permit the architect's claim would have subverted California's public policy of encouraging good faith settlements. Citing public policy considerations, the court refused to expand tort liability to include a duty of care owed by the CM to the project architect.

Comment: Indemnification is one of the more uncertain and evolving areas of construction law in California. This case highlights the importance of careful examination and negotiation of indemnity clauses in both form and customized contracts. The contractual indemnification provisions (whether Type I, II or III) are the key means of allocating risk. Too often parties do not give these provisions due consideration before signing contracts.

PENDING LEGISLATION

Construction Management Education - SB 929 (Machado)

SB 929, authored by Senator Mike Machado (D-Linden), seeks to create a funding mechanism for Construction Education Management Programs to assist various California State University campuses to maintain and enhance their current construction-related programs. SB 929 has moved through the Senate, and is now working its way through the Assembly.

Comment: Sponsored by Associated General Contractors (AGC), SB 929 will allow the Contractors State License Board (CSLB) to develop and fund the education program from its own resources, including future contractors' license fees. This bill will complement the efforts of the San Diego branch of AGC to establish a Construction Engineering and Management Program at San Diego State University.

Design-Build - SB 353 (Alpert) and AB 1402 (Simitian)

SB 353, authored by Senator Dede Alpert (D-San Diego), authorizes the State Department of General Services to enter into a joint powers agreement (JPA) with the City of San Diego for the purpose of constructing a new state office building in San Diego using the design-build process. SB 353 complements AB 1402, authored by Assemblyman Simitian(D-Pal Alto), which is sponsored by the Governor. AB 1402 authorizes the use of design-build for school construction. It is considered the model legislation for design-build, and it has been receiving support throughout the legislative process. SB 353 and AB1402 have passed their respective houses of origin and are pending in the other house.

Comment: Design-Build continues to make inroads into public works construction in California. Though not appropriate for all projects, state agencies and local governments are increasingly contemplating and utilizing various design-build delivery systems. The trend is expected to continue.

UPCOMING MCKENNA & CUNEO CONSTRUCTION SEMINARS

Construction Litigation July 19, 2001 San Diego

Payment Remedies in California August 10, 2001 San Francisco

Advanced Construction Law in California September 12, 2001 San Diego

California Law for Design Professionals September 18, 2001 San Diego

We will be sending brochures on the above seminars under separate cover. If you would like more information regarding any of these seminars or our availability to conduct in-house seminars for your company, please let us know.

How to Contact Us

The attorneys within McKenna & Cuneo's California Construction Group are happy to discuss with you recent developments or specific issues at any time. We also welcome your comments and suggestions.

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