Filed 6/3/13
CERTIFIED FOR PARTIAL PUBLICATION*
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION FOUR
BRISBANE LODGING, L.P.,
Plaintiff and Appellant,
A132555
v.
WEBCOR BUILDERS, INC. et al., (San Mateo County
Super. Ct. No. 473170)
Defendants and Respondents.
I.
INTRODUCTION
In this action concerning a latent construction defect, Brisbane Lodging, L.P.
(Brisbane) appeals from a summary judgment entered in favor of respondents Webcor
Builders, Inc. and Webcor Builders (collectively, Webcor). The construction contract
executed by the parties included a clause which provided that all causes of action relating
to the contract work would accrue from the date of substantial completion of the project.
This contract provision clearly and unambiguously abrogated the so-called delayed
discovery rule, which would otherwise delay accrual of a cause of action for latent
construction defects until the defects were, or could have been, discovered. The trial
court concluded the clause was valid and enforceable, noting that the agreement “was one
between sophisticated parties seeking to define the contours of their liability.” Summary
judgment was then granted for Webcor after finding that Brisbane‟s action for latent
construction defects was time-barred.
*
Pursuant to California Rules of Court, rules 8.1105(b) and 8.1110, this opinion is
certified for publication with the exception of sections 5, 6, and 7 of part III.
1
In the published portion of this opinion, we conclude that public policy principles
applicable to the freedom to contract afford sophisticated contracting parties the right to
abrogate the delayed discovery rule by agreement. Under the clear language of the
parties‟ contract, Brisbane‟s action was untimely. The time for bringing Brisbane‟s
claims against Webcor started to run upon substantial completion of the project, and
Brisbane‟s lawsuit was brought more than four years after the agreed-upon accrual date,
which was outside the applicable limitations period. (Code Civ. Proc., §§ 337, 337.1.)1
Accordingly, we affirm.
In the nonpublished portion of the opinion, we consider Brisbane‟s alternative
arguments: (1) the trial court‟s interpretation of the disputed clause was in direct conflict
with other provisions of the contract; (2) Webcor‟s acceptance of responsibility for
making repairs to its defective work more than four years after substantial completion of
the project raised a triable issue of fact as to whether Webcor itself believed that the
parties had not waived the delayed discovery rule; (3) even if the delayed discovery rule
was abrogated by contract, Webcor‟s post-completion conduct indicated it waived its
right to rely on this provision; and (4) a new statute of limitations period began from the
point in time when Webcor participated in making repairs after the project had been
completed. We reject these alternative arguments as well.
II.
FACTUAL BACKGROUND
On July 12, 1999, Brisbane and Webcor entered into a contract for the design and
construction of a 210-room, eight-story hotel, to be known as the Sierra Pointe Radisson
Hotel (the Radisson). Before execution, the agreement had been extensively negotiated
between the parties. For example, on March 8, 1999, Brisbane wrote to Webcor: “It is
understood and agreed that negotiation of contract documents and satisfaction of
customary closing conditions and due diligence must be satisfactory in form and
substance to the parties and their respective counsel.” Revisions were made by both
1
All statutory references are to the Code of Civil Procedure.
2
parties to early contract drafts by striking out unacceptable provisions and by inserting
additional terms. The form of agreement with “mutually acceptable language,” was
approved by Brisbane.
The final contract contained the 1997 American Institute of Architects [AIA]
“Standard Form of Agreement Between Owner and Contractor (Cost Plus Fee), the AIA
Document A201 General Conditions” (AIA A201), and several attachments relating to
design requirements, construction allowances, the “Radisson Hotel Design Standards,”
and standard specifications required by Brisbane‟s parent company.
One of the provisions of the AIA A201 addressed the commencement of the
statutory limitations period for work completed prior to substantial completion of the
project:
“13.7 Commencement of Statutory Limitation Period
“13.7.1 As between the Owner and Contractor:
“.1 Before Substantial Completion. As to acts or failures to act occurring prior
to the relevant date of Substantial Completion, any applicable statute of limitations shall
commence to run and any alleged cause of action shall be deemed to have accrued in any
and all events not later than such date of Substantial Completion . . . .” (AIA A201,
Article 13.7.1.1 (Article 13.7.1.1), original bolding, capitalization omitted.)
It is undisputed that the Radisson was substantially completed on July 31, 2000.
In early 2005, Brisbane learned that there was a kitchen sewer line break which
caused waste to flow under the Radisson. It notified Webcor of the problem and
undertook temporary repairs to address the issue. By late March 2005, Webcor visited
the site. It determined that the plumbing problem was a latent defect, and that Therma
Corporation (Therma), the plumbing contractor, was responsible for the problem.
Therma made repairs to the kitchen sewer line in July 2005.
About two years later, additional problems with the plumbing system arose. In
October 2007, Brisbane again informed Webcor and Therma of the situation. Both
Webcor and Therma returned to the Radisson to inspect the problem. Webcor thereafter
notified Brisbane that it preferred to have Therma perform the necessary exploratory
3
work to identify the source of the leakage in the kitchen sewer system. Therma did not
make repairs, but did run a camera through a different portion of the kitchen drainage
pipe. The camera fell out of the pipe, indicating the pipe had become disconnected.
Therma failed to provide this information to Brisbane. In January 2008, Webcor notified
Brisbane that both Webcor and Therma considered the issue closed. Brisbane took issue
with that statement and responded that the matter “is certainly not closed.” Ultimately,
Brisbane discovered, among other things, that Therma had used ABS pipe material rather
than cast iron pipe for the sewer line, in violation of the Uniform Plumbing Code.
In May 2008, Brisbane filed a complaint against Webcor for breach of contract,
negligence, and breach of implied and express warranties. Webcor moved for summary
judgment contending that the action was barred by Article 13.7.1.1. It argued that,
pursuant to that provision, the statute of limitations for Brisbane‟s causes of action began
to run on the date of substantial completion. Brisbane opposed the motion, contending:
(1) it had never agreed to waive its right to sue for latent defects; (2) Article 13.7.1.1 was
too vague to be interpreted as a waiver of the provisions of section 337.15, which sets a
maximum 10-year period to sue for latent defects; and, (3) a clause purporting to
abrogate the discovery rule would be against public policy.
The trial court ruled as a matter of law that Article 13.7.1.1 clearly and
unambiguously abrogated the delayed discovery rule and the provisions of section 337.15
which apply to claims arising out of latent construction defects. Under Article 13.7.1.1,
the latest date upon which Brisbane could have commenced suit on its claims against
Webcor was July 31, 2004, four years after substantial completion of the project (§§ 337,
337.1). Brisbane commenced its action on May 27, 2008, nearly four years later, making
Brisbane‟s action untimely as a matter of law, and subject to dismissal on summary
judgment.
4
III.
DISCUSSION
A. Standards of Review
We review a trial court‟s grant of summary judgment de novo. (Dore v. Arnold
Worldwide, Inc. (2006) 39 Cal.4th 384, 388-389.) “In performing our de novo review,
we must view the evidence in a light favorable to [the] plaintiff as the losing party
[citation], liberally construing [its] evidentiary submission while strictly scrutinizing [the]
defendant[‟s] own showing, and resolving any evidentiary doubts or ambiguities in [the]
plaintiff‟s favor. [Citations.]” (Saelzler v. Advanced Group 400 (2001) 25 Cal.4th 763,
768-769.) Summary judgment is proper “if all the papers submitted show that there is no
triable issue as to any material fact and that the moving party is entitled to a judgment as
a matter of law. . . .” (§ 437c, subd. (c); Aguilar v. Atlantic Richfield Co. (2001) 25
Cal.4th 826, 843.)
The “interpretation of a contract is subject to de novo review where the
interpretation does not turn on the credibility of extrinsic evidence. [Citation.]” (Morgan
v. City of Los Angeles Bd. of Pension Comrs. (2000) 85 Cal.App.4th 836, 843; accord,
People ex rel. Lockyer v. R.J. Reynolds Tobacco Co. (2003) 107 Cal.App.4th 516, 520.)
Moreover, the question of whether a contract provision is illegal or contrary to public
policy “is a question of law to be determined from the circumstances of each particular
case. [Citation.]” (Jackson v. Rogers & Wells (1989) 210 Cal.App.3d 336, 349-350.)
B. Analysis
1. Principles Governing Accrual of Construction Defect Causes of Action
Generally, in both tort and contract actions, the statute of limitations “begins to
run upon the occurrence of the last element essential to the cause of action.” (Neel v.
Magana, Olney, Levy, Cathcart & Gelfand (1971) 6 Cal.3d 176, 187.) “The cause of
action ordinarily accrues when, under the substantive law, the wrongful act is done and
the obligation or liability arises . . . .” (3 Witkin, Cal. Procedure (5th ed. 2008) Actions,
§ 493, p. 633.) To ameliorate the harsh effects of that rule, a number of exceptions have
developed by statute and judicial decision, “[t]he most important” one being the delayed
5
discovery rule. (3 Witkin, Cal. Procedure, supra, Actions, § 497, p. 635; see Norgart v.
Upjohn Co. (1999) 21 Cal.4th 383, 397.) A cause of action accrues under the discovery
rule when the “ „plaintiff either (1) actually discovered his injury and its negligent cause
or (2) could have discovered injury and cause through the exercise of reasonable
diligence . . . .‟ [Citations.]” (Leaf v. City of San Mateo (1980) 104 Cal.App.3d 398, 407
(Leaf), italics omitted.) The delayed discovery rule has been applied in “cases where it is
manifestly unjust to deprive plaintiffs of a cause of action before they are aware that they
have been injured.” (Id. at pp. 406-407.) The rule protects a plaintiff who is
“ „blamelessly ignorant‟ ” of his cause of action. (Id. at p. 408.)
“This discovery rule takes into account the policy of deciding cases on the merits
as well as the policies underlying the statute of limitations (to prevent stale claims and to
require diligent prosecution). „Because a plaintiff is under a duty to reasonably
investigate and because a suspicion of wrongdoing, coupled with a knowledge of the
harm and its cause, will commence the limitations period, suits are not likely to be
unreasonably delayed, and those failing to act with reasonable dispatch will be barred. At
the same time, plaintiffs who file suit as soon as they have reason to believe that they are
entitled to recourse will not be precluded.‟ [Citation].” (Goldrich v. Natural Y Surgical
Specialties, Inc. (1994) 25 Cal.App.4th 772, 779.)
“In 1967, the Legislature responded in part to these developments by adopting
section 337.1. [Citation.] This statute provides that recovery for death, injury, or damage
caused by a „patent deficiency‟ (§ 337.1, subd. (a), italics added) in the design,
supervision, or construction of an improvement to realty must be sought within four years
after substantial completion of the improvement. [Citation.] A „patent deficiency‟ is
defined as one „apparent by reasonable inspection.‟ [Citation.]” (Lantzy v. Centex
Homes (2003) 31 Cal.4th 363, 374 (Lantzy).) However, under section 337.1, the building
industry remained liable indefinitely for undiscovered defects. (Ibid.) In 1971, the
Legislature enacted section 337.15, placing an outside 10-year limit on actions arising out
of latent construction defects. (Lantzy, at pp. 375-377.)
6
“[F]aced with a developing body of common law on the subject, [the Legislature]
carefully considered how to provide a fair time to discover construction defects, . . . while
still protecting a vital industry from the damaging consequences of indefinite liability
exposure. For latent deficiencies, the lawmakers rejected shorter periods in favor of a
limit in the upper range of those previously adopted by other jurisdictions.” (Lantzy,
supra, 31 Cal.4th at p. 377, italics added.)
In relevant part, section 337.15 provides: “(a) No action may be brought to
recover damages from any person . . . who develops real property or performs or
furnishes the design, specifications, surveying, planning, supervision, testing, or
observation of construction or construction of an improvement to real property more than
10 years after the substantial completion of the development or improvement for any of
the following: [¶] (1) Any latent deficiency in the design, specification, surveying,
planning, supervision, or observation of construction or construction of an improvement
to, or survey of, real property [and] [¶] (2) Injury to property . . . arising out of any such
latent deficiency. [¶] (b) As used in this section, „latent deficiency‟ means a deficiency
which is not apparent by reasonable inspection.”
Section 337.15, is an “ordinary, procedural statute of limitations,” and when read
together with sections 337 and 338, “[it] enacts . . . a two-step limitation; actions founded
upon a latent defect in the development of real property must be filed within three or four
years of discovery, depending on whether the action rests on breach of warranty or
negligence, but in any case within ten years of the date of substantial completion of the
improvement.” (Regents of University of California v. Hartford Acc. & Indem. Co.
(1978) 21 Cal.3d 624, 641-642 (Regents).)
2. The AIA Contract Language Adopted by the Parties in Article 13.7.1.1
As noted, the parties agreed in Article 13.7.1.1 that “any applicable statute of
limitations shall commence to run and any alleged cause of action shall be deemed to
have accrued in any and all events not later than such date of Substantial
Completion . . . .” This provision is the AIA standard accrual provision and, at the time,
was in wide usage throughout the United States. It has been recognized that “[f]or the
7
construction industry the standard form contract––particularly the AIA Standard
Document set––has in several respects served as a surrogate for a commercial code. The
AIA contract developed gradually over the generations in company with an expanding
body of experience in the field and in the courts, and was adopted verbatim, adapted, or
parroted in a vast percentage (perhaps the majority) of private commercial contracts. It
offers industry actors a degree of coherence, certainty and uniformity. Depending on
one‟s point of view, it may also serve as a backdrop for performance which more or less
reflects commercial realities and competing participant concerns.” (Reconstructing
Construction Law: Reality and Reform in a Transactional System (1998) Wis. L.Rev.
463, 485.)
While the enforceability of the 1997 AIA standard contract accrual waiver
presents a question of first impression in California, numerous out-of-state authorities
have examined this same clause; and without exception, have concluded the provision
altered the normal rules governing accrual of causes of action, including the delayed
discovery rule, and was valid and enforceable. (See, e.g., Old Mason’s House v. Mitchell
(Ky. Ct.App. 1995) 892 S.W.2d 304, 305-307; College of Notre Dame v. Morabito
(Md.App. 2000) 752 A.2d 265, 271-276; Northridge Homes, Inc. v. John W. French &
Associates, Inc. (Mass. Super., Nov. 15, 1999) 10 Mass.L.Rptr. 690, 1999 WL 1260285;
Oriskany Cent. School Dist. v. Edmund J. Booth Architects (1994) 206 A.D.2d 896, 615
N.Y.S.2d 160 (N.Y.App.Div. 1994), aff’d, 85 N.Y.2d 995, 630 N.Y.S.2d 960, 654 N.E.2d
1208 (N.Y. 1995); Gustine Uniontown v. Anthony Crane Rental (Pa. 2006) 892 A.2d 830,
836-837.)
The reasoning of these out-of-state cases is fairly consistent and is ably
represented by Harbor Court Associates v. Leo A. Daly Co. (4th Cir. 1999) 179 F.3d 147
(Harbor). That case involved a lawsuit by the developer of a condominium tower, office
building, hotel, health club, and parking garage against the project‟s architect for tort and
breach of contract claims alleging defective design work by the architect. (Id. at p. 148.)
The court, applying Maryland law, enforced a contractual provision which specified that
a cause of action between the owner and contractor commenced to run upon substantial
8
completion of the work in accordance with the applicable statute of limitations. (Ibid.)
The court observed that Maryland, like California, had adopted the delayed discovery
rule for purposes of establishing an accrual date “to relieve the „blamelessly ignorant,‟
[citation] of the „often harsh and unjust results which flow from [such] a rigid application
of the statute of limitations.‟ [Citation.]” (Id. at p. 150.) However, the federal appeals
court noted that neither the courts nor the legislature of Maryland had ever stated that the
discovery rule could not be waived by contract. (Ibid.)
The Harbor court observed that Maryland had expressed “considerable reluctance
to strike down voluntary bargains on public policy grounds.” (Harbor, supra, 179 F.3d at
p. 150.) Therefore, “[i]n light of this established judicial commitment to protecting
individuals‟ efforts to structure their own affairs through contract, we cannot conclude
that the Maryland Court of Appeals would decline to allow parties to contract around the
state‟s default rule establishing the date on which a relevant statute of limitations begins
to run. This is especially true where, as here, the parties to the agreement are
sophisticated business actors who sought, by contract, to allocate business risks in
advance. That is, rather than rely on the „discovery rule,‟ which prolongs the parties‟
uncertainty whether or if a cause of action will lie, the parties to this contract sought to
limit that period of uncertainty by mutual agreement to a different accrual date.” (Id. at
pp. 150-151, italics added.) In concluding that Maryland law would allow the parties to
waive the delayed discovery rule by contract, it noted that all other states which had
addressed the precise issue, including Kentucky, New York, and Wisconsin, had
similarly allowed the delayed discovery rule to be waived or modified by contract. (Id. at
p. 151.)
Although we are not bound to follow these out-of-state authorities, they reflect a
broad consensus as to the proper interpretation of the AIA‟s standard agreement‟s accrual
provision under circumstances identical to the circumstances present in this case––that is,
where the provision was freely entered into by parties represented by legal counsel
engaged in a sophisticated commercial construction project.
9
Since latent defects in construction are usually the types of defects an owner may
not learn about until years after completion, litigation often results over exactly when the
owner discovered, or should have discovered, the defect. (See, e.g., Creekridge
Townhome Owners Assn. Inc. v. C. Scott Whitten, Inc. (2009) 177 Cal.App.4th 251, 257-
259; Renown, Inc. v. Hensel Phelps Construction Co. (1984) 154 Cal.App.3d 413, 420-
421; Leaf, supra, 104 Cal.App.3d at pp. 407-408.) By tying the running of the applicable
statute of limitations to a date certain, the parties here negotiated to avoid the uncertainty
surrounding the discovery rule for the security of knowing the date beyond which they
would no longer be exposed to potential liability. Like the out-of-state courts that have
considered this provision, we conclude that sophisticated parties should be allowed to
strike their own bargains and knowingly and voluntarily contract in a manner in which
certain risks are eliminated and, concomitantly, rights are relinquished.
3. Is the Accrual Provision Adopted by the Parties Void as Against California
Public Policy?
Notwithstanding the consistent line of out-of-state authorities enforcing the
contract provision adopted by the parties here, Brisbane argues that the contract provision
should not be enforced because it violates California‟s public policy. Specifically,
Brisbane argues Article 13.7.1.1 is void as against public policy because it “served to
preclude Brisbane from relying on the delayed discovery doctrine in pursuing its claims
for the latent defects in Webcor‟s work that did not manifest themselves until years after
the construction project was complete.”
In advancing this argument, Brisbane assumes a heavy burden. A party seeking to
avoid enforcement of a contract on public policy grounds has the burden “ „to show that
its enforcement would be in violation of the settled public policy of this state, or injurious
to the morals of its people. [Citation.]‟ [Citations.]” (Bovard v. American Horse
Enterprises, Inc. (1988) 201 Cal.App.3d 832, 839.) Courts have been cautious not to
“ „blithely apply[] public policy reasons to nullify otherwise enforceable contracts.‟ ”
(Dunkin v. Boskey (2000) 82 Cal.App.4th 171, 183-184 (Dunkin); see also VL Systems,
Inc. v. Unisen, Inc. (2007) 152 Cal.App.4th 708, 713.)
10
While Brisbane argues “the delayed discovery doctrine has been long recognized
under California law as being necessary to further California public policy,” it offers little
insight into exactly which public policies would be violated by enforcement of Article
13.7.1.1 under the facts and circumstances here. Indeed, the delayed discovery rule has
most often been described as an equitable doctrine designed to achieve substantial justice
in situations where one party has an unfair advantage and it would be inequitable to
deprive “an „otherwise diligent‟ plaintiff in discovering his cause of action. [Citations.]”
(Berson v. Browning-Ferris Industries (1994) 7 Cal.4th 926, 931; K.J. v. Arcadia Unified
School Dist. (2009) 172 Cal.App.4th 1229, 1241 [“[c]ourts equitably may apply the
delayed discovery doctrine to a cause of action arising out of childhood sexual abuse”].)
It is normally applied in situations where there is a “fiduciary, confidential or privileged
relationship”––basically, where individuals hold “themselves out as having a special
skill, or are required by statute to possess a certain level of skill” and it is manifestly
unfair to deprive plaintiffs of their cause of action before they are aware that they have
been injured. (Moreno v. Sanchez (2003) 106 Cal.App.4th 1415, 1424 (Moreno); Leaf,
supra, 104 Cal.App.3d at pp. 406-407.)
Further undercutting Brisbane‟s assertion that Article 13.7.1.1 is void as against
public policy is our Supreme Court‟s conclusion, stated almost a century ago, that
“statutes [of limitations] are regarded as statutes of repose, carrying with them, not a right
protected under the rule of public policy, but a mere personal right for the benefit of the
individual, which may be waived. [Citations.]” (Tebbets v. Fidelity and Casualty Co.
11
(1909) 155 Cal. 137, 139; accord, Hambrecht & Quist Venture Partners v. American
Medical Internat., Inc. (1995) 38 Cal.App.4th 1532, 1548 (Hambrecht).)2
Similarly, the California Legislature itself has expressly recognized that statutory
limitations periods are not imbued with any element of nonwaivable “public policy,” and
that private agreements waiving a defense based on the statutes of limitations are valid
and enforceable. For example, section 360.5 specifically allows statutes of limitations
generally to be waived by written agreement. By enacting this statute, the Legislature has
recognized that parties have a contractual right to opt out of the statutorily mandated
limitations periods. (See also Cowan v. Superior Court (1996) 14 Cal.4th 367, 372
[permitting criminal defendant to waive statute of limitations].) Additionally, California
courts have overwhelmingly granted contracting parties substantial freedom to shorten an
otherwise applicable statute of limitations, so long as the time allowed is reasonable.
(See, e.g., Hambrecht, supra, 38 Cal.App.4th at pp. 1547-1548 [noting California‟s broad
rule allowing waiver and citing cases upholding the shortening of the four-year statute of
limitations governing breach of a written contract to as short as three months].)
The foregoing legal authorities reflect the broader, longstanding established public
policy in California which respects and promotes the freedom of private parties to
contract. (Carma Developers (Cal.) Inc. v. Marathon Development California, Inc.
(1992) 2 Cal.4th 342, 363, citing In re Garcelon (1894) 104 Cal. 570, 591 [public policy
requires “ „that men of full age and competent understanding shall have the utmost liberty
of contract, and that their contracts when entered into freely and voluntarily shall be held
sacred, and shall be enforced by courts of justice‟ ”].) Parties represented by counsel
2
To the extent there is any recognizable public policy underlying statutes of
limitations, it is to limit the time within which claims may be brought, not to lengthen the
time period. On this point, the court in Hambrecht, supra, 38 Cal.App.4th at page 1548,
footnote 16, noted: “Although Tebbets‟s waiver analysis has withstood the test of time,
subsequent Supreme Court cases have commented that the statutes of limitations do serve
public policies. (See Pashley v. Pacific Elec. Ry. Co. (1944) 25 Cal.2d 226, 228-229 . . .
[statutes of limitations further peace and welfare of society by preventing unexpected
enforcement of stale claims]; Scheas v. Robertson (1951) 38 Cal.2d 119, 125 . . .
[same].)”
12
have even been allowed to waive the protection of Civil Code section 1542, thereby
giving up the right to bring suit on unknown or unsuspected claims at the time the
contract is executed.3 (See, e.g., Winet v. Price (1992) 4 Cal.App.4th 1159, 1166-1169
(Winet); Salehi v. Surfside III Condominium Owners Assn. (2011) 200 Cal.App.4th 1146,
1160-1161 (Salehi) [waiver of unknown claims extended to plumbing problems in
condominium complex].) This is true even if the parties claim to have intended
something else. (See Salehi, at p. 1159 [evidence of undisclosed subjective intent
irrelevant to determining meaning of contractual language]; Winet, at p. 1167 [same].)
Consequently, we disagree with Brisbane‟s position that public policy supports an
iron-clad, universal rule that in all cases involving latent defects, the applicable statute of
limitations cannot begin to run until the defects were or should have been discovered,
notwithstanding a contractual agreement to the contrary. Instead, we believe that where
the parties are on equal footing and where there was considerable sophisticated give and
take over the terms of the contract, those parties should be given the ability to enjoy the
freedom of contract and to structure risk-shifting as they see fit without judicial
intervention. While Brisbane now decries the unfairness of a contract provision that may
result in the loss of entitlement to sue for damages it did not discover in a timely fashion,
this is precisely the arrangement to which it agreed.
We also point out that the Legislature itself has limited the scope and effect of the
delayed discovery rule, even where it has not been waived by the parties. In enacting
section 337.15, the Legislature provided that if damage is caused by a latent defect in
construction, the claim must be brought no later than 10 years after the construction is
substantially completed, regardless of whether the plaintiff actually discovers the injury
within the 10-year period. (See A & B Painting & Drywall, Inc. v. Superior Court (1994)
25 Cal.App.4th 349, 355 [§ 337.15 imposes an absolute 10-year bar “regardless of
3
Civil Code section 1542 provides: “A general release does not extend to claims
which the creditor does not know or suspect to exist in his or her favor at the time of
executing the release, which if known by him or her must have materially affected his or
her settlement with the debtor.”
13
discovery” (italics added)].) The parties herein, seeking to protect themselves “ „from the
damaging consequences of indefinite liability exposure,‟ ” simply agreed to shorten this
10-year period to a period equivalent to the applicable statute of limitations––in this case
up to four years. (Inco Development Corp. v. Superior Court (2005) 131 Cal.App.4th
1014, 1021.) This is not unreasonable. (See, e.g., Moreno, supra, 106 Cal.App.4th at
p. 1434 [four-year period to discover latent defects in order to allege causes of action
against home inspector would be reasonable].)
We have been warned that the power of this court to void a contract provision as
contravening public policy should be exercised only where the case is free from doubt.
(City of Santa Barbara v. Superior Court (2007) 41 Cal.4th 747, 777, fn. 53; Kaufman v.
Goldman (2011) 195 Cal.App.4th 734, 746.) This is not such a case. The equitable
concerns underpinning the delayed discovery rule, even if supported by public policy, are
simply not present here. There is no indication that Brisbane and Webcor had a unique
confidential or fiduciary relationship in which Webcor undertook a duty to inform
Brisbane of any vital information, relieving Brisbane of its normal duty of inquiry. Nor
has Brisbane alleged that the parties‟ contract was induced by misrepresentations or
undue influence.
“ „Before labeling a contract as being contrary to public policy, courts must
carefully inquire into the nature of the conduct, the extent of public harm which may be
involved, and the moral quality of the conduct of the parties in light of the prevailing
standards of the community.‟ [Citation.]” (Dunkin, supra, 82 Cal.App.4th at p. 183.) In
considering the criteria specified in Dunkin, we can think of no public policy
considerations that would protect a party such as Brisbane from enforcement of a fairly
and honestly negotiated contract provision setting a reasonable fixed time period for
discovery of latent construction defects. Consequently, this court has no difficulty
concluding that the parties‟ decision to forego the potential uncertainty created by the
delayed discovery rule in favor of an established accrual date does not rise to the level of
being so contrary to public policy that it would trump the parties‟ freedom to contract.
14
4. This Contract Falls Outside the Reasoning Guiding the Court in Moreno
Brisbane calls our attention to Moreno, supra, 106 Cal.App.4th 1415, a case in
which the court refused to enforce contractual language that had the effect of not only
shortening the limitations period, but also waiving the delayed discovery rule. Brisbane
claims Moreno stands for the proposition that “a contractual provision which purports to
eliminate the delayed discovery doctrine is not enforceable.” We do not believe Moreno
can be so broadly interpreted.
In Moreno, a couple hired a home inspector to look at a home the couple was
considering buying. (Moreno, supra, 106 Cal.App.4th at p. 1419.) Although Business
and Professions Code section 7199 provides for a four-year limitations period accruing
from the date of inspection, the parties‟ preprinted home inspection contract set forth a
shortened one-year limitations period running from the date of inspection. (Moreno, at
p. 1420.)
After the buyers purchased the home, they became ill. (Moreno, supra, 106
Cal.App.4th at p. 1420.) An environmental evaluation of the house revealed that the air
ducts in the home were insulated with asbestos. (Id. at p. 1421.) In addition, an unsealed
air return was discovered that permitted dust, dirt, and rust to enter the heating system.
(Ibid.) Fourteen months after the inspection, the buyers sued the home inspector for
breach of contract, negligence, and negligent misrepresentation. (Ibid.) The trial court
sustained the home inspector‟s demurrer, based on the one-year limitation of actions
provision in the home inspection contract. (Id. at p. 1422.)
The appellate court reversed in a 2-1 decision. The court acknowledged the
“ „well-settled proposition of law that the parties to a contract may stipulate therein for a
period of limitation, shorter than that fixed by the statute of limitations, and that such
stipulation violates no principle of public policy, provided the period fixed be not so
unreasonable as to show imposition or undue advantage in some way.‟ [Citations.]”
(Moreno, supra, 106 Cal.App.4th at p. 1430, fn. omitted.) Nevertheless, the court
concluded that in order for a contractual agreement establishing an accrual date for
lawsuits against home inspectors to be enforceable, a homeowner‟s cause of action
15
against a home inspector cannot commence to run from the date of inspection (as
provided by the Legislature when it enacted Business and Professions Code section
7199), but instead, had to run from the date when the homeowner discovers, or with the
exercise of reasonable diligence should have discovered, the breach. (Moreno, at
pp. 1428-1429.)
The court based its ruling on the judicial concern toward protection of
homeowners, and the fact that the homeowners must rely on the greater expertise of
home inspectors to discover latent defects in the home. The court stated that although the
delayed discovery rule originated in cases involving the acts of licensed professionals, the
rule may also be applied to trades people who hold themselves out as having a special
skill, or who are required by statute to possess a certain level of skill. (Moreno, supra,
106 Cal.App.4th at p. 1424.) The court reasoned, “Although not as regulated as some
fields, the Legislature has recognized the significance of the role home inspectors occupy
in this state‟s economy, as well as the potential hazards of fraudulently or negligently
performed inspections. As with other forms of professional malpractice, specialized skill
is required to analyze a residence‟s structural and component parts. Because of the
hidden nature of these systems and components a potential homeowner may not see or
recognize a home inspector‟s negligence, and thus may not understand he has been
damaged until long after the inspection date.” (Id. at p. 1428, fns. omitted.)
The Moreno court believed that public policy required the application of the
delayed discovery rule as a contractual requirement in all home inspection contracts. In
the court‟s words: “[C]auses of action for breach of a home inspector‟s duty of care
should accrue in all cases, not on the date of the inspection, but when the homeowner
discovers, or with the exercise of reasonable diligence should have discovered, the
inspector‟s breach.” (Moreno, supra, 106 Cal.App.4th at pp. 1428-1429.) The court
“attach[ed] no special significance” to the fact that the Legislature itself did not provide
for a rule of delayed discovery when it enacted Business and Professions Code section
7199, which set a maximum four-year outside limitations period for actions against home
inspectors measured from the date of inspection. (Moreno, at p. 1430.)
16
While Moreno has been followed in subsequent cases,4 we believe its analysis,
even if correct, is inapplicable here, and does not compel the conclusion that Article
13.7.1.1 is void as against public policy. Significantly, “ „[w]hether a contract is illegal
or contrary to public policy is a question of law to be determined from the circumstances
of each particular case.‟ [Citation.]” (Dunkin, supra, 82 Cal.App.4th at p. 183, italics
added.)
Unlike the parties here, the plaintiffs in Moreno were persons unsophisticated in
construction matters (indeed, that is why they hired the home inspector in the first place).
The importance of the special relationship between the parties, where the home inspector
was a professional in possession of special skills and knowledge upon whom the
homeowners relied completely for counsel and advice, was emphasized throughout the
court‟s opinion in Moreno. (See Parsons v. Tickner (1995) 31 Cal.App.4th 1513, 1526
[stressing “ „importance of the relationship between defendant and plaintiff‟ ” in cases
applying the discovery rule of accrual and noting that most involve confidential or
fiduciary relationships].) By contrast, Brisbane and Webcor occupied positions of equal
bargaining strength and both parties had the commercial and technical expertise to
appreciate fully the ramifications of agreeing to a defined limitations period. This
conclusion is reinforced by the fact that both parties had the participation and advice of
legal counsel during contract negotiations.
4
We point out that none of these cases involve a commercial contract entered into
between sophisticated parties of equal bargaining strength where there is no claim of
misrepresentation or undue influence. (See Weatherly v. Universal Music Publishing
Group (2004) 125 Cal.App.4th 913, 919 [following Moreno; discovery rule applied to
action by songwriter against music publisher where there was evidence that the writer
was hindered from discovering the publisher‟s breach by its misrepresentations];
Charnay v. Cobert (2006) 145 Cal.App.4th 170, 183 [following Moreno; discovery rule
applied to preclude dismissal of action by client against attorney for breach of fiduciary
duty]; William L. Lyon & Associates, Inc. v. Superior Court (2012) 204 Cal.App.4th
1294, 1308-1309 [following Moreno; in case alleging intentional nondisclosure of
construction defects by real estate broker]; see also Zamora v. Lehman (2013) 214
Cal.App.4th 193 [contract provision contains language adopting delayed discovery rule,
making it valid under Moreno].)
17
Furthermore, unlike this case, Moreno involved a contract clause that not only
waived the delayed discovery rule, but also reduced the statute of limitation from four
years to one. In our case, Brisbane had the benefit of the full statute of limitations period,
up to four years, to conduct any inspections believed necessary to uncover latent defects–
–a period of time the Moreno court itself acknowledges would be reasonable. (Moreno,
supra, 106 Cal.App.4th at p. 1434.)
Lastly, we note that one court, In re Brocade Communications Systems, Inc.
(N.D.Cal. 2009) 615 F.Supp.2d 1018 (Brocade), has found the reasoning in Moreno to be
unpersuasive in circumstances similar to those presented here where “an agreement
between sophisticated parties” was entered into “that defines the contours of their
liability.” (Id. at p. 1040.) The court distinguished Moreno, which “merely stands for the
limited proposition that a cause of action may not accrue in a suit against a home
inspector until the injury is discovered. [Citation.]” (Ibid.) The court believed “Moreno
simply cannot be extended far enough to relieve [the corporation] of the indemnification
it agreed to provide . . . .” (Ibid.) We find the reasoning of Brocade persuasive and agree
that this distinction makes Moreno inapposite and inapplicable to control the result in this
case.
Therefore, based on our review of relevant case authorities, both in California and
uniformly throughout the nation, we conclude that Article 13.7.1.1 of the
Brisbane/Webcor contract was a valid, enforceable provision freely entered into by
sophisticated parties engaging in a commercial construction project. Accordingly, the
trial court was correct in granting summary judgment after finding that Brisbane‟s claims
against Webcor were time-barred.
5. There Are No Inconsistent Contractual Provisions That Would Make Article
13.7.1.1 Unenforceable
Brisbane next contends that the trial court‟s interpretation of Article 13.7.1.1
renders that provision in direct conflict with other provisions in the parties‟ contract,
contrary to fundamental principles of contract law.
18
At the outset, we emphasize that the trial court found, and we agree, that there are
no ambiguities in Article 13.7.1.1. The court found “as a matter of law” that Article
13.7.1.1 was “clear and unambiguous with regard to direct claims against Webcor” and
that it “abrogat[ed] the delayed discovery rule.” When contracting, if parties express
their intention in a written instrument in clear and unambiguous language, it is the court‟s
duty to construe the written agreement according to the plain meaning of the language
employed and not to strain in order to find ambiguities and inconsistencies that would
render a clearly-stated provision unenforceable. (See Denver D. Darling, Inc. v.
Controlled Environments Construction, Inc. (2001) 89 Cal.App.4th 1221, 1235 [setting
out “plain meaning” rule].)
Toward this end, cases recognize that the parties generally “ „intend every clause
to have some effect‟ ” and that this intent “ „should not be thwarted except in the plainest
case of necessary repugnance.‟ ” (Southern Pacific Land Co. v. Westlake Farms, Inc.
(1987) 188 Cal.App.3d 807, 822, italics added.) Thus, “where different parts of the
instrument appear to be contradictory and inconsistent with each other, the court will, if
possible, harmonize the parts and construe the instrument in such [a] way that all parts
may stand . . . .‟ ” (Ibid.) The court “ „will not strike down any portion unless there is an
irreconcilable conflict wherein one part of the instrument destroys in effect another part.‟
[Citation.]” (Ibid.)
To establish a conflict, Brisbane extracts language from Article 3.18, a provision
applying to Webcor‟s duty to indemnify Brisbane from losses resulting from third-party
claims. Brisbane contends there is an irreconcilable conflict between Article 13.7.1.1 and
Article 3.18 of the parties‟ contract because “in most cases such third party [indemnity]
claims would not occur until years after substantial completion and thus an indemnity
action would be time barred [under Article 13.7.1.1] before it could even be brought.”
But, Article 13.7.1.1 [lawsuits between the parties] and Article 3.18 [third-party
claims] cover entirely different subjects, and each provision would take effect under
entirely different circumstances. Moreover, Webcor offers the following plausible
interpretation of the general intent of the parties‟ contract as it pertains to
19
indemnification: “Pursuant to Article 13.7.1.3, the statute of limitations for any claim
based on Webcor‟s refusal to indemnify Brisbane after issuance of the final certificate of
payment (which typically occurs around the time of substantial completion) would accrue
upon Webcor‟s refusal [to adhere to its contractual indemnity obligations], which
constitutes „the date of actual commission of any other act or failure to perform any duty
or obligation by the contractor . . . .‟ Brisbane would then have the full duration of the
four-year statute of limitation applicable to claims for contractual indemnity pursuant to
Code of Civil Procedure section 337.” Under this interpretation, any perceived conflict
between Article 13.7.1.1 and Article 3.18 can be harmonized. (See Civil Code, § 1652
[“Repugnancy in a contract must be reconciled, if possible, by such an interpretation as
will give some effect to the repugnant clauses, subordinate to the general intent and
purpose of the whole contract”].) Thus, we see no conflict, let alone an irreconcilable
conflict, which renders the meaning of Article 13.7.1.1 questionable.
Brisbane next claims that any rights Webcor might have had under Article
13.7.1.1 were superseded by Article 13.4.1 which states: “Duties and obligations
imposed by the Contract Documents and rights and remedies available thereunder shall
be in addition to and not a limitation of duties, obligations, rights and remedies otherwise
imposed or available by law.” Brisbane interprets this provision as accomplishing a
wholesale obliteration of the express contract provisions which were negotiated by the
parties, including Article 13.7.1.1, which deviate from the ordinary rules that would
apply in the absence of an agreement to the contrary.
There is no indication that Article 13.4.1 was placed in this contract to wipe out
the rights and duties expressly given under the other provisions of the written contract;
and we refuse to interpret it in such an absurd manner. (A.B.S. Clothing Collection, Inc.
v. Home Ins. Co. (1995) 34 Cal.App.4th 1470, 1478 [where contract language covering a
subject is clear and explicit, it governs].) A more reasonable interpretation of Article
13.4.1 is that it served a gap-filling function, allowing the parties to take advantage of
rights and remedies “otherwise imposed or available by law” in addition to those
specified in the contract.
20
6. Webcor’s Post-Completion Conduct Was Not Competent Evidence of
Webcor’s Interpretation of Article 13.7.1.1, Nor Did That Conduct Constitute a
Waiver of Article 13.7.1.1
Brisbane has taken the alternative positions that even if Article 13.7.1.1 could be
an enforceable waiver of the delayed discovery rule, Webcor‟s post-completion actions
reflect that it interpreted Article 13.7.1.1 not to be a waiver of the delayed discovery rule,
as evidenced by its attempt to address the defects in the hotel well after any action for
latent construction defects was time-barred under that provision. Taking a slightly
different tack, Brisbane also argues that this post-completion conduct acted to waive
Webcor‟s reliance on Article 13.7.1.1 to defeat Brisbane‟s latent defect claims.
As to the first point, we note that the trial court determined, and we agree, that
Article 13.7.1.1 is a clear and unambiguous waiver of the delayed discovery rule.
Consequently, any purported evidence of the subjective intent of the parties, particularly
an attempt to infer that intent from conduct occurring years after the contract was signed,
is simply irrelevant. (See In re Marriage of Iberti (1997) 55 Cal.App.4th 1434, 1440
[“[e]xtrinsic evidence of the parties‟ intentions is inadmissible to vary, alter, or add to the
terms of an unambiguous agreement”].)
As to the second point, when this matter was under consideration below the court
requested supplemental briefing on the issue of “waiver of the subject contract provision
based on remedial/repair work . . . .” After considering the parties‟ submissions, the
court held that even if “viewed in the light most favorable to waiver,” Brisbane proffered
no evidence that could reasonably be construed as Webcor “accepting direct liability for
the defects discovered in 2005 and 2007.” The court believed that, at most, Brisbane
“only establish[ed]” that Webcor “stood ready, willing, and able, to assist” Brisbane “in
prosecuting a claim against the plumbing contractor . . . .” Consequently, the court found
that no waiver of any defense based upon Article 13.7.1.1 could reasonably be inferred
from Brisbane‟s evidence. We agree.
California courts “ „ “will find waiver when a party intentionally relinquishes a
right or when that party’s acts are so inconsistent with an intent to enforce the right as to
21
induce a reasonable belief that such right has been relinquished” ‟ . . . .” (Oakland
Raiders v. Oakland-Alameda County Coliseum, Inc. (2006) 144 Cal.App.4th 1175, 1190,
original italics.) “The waiver of a legal right cannot be established without clear intent to
give up such a right. [Citation.] „The burden is on the party claiming the waiver to prove
it by clear and convincing evidence‟ ” that does not leave the matter doubtful or
uncertain. (Utility Audit Co., Inc. v. City of Los Angeles (2003) 112 Cal.App.4th 950,
959.) Doubtful cases will be decided against a waiver. (Kacha v. Allstate Ins. Co. (2006)
140 Cal.App.4th 1023, 1034.)
As shown by the evidence, the only action taken by Webcor in both 2005 and
2007 consisted of visiting the site to investigate claims made by Brisbane with respect to
alleged failures in the kitchen waste line. The investigations occurred long after the
contractual limitations period for filing suit had expired. At no time during these on-site
visits did Webcor lead Brisbane to believe it would waive the protections of the
contractual limitations period, nor did Webcor engage in conduct which would indicate
that it was going to take responsibility for the failed kitchen waste line. Brisbane failed
to submit any evidence that Webcor itself performed any remedial/repair work on the
kitchen waste line. Rather, it simply investigated Brisbane‟s complaints; and following
this investigation, it referred Brisbane to Therma, Webcor‟s design-build plumbing
subcontractor for the project. Webcor offered to help Brisbane analyze Therma‟s
investigation in order to determine the cause of the problems. However, throughout
Webcor‟s communication with Brisbane, the evidence showed Webcor placed the blame
squarely on its subcontractor Therma, and attempted to placate Brisbane by pointing to
Therma‟s possible legal culpability for those defects. At some point, Webcor emailed
Brisbane to notify it that it assumed Brisbane had resolved the issue, and that it
considered the matter closed.
Consequently, we find nothing in the record on summary judgment that would
raise a reasonable inference suggesting Webcor‟s limited response to Brisbane‟s
complaints about defects in the hotel in 2005 and again in 2007 constituted evidence that
it did not interpret Article 13.7.1.1 as it now does. Furthermore, such conduct is a far cry
22
from that amounting to waiver of a negotiated contractual right. Under these
circumstances, we agree with the trial court that waiver of Article 13.7.1.1 cannot
reasonably be inferred from the evidence proffered by Brisbane.
7. Webcor’s Post-Completion Conduct Does Not Give Rise to a New Claim
Lastly, Brisbane claims that a new statute of limitations period was triggered and
the statute commenced to run as of January 3, 2008, when Webcor notified Brisbane that
it assumed the kitchen line issue was resolved and that it considered the matter closed.
However, after the expiration of the contractual limitation period on July 31, 2004, and in
the absence of a third-party claim triggering indemnity obligations, Webcor had no
further obligation with respect to the project. It certainly was under no duty to perform
any repairs. Brisbane argues that “[r]egardless whether the statute of limitations had run,
Webcor could be liable for the post-completion work which was defectively performed
because Webcor had assumed a duty to have that work performed properly.” However,
Brisbane offers no record citations or argument in support of this assertion. Therefore,
we disregard this point. (Troensegaard v. Silvercrest Industries, Inc. (1985) 175
Cal.App.3d 218, 229.)
IV.
DISPOSITION
The judgment is affirmed. Webcor is awarded its costs on appeal.
_________________________
RUVOLO, P. J.
We concur:
_________________________
REARDON, J.
_________________________
RIVERA, J.
23
Trial Court: San Mateo County Superior Court
Trial Judge: Hon. Joseph C. Scott
Counsel for Appellant: Fieldslaw, Gary D. Fields,
Arlette B. Bolduc
Esner, Chang & Boyer, Stuart B. Esner,
Holly N. Boyer
Counsel for Respondents: Gordon & Rees, S. Mitchell Kaplan,
Don Willenburg, Gregory J. Gangitano
A132555, Brisbane Lodging, L.P. v. Webcor Builders, Inc.
24