ZELEZNICK v. VTN CONSOLIDATED INC (1982)

Appellants, various co-defendants in the basic action, appeal from the granting of a motion for summary judgment filed by co-defendant and respondent VTN Consolidated, Inc. (VTN) on cross-complaints for indemnity brought by appellants arising out of the transactions and occurrences set forth in the underlying action.

 The issue presented is whether an indemnity action is barred by Code of Civil Procedure section 337.15 ¹ where the indemnitor had completed its phase of the work more than 10 years prior to commencement of the basic action and successfully obtained a summary judgment on that ground, when the basic action was timely filed against the co-defendants and cross-complainants.

For reasons hereinafter discussed, we conclude the indemnity action is timely and reverse the judgment.

PROCEDURAL AND FACTUAL BACKGROUND

In the basic action of Fred M. Zeleznick and Ruth S. Zeleznick (Zeleznicks) v. VTN Consolidated, Inc., et al., a complaint was filed March 23, 1978, for “Negligent Land Development and Breach of Warranty” alleging that on April 8, 1968, plaintiffs purchased from defendant Valley Circle Estates a residence on Calvert Street in Woodland Hills “subdivided, created, manufactured, constructed and built by Defendants Valley Circle Estates [and other related entities].”  Such defendants during the years 1965 and 1966 employed VTN, Pacific Soils Engineering, Inc., and Fullmer-Petty, Inc., to plan and design a subdivision, make soil tests and grade and compact land in which the Zeleznicks' lot was included.   It was alleged that the notice of completion of Zeleznicks' residence was filed March 25, 1968.

The complaint further alleged that plaintiffs were damaged in the amount of $72,000.

On June 12, 1980, VTN filed a motion for summary judgment in the basic action wherein it was established by competent evidence that VTN's services were completed and accepted by the Department of Public Works of the City of Los Angeles on April 5, 1966.

On June 27, 1980, the motion for summary judgment was denied, but on petition to this court for writ of mandate an alternative writ was issued based upon Liptak v. Diane Apartments (1980) 109 Cal.App.3d 762, 167 Cal.Rptr. 440 directing the trial court to vacate its order and to grant the motion for summary judgment in the basic action.   The order granting summary judgment was made and judgment for VTN as against Zeleznicks was entered therein October 16, 1980.

Thereafter, on November 6, 1980, VTN filed a motion for summary judgment on cross-complaints for indemnity brought by the various co-defendants in the basic action, the appellants on this appeal.   The basis of the motion was the same lack of timeliness theory, that since VTN completed its operations in the development work on the real property of which the Zeleznicks' residence was a part no later than April 5, 1966, the 10-year period relating to soil tests and grading and compaction had expired prior to the time the Zeleznicks had filed suit in the basic action on March 23, 1978, and therefore VTN could not be a party to the original lawsuit.

The trial court granted VTN's motion for summary judgment “pursuant to C.C.P. § 337.15(c) and the case of Regents of University of California v. Hartford Acc. & Indem. Co. (1978) 21 Cal.3d 624, 639, F.n. 9 [147 Cal.Rptr. 486, 581 P.2d 197]” which states:  “ 9 Subdivision (c) of section 337.15 states that the statute's 10-year limitation applies to ‘․ an action for indemnity brought against a person arising out of his performance or furnishing of services or materials referred to in this section.’   We construe this language as limited to actions for contractual or implied indemnity between parties to the construction of the development or improvement;  we do not apply it to bar a surety's suit for reimbursement.”

A motion for reconsideration was denied and this appeal ensued.

ISSUE AND CONTENTIONS

As appellants have aptly stated in their opening brief, “[t]he sole issue presented on this Appeal is whether a general contractor defendant, which has been timely sued by the plaintiff, may then cross-complain for equitable indemnity pursuant to the American Motorcycle Assn. v. Superior Court case, 20 Cal.3d 578, 146 Cal.Rptr. 182, 578 P.2d 899 (1978), against a sub-contractor even though plaintiff could not then sue the sub-contractor.”

In urging an affirmative resolution of the question, appellants contend initially that the language of the statute specifically authorizes a cross-complaint such as the one brought by them, and secondly, every case involving indemnification of a defendant has permitted an action to be brought, whether filed in the underlying suit, since said action for indemnity does not accrue until the judgment or settlement is actually paid, even if the plaintiff could no longer sue the party from whom indemnity is sought.

DISCUSSION

1. The Exception Provided For In section 337.15, subdivision (c) Enables This Cross-Complaint For Indemnity.

In support of their first contention that the statute specifically authorizes their cross-complaint, appellants point to subdivision (c) of section 337.15, the last portion of which provides “a cross-complaint for indemnity may be filed pursuant to subdivision (b) of Section 428.10 in an action which has been brought within the time period set forth in subdivision (a) of this section.” ²

Although the Zeleznicks' action was not commenced within the 10-year period ending April 5, 1976, from completion of VTN's work in preparing a grading plan for the tract, it was commenced within the 10-year period ending March 25, 1978, by two days from completion of the residence.   In discussing this factual situation, appellants argue:  “Subdivision (c) of 337.15 specifically provides that a cross-complaint for indemnity may be brought ‘in an action which has been brought within the time periods set forth in subdivision (a) of this action.’   The statute does not indicate that for the purpose of subdivision (c), the action must have been brought within the period that the cross-defendant could have been directly sued by the plaintiff and should not be so interpreted.   So long as the main action was timely as to any of the entities within subdivision (a), a cross-complaint for indemnity should be found to be timely.”

 Section 428.10, subdivision (b) does not state anything to contradict this reasonable interpretation.   Given the acceptance of such an interpretation, the statute of limitations period provided for in section 337.15 is irrelevant.   It has always been the law in California that indemnity in favor of a defendant will lie against a third party even though the statute of limitations prevents plaintiff from suing the third party, because a cause of action for implied indemnity does not accrue or come into existence until the indemnitee (i.e., the initial defendant) has suffered actual loss through payment.  (People ex rel. Dept. of Transportation v. Superior Court (1980) 26 Cal.3d 744, 751, 759, 163 Cal.Rptr. 585, 608 P.2d 673;  E. L. White, Inc. v. City of Huntington Beach (1978) 21 Cal.3d 497, 506, 146 Cal.Rptr. 614, 579 P.2d 505.)

 It is to be noted that most of the implied indemnity cases involve facts where plaintiffs' cause of action arose out of an incident or situation involving multiple defendants having the same limitation period.   Even though plaintiff fails to sue a particular defendant within the limitation period, the neglected defendant is still subject to cross-complaints for indemnity by his co-defendants if the action against them was timely.

In the underlying case, the statute of limitations applicable to VTN expired two years before Zeleznicks' action was filed against it, while the limitation period pertaining to the other co-defendants had not yet run.   In this respect the case is factually similar to People ex rel. Dept. of Transportation v. Superior Court, supra, 26 Cal.3d 744, 163 Cal.Rptr. 585, 608 P.2d 673, where plaintiff failed to file a verified claim with the State of California within 100 days of the accident and thus was unable to pursue his cause of action against it.   Nevertheless, our Supreme Court ruled that cross-complaints for indemnity could be filed holding that “a tort defendant's equitable indemnity action is separate and distinct from the plaintiffs' tort action ․ [and] unlike the plaintiff's claim, does not accrue for statute of limitations purposes when the original accident occurs, but instead accrues at the time that the tort defendant pays a judgment or settlement as to which he is entitled to indemnity.”  (Id., at p. 748, 163 Cal.Rptr. 585, 608 P.2d 673.)

VTN mistakenly relies upon the cases of Liptak v. Diane Apartments, supra, 109 Cal.App.3d 762, 167 Cal.Rptr. 440, Ernest W. Hahn, Inc. v. Superior Court (1980) 108 Cal.App.3d 567, 166 Cal.Rptr. 644 and Regents of University of California v. Hartford Acc. & Indem. Co., supra, 21 Cal.3d 624, 147 Cal.Rptr. 486, 581 P.2d 197, in arguing that the cross-complaint is barred by section 337.15, subdivision (c).

Liptak was an action by the owners of the damaged property against the sub-contracting graders of the land and the developer.   No action for indemnity was involved.

Hahn entailed a suit by a slip and fall personal injury claimant against a restaurant.   The restaurant cross-complained against the builder for indemnity.   Since the builder completed the restaurant more than 10 years before the personal injury action was commenced, this court held that the indemnity action was barred.

Regents also did not involve indemnity but was an action against a contractor and his surety brought more than 10 years after completion of the building.   The Supreme Court held the running of the statute of limitations on the principal debt did not exonerate the surety.   However, in Regents, the Supreme Court in footnote 9 quoted hereinabove construed the 10-year limitation period of section 337.15, subdivision (c) as being applicable to actions for indemnity between parties to the construction of the development or improvement, an observation tending to lend support to VTN's argument that the cross-complaint is barred.   But, the statement is dictum and more importantly, gives no consideration to the last clause in the subdivision which specifically excepts a cross-complaint for indemnity filed pursuant to section 428.10.

To ignore the exception provided in subdivision (c) would permit VTN as the potentially liable party to escape even the factual resolution as to its financial responsibility.   We do not believe such an unusual prospect was intended by the legislature in the enactment of section 337.15.

The judgment is reversed.

FOOTNOTES

1.   Code of Civil Procedure section 337.15, subdivision (a) provided in pertinent part:  “(a) No action may be brought to recover damages from any person, or the surety of a 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 such 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.  [¶] (2) Injury to property, real or personal, 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.  [¶ ] (c) As used in this section, ‘action’ includes an action for indemnity brought against a person arising out of his performance or furnishing of services or materials referred to in this section, except that a cross-complaint for indemnity may be filed pursuant to Section 442 in an action which has been brought within the time period set forth in subdivision (a) of this section․”  (Emphasis added.)(We note that although section 442 was repealed in 1971 and replaced in part by section 428.10, section 337.15 was not amended to reflect this change until 1980.   We treat the amendment as having been effective prior to filing this action for the purpose of this opinion.)All code references herein are to the Code of Civil Procedure unless otherwise indicated.

2.   Section 428.10, subdivision (b) provides:  “A party against whom a cause of action has been asserted in a complaint or cross-complaint may file a cross-complaint setting forth either or both of the following:  [¶] ․  [¶ ] (b) Any cause of action he has against a person alleged to be liable thereon, whether or not such person is already a party to the action, if the cause of action asserted in his cross-complaint (1) arises out of the same transaction, occurrence, or series of transactions or occurrences as the cause brought against or (2) asserts a claim, right, or interest in the property or controversy which is the subject of the cause brought against him.”See footnote 1, supra.

KLEIN, Presiding Justice.

LUI and DANIELSON, JJ., concur.