Notice of Appeal: BEACON RESIDENTIAL COMMUNITY ASSOCIATION VS. CATELLUS THIRD AND KING LLC et al

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                                KATZOFF & RIGGS LLP

1500 PARK AVE,, SUITE 300

EMERYVILLE, CA 94608

(510) 597-1990

ANN RANKIN (SBN 83690)
TERRY WILKENS (SBN 118469)
Law Offices of Ann Rankin

3911 Harrison Street

Oakland, CA 94611

Tel.: (510) 653-8886

Fax: (510) 653-8889

KENNETH S. KATZOFF (SBN 103490)
ROBERT R. RIGGS (SBN 107684)
SUNG E. SHIM (SBN 184247)
STEPHEN G. PREONAS (SBN 245334)
Katzoff & Riggs LLP

1500 Park Ave #300

Emeryville, CA 94608

Tel: (510) 597-1990

Fax: (510) 597-0295

Attorneys for Plaintiff BEACON
RESIDENTIAL COMMUNITY
ASSOCIATION

ELECTRONICALLY
FILED

Superior Court of California,
County of San Francisco

MAY 13 2013

Clerk of the Court
BY: CARLOS MURILLO
Deputy Clerk

SUPERIOR COURT OF THE STATE OF CALIFORNIA.

COUNTY OF SAN FRANCISCO

BEACON RESIDENTIAL
COMMUNITY ASSOCIATION,

Plaintiff,
VS.
CATELLUS THIRD AND KING LLC,

et al.,

Defendants.

and RELATED CROSS-ACTION

eS SS SS

-1-

Case No. CGC 08-478453

EXHIBITS D-F TO PLAINTIFF
AND APPELLANT BEACON
RESIDENTIAL COMMUNITY
ASSOCIATION’S NOTICE OF
ELECTION TO PROCEED BY
WAY OF APPENDIX IN LIEU OF
CLERK’S TRANSCRIPT AND
DESIGNATION OF REPORTER’S
TRANSCRIPT RE APPEAL FROM
ORDER DENYING RENEWED
MOTION FOR CLASS
CERTIFICATION

EXHIBITS D -F TO PLAINTIFF AND APPELLANT BEACON RESIDENTIAL COMMUNITY ASSOCIATION'S
NOTICE OF ELECTION TO PROCEED BY WAY OF APPENDIX IN LIEU OF CLERK’S TRANSCRIPT AND
DESIGNATION OF REPORTER’S TRANSCRIPT RE APPEAL FROM ORDER DENYING RENEWED MOTION
TOR CLASS CERTIFICATIONEXHIBIT D

EXHIBIT D28

IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA
IN THE CITY AND COUNTY OF SAN FRANCISCO
BEFORE THE HONORABLE RICHARD A. KRAMER, JUDGE
COMPLEX LITIGATION

DEPARTMENT 304

---000---
BEACON RESIDENTIAL COMMUNITY )
ASSOCIATION,
PLAINTIFF,
vs. CASE NO, CGC-08-478453

CATELLUS THIRD AND KING LLC, ET
AL.,

DEFENDANT. )

REPORTER'S TRANSCRIPT OF PROCEEDINGS

FRIDAY, OCTOBER 28, 2011

CALIFORNIA GOVERNMENT CODE SECTION 69955 (d):
“Any court, party, or person who has purchased a transcript
may, without paying a further fee to the reporter, reproduce a
copy or portion thereof as an exhibit pursuant to court order or
rule, or for internal use, but SHALL NOT OTHERWISE PROVIDE OR

SELL A COPY OR COPIES TO ANY OTHER PARTY OR PERSON."

OFFICIAL COURT REPORTER: ANGIE DINER, RPR, CCRR, CSR 9581MS

w

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APPEARANCES:

FOR PLAINTIFF:

LAW OFFICES OF ANN RANKIN
BY: ANN RANKIN, ESQ.

3911 HARRISON STREET
OAKLAND, CA 946111

ROBERT RIGGS, ESQ.

BY: KATZOFF & RIGGS

1500 PARK AVENUE, SUITE 360
EMERYVILLE, CA 94608

FOR DEFENDANT CATELLUS:

WOOD SMITH HENNING & BERMAN, LLP
BY: DAVID S. WEBSTER, ESQ.

1401 WILLOW PASS ROAD, SUITE 700
CONCORD, CA 94520

FOR DEFENDANT MISSION PLACE:

HAIGHT BROWN & BONESTEEL, LLP
BY: STEVEN M. CVITANOVIC, ESQ.
71 STEVENSON STREET, 20TH

FLOOR, SAN FRANCISCO CA 94105

FOR. DEFENDANT HKS, INC.

SCHWARTZ & JANZEN, LLP

BY: STEVEN SCHWARTZ, ESQ.
NOEL BE. MACUALAY, ESQ.

12100 WILSHIRE BOULEVARD

SUITE 1125

LOS ANGELES CA 90025

FOR DEFENDANT CATELLUS AND SPECIALLY APPEARING FOR CUPERTINO
ELECTRIC

ROPERS MAJESKI KOHN BENTLEY
BY: TODD J. WENZEL, ESQ.
201 SPEAR STREET, SUITE 1000
SAN FRANCISCO, CA 9410527
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FOR DEFENDANT SKIDMORE OWINGS & MERRILL

ROBLES, CASTLES & MEREDITH LLP
BY: RICHARD C, YOUNG, ESQ.
THE ARLINGTON BUTLDING
492 NINTH STREET, SUITE 200
OAKLAND, CA 94607

FOR DEFENDANT WEBCOR

GORDON & REES, LLP

BY: GREGORY HANSON, ESQ.
275 BATTERY STREET
SAN FRANCISCO, CA 94110

ALSO PRESENT:
DENAE M. OLIVIERI, ESQ.

DANA L. DUNCAN, ESQ,
RANDEL J. CAMPBELL, ESQ.PROCEEDINGS FOR OCTOBER 28, 2011
JUDGE RICHARD A. KRAMER PRESIDING, DEPT. 304
10:34 a.m.
---000---

THE COURT: Call the case, please.

THE CLERK: Yes, Your Honor. Superior Court No. 478453,
Beacon Residential Community Association, plaintiffs, versus
Catellus Third & King, LLC, and others, defendants.

THE COURT: Welcome back. Nice to see you. We have your
appearances and our visiting court reporter knows who everybody
is, I think. If she asks you to state who you are, then state
who you are and who you represent.

We have, what I would recall, a "demurrer o-ram-a" today, a
number of demurrers that when you put them all together are like
a Rubik's Cube with words. And there are -- there are also
motions to strike and requests for judicial notice.

Here are my tentative rulings: As to the request for
judicial notice, all of them, both pliaintiffs' and defendants',
are pleadings in this case which I don't have to take judicial
notice of, but for belts and suspenders, I would grant them.
With the exception of the defendants' request for judicial
notice of excerpts from certain depositions -- those are not
pleadings in this case -- the tentative ruling as to the
excerpts from depositions is to deny judicial notice. I realize
that there are some cases that talk about whether it's
appropriate to take judicial notice of deposition testimony, and
there are many others that say it is not appropriate to point on

the demurrer, that I'm supposed to test the legal sufficiency ofthe pleading, and looking into deposition testimony, especially
excerpts, especially given that there may be other portions of
the testimony or other explanations that really raise a fact
question, I do not think it is appropriate to take judicial
notice of the deposition excerpts. They are Exhibits C and D,
the deponent's are Mr. Alfaro, capital A-l-f-a-r-o, and

Mr, Tashjain, and if I butchered your name and if you're in the
room, I'm sorry. If I butchered your name and you're not in the
room, I'm still sorry. But in any event, I can spell it, which
is P-a-s-h-j-a-i-n. The tentative ruling is to deny the request
for judicial notice as to those two matters and grant the rest.

Regarding the demurrers, the demurrers are, as I have
expressed a moment ago, much like a Rubik's Cube with words, the
inner relationship of the causes of action, the various
theories, the alternative pleading -~ which by the way as to the
third cause of action, your recital on pages 40 on -- it being
an alternative. You make reference to the second cause of
action, not the third cause of action, and I say that not to
embarrass anybody but to prove that I've read everything. Which
I nave.

I also comment before giving you the final tentative ruling
is that your question of the second cause of action, the
negligence per se, the tying the negligence to a statute, and
then using -- I think this is the strategy ~- using the
statutory reference to work with what was -- what is usually
called Senate Bill 800. But the repair thing is an interesting
legal question. I just want to note that I understand it. I

saw it.But here's what we're going to do, Tentative ruling is the
demurrers of HKS, Skidmore, S-k-i-d-m-o-r-e, to the first and
second causes of action, tentative ruling is to sustain them
without leave to amend for reasons that I dealt with last time
on Bily, B-i-l-y, and all the things that I dealt with before,
and to overrule all other demurrers.

I realize I am leaving in place some legal questions. But
the point is, the pleading is sufficient to advise people as to
what's going on here for each of the causes of action, and that
the legal questions raised may be substantial, may be justified,
may not. be, but we can deal with those by having the case
proceed through discovery.

The tentative ruling on the motions to strike is to deny
them all. And a preview of coming attractions, the idea will be
to open discovery on everything, to have the plaintiffs put
together a comprehensive discovery plan, to serve it by
December, and that there will be a discovery case management
conference in late December, which will be attended by all
parties and their carriers to talk about discovery and how much
it's going to cost and how we can facilitate getting the facts
out. And if anybody wants to talk about something else, 1'11 do
it, otherwise, the case is going to proceed with the mediator
being in charge of the law jam that was described off the record
to me regarding when the wrap, w-r-a-p, insurance carriers will
be ready to talk settlement.

I've sort of given you the casé management conference as
well as the demurrer rulings. So let's go back to the demurrer

rulings and the motions to strike. Anybody want to argueanything?

MS. RANKIN: Yes, Your Honor.

THE COURT: Well, you won, so let's wait and see what the
other side has to say first.

MR. WEBSTER: Yes, Your Honor. For Catellus.

THE COURT: Go ahead. I read it all

MR. WEBSTER: David Webster for the Catelius defendants.
Just very quickly, Your Honor, because I think the papers
covered all the arguments.

THE COURT: Excellent job by everybody. My statement of it
being a Rubik's Cube with words was not pejorative. It was --
you laid it out all, I understood it, and I think I got exactly
what's going on here.

MR. WEBSTER: Thank you.

THE COURT: Go ahead.

MR. WEBSTER: Real quickly just to take them in no
particular order, let's start with the negligence per se, the
second cause of action, Catellus, we both demurrered and moved
to strike that. I think that's pretty straightforward. Back in
January to February when we argued this SB 800 pre exemption
issue to you, you after careful and lengthy argument ruled that
the SB 800 language did not allow the plaintiff to claim or
state a negligence cause of action. And that's specifically
stated your February 9, 2011, order. Now, we have a negligence
cause of action and a negligence per se cause of action, which
we believe is directly contrary to your prior order and should
not stand. Even before we get to the issues of whether

negligence per se is a cause of action or evidentiarypresumption, et cetera.

THE COURT: I made the -- I made mention of SB 800, but what
I think is going on here is that the argument is there's a
violation of a statute and that's how you get around SB 800.
I'm not asking anybody to respond with their legal strategies,
but we do not have a common law claim for negligence, so there
will be no average reasonable contractor stuff going on here.
The claim is there are specific statutes, which I think are
clearly enough and set forth, the argument being that set up the
duty of care or for performance. And that's the limit of the
negligence claim. Now, whether or not that would justify a
plea, fall within SB 800, I'm going to save for another day and
we may have to do it in the context of whatever discovery is
served. Does that help you?

MR. WEBSTER: It does, and I think our argument stands that
plaintiffs’ reliance on whether it's Title 24 or various
building code violations goes beyond those functionality
standards within SB 800, but that issue has been before the
Court, remains before the Court, and if we need to address that
as we go forward, I'm satisfied with that.

THE COURT: And then the other alternative would be to
sustain the demurrer for yet another shot at -- what are you
talking about here regarding what the contractors did wrong?
Are we talking about some sort of a statutory violation or not?
And I think I can handle this in discovery and limiting
discovery. I want to get this thing going, otherwise we're
going to be past Christmas before the case is even at issue.

MR. WEBSTER: And you may, Your Honor. I mean, the whole——————_

point as we set forth in the papers, the whole purpose of what
the legislature did in SB 800 was to set forth these
functionality standards by which all conditions can be tested.
And without reliance upon Title 24 and American Plywood
Association standards, these are the set standards. And it's --
it violates that purpose of the statute to allow any plaintiff
to claim a building code violation or a Title 24 violation.
That's the ultimate fundamental rub between SB 800 and anything
else. We discussed this at length before.

THE COURT: We did. But as I said, I think the strategy
here was to use the word "statute" from SB 800 and to tie the
negligence thing to a statute. There also is an interesting
legal question regarding the impact of Evidence Code Section --
is it 622 or something.

MR. WEBSTER: Are you talking about the evidentiary
presumption?

THE COURT: Yeah. The whole thing that this thing sits on
top of.

MR. WEBSTER: Right.

THE COURT: So this is not going to open up discovery to
negligence concepts -- common law negligence concepts, nor is
that going to be part of the trial if we ever have one. But
I -- my main goal here is to get this thing moving, period.
Otherwise, you're all going to spend tens of thousands of
dollars on pleading questions which could better go into
perhaps, if you're inclined to do so, a settlement pot.

MR. WEBSTER: Understood, Your Honor. Moving forward

related items, the fourth of cause of action was demurrer ofwoo

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negligence of co declarants and converters, It's the same
argument, Your Honor. You ordered back in February that no
negligence claims could be stated. And, once again, we have a
second negligence claim with a different spin put to it, but it
is a -~ it's a negligence claim no matter how you look at it.
And it violates your prior order. it should be stricken and/or
grounds for demurrer on those grounds.

My final comments, Your Honor --

THE COURT: Don't go anywhere yet. Hold on. Don't I
need -- in order to reach that conclusion, didn't I need to take
judicial notice of that deposition testimony as to how these
things were sold?

MR. WEBSTER: Not on that, Your Honor. I think the only
thing you need would be your prior order of February Sth, which
is Exhibit A in my declaration, which simply says, if you
sustain a prior demurrer no negligence causes of action, and
this is the fourth cause of action right now, it's a negligence
cause of action. It doesn’t rely on the deposition testimony.

THE COURT: But didn't that testimony go to the question as
to whether SB 800 even applies to these two defendants?

MR. WEBSTER: The -~ we offered that deposition testimony to
you to establish the fundamental fact of who sold the units to
the members of the HOA and for no other purpose. And so -- and
that goes more to the concealment cause of action, and in my
mind, has nothing to do with the negligence cause of action in
Number 4.

THE COURT: They don't have to do with whether the two

defendants are builders of a for-sale housing project undero YB A

il

Civil Code Section 896 and 911.

MR. WEBSTER: We did not offer the testimony for that point.
I understand plaintiffs’ opposition raises issues of whether
Catellus is a builder as defined by the SB 800 statutes or not.
We've never contested nor do we contest that we're a builder for
purposes of that statute, or else I wouldn't have stood in front
of you back in February or today saying this is a SB 800-only
project and those statutes only should apply.

THE COURT: But they're pleading in the alternative, they're
taking the opposite position.

MR. WEBSTER: But, in fact, Your Honor, in the opposition by
plaintiffs, it at one point says: "The plaintiffs do not
contend this is a condominium conversion.

They raise the issue that some point down the road someone
may testify to that fact, but as pled in the pleading and the
attached SB 800 notices that were attached to the third amended
complaint, it's the plaintiffs' agent giving SB 800 notice to
the respective builders of this project.

THE COURT: Do the plaintiffs agree with that?

MR. RIGGS: Well, Your Honor, we think that the Court's
analyzed this correctly that -- what's happened is we went back
and looked at the transcript of the hearing in January before
Your Honor, and it was very, very clear that -- at that time
there was other counsel for plaintiff and they missed, I think,
this issue that someone can come along and argue this really
originally was not a for-sale project. It was sold -~- arguably,
the version we're getting here is, it was all sold by

Mr. Webster's client to another subsequent developer, Mission12

1] Place, who then sold it after it was rented for a period. And

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someone may come along and argue, therefore, no one is a builder
here of a for-sale project that is subject to SB 800. What
we've done in the third amended complaint, which is permissible
pleading, and I think the Court has correctly analyzed this,
we've set forth some causes of action that would apply only if
it's determined that this project isn't subject to SB 800. My
suggestion on that is, as part of the discovery plan that Your
Honor’ just outlined, we will propound a request for admission
immediately.

This -- please admit this is subject to SB 800. If that's
admitted, then the issue's gone from the case, we'll dismiss
those causes of action. But we will certainly couldn't
discharge our responsibility to the owners by overlooking that
someone may come along and very cleverly argue, gee, this never
was an SB 800 project because of the way it was set up.
Apparently, what I'm told is, the reason Catellus didn't sell
this to the public is because its powers that be did not want to
be subject to SB 800, so...

THE COURT: Okay. Look, the way I read the complaint
paragraph 74 incorporates what you just said and preserves that
argument in the fourth cause of action. If this is covered by
SB 800, there's no negligence cause of action, but the argument
here is that it might not be. And, therefore, my thought was to
keep it in there and focus discovery on whether SB 800 and go to
Civil Procedure Section 893 and 9 whatever it is -- 911.

MR. RIGGS: It's civil code, Your Honor.

THE COURT: Civil code. Yeah. Whether that all applies13

here. But I'm not creating a negligence cause of action. I'm
just reading the pleading, which I think sufficiently raises the
question as an alternative theory by incorporating by reference
under paragraph 74. I'm not going to allow discovery to go
forward on negligence as against these two co-defendants until
we pin down whether or not the nature of the project is covered
by SB 800. I did not make that clear, I think, in my tentative
ruling, but that's what I have in mind here.

MR. WEBSTER: Understood, Your Honor. And I ~- I mean, my
goal here is to move beyond these pleadings so we can make
progress. And as you said earlier, your job is to test this
pleading, and this pleading includes those six or so SB 800
notices issued back in 2006 by the HOA agent saying to the
builders, this is an 8B 800 project. Again, we can do some
simple discovery on this. I believe that to be true. I'm
just -- I was hoping this and the concealment claim to me are
very fundamental issues that we should all be able to get out in
the open and move on. I think in the pleadings it's clear, but
I understand your point.

THE COURT: And I think we all understand each other.

SB 800 will not allow for a negligence claim in the fourth cause
of action, if it applies. The pleading is sufficient, read
literally, under the rules for demurrer to put in question
whether it applies. It's an alternative theory being alleged
here. So I'm going to leave it in and let you folks figure it
out. You'll probably agree on it. That's a guess. But that
doesn't mean we just created new law here or ignored a statute.

I actually took an oath not to do such things.Nm

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MR. WEBSTER: Understood, Your Honor.

{HE COURT: Okay.

MR. WEBSTER: Lastly, and it relates to the same fundamental
issues, the eighth cause of action for concealment.

THE COURT: You know what? I know what you're going to tell
me and you might be right, but it's good enough. We'll do it
through discovery, otherwise, all I would do is give leave to
amend to hear more specificity on concealment. They would do
so. We'd have another demurrer as to whether that's good
enough. And we'd probably catch up with AIG's army of adjusters
in terms of our timing. There are, I think, ambiguities in the
eighth cause of action, but I think it is, as a matter of law,
sufficient.

MR. WEBSTER: Understood, Your Honor, and we were just
simply trying to, again, get out in the open what should be an
otherwise undisputed fact that Catellus did not sell the units
to the members. Now, whether legally that would preclude a
concealment theory, I understand the plaintiffs have a different
view of the law in that regard, but the fundamental fact that
that did not occur and Mission Place sold the units to the
members, there's actually some stayed discovery on that issue
right now, which I think we can accommodate in discovery and put
that before you.

Again, I was simply testing the pleading which specifically
states that Mission Place sold these units to the members by
various written agreements, which, by necessity, means that
Catellus couid not have done so, and that's all the argument

was.oy

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THE COURT: JI understood it. Thank you. Anybody else?

MR. CVITANOVIC: Yes, Your Honor. Good morning, Steven
Cvitanovic for Mission Place. We filed a demurrer, and I want
to focus on the challenge to the class action allegation
relative to fraud and was wanting te find out from Your Honor
what exactly sunk us on that argument, because I thought we had
made a pretty clear, you know, record that the HOA is not a
member of the class that it purports to represent on the fraud,
so, I mean, how can they be an adequate class representative.

THE COURT: I haven't found that they are. It's just that's
for another day in a different context. JI actually taught this
last night at an anti-trust convention thing about class
actions. I did the class action thing. I haven't found
anything inadequate. It's just at the demurrer stage isn't the
right way or time to raise it. If there's ever a certification
hearing or something like that we'll deal with it. For now, you
still have just the named plaintiffs as being the parties.

MR. CVITANOVIC: Okay. I don't think I could convince you
otherwise, so I'11 just move on to other things.

I believe -- I don't know what Ms. Rankin is going to do,
but I do want to address if she's going to argue the tentative
with respect to HKS and Skidmore.

MS. RANKIN: I would like to.

MR. CVITANOVIC: Okay. I'll -- I have a few comments on
that, but she'll go first.

THE COURT: Thank you.

MR. SCHWARTZ: Your Honor, before that even occurs, I think

you may have misspoke.27
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THE REPORTER: Can I get your name, please?

MR. SCHWARTZ: Sure. Steven Schwartz for HKS.

I think Your Honor intended to sustain the fifth cause of
action which is negligence as against HKS and SOM.

THE COURT: I did. Didn't I say that?

MR. SCHWARTZ: You said first and second, Your Honor.

THE COURT: Actually, I did that on purpose to see if you
were listening.

MR. SCHWARTZ: I was.

THE COURT: And you passed that test.

MR. SCHWARTZ: Thank you, Your Honor. So you're going to
sustain the first, second, and fifth.

THE COURT: And fifth.

MR. SCHWARTZ: Thank you.

MS. RANKIN: Your Honor, can I argue that then?

MR. CVITANOVIC: That's a little unclear. You're sustaining
the second and fifth and overruling the first, I believe that's
what the point of Counsel's clarification is.

MR. SCHWARTZ: No.

MR. CVITANOVIC: You're not overruling -- you're not
sustaining the demurrer in its entirety?

THE COURT: He would never stand up and try to get something
out of my tentative ruling that would be favorable, so the first
is included, first, second, and fifth is what I have in
my notes.

MR. SCHWARTZ: Thank you, Your Honor,

MR, CVITANOVIC: Those are all the allegations in the

complaint against HKS and Skidmore.he

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THE COURT: Seems like it.

MS. RANKIN: They would be completely out of case, Your
Honor.

THE COURT: Yeah.

MR. SCHWARTZ: Well, except for the cross complaint.

MS. RANKIN: Okay. Well, Your Honor, I'd like to be heard.
I'd like to argue that.

THE COURT: Okay.

MS. RANKIN: I guess I'll start with the first cause of
action. First cause of action against HKS and Skidmore is for
violation of the performance standards under Civil Code 895 and
following. The performance standards, themselves, are found in
Section 896 of the Civil Code, and then Civil Code 936 provides
that each and every provision of the other chapters of this
title apply to design professionals to the extent that design
professionals caused in whole or in part a violation of a
particular standard as a result of a negligent act or omission
or a breach of contract. So Section 936 specifically says that
there is a cause of action if a design professional causes, in
whole or in part, a violation of the performance standards of
Civil Code 896.

It also further qualifies it in saying that we would be
required to show that the design professionals caused a
violation of the performance standards as the result of a
negligent act or omission. And it doesn't say that the
negligence has to be based on privity of contract with the
plaintiff. It could be negligence based upon the design

professional's duty to the developers. It doesn't say what18

negligence it is or whether it was negligent under their
contracts with Catellus or whether it was the result of some
contract with the plaintiff.

THE COURT: But those provisions have to be read with the
standard set forth in Bily and in Weseloh, W-e-s~-e-l~-o~h, and I
don't think you have sufficient allegations in there to be
covered by those cases.

MS. RANKIN: First of all, Your Honor, the statute doesn't
incorporate Bily or say anything about it.

THE COURT: JI didn't say it incorporated it. 1 said it has
to be read in conjunction with.

MS. RANKIN: Well, Your Honor, SB 800 clearly says that a
plaintiff can bring a cause of action against design
professionals if they weren't negligent. And in a situation
where a design professional is designing a high-rise building,
the design professional is never going to contract with the
homeowner's association. The homeowner's association doesn't
even exist at the time the building is being built so that would
completely render nugatory the Section 936 saying that if a
design professicnal is negligent, then they could be sued for
breaching the performance standards.

THE COURT: There are required allegations in order to make
the argument or make the claim, and you don't have them.

MS. RANKIN: Your Honor, I think we do, and I think we've
distinguished Bily and Weseloh in our papers, and Bily does not
hold that you have to be in privity of contract for there to he
a duty --

THE COURT: I know.19

MS. RANKIN: -- professional ~-

THE COURT: TIT know.

MS. RANKIN: And we've alleged that the design professionals
not only were responsible for providing information and designs,
but they also observed the construction, They also participated
in changes in the design that caused the building to not comply
with the performance standards. Furthermore, the cases such as
Bily and Weseloh what they -- the Court considered was that
there was a huge discrepancy between the amount of compensation
to the design professional and the amount of open-ended
liability from which they could suffer.

in Weseloh the engineers were only paid $1500 and they could
be liable for $600,000 of problems, and they did not have
control over the construction of the retaining wall. And there
was no facts that showed that their errors even are what caused
the problems with the retaining wall, and that was after a
factual determination, But in our case, we alleged that the
design professionals were paid $5 million. That's a significant
amount of money. And their liability is not to an open-ended
class of people, such as the auditors in Bily, the liability is
only to the homeowner's association representing the owners of
these 595 units.

So I think that what the case law holds is if there's
privity of contract between the plaintiff and the design
professional, you just stop your inquiry because there's a duty
on account of the privity. But if there is no privity, then you
go -- then you make a further inquiry using the Via Cunha

factors. And neither Via Cunha nor Cooper versus Jeff ~-a oie

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(Court reporter interruption)

MS. RANKIN: Jeffne, J-e-f-f-n-e.

So all the case law holds that when there's property damage
alleged, there's significant control by the design professionals
over the final product, and they do way more than just providing
information and drawings. They can be held to have a duty to
the plaintiff.

THE COURT: It's a question of pleading. In my view, you
did not adequately meet the standard you just articulated. And
by the way, it has little to do with how much they got paid.
That's the basis for the rule. But there's no threshold cutoff
as to the amount of the pay being related to the existence of
the potential liability. It's a question of pleading.

MS. RANKIN: Your Honor, in the third amended complaint we
have extensive pleadings showing the degree of control exercised
by the design professionals over the final product. We allege
that they participated in making the design changes that caused
the problems, that these design changes were from approved
plans, but the building department did not approve the changes.
We allege that they had project management duties under their
contract so that they had significant control over the final
property. And in our opposition to the demurrer, we cited the
specific sections of the third amended complaint that make those
allegations, because we did read the transcripts of your prior
hearing and we understood the reasons why the first amended
complaint was considered as inadequate, and we plead around that
by pleading all of the control that was exercised by the design

professional, paragraph 87 -- 87 and 88.21

THE COURT: Let me hear from those defendants. The question
is whether or not the allegations in paragraphs 87 and 88 are
sufficient to render the design professionals' participation
under Weseloh, although Weseloh is a summary judgment case, not
a demurrer case, but the general idea's in there.

MR, MACAULAY: Good morning. Noel Macaulay, also appearing
on behalf of HKS.

Your Honor, in our reply we analyzed the various allegations
made in the third amended complaint, and they still all relate
to the rendition of professional services. As in Weseloh, we
did not instruct the building. As in Weseloh, HKS did not
supervise the construction. All that is being alleged is that
we anticipated in meetings with the owner, architect, owner and
would-be general contractor, and that we did various other
activities which are part and parcel of an architect's general
provision of services. It would still fall within the rubric of
professional services.

And if you were to examine each and every one of the factors
set forth in Weseloh -- which, in turn, takes the factors of
Bily and the factors of Bianca ~- and go through them one by
one, which we've done. They ali strongly militate and indeed
compel in finding of no duty. And without duty, there can be no
cause of action for negligence, and because the first cause of

action is predicated upon that, of course, the second cause of

action, to the extent it exists, is so as well. They must fail
as well.

The factors set forth, Your Honor, in Weseloh deal with the
intent to effect the plaintiff. And in Weseloh the Court looked22

at that, the first factor, and it said: "The intent is
manifested in the contractual language and whether there is a
third-party beneficiary analysis that can be engaged in.

And in this case, Your Honor, judicial notice can and has
been taken of plaintiffs' own admissions in the first amended
complaint that clearly sets forth the contract language stating
that under no set of circumstances would the homeowner's
association ever be deemed a beneficiary or an obligee of the
duties which fall solely from the architect to the developer.

Foreseeability is the second factor, and Court noted that
that is only entitled to the most limited of effect. Certainly
of intrigue, they looked at was there construction -- direct
involvement in the construction, was there a direct involvement
in the supervision of construction. These are not within what
is alleged for HKS to have done and it did not do that. And
indeed, Your Honor, there was also inspection of the premises
by -- in Weseloh just as there is here.

Moral blame is the fourth factor, and there's nothing
remotely which could give rise to moral blame. In Weseloh they
talked about criminal misconduct. And each and every one of the
factors as one goes through them is either entirely on point
with Bily and Weseloh or even strongly, more strongly than the
case, for a finding of no duty.

what has been alleged is simply insufficient in simply
ancillary professional services that fall clearly within the
scope of an architect's work,

THE COURT: That's the way I analyzed it. I looked through

the allegations in those two paragraphs, and it appeared to me23

that what you were alleging was that the architects were present
on the job site and did certain things that, to me, looked, as
alleged, to be part and parcel of their contractual
responsibilities. But it did not appear that there's anything
alleged in this complaint that claims they assumed a role that
under Bily and Weseloh would render them responsible. You
basically said they were there, they looked at what was going
on, they made reports, not clear to who or for what purpose,
they gave opinions and the like. But not that they assumed a
role of managing the construction or anything else that would
render them responsible beyond their contractual role as a
design professional, That's the way I read that. Show me which
one you think otherwise.

MS, RANKIN: Well, Your Honor, first of all, if you look at
Civil Code 896, itself, it says on its face that the performance
standards apply to architects in appropriate circumstances. In
our paragraph 87 it says, for example, that: "The architects

visited the subject project in intervals appropriate,
but no less frequently than weekly to become familiar
with the progress and quality of the work and to
determine in general if all the work was proceeding in
accordance with the contract documents."

That's an allegation that they had control. They could
stop --

THE COURT: No. No, it isn't. They say they went there for
this purpose. It doesn't say that they then discussed, advised,
made changes, or any of that, that went beyond the scope of

their role.w

oe

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MS. RANKIN: And then --

THE COURT: You basically have active design professionals
coming out and looking at what's going on. That's a far cry
from assuming a further role that would render them responsible.

MS. RANKIN: And then it says: "They advised of any work

observed that did not conform to the contract documents
and, therefore, should be rejected. And if owner
approved, undertook to so advise contractor that such
work was rejected, and when necessary, to advise of any
special inspection or testing."

In Weseloh there was no duty because the defendant did not
have control over the finished product. They were a cog in the
machine. They made some calculations for a retaining wall.
Upon summary judgment there was no showing that they -- that
their designs were even followed, or that they had any control
over the final product.

In this case we have extensive allegations in paragraphs 87
and 88 that they had significant control over the final product,
because they were providing site observations, and they were
finding out if the work did or did not conform to the contract
documents, and they had authority to get the owner to stop the
job if the work did not follow the contract documents. And they
also participated in the changes to the approved plans that led
to the heat gain issues.

If you require privity -- I mean, a con ~~ an architect
never has control of the means and methods of construction.
That's what contractor do. That's not what architects do. The

Civil Code 896 specifically says that architects can be held27
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liable for the performance standards. So if you had to say that
an architect was responsible for the means and methods of
construction or the architect was building the building, the
legislature would have never listed architects as a category of
parties that can be responsible for violation of the performance
standards. But that's not what the Civil Code section says
between Section 896 and Section 936. They both contemplate that
an architect can be liable to the plaintiffs' homeowner's
association if the architect fell below the standard of care and
caused ~~ and caused or contributed to causing a violation of
performance standards,

THE COURT: Anything else?

MS. RANKIN: And paragraph 88 of the third amended complaint
specifically talks about how the architects had control of the
changes to the ventilation system and the window glass that
caused the heat gain issue. Well, Weseloh specifically says
that it doesn't hold that there has to be privity in order to
impose a duty on design professionals. It just --

THE COURT: I understand that. There does not have to be
privity. I've said that. I got it. The question is whether
you have adequately alleged the role of the design professionals

here. That's the only issue here. I'm not changing the law.

Okay?
Now, what you have in here -- show me in paragraph 88 where
you have control -- that you've alleged control.

MS. RANKIN: For example, on page 47, lines 1 through 3 of
the third amended complaint it says that: "The architects

recommended that the number of Zducts be reduced by significantw

tm

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quantity, which is a major factor in the nonfunction, unhealthy
condition on the interiors of the unit."

And in paragraph 87, small Roman numeral vii, it says that:
"The architects were out on the job site looking to see
if there was work that did not conform to the contract
documents and, therefore, should be rejected."

THE COURT: All right. Which of those two has anything to

do with control?

MS. RANKIN: They both have to do with control, Your Honor.
The architects took the Zducts that were designed and reduced
the number of Zducts, and it got built without the right amount
of Zducts so there's inadequate ventilation and too much heat
gain. And --

THE COURT: But you've alleged that they recommended it, not
that they control it, not that they caused it to happen. That's
in lines 1 through 3 on page 17. And in Roman numeral
little vii, on page 46, you expressly state the owner was in
charge of all of this.

MS. RANKIN: Well, the owner --

THE COURT: Control. Where do you have control, not
recommendations, not looking at designs and putting their two
cents in, but control.

MS. RANKIN: Well, the architects controlled the plans by
reducing the number of Zducts.

THE COURT: They recommended it, not that they did it.

MS. RANKIN: Well, I think we can also allege that they did
it, and if you want us to amend that paragraph, we'll be glad

to.BR

xo Oo ke WwW NR

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THE COURT: I don't want anything. I want to rule on what's
in front of me, I don't care --

MS. RANKIN: Do you wish --

THE COURT: Please don't taik while I'm taiking.

I don't want anything here. I want to rule on what has been
alleged under the law. Okay? When you recommend something,
you're not controlling or otherwise assuming a role beyond that
of your contractual responsibilities to look at drawings or make
drawings and the like. There's nothing about control in here.
it's the opposite. You have alleged that the owner had to
approve everything. In addition the point of the allegation and
the first amended complaint regarding the provision in the
contract that expressly disclaims any responsibility. I can't
take that into account.

I interrupted you. You were about to ask for me for
something.

MS. RANKIN: Yes. Can we have leave to amend that paragraph
to say that there was control and that the architects were who
took out the Zducts from the plans that they drew?

THE COURT: Is there an objection to my granting leave to
amend for another shot of establishing the requirements?

MR. MACAULAY: Yes. Your Honor, if I may speak.

THE COURT: Go ahead.

MR. MACAULAY: This is Noel Macaulay again for HKS.

Your Honor, what has been alleged in the nature of the
owner's control and the architect's role would make any attempt
to amend that futile. It is in the nature of an architect's

role that they design, that they make recommendations, and that27

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those are acted upon by the owner, the general contractor, and
the like. There is nothing which even inferentially would
suggest what has been alleged that any order or other rule was
employed in this instance. And what has been alleged is clear,
that this was done by the owner and by the general contractor,
but not by the architect,

I would also note, Your Honor, that the issue of inspection,
which is really all that is fundamentally alleged, that
beyond ~~ not even beyond, it is part of an architect's role,
but there is an assertion that there was an inspection and,
therefore, we had a right to note nonconforming work. That,
Your Honor, was precisely one of the allegations in Weseloh on
page 160 that they also inspected the retaining walls that
collapsed, and, again, the Court of Appeals felt that that was
completely insufficient.

So there's nothing that has been or could be alleged, Your
Honor, given what has already been pled in detail, that would
make this an amendable issue. Thank you, Your Honor.

THE COURT: Are you telling me that you have a good faith
belief that what really happened out there in the real world was
that the design professionals went beyond recommending and
actually caused the change? Not that their recommendation was
accepted by the decision maker who was not them, but that they
had control over the decisions regarding these ducts and,
therefore, caused the change to be made? Are you telling me
that you have a good faith belief that you have facts to support
that? Yes or no.

MS. RANKIN: Your Honor, I don't think that that kind of29

factual inquiry is something that we can do at the pleading
stage. We haven't been able to do any discovery. We've read
documents where the architect said: "Those Zducts look ugly.
Take them out."

We haven't taken depositions of the architects or the people
that were in the meeting, and I don't think we have to at the
pleading stage.

THE COURT: Then how can you sign the pleading if you're
going to allege that that happened? Are you going to allege it
on information and belief, or are you going to allege that it
happened?

MS. RANKIN: Your Honor, we've read documents that say that
they took it out. We don't know all the facts and circumstances
because we haven't taken any discovery. You never do at the
pleading stage. But the State legislature must admit something
when it says that architects can be liable under Section 896 and
under Section $36, and architects -- you know, they always
report to the owner. That's what architects do. And the rule
is that the architects --

THE COURT: You're not answering my question. I -- and
you're repeating what you've said several times. I have a very
specific question, and it has to do with whether I'm going to
grant you leave to amend. It is my view that a lawyer has an
ethical responsibility to not allege anything unless you have a
good faith belief that you can establish this. I think that is
especially true when there have been prior iterations of
pleadings where you did not allege a particular fact.

If you are going to allege it on information and belief, you27

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have to have a good faith belief based on information that you
have that such a thing happened in the real world. If you are
not going to allege it on information and belief, then you have
to be -- by signing that pleading under CCP Section 128.7, you
have to have a good faith belief that this is supportable out in
the real world.

If you tell me that you do, then I give you leave to amend,
but then I'm going to take that representation seriously, and
we're going to look perhaps some day at whether that was
correct,

If you tell me that you don't, I will not accept the fact
that discovery hasn't occurred yet, because you've alleged all
kinds of things in here that aren't guesses. You don't get to
guess. You have to have a basis for alleging something. If
you're telling me that you think you can support an allegation
that goes beyond what you have here, that there was a
recommendation made to a decision maker, to a controlling party
on the project, that you can go beyond that and allege that the
architects here controlled that duct issue, and that's one of
the major problems, I'll] give you leave to amend. If you can't,
I won't. It's that simple.

MS. RANKIN: Your Honor, we've read documents saying that
they made the decision or they controlled it. I mean, it would
always be with the owner's approval and ratification. But the
owner isn't an expert on ventilation requirements.

THE COURT: I'll give you one more try. The answer has to
be yes or no. I'm not going to interpret for you what

information you have. As a matter of fact, I would prefer that27

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you not teil me what you've read because that's your work
product. The question is very simple. It requires a one-word
answer, "yes" or "no."

Do you have a good faith belief that you could amend this
complaint to state that the architect went beyond what
architects do, which is recommend changes, and actually
controlled whether or not that change was implemented? Yes or
no?

MS. RANKIN: Yes.

THE COURT: I'll give you leave to amend.

MS. RANKIN: Thank you, Your Honor.

MR. YOUNG: Your Honor, this is Richard Young for Skidmore.

Even if plaintiffs have that position now that they think
that the architects actually had the control, they've already
pled that that's not the case. They have already pled --

THE COURT: That's for the next demurrer.

MR. YOUNG: Well, actually, here's my point though, under
Pierce versus Lyman, 1 Cal. App. 4th 1093 at page 1109, and I
quote: "A pleader may not attempt to breathe life into a
complaint by omitting relevant facts which made his previous
complaint defective." And I --

THE COURT: Hold on a second. It is possible in the real
world that the architects recommended as alleged and that's as
far as it goes. It is possible, for example, that the owner
said -- or the contract -- general contractor said no way, and
the architect then said, oh, yeah, well, I'm in charge so do it.
It is logically possible. That's different from just taking

something out. In other words, as presently pled, there is32

still a logical possibility that following a recommendation,
control was exercised.

MR. YOUNG: But, Your Honor, on page 46, line 15, they point
out that the architect could make recommendations and say work
should be rejected, if the owner approved.

THE COURT: Weil, that's what I was looking at before.

See, 7, to me, is your traditional role of the architect and
actually at least as to whatever is covered by paragraph 7 is
not sufficient. It's not paragraph 7. Paragraph 87, sub 7.

But this thing with the ducts may be different. It's a
specific activity that if was controlled by the architect
wouldn't necessarily be inconsistent with Number 7. It's
possible. That's all.

I see your point. And if you're going to demurrer to
whatever they say next time, you'll be pointing out to me other
portions that seem inconsistent, But I can't do that until f
see what they allege on the ducts. And I read paragraph Roman
numeral vii, which is a subparagraph of 87, as actually showing
there was no control as a general matter, that the architect
went out and looked at something and said, this isn't right.
Said to the owner, this isn't right, and then if the owner
controlling the project approved it, then the architect would go
to whoever was responsible for the thing and explain that the
owner just said, you got to change this. Now, that's not
sufficient allegations. That's how I read Roman numeral vii.

And I think they would have a hard time, if not impossible,
to amend this pleading to contradict which I just said. We got

the specific things about the ducts and the allegation is the33

ducts is what caused one of the problems that gives rise to
liability, and if notwithstanding the general rule in
subparagraph 7, they actually controlled the duct thing and
that's a problem in this case, which is what Counsel just told
me she has a good faith belief happened. And we'll take a look
at what they said and then you'll get to demurrer based on
what's in previous iterations of the complaint and whatever the
amendment to paragraph 88 would be regarding the ducts.

That's why you're asking for leave to amend upon is the
ducts, right?

MS. RANKIN: Yes, Your Honor.

THE COURT: TI think I have to do it. I believe Counsel when
they tell me these things, if she has a good faith belief.
You'll get a chance to argue, well, why didn't they do it last
time and all the rest of the stuff. But as a matter of leave to
amend, I'll take your representation.

MS. RANKIN: Thank you, Your Honor.

MR. YOUNG: Two points I'd like to make. One, I don't see
how they can get around it, because paragraph 7 makes it very
clear with no exceptions these changes only happen if the owner
approved. And so I don't see how they can say it only happened
in that circumstance. Oh, but wait, it happened differently
here, They could have alleged that originally. There's no
exception in paragraph 7. The architects recommended changes
and then only if the owner approved.

THE COURT: You added the word “only.”

MR. YOUNG: Oh. Okay. "And if the owner approved." It

doesn't say if the owner approved except for some other34

circumstances.

THE COURT: You're right. And I'll have to deal with that,
and it won't be easy.

MR. YOUNG: Seems to me that the problem is fatal now.
There's nothing they can say, because it would contradict
paragraph 7, If they were to say, we recommended it and ordered
it be done, that would be a change that the owner didn't
approve, and, therefore, you have a conflict. They can't escape
it. So it seems to me the attempt to amend is futil