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OC me DN KH
William H. Staples (Bar No. 64633) ELECTRONICALLY
wstaples@archernorris.com
Ioana R. Mondescu (Bar No. 209471) F ILE D |
imondescu@archernorris.com Superior Court of California
ARCHER NORRIS County of San Francisco
A Professional Law Corporation NOV 28 2012
2033 North Main Street, Suite 800 Clerk of the Court
Walnut Creek, California 94596-3759 BY: ANNIE PASCUAL
Telephone: 925.930.6600 Deputy Clark
Facsimile: 925.930.6620
Attorneys for Defendant/Cross-Defendant
ANNING-JOHNSON COMPANY
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SAN FRANCISCO
UNLIMITED JURISDICTION ~ COMPLEX LITIGATION
BEACON RESIDENTIAL COMMUNITY Case No. CGC-08-478453
ASSOCIATION,
MEMORANDUM OF POINTS AND
Plaintiff, AUTHORITIES IN SUPPORT OF
MOTION FOR SUMMARY
v. ADJUDICATION
CATELLUS THIRD AND KING LLC, et Date: — January 17, 2013
al, Time: = 9:30 a.m.
Dept: 304
Defendants.
Assigned to Hon. Richard A. Kramer
Dept.304
AND RELATED CROSS-ACTIONS.
Defendant, ANNING-JOHNSON COMPANY, hereby submits its Memorandum of Points
and Authorities in support of Motion for Summary Adjudication of the Seventh Cause of Action
for Breach of Third-Party Beneficiary Contracts and Subcontracts in plaintiff BEACON
RESIDENTIAL ASSOCIATION’s Third Amended Complaint (“TAC”) for Damages.
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. TABLE OF CONTENTS
INTRODUCTION
SUMMARY OF FACTS .
A, The Allegations And The Cause Of Action For Breach Of Third-Party
Beneficiary Contract occ cc sssesssscsssseesssanevesevseseeessscseeneesessusesnessnetsssstersnerssesse 2
B. AJ’s Undisputed Evidence ..
LEGAL ARGUMENT sone
A. Legal Standard For Summary Adjudication ......0.cccssssssessessssssscessecssesseesneenseesss 5
B. Plaintiff's Seventh Cause of Action For Third-Party Beneficiary Breach Of
Contracts and Subcontracts Is Barred Because Plaintiff Cannot Establish
That It Was An Intended Third-Party Beneficiary...
1, Standard Governing Claims For Third-Party Beneficiary
2. The Evidence Is Undisputed That Neither AJ, Nor Webcor, Was
Aware At The Time They Executed Their Subcontracts That The
Units Were Intended To Be Condominiums, Or That A Residential
or Commercial Association Was Contemplated, Thus They Did Not
Intend For Plaintiff To Be A Third Party Beneficiary To Their
SUbCOMMTACS ....ceseseenseseseesesseessessessuessssstsswesecsuesecsusseusianenecsuesneasbeeseaceareene 8
CONCLUSION ...ceccecssssecessssssssssssssussnnnmnesuuvesssnnscossessssemssansesnnerersancessusersensecceeannaessseeses 12
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TABLE OF CONTENTS-
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TABLE OF AUTHORITIES
Cases
Aguilar v. Atlantic Richfield Co.
(2001) 25 Cal 4th 826 oe cceseeseeesssesseessesssssseessssarssseeatsasarsararmesaseseerersassnsesecssesssessesensse Og 8
Bancomer, S.A. v. Superior Court
(1996) 44 Cal. App.4™ 1450... ccssssssssscsssssesssssssscsecssssessessusstessesssstessesenssssevusvenutsasssnsenseeeessersesenee 7
Eastern Aviation Group, Inc. v, Airborne Express, inc.
(1992)6 Cal. App.4th 1448 w.cusssecsenssesnseesseesssspesnecsseessneessessnatessennnecssssssannanessscestontersntesneetanee 7
Joseph E. Di Loreto, Inc. v. O'Neill
(1991) 1 Cab App.4th 149 oc csecsessesnsssseseesessscsvessnsescsnestncersuesceecrecrresneeacceremerssrneenecearneny 6
Landale-Cameron Court, Inc. v. Ahonen
(2007) 155 Cah App.4? 1401 ecssstsccsonseesssesssnnescssussssesssnuasssisssensesarsaineessemntense 79-12
Leslie G. v. Perry & Associates,
(1986) 43 Cal. App.4th 472 icccccesssssesessseansucssvessuesssscsnssssssisenearetessactsucsembessesennsnreessncetense 6
Martinez v. Socoma Companies, Inc.
(1974) 11 Cal.3d 394
Sangster v. Paetkau
(1998) 68 Cal. App.4th 151 eeessceeeesssssesresssessessnsesessseasssnsssesnesseereesnesecimrensesessesssessneesesasers O
Union Bank v, Superior Court
(1995) 31 Cal. App.4th 573 oo. eccsecessssecssseessnecessuecsnecreserasnssarssesseermsnssnessssusenseerecsseeaneesessnees O
Statutes
Bus, & Prof, Code §17200 .eccccecsscerseuseeerseseestenseseasseseeesssetseesssenssasarasssseetsaerssnsassssessnsseansacsrsere O
California Civ, Code §895 oscsecccsssecccsccsctscsrssnuncuecsunssecsacamevecsssnessassacsansaseevensessaseenessnassereeneren 2
California Civil Code §1559..
Code Civ. Proc. S43 TOD) cscceceseuesscennessssesteseressursnaneesvesesesarsneessissenseacseeareneeneeneecesaessnsearaee 5
Code Civ. Proc. $4370 P)(2) vesrsscccesseressssosesssnssssesssnesssessavinssessavanssecsvasunssrssaereesecarmenseesearessnnnannerss 6
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INTRODUCTION
Plaintiff Beacon Residential Community Association (hereinafter “the Association”) has
filed the instant construction defect lawsuit seeking to recover damages in connection with a
residential project, located in San Francisco, California. The Association is comprised of all the
owners of the residential condominium units in the project.
The TAC alleges several causes of action against dozens of defendants involved in the
construction of the project, including the original developer and owner, Third and King Investors,
LLC (“TKI”) and Catellus Third & King, LLC, the subsequent owner and seller of the residential
units at the property, Mission Place, LLC (“Mission Place”), general contractor Webcor
Construction, Inc., Webcor Builders, Inc. (collectively “Webcor’”) and various subcontractors,
including Anning-Johnson Company (“AJ”). The Association brings this action on behalf of
itself, its members - residential homeowners, as well as the assignee of the commercial
association at the property.
In its seventh cause of action for Third-Party Beneficiary Breach of Contracts and
Subcontracts, the Association alleges that at various times beginning in August 2001, Webcor and
AJ, among other defendants, entered into contracts and subcontracts which required them to
perform the construction work in compliance with pertinent building codes and according to the
plans and specifications prepared for the project.
The Association claims that since defendants, including Webcor and AJ, failed to
construct the project free of defects, they breached their obligations under the respective contracts
or subcontracts. The Association alleges that these contracts were made for the express benefit of
the Association, and thus, defendants are liable to the Association for breach of third-party
beneficiary contracts. The Association’s claim is substantively without merit.
As discussed below, the evidence is undisputed that neither AJ, nor Webcor, had any
knowledge or information either before, or at the time of contract, that the units were intended to
be, or to be marketed or sold, as condominiums, or that a homeowners or commercial association
was contemplated by TK] or Catellus. In fact, the Association was not even formed, and the
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~~" MEMORANDUM OF POINTS AND AUTHORITIESCovenants, Conditions, Restrictions and Reservation of Easements (“CC&Rs”) were not even
recorded until more than two years after Webcor and AJ executed their contracts.
Thus, AJ and Webcor could not have possibly intended to make any entity or
condominium owner a third-party beneficiary of their contract when such entity was not even in
existence at the time of contract. Accordingly, the Association’s cause of action for breach of
third-party beneficiary contract fails as a matter of law and AJ is entitled to summary
adjudication.
il.
SUMMARY OF FACTS
On or about August 24, 2001, Webcor entered into a construction contract with TKI for
building a project inclusive of 595 apartment units for rent, common areas and commercial space
in San Francisco, California. (UMF 1.) Construction began shortly thereafter and was essentially
completed by October 2004, and a portion of the units was rented to tenants immediately upon
/ completion, (UMF 2.)
Sometime in late 2004, Mission Place LLC purchased the project and on or about
November 9, 2004, the Articles of Incorporation of Mission Place Residential Community
Association, plaintiff’s predecessor, were filed with the Secretary of State for the State of
California. (UMF 3, 4.) Subsequently, on or about December 28, 2004, the Mission Place
Residential Community Association recorded the Amended and Restated Declaration of the
CC&Rs with the Recorder for the City and County of San Francisco. (UMF 5.)
After beginning to receive complaints from the tenants about overheating in the units, and
attempts to repair the ventilation system allegedly failed, the Association filed this lawsuit in
August 2008 on behalf of itself, its members - residential homeowners, as well as the assignee of
the commercial association at the property. (UMF 6, 41.)
A. The Allegations And The Cause Of Action For Breach Of Third-Party Beneficiary
Contract
The crux of plaintiff's TAC is that the project, as constructed, fails to comply with the
standards of SB 800, or the “Right to Repair Act,” Civ, Code §§895 et seq., in that defendants,
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MEMORANDUM OF POINTS AND AUTHORITIESincluding AJ and Webcor, failed to ensure that the units were properly constructed and were free
of any defects or deficiencies. (UMF 7, 8.) These conditions resulted in an inadequate
ventilation system and overheating in the units, in breach of warranties in the general construction
contract and project subcontracts. (UMF 9.)
In its cause of action for breach of third-party beneficiary contract, the Association claims
it was the intended beneficiary of the Webcor-AJ contracts or subcontracts and thus, AJ is liable
to the Association and its members for damages resulting from the breach. (UMF 10.) The
Association does not allege that it was expressly named as a beneficiary under the contract, nor
does it reference any specific language to suggest that the Association was not intended to be
anything more than at best someone who may incidentally be benefitted from the subcontracts.
The only allegation referencing the contract terms sought to be enforced by the
Association pertinent to AJ is that the work was to be performed by the subcontractors in
accordance with the plans, specifications and construction drawings prepared in connection with
the property and all building codes and governmental rules and regulations related thereto. (UMF
11.)
B, Ad’s Undisputed Evidence
In January 2002, Webcor issued an Invitation to Bid & General Bid Criteria to all of its
subcontractors for the construction of the Mission Bay Project. (UMF 12.) The Invitation to Bid
referred to the project as “Catellus Mission Bay Block N1” and described it as “a multi-level
apartment project, 595 units in approximately 746,803 gross sf, with parking below in
approximately 440,510 gross sf, plaza podium and site work of approximately 101,788 gross sf,
and commercial/office/retail space of approximately 123,404 gross sf.” (UMF 13.) The words
“condominium” or “condominium project” are not mentioned in the invitation to bid. Likewise,
there is no mention of a commercial or homeowners association. (UMF 14.) Similarly, the
project is not referenced by the name “Mission Place” or “Beacon” and these terms appear
nowhere in the invitation to bid. (UMF 15.)
In response to the invitation to bid, AJ submitted two proposals for the exterior plaster and
soffits and the interior gypsum drywall and metal framing of the buildings for the Mission Place
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project, which Webcor accepted. (UMF16.) Prior to, and at the time it submitted its work
proposals, AJ was not aware that the units were intended to be, or to be marketed or sold, as
condominiums, or that an association was contemplated by TKI, or any Catellus entities. (UMF
17.) At the time it bid on the project, AJ knew and understood the project consisted of apartments
for rent and commercial space and that it was called “Catellus Mission Bay” or “Mission Bay.”
(UMF 19.)
On September 16, 2002, AJ and Webcor executed an Amendment to their general Master
Subcontract Agreement of October 27, 2000, specific to the Mission Bay Project. (UMF 19.)
The Master Subcontract Agreement does not contain the words “condominium,” or
“condominium project,” does not mention any homeowners or commercial association, and does
not reference the project as “Beacon” or “Mission Place.” (UMF 20, 21.)
On September 19, 2002, and September 27, 2002, respectively, Webcor and AJ entered
into two separate Work Authorization Agreements to the Master Subcontract Agreement, which
defined AJ’s scope of work at the project for exterior plaster and soffits, and interior drywall and
metal framing, (UMF 22.) As with the other contract documents executed by the parties, these
subcontracts also do not contain any indication that the units were to be condominiums, or that a
commercial or homeowners association was contemplated. (UMF 23.) These agreements
continue to reference the project as “Mission Bay Block N1.” (UMF No. 24.)
Indeed, neither AJ, nor Webcor, was aware at any time prior to, or at the time of the
execution of these subcontracts, that the units were intended to be, or to be marketed or sold, as
condominiums, or that a homeowners or commercial association was contemplated by TKI for
the project. (UMF 25-26.) At the time of contract, AJ and Webcor knew and understood that the
project consisted of apartment units and commercial space and was called “Catellus Mission Bay”
or “Mission Bay Block Ni.” (UMF 27.)
Moreover, the original owners of the project never intended to sell the units when the
project was designed and built. Catellus’ Vice-President of construction, Michael McCone,
testified at deposition that the project was initially intended as an apartment building and insisted
that the units were not for sale. (UMF 28, 30-32.) Mr. McCone recalled that it was not until
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sometime in 2004, that the owners of the project decided to sell the units as condominiums.
(UMF 33.) Seth Bland, Catellus’ Person Most Knowledgeable on issues of design and the
CC&Rs, also recalled that it was not until 2004, when the Project was nearly completed that it
was determined the Project would be sold and the units would become condominiums. (UMF 29,
34,)
Indeed, Mission Place, LLC, the entity which purchased the project, was not created until
sometime in 2004. (UMF 36.) Thus, in or around the winter of 2005, Mission Place began
selling the units as condominiums to individuals and sold the last unit in 2007. (UMF 38.)
Although Mission Place had no such intention at the time of purchase, it also sold the commercial
spaces, as well as the parking garage after it purchased the Project from TKI. (UMF 39.) When
Mission Place purchased the project in 2004, it consisted of one building of apartment rental
stock and one empty building. (UMF 40.)
Although Catellus created the Master Declaration of CC&Rs earlier, it did not reflect
Catellus’ intent at the time to sell the units. As explained by Mr, Bland at deposition, Catellus
prepared and recorded the document in the event some future owner wished to convert the
building into condominiums, however, that was not Catellus’ intent. (UMF 35.) Rather, Catellus
had intended and operated the entire Project, including the commercial spaces and units, as rental
properties. (UMF 37.)
TH.
LEGAL ARGUMENT
A. Legal Standard For Summary Adjudication
‘The standard for summary adjudication is well established. A defendant is entitled to
summary adjudication if the plaintiff is unable to establish an essential element of a cause of
action on which plaintiff will bear the burden of proof at trial. Code Civ. Proc. §437e(f)(1) and
(p)(2). A plaintiff cannot establish an element when s/he lacks substantial evidence of the facts
necessary to support that element ~ evidence sufficient to support a finding in his favor. Aguilar
y, Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.
ut
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In Aguilar, the California Supreme Court outlined a defendant’s obligation in moving for
summary judgment: the defendant may, but need not, present evidence that conclusively negates
an element of the plaintiff's cause of action, such as deposition testimony, Aguilar, 25 Cal.4th at
855, The defendant may also present evidence that plaintiff does not have, and cannot reasonably
obtain needed evidence through plaintiff's admissions following extensive discovery to the effect
that plaintiff has discovered nothing. Jd. Where plaintiff has merely presented arguments and
theories unsupported by particular evidence, the deficient discovery responses alone are sufficient
to shift the burden on summary judgment to the plaintiff. Union Bank v. Superior Court (1995)
31 Cal.App.4th 573, 580-81.
Once a defendant makes this showing, the burden shifts to the plaintiff to demonstrate the
existence of a triable issue of material fact as to the challenged element of her claims. Aguilar, 25
Cal. App.4th at 850-51. Plaintiff must “set ... forth specific facts demonstrating that a triable
issue of material fact exists.” Sangster v. Paetkau (1998) 68 Cal.App.4th 151, 162 (citing, Union
Bank, supra, 31 Cal.App.4th at 590-93.)
Substantial opposing evidence is required; evidence that gives rise to no more than
speculation is insufficient. Jd, at 163. Inferences to be drawn from opposing evidence must be
reasonable, not based upon speculation, and must satisfy the “more probable than not standard”
that plaintiff must meet at trial. Leslie G. v. Perry & Associates, (1986) 43 Cal App.4th 472, 487,
Joseph E. Di Loreto, Inc. v. O'Neill (1991) 1 Cal.App.4th 149, 161, A plaintiff cannot rely upon
“mere allegations or denials of its pleadings,” or conclusory statements of potential liability in
discovery responses to meet its burden and survive a motion for summary judgment. Code
Civ.Proe. §437¢(p)(2); Union Bank, supra, 31 Cal.App.4th at 583-84.
B Plaintiff's Seventh Cause of Action For Third-Party Beneficiary Breach Of
Contracts and Subcontracts Is Barred Because Plaintiff Cannot Establish That It
Was An Intended Third-Party Beneficiary.
1. Standard Governing Claims For Third-Party Beneficiary.
Pursuant to California Civil Code §1559, “[a] contract, made expressly for the benefit of a
third person, may be enforced by him at any time before the parties thereto rescind it.” Civ. Code
§1559. Decisional law interpreting this provision has consistently held that the parties’ intent to
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benefit a third party must appear on the terms of the contract. Landale-Cameron Court, Inc. v.
Ahonen (2007) 155 Cal.App.4" 1401, 1410-1411; Bancomer, S.A. v. Superior Court (1996) 44
Cal.App.4" 1450.
However, persons or entities that are only incidentally or remotely benefitted cannot
enforce the contract, Martinez v. Socoma Companies, Inc. (1974) 11 Cal.3d 394, 400. As the
court recognized in Bancomer, S.A., 44 Cal. App.4" 1450,
[Ut is well settled that Civ, Code §1559 excludes enforcement of a
contract by persons who are only incidentally or remotely benefited
by it, A third party should not be permitted to enforce covenants
made not for his benefit, but rather for others. He is not a
contracting party; his right to performance is predicated on the
contracting party’s intent to benefit him. The fact that the third
party is only incidentally named in the contract or that the contract,
if carried out to its terms, would inure to the third party’s benefit is
insufficient to entitle him or her to demand enforcement.
Id. at 1458.
Accordingly, “[w]hether a third party is an intended beneficiary or merely an incidental
beneficiary to the contract involves construction of the parties’ intent, gleaned from reading the
contract as a whole in light of the circumstances under which it was entered.” Ahonen, 155
Cal.App.4" at 1411 (citations omitted.)
Eastern Aviation Group, Inc. v. Airborne Express, Inc. (1992) 6 Cal App.4th 1448 best
illustrates the crucial requirement of intent by the contracting parties to expressly benefit a third
party for third-party beneficiary status to be present, In Eastern, Bastern Aviation Group (EAG)
agreed to invest in BAC, a company which developed noise reduction systems for aircraft.
Thereafier BAC entered into a purchase agreement with ABX to sell noise reduction devices to
ABX. The BAC/ABX contract contained a provision by which ABX was to deposit the funds
used to purchase the devices into a jointly designated account of BAC and EAG. When ABX
paid BAC directly, EAG sued ABX for breach of contract claiming it was a third party
beneficiary to the contract by virtue of the joint account provision.
‘The court rejected EAG’s argument and held it was at best an incidental beneficiary to the
contract and was barred as a matter of law from suing ABX for breach of contract, stating:
Mt
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A party who is only incidentally benefited by performance of a
contract is not entitled to enforce it. [Citation.] ““The fact that he
is incidentally named in the contract, or that the contract, if carried
out according to its terms, would inure to his benefit, is not
sufficient to entitle him to demand its fulfillment. It must appear to
have been the intention of the parties io secure to him personally
the benefit of its provisions.’” [Citation.]...
The contract here was simply a sales contract under which a
purchaser agreed to pay the seller for goods delivered. When a
purchaser meets its obligation to pay the seller, the purchaser
normally is not concemed with the seller’s disposition of the
proceeds or with claims the creditors of the seller may have to those
proceeds. [Citation.]
Similarly, when the seller knows the buyer intends to resell the
goods to a third party, this does not establish that the seller intends
to benefit the third party.
Hook
In this case, ABX’s promise was to pay BAC, which it did; the
provision directing payments to a particular account was to
accommodate BAC. This is not a case where ABX promised to pay
BAC’s creditors in order to obtain BAC’s performance.
id. at 1452-1453, emphasis in original.
As discussed below, the subcontract between AJ and Webcor was nothing more than a
construction contract by which AJ’s promise to Webcor was to perform its work in a good and
workmanlike manner and indemnify Webcor against any claims arising out of its improper
workmanship. None of the allegations made by the Association even remotely suggest that it was
intended to be a third party beneficiary to the subcontract, thus entitling the Association to sue AJ
for breach based upon its failure to perform for Webcor in a workmanlike manner. Thus, it is
clear that neither AJ, nor Webcor could have intended the subcontracts to benefit any individual,
or an entity which did not even exist at the time they entered into their agreements.
2. The Evidence Is Undisputed That Neither AJ, Nor Webcor, Was Aware At
The Time They Executed Their Subcontracts That The Units Were Intended
To Be Condominiums, Or That A Residential or Commercial Association
Was Contemplated, Thus They Did Not Intend For Plaintiff To Be A Third
Party Beneficiary To Their Subcontracts.
In its cause of action for breach of third-party beneficiary contract, the Association claims
that it was the intended beneficiary of the Webcor-AJ subcontracts. The only allegation
referencing the terms of the subcontract sought to be enforced by the Association is that the work
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was to be performed by the subcontractors in accordance with the plans, specifications and
construction drawings prepared in connection with the property and all building codes and
governmental rules and regulations related thereto.
The Association does not allege it was expressly named as a beneficiary under the
contract, nor does it reference any specific language to suggest that the Association was intended
to be anything more than someone who ~ at best, may have been incidentally benefitted from the
subcontracts into which Webcor entered with AJ. However, the contractual obligations on which
the Association’s claims are based inured to the benefit of Webcor, and not the Association.
The circumstances here are strikingly similar to those in Ahonen, supra, 155 Cal.App.4"
at 1411, where the Court rejected plaintiff-homeownets association’s claim that it was a third
party beneficiary to a construction contract between the owner/developer and the subcontractor.
As here, in Ahonen, the homeowners association brought a construction defect action against
various parties, including the builder/developer and a subcontractor, alleging breach of a third-
party beneficiary contract among other claims in connection with construction at an eight-unit
condominium complex in Toluca Lake. 155 Cal.App.4th at 1403. As the Association here, the
association in Ahonen argued that it was an intended beneficiary to the builder-subcontractor
agreement and sought recovery for breach of contract. Id.
The Court rejected the claim and held that the cause of action for breach of third party
beneficiary contract was substantively without merit because the parties did not intend to make
the association, or its members, beneficiaries to their contract. In arriving at this result, the Court
highlighted the fact that the association was not even in existence and the CC&Rs were not even
recorded at the time the parties entered into their subcontract. Ahonen, supra, 155 Cal. App.4" at
1410-1411.
Additionally, the subcontractor’s owner testified that the project was not advertised as
condominiums and he only found out during the later phases of construction that the units would
be sold as such. Also, the subcontract “did not contain the name of the condominium project, the
word ‘condominium,’ or any other indication that a condominium would be a third party
beneficiary of the waterproofing and decking contract.” Ahonen, supra, 155 Cal.App.4” at 1411.
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Since the CC&Rs had not yet been recorded, as a matter of law, the project was not a common
interest development at the time the contract was signed, Jd. Accordingly, the court concluded
that the association was not an intended third-party beneficiary to the builder/subcontractor
agreement and thus, the association’s cause of action for breach of third-party beneficiary
agreement was substantively without merit. Jd.
Similarly, here, it is undisputed that the parties executed their subcontracts in September
2002. It is likewise undisputed that the CC&Rs for the Mission Bay Project were not recorded
until December 28, 2004, more than two years after the parties executed their subcontract. Thus,
as in Ahonen, as a matter of law, the Mission Bay Project was not a common interest development
when the parties entered into the subcontract.
Likewise, the Association for the Mission Bay Project was not formed until sometime in
late 2004, when the Mission Bay Project was sold to Mission Place. In fact, plaintiff admits that
it was not until November 9, 2004, that the Articles of Incorporation of Mission Place Residential
Community Association were filed with the Secretary of State for the State of California.
Additionally, it is undisputed that neither Webcor, nor AJ, knew or understood either
before, or at the time they executed the subcontracts for the Mission Bay Project that the units
were intended to be, or to be marketed or sold, as condominiums, or that a condominium owners’
association was contemplated. In its invitation to bid to its subcontractors in January 2002,
Webcor described the project as consisting of “a multi-level apartment project” and
commercial/office/retail space. The invitation to bid identified the project as “Catellus Mission
Bay.”
At the time AJ submitted its bids for the project, AJ knew and understood that the project
was called “Mission Bay Block N1” or “Catellus Mission Bay” and consisted of apartments for
rent, as the project was described in the invitation to bid. Similarly, once its bids were accepted
by Webcor, and AJ entered into the Master Subcontractor Agreement and the Work
Authorizations to the Master Subcontractor Agreement with Webcor in September 2002, AJ and
Webcor knew and understood that the project was called “Catellus Mission Bay” or “Mission Bay
Block N1,” and that it consisted of apartment units and commercial space.
CHR858/1457613-1 10
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None of the agreements reflecting AJ’s scope of work on the project contain the words
“condominium,” “condominium project” or “condominium or commercial association.” Nor do
these agreements identify the project as the “Beacon,” or “Mission Place,” or reference the
“Mission Place Residential Community Association” or the “Beacon Residential Association.”
Rather, in line with the contracting parties” understanding and knowledge at the time, these
agreements simply referred to the project as “Mission Bay Block N1” and defined the scope of
work to be performed by AJ thereunder.
Moreover, the original owners of the project never intended to sell the units when the
project was designed and built. Catellus’ Vice-President of construction, Michael McCone,
testified at deposition that the Project initially was intended as an apartment building and that it
was not for sale. He recalled that it was not until sometime in 2004, that the owners of the project
decided to sell the units as condominiums. Seth Bland, Catellus’ Person Most Knowledgeable on
issues of design and the CC&Rs, also recalled that it was not until 2004, when the Project was
nearly completed that it was determined the Project would be sold and the units would become
condominiums.
Indeed, Mission Place, LLC, the entity which purchased the project in 2004, prepared and
recorded the articles of incorporation for the residential association in November 2004 and the
CC&Rs in December 2004. At the time Mission Place purchased the project it consisted of one
building of apartment rental stock and one empty building. Mission Place started selling the units
in or around the winter of 2005. Although Mission Place had no such intention when it purchased
the Project, it also sold the commercial spaces to individuals and companies, as well as the
parking garage after it purchased the Project from TKI. Thus, despite the fact that Catellus
created the Master Declaration of CC&Rs earlier in December 2003, it did not do so because it
intended to sell the units. Mr. Bland testified that Catellus prepared and recorded the document in
the event some future owner wished to convert the building into condominiums. Catellus did not
intend to convert the units into condominiums but intended and operated the entire Project,
including the commercial spaces and units, as rental properties.
Mt
CHR858/1457613-4 11
~™ MEMORANDUM OF POINTS AND AUTHORITIES —Oo Dt
10
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20
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22
23
24
25
26
27
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Accordingly, as in Ahonen, here, too, AJ could not have possibly intended to benefit an
entity which it did not know existed, or was contemplated, and which in fact did not exist in
September 2002, when it executed its agreements with Webcor. Ahonen, supra, 155 Cal.App.4"
at 1410-1411. Since the Association did not come into existence and the CC&Rs were not
recorded until more two years later, AJ and Webcor did not, and could not, intend the Association
to be a third-party beneficiary to their subcontracts. .
Therefore, the Association is at most, an incidental beneficiary, and not an intended third
party beneficiary, and as such, its claim for breach of third-party beneficiary subcontracts fails as
a matter of law. Martinez, 11 Cal.3d at 400; Ahonen, 155 Cal.App.4" at 1411.
Iv.
CONCLUSION
For all the foregoing reasons, AJ respectfully requests that plaintiff's Seventh Cause of
Action for Third-Party Beneficiary Breach of Contract be summarily adjudicated and dismissed.
Dated: November 1, 2012 ARCHER NORRIS
Joana R. Mondescu
Attorneys for Defendant
ANNING-JOHNSON COMPANY
CHR858/1457613-1 12
MEMORANDUM OF POINTS AND AUTHORITIES
Preview
OC me DN KH William H. Staples (Bar No. 64633) ELECTRONICALLY wstaples@archernorris.com Ioana R. Mondescu (Bar No. 209471) F ILE D | imondescu@archernorris.com Superior Court of California ARCHER NORRIS County of San Francisco A Professional Law Corporation NOV 28 2012 2033 North Main Street, Suite 800 Clerk of the Court Walnut Creek, California 94596-3759 BY: ANNIE PASCUAL Telephone: 925.930.6600 Deputy Clark Facsimile: 925.930.6620 Attorneys for Defendant/Cross-Defendant ANNING-JOHNSON COMPANY SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SAN FRANCISCO UNLIMITED JURISDICTION ~ COMPLEX LITIGATION BEACON RESIDENTIAL COMMUNITY Case No. CGC-08-478453 ASSOCIATION, MEMORANDUM OF POINTS AND Plaintiff, AUTHORITIES IN SUPPORT OF MOTION FOR SUMMARY v. ADJUDICATION CATELLUS THIRD AND KING LLC, et Date: — January 17, 2013 al, Time: = 9:30 a.m. Dept: 304 Defendants. Assigned to Hon. Richard A. Kramer Dept.304 AND RELATED CROSS-ACTIONS. Defendant, ANNING-JOHNSON COMPANY, hereby submits its Memorandum of Points and Authorities in support of Motion for Summary Adjudication of the Seventh Cause of Action for Breach of Third-Party Beneficiary Contracts and Subcontracts in plaintiff BEACON RESIDENTIAL ASSOCIATION’s Third Amended Complaint (“TAC”) for Damages. MW M Mt CHRRSR14576 13-4 MEMORANDUM OF POINTS AND AUTHORITIESCO Oe ND HA RB YB Bw Be se No So 13 II. Iv. . TABLE OF CONTENTS INTRODUCTION SUMMARY OF FACTS . A, The Allegations And The Cause Of Action For Breach Of Third-Party Beneficiary Contract occ cc sssesssscsssseesssanevesevseseeessscseeneesessusesnessnetsssstersnerssesse 2 B. AJ’s Undisputed Evidence .. LEGAL ARGUMENT sone A. Legal Standard For Summary Adjudication ......0.cccssssssessessssssscessecssesseesneenseesss 5 B. Plaintiff's Seventh Cause of Action For Third-Party Beneficiary Breach Of Contracts and Subcontracts Is Barred Because Plaintiff Cannot Establish That It Was An Intended Third-Party Beneficiary... 1, Standard Governing Claims For Third-Party Beneficiary 2. The Evidence Is Undisputed That Neither AJ, Nor Webcor, Was Aware At The Time They Executed Their Subcontracts That The Units Were Intended To Be Condominiums, Or That A Residential or Commercial Association Was Contemplated, Thus They Did Not Intend For Plaintiff To Be A Third Party Beneficiary To Their SUbCOMMTACS ....ceseseenseseseesesseessessessuessssstsswesecsuesecsusseusianenecsuesneasbeeseaceareene 8 CONCLUSION ...ceccecssssecessssssssssssssussnnnmnesuuvesssnnscossessssemssansesnnerersancessusersensecceeannaessseeses 12 i TABLE OF CONTENTS- oS UD ew SDR OR RB HW TABLE OF AUTHORITIES Cases Aguilar v. Atlantic Richfield Co. (2001) 25 Cal 4th 826 oe cceseeseeesssesseessesssssseessssarssseeatsasarsararmesaseseerersassnsesecssesssessesensse Og 8 Bancomer, S.A. v. Superior Court (1996) 44 Cal. App.4™ 1450... ccssssssssscsssssesssssssscsecssssessessusstessesssstessesenssssevusvenutsasssnsenseeeessersesenee 7 Eastern Aviation Group, Inc. v, Airborne Express, inc. (1992)6 Cal. App.4th 1448 w.cusssecsenssesnseesseesssspesnecsseessneessessnatessennnecssssssannanessscestontersntesneetanee 7 Joseph E. Di Loreto, Inc. v. O'Neill (1991) 1 Cab App.4th 149 oc csecsessesnsssseseesessscsvessnsescsnestncersuesceecrecrresneeacceremerssrneenecearneny 6 Landale-Cameron Court, Inc. v. Ahonen (2007) 155 Cah App.4? 1401 ecssstsccsonseesssesssnnescssussssesssnuasssisssensesarsaineessemntense 79-12 Leslie G. v. Perry & Associates, (1986) 43 Cal. App.4th 472 icccccesssssesessseansucssvessuesssscsnssssssisenearetessactsucsembessesennsnreessncetense 6 Martinez v. Socoma Companies, Inc. (1974) 11 Cal.3d 394 Sangster v. Paetkau (1998) 68 Cal. App.4th 151 eeessceeeesssssesresssessessnsesessseasssnsssesnesseereesnesecimrensesessesssessneesesasers O Union Bank v, Superior Court (1995) 31 Cal. App.4th 573 oo. eccsecessssecssseessnecessuecsnecreserasnssarssesseermsnssnessssusenseerecsseeaneesessnees O Statutes Bus, & Prof, Code §17200 .eccccecsscerseuseeerseseestenseseasseseeesssetseesssenssasarasssseetsaerssnsassssessnsseansacsrsere O California Civ, Code §895 oscsecccsssecccsccsctscsrssnuncuecsunssecsacamevecsssnessassacsansaseevensessaseenessnassereeneren 2 California Civil Code §1559.. Code Civ. Proc. S43 TOD) cscceceseuesscennessssesteseressursnaneesvesesesarsneessissenseacseeareneeneeneecesaessnsearaee 5 Code Civ. Proc. $4370 P)(2) vesrsscccesseressssosesssnssssesssnesssessavinssessavanssecsvasunssrssaereesecarmenseesearessnnnannerss 6 ii TABLE OF AUTHORITIESCO OB WV HA tA 10 1 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 L INTRODUCTION Plaintiff Beacon Residential Community Association (hereinafter “the Association”) has filed the instant construction defect lawsuit seeking to recover damages in connection with a residential project, located in San Francisco, California. The Association is comprised of all the owners of the residential condominium units in the project. The TAC alleges several causes of action against dozens of defendants involved in the construction of the project, including the original developer and owner, Third and King Investors, LLC (“TKI”) and Catellus Third & King, LLC, the subsequent owner and seller of the residential units at the property, Mission Place, LLC (“Mission Place”), general contractor Webcor Construction, Inc., Webcor Builders, Inc. (collectively “Webcor’”) and various subcontractors, including Anning-Johnson Company (“AJ”). The Association brings this action on behalf of itself, its members - residential homeowners, as well as the assignee of the commercial association at the property. In its seventh cause of action for Third-Party Beneficiary Breach of Contracts and Subcontracts, the Association alleges that at various times beginning in August 2001, Webcor and AJ, among other defendants, entered into contracts and subcontracts which required them to perform the construction work in compliance with pertinent building codes and according to the plans and specifications prepared for the project. The Association claims that since defendants, including Webcor and AJ, failed to construct the project free of defects, they breached their obligations under the respective contracts or subcontracts. The Association alleges that these contracts were made for the express benefit of the Association, and thus, defendants are liable to the Association for breach of third-party beneficiary contracts. The Association’s claim is substantively without merit. As discussed below, the evidence is undisputed that neither AJ, nor Webcor, had any knowledge or information either before, or at the time of contract, that the units were intended to be, or to be marketed or sold, as condominiums, or that a homeowners or commercial association was contemplated by TK] or Catellus. In fact, the Association was not even formed, and the CHRES8/1437613-1 1 ~~" MEMORANDUM OF POINTS AND AUTHORITIESCovenants, Conditions, Restrictions and Reservation of Easements (“CC&Rs”) were not even recorded until more than two years after Webcor and AJ executed their contracts. Thus, AJ and Webcor could not have possibly intended to make any entity or condominium owner a third-party beneficiary of their contract when such entity was not even in existence at the time of contract. Accordingly, the Association’s cause of action for breach of third-party beneficiary contract fails as a matter of law and AJ is entitled to summary adjudication. il. SUMMARY OF FACTS On or about August 24, 2001, Webcor entered into a construction contract with TKI for building a project inclusive of 595 apartment units for rent, common areas and commercial space in San Francisco, California. (UMF 1.) Construction began shortly thereafter and was essentially completed by October 2004, and a portion of the units was rented to tenants immediately upon / completion, (UMF 2.) Sometime in late 2004, Mission Place LLC purchased the project and on or about November 9, 2004, the Articles of Incorporation of Mission Place Residential Community Association, plaintiff’s predecessor, were filed with the Secretary of State for the State of California. (UMF 3, 4.) Subsequently, on or about December 28, 2004, the Mission Place Residential Community Association recorded the Amended and Restated Declaration of the CC&Rs with the Recorder for the City and County of San Francisco. (UMF 5.) After beginning to receive complaints from the tenants about overheating in the units, and attempts to repair the ventilation system allegedly failed, the Association filed this lawsuit in August 2008 on behalf of itself, its members - residential homeowners, as well as the assignee of the commercial association at the property. (UMF 6, 41.) A. The Allegations And The Cause Of Action For Breach Of Third-Party Beneficiary Contract The crux of plaintiff's TAC is that the project, as constructed, fails to comply with the standards of SB 800, or the “Right to Repair Act,” Civ, Code §§895 et seq., in that defendants, CHR858/1487613-1 2 MEMORANDUM OF POINTS AND AUTHORITIESincluding AJ and Webcor, failed to ensure that the units were properly constructed and were free of any defects or deficiencies. (UMF 7, 8.) These conditions resulted in an inadequate ventilation system and overheating in the units, in breach of warranties in the general construction contract and project subcontracts. (UMF 9.) In its cause of action for breach of third-party beneficiary contract, the Association claims it was the intended beneficiary of the Webcor-AJ contracts or subcontracts and thus, AJ is liable to the Association and its members for damages resulting from the breach. (UMF 10.) The Association does not allege that it was expressly named as a beneficiary under the contract, nor does it reference any specific language to suggest that the Association was not intended to be anything more than at best someone who may incidentally be benefitted from the subcontracts. The only allegation referencing the contract terms sought to be enforced by the Association pertinent to AJ is that the work was to be performed by the subcontractors in accordance with the plans, specifications and construction drawings prepared in connection with the property and all building codes and governmental rules and regulations related thereto. (UMF 11.) B, Ad’s Undisputed Evidence In January 2002, Webcor issued an Invitation to Bid & General Bid Criteria to all of its subcontractors for the construction of the Mission Bay Project. (UMF 12.) The Invitation to Bid referred to the project as “Catellus Mission Bay Block N1” and described it as “a multi-level apartment project, 595 units in approximately 746,803 gross sf, with parking below in approximately 440,510 gross sf, plaza podium and site work of approximately 101,788 gross sf, and commercial/office/retail space of approximately 123,404 gross sf.” (UMF 13.) The words “condominium” or “condominium project” are not mentioned in the invitation to bid. Likewise, there is no mention of a commercial or homeowners association. (UMF 14.) Similarly, the project is not referenced by the name “Mission Place” or “Beacon” and these terms appear nowhere in the invitation to bid. (UMF 15.) In response to the invitation to bid, AJ submitted two proposals for the exterior plaster and soffits and the interior gypsum drywall and metal framing of the buildings for the Mission Place CHR858/14576 13-1 3 MEMORANDUM OF POINTS AND AUTHORITIESCo OW MY DR MH BF BW HW oR BP RP YP YN NY NR SF Se Se oS &2 wu FW FG S = FS Ce EE BD HAS project, which Webcor accepted. (UMF16.) Prior to, and at the time it submitted its work proposals, AJ was not aware that the units were intended to be, or to be marketed or sold, as condominiums, or that an association was contemplated by TKI, or any Catellus entities. (UMF 17.) At the time it bid on the project, AJ knew and understood the project consisted of apartments for rent and commercial space and that it was called “Catellus Mission Bay” or “Mission Bay.” (UMF 19.) On September 16, 2002, AJ and Webcor executed an Amendment to their general Master Subcontract Agreement of October 27, 2000, specific to the Mission Bay Project. (UMF 19.) The Master Subcontract Agreement does not contain the words “condominium,” or “condominium project,” does not mention any homeowners or commercial association, and does not reference the project as “Beacon” or “Mission Place.” (UMF 20, 21.) On September 19, 2002, and September 27, 2002, respectively, Webcor and AJ entered into two separate Work Authorization Agreements to the Master Subcontract Agreement, which defined AJ’s scope of work at the project for exterior plaster and soffits, and interior drywall and metal framing, (UMF 22.) As with the other contract documents executed by the parties, these subcontracts also do not contain any indication that the units were to be condominiums, or that a commercial or homeowners association was contemplated. (UMF 23.) These agreements continue to reference the project as “Mission Bay Block N1.” (UMF No. 24.) Indeed, neither AJ, nor Webcor, was aware at any time prior to, or at the time of the execution of these subcontracts, that the units were intended to be, or to be marketed or sold, as condominiums, or that a homeowners or commercial association was contemplated by TKI for the project. (UMF 25-26.) At the time of contract, AJ and Webcor knew and understood that the project consisted of apartment units and commercial space and was called “Catellus Mission Bay” or “Mission Bay Block Ni.” (UMF 27.) Moreover, the original owners of the project never intended to sell the units when the project was designed and built. Catellus’ Vice-President of construction, Michael McCone, testified at deposition that the project was initially intended as an apartment building and insisted that the units were not for sale. (UMF 28, 30-32.) Mr. McCone recalled that it was not until CHR858/1457613-1 4 MEMORANDUM OF POINTS AND AUTHORITIESOo eS ND KH RB WY NR R MB YN NR KR NR Se Be Se Se Be Se Se Be ee es 3D AA FF YW NN =- S GC we RI DA MH PB WwW VY S| OD sometime in 2004, that the owners of the project decided to sell the units as condominiums. (UMF 33.) Seth Bland, Catellus’ Person Most Knowledgeable on issues of design and the CC&Rs, also recalled that it was not until 2004, when the Project was nearly completed that it was determined the Project would be sold and the units would become condominiums. (UMF 29, 34,) Indeed, Mission Place, LLC, the entity which purchased the project, was not created until sometime in 2004. (UMF 36.) Thus, in or around the winter of 2005, Mission Place began selling the units as condominiums to individuals and sold the last unit in 2007. (UMF 38.) Although Mission Place had no such intention at the time of purchase, it also sold the commercial spaces, as well as the parking garage after it purchased the Project from TKI. (UMF 39.) When Mission Place purchased the project in 2004, it consisted of one building of apartment rental stock and one empty building. (UMF 40.) Although Catellus created the Master Declaration of CC&Rs earlier, it did not reflect Catellus’ intent at the time to sell the units. As explained by Mr, Bland at deposition, Catellus prepared and recorded the document in the event some future owner wished to convert the building into condominiums, however, that was not Catellus’ intent. (UMF 35.) Rather, Catellus had intended and operated the entire Project, including the commercial spaces and units, as rental properties. (UMF 37.) TH. LEGAL ARGUMENT A. Legal Standard For Summary Adjudication ‘The standard for summary adjudication is well established. A defendant is entitled to summary adjudication if the plaintiff is unable to establish an essential element of a cause of action on which plaintiff will bear the burden of proof at trial. Code Civ. Proc. §437e(f)(1) and (p)(2). A plaintiff cannot establish an element when s/he lacks substantial evidence of the facts necessary to support that element ~ evidence sufficient to support a finding in his favor. Aguilar y, Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850. ut CHRSS8/1457613+4 5 MEMORANDUM OF POINTS AND AUTHORITIESoC BS 8B I RD A BF WBN In Aguilar, the California Supreme Court outlined a defendant’s obligation in moving for summary judgment: the defendant may, but need not, present evidence that conclusively negates an element of the plaintiff's cause of action, such as deposition testimony, Aguilar, 25 Cal.4th at 855, The defendant may also present evidence that plaintiff does not have, and cannot reasonably obtain needed evidence through plaintiff's admissions following extensive discovery to the effect that plaintiff has discovered nothing. Jd. Where plaintiff has merely presented arguments and theories unsupported by particular evidence, the deficient discovery responses alone are sufficient to shift the burden on summary judgment to the plaintiff. Union Bank v. Superior Court (1995) 31 Cal.App.4th 573, 580-81. Once a defendant makes this showing, the burden shifts to the plaintiff to demonstrate the existence of a triable issue of material fact as to the challenged element of her claims. Aguilar, 25 Cal. App.4th at 850-51. Plaintiff must “set ... forth specific facts demonstrating that a triable issue of material fact exists.” Sangster v. Paetkau (1998) 68 Cal.App.4th 151, 162 (citing, Union Bank, supra, 31 Cal.App.4th at 590-93.) Substantial opposing evidence is required; evidence that gives rise to no more than speculation is insufficient. Jd, at 163. Inferences to be drawn from opposing evidence must be reasonable, not based upon speculation, and must satisfy the “more probable than not standard” that plaintiff must meet at trial. Leslie G. v. Perry & Associates, (1986) 43 Cal App.4th 472, 487, Joseph E. Di Loreto, Inc. v. O'Neill (1991) 1 Cal.App.4th 149, 161, A plaintiff cannot rely upon “mere allegations or denials of its pleadings,” or conclusory statements of potential liability in discovery responses to meet its burden and survive a motion for summary judgment. Code Civ.Proe. §437¢(p)(2); Union Bank, supra, 31 Cal.App.4th at 583-84. B Plaintiff's Seventh Cause of Action For Third-Party Beneficiary Breach Of Contracts and Subcontracts Is Barred Because Plaintiff Cannot Establish That It Was An Intended Third-Party Beneficiary. 1. Standard Governing Claims For Third-Party Beneficiary. Pursuant to California Civil Code §1559, “[a] contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.” Civ. Code §1559. Decisional law interpreting this provision has consistently held that the parties’ intent to CHR858/1457613-1 6 ~ MEMORANDUM OF POINTS AND AUTHORITIESoO 2 ew NM KR Oh BR BH benefit a third party must appear on the terms of the contract. Landale-Cameron Court, Inc. v. Ahonen (2007) 155 Cal.App.4" 1401, 1410-1411; Bancomer, S.A. v. Superior Court (1996) 44 Cal.App.4" 1450. However, persons or entities that are only incidentally or remotely benefitted cannot enforce the contract, Martinez v. Socoma Companies, Inc. (1974) 11 Cal.3d 394, 400. As the court recognized in Bancomer, S.A., 44 Cal. App.4" 1450, [Ut is well settled that Civ, Code §1559 excludes enforcement of a contract by persons who are only incidentally or remotely benefited by it, A third party should not be permitted to enforce covenants made not for his benefit, but rather for others. He is not a contracting party; his right to performance is predicated on the contracting party’s intent to benefit him. The fact that the third party is only incidentally named in the contract or that the contract, if carried out to its terms, would inure to the third party’s benefit is insufficient to entitle him or her to demand enforcement. Id. at 1458. Accordingly, “[w]hether a third party is an intended beneficiary or merely an incidental beneficiary to the contract involves construction of the parties’ intent, gleaned from reading the contract as a whole in light of the circumstances under which it was entered.” Ahonen, 155 Cal.App.4" at 1411 (citations omitted.) Eastern Aviation Group, Inc. v. Airborne Express, Inc. (1992) 6 Cal App.4th 1448 best illustrates the crucial requirement of intent by the contracting parties to expressly benefit a third party for third-party beneficiary status to be present, In Eastern, Bastern Aviation Group (EAG) agreed to invest in BAC, a company which developed noise reduction systems for aircraft. Thereafier BAC entered into a purchase agreement with ABX to sell noise reduction devices to ABX. The BAC/ABX contract contained a provision by which ABX was to deposit the funds used to purchase the devices into a jointly designated account of BAC and EAG. When ABX paid BAC directly, EAG sued ABX for breach of contract claiming it was a third party beneficiary to the contract by virtue of the joint account provision. ‘The court rejected EAG’s argument and held it was at best an incidental beneficiary to the contract and was barred as a matter of law from suing ABX for breach of contract, stating: Mt CHR858/1457613-1 7 ~ MEMORANDUM OF POINTS AND AUTHORITIESwo em ND HM FF BW HY RoR NM BR RR NM R BR NR * Be Fe Se Se Se Se ee Re eo 2 A RA RF Yb NH = SF OH WY HAR HH BB BWM = DS A party who is only incidentally benefited by performance of a contract is not entitled to enforce it. [Citation.] ““The fact that he is incidentally named in the contract, or that the contract, if carried out according to its terms, would inure to his benefit, is not sufficient to entitle him to demand its fulfillment. It must appear to have been the intention of the parties io secure to him personally the benefit of its provisions.’” [Citation.]... The contract here was simply a sales contract under which a purchaser agreed to pay the seller for goods delivered. When a purchaser meets its obligation to pay the seller, the purchaser normally is not concemed with the seller’s disposition of the proceeds or with claims the creditors of the seller may have to those proceeds. [Citation.] Similarly, when the seller knows the buyer intends to resell the goods to a third party, this does not establish that the seller intends to benefit the third party. Hook In this case, ABX’s promise was to pay BAC, which it did; the provision directing payments to a particular account was to accommodate BAC. This is not a case where ABX promised to pay BAC’s creditors in order to obtain BAC’s performance. id. at 1452-1453, emphasis in original. As discussed below, the subcontract between AJ and Webcor was nothing more than a construction contract by which AJ’s promise to Webcor was to perform its work in a good and workmanlike manner and indemnify Webcor against any claims arising out of its improper workmanship. None of the allegations made by the Association even remotely suggest that it was intended to be a third party beneficiary to the subcontract, thus entitling the Association to sue AJ for breach based upon its failure to perform for Webcor in a workmanlike manner. Thus, it is clear that neither AJ, nor Webcor could have intended the subcontracts to benefit any individual, or an entity which did not even exist at the time they entered into their agreements. 2. The Evidence Is Undisputed That Neither AJ, Nor Webcor, Was Aware At The Time They Executed Their Subcontracts That The Units Were Intended To Be Condominiums, Or That A Residential or Commercial Association Was Contemplated, Thus They Did Not Intend For Plaintiff To Be A Third Party Beneficiary To Their Subcontracts. In its cause of action for breach of third-party beneficiary contract, the Association claims that it was the intended beneficiary of the Webcor-AJ subcontracts. The only allegation referencing the terms of the subcontract sought to be enforced by the Association is that the work CHR858/1457613-1 8 MEMORANDUM OF POINTS AND AUTHORITIESso DONO BOON RBM MY MR BN RN NH SB ee Se Se Se em Be oe VW A & BF 8 Hh fF SO we NY RH FF BW KR KH 2 was to be performed by the subcontractors in accordance with the plans, specifications and construction drawings prepared in connection with the property and all building codes and governmental rules and regulations related thereto. The Association does not allege it was expressly named as a beneficiary under the contract, nor does it reference any specific language to suggest that the Association was intended to be anything more than someone who ~ at best, may have been incidentally benefitted from the subcontracts into which Webcor entered with AJ. However, the contractual obligations on which the Association’s claims are based inured to the benefit of Webcor, and not the Association. The circumstances here are strikingly similar to those in Ahonen, supra, 155 Cal.App.4" at 1411, where the Court rejected plaintiff-homeownets association’s claim that it was a third party beneficiary to a construction contract between the owner/developer and the subcontractor. As here, in Ahonen, the homeowners association brought a construction defect action against various parties, including the builder/developer and a subcontractor, alleging breach of a third- party beneficiary contract among other claims in connection with construction at an eight-unit condominium complex in Toluca Lake. 155 Cal.App.4th at 1403. As the Association here, the association in Ahonen argued that it was an intended beneficiary to the builder-subcontractor agreement and sought recovery for breach of contract. Id. The Court rejected the claim and held that the cause of action for breach of third party beneficiary contract was substantively without merit because the parties did not intend to make the association, or its members, beneficiaries to their contract. In arriving at this result, the Court highlighted the fact that the association was not even in existence and the CC&Rs were not even recorded at the time the parties entered into their subcontract. Ahonen, supra, 155 Cal. App.4" at 1410-1411. Additionally, the subcontractor’s owner testified that the project was not advertised as condominiums and he only found out during the later phases of construction that the units would be sold as such. Also, the subcontract “did not contain the name of the condominium project, the word ‘condominium,’ or any other indication that a condominium would be a third party beneficiary of the waterproofing and decking contract.” Ahonen, supra, 155 Cal.App.4” at 1411. CHRS58/1457613-1 9 MEMORANDUM OF POINTS AND ‘AUTHORITIESoe IN DAD WA BF YY — = 3 BY wR NM MR NM HR Ye + a ws Bw we FE SF OD eS st A in No oO Since the CC&Rs had not yet been recorded, as a matter of law, the project was not a common interest development at the time the contract was signed, Jd. Accordingly, the court concluded that the association was not an intended third-party beneficiary to the builder/subcontractor agreement and thus, the association’s cause of action for breach of third-party beneficiary agreement was substantively without merit. Jd. Similarly, here, it is undisputed that the parties executed their subcontracts in September 2002. It is likewise undisputed that the CC&Rs for the Mission Bay Project were not recorded until December 28, 2004, more than two years after the parties executed their subcontract. Thus, as in Ahonen, as a matter of law, the Mission Bay Project was not a common interest development when the parties entered into the subcontract. Likewise, the Association for the Mission Bay Project was not formed until sometime in late 2004, when the Mission Bay Project was sold to Mission Place. In fact, plaintiff admits that it was not until November 9, 2004, that the Articles of Incorporation of Mission Place Residential Community Association were filed with the Secretary of State for the State of California. Additionally, it is undisputed that neither Webcor, nor AJ, knew or understood either before, or at the time they executed the subcontracts for the Mission Bay Project that the units were intended to be, or to be marketed or sold, as condominiums, or that a condominium owners’ association was contemplated. In its invitation to bid to its subcontractors in January 2002, Webcor described the project as consisting of “a multi-level apartment project” and commercial/office/retail space. The invitation to bid identified the project as “Catellus Mission Bay.” At the time AJ submitted its bids for the project, AJ knew and understood that the project was called “Mission Bay Block N1” or “Catellus Mission Bay” and consisted of apartments for rent, as the project was described in the invitation to bid. Similarly, once its bids were accepted by Webcor, and AJ entered into the Master Subcontractor Agreement and the Work Authorizations to the Master Subcontractor Agreement with Webcor in September 2002, AJ and Webcor knew and understood that the project was called “Catellus Mission Bay” or “Mission Bay Block N1,” and that it consisted of apartment units and commercial space. CHR858/1457613-1 10 MEMORANDUM OF POINTS AND AUTHORITIESco BP em NI KR HW FB BN None of the agreements reflecting AJ’s scope of work on the project contain the words “condominium,” “condominium project” or “condominium or commercial association.” Nor do these agreements identify the project as the “Beacon,” or “Mission Place,” or reference the “Mission Place Residential Community Association” or the “Beacon Residential Association.” Rather, in line with the contracting parties” understanding and knowledge at the time, these agreements simply referred to the project as “Mission Bay Block N1” and defined the scope of work to be performed by AJ thereunder. Moreover, the original owners of the project never intended to sell the units when the project was designed and built. Catellus’ Vice-President of construction, Michael McCone, testified at deposition that the Project initially was intended as an apartment building and that it was not for sale. He recalled that it was not until sometime in 2004, that the owners of the project decided to sell the units as condominiums. Seth Bland, Catellus’ Person Most Knowledgeable on issues of design and the CC&Rs, also recalled that it was not until 2004, when the Project was nearly completed that it was determined the Project would be sold and the units would become condominiums. Indeed, Mission Place, LLC, the entity which purchased the project in 2004, prepared and recorded the articles of incorporation for the residential association in November 2004 and the CC&Rs in December 2004. At the time Mission Place purchased the project it consisted of one building of apartment rental stock and one empty building. Mission Place started selling the units in or around the winter of 2005. Although Mission Place had no such intention when it purchased the Project, it also sold the commercial spaces to individuals and companies, as well as the parking garage after it purchased the Project from TKI. Thus, despite the fact that Catellus created the Master Declaration of CC&Rs earlier in December 2003, it did not do so because it intended to sell the units. Mr. Bland testified that Catellus prepared and recorded the document in the event some future owner wished to convert the building into condominiums. Catellus did not intend to convert the units into condominiums but intended and operated the entire Project, including the commercial spaces and units, as rental properties. Mt CHR858/1457613-4 11 ~™ MEMORANDUM OF POINTS AND AUTHORITIES —Oo Dt 10 = Bb Ww DOD RP NI DH 20 21 22 23 24 25 26 27 28 Accordingly, as in Ahonen, here, too, AJ could not have possibly intended to benefit an entity which it did not know existed, or was contemplated, and which in fact did not exist in September 2002, when it executed its agreements with Webcor. Ahonen, supra, 155 Cal.App.4" at 1410-1411. Since the Association did not come into existence and the CC&Rs were not recorded until more two years later, AJ and Webcor did not, and could not, intend the Association to be a third-party beneficiary to their subcontracts. . Therefore, the Association is at most, an incidental beneficiary, and not an intended third party beneficiary, and as such, its claim for breach of third-party beneficiary subcontracts fails as a matter of law. Martinez, 11 Cal.3d at 400; Ahonen, 155 Cal.App.4" at 1411. Iv. CONCLUSION For all the foregoing reasons, AJ respectfully requests that plaintiff's Seventh Cause of Action for Third-Party Beneficiary Breach of Contract be summarily adjudicated and dismissed. Dated: November 1, 2012 ARCHER NORRIS Joana R. Mondescu Attorneys for Defendant ANNING-JOHNSON COMPANY CHR858/1457613-1 12 MEMORANDUM OF POINTS AND AUTHORITIES