Duty of Care in Economic Injury Cases in California
In J'Aire Corp. v. Gregory (1979) 24 Cal.3d 799, 802, 157 Cal. Rptr. 407, a lessee of a restaurant sued the general contractor for damages caused by the general contractor's delay in completing a construction project.
Applying the Biakanja factors (Biakanja v. Irving (1958) 49 Cal.2d 647), the court found the contractor had a legal duty of care to the owner and the lessee had stated a negligence cause of action. (J'aire v. Gregory, supra, 24 Cal.3d at pp. 804-805.)
The owner of the building hired the contractor to renovate the building for the benefit of the lessee. (Id. at p. 804.) Because of this, it was inevitable that the construction would disrupt the lessee's business. (Ibid.)
The court concluded the contractor's conduct was intended to affect the lessee. (Ibid.) The court also concluded the damage to the lessee was certain and closely connected to the contractor's delay. (Ibid.) The court concluded the contractor's delay was blameworthy and public policy supported a finding of a legal duty on these facts. (Ibid.)
In J'Aire Corp. v. Gregory, supra, 24 Cal.3d at page 804, the transaction in question was a construction project undertaken by the owner of the building to renovate the business premises leased by the plaintiff. Although the parties to the contract were the owner and the contractor, the subject matter of that transaction, i.e., the construction, was intended to and did directly affect the plaintiff lessee. (Ibid.) This was a major factor in the court's conclusion the contractor had a "special relationship" with the lessee and therefore owed the lessee a duty of care to avoid harm to the lessee's business. (Id. at pp. 804-805.)
On the other hand, in Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal.4th 705, the escrow transaction between the owner and the new lender was not intended to affect or benefit the plaintiff -- the assignee of the prior lender. Because this transaction was not intended to benefit the plaintiff, the escrow holder had no liability for negligence. (Ibid.)
In Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co., supra, 27 Cal.4th at page 715, a property owner opened an escrow to refinance a loan secured by his property. (Id. at p. 708.)
The plaintiff alleged the escrow company knew it was an assignee of the prior lender's rights but paid the prior lender in accordance with the escrow instructions between the parties to the escrow. The plaintiff was not a party to the escrow and sued the escrow company for negligence in paying its assignor. (Ibid.)
Applying the Biakanja factors, the Supreme Court concluded the plaintiff failed to state a cause of action for negligence because the escrow company had no legal duty of care to pay proceeds from an escrow to a nonparty to the escrow. (Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co., supra, at p. 715.)
In examining this first question, the courts have stated that it is the intention to affect a particular plaintiff, not the public generally that is at the heart of this factor. (See, Ott v. Alfa-Laval Agri, Inc. (1995) 31 Cal.App.4th 1439, 1455- 1456.)
In Ott, the court concluded the plaintiff who had purchased a milking system from the defendant, which proved to be deficient 15 years after the plaintiff purchased it, had not stated a negligence cause of action for economic losses. (Id. at pp. 1455-1456.)
The court concluded "neither the pleadings nor the evidence suggests the 1970 milking system was 'intended to affect' the plaintiffs in any way particular to the plaintiffs, as opposed to all potential purchasers of the equipment. The absence of this foundation precludes a finding of 'special relationship' as required by J'Aire: to the extent the milking system was intended to affect the plaintiffs in the same way as all retail buyers, this becomes a traditional products liability or negligence case in which economic damages are not available. " (Ibid.)
In Desert Healthcare Dist. v. PacifiCare FHP, Inc. (2001) 94 Cal.App.4th 781 at page 792, the court explained this factor as follows: "the conduct alleged to have been negligent must have been intended to affect that particular plaintiff, rather than just a class of persons to whom the plaintiff happens to belong."