GEM Developers v. Hallcraft Homes of San Diego, Inc – Case Brief Summary (California)

In GEM Developers v. Hallcraft Homes of San Diego, Inc. (1989) 213 Cal. App. 3d 419, the developer was held liable for more than $ 3 million to a homeowners' association (Association) for construction defects under theories of negligence, strict liability and breach of warranty.

The developer's insurer paid approximately $ 1 million of this amount to the Association and assigned "all subrogation, indemnity and contribution rights against Hallcraft the original owner to the Association." (GEM Developers, supra, 213 Cal. App. 3d at p. 424.)

The appellate court held that the Association was entitled to proceed against Hallcraft on the claims assigned by the insurer. (Id. at pp. 433-434.)

In part of its holding, the decision concluded that a tortfeasor was entitled to pursue equitable indemnity against another tortfeasor not sued by the plaintiff.

In doing so, the court spoke of the importance equitable comparative fault has come to play in ensuring that losses are shared in proportion to the relative culpability of all those bringing about the damages:

"In light of the clear Supreme Court language favoring apportionment of loss among those responsible for the harm on a comparative fault basis, its language granting defendants a right to seek equitable indemnity from parties not named by the plaintiffs through filing a cross-complaint for equitable indemnification, and its language approving apportionment of loss when strict liability is involved, we conclude a defendant/indemnitee may in an action for indemnity seek apportionment of the loss on any theory that was available to the plaintiff upon which the plaintiff would have been successful. ... To bar an action on a strict liability theory because of these technical distinctions in pleading and procedure demeans the purpose of comparative equitable indemnity, i.e., an equitable sharing of loss between multiple tortfeasors in proportion to their relative culpability. ..." (GEM Developers, supra, 213 Cal. App. 3d at p. 430.)

The Court outlined how the doctrine of equitable indemnity applies in the context of a construction defect case:

"The doctrine of comparative equitable indemnity is designed to do equity among defendants. Under the equitable indemnity doctrine, defendants are entitled to seek apportionment of loss between the wrongdoers in proportion to their relative culpability so there will be 'equitable sharing of loss between multiple tortfeasors.' The purpose of equitable indemnification is to avoid the unfairness, under joint and several liability theory, of holding one hdefendant liable for the plaintiff's entire loss while allowing another responsible defendant to escape '"scot free."' It is an extension of the comparative fault doctrine which allowed loss to be apportioned between plaintiff and defendants according to their respective responsibility for the loss. "

The GEM Developers court noted that the doctrine of equitable indemnity is not restricted to cases that in-volve tortfeasors who are liable in negligence, but rather, that equitable indemnity may also be used to ap-portion liability where "'one or more tortfeasors' liability rests on the principle of strict liability.'" (GEM Devel-opers, supra, 213 Cal.App.3d at p. 427.)

The Court explained:

"The doctrine of comparative equitable indemnity is designed to do equity among defendants. Under the equitable indemnity doctrine, defendants are entitled to seek apportionment of loss between the wrongdoers in proportion to their relative culpability so there will be 'equitable sharing of loss between multiple tortfeasors.' The purpose of equitable indemnification is to avoid the unfairness, under joint and several liability theory, of holding one defendant liable for the plaintiff's entire loss while allowing another responsible defendant to escape ' "scot free." ' It is an extension of the comparative fault doctrine which allowed loss to be apportioned between plaintiff and defendants according to their respective responsibility for the loss." (Id. at pp. 426-427.)

The Court held that apportionment of liability on the basis of comparative fault may be appropriate not only in cases involving multiple negligent tortfeasors, but also in cases involving multiple tortfeasors who are strictly liable. (Id. at p. 426.)

The Court reasoned that equitable indemnification is an extension of comparative fault principles that allows parties to seek a division of loss between the wrongdoers in proportion to their relative culpability. (Id. at pp. 426-427.)

GEM involved two codevelopers, each of which allegedly committed separate, independent acts giving rise to each developer's strict liability:

"Here, the theory of strict liability is that the developer 'manufactured' (graded) a 'product' (a finished residential lot) for ultimate sale to the public. It is alleged Hallcraft's product (the finished residential lot) was sold to the public along with a product manufactured by GEM (a condominium). In this situation, GEM can be viewed as a manufacturer of the condominium and a retailer not only of its own product (the structure) but also of Hallcraft's product (the lot). Logically, there is no reason to allow strict liability in the situation when the grader/manufacturer sells directly to the public but disallow it when the grader/manufacturer sells indirectly to the public through a developer/builder who sells a structure in addition to the grader/manufacturer's lot. In either case, the grader/manufacturer has produced a product for ultimate sale to the public. A number of cases have accepted this premise." (GEM, supra, 213 Cal.App.3d at p. 433.)

In GEM Developers v. Hallcraft Homes of San Diego, Inc. (1989) 213 Cal.App.3d 419, the court held that apportionment of liability on the basis of comparative fault may be appropriate not only in cases involving multiple negligent tortfeasors, but also in cases involving multiple tortfeasors who are strictly liable. (GEM Developers, supra, 213 Cal.App.3d at p. 426.)

It reasoned that equitable indemnification is an extension of comparative fault principles which allows parties to seek a division of loss between the wrongdoers in proportion to their relative culpability. (Id. at pp. 426-427.)

GEM Developers involved two codevelopers, each of which allegedly committed separate, independent acts giving rise to each developer's strict liability:

"Here, the theory of strict liability is that the developer 'manufactured' (graded) a 'product' (a finished residential lot) for ultimate sale to the public. It is alleged Hallcraft's product (the finished residential lot) was sold to the public along with a product manufactured by GEM (a condominium). In this situation, GEM can be viewed as a manufacturer of the condominium and a retailer not only of its own product (the structure) but also of Hallcraft's product (the lot). Logically, there is no reason to allow strict liability in the situation when the grader/manufacturer sells directly to the public but disallow it when the grader/manufacturer sells indirectly to the public through a developer/builder who sells a structure in addition to the grader/manufacturer's lot. In either case, the grader/manufacturer has produced a product for ultimate sale to the public. A number of cases have accepted this premise. " (GEM Developers, supra, 213 Cal.App.3d at p. 433.)