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Lincoln Alameda Creek v. Cooper Indus.

Citation: 23 ELR 20812
No. No. C-91-0277 MHP, 829 F. Supp. 325/(N.D. Cal., 09/29/1992)

The court holds that the seller of real property, whom the buyer alleges sold the property with soil contamination, is not entitled to indemnification or contribution from the buyer's environmental consultant, who reported before the sale in a subsurface soil and groundwater contaminants investigation that no contamination existed, and court grant's the environmental consultant's motion for summary judgment under Federal Rule of Civil Procedure 56. After the buyer sued the seller for the alleged contamination of the property, the seller cross claimed against the buyer's environmental consultant for alleged negligence, breach of warranty, and misrepresentation in its preparation of the investigation.

The court holds that the seller has failed to create a genuine issue of material fact as to whether the buyer's environmental consultant owed her a duty, and summary judgment against her negligence cause of action is granted. In order for the seller to recover under a general negligence theory, she must prove that the buyer's consultant owed her a legal duty, which she fails to do. The seller relies on the "foreseeability rule" established in several California decisions holding accountants liable to foreseeable plaintiffs who rely on negligently prepared financial statements. However, the California Supreme Court overruled these appellate court decisions and reinstated the rule of privity, holding that an auditor owes no general duty of care regarding the conduct of an audit to persons other than the client. The seller has not alleged that she was in privity with the consultant, and provides no authority for her proposition that the suppliers of contamination reports are liable to both parties to a real estate sale. A broad rule of liability is of dubious benefit when an efficient means of self-protection is available. The court also holds that the seller's alternative theory of the "tort of another" to support her negligence claim is equally infirm, because that theory still must be based on a legal duty of care, which the seller has failed to establish.

The court next holds that because the seller has not established a contract between the buyer's consultant and the seller, the seller may not prevail in her claim of breach of an implied warranty. The contract between the buyer and the environmental consultant was not intended for the benefit of the seller. Finally, the court holds that the seller has not established the consultant's liability to her under a theory of negligent misrepresentation, because the consultant was not informed by the buyer that the seller would rely on the report. Liability is limited to those whom the engagement is designed to benefit to allow the supplier of information to ascertain the potential scope of its liability.

Counsel for Plaintiffs
Ann Grimaldi
Heller, Ehrman, White & McAuliffe
333 Bush St., San Francisco CA 94104
(415) 772-6000

Counsel for Defendants
Gary Ewell
Ewell & Levy
260 California St. 11th Fl., San Francisco CA 94111
(415) 788-6600