California Supreme Court Confirms the Right to Repair Act as the Exclusive Remedy for Seeking Relief for Defects in New Residential Construction

The California Supreme Court recently issued its decision on a critical issue in the residential construction industry – the claims for construction defects that a California homeowner can bring against a builder or seller of new residential properties in California.

Holding

In McMillin Albany v. The Superior Court of Kern County, the Court held that California’s Right to Repair Act (California Civil Code, sections 895, et seq.) (the “Act”) is the exclusive remedy for homeowners claiming defective construction of new residences in California.

Why this Case is Important

After years of dispute at the trial court and court of appeal levels on whether homeowners were limited to statutory claims or if they could opt to alternatively plead common law claims or seek common law claims alone for construction defects, the Supreme Court took up the McMillin case to decide whether a homeowner’s common law action alleging construction defects is subject to the Act’s pre-litigation notice and cure procedures.

The Court looked at the causes of action available under the Act, the attendant damages scheme, and the legislative purpose behind the Act’s pre-litigation procedures, and found that the Act bars common law causes of action, and mandates pre-litigation obligations. This is a profound decision that will impact the area of construction defect litigation, narrowing the type of claims and exposure for homebuilders and contractors in California.

Background

California’s Right to Repair Act (“Act”) is a 15-year-old statutory scheme which contains an elaborate statutory framework delineating procedural and substantive rights of parties in disputes involving new residential construction in the state. Written in response to the California Supreme Court’s decision in Aas v. Superior Court (2000) 24 Cal. 4th 627, which held that tort theories could not support a claim for purely economic damages for construction defects, the Act provides California homeowners a statutory right to recover such damages. Additionally, as noted below, the Act sets forth a lengthy set of building construction standards, contains obligations that builders must fulfill, including warranties to be provided, contains elaborate pre-litigation procedures and deadlines, and procedures for lawsuits under the Act.

McMillin Homeowners’ Bring Claims of Both Common Law and SB 800 Violations

In McMillin, a group of homeowners sued the builder of their homes asserting both common law causes of action, and statutory causes of action under the Act. The builder claimed that the Act allows defendants to informally inspect and to test alleged defects before litigation and thus sought stipulation to stay the action to complete such inspections. The homeowners declined to stipulate. Further, Plaintiffs later dismissed their statutory causes of action, electing to proceed only on common law grounds. The developer, McMillan, then moved the trial court to stay the action until Plaintiffs complied with the pre-litigation procedures under the Act. Following the law of sister appellate districts, the trial court denied the stay.

Procedural History

On appeal, the Fifth District Court of Appeals declined to follow conflicting interpretations of the Act upheld by the Fourth District in Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 98, and by the Second District in Burch v. Superior Court (2014) 223 Cal.App.4th 1411, and granted the stay.

As discussed below, the Court reviewed the Act and ultimately found that the Act is the “virtually exclusive remedy not just for economic loss but also for property damage arising from construction defects.” Accordingly, the defendant property developer was entitled to a stay of the litigation until plaintiffs complied with the Act’s pre-litigation notice, inspection and repair procedures.

California Supreme Court’s Examination and Finding that the Right to Repair Act is THE Remedy for Tort Claims

The Court reviewed the history of the Act and the underlying legislative history, as well as the specific damages scheme under the Act to develop its finding. The Court examined Civil Code Section 944, which provides that an aggrieved homeowner can claim damages for a builder’s failure to meet the building standards established in Sections 896 and 897. The Court found the lengthy list of building standards contained in Section 896, coupled with the catchall of Section 897, as evidence of the Legislature’s intent to supplant common law causes of action for construction defects in residential construction.

Further, the Court found that Section 943(a), which contains the phrase “no other cause of action for a claim covered by this title or for damages recoverable under Section 944 is allowed,” also supports its finding that Section 944 “defines the universe of damages that are recoverable under the Act” and Section 943 makes the Act, the “exclusive means” to recover such damages.

As such, the Act is the exclusive means of recovering damages for violations contains in Sections 896, and 897, and those sections are to be interpreted broadly to include almost all construction defect claims, a reading warranted by their text.

Pre-Litigation Procedures Must Be Followed For Any Claims of Construction Defects in Residential Construction

Armed with the interpretation above, the Court went further and analyzed the Act’s pre-litigation procedures and found that Civil Code Section 910 provides builders of residential construction a right to remedy the defects before litigation. The Court held that this goal of the Act necessitates a holding that common law claims are also subject to pre-litigation procedures because a determination to the contrary would frustrate the purpose of the law, the purpose of Section 910. Stated another way – the Court held that allowing homeowners to bring common law claims without first abiding by Act’s prelitigation procedures would thwart the Act’s purpose in providing builders a pre-litigation right to repair.

The Supreme Court’s full opinion issued on February 2, 2018, is available at: McMillin Albany LLC v. Superior Court, S229762 (2018) __             Cal.4th __.

Is California’s Right to Repair Statute the Only Basis for a Claim for Residential Construction Defects? The California Supreme Court Will Weigh in Shortly.

In McMillin Albany, LLC v. Superior Court, real parties, including Carl Van Tassell and 36 other homeowners, filed a first amended complaint alleging eight causes of action against the builder, McMillin Albany, LLC, including strict products liability, negligence, and breach of express and implied warranties. Plaintiffs alleged the homes were defectively constructed and that the alleged construction defects resulted in damage to their homes. The third cause of action of the first amended complaint alleged violation of the building standards set forth in Civil Code Section 896, part of the Right to Repair Act.

Plaintiffs did not give McMillin notice of the alleged defects before filing suit. The parties, in turn, attempted to negotiate a stay of the judicial proceedings to complete the pre-litigation process under SB 800, but plaintiffs subsequently withdrew from these negotiations, dismissed plaintiffs’ third cause of action, and argued that plaintiffs were no longer required to comply with the statutory pre-litigation process under SB 800, as they had dismissed their cause of action alleging violation of the Right to Repair Act. McMillin then filed a motion for a stay of the proceedings, which plaintiffs’ vigorously opposed.

The trial court denied the motion for stay of the proceedings, concluding real parties were entitled to plead common law causes of action in lieu of a cause of action for violation of the building standards set out in Section 896 and they were not required to submit to the pre-litigation process of the Act when the operative complaint did not allege any cause of action for violation of the Right to Repair Act. The court sited Liberty Mutual as the basis for their decision. McMillin, in response to this ruling, filed a petition for a writ of mandate, seeking a writ directing the trial court to vacate its order denying McMillin’s motion for a stay and to enter a new order granting a stay pending completion of the pre-litigation process under SB 800.

In considering McMillin’s writ petition, the 5th District Court of Appeal in Fresno found that the only issue before the court was whether McMillin’s motion for a stay pending completion of the pre-litigation procedures of Chapter 4 of the Act was properly denied. In order to make that determination, the Court of Appeal considered the scope of the Act and whether the Albany McMillin homeowners were required to comply with the SB 800 pre-litigation process before filing suit against McMillin, regardless of whether the plaintiff homeowners were asserting any claims or causes of action reliant upon SB 800.

Ultimately, the 5th District Court of Appeal concluded that the Legislature intended that all claims arising out of defects in residential construction, involving new residences sold on or after January 1, 2003 (Civ. Code § 938), be subject to the standards and the requirements of the Right to Repair Act and that homeowners bringing such claims were required to give notice to the builder and engage in the pre-litigation procedures in accordance with the provisions of Chapter 4 of the Act prior to filing suit in superior court. The court concluded that the plaintiff homeowners did not comply with the requirements of Chapter 4 allowing McMillin the absolute right to attempt repairs. Further, the Court of Appeal held that McMillin was entitled to a stay of the action until the statutory pre-litigation process has been completed.

On December 1, 2015, the California Supreme Court, noting an irreconcilable conflict between Liberty Mutual and McMillin Albany, ordered the 5th District’s McMillin Albany decision de-published pending review by the Supreme Court.

The Supreme Court has now set the case for oral argument on November 7, 2017, and we will see if the court makes the determination that SB 800 is an “exclusive remedy” after all.

The Efficacy And Future Of Liberty Mutual V. Brookfield

Recently, in Gillotti v. Stewart, the Third District Court of Appeal ruled that the Right to Repair Act is the sole remedy for a plaintiff’s construction defect claims. This ruling provides that a plaintiff’s common law negligence claims are barred by the Right to Repair Act.

In Gillotti, Defendant Rick Gerbo/Gerbo Excavating grading sub added soil over tree roots to level the driveway on the Plaintiff/homeowner’s sloped property. Plaintiff sued under the Right to Repair Act alleging that the grading contractor’s work damaged the trees on the property. The jury found that the grader was not negligent, the homeowner appealed arguing that the Right to Repair Act does not bar common law negligence claims against Gerbo and essentially, that the trial court failed to appropriately apply Liberty Mutual.

The Right to Repair Act holds contractors/subs responsible for defects only if it is proven that they were negligent in causing the violation. The jury found that the construction violated standards under the Right to Repair Act, but that the grader was not negligent. In this instance, the grader was not consulted, nor was the grader responsible for obtaining a permit – instead, the grader discovered that the foundation and stem wall systems were not built to the correct length and so to rectify things, the grader backfilled dirt in order to level the driveway. In so doing, tree roots were covered.

The homeowner Plaintiff moved for a judgment notwithstanding the verdict, or a new trial alleging that the court failed to apply the common law negligence theory against the grader. The trial court denied the motions holding that the Right to Repair act is the exclusive remedy – that no other causes of action are valid. The Third District Court of Appeal (Nevada) affirmed.

It held that consistent with the statutory language, the legislative history establishes too that it was intended that the Act cover damages caused by construction defects. The Appellate Court disagreed with the holding of Liberty Mutual. It criticized Liberty Mutual for failing to analyze the language of Civ Code 896 – the language “clearly and unequivocally expresses the legislative intent that the Act apply to all actions seeking recover of damages arising out of, or related to deficiencies in, residential construction, except as specifically set forth in the Act. The Act does not specifically except actions arising from actual damages. To the contrary, it authorizes recover of damages for ‘the reasonable cost of repairing and rectifying any damages resulting from the failure of the home to meet the standards.’ (Civ. Code 944)” The Court also disagreed with Liberty Mutual in its view that that Act does not preclude common law claims for damages pursuant to Civ Code 931 and 943, which acknowledged exceptions to the Right to Repair Act’s statutory remedies. The Third District ruled “Neither list of exceptions, in section 943 or in section 931, includes common law causes of action such as negligence. If the Legislature had intended to make such a wide-ranging exception to the restrictive language of the first sentence of section 943, we would have expected it to do so expressly.” The Court held that the Right to Repair Act bars common law claims for damages due to construction defects within the scope of the Act, subject to specific exclusions such as fraud, personal injury, for example.

The split on the question of the efficacy of Liberty Mutual is likely going to be resolved by the McMillin Albany LLC v. Superior Court (2015) case, which is currently pending in the California Supreme Court. There, the Fifth District Court of Appeal (Fresno) concluded that all claims arising from defects in residential construction (for residences sold on or after 1/1/03) are subject to the standards and requirements of the Right to Repair Act and that claims brought under this Act require notice to the builder and participation in prelitigation procedures outlined in Chapter 4 of the Act before suit is filed.

The homeowner plaintiffs in McMillin did not give notice of the alleged defects before filing suit. They filed suit alleged causes of action in strict products liability, negligence, breach of express and implied warranties, and in the amended complaint, they added a cause of action for violation of the building standards pursuant to Civ. Code 896. The parties attempted to negotiate a stay to proceed under SB800, but Plaintiffs then dismissed their cause of action under the Right to Repair Act. Plaintiffs argued that they are not required to comply with the SB800 prelitigation process as they dropped the Civ. Code 896 claims from their case. The trial court ruled that Plaintiffs are not required to proceed with the prelitigation process where they dropped the causes of action for violation of the Right to Repair Act. The trial court relied on Liberty Mutual in rendering its opinion. The Fifth District Court of Appeal was tasked to review whether McMillin’s motion to stay was properly denied. It ruled, in short, the Legislature intended that all claims involving construction defects in residential construction be subject to the Right to Repair Act, thus homeowners must comply with the prelitigation guidelines (which would allow for a builder to conduct repairs) outlined by the Act. The California Supreme Court noted an irreconcilable conflict between Liberty Mutual and McMillin, thereby ordering that the Fifth District opinion be de-published pending its review by the Supreme Court.

The outcome of McMillin will offer more clarity on the conflicting application of Liberty Mutual and Gillotti.

California Appellate Court Strictly Construes Time Limits Set Forth in Right to Repair Act (SB 800)

The Fourth Appellate District of the California Court of Appeal in Blanchette v. Superior Court (GHA Enterprises et al.) 2017 DJDAR 1302, ruled that the time limits set out in the Right to Repair Act (California Civil Code section 895 et seq.) are intended to be strictly construed. As such, the service of a proper notice under the Right to Repair Act (“the Act”) triggers the builder’s 14 day response time. Moreover, a builder’s failure to timely respond to such a notice relieves a homeowner from complying with the requirements set forth in the Act.

In Blanchette, the claimants/homeowners served a Notice of Claim on the builder. The builder acknowledged receipt of the claim 21 days after service (Civil Code section 913 requires that the builder acknowledge receipt of the claim within 14 days.) In its acknowledgement, the builder stated that the defects claimed in the notice lacked the requisite detail as required by Civil Code section 910. Additionally, the builder requested inspection per the Act. Following receipt of the acknowledgement, the claimants asserted that the builder’s acknowledgement was untimely, and subsequently filed a complaint in Imperial County Superior Court. The builder successfully moved to stay the proceeding pending compliance with the Act. The homeowners petitioned for a writ of mandate following the trial Court’s order to stay the action.

The writ requested that the Fourth District vacate the order staying the action because the homeowners’ compliance with the Act was relieved due to the builder’s failure to timely acknowledge receipt of the claim. The Fourth District agreed with the homeowners. The Fourth District reasoned that the builders’ untimely response is contrary to the Act’s goal of promptly resolving claims without litigation. This goal cannot be achieved by permitting builders the serve untimely responses.

The Fourth District considered whether the lack of specificity in the notice of claim impacts the builder’s response obligations. After consideration, the Court determines that the Act sets out minimum requirements for the notice of claim notably: name, address and a statement of the alleged violations. Proper service of the notice of claim then triggers the 14 day response time. The Court expands that if the builder believes that the statement of the alleged violations is insufficient, the builder should raise the issue in its acknowledgment. As such, the purported lack of specificity in the claim is not grounds to ignore the notice.

The Blanchette decision confirms that the timelines set out in the Right to Repair Act are to be strictly construed. Failure to comply with the timelines in the Act, absent agreement among the parties, will likely relieve compliance with the remainder of the Act. As seen here, if the builder believes that there are deficiencies in the notice of claim, it is important for the builder to keep the time constraints in mind in order to avoid a waiver argument.

California Residential Right to Repair Act Update: Liberty Mutual rejected. Homeowner Plaintiffs Required to Follow Pre-Litigation Requirements

On December 2, 2016, the Third Appellate District of the California Court of Appeal in Elliott Homes, Inc. v. Superior Court (Hicks et al.) 2016 DJDAR 11930, held that a homeowner must comply with the Right to Repair Act (Cal. Civ. Code §895 et seq.) even in cases where the homeowners do not allege statutory violations set forth in the Right to Repair Act. This decision is in sharp contrast to that of the Fourth Appellate District’s decision in Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 1194. The Fourth District Court in Liberty Mutual determined that the Right to Repair Act does not provide exclusive remedy in cases where actual damage occurred. The result of the Liberty Mutual decision permitted homeowners to sidestep the notice requirements set forth in the Right to Repair Act in cases where only common law causes of action are pled.

In Elliott Homes, the plaintiff homeowners filed an action against the builders of their homes for alleged construction deficiencies. The complaint did not allege statutory violations set forth in the Right to Repair Act, but rather alleged only common law causes of action. The builder petitioners moved to stay the litigation until the homeowners complied with the pre-litigation procedures of the Right to Repair Act. The homeowners opposed the motion, contending that the Act’s requirements did not apply because their complaint alleged only common law claims and did not allege violations of the Right to Repair Act. The trial court denied the stay relying on the Fourth Appellate District’s holding in Liberty Mutual. The builders then filed a writ of mandate.

In its review, the Third District addresses in cases where plaintiff homeowners only pled common law cases of action, are the homeowners required to complete the pre-litigation requirements set forth in the Right to Repair Act prior to litigating the common law causes of action? The Elliott Homes Court directly rejects the Fourth Appellate District’s decision in Liberty Mutual Ins. In rejecting Liberty Mutual, the Court concludes that the Right to Repair Act applies to any action seeking recovery of damages arising out of, or related to deficiencies in residential construction. The Court reasons that the statutory language and legislative intent is clear that the Right to Repair Act is intended to apply to all actions seeking recovery of damages. Therefore, the Court concludes that if a homeowner fails to give the builder notice under the Right to Repair Act, the builder may bring a motion to stay the action, pending completion of the pre-litigation requirements. This decision sets up a conflict between the Third and Fourth Appellate Districts and the applicability of the Right to Repair Act to cases where only common law causes of action are pled. Given the conflict, it is likely that the California Supreme Court will take up this matter in the near future.  In the meantime, builders will likely continue to see these divergent issues arise.

California Appellate Court Rejects Liberty Mutual and Requires Plaintiff to Follow the Right to Repair Act’s Pre-Litigation Procedures

On August 26, 2015, in McMillin Albany LLC et al. v. Superior Court (Van Tassell et al.) F069370, the California Court of Appeal, Fifth Appellate District, held that the Right to Repair Act (Cal. Civ. Code §895 et seq.) provides the exclusive remedy for homeowners seeking damages for certain claims for construction defect, regardless of whether or not the defects resulted in property damage. The McMillian Albany LLC (“McMillin”) court explicitly rejected the Fourth Appellate District’s decision in Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 1194, 212, which reached the opposite conclusion just two years prior. The McMillian decision represents a possible step forward for builders that stand to benefit from the Act’s pre-litigation procedures, which include the right to repair alleged defects prior to the start of litigation.

In McMillin, the plaintiff homeowners filed an action against the builders of their homes for alleged construction deficiencies. The builder petitioners moved to stay the litigation until the homeowners complied with the prelitigation procedures of the Right to Repair Act. The homeowners opposed the motion, contending that the Act’s requirements did not apply because their complaint alleged common law claims and did not allege a violation of the Right to Repair Act. The trial court denied the stay and petitioners filed a writ of mandate.

The Court of Appeal reversed the trial court’s decision and mandated that the court grant a stay pending completion of the pre-litigation process. The McMillin court explicitly rejected the court’s decision in Liberty Mutual, which held that plaintiffs could pursue common law claims for construction defect if they could show evidence of actual property damage. The McMillin court found that the Liberty Mutual court improperly neglected to consider certain provisions of the Act, including Civil Code §943, which provides that “no other cause of action for a claim covered by this title or for damages recoverable under Section 944 is allowed,” in rendering its decision. The McMillian court also looked to the legislative comments, which professed that the bill would make major changes to the substance and process of the law governing construction defects. As such, the court concluded that the legislature intended that all claims arising out of certain defects in residential construction be subject to the pre-litigation requirements of the Act.

The McMillin court’s diversion from the holding in Liberty Mutual and the cases that followed creates conflicting legal ground. Until further word from the legislature or review by the California Supreme Court, California courts are free to choose whether to follow the Liberty Mutual line of case law or the McMillin court’s decision and require homeowners to follow the prelitigation procedures set forth in the Right to Repair Act.

Plaintiffs Must Provide Notice Before Repair Is Made to Recover Under SB800

On Feb. 21, in KB Home Greater Los Angeles, Inc. v. Superior Court of Los Angeles B246769, the California Court of Appeal, Second Appellate District held that the failure to give timely notice or an opportunity to inspect under the Right to Repair Act before a repair is made is fatal to the cause of action.

In KB Home Greater Los Angeles, the plaintiff discovered a water leak in a home built by KB Home Coastal, Inc. (KB Home).  The homeowner’s insurer, Allstate, completed repairs and subsequently sent KB Home a notice of its intent CON BLOG_water leakto pursue its subrogation right for the cost of the repair.  After receiving no response from KB Home, Allstate filed a complaint.

The court held that due to Allstate’s failure to timely notify KB Home as required by the act’s prelitigation procedures, it could not recover for the repairs. The court rejected Allstate’s argument that the act does not specify the order of inspections and repairs. The court also rejected Allstate’s argument that the act should be construed to allow for reasonable notice in cases of emergency.  The court pointed to the ability under the act to utilize any of the builder’s customer service procedures and to recover compensation from all damages incurred within the time frame for repair.

It may be possible for a plaintiff to recover without first providing notice by bringing a common law tort claim instead.  Due to the recent holdings in Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 1194, 1212 and Burch v. Superior Court (Premier Homes LLC) B248830, a plaintiff can bring a tort claim for construction defects that caused actual property damage; a claim that is not subject to the requirements under the act.  See the previous blog post titled “Homeowners Maintain Right to Bring Common Law Claims for Construction Defects Causing Property Damage.”  However, if the plaintiff alleges claims under SB800, which doesn’t require property damage, then the plaintiff must provide notice before a repair is made to obtain recovery.

Image courtesy of Flickr by Jeff Drongowski

Homeowners Maintain Right to Bring Common Law Claims for Construction Defects Causing Property Damage

On Feb. 19,  in Burch v. Superior Court (Premier Homes LLC) B248830, the California Court of Appeal, Second Appellate District, held that the Right to Repair Act (Cal. Civ. Code § 895 et seq.) does not provide the exclusive remedy for a homeowner seeking damages for construction defects that resulted in property damage.  This ruling comes less than a year after the Court of Appeal – in Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 1194, 1212 – reached the same conclusion.

CON BLOG_palm treesIn Burch, the plaintiff sued the developer and general contractor of a single-family residence in the Pacific Palisades area of Los Angeles, alleging that construction defects caused property damage.  Since the plaintiff asserted only common law claims, the defendants argued the California Right to Repair Act established the exclusive remedy for a violation of the construction standards set forth.

The Court of Appeal concluded that while the Right to Repair Act provides a remedy for particular residential construction defects that cause no property damage, the act does not limit or preclude common law claims for damages for construction defects that have caused property damage – affirming a finding it made in 2013, when it issued Liberty Mutual.

The Burch case is a reminder that homeowner plaintiffs are not restricted by the Right to Repair Act, and can assert claims for construction defects under the act and common law.  In addition, the Burch case seems to expand the potential liability exposure for general contractors (and possibly subcontractors) to a homeowner plaintiff, in the absence of privity, in instances when they construct a home knowing that it will be marketed to the general public.  The implications of Burch, however, are limited by the ability of a person to recover under the Right to Repair Act.

In turn, see the next blog post on KB Home Greater Los Angeles, Inc. v. The Superior Court of Los Angeles B246769, for an instance when that plaintiff (Allstate Insurance Co.) could have relied on Burch to pursue its claims for damages under a negligence theory despite violating the notice provision under the Right to Repair Act.

Image courtesy of Flickr by Clinton Steeds