United States: California Court Of Appeal Affirms Vitality Of California's Right To Repair Act (SB 800) Against Construction Defect Claims

The California Court of Appeal, Fifth District, issued a published opinion last week holding that California's Right to Repair Act (Act), commonly known in the homebuilding industry as SB 800, applies to all claims by homeowners alleging construction defects, whether expressly alleged under the Right to Repair Act, or alleged as common law claims such as negligence or breach of warranty. McMillin Albany LLC v. Superior Court (Van Tassell), 2015 WL 5029324, at *1 (Cal. Ct. App. Aug. 26, 2015). In doing so, the court rejected two controversial Court of Appeal decisions which found that the Act does not provide the exclusive remedy for damages for construction defects that have resulted in property damage: Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC, 219 Cal. App. 4th 98 (2013), and Burch v. Sup. Ct., 223 Cal. App. 4th 1411 (2014).

The Act, codified at California Civil Code §§ 895, et seq., became law in 2003, in part to address rising costs and unpredictability created by construction defect litigation. The Act sets forth functionality requirements which residential construction must meet. The Act also prescribes prelitigation procedures under which homebuilders (as well as their general contractors, subcontractors, product manufacturers, and design professional groups) may, upon notice of a homeowner's construction defect claim, promptly agree to fix construction defects. Unless the builder has opted out of the prelitigation procedures, homeowners and homeowners associations are barred from filing suit unless they have first complied with those procedures by giving the homebuilder notice of any claimed defects, and an opportunity to repair. Potential litigation can often be avoided early, at a much lower cost, by simply agreeing to make repairs.

In Liberty Mutual, however, Division Three of the Fourth District (Orange County) held for the first time that the Act's prelitigation procedures do not eliminate common law rights and remedies where actual property damage has occurred. In Burch, the Second District (Los Angeles, Ventura, and San Luis Obispo counties) similarly found that the statute does not limit common law claims for damages for construction defects. These two cases put the continuing vitality of the Act's protection into serious doubt, as there was limited value to homebuilders to fix alleged defects, only to then face potential liability from a subsequent lawsuit alleging common law claims.

McMillin breathes new life into the Act. Plaintiffs were the owners of 37 homes constructed by the defendant. They sued for product liability, negligence, breach of warranty, and related causes of action, including violation of building standards set forth in the Act. The defendant moved to stay litigation pending completion of the prelitigation process set forth in the Act. The plaintiffs responded by dismissing their cause of action for violation of the Act, then arguing that they were no longer required to comply with the statutory prelitigation process because they no longer sought damages under the Act.

The trial court agreed and denied the defendant's motion for stay, but the Court of Appeal reversed, holding that compliance with the Act is not conditioned on the pleading of a cause of action under the Act. In arguing that the Act did not apply to their claims, the plaintiff homeowners relied on Liberty Mutual, but the court rejected that case as inconsistent with the express language of the Act. The court found the Act's statutory provisions, read together, reflected the California legislature's intent to dramatically reform construction defect litigation, to limit the causes of action available to a homeowner claiming damages arising out of deficiencies in the construction of the homeowner's residence, to bar any cause of action for damages related to residential construction defects other than one brought in compliance with the Act, and to ensure that all claims arising out of defects in residential construction involving new residences sold on or after January 1, 2003, be subject to the requirements set forth in the Act.

The Fifth District's decision in McMillin cannot be squared with the Fourth District's decision in Liberty Mutual or the Second District's decision in Burch. Under California's rules of stare decisis—the binding effect of published precedent—the McMillin opinion changes the legal landscape statewide. A trial judge must read McMillin, Liberty Mutual, and Burch, and decide which is better reasoned. This is true even for trial judges sitting in the four counties from which appeals go to the Second District or Division Three of the Fourth District. No appellate court, including those that decided Liberty Mutual and Burch, is bound to follow any of the decisions. A grant of review by the California Supreme Court may affect these rules of decision. Uncertainty in the law will persist until the California Supreme Court grants review in a case and issues a definitive opinion.

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