Significant Victory for the Building Industry: Liberty Mutual is Rejected Once Again, This Time by the Third Appellate District in Holding SB800 is the Exclusive Remedy

By: Richard H. Glucksman and Ravi R. Mehta
December 8, 2016

I. Elliott Homes, Inc. v. Superior Court (Certified for Publication, Cal. Ct. App. Dec. 2, 2016

The California Court of Appeal for the Third Appellate District recently elaborated on the scope of the Right to Repair Act, commonly known as SB-800 (“Act”).  In Elliott Homes, Inc. v. Superior Court of Sacramento County (Kevin Hicks, et al.) (certified for publication, Cal. Ct. App. Dec. 2, 2016), the Court considered whether the Act (and specifically the Act’s pre-litigation procedure) applies, when homeowners  plead construction defect claims based only on common law causes of action, as opposed to violations of the building standards set forth in the Act (Civil Code §896).  The Court answered this question affirmatively.

The homeowners of seventeen (17) single-family homes filed a Complaint against the builder of their homes, Elliott Homes, Inc. (“Elliott”), alleging common law causes of action for construction defects.  Elliott filed a motion to stay the litigation on the ground that the homeowners failed to comply with the pre-litigation procedure set forth in the Act.  The trial court denied the motion, agreeing with the homeowners that this pre-litigation procedure did not apply because the homeowners had not alleged a statutory violation of the Act.  Elliott appealed.  The Court of Appeal purely considered the question of whether the Act, including its pre-litigation procedure, applies when a homeowner pleads construction defect claims based on common law causes of action, and not on statutory violations of the Act’s building standards.

To answer this question, the Court analyzed a recent case decided by the Court of Appeal for the Fourth Appellate District: Liberty Mutual Ins. Co. v. Brookfield Crystal Cove, LLC (2013) 219 Cal.App.4th 98.  In this subrogation case, a builder’s insurer asserted common law causes of action (but not statutory building standard violations) alleging construction defects against the builder to recover amounts paid to the homeowner after a sprinkler system failure caused extensive damage to the subject property.  The trial court sustained the builder’s demurrer to the Complaint on the ground that it was time-barred under the Act.  The Court of Appeal reversed the trial court’s order, holding that common law construction defect claims arising from actual damages are not covered by the Act because “the Act does not provide the exclusive remedy in cases where actual damage has occurred.” (Liberty Mutual, 219 Cal.App.4th 98, 109).

The Elliott Court declined to follow Liberty Mutual, finding that that Court failed to properly analyze the language of the Act.  The Elliott Court analyzed both the statutory scheme and the legislative history of the Act to arrive at the conclusion that common law causes of action for construction defects do indeed fall within the purview of the Act.

According to the Elliott Court, the Act “broadly applies to any action seeking recovery of damages arising out of, or related to deficiencies in…residential construction and in such an action, a homeowner’s claims or causes of action shall be limited to violation of the standards set forth in the Act, except as specified.”  Further, the Act expressly provides that “no other cause of action for a claim covered by this title or for damages recoverable under Section 944 is allowed.”  Civil Code §943(a).  In turn, Civil Code §944 allows for a recovery for the cost of repairing a building standard violation, or for the cost of repairing any damage caused by such a violation, among other things.

The limited exceptions to the Act’s applicability concern the enforcement of a contract, or any action for fraud, personal injury, or violation of a statute.  Civil Code §943(a).  Additionally, the Act does not apply to condominium conversions.  Civil Code §896.

The Elliott Court explains that apart from these exceptions, the Legislature intended the Act to apply to all construction defect claims (regardless of damage) relating to the construction of residential properties whose sales contracts are signed after January 1, 2003.  There is no exception in the Act, express or implied, for common law causes of action.

Next, the Court turns to the Act’s legislative history to buttress this conclusion.  This history makes clear that the Act is a legislative response to the California Supreme Court’s holding in Aas v. Superior Court (2000) 24 Cal.4th 627, that construction defects in residential properties are only actionable in tort when actual property damage manifests.  Senate Judiciary Committee hearings indicate that the Act was the product of protracted negotiations between varying interested parties, including construction industry trade groups and consumer protection groups.  The Legislature intended (1) to promulgate building standards, violations of which would be actionable, even without damage, and (2) to allow homeowners to recover for actual damage caused by construction defects not covered by the building standards.  In other words, the Act was intended to provide homeowners redress regardless of whether damage had manifested.

Therefore, the Court concluded that common law causes of action for construction defects, regardless of damage, are subject to the pre-litigation procedure set forth in the Act.  The Court issued a writ of mandate directing the trial court to vacate its earlier order, and to enter a new order granting Elliott’s motion to stay the litigation until the homeowners (and Elliott) have satisfied the pre-litigation procedure of the Act.

II. McMillin Albany, LLC v. Superior Court (2015) 239 Cal.App.4th 1132

Similar to the Third Appellate District Court’s ruling in Elliott, the Fifth Appellate District Court also rejected the holding of Liberty Mutual in a matter now pending before the California Supreme Court: McMillin Albany, LLC v. Superior Court (2015) 239 Cal.App.4th 1132 (review granted and opinion superseded sub nomAlbany v. Superior Court 360 P.3d 1022).  Also similar to Elliott, in McMillin a group of homeowners filed common law construction defect claims against the builder of their homes.  The builder, McMillin, moved to stay the litigation pending compliance with the Act’s pre-litigation procedure.  The trial court denied the motion, holding that the Act does not apply because the homeowners have not asserted statutory building standard violations contained within the Act.

In reasoning substantially similar to that of Elliott, the McMillin Court rejected Liberty Mutual’s holding that the Act is not the exclusive remedy for pursuing construction defect claims, with or without damage.  Thus, the McMillin Court issued a writ of mandate to vacate the trial court’s earlier order and to enter a new order granting McMillin’s motion to stay.

On November 24, 2015, the California Supreme Court granted the homeowners’ petition for review.  In August of 2016, briefing was completed and the matter is now awaiting the scheduling of arguments.  CGDRB will continue to closely monitor the pending appeal of this matter to the California Supreme Court, as well as all related developments.

Richard H. Glucksman
Mr. Glucksman is a Partner at Chapman Glucksman Dean Roeb & Barger.

About the author

Richard H. Glucksman

Mr. Glucksman is a Partner at Chapman Glucksman Dean Roeb & Barger.

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