Builder’s Alternative Non-Adversarial Pre-Litigation Procedures Are Enforceable And Homeowner Compliance Is Required Prior To Initiation Of Litigation

Apr 14 2014

The McCaffrey Group, Inc. v. Fresno County Sup. Ct. 2014 WL 1153392 (Cal.App.5 Dist.)

By: Jon A. Turigliatto and David A. Napper
April 14, 2014

There have recently been several appellate decisions avoiding the application and enforcement of the Right to Repair Act, California Civil Code §895 et seq. (“SB800”). Generally, SB 800 applies to all new residential construction sold after January 1, 2003. SB 800 provides builders with the right to inspect and repair construction defects before homeowners are permitted to initiate litigation. Similarly, SB 800 allows homeowners to seek repairs by a builder without having to initiate litigation.

The Fifth District Court of Appeal held that homeowners must comply with the builder’s alternative non-adversarial pre-litigation procedures prior to initiating construction defect litigation. , which include providing notice of the claim, giving McCaffrey an opportunity to repair and correct, and participating in nonbinding mediation.

In May 2011, a group of homeowners filed suit against homebuilder The McCaffrey Group (“McCaffrey”) to recover damages allegedly caused by defective construction of their homes. McCaffrey filed a “Motion to Compel ADR” and to stay the Superior Court action based upon alternative non-adversarial pre-litigation procedures set forth in the home purchase contracts.

McCaffrey asserted that the original purchasers had breached their agreements to follow the contractual pre-litigation procedures and that the subsequent purchasers were either bound by the contract terms or had failed to follow SB800’s statutory pre-litigation procedures. The homeowners contended that the pre-litigation procedures were unenforceable because they did not provide a specific timeline for the builder to act, and alternatively that the provisions were unconscionable because the purchase agreements were contracts of adhesion.

The Court enforced McCaffrey’s alternative pre-litigation procedures and held that pursuant to SB800, the builder has the option of contracting for an alternative non-adversarial pre-litigation procedure in lieu of SB800’s statutory procedure. A builder who elects to use its own alternative pre-litigation procedures in lieu of those set forth in the statute has the right to attempt repairs, so long as the alternative procedures are “fair and reasonable.”

The Court found that McCaffrey’s procedures which called for McCaffrey to inspect the property and decide whether to take corrective action within sixty (60) days; holding a mediation as soon as practicable; and setting a timeline for submitting briefs was reasonable, and the absence of other certain deadlines as set forth in SB800 did not render the alternative procedures unfair or overly harsh. The Court held that alternative pre-litigation procedures are not rendered unconscionable merely because they do not include the same requirements as SB800 because the Legislature did not mandate this in its construction of the Act.

The McCaffrey decision is a victory for California homebuilders who may now enforce their alternative non-adversarial pre-litigation procedures even the procedures are not identically aligned with SB800, and homeowners (and plaintiffs’ construction defect attorneys) must comply with those procedures prior to initiating construction defect litigation. If the alternative provisions are reasonable, they can be implemented to alleviate some of time constraints placed on builders by the strict, and often, unrealistic deadlines imposed by SB800.