McMillin Albany LLC v. Superior Court (01.18.18) ____ Cal.4th _____ (2018 WL 456728)

The California Supreme Court confirmed that the Right to Repair Act (CA Civil Code § 895, et seq. and often referred to by its legislative nomenclature as “SB800”) applies broadly to any action by a residential owner seeking recovery of damages for construction defects, regardless of whether such defects caused property damages or only economic losses.  This includes the right in the Act of the builder to attempt repairs prior to the owner filing a lawsuit.

Background

Homeowners sued builder for construction defects.  Included in their causes of action was a cause of action for violation of the Right To Repair Act.  The Act requires that before filing litigation, a homeowner must give the builder notice and engage in a nonadversarial prelitigation process which gives the builder a right to repair the defects.  The builder asked the court to stay the homeowners’ action so the prelitigaiton process could be undertaken.  Rather than give the builder the repair right, the homeowners dismissed the particular cause of action from their case, leaving only other so-called common law and warranty causes of action.  The common law claims sought recovery for property damage caused by the defects.  The builder nonetheless asked to the Court to stay the action so it could exercise its right to repair.

The trial court, relying on Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 98, denied builder’s request to stay the action.  The Liberty Mutual Court concluded that certain common law construction defect claims fell outside the purview of the Act.  Builder appealed.  The Court of Appeal disagreed with Liberty Mutual, so did not follow it, granted the builder’s request for a stay, and directed that the homeowners afford the builder the right to repair the claimed defects as provided under the Act.

The California Supreme Court affirmed, disapproving Liberty Mutual and the subsequent cases relying on it.

Discussion

The Supreme Court looked in part to the Legislative history of the Act to reach its conclusion.  By way of background, the homeowners argued that the Act only applied to claims covered by the Act which did not yet cause any property damage, so-called economic loss claims.  At the same time, the homeowners argued, the Act did not intend to supplant rights pre-dating the Act, referred to as common law rights, allowing a remedy for defects that actually caused property damage.  Economic losses are the costs to repair things such as improper nailing, undersized shear walls, an improperly operating air conditioning unit, or windows that allow in too much sunlight heat leading to a room overheating.  In contrast, property damage exists where nails come loose and a wall falls or cracks, where a shear wall fails and cracks after an earthquake, where an air conditioner leaks fluid and causes mold in a wall, or where windows leak and the water causes damage to the walls into which the window is installed.

The Supreme Court left no uncertainty as to the scope of the Act: “the text and legislative history reflect a clear and unequivocal intent to supplant common law negligence and strict product liability actions with a statutory claim under the Act.”  The Court agreed with the rationale of the Court of Appeal, emphasizing that the Act was intended to effect a comprehensive reform of laws applicable to California’s residential construction defect litigation.  As to one section of text in the Act, stating the Act applied to “any action” seeking damages for construction defects, the Court said, “This suggests an intent to create not merely a remedy for construction defects but the remedy.”  (Italics in original.)  The Act also includes language which the Court interpreted to mean that a party “may sue for violation of these standards, and only violation of these standards,” i.e., and not for common law claims.  (Italics in original.)

The Court also reviewed the Act’s impact on the type of damage claimed in a defect action.  The Court confirmed that the Act applies to economic losses which are specifically set out in numerous subsections of the Act, such as the reasonable value of repairing any violation of the standards set out in the Act, the reasonable cost of repairing damage caused by the repairs, the cost to remove and replace any improper repairs, and reasonable investigation costs.  The Court confirmed the Act also applies to property damage resulting from defects and that the Act is the exclusive way to recover such damages.  In contrast, the Act excludes personal injuries and the Court recognized that the Act, by specifically excluding such damages, reflects the intent that such claims are not within the Act’s purview.  It thus follows that negligence and strict liability claims, i.e., potential common law claims, which are not identified as being excluded, are necessarily included within the Act.

Comment

The Court’s holding as to application of the Act is unmistakable.  Now, for defects related to “original construction intended to be sold as an individual dwelling unit,” which includes houses and condominiums (but not condominium conversions per specific language in the Act), regardless of how they are plead by lawyers in a complaint, or omitted from a complaint as the owners in the McMillin case attempted, the Act applies.  Consistent with the tight process set out in the Act, it gives residential builders the opportunity to perform repairs before owners can file expensive and time-consuming lawsuits against the builder.  The Act specifically does not apply to any action to enforce a contract, or for fraud or personal injury.  As such, the only way an owner might avoid the builder’s right to repair guaranteed by the Act is for an owner who has a contract with the builder to only allege claims under that contract.