McMillin Albany LLC v. Superior Court, No. S229762, 2018 Cal. LEXIS 211 (Jan. 18, 2018)

Several homeowners (“Plaintiffs”) brought suit against developer/general contractor McMillin Albany LLC (“McMillin”) for alleged defective construction of new homes. Plaintiffs alleged the defects caused property damage and economic loss in the form of repair costs and reduced property values, and asserted common law claims for negligence, strict product liability, breach of contract, and breach of warranty, and a statutory claim for violation of the construction standards outlined in the Right to Repair Act (Civ. Code §§ 895–945.5, the “Act”). The Act defines standards for the construction of individual dwellings; governs various builder obligations, including provision of warranties; creates a prelitigation dispute resolution process; and describes mandatory procedures for lawsuits under the Act. McMillin sought a stay of proceedings so that the parties could proceed through the Act’s prelitigation dispute process, which includes notice to the builder of defects and an opportunity to cure. Plaintiffs refused to stipulate to the stay and instead, dismissed their statutory claim. McMillin then sought a court-ordered stay which Plaintiffs contested, arguing that their suit now omitted any claim under the Act, and therefore, was not subject to its procedures.

The Supreme Court identified the issue on appeal as whether Plaintiffs’ common law action for construction defects resulting in both economic loss and property damage was subject to the Act’s prelitigation procedures. This issue implicated two previous California appellate decisions. In Aas v. Superior Court, decided before the Act was passed, the Supreme Court held that homeowners suing in negligence for construction defects were barred from recovering damages in the absence of property damage or personal injury. In Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC, decided after the Act was passed, the Court of Appeals held that the Act provided a remedy for construction defects causing only economic loss and did not alter preexisting common law remedies in property damage or personal injury cases.

Applying Liberty Mutual, the trial court denied McMillin’s motion for stay. The Court of Appeals reversed, holding that the Act at least partially supplanted common law remedies in cases of property damage and thus, the Act’s prelitigation procedures applied.

The Supreme Court affirmed. The Court explained that by outlining the standards for the construction of individual dwellings, the Act applied to any action for damages arising from a construction defect and was, therefore, the “virtually exclusive remedy not just for economic loss but also for property damage arising from construction defects.” The Supreme Court concluded that in passing the Act, the Legislature intended to (1) supersede Aas and provide a basis for recovery for economic losses; (2) preserve the status quo for personal injuries by retaining the common law as an avenue for recovery; and (3) replace common law actions for property damage with a new statutory scheme. The Court noted that the Act provides that construction defect claims not involving personal injury will be treated the same procedurally going forward, whether or not the defects caused property damage.

Accordingly, the Supreme Court held that even though Plaintiffs dismissed their statutory claim, their claims were subject to the Act’s requirements. As such, McMillin was entitled to a stay of proceedings so that the parties could proceed with the prelitigation process set forth in the Act.

To view the full text of the court’s decision, courtesy of Lexis®, click here.