“[I]t ain’t how hard you hit; it’s about how hard you can get hit, and keep moving forward. How much you can take, and keep moving forward. That’s how winning is done. . . .” – Sylvester Stalone as Rocky Balboa in Rocky Balboa.
The Little Case That Roared
Two years ago we wrote about a case that caused an uproar in the homebuilding industry – Liberty Mutual Insurance Company v. Brookfield Crystal Cove LLC, 219 Cal.App.4th 98 (2013) – in which the California Court of Appeals for the Fourth District held for the first time that the Right to Repair Act does not provide the exclusive remedy for construction defect claims involving “actual,” as opposed to “economic,” damages in new residential housing.
It was a blow to the homebuilding industry who back in 2002, following a wave of construction defect lawsuits involving new residential housing, lobbied the State Legislature for the Right to Repair Act which gave homebuilders an opportunity to repair defects before being sued in court.
Shortly after Brookfield was decided, the California Court of Appeals for the Second District, in Burch v. Superior Court, Case No. B248830 (February 19, 2014), dealt another devastating blow to homebuilders and held that homeowners (in addition to insurers brining subrogation claims as in Brookfield) could pursue negligence and breach of implied warranty claims against homebuilders involving actual damages.
Just two days after Burch was decided, the California Court of Appeals for the Second District, in KB Home Greater Los Angeles, Inc. v. Superior Court, Case no. B246769 (February 21, 2014), dealt what appeared to be the final blow to homebuilders and in a case unique to its facts, held that an insurer did have to comply with the prelitigation notice and opportunity to cure provisions of the Right to Repair Act, but only because its common law claims were dismissed before Brookfield was decided.
It appeared to be the end. The homebuilders were down for the count. One, two, three, four, five . . .
And Then a Miracle Happened
Over a year and half after the Brookfield, Burch and KB Home decisions, the California Court of Appeals for the Fifth District, in McMillin Albany LLC v. Superior Court, Case No. F069370 (August 26, 2015), held that the Right to Repair Act does in fact provide the exclusive remedy for construction defect claims involving new residential construction, whether the damages alleged are actual or economic damages, and in doing so expressly rejected the “reasoning and outcome” of the Brookfield decision.
In McMillin, thirty-seven homeowners sued the builder of the homes, McMillin Albany LLC (“McMillin”), alleging that the homes were defective at the time of purchase and that the defects had caused actual damage to the homes. The homeowners alleged eight causes of action against McMillin including strict products liability, negligence, breach of express and implied warranties, and a claim under the Right to Repair Act.
However, under the Right to Repair Act, homeowners are required to give notice to a homebuilder of alleged defects before filing suit and the homeowners in McMillin had failed to do so. When McMillin threatened to file a motion to stay the action pending compliance by the homeowners of the pre litigation requirements of the Right to Repair Act, the homeowners dismissed their claim under the Right to Repair Act and argued that by doing so they were not required to engage in the prelitigation process. The trial court agreed and McMillin appealed.
On appeal, the Court of Appeals, focusing on three sections of the Right to Repair Act – Civil Code section 896, 897 and 943 – held:
Section 896 of “the [Right to Repair] Act applies broadly to ‘any action seeking recovery of damages arising out of, or related to deficiencies in, the residential construction.” And, thus, “[b]y its plain language, the [Right to Repair] Act applies to any action for damages related to construction deficiencies, and limits a claimant’s claims or causes of action to claims of violation of the statutory standards.” (emphasis in original);
“Section 897 provides: ‘[t]he standards set forth in this chapter are intended to address every function or component of a structure. . . .’ Thus, the Legislature intended to create a comprehensive set of construction standards to make the violation of any of those standards actionable under the [Right to Repair] Act.”; and
“[S]ection 943 provides: ‘Except as provided in this title, no other cause of action for a claim covered by this title or for damages recoverable under Section 944 is allowed.’
The Brookfield court, the Court of Appeals explained, “interpreted the scope of the [Right to Repair] Act much differently.” However, the Court further explained, the Brookfield court in reaching its decision focused on the pre litigation and repair requirements of the Right to Repair Act not the scope of the Right to Repair Act which is “clear in barring any cause of action for damages related to residential construction defects other than a cause of action brought in compliance with the [Right to Repair] Act.”
So Where Does This Leave Us?
It leaves us with an appellate court split with the Court of Appeals for the Second and Fourth District holding that the Right to Repair Act does not provide the exclusive remedy for construction defect claims involving actual, as opposed to economic, damages in new residential construction. And the Court of Appeals for the Fifth District holding that it does.
I sense a final round before the California Supreme Court.