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WSHB Case Update: California Court of Appeal Holds That SB 800 Requires Showing of a Material Supplier’s Negligent Conduct or Breach of Contract

February 7, 2017

Acqua Vista Homeowners Association v. MWI, Inc. (January 26, 2017) 2017 WL 371379

WHY THIS CASE IS IMPORTANT:

This case is important to all participants in residential construction defect litigation as it outlines the burden of proof against a material supplier for violations of the residential construction standards within the SB 800 Right to Repair Act (Civil Code § 895, et seq.) Therefore, while the case specifically dealt with a direct claim by a homeowner association against a material supplier, the same burden of proof would be required for a cross-complaint brought by a developer or a subcontractor against the supplier. This ruling will make it more difficult to pursue claims against material suppliers by requiring a showing that the violation was caused by the material supplier’s negligent act or omission or breach of contract.

HOLDING:

Pursuant to Civil Code § 936, a party suing a material supplier under SB 800 for violation of one or more construction standards must prove that the material supplier “caused, in whole or in part, a violation of a particular standard as a result of a negligent act or omission or breach of contract.” Absent this showing, the material supplier cannot be held liable under SB 800.

FACTS:

In this case, Acqua Vista Homeowners Association (“HOA”) sued MWI, Inc. (“MWI”), a supplier of pipe used in the construction of the Acqua Vista condominium development. The HOA alleged that defective cast iron pipe manufactured in China was used throughout the project. The HOA alleged a single cause of action against MWI for violation of the SB 800 construction standards.

During trial, MWI filed a motion for a directed verdict on the ground that the HOA failed to present any evidence that MWI had caused a violation of the SB 800 construction standards as a result of MWI’s negligence or breach of contract. The trial court denied the motion, concluding that the HOA was not required to prove that any violations were caused by MWI’s negligence or breach of contract. The trial court also denied MWI’s request to give the jury an instruction on the same subject.

Ultimately, a verdict was awarded against MWI in the amount of $23,955,796.28. MWI’s motion for judgment notwithstanding the verdict was also denied by the trial court. MWI thereafter appealed the judgement.

DISCUSSION:

The question presented by the appeal was whether the HOA was required to simply show that a violation of the construction standards occurred or whether the HOA must also show that the violation was caused by MWI’s negligence or breach of contract. To answer this question the Court of Appeal primarily relied upon Civil Code Section 936, which states, in pertinent part, as follows:

“Each and every provision of the other chapters of this title apply to general contractors, subcontractors, material suppliers, individual product manufacturers, and design professionals to the extent that the general contractors, subcontractors, material suppliers, individual product manufacturers, and design professionals caused, in whole or in part, a violation of a particular standard as the result of a negligent act or omission or a breach of contract. . .However, the negligence standard in this section does not apply to any general contractor, subcontractor, material supplier, individual product manufacturer, or design professional with respect to claims for which strict liability would apply.” (Emphasis added.)

The HOA and MWI asserted competing interpretations of Section 936. MWI asserted that the introductory sentence of Section 936 clearly requires a showing that a violation of a particular standard was caused by a negligent act or omission or a breach of contract. In contrast, the HOA asserted that the final sentence of Section 936 removed the negligence and breach of contract standard where strict liability would apply, and therefore, it was only required to establish a violation of the construction standards.

At the outset, the Court of Appeal acknowledged, “. . .the plain language of the final sentence in section 936, when read in isolation, is ambiguous.” However, the Court of Appeal held that the last sentence, when read in context with the whole of the Right to Repair Act, should be interpreted as providing that the negligence standard does not apply to common law strict liability claims. In essence, the Court of Appeal indicated that the purpose of the last sentence was to indicate that Section 936 did not change the law regarding common law strict liability claims. As a result, since the HOA was not asserting any common law strict liability claims against MWI, the last sentence of Section 936 was not applicable.

Therefore, the Court of Appeal reversed the trial court’s judgment against MWI and the case was remanded back to the trial court with directions for the trial court to grant MWI’s motion for directed verdict. The HOA requested a second opportunity to present evidence at the trial court level of MWI’s negligence, but this too was rejected by the Court of Appeal, stating as follows: “MWI should not be required to undergo the burden of a second trial because the HOA interpreted the statute in a manner that proved erroneous.” Accordingly, no further trial on the matter would be permitted.

CONCLUSION:

This decision will impact the way direct claims and cross-claims are prosecuted against material suppliers for claims under SB 800. In light of the heightened burden of proof, we anticipate seeing future claims asserted against material suppliers outside of SB 800 in order to avoid this requirement.

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