Belasco v. Wells, 2015 WL661273, February 17, 2015
WHY THIS CASE IS IMPORTANT
This case demonstrates that a builder can protect itself from all future claims under the Right to Repair Act for latent construction defects by negotiating a waiver of unknown claims (Civil Code 1542) in return for a cash settlement. As the Belasco court stated, plaintiff “and his attorney could have rejected the agreement to the extent it included a waiver of unknown claims, and their failure to do so in the face of express language referencing section 1542 establishes [plaintiff's] willful acceptance of the waiver.” Thus, after the settlement, plaintiff assumed the risk of unknown construction defects in his home.
In negotiating such releases, builders should ensure that the waiver of unknown claims is clear and explicit and includes precise language acknowledging the impact of the waiver. For example, the Belasco court emphasized that plaintiff expressly acknowledged that “in making this release and agreement it is understood and agreed that I rely wholly upon my judgment, belief, and knowledge of the nature, extent, and duration of said damages….” A best practice to further support enforcement of the waiver is to have the other party not only sign the agreement, but also initial the waiver of section 1542 provision.
The Right to Repair Act provides that a builder may obtain a “reasonable release” in exchange for a cash payment. This case holds that a plaintiff’s Civil Code section 1542 waiver of all unknown claims is a “reasonable release” where the plaintiff freely and knowingly executes a release and waiver in return for a cash settlement. Thus, plaintiff’s waiver of unknown claims barred plaintiff’s subsequent lawsuit against the builder for latent roof defects discovered five years after the release was executed.
FACTS OF CASE
Plaintiff David Belasco, an attorney, bought a newly constructed Manhattan Beach home from a builder in 2004. In 2006, plaintiff filed a complaint with the Contractors State License Board against the builder regarding alleged construction defects. Plaintiff and the builder settled the dispute in 2006 by written agreement. The builder agreed to pay plaintiff $25,000 in exchange for a release of the construction defect matter and a Civil Code section 1542 waiver of all known or unknown construction defect claims in the home.
In 2012, plaintiff filed a second lawsuit against the builder and others based on an alleged roof defect plaintiff discovered in 2011. Plaintiff alleged that the roof defect was a latent defect that was not known at the time the release was executed. The trial court granted summary judgment in favor of the builder on the grounds that the plaintiff’s 2012 roof defect claim was barred by the 2006 settlement agreement, which included a release and waiver of all known and unknown claims under Civil Code section 1542.
Plaintiff appealed the trial court’s ruling and asserted various arguments including the following:
The 2006 cash settlement and release pertained to patent defects “and had nothing to do with the later-discovered roof defects” so it was not a “reasonable release” under the Right to Repair Act;
The 2006 settlement was too vague to be valid because it did not reference a “particular violation”;
The Right to Repair Act authorizes an action on “[s]ubsequently discovered claims of unmet standards”; and
Public policy prohibits a general release and section 1542 waiver for subsequently discovered latent defects.
The Court of Appeal was unpersuaded by plaintiff’s arguments and held that the trial court properly granted summary judgment in favor of the builder. The Appellate Court explained that while the Right to Repair Act prohibits a builder from obtaining a release or waiver in exchange for repair work, the Right to Repair Act expressly allows the builder to make a cash offer and negotiate a reasonable release. Section 929 of the Right to Repair Act states that “[t]he builder may negotiate the terms and conditions of any reasonable release in terms of scope and consideration in conjunction with a cash payment….” The Right to Repair Act does not state that a release only applies to a specific patent construction defect. Instead, the Right to Repair Act states that the builder is free to negotiate the terms and conditions of the release. Thus, a “reasonable release” can include a waiver of unknown and latent defects. Plaintiff, an attorney himself and also represented by counsel, signed the 2006 settlement agreement and admitted in his deposition that he read and understood the agreement. In addition, the Appellate Court found the agreement was explicit regarding the waiver of unknown claims, so plaintiff’s contention the waiver was too vague lacked merit.
Section 932 of the Right to Repair Act provides that claimants can pursue “[s]ubsequently discovered claims of unmet standards … unless otherwise agreed to by the parties.” Had plaintiff not signed a release, his prior 2006 claim would not bar his 2012 action for alleged roof defects. However, the Appellate Court reasoned that section 932 must be read in conjunction with section 929, which controlled in this situation because plaintiff expressly agreed he would not bring any future claims for unknown defects in exchange for a cash settlement. The Court of Appeal thus disposed of plaintiff’s argument that public policy prohibits a section 1542 waiver for subsequently discovered latent defects because the Right to Repair Act “specifically allows the parties to negotiate a reasonable settlement in return for a cash payment.”