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WSHB Case Update: McMillin Albany LLC et al., v. The Superior Court of Kern County

January 18, 2018

McMillin Albany LLC et al., v. The Superior Court of Kern County (Carl Van Tassel), Supreme Court of California; Case No. S229762; January 18, 2018

Builders have been waiting more than two years for the decision on the fiercely contested issue of whether or not the Right to Repair Act cuts off a homeowner’s right to assert common law causes of action against a builder relating to alleged construction defects. This morning, the Supreme Court resolved that question in favor of the builders. The import of this decision is huge for those developing residential real estate in California as set out below.

Why this Case is Important

In McMillin Albany LLC et al., v. The Superior Court of Kern County, the Supreme Court of California held that the Right to Repair Act (Civil Code §§895-945.5) is virtually the exclusive remedy not just for economic loss, but also for property damage arising from construction defects. This decision limits the causes of action that can be brought by homeowners such that they can no longer bring common law causes of action for negligence or strict liability against a builder alleging construction defects on new houses sold after 2003. This decision further requires a homeowner to comply with the prelitigation procedures set forth in the Right to Repair Act before filing suit. Finally, this decision reiterates that all claims seeking recovery for construction defect damages are subject to the Right to Repair Act’s prelitigation procedures regardless of how they are plead in the Complaint.

Procedural History and Facts of the Case

Plaintiffs Carl and Sandra Van Tassel and several dozen other homeowners purchased 37 new single-family homes from developer and general contractor McMillin Albany LLC (“McMillin”) at various times after January 2003. In 2013, the Van Tassels sued McMillin, alleging the homes were defective in nearly every aspect of their construction, including the foundations, plumbing, electrical systems, roofs, windows, floors, and chimneys. The operative first amended complaint filed by the Van Tassels included 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 set forth in Section 896.

McMillin sought a stipulation to stay the litigation so the parties could proceed through the informal process contemplated by the Right to Repair Act from the Van Tassels. The Van Tassels elected not to stipulate to a stay and instead dismissed their statutory claim for violation of the construction standards set forth in Section 896. McMillin then moved for a court-ordered stay, which the trial court denied. In doing so, the trial court concluded it was bound to follow the Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 98 case, which held that the Right to Repair Act did not alter preexisting common law remedies in cases where actual property damage or personal injuries resulted and only provided a remedy for construction defects causing only economic loss.

McMillin sought writ relief following the trial court’s ruling. The Court of Appeal granted the petition and issued the writ, disagreeing with Liberty Mutual and another case that had followed it, Burch v. Superior Court (2014) 223 Cal.App.4th 1411. In doing so, the Court of Appeal held the Act’s prelitigation resolution process applied in this matter even though the Van Tassels had dismissed their statutory claim for violation of the construction standards set forth in Section 896. The Court of Appeal concluded that McMillin was entitled to a stay pending completion of the prelitigation process. The Supreme Court of California granted review.

The Ruling

The Supreme Court of California affirmed the Court of Appeal’s ruling. The Court found that the operative complaint includes claims resting on allegations that McMillin defectively constructed the subject homes, and therefore, was an “action seeking recovery of damages arising out, or related to deficiencies in the residential construction” (Civil Code §896) of the Van Tassel’s homes. Thus, the Van Tassels were required to initiate the prelitigation procedure set forth in the Right to Repair Act.

The Supreme Court of California relied on both the actual text of the Right to Repair Act as well as the legislative history in making their ruling. Specifically, the Supreme Court of California noted that the language in Civil Code §896 expressly states that it applies to “any action” seeking damages for a construction defect, not just any action under the title. The Court further noted that the express language of the Act states that the cause of action brought by a claimant shall be limited to violation of the standards set forth in the Act except as explicitly set forth in the Act. The Court then points out that negligence and strict liability claims for property damage, unlike personal injury claims, are not among those excepted from the Right to Repair Act. Similarly, the Court noted that in authoring the Right to Repair Act, the “Legislature thus recognized and intended that claims under the Act would cover territory previously in the domain of the common law”.

Furthermore, the list of damages provided for in the Right to Repair Act expressly includes recovery for actual property damage resulting from construction defects (Civil Code §944). The Court notes that this indicates an intent to replace common law methods of recovery with the Right to Repair Act. Likewise, the Court discusses that “the creation of a mandatory prelitigation process and the granting of a right to repair, would be thwarted if we were to read the Act to permit homeowners to continue to sue as before at common law, without abiding by the procedural requirements of the Act, for construction defect claims involving damages other than economic loss.”

Finally, the Supreme Court of California found that the shorter limitations periods imposed in Section 896 for certain defects (e.g. Civil Code §896(e)-(g)) may limit a homeowner’s ability to recover and there is “nothing absurd about accepting these limitations at face value”.

Applying the language in the Right to Repair Act along to the facts of this case, the Supreme Court of California found that despite dismissing their cause of action for violation of the standards, the Van Tassels were subject to the Right to Repair Act’s prelitigation procedures.

Conclusion

The Court’s decision reiterates that all claims seeking recovery for construction defect damages are subject to the Right to Repair Act’s prelitigation procedures regardless of how they are plead in the Complaint and holds that the Right to Repair Act clearly and unequivocally supplants common law negligence and strict product liability actions with a statutory claim under the Act.
The Court’s ruling does not encompass actions for breach of contract, fraud and personal injury, all of which are expressly carved out in the Right to Repair Act. (Civil Code §943(a).)

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