Builders' Right To Repair Pre-Litigation Affirmed as Exclusive Remedy By Supreme Court

January 26, 2018Article

On January 18, 2018, the Supreme Court of California in McMillin Albany LLC et al., v. The Superior Court of Kern County(Supreme Court Case No. S229762, California Official Reports citation pending) unanimously held that the Right to Repair Act ("Act"), codified as Civil Code §§ 895-945.5, serves as the "virtually exclusive remedy" for economic loss and for property damage arising from residential construction defects. The McMillin opinion upholds the statutory intent of the Act, which was enacted by the California State Legislature in 2002 and applies to all new residential construction sold after January 1, 2003.[1]  Moreover, the McMillin holding resolves split authority among the California Courts of Appeal decisions and expressly disapproves of Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC(2013) 219 Cal.App.4th 98 and Burch v. Superior Court (2014) 223 Cal.App.4th 1411.

In McMillin, the Court considered two issues: 1) whether the Act precludes a homeowner from pursuing common law causes of action for alleged defective conditions that resulted in physical damage to the home and 2) whether the failure to comply with the prelitigation procedures of the Act mandates a stay of proceedings where the homeowner asserts common law causes of action for construction defects resulting in both economic loss and property damage.

The McMillin decision is a huge win for California builders as it unequivocally establishes that homeowners may not pursue remedies under both the Right to Repair Act and common law causes of action for property damage. This holding will significantly impact future cases filed by claimants. It also affects current cases wherein plaintiffs have pled claims outside of the Act's requirements and/or plaintiffs' claims are statutorily barred by the Act's statute of limitations. An evaluation of all pending cases is needed.

McMillin involves multiple homeowners who filed suit against developer and general contractor McMillin Albany LLC for purported construction defects at 37 new single-family homes, alleging negligence, strict liability, breach of contract and warranty, and violations of construction standards under Section 896 of the Act.  McMillin Albany LLC moved for a court-ordered stay, asserting that the prelitigation procedures of the Act required the homeowners to provide notice to McMillin Albany LLC and that it was owed an opportunity to repair prior to the homeowners' filing of the action. In turn, the homeowners dismissed their statutory claim under the Act, arguing that the Act does not apply where actual property damage results from construction defects.

The trial court denied the stay and followed Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC(2013) 219 Cal.App.4th 98, which held that the Act only provides a remedy for construction defects that caused economic loss and that the Act did not alter preexisting common law remedies where actual property damage or personal injury was alleged. The Court of Appeal, in turn, issued a writ and held that the Act’s prelitigation resolution process applied even though the homeowners had dismissed their statutory claim for violation of the construction standards set forth in Section 896. In doing so, the Court of Appeal disagreed with Liberty Mutual and Burch v. Superior Court (2014) 223 Cal.App.4th 1411. The Court of Appeal concluded that McMillin Albany LLC was entitled to a stay pending completion of the prelitigation procedures mandated by the Act.

In its January 18, 2018 opinion, the Supreme Court relied on the legislative intent behind the Act and its actual text, affirming that any action seeking damages for a construction defect is subject to the Act’s prelitigation procedures regardless of how it is pled in the complaint. Moreover, the Court noted that in authoring the Act, the California State Legislature intended the Act to "cover territory previously in the domain of the common law." The Court further opined that the express language of the Act limits a claimant's causes of action for alleged violations of construction standards to those set forth in the Act. However, the Supreme Court concluded that the Act does not encompass actions for breach of contract, fraud, and personal injury, which are expressly excluded in Section 943(a). The Act also "disallows claims other than those predicated on the Act's standards."

In disapproving prior Court of Appeal decisions Liberty Mutual and Burch, the Supreme Court summarized its conclusion as follows: "The Act, in effect, provides that construction defect claims not involving personal injury will be treated the same procedurally going forward whether or not the underlying defects gave rise to property damage."  Those statutory prelitigation procedures mandate that plaintiffs provide proper written notice under the Act, and plaintiffs must afford the builder the right to repair prior to proceeding in a court action.

[1] The Right to Repair Act requires parties to informally engage in a resolution process commencing with written notice from a homeowner to a builder regarding allegations that construction falls short of the standards required by the Right to Repair Act. Under the Act, the builder has the right to inspect, test, and cure the alleged defects or compensate the homeowner in lieu of making repairs. If the homeowner files a civil action without complying with the prelitigation procedures expressly provided in the Act, the builder may move the court for a stay of the litigation until the homeowner has complied with these requirements.