Elizabeth D. Beckman | Kramer deBoer & Keane, LLP
Approximately fifteen years after California Governor Grey Davis signed into law Senate Bill 800,1 and much related judicial dispute, the California Supreme Court is set to resolve the legal standard for handling of construction defect claims in the matter of McMillan Albany, LLC v. Superior Court. 2 The matter has been fully briefed and awaiting oral argument.
At present, California has different binding appellate court decisions in four of California’s six appellate districts with conflicting but nonetheless valid legal authority, and the uncertainty created by such is adversely affecting a wide range of cases at the trial court level statewide. At issue is whether SB 800 is the exclusive remedy for construction defect claims, or if homeowners may also recover damages under common law claims. The California Supreme Court has accepted the McMillan Albany, LLC matter for hearing, and we should have a final answer in the near future.
As background, SB 800, also known as California’s Right-to-Repair Act, was intended to establish a pre-litigation protocol for residential properties built after January 1, 2003. This included setting forth applicable standards for home construction, statute of limitations, burden of proof, and certain obligations on the part of the homeowners. SB 800 was intended to effectively reverse parts of the “Economic Loss Doctrine” and therein establish rights and procedures which would allow a homeowner to recover for construction defects in new construction even when there is no actual property damage other than the defective product or work itself.
After SB 800 became law, the Fourth Appellate District found that SB800 was not the exclusive remedy for homeowners in the case of Liberty Mutual v. Brookfield Crystal Cove, LLC. 3 Specifically, the Fourth Appellate District found that, for alleged defects that have not yet resulted in actual property damage, a homeowner may elect to proceed under the Right-to-Repair Act and that, for alleged defects which have manifested actual property damage, a homeowner may elect to proceed under traditional common law causes of action. This rule was later adopted by the Second Appellate District in a case this firm was involved in (Burch v. Superior Court4 ), wherein the Court ruled that SB 800 does not preclude a homeowner from pursuing common law claims for construction defects that have caused actual property damage.
The conflicting line of authority first came from the Fifth Appellate District, who rejected the holding in Liberty Mutual and Burch. The Fifth Appellate District held that SB 800 was the exclusive remedy for homeowners asserting construction defects for both actual and anticipatory damages in the case of McMillan Albany, LLC v. Superior Court. 5 The Third Appellate District thereafter ruled similarly in Elliot Homes v. Superior Court. 6
Consequently, California currently has two conflicting viewpoints in four of the State’s six appellate districts, all of which are valid legal authority. Because of this conflict, the California Supreme Court has accepted the McMillan Albany, LLC v. Superior Court matter for hearing. As of the present date, the matter has been fully briefed, including all amicus briefs. The next step is for the Supreme Court to set a date for oral arguments. This means that sometime in the near future the Supreme Court should resolve the standard for handling of construction defect claims in California, as was intended by the passing of SB 800 in the first place.
While we cannot predict with certainty how the Supreme Court will rule, it is likely that a ruling which affirms the Liberty Mutual and Burch line of cases will result in parties litigating both statutory and common law tort claims concurrently. Presumably this would result in more extensive litigation because more evidence is require to establish a liability claim for general negligence than for an alleged SB 800 violation alone. Furthermore, because general negligence is often more difficult to establish than an alleged SB 800 violation, pretrial settlements may be more limited, which could force more of these cases to trial.
On the other hand, if the Supreme Court were to uphold the McMillan and Elliot Homes line of cases, presumably the scope of construction defect litigation in cases involving SB 800 claims would be limited to establishing statutory violations. Such claims are often more easier for property owners to establish, which may make pretrial settlements more desirable and thereby curtail the need for trial in many instances.
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1 SB 800, codified as California Civil Code Section 895, et seq. went into effect on January 1, 2003.
2 McMillan Albany, LLC v. Superior Court (Supreme Court Case No. S229762.
3 Liberty Mutual v. Brookfield Crystal Cove, LLC, 219 Cal. App. 4th 98 (2013).
4 Burch v. Superior Court, 223 Cal. App. 4th 1411 (2014).
5 McMillan Albany, LLC v. Superior Court, 239 Cal. App. 4th 1132 (2015).
6 Elliot Homes v. Superior Court, 6 Cal. App. 5th 333 (2016).