Kevin Meade, Esq. and Scott Halberstadt, Esq. | The Amin Law Group | April 10, 2017
While we await the California Supreme Court’s opinion in the matter of McMillin Albany, LLC v. Superior Court, 239 Cal.App.4th 1132 (2015) (hereinafter “McMillin”)[1], we have received additional guidance regarding the application and interpretation of California’s Right to Repair Act, commonly known as SB800 (California Civil Code § 895 et seq.) (hereinafter the “Act”). The following provides a summary of the most recent published cases related to the Act.
Another Blow to Liberty Mutual – Elliott Homes, Inc. v. Superior Court
Since the Fourth Appellate District issued its opinion in the Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC, 219 Cal.App.4th 98 (2013) (hereinafter “Liberty Mutual”), it has not been unusual for plaintiffs to ignore the pre-litigation notice and non-adversarial pre-litigation procedures contained in the Act, thereby depriving homebuilders of the benefits associated with that notice and procedures. While it has been The Amin Law Group’s experience that SoCal trial courts have, despite the Liberty Mutual decision, been receptive to motions to stay/compel pre-litigation procedures, such was not the case in other parts of CA.
In Elliott Homes, Inc. v. Superior Court, 6 Cal.App.5th 333 (2016) (hereinafter “Elliott Homes”), the Superior Court of Sacramento County (hereinafter the “Superior Court”), denied the homebuilder’s motion to stay even though the plaintiffs had not complied with the Acts pre-litigation procedures. Consistent with McMillin, The Superior Court reasoned that, relying on Liberty Mutual, the pre-litigation procedures are only mandatory where the homeowners plead statutory causes of action under the Act and as the homeowners’ causes of action were limited to those lying in the common law (i.e. negligence and/or strict liability), the Act’s prelitigation procedures did not have to be followed.
The homebuilder sought a writ of mandate even though the Courts of Appeal are reluctant to grant such a writ. Nonetheless, the Third Appellate District took up the writ determining that the homebuilder did not have an adequate remedy unless review was granted. Contrary to the Fourth Appellate District’s analysis in Liberty Mutual, after analyzing the Act’s legislative history, the Third District held that the “Legislature intended that all claims arising out of deficiencies in residential construction…be subject to the standards and requirements of the Act.”[2] The Elliott Homes court refused to follow Liberty Mutual, finding that the Act applied to all claims arising out of alleged construction defects in residential construction.
With the Third Appellate District’s decision in Elliott Homes, two of the six appellate districts in California have issued opinions directly contradictory to Liberty Mutual. What should be even more troubling for the proponents of Liberty Mutual, is that the McMillin and Elliott opinions are, arguably more clear, concise and lack the internal contradictions that plague the Liberty Mutual opinion. While the California Supreme Court has not yet issued its opinion in McMillin, the Elliott Homes decision is a source of optimism to those in favor of overturning Liberty Mutual.
Good News for Material Manufacturers, Material Suppliers and Subcontractors – Acqua Vista Homeowners Assn. v. MWI, Inc.
While the McMillin and Elliott decisions were already a blow to the construction defect plaintiffs’ bar, the Fourth Appellate District’s recent opinion in Acqua Vista Homeowners Assn. v. MWI, Inc., 7 Cal.App.5th 1129 (2017) (hereinafter “Acqua Vista”) could prove to be an even bigger blow. In Acqua Vista the CA Ct. of Appeals was asked to determine whether the Act requires homeowners suing a material supplier under the Act to go beyond merely proving a violation of the Act’s standards and prove that the material supplier “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.”[3] In other words, does the Act require that a plaintiff meet the negligence standard for claims against a material supplier?
The Acqua Vista court determined that the Legislature, for the purposes of liability under the Act, did not intend to place a material supplier “on par” with a homebuilder and a plaintiff could not simply rely on a strict liability standard as against non-homebuilder defendants, including material suppliers. Instead, plaintiffs have the burden of proof to show that a material supplier failed to use reasonable care to prevent foreseeable harm.
You may be asking, “does Acqua Vista do abrogate strict liability for material suppliers in construction defect actions?” The answer is unequivocally “No!” Plaintiffs can still maintain strict liability claims, but only if they can show resulting damage. In Acqua Vista, the plaintiff abandoned its strict liability cause of action on the eve of trial – likely because it could not show resultant damage – and sought to rely solely upon violations of the Act’s standards as the basis for recovery and failed to produce any evidence that the material supplier failed to use reasonable care to prevent foreseeable harm.
While Acqua Vista involved a material supplier – specifically a supplier of cast iron pipe manufactured in China (a source of many defect claims in high-rise condo cases in CA) – it is likely that the decision is applicable to material manufacturers and, potentially, subcontractors.[4] While a homeowner can still maintain a strict liability cause of action against material manufacturers and material suppliers if he/she can show resultant damage, that homeowner will need to show more than simply a violation of Act’s standard(s) against material manufacturers, material suppliers and/or subcontractors. To prevail on a cause of action for violation of the Act – for which no showing of resultant damage is required – plaintiffs bear the burden to prove that the violation(s) of the Act were the result of a failure to use reasonable care to prevent foreseeable harm.
As homebuilders continue to be potentially strictly liable for defective construction of mass produced residential housing (not only under the Act, but also under Kriegler v. Eichler Homes, Inc., 269 Cal.App.2d 224 (1969)), you may be wondering if or how the Acqua Vista decision will affect a homebuilder’s ability to prosecute a cross-complaint against material manufacturers, material suppliers and/or subcontractors. In Greystone Homes, Inc. v. Midtec, Inc., 168 Cal.App.4th 1194 (2008), a case cited extensively in Acqua Vista, the Fourth Appellate District determined that homebuilders, whose indemnity claims are derivative of the homeowner’s loss, can seek reimbursement for damages resulting from a manufacturer/supplier’s violation of the Act – regardless of the existence of resultant damages – upon a showing that the violation of the Act was a result of the manufacturer/supplier’s negligence or breach of contract.
Following Acqua Vista it is now clear that, in order to prevail against material manufacturers and material suppliers, both plaintiffs and homebuilders cannot simply rely upon a violation of one of the standards of the Act. Instead, they must not only prove the existence of a violation of the Act, but also that the violation resulted from the manufacturer/supplier’s negligence or breach of contract – a significant increase in the burden of proof.
[1] Whereas, in the earlier Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC, 219 Cal.App.4th 98 (2013) (“Liberty Mutual”), the Fourth Appellate District determined that California’s Right to Repair Act (SB800, Civil Code § 895 et seq.) was not the exclusive remedy available to a plaintiff in residential construction defect litigation, in McMillin Albany, LLC v. Superior Court (“McMillin”) the Fifth Appellate District determined that the only remedy available to plaintiffs in such cases was the Right to Repair Act. The California Supreme Court must now determine whether Liberty Mutual or McMillin will control.
[2] The only exception to that general rule are those claims specifically excluded from the Act in California Civil Code § 943(a) – i.e. breach of contract, fraud, personal injury or violation of a statute.
[3] California Civil Code § 936.
[4] Generally, subcontractors are not strictly liable for defective products that they furnish and install. Monte Vista Development Corp. v. Superior Court, 225 Cal.App.3d 1681 (1991). Nonetheless, there are instances where California courts have imposed strict liability on subcontractors when: (1) the subcontractor both manufactured and installed the product (Jimenez v. Superior Court, 29 Cal.4th 473 (2002)); and (2) when the purchase of a product is the “primary objective or essence of the transaction” (Hernandezcueva v. E.F. Brady Company, Inc., 243 Cal.App.4th 249 (2016)).