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California Supreme Court Grants Review of 5th District SB 800 Decision

SB 800, also known as the Right to Repair Act, provides home builders the opportunity to cure any construction defects prior to what might be protracted litigation. It became effective January 1, 2003, and purportedly applies whenever there are construction defects alleged by a homeowner in new residential construction, excluding condominium conversions. SB also attempts to specifically define what constitutes a “defect” for virtually all aspects of a residential building and outlines the statutory process that must be exhausted before filing a lawsuit. [See, Calif. Civil Code Section 895, et seq.]

Prior to filing a lawsuit, the owner must provide written notice to the builder’s agent outlining the alleged defect(s). The builder, in turn, has 14 days to respond and then can inspect, test and repair. The builder can make an offer of repair or payment and the parties can agree to mediation. According to the statute, it is not until all statutory pre-litigation procedures have been followed or have failed that a homeowner can file suit against the builder for alleged construction defects.

Two recent cases have tested the limits of SB 800: Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 98 and McMillan Albany, LLC v. Superior Court (August 26, 2015) 239 Cal. App. 4th 1132. Liberty Mutual, by all accounts, seemed to gut the legislative intent and plain meaning of SB 800. The Liberty Mutual court held, in essence, that the Right to Repair Act only applies when a plaintiff/homeowner alleges a cause of action for a violation of the Act. If a plaintiff alleges a common law cause of action to recover for damages caused by a construction defect (see, e.g., Aas v. Superior Court (2000) 24 Cal.4th 627), the Act does not apply and the builder, according to Liberty Mutual, cannot cite failure to comply with the Act as an affirmative defense). For this reason, most plaintiff construction defect attorneys have interpreted Liberty Mutual to mean that their clients can file suit against the builder of residential properties within first pursuing the remedies available under SB 800.

In McMillan Albany, LLC v. Superior Court, real parties, including Carl Van Tassell and 36 other homeowners, filed a first amended complaint alleging eight causes of action against the builder, McMillin Albany, LLC, including strict products liability, negligence, and breach of express and implied warranties. Plaintiffs alleged the homes defectively constructed and that the alleged construction defects resulted in damage to their homes. The third cause of action of the first amended complaint alleged violation of the building standards set forth in Civil Code Section 896, part of the Right to Repair Act.

Plaintiffs did not give McMillin notice of the alleged defects before filing suit. The parties, in turn, attempted to negotiate a stay of the judicial proceedings to complete the pre-litigation process under SB 800, but plaintiffs subsequently withdrew from these negotiations, dismissed plaintiffs’ third cause of action, and argued that plaintiff were no longer required to comply with the statutory pre-litigation process under SB 800 as they had dismissed their cause of action alleging violation of the Right to Repair Act. McMillin then filed a motion for a stay of the proceedings, which plaintiffs’ vigorously opposed. The trial court denied the motion for stay of the proceedings, concluding real parties were entitled to plead common law causes of action in lieu of a cause of action for violation of the building standards set out in Section 896, and they were not required to submit to the pre-litigation process of the Act when the operative complaint did not allege any cause of action for violation of the Right to Repair Act. The court sited Liberty Mutual as the basis for their decision. McMillin, in response to this ruling, filed a petition for a writ of mandate, seeking a writ directing the trial court to vacate its order denying McMillin’s motion for a stay and to enter a new order granting a stay pending completion of the pre-litigation process under SB 800.

In considering McMillin’s writ petition, the 5th District Court of Appeal in Fresno found that the only issue before the court was whether McMillin’s motion for a stay pending completion of the pre-litigation procedures of Chapter 4 of the Act was properly denied. In order to make that determination, the Court of Appeal considered the scope of the Act and whether the Albany McMillin homeowners were required to comply with the SB 800 pre-litigation process before filing suit against McMillin, regardless of whether the plaintiff homeowners were asserting any claims or causes of action reliant upon SB 800.

Ultimately, the 5th District Court of Appeal concluded that the Legislature intended that all claims arising out of defects in residential construction, involving new residences sold on or after January 1, 2003 (Civ. Code § 938), be subject to the standards and the requirements of the Right to Repair Act and that homeowners bringing such claims were required to give notice to the builder and engage in the pre-litigation procedures in accordance with the provisions of Chapter 4 of the Act prior to filing suit in superior court. In other words, the court concluded that the plaintiff homeowers did not comply with the requirements of Chapter 4 allowing McMillin the absolute right to attempt repairs. Further, the Court of Appeal held that McMillin was entitled to a stay of the action until the statutory pre-litigation process has been completed.

On December 1, 2015, the California Supreme Court, noting an irreconcilable conflict Liberty Mutual and Albany McMillin, ordered the 5th District’s Albany McMillin decision de-published pending review by the Supreme Court. Here’s hoping that the Supreme Court once and for determines once and for all whether the SB 800 pre-litigation process must be followed before plaintiff homeowners are entitled to file suit against builders for alleged residential construction defects.

The Second District Court of Appeal in KB Home Greater Los Angeles, Inc. v. The Superior Court of Los Angeles County (2014) 223 Cal.App.4th 1471 declined to extend the Fourth District Court’s holding in Liberty Mutual. In KB Home, the Court concluded that the failure to provide KB Home with timely notice and an opportunity to inspect and offer to repair the construction defect excuses KB Home’s liability for damages under SB800. The Court critically disagreed with the notion that in case of actual property damage SB800 is inapplicable in its entirety.

The Court in McMillin Albany went one step further than the Court in KB Home by outright rejecting the holding in Liberty Mutual. Even though Real Parties agreed during the appellate process to stay the litigation in fear of what became the eventual outcome, the Fifth District Court of Appeal exercised its discretion to consider the issues despite the assertion that they were moot. The Court in McMillin Albany spent an extensive amount of the opinion explaining how both the reasoning and outcome in Liberty Mutual are incorrect and inconsistent with the express language of SB800. The Court’s opinion pointedly remarks that the Fourth District Court of Appeal only provided one sentence of actual analysis.

IMPACT

The McMillin Albany decision is not only significant for its ruling but squarely places two appellate districts in clear conflict with each other. As a result, it was no major surprise when the California Supreme Court granted review of the McMillin Albany decision on December 1, 2015. The construction defect bar anxiously awaits the Supreme Court's determination of whether SB 800 is an "exclusive remedy" after all.

David Frankenberger is a partner in the Fresno office. He can be reached at 559.449.2600 or .