Issued by: Joseph M. Fenech

McMillin Albany LLC, et al., v. The Superior Court of Kern County, Respondent; Carl Van Tassel, et al., Real Parties in Interest
Case No. S229762; January 18, 2018

This case decided whether common law actions alleging construction defects involving economic loss and property damage must be submitted to the pre-litigation and resolution procedures of the Right to Repair Act. (CA Civil Code §895-945.3)

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 first amended complaint filed by the Van Tassels included common law claims for negligence, strict product liability, breach of contract, breach of warranty, and a statutory claim for violation of the construction standards set forth in CA Civil Code §896. (The Right to Repair Act)

McMillin sought a stipulation from the Van Tassels to stay the litigation so the parties could proceed through the informal process contemplated by the Right to Repair Act (“Act”). The Act requires that a homeowner participate in a pre-litigation process in which a homeowner gives written notice to the builder that their construction falls short of the standards prescribed in the Act. The Act regulates the procedures for any repair, authorizes mediation, and preserves the homeowner’s right to sue in the event the repair is unsatisfactory and no settlement can be reached. The Van Tassels elected not to stipulate to a stay, instead choosing to dismiss their statutory claims for violation of the construction standards set forth in CA Civil Code §896. McMillin then moved for a court-ordered stay, which the trial court denied. 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 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 resulting in economic loss.

McMillin sought a writ of mandate following the trial court’s ruling. The Court of Appeal granted the petition disagreeing with Liberty Mutual and another case that had followed it, Burch v. Superior Court (2014) 223 Cal.App.4th 1411. The Court of Appeal held that the Act’s pre-litigation resolution process applied even though the Van Tassels dismissed their statutory claim under the Act. The Court of Appeal found that McMillin was entitled to a stay pending completion of the pre-litigation process. The Supreme Court granted review.

The Supreme Court affirmed the Court of Appeal’s ruling. The Court found that the operative complaint included 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.) The Supreme Court pointed out that the Act applied to “any action” seeking damages for construction defect, not just any action under Civil Code §896. According to the Court, the Van Tassels were required to initiate the pre-litigation procedure set forth in the Act. The Supreme Court relied on both the actual text of the Act as well as the legislative history in making their ruling. The Court also 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 those explicitly excluded in the Act. The Court further pointed out that negligence and strict liability claims for property damage, unlike personal injury claims, were not claims excluded from the Act. The Court also noted the Legislature recognized and intended that claims under the Act would cover territory previously in the domain of common law.

The Court also pointed out that the list of damages set forth in the Act expressly includes recovery for actual property damage resulting from construction defects (Civil Code §944). The Court reasoned that this indicates an intent to replace common law methods of recovery with the Act. The Court also found that “the creation of a mandatory pre-litigation process and the granting of a right to repair would be thwarted if the Court read the Act to permit homeowners to continue to sue as before at common law, without abiding by the procedural requirements of the Act.

Finally, the Court found that the shorter limitations periods imposed by Civil Code §896 of the Act for certain defects, may limit a homeowner’s ability to recover, but the Court stated there was nothing absurd about accepting these limitations at face value.

The Court concluded by holding that Van Tassel’s claim seeking recovery for construction defect damages are subject to the Act’s pre-litigation procedures regardless of how the complaint is pled. The Court held that the Van Tassels must comply with the pre-litigation procedures before their suit could proceed. The Court upheld McMillin’s stay of litigation until the Van Tassels complied with the pre-litigation procedures of the Act.

CONCLUSION

The Court’s held that all claims seeking recovery for construction defect damages are subject to the Right to Repair Act’s pre-litigation procedures regardless of how they are plead in the Complaint. The Court makes clear that the Act supplants common law negligence and strict product liability actions with a statutory claim under the Act. The Court’s ruling specifically states that it does not encompass actions for breach of contract, fraud and personal injury, because it is expressly carved out in the Act. (Civil Code §943(a).)

The Act is the exclusive remedy for claims of economic loss and property damage arising out of construction defect claims.

For a copy of the complete decision, see: McMillin Albany LLC v. Superior Court

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