Resolving a split in authority among the Courts of Appeal, a unanimous California Supreme Court has just ruled that the Right to Repair Act (the “Act”) is the exclusive remedy for most claims of defective construction. As a result of the Court’s decision in McMillin Albany v. Superior Court (Van Tassel), developers and sellers of new homes in this state have now won a major victory in limiting their construction defect liability exposure for residential developments built after January 1, 2003.
The Act (codified at Civil Code Sections 895–945.5) was passed in 2002, in large part as a reaction to the Court’s decision in Aas v. Superior Court (2000) 24 Cal.4th 627, which held that homeowners could not sue for negligence in cases of defective construction without evidence of property damage or personal injury, in reliance on the economic loss doctrine. As explained in the case of Greystone Homes, Inc. v. Midtec, Inc. (2008) 168 Cal.App.4th 1194, 1210, the Act established a set of standards for residential construction and imposed tort liability on those persons who failed to meet those standards. Over time, however, a number of disagreements about the scope of the Act arose, specifically with regard to whether the Act was intended to abrogate most common law remedies or simply overturn the holding in Aas.
In the instant case, Carl and Sandra Van Tassel and several dozen others purchased 37 new single-family homes from developer/general contractor McMillin Albany at various times after January 2003. These homeowners then sued McMillin Albany in 2013, alleging that these houses were defective in nearly every aspect of their construction, including foundations, plumbing, electrical systems, roofs, windows, floors, and chimneys. The plaintiffs’ complaint included common law claims for negligence, strict product liability, breach of contract and breach of warranty, and also stated a claim for violation of the construction standards set forth in Civil Code Section 896.
Responding to the lawsuit, McMillin Albany asked the plaintiffs to agree to a stay of the litigation so the parties could pursue the pre-litigation procedures under the Act. The plaintiffs refused to agree, and also dismissed their Section 896 claim. McMillin Albany then moved for a stay in the trial court, which denied the request, holding that the Act did not alter pre-existing common law remedies based on Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 98. On appeal of the denial of the stay, the Fifth District Court of Appeal declined to follow the interpretation of the Act upheld by the Fourth District in Liberty Mutual and the Second District in Burch v. Superior Court (2014) 223 Cal.App.4th 1411, and granted the stay, concluding that the Act was intended to supplant common law remedies in cases of defective construction.
Granting review to address the conflict between the courts of appeal, the California Supreme Court reviewed the history of the Act and its language. Based on this analysis, the Court concluded that the state legislature intended to broadly alter the common law remedies for defective construction, making “the Act the virtually exclusive remedy not just for economic loss but also for property damage arising from construction defects.” The Court also found that allowing homeowners to bring common law claims without first abiding by Act’s pre-litigation procedures would thwart the Act’s purpose in providing builders a pre-litigation right to repair.
In recognizing the Act as the exclusive remedy for defective construction, the Court also pointed out that the statutory structure of the Act imposed a number of obligations on home builders that, if not followed, would negate the pre-litigation protections afforded them by the Act. Thus, while these developers have been provided a means of avoiding costly litigation, they must take care to adhere to the requirements of the law to accrue those benefits. As with so many of California’s laws that regulate the conduct of contractors, these statutory protections come at the price of scrupulous obedience to the law.
The text of the California Supreme Court’s decision in McMillin Albany v. Superior Court (Van Tassel) may be found here.
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