Products Liability Law Daily Statute displaces common law for property damage remedies, mandates dispute resolution
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Friday, January 19, 2018

Statute displaces common law for property damage remedies, mandates dispute resolution

By Leah S. Poniatowski, J.D.

The Supreme Court of California held that even when a claim based on the Right to Repair Act is voluntarily dismissed, if the remaining lawsuit is an "action seeking recovery of damages arising out of, or related to deficiencies in, the residential construction," the terms of the statute control, affirming the appellate court. Thus, a group of homeowners suing a developer for property damage arising from alleged construction defects were subject to the prelitigation dispute resolution process and the developer’s motion for a stay pending the process was upheld (McMillin Albany LLC v. Superior Court of Kern County, January 18, 2018, Liu, G.).

A group of homeowners purchased their single-family residences from the developer/general contractor McMillin Albany LLC after January 2003. In 2013 they filed a lawsuit alleging that the homes were, in almost all aspects, defective and that these defects caused property damage. The homeowners also alleged that they suffered economic loss vis-a-vis repair costs and reduced property values. Their first amended complaint asserted common law claims for negligence, strict products liability, breach of contract, and breach of warranty. Additionally, the complaint contended that McMillin violated the construction standards in the Right to Repair Act.

Procedural history. McMillin sought a stipulation with the homeowners to stay the litigation in order to follow through the prelitigation dispute resolution process required under the Right to Repair Act. Instead of stipulating to the stay, the homeowners voluntarily dismissed the statutory claim, prompting the developer to move for a court-ordered stay. The homeowners argued that the Act did not impact existing common law remedies for actual property damage or personal injury. The trial court sided with the homeowners, but, acknowledging the complexity of the legal issue, certified the issue for immediate review. The appellate court issued the writ, holding that residential construction defect claims occurring after the Right to Repair Act was enacted were subject to the standards and requirements of the legislation. Thus, the parties in the case must proceed with the prelitigation resolution process and that the developer was entitled to a stay pending resolution of the process. The Supreme Court of California granted review.

Right to Repair Act. In 2000, California’s high court ruled that the economic loss rule barred homeowners from recovering damages arising from negligent construction defects when there was no actual property or personal injury. The high court reasoned that a boundary between tort and contract recoveries was necessary, and that contractual warranties made by home builders needed to be protected from being expanded by tort law beyond the existing agreements. The high court also added that it was in the state legislature’s power to change the existing recovery limits and add any additional protections for homeowners. After two years of interest groups lobbying, the state legislature passed the Right to Repair Act, which comprehensively reformed construction defect litigation.

Under Section 896 of the Act, the preamble makes it clear that the statute applies to "any action" in which damages from construction defects are being sought. The preamble also provides that "the claimant’s claims or causes of action shall be limited to violation of[] the following standards, except as specifically set forth in this title," thus demonstrating a clear intent to replace the existing construction defect remedies. The following chapter of the statute outlines the recoverable damages and to what extent the Act is exclusive as a means to recovering those damages. Section 944 provides that various forms of economic loss and property damages are recoverable in an action under the Act. However, personal injury claims are not included in the statute. Additionally, the Act provides a prelitigation dispute resolution process in which a builder is given the right to repair the damage before a homeowner can file a lawsuit.

Common law displacement. The high court explained that the present issue depended on the scope of the Act, i.e., to what extent it was intended to supplant common law remedies. The high court disagreed with the homeowners’ reading of the statute on the issue of common law remedies, clarifying that the Act was explicit with respect to which ones were preserved (i.e., personal injury, breach of contract) and which were not (i.e., economic loss, property damage). Additionally, the legislature was not required to provide an express statement that it intended to displace an existing remedy. This reading was consistent with the legislative history and text of the statute.

Construction defect pleadings. The high court held that the statute applied to the present cause of action even after the statutory claim had been dismissed because the operative complaint depended upon allegedly defective construction of the foundations, plumbing, roofs, electrical conduits, framing, flooring, and walls. The cause of action remained within the scope of the statute, and the developer’s liability vis-a-vis negligence and strict liability depended upon the standards set out in the Act. Because the statute governed the claim, the homeowners were obligated to comply with its terms and must participate in the prelitigation dispute resolution process. Therefore, the lower court’s motion to stay was affirmed.

The case is No. S229762.

Attorneys: Calvin R. Stead (Borton Petrini) for McMillin Albany LLC; Mark A. Milstein (Milstein Adelman Jackson Fairchild & Wade) for Carl Van Tassel.

Companies: McMillin Albany LLC

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