United States: California Court Of Appeal Holds That Pre-Litigation Process In SB800 Applies To All Homeowner Defect Claims – Issue Before California Supreme Court

California's Third District Court of Appeal recently clarified the scope of the Right to Repair Act, commonly known as SB-800 ("SB-800"). In Elliott Homes, Inc. v. Superior Court of Sacramento County (Kevin Hicks, et al.) ((2016) 6 Cal.App.5th 333, the Court considered whether the Act (and specifically the Act's pre-litigation procedure) applies, when homeowners plead construction defect claims based only on common law causes of action, as opposed to violations of the building standards set forth in the Act (Civil Code §896). The Court concluded that the Act DOES apply.

In Elliott, owners of seventeen single-family homes sued homebuilder Elliott. They alleged common law causes of action for damages arising out of construction defects. Elliott filed a motion to stay the litigation on the ground that the homeowners failed to comply with the pre-litigation procedure set forth in the Act. The trial court denied the motion, agreeing with the homeowners that the pre-litigation procedure did not apply because the homeowners had not alleged a statutory violation of the Act. Elliott appealed. Before the Court of Appeal was the question of whether the Act, including its pre-litigation procedure, applies when a homeowner pleads construction defect claims based on common law causes of action, and not on statutory violations of the Act's building standards.

Central to the Court's analysis was a recent case decision by Fourth District Court of Appeal, entitled Liberty Mutual Ins. Co. v. Brookfield Crystal Cove, LLC (2013) 219 Cal.App.4th 98. Liberty Mutual was a subrogation action. In it, a homeowner's insurer asserted common law causes of action (but not violation of the statutory building standards in SB800) against the builder, to recover amounts paid to the homeowner after a sprinkler system failure caused extensive damage to the subject property. The trial court sustained the builder's demurrer to the complaint on the ground that it was time-barred under the Act. The Fourth District Court of Appeal reversed the trial court's order, holding that common law construction defect claims arising from actual damages are not covered by the Act because "the Act does not provide the exclusive remedy in cases where actual damage has occurred." (Liberty Mutual, 219 Cal.App.4th 98, 109).

The Elliott Court declined to follow Liberty Mutual, holding that that Fourth District Court had not properly analyze the language of the Act. The Elliott Court analyzed both the statutory scheme and the legislative history of the Act to arrive at the conclusion that common law causes of action for construction defects do indeed fall within the purview of the Act.

According to the Elliott Court, the Act "broadly applies to any action seeking recovery of damages arising out of, or related to deficiencies in...residential construction and in such an action, a homeowner's claims or causes of action shall be limited to violation of the standards set forth in the Act, except as specified." Further, the Act expressly provides that "no other cause of action for a claim covered by this title or for damages recoverable under Section 944 is allowed." Civil Code §943(a). In turn, Civil Code §944 allows for a recovery for the cost of repairing a building standard violation, or for the cost of repairing any damage caused by such a violation, among other things.

The limited exceptions to the Act's applicability concern the enforcement of a contract, or any action for fraud, personal injury, or violation of a statute. Civil Code §943(a). Additionally, the Act does not apply to condominium conversions. Civil Code §896.

The Elliott Court found that, apart from these exceptions, the Legislature intended the Act to apply to all construction defect claims (regardless of damage) relating to the construction of residential properties whose sales contracts are signed after January 1, 2003. There is no exception in the Act, express or implied, for common law causes of action.

The Elliott Court also cited the Act's legislative history to support this conclusion. The history makes clear that the Act is a legislative response to the California Supreme Court's holding in Aas v. Superior Court (2000) 24 Cal.4th 627, which stated that construction defects in residential properties are only actionable in tort when actual property damage manifests. Senate Judiciary Committee hearings indicate that the Act was the product of protracted negotiations between varying interested parties, including construction industry trade groups and consumer protection groups. The Legislature intended (1) to promulgate building standards, violations of which would be actionable, even without damage, and (2) to allow homeowners to recover for actual damage caused by construction defects not covered by the building standards. In other words, the Act was intended to provide homeowners redress regardless of whether damage had manifested.

Based upon its interpretation of the relevant statues and the legislative history, the Elliott Court concluded that common law causes of action for construction defects, regardless of damage, are subject to the pre-litigation procedure set forth in the Act. The Court remanded the case back to the trial court, directing that Elliot's motion to stay the lawsuit be granted, with the parties then proceeding with the pre-litigation process set forth in SB800.

The Elliott and Liberty Mutual cases were issued from different California Courts of Appeal, therefore, neither can be considered the final authority on the subject. Nevertheless, the Elliott case provides defendants with new authority to assert that the SB800 procedures and remedies are the sole remedies available to construction defect plaintiffs who fall within the scope of the Act. A final decision on the subject will have to wait until the California Supreme Court issues its decision in a third matter - the still-pending McMillin Albany LLC v. Superior Court (2015), 239 Cal. App. 4th 1132, wherein the high court will likely make the ultimate decision on which view of SB800 is correct. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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