California Superior Courts Unpersuaded By Plaintiffs’ Counsels’ Attempts To Cherry-Pick Causes Of Action To Avoid Compliance With Both Statutory And Contractual Prelitigation And Alternative Dispute Resolution Procedures
Plaintiffs’ attorneys throughout California have been taking the position over the past year that if they do not plead a violation of the functionality standards as set forth in California Civil Code section 896 (also known as “SB800”), they can avoid compliance with statutory as well as contractually agreed-upon prelitigation and alternative dispute resolution (“ADR”) procedures. LGP was successful in persuading California Courts that this is a baseless position in two recent cases.
These Courts ordered plaintiffs to comply with SB800’s prelitigation procedures pursuant to Civil Code sections 910 – 938, despite their operative Complaints alleging only causes of action for common law claims rather than SB800. Plaintiffs’ Complaints did not include a cause of action for violation of SB800’s performance and functionality standards.
In one matter, LGP’s Motion to Stay Pursuant to Civil Code section 930, the firm, as represented by partner Sean Allen and associate Timothy Workman, successfully argued that the SB800 language contained in the operative purchase agreements established a contractual obligation by the plaintiffs to complete the prelitigation requirements contained in Civil Code section 910 et seq., prior to proceeding to mandatory, binding arbitration. Plaintiffs’ counsel argued that they were free to “plead around” SB800 and thus did not need to comply with its prelitigation procedures despite his clients’ contractual agreements. The Court found that Plaintiffs must proceed with the prelitigation SB800 process prior to filing suit and stayed the matter until the SB800 protocol was complete. Of note, the Court also stayed the matter as to subsequent homeowners who were not in privity with the developer.
The second ruling requiring the plaintiffs’ compliance with contractual prelitigation and ADR procedures pursuant to the terms of the operative purchase agreements and in conformance with Civil Code section 914, was also made despite the operative Complaint failing to include a cause of action for violation of SB800’s performance and functionality standards. In LGP’s Motion to Stay, the firm, as represented by partners Joyia Greenfield and Erin Kennedy Clancy, successfully argued that this attempt by plaintiffs to avoid being compelled to comply with the terms of the underlying purchase agreements – the primary contracts at issue in standard residential, single-family home construction defect actions – by electing to allege certain causes of action, while ignoring SB800 (noting that Title 7 of the Civil Code remains the applicable law to a construction defect action notwithstanding the holdings of Liberty Mutual Insurance Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 98 and Burch v. Superior Court (2014) 223 Cal.App.4th 1411) cannot, and should not, be rewarded by allowing them to opt-out of the contractual conditions precedent comprising prelitigation and ADR procedures to which they consented. Furthermore, with plaintiffs standardly pleading causes of action for breach of contract, it has become clear that by cherry-picking causes of action the plaintiffs are relying upon portions of the operative contracts to support certain causes of action, while claiming on the other hand that other portions are unenforceable. This tactic was unsuccessful in Norcal Mutual Ins. Co. v. Newton (2000) 84 Cal.App.4th 64 and is contrary to the Maxim of Jurisprudence set forth in Civil Code section 3521: “[h]e who takes the benefit must bear the burden.”
The good news is that Courts are beginning to see through this trend, and Baeza v. Superior Court (2011) 201 Cal.App.4th 1214, The McCaffrey Group v. Superior Court (2014) 224 Cal.App.4th 1330, and KB Home Greater Los Angeles, Inc. v. The Superior Court of Los Angeles County (2014) 223 Cal.App.4th 1471 remain good, and highly persuasive, law. The Fifth Appellate District in The McCaffrey determined, in part, that a builder’s contractual prelitigation and ADR procedures are not unconscionable, and are binding and enforceable on plaintiffs – in that particular case, original and subsequent homeowner plaintiffs alike – prior to initiating a formal suit. The Second Appellate District in KB Home – a case successfully handled by LGP partner Thomas F. Olsen and associate Dane F. Joseph – held that a builder is entitled to summary judgment based upon a plaintiff’s failure to comply with prelitigation notice requirements prior to initiating a subrogation action. The KB Home and The McCaffrey cases reinforce the holding of Baeza – that a builder’s contractual prelitigation and ADR procedures are binding and enforceable and plaintiffs must abide by same prior to initiating an action in the Superior Court.