As predicted, the California Supreme Court has granted the petition for review of the McMillin decision following the clear split in authorities between the Fourth and Fifth District Court of Appeals. In Liberty Mut. Ins. Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 98, the Fourth District Court of Appeal held that compliance with SB800’s pre-litigation procedures prior to initiating litigation is only required for violations of building standards set forth in Chapter 2 of Title 7 (Civil Code §895 et seq.; Right to Repair Act) that have not yet resulted in actual property damage. Where damage has occurred, a homeowner may initiate litigation under common law causes of action without first complying with the pre-litigation procedures. Two years later, the Fifth District Court of Appeal in McMillin held that the California Legislature intended that all construction defect claims arising out new residential construction are subject to the standards and requirements of the Right to Repair Act, including specifically, the requirement that the claimant provide the builder with notice and an opportunity to repair prior to filing a lawsuit. We will be monitoring this case as the outcome will significantly impact construction defect claims. Stay tuned!
Read about the McMillin decision written for the Association of Defense Counsel of California/Nevada newsletter:
MCMILLIN ALBANY LLC v. THE SUPERIOR COURT OF KERN COUNTY: CALIFORNIA’S COURT OF APPEAL, FIFTH DISTRICT, RULES THAT BUILDER HAS THE ABSOLUTE RIGHT TO ATTEMPT REPAIRS PRIOR TO LITIGATION.
By Wakako Uritani, Lorber Greenfield & Polito, LLP
On August 26, 2015, the California Court of Appeal, Fifth District, published its decision in McMillin Albany LLC v. The Superior Court of Kern County (F069370) and changed the rules on construction defect causes of action again. This decision rejects Liberty Mutual Ins. Co. v. Brooksfield Crystal Cove LLC (2013) 219 Cal.App.4th 98 and Burch v. Superior Court (2014) 223 Cal.App.4th 1411 and holds that where the complaint alleges deficiencies in construction that constitute violations of the standards set out in Chapter 2 of Title 7 (§§ 895 et seq.; Right to Repair Act “Act”), the claims are subject to the Act, and the homeowner must comply with the prelitigation procedures, regardless of whether the complaint expressly alleges a cause of action under the Act. Prior to this ruling, Liberty Mutual and Burch established that the Act was not the exclusive remedy for damages for construction defects resulting in property damage. This allowed plaintiffs alleging construction defects to avoid the prelitigation procedures in some jurisdictions since the Act was applied inconsistently. The McMillin ruling has the effect of following the Legislature’s intent when Senate Bill No. 800 was proposed, namely to establish a mandatory process in construction defect litigation requiring compliance with prelitigation procedures prior to the filing of a construction defect action.
Homeowners filed an action against the builders of their homes for recovery of damages allegedly resulting from defects in the construction. Homeowners had alleged common law causes of action in addition to the violation of the building standards set forth in Civil Code §896. Homeowners dismissed the latter cause of action and argued that they were not required to follow the prelitigation procedures as a result. Builder moved to stay the litigation until real parties complied with the statutory nonadversarial prelitigation procedures of the Act. After the trial court denied the stay, Builder sought a writ of mandate compelling the trial court to vacate its order denying the motion and enter a new order granting the stay. Homeowners ultimately agreed to undertake the procedures and argued that the issue was therefore moot. Based on Builder’s showing that at least one court in the same district reached the opposite result, the presentations of amici curiae indicating the issues are of widespread interest in the building industry, and the presentation of an issue of first impression, the Court chose to consider the writ petition.
The McMillin Court examined the decision in Liberty Mutual which held that the requirements of the Act apply only when a plaintiff expressly alleges a cause of action for violation of the Act – if the plaintiff alleges a common law cause of action to recover for damages caused by a construction defect in residential housing, the Act does not apply and the builder is not entitled to the benefits of the Act. The Court rejected this holding and concluded that it was inconsistent with the express language of the Act: “By its plain language, the Act applies to any action for damages related to construction deficiencies, and limits a claimant’s claims or causes of action to claims of violation of the statutory standards.”
The Court concluded that petitioner is entitled to a stay of the action because real parties did not comply with the requirements of Chapter 4 (§§ 910-938; Prelitigation Procedure) and accommodate petitioner’s absolute right to attempt repairs.
“Consequently, we conclude the Legislature intended that all claims arising out of defects in residential construction, involving new residences sold on or after January 1, 2003 (§ 938), be subject to the standards and the requirements of the Act; the homeowner bringing such a claim must give notice to the builder and engage in the prelitigation procedures in accordance with the provisions of Chapter 4 of the Act prior to filing suit in court. Where the complaint alleges deficiencies in construction that constitute violations of the standards set out in Chapter 2 of the Act, the claims are subject to the Act, and the homeowner must comply with the prelitigation procedures, regardless of whether the complaint expressly alleges a cause of action under the Act.”
Accordingly, the Court granted the petition and issued a peremptory writ of mandate directing the trial court to enter a new order granting McMillin’s motion to stay the litigation until the parties have satisfied the Act’s prelitigation requirements.
Appellate decisions become final 30 days after filing. They also remain subject to Supreme Court review for 10 days after they become final and also subject to requests for depublication up to 30 days after they become final. Further, published opinions generally control the disposition of identical issues in other cases under the doctrine of stare decisis. Court of Appeal decisions must be followed by all superior courts, regardless of which District rendered the opinion. However, decisions by one Court of Appeal are not binding on the other Courts. “[B]ecause there is no ‘horizontal stare decisis’ within the Court of Appeal, intermediate appellate court precedent that might otherwise be binding on a trial court is not absolutely binding on a different panel of the appellate court.” Marriage of Shaban (2001) 88 Cal.App.4th 398,409.
Thus, the opinion of the Fifth District does not have the effect of “overruling” the opinions of the Fourth District in Liberty Mutual or the Second District in Burch. Lower courts have the option of choosing among the opinions, although they usually follow the opinion issued by their own District. This clear split in authorities may be a basis for Supreme Court review.
Blog by: Wakako Uritani, Partner, San Francisco