Will Class Action Construction Defect Litigation Become More Acceptable in California?

In August 2015, the Fourth Appellate District reversed an Order of the Superior Court of Orange County that granted Developer’s motion to strike the class allegations of the Complaint in the case known as Chiang v. D.R. Horton Los Angeles Holding Co., Inc. The Court determined that the alleged class should be permitted to prove it had sufficient common questions of law and fact, and it awarded Plaintiffs their costs on appeal.  Chiang v. D.R. Horton Los Angeles Holding Co., Inc. (2015) 2015 WL 4940630, at 7 (Cal. Ct. App. Aug. 19, 2015).

Class claims are lawsuits filed by an individual, or small group, acting on behalf of a larger, similarly situated group.  The Chiang case alleges that the named Plaintiffs, along with other class members, purchased D.R. Horton residences that were constructed with defective copper pipe. The Complaint states that the copper pipe has corroded and failed due to the condition of the water available to Ladera Ranch, and that D.R. Horton was aware of those water conditions at the time it constructed the houses.[i]

The Chiang Complaint defines the class as “All homeowners in the Class Area whose residences were constructed by D.R. Horton, and which contain copper plumbing or copper pipes in their plumbing systems.” (Chiang, at 2.)  The class area is defined as homes in Ladera Ranch that contain copper pipe and components, and the common questions of law and facts include (1) whether the copper pipe was defective for the particular water conditions; (2) whether D.R. Horton had notice of the water conditions; (3) whether the copper pipe has corroded; and (4) whether the copper pipe needs to be removed or replaced.

In opposing Chiang’s appeal, D.R. Horton argued that most of Plaintiffs’ claims were not suitable for pursuing as a class action because common questions did not predominate, and because construction defect actions are “inherently unsuited for class treatment because of the numerous individual factual questions that must be determined on a house-by-house basis.”  (Chiang at 5.)  The Chiang Court was not persuaded, stating “there is nothing here based on the allegations of the complaint that suggests that each house is so unique that common facts, such as liability and defenses, cannot be considered as a class.”  (Chiang, at 6, emphasis in original.)

Although the Chiang opinion is unpublished, the Court’s analysis may signal that Developers and Contractors could face a greater risk of construction defect class claims in the future.  Using the analysis set forth in Chiang, courts could allow a small number of homeowners to make allegations on behalf of all homeowners in a particular project, or in several projects, if the alleged defects and houses were sufficiently similar and the Developer was the same.  In ruling on whether the Chiang Complaint was sufficient to allow the case to move forward, the Court observed that the class might be certifiable after discovery on the issue is completed.

As presented by the complaint, the fundamental question this case poses is whether the pipes leak. This is the common issue which predominates above all others and is amenable to class treatment.

(Chiang, at 6-7, emphasis added.)

. . . variations in damages between members of a putative class alone are not enough to defeat class certification.  . . .  It also does not appear, from the face of the complaint, that the issues involving damages are so complex as to preclude eventual certification.

(Chiang, at 6, citations omitted.)

It is important to note that the appellate court made its ruling against D.R. Horton at the pleading stage of the litigation, overturning the lower court’s granting of D.R. Horton’s motion to strike the class allegations of Chiang’s Complaint.  At the pleading stage, an appellate court is permitted to make its ruling de novo—anew and without deference to the lower court’s ruling.  As the appellate court itself acknowledged, had it been asked to make its ruling at the motion stage of litigation—after the lower court denied Chiang’s motion for class certification, for example—absent an abuse of discretion it would be bound by the lower court’s ruling.  As it is, the Chiang Plaintiffs now have the opportunity to conduct discovery and present an evidentiary motion supporting their class claims.  However, if the lower court again rules against them, the appellate court will be hard-pressed to reverse that decision.  D.R. Horton could still win the battle over whether the case moves forward as a class action.