The Right to Repair Does Not Depend on the Theory Pled by the Plaintiff

Elliott Homes, Inc. v. Superior Court:

The Right to Repair Does Not Depend on the Theory Pled by the Plaintiff

In the years following the Court of Appeal’s holding in Liberty Mutual Ins. Co. v Brookfield Crystal Cove, LLC (2013) 219 Cal.App.4th 98 (hereinafter “Liberty Mutual”), the exclusivity of the rights and standards set forth in the “Right to Repair Act” (Civil Code § 895 et seq., hereinafter the “Act”) has been uncertain.  Indeed, the ultimate validity of the holding of Liberty Mutual – declaring that plaintiffs in residential construction defect actions can bypass the strictures of the Act by pleading common law causes of action for construction defects resulting in actual damage – is presently before the California Supreme Court in McMillin Albany, LLC v Superior Court (2015) 239 Cal.App.4th 1132 [Review Granted and Opinion Superseded by the Supreme Court of California, McMillin Albany v. S.C. (Van Tassell) S229762; California Rules of Court, Rules 8.1105 and 8.1115.].

On December 2, 2016 the California Third Appellate District added to the landscape of post Liberty Mutual cases with its opinion in the case of Elliot Homes v Superior Court (2016) 6 Cal.App.5th 333 [Review Granted by the Supreme Court of California, Elliott Homes v. S.C. (Hicks) S239804; California Rules of Court, Rules 8.1105 and 8.1115.] (hereinafter “Elliot Homes”).  The opinion in Elliot Homes secures California residential builders’ right to compel the pre-litigation dispute resolution and repair procedures under the Act set forth in Cal. Civil Code 910 et seq., regardless of whether a statutory claim for construction deficiencies under the Act is pleaded.

The Plaintiffs in Elliot Homes sought to avoid the pre-litigation dispute resolution procedures of the Right to Repair Act by pleading only common law claims for construction defects against the residential developer of 17 single family homes.  In response Elliot Homes, Inc. filed a motion to stay the action pursuant to Civil Code § 930(b) to compel the Plaintiffs to comply with the Act’s pre-litigation dispute resolution procedures.  The trial court denied the motion to stay, citing Liberty Mutual for the proposition that the Act’s pre-litigation dispute resolution procedures do not apply to purely common law claims.

The Third Appellate District reversed the trial court and stayed the action, holding that an analysis of the Right to Repair Act, and its legislative history, indicates that the pre-litigation dispute resolution provisions of the Act were intended to apply to “any action seeking recovery of damages arising out of, or related to deficiencies in, the residential construction…” regardless of the legal theories of recovery pled by the plaintiffs.  (Elliot Homes citing Cal Civil Code § 896 [emphasis added].)  The Third Appellate District in Elliot Homes expressly disagreed with the holding of Liberty Mutual, stating “The Act does not specifically except actions arising from actual damages.” (Elliot Homes.)

In reaching its conclusion the Third Appellate District emphasized that the construction of the Act proffered by the Plaintiffs, derived from Liberty Mutual, “defies common sense” as it is contrary to the legislative purpose of the Act to reduce unnecessary construction litigation and associated costs:

“Among other things, the bill seeks to respond to concerns expressed by builders and insurers over the costs associated with construction defect litigation, as well as concerns expressed by homeowners and their advocates over the effect of a recent Supreme Court decision that held defects must cause actual damage prior to being actionable in tort. [Aas v Superior Court (2000) 24 Cal.4th 627]…This bill would establish a mandatory procedure prior to filing a construction defect lawsuit. This procedure would provide the builder the right to attempt a repair of the defect prior to litigation.”

(See Elliot Homes citing Sen. Com. on Judiciary, Analysis of Sen. Bill No. 800 (2001-2002 Reg. Sess [p. 2-3].)

The Third Appellate District ultimately ruled that all actions against builders seeking to recover damages arising out of or related to deficiencies in residential construction are subject to the Act’s pre-litigation procedures – regardless of the form of action chosen by the Plaintiff.

The criticisms of the Court’s holding in Liberty Mutual expressed by the Third Appellate District in Elliot Homes expose a serious split of authority within the California courts as to the exclusivity of the remedies and procedures of the Act.  Although Elliot Homes represents a strong voice and positive movement in favor of residential builders, unless and until the California Supreme Court reconciles the foundational disagreement over the exclusivity of the Act, practitioners, builders, and homeowners should cautiously take away the following: 1) the pre-litigation requirements of the Act apply to every action for residential construction defects (Elliot Homes); and 2) the requirement to engage in pre-litigation procedures does not necessarily preclude a plaintiff from pleading only common law causes of action.

Follow our blog for updates on the California Supreme Court’s decision in McMillin Albany, LLC v Superior Court (2015) 239 Cal.App.4th 1132.