Under the Right to Repair Act (California Civil Code section 895, et seq.), before a homeowner who claims defective residential construction can file an action against the builder in court, the homeowner must give notice of the claimed defects to the builder and engage in a non-adversarial pre-litigation procedure, which affords the builder an opportunity to attempt to repair the defects. If the homeowner files suit without giving the required notice, the builder may obtain a stay of the litigation, pending completion of the pre-litigation process.
Section 896 of the Act sets forth construction standards, which “are intended to address every function or component of a structure.” Section 943 further provides: “Except as provided in [the Act], no other cause of action for a claim covered by [the Act] or for damages recoverable under Section 944 [of the Act] is allowed.”
In Liberty Mutual Ins. Co. v. Brookfield Crystal Cove, LLC (2013), the Fourth District Court of Appeal of the State of California applied an analysis of the Act that undercut many of the protections the Act was intended to provide to developers. The Liberty Mutual Court held the requirements of the Act apply only when a plaintiff expressly alleges a cause of action for violation of the Act. It further held that, 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.
In McMillan Albany, LLC v. Superior Court (2015), the Fifth District Court of Appeal addressed the same issue, criticized the reasoning of the Liberty Mutual Court, and came to the opposite conclusion. In McMillan, Plaintiffs’ complaint included several causes of action, including negligence, strict products liability, and alleged violations of the Act. Plaintiffs did not give the developer notice of the alleged defects before filing suit. Plaintiffs then dismissed the cause of action alleging violations of the Act, and argued the homeowners were no longer required to comply with the statutory pre-litigation procedures because that cause of action was no longer alleged.
The developer filed a motion to stay. The trial court denied the motion, concluding the homeowners were entitled to plead common law causes of action in lieu of a cause of action for violation of the building standards set forth in section 896, and they were not required to submit to the pre-litigation process of the Act when their complaint did not allege any cause of action for violation of the Act. The developer appealed.
On appeal, the homeowners relied on Liberty Mutual and argued that they were permitted to pursue common law causes of action for construction deficiencies that caused damage, and, once they dismissed their third cause of action for violation of the Act, they were not required to comply with the requirements of the Act, including the pre-litigation procedures. The McMillan court rejected the Liberty Mutual holding and concluded it was not consistent with the express language of the Act. The McMillan court reasoned that the Act, “[b]y its plain language…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 . . . . [N]o other cause of action is allowed to recover for repair of the defect itself or for repair of any damage caused by the defect.”
The McMillan Court further held:
“[T]he Legislature intended that all claims arising out of defects in residential construction, involving new residences sold on or after January 1, 2003, 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 pre-litigation 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 pre-litigation procedures, regardless of whether the complaint expressly alleges a cause of action under the Act.”
Because the homeowners did not comply with the requirements of the Act and accommodate the developer’s absolute right to attempt repairs, the developer was entitled to a stay of the action until the statutory pre-litigation process had been completed.
The McMillan and Liberty Mutual decisions are clearly inconsistent with one another, and it will not be surprising to see the California Supreme Court take up the issue to address this inconsistency. In the meantime, it will be up to trial courts to decide whether to follow the reasoning in McMillan or the holding of Liberty Mutual.