California Supreme Court Affirms SB800 as Sole Remedy for Construction Defect Claims without Personal Injury

On January 18, 2018, the California Supreme Court affirmed an earlier appellate court decision holding that SB800 (Civil Code sections 895 through 945.5, the "Right to Repair Act") is the "virtually exclusive remedy" available to a plaintiff in new for-sale residential construction defect cases.

The Court's decision in McMillin Albany, LLC v. Superior Court (opinion here) restores the clarity that many in the development industry thought they had secured when the Right to Repair Act was originally negotiated by stakeholder groups and became law on January 1, 2003. The opinion affirms the 2015 decision from the Fifth Appellate District of the California Court of Appeal (covered here). It also rejects the reasoning and holding in Liberty Mutual Insurance Co. v. Brookfield Crystal Cove, LLC, a 2013 decision from the Fourth Appellate District that permitted property damage claims for construction defects based on common law theories, even though those claims would have been time-barred under SB800. The decision carves out and allows common law claims for defects causing personal injury or death, but that was understood by all parties based on the clear terms of the Act.

The recognition of SB800 as plaintiffs' exclusive remedy for economic loss and property damage claims reinvigorates the statutory requirements for pre-litigation notice and investigation, and reinforces the importance of established statutes of limitation. While some builders may prefer to forego their right to repair and dive straight into litigation, others will welcome the chance to meet with homeowners and perform repairs in hopes of avoiding or limiting litigation. All should welcome the added certainty that comes with shortened statutes of limitation.

Background

By its terms, the Right to Repair Act applies to any action, which seeks to recover damages arising out of, or related to construction deficiencies in new residential units that are sold after January 1, 2003. The Act sets forth 45 different standards of construction in seven categories and specifies different statutes of limitations ranging from one year to ten years.

The Court's Reasoning in McMillin Albany

The McMillin Albany opinion analyzes both the text of the Right to Repair Act and the legislative history in determining that "the statute here leaves the common law undisturbed in some areas, expressly preserving actions for breach of contract, fraud, and personal injury. (§ 943, subd. (a).) In other areas, however, the Legislature's intent to reshape the rules is patent."

After reviewing the text of the Act, the Court concludes:

For economic losses, the Legislature intended to supersede Aas and provide a statutory basis for recovery. For personal injuries, the Legislature preserved the status quo, retaining the common law as an avenue for recovery. And for property damage, the Legislature replaced the common law methods of recovery with the new statutory scheme. The Act, in effect, provides that construction defect claims not involving personal injury will be treated the same procedurally going forward whether or not the underlying defects gave rise to any property damage.

The Court also recognized that the Legislature benefitted from input by "the major stakeholders on all sides of construction defect litigation..." and thereby "enacted provisions that reflect a conscious effort to address how and when various categories of damages would be recoverable going forward." Indeed, "the legislative history of the Act confirms that displacement of parts of the existing remedial scheme was no accident, but rather a considered choice to reform construction defect litigation."

And what becomes of the construction defect plaintiffs who began the McMillin Albany saga back in 2013? They "must comply with the Act's prelitigation procedures before their suit may proceed… McMillin is entitled to a stay."

Future Guidance

Allen Matkins will continue to track new developments in construction litigation and advise its clients about how this decision and others may affect past, current, or future projects. Please contact us if you have any questions about this decision or SB800 more generally.