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McMillin Albany LLC v. Superior Court of Kern Cnty.
Citations: 227 Cal. Rptr. 3d 191; 408 P.3d 797; 4 Cal. 5th 241Docket: S229762
Court: California Supreme Court; January 18, 2018; California; State Supreme Court
Original Court Document: View Document
In the case McMillin Albany LLC et al. v. The Superior Court of Kern County, the California Supreme Court addresses the application of the Right to Repair Act (Civ. Code §§ 895–945.5) in relation to common law claims for construction defects. The court references the precedent set in Aas v. Superior Court, which established that homeowners could not recover damages in negligence for construction defects without demonstrating actual property damage or personal injury. This ruling aimed to maintain a distinction between tort and contract claims and prevent the expansion of tort law into contractual warranties. Following the Aas decision, the Legislature enacted the Right to Repair Act, which introduced statewide construction standards and a prelitigation dispute resolution process. This process requires builders to be notified of alleged defects and granted the opportunity to fix them, while also allowing homeowners to sue for deficiencies without needing to show property damage or personal injury. The court is tasked with determining whether the current lawsuit, which alleges both economic loss and property damage due to construction defects, must adhere to the Act’s prelitigation notice and cure procedures. Upon reviewing the Act’s text and legislative history, the court concludes that the Legislature intended to displace common law remedies more broadly, making the Act the primary avenue for recovery related to both economic loss and property damage from construction defects. Consequently, the court affirms that the lawsuit for property damage falls under the Act's prelitigation requirements, and the Court of Appeal's decision to stay the litigation until these procedures are followed is upheld. The plaintiffs, led by Carl and Sandra Van Tassel, had sued McMillin alleging extensive construction defects in their homes, which led to property damage and economic loss. McMillin sought to stay the lawsuit to engage in the informal process established by the Act. The process initiated by a homeowner involves providing written notice to the builder regarding alleged deficiencies in construction as per the Act's standards. The builder must acknowledge receipt of this notice, followed by the right to inspect and test any alleged defects. Post-inspection, the builder can either offer repairs or compensation. The Act outlines repair procedures, facilitates mediation, and maintains the homeowner's right to sue if repairs are inadequate or no settlement is achieved. The Van Tassels chose to dismiss their section 896 claim without agreeing to a stay, while McMillin sought a court-ordered stay. The Van Tassels contended that their omission of a claim under the Act meant the informal prelitigation process was inapplicable, referencing Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC, which stated the Act was designed for construction defects causing economic loss without altering common law remedies for actual property damage or personal injuries. The trial court denied the stay motion, acknowledging that Liberty Mutual’s issues might warrant further appellate review but felt obligated to follow it. It certified the issue for immediate review. The Court of Appeal granted McMillin’s petition for writ relief, disputing the conclusions in Liberty Mutual and Burch v. Superior Court, interpreting the Act as partially replacing common law remedies in cases involving property damage. The Court of Appeal determined that the Act's prelitigation resolution process applied despite the Van Tassels’ dismissal of their claim, thereby granting McMillin a stay pending the prelitigation process. In reviewing the statutory scheme, it is presumed that the Legislature did not intend to displace common law unless clearly indicated. The court emphasized that legislative intent can be inferred from the statute’s language or purpose, as illustrated by Martinez v. Combs, which demonstrated that the Legislature's intent can indeed alter common law principles. The statute preserves common law actions for breach of contract, fraud, and personal injury but significantly alters the rules for construction defect actions. It establishes a new statutory cause of action for purely economic loss, where common law previously required property damage or personal injury for recovery. The Legislature intended to replace common law negligence and strict product liability claims with a statutory claim under the Act, particularly concerning construction defects leading to property damage. The Act introduces title 7 to division 2, part 2 of the Civil Code, consisting of five chapters: definitions, building standards, builder obligations (including warranties), a prelitigation dispute resolution process, and lawsuit procedures. Section 896 outlines standards for construction of individual dwellings and indicates that builders are liable for damages related to deficiencies in various aspects of residential construction, limited to specified standards in the title. Key points include: 1. The statute applies to any action seeking damages for construction defects, indicating a legislative intent to establish the exclusive remedy for such defects. 2. Claimants’ causes of action are limited to violations of the specified standards, suggesting a clear intention to displace existing remedies. 3. The title applies to original constructions intended for sale as individual dwelling units, while condominium conversions are not affected by this title. 4. The Van Tassels' interpretation that section 896 applies only to defects causing no damage is unsupported by the text, which explicitly covers any action seeking damages for construction defects. 5. Concerns regarding shorter limitation periods imposed by the Act affecting homeowners' recovery are addressed, with no basis found to disregard the statute's provisions. Chapter 5 outlines the provisions regarding recoverable damages under the Act, emphasizing its role as the exclusive means for such recovery. The Legislature acknowledged key damage categories in construction defect cases—economic loss, property loss, and personal injury—drawing on input from major stakeholders and existing legal precedents, particularly the Aas ruling requiring personal injury or property damage for tort claims. Section 944 delineates the recoverable damages, allowing homeowners to claim specified losses without needing to demonstrate further causation or damage beyond the defect itself, as clarified by section 942. This marks a significant change from prior restrictions on recovering purely economic losses due to construction defects. In contrast, personal injury damages are not included in section 944, thereby placing them outside the exclusive recovery framework established by section 943. The Legislature explicitly exempted personal injury claims from the Act, preserving the right to pursue common law tort claims. For property damage, the Act permits recovery for repair costs linked to construction defects, categorizing these claims within section 943’s exclusivity provisions. Unlike personal injury claims, claims for property damages are not exempt from the Act's exclusivity, affirming that actions under the Act are the sole means to seek recovery for those damages. The statutory scheme establishes distinct frameworks for recovery based on the type of loss: economic losses are governed by a new statutory framework that supersedes the Aas decision, personal injury claims remain under common law, and property damage claims are also regulated by the new statute. The Act specifies that construction defect claims not involving personal injury will be treated uniformly, regardless of whether they resulted in property damage. The Van Tassels argue that the Act should only apply to defects that have not yet caused damage, but this interpretation conflicts with the statute’s explicit provision that it serves as the exclusive remedy for all types of damages listed in section 944, which includes damages resulting from construction defects. If the Act’s sole purpose was to eliminate the Aas rule for negligence and to allow recovery for economic losses, it would not have affected claims for breach of contract, fraud, or personal injury, and an explicit preservation of such claims would have been included. Section 897 supplements section 896 by establishing that any building component not addressed by section 896 is actionable if it causes damage. This damage-based measure of defectiveness aligns with similar standards in section 896. The Van Tassels assert that section 897 allows for common law claims based on defects it addresses, but this interpretation is unsupported by the statutory language, which does not indicate an intention to preserve common law claims in this context. The Act treats sections 896 and 897 as interconnected, contradicting the notion that section 897 can be pursued under common law. Accepting the Van Tassels' argument would create inconsistencies in applying section 896, which measures defectiveness based on damage for some components. The Legislature's intent to selectively preserve common law remedies would have been explicitly stated, as it is in other sections. The Van Tassels reference section 910, which outlines prelitigation procedures for claims under the Act, further emphasizing their argument that the Act's processes are limited to statutory claims. The Van Tassels assert that the Act’s prelitigation procedures apply only to cases where the complaint explicitly alleges a defendant's contribution to a violation of the Act's standards, suggesting that common law claims for property damage without such allegations are exempt. However, this interpretation conflicts with section 943, subdivision (a), which prohibits claims outside those based on the Act’s standards, unless specified otherwise. If a property damage claim alleges violations of sections 896 or 897, then section 910 mandates that it must adhere to the Act’s prelitigation procedures. The Van Tassels also argue that a clear legislative intent is required to displace common law remedies, yet both parties acknowledge that the Act aims to abrogate common law, differing only on the extent. The Van Tassels believe the Legislature intended to only address certain recovery limits from the Aas case, while McMillin argues for a broader replacement of common law claims with statutory ones, a position the text supports. Legislative history shows that the Act was designed to encompass both no damage and damage cases, with liability attaching regardless of actual damage, effectively abrogating Aas. The Act introduces a mandatory prelitigation process, emphasizing a builder’s right to repair before homeowners file lawsuits, which would be undermined if homeowners could bypass these requirements. The overall goal of the Act included establishing construction defect standards and resolving disputes over the Aas ruling, rather than solely focusing on overriding its limitations. The Senate Committee on the Judiciary characterized the Act as establishing standards for recovering damages related to construction defects, effectively overturning the Aas decision, which required that such defects cause actual damage to be actionable. The legislative history emphasizes that the Act serves as a comprehensive reform, replacing some common law claims with a statutory cause of action that mandates a prelitigation process. The Van Tassels argue that the detailed prelitigation requirements do not apply to defects necessitating emergency repairs, suggesting that the Act was not intended for claims resulting in actual damage. However, it is noted that the case does not involve an emergency, and the Act’s provisions apply to property damage cases. Homeowners must provide written notice to builders regarding alleged defects, after which builders have specific deadlines to respond and address the issues. In non-emergency situations, the Act allows homeowners time to notify builders, while protecting them from liability increases due to builder delays. The Act does not explicitly handle scenarios involving sudden, escalating damage but imposes a general duty on homeowners to mitigate losses. If homeowners act reasonably to mitigate damages, they may be excused from strict adherence to the written notice requirement. Builders must respond within the statutory time limits, but failing to do so can increase their liability, even if the homeowner acts unreasonably in limiting losses. Timely responses in construction defect cases are context-dependent, and the Act's maximum response periods do not shield builders from damages if they fail to act reasonably quickly. The Act incentivizes both builders and homeowners to respond promptly to emergencies. Section 930, subdivision (a) emphasizes strict adherence to specified time periods unless both parties agree to extensions, but this does not exempt parties from liability for not taking swift action when necessary. The Act is adaptable to extreme circumstances, despite the tension between its timelines and urgent needs. The Van Tassels have voluntarily dismissed their claim for violation of section 896 but still allege that McMillin constructed their homes defectively across multiple areas. Their claims for negligence and strict liability depend on McMillin’s compliance with sections 896 and 897. The court asserts that all claims for construction defect damages, irrespective of how they are framed, must adhere to the Act’s prelitigation procedures. Common law claims, such as breach of contract or fraud, fall outside the Act's exclusivity, but since the Van Tassels' claims include strict liability and negligence without statutory exceptions, they must follow the Act’s procedures. As they have not done so, McMillin is entitled to a stay. The judgment of the Court of Appeal is affirmed, and further proceedings consistent with this opinion are mandated. Counsel for the Petitioners includes Borton Petrini, represented by Calvin R. Stead and Andrew M. Morgan, with support from several Amici Curiae, among them Ulich Ganion Balmuth Fisher, Feld, and Donald W. Fisher, as well as various associations such as the California Building Industry Association and the Association of Defense Counsel of Northern California and Nevada. These groups collectively advocate on behalf of the Petitioners. The Respondent did not appear. For the Real Parties in Interest, representation includes Milstein Adelman and several other law firms, with Amici Curiae support from entities like The National Association of Subrogation Professionals and MWI, Inc. Counsel who argued in the Supreme Court includes Andrew M. Morgan from Borton Petrini and Mayo L. Makarcyzk from Milstein Adelman, with specific contact details provided for each counsel involved.