Reports of the Death of SB800 are Greatly Exaggerated – The Court of Appeal Revives Mandatory SB800 Procedures

In a 20 page opinion, the Court of Appeal for the Fifth District repudiated the holding of Liberty Mutual Insurance Co. v. Brookfield Crystal Cove, LLC (2013) 219 Cal.App.4th 98 (“Liberty Mutual”), and held that plaintiffs in construction defect actions must comply with the statutory pre-litigation inspection and repair procedures mandated by SB800 (the “Act”) regardless of whether they plead a cause of action for violation of the Act. The Case, McMillin Albany LLC v. Superior Court (Carl Van Tassell), (Ct. of Appeal F069370) breathes new life into the Act’s right to repair requirements, and reinforces the Act’s stated purpose of seeking to limit the number of court cases by allowing a builder to resolve construction defect claims by agreeing to repair the homeowners’ residence.

In McMillin, 37 homeowners filed a lawsuit against McMillin, the builder of their homes, alleging eight causes of action, including strict products liability, negligence, and breach of express and implied warranty. Plaintiffs’ third cause of action alleged violations of the Act. The plaintiffs did not follow the Act’s notification procedures and filed their lawsuit without providing McMillin with an opportunity to repair the alleged defects. Plaintiffs and McMillin attempted to negotiate a stay of the lawsuit to complete the Act’s prelitigation procedures. When talks broke down, plaintiffs dismissed the third cause of action and contended they were no longer required to follow the Act’s prelitigation procedures. McMillin filed a motion to stay with the trial court. The trial court denied McMillin’s motion concluding that under Liberty Mutual, “[plaintiffs] were entitled to plead common law causes of action in lieu of a cause of action for violation of the building standards set out in [the Act], and they were not required to submit to the prelitigation process of the Act when their complaint did not allege any cause of action for violation of the Act.”

McMillin filed a writ petition seeking to reverse the trial court’s holding. The Court of Appeal granted the writ, and held that all homeowners must comply with the Act’s prelitigation procedures even if their complaint only alleges common law causes of action. The Court writes:

“[W]e conclude the Legislature intended that all claims arising out of defects in residential construction, involving new residences sold on or after January 1, 2003 (§938), 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 prelitigation 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 prelitigation procedures, regardless of whether the complaint expressly alleges a cause of action under the Act.” (Emphasis added.]

The Court’s conclusion was based on its finding that the holding of Liberty Mutual was contrary to the Legislature’s stated intent of reducing construction defect litigation, and encouraging builders to take responsibility for basic building functionality standards. The Court found that the Legislature did not intend to allow a plaintiff to “plead around” the Act, or avoid its mandatory prelitigation provisions by only pleading tort causes of action. The Court writes:

“We doubt the Legislature would have viewed the legislation as ‘groundbreaking reform’ or a ‘major change[]’ in the law of construction defects if its provision were mandatory only when the defect had not yet caused damage, and the homeowner could still sue for damages under any common law theory once property damage occurred, without being subject to the [Act’s] statutory prelitigation procedures.”

The McMillin decision is remarkable because it unambiguously challenges and rejects the Fourth Appellate District’s holding in Liberty Mutual and because it recognized the Act as the “groundbreaking” piece of legislation it was intended to be. The Liberty Mutual court never appreciated how its holding undercut the entire purpose of SB800, whereas McMillin saw that effect very clearly. Where Liberty Mutual found that tort causes of action were separate from and not subject to the requirements of the Act, the court in McMillin focused squarely on the legislative intent of the Act and found that the Legislature intended the Act to cover all construction claims of any sort involving new residential construction.

McMillin’s holding that a plaintiff cannot evade the Act’s “right to repair” requirements by only pleading in tort brings new life to the Act. There is now a split of authority in the appellate districts in light of McMillin (Fifth), Liberty Mutual (Fourth) and Burch (Second). We expect additional SB800 cases will reach the appellate courts and, at some point, it is likely the California Supreme Court will take up the issue to resolve the split.

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August 28, 2015