The California Supreme Court has denied the petition for review and the request for depublication of the Second Appellate District's decision in Burch v. Superior Court, (February 19, 2014) California Court of Appeal, Second Appellate District, No. B248830. The Court's denials results in there now being two appellate court decisions which support the proposition that the California Right to Repair Act (California Civil Code Sections 895 et seq., S.B. 800) does not preclude homeowners from prosecuting common law claims for damages for construction defects that have caused property damage. As reported in the last edition of our Construction Law Adviser, the Second Appellate District addressed the non-exclusivity of the Act as follows:
Liberty Mutual examined the act and its legislative history and concluded that the act does not provide an exclusive remedy and does not limit or preclude common law claims for damages for construction defects that have caused property damage. We agree.
Together Burch and
Liberty Mutual Insurance Company v. Brookfield Crystal Cove LLC (2013) 219 Cal. App. 4th 98 create significant problems for residential developers and general contractors, among others, in California. Now residential developers and general contractors face liability both under common law for construction defects which cause property damage and under the Right to Repair Act for construction defects which do not cause property damage but do violate the functionality standards of the Act. Such a result was likely not envisioned when the Right to Repair Act was passed. Indeed, the Act was passed in part to provide "the prompt and fair resolution of construction defect claims ..." Stats. 2002, c. 722, Section 1 (S.B. 800). However, after the decisions in
Liberty Mutual and
Burch, developers and general contractors should anticipate an increase in construction defect litigation and in the time it takes for such litigation to resolve as homeowners now will pursue both statutory and common law claims.
Specifically, given the decisions in Liberty Mutual and Burch, we anticipate that numerous potential problems may arise from the prosecution of both the statutory and common law claims, including:
1. The proof required to prevail under the Right to Repair Act and under a common law theories are significantly different. As the court noted in Liberty Mutual, proof of a claim under Right to Repair Act does not always require proof of actual damage, but does require proof of the violation of one or more of Act's functionality standards. See, Civil Code Sections 896, 897, and 942. Under the common law, the decision in
Aas v Superior Court (2000) 24 Cal.4th 627 would require proof of actual damage to recover under a tort theory. At trial, a jury could become significantly confused between the proof of violation of Act's functionality standards and proof of actual damages resulting from contractor and/or design professional negligence. Such confusion could adversely affect a ruling on both liability and damages.
2. The damages recoverable under the Right to Repair Act and under the common law are different. Civil Code Section 944 limits a claimant's recovery under the Act to certain damages including:
a. the reasonable value of repairing any violation of the standards set forth in the title;
b. the reasonable cost of repairing any damages caused by the repair efforts;
c. the reasonable cost of repairing and rectifying any damages resulting from the failure of the home to meet the standards;
d. the reasonable cost of removing and replacing any improper repair by the builder;
e. reasonable relocation and storage expenses;
f. lost business income if the home was used as a principal place of business licensed to be operated from the home;
g. reasonable investigative costs for each established violation; and
h. all other costs or fees recoverable by contract or statute.
Common law claims have no such limitations. A jury again might be confused over what damages are recoverable at trial if both claims under the Act and under the common law are presented to it.
3. The statutes of limitations for claims under the Right to Repair Act and under the common law theories are different. As noted in Liberty Mutual, the Act has various statutes of limitations for several components of a home premised upon how long those components are expected to meet the Act's functionality standards. The statute of limitations for common law construction defect tort claims include Code of Civil Procedure Section 338 (three year statute of limitation for damage to real property), Code of Civil Procedure Section 337.1 (four year statute of repose for claims concerning patent construction defects), and Code of Civil Procedure Section 337.15 (ten year statute of repose for construction defects).
4. The investigative costs which are recoverable are different in Right to Repair Act-based claims as opposed to common law based claims. Under the Act, Civil Code Section 944 provides that reasonable investigative costs are recoverable only for each established violation of a functionality standard. Under a common law theory, investigative costs are recoverable under Civil Code Section 3333. Stearman v. Centex Homes (2000) 78 Cal. App. 4th 611, 624 - 625. The ability to recover investigative costs is more expansive under the
Stearman decision than pursuant to Civil Code Section 944.
5. The issue of whether extrapolation would be permitted to establish recovery. In multi-home litigation or condominium litigation, plaintiffs will attempt to expand the quantity of their damages by extrapolating the existence of damage in certain locations or homes to the entirety of the condominium complex or all of the homes in the litigation. The Right to Repair Act allows claimants to recover damages for only those defects which exist in their house, thereby requiring affirmative proof that the defect is present in the home. Accordingly, the Act likely prohibits the use of extrapolation to establish entitlement. Under the common law theories, plaintiffs can utilize extrapolation to prove their entitlement and such use is only limited by the ruling of a trial court. Thus, in a case where both claims are placed before a jury, plaintiff will be able to place extrapolation evidence before the jury which might influence a verdict on claims under the Act.
All of these problems could create significant confusion in the discovery process and at the trial of a construction defect matter in which plaintiff seeks to prosecute claims both under the Right to Repair Act and under common law tort theories.
In responding to such a mixed bag approach, defendants will have to be vigilant with respect to the claims and may wish to employ some or all of the following courses of action when defending against complaint which allege claims both under the Right to Repair Act and the common law tort theories:
1. Pursue statute of limitations claims on all claims - the Right to Repair Act and/or common law - on which the statute has expired. This might eliminate certain claims under one theory or both.
2. Make certain that your liability and damages experts are familiar with both the evidentiary standards for proving a claim and recovering damages under both the Right to Repair Act and the common law theories. When investigating claims under both the Act and the common law theories, the experts should document all claimed violations of the Act's functionality standards and document all claimed construction defects. Then, the experts should verify if claimed violations of the Act's functionality standards did in fact violate the functionality standards as claimed and verify that the claimed construction defects have resulting property damage. The expert should prepare separate scopes and costs of repair for both the Act and the common law claims based upon the observed violations of the Act's functionality standards and the construction defects which have resulting property damage. If cost considerations are not an issue, a defendant might consider retaining separate liability and damages experts for the Act and the common law claims given that an expert's work might prove entitlement under the Act while refuting entitlement under the common law theories. If separate experts are used for the two types of claims, such "cross-contamination" might be avoided.
3. Pursue motions for summary judgment or summary adjudication on common law claims which do not have resulting property damage. Given the viability of common law residential construction defect claims, the Aas decision again becomes an important tool in defending such claims. If there is no resulting property damage, then the holding in
Aas provides that a plaintiff cannot recover for alleged construction defects under a common law tort theory.
4. Make certain to timely file cross-complaints against all parties who might be jointly and severally liable with the defendant on both the Right to Repair Act and common law tort claims given the potential problems with the multiple statutes of limitations.
While these proposed courses of action are not an exhaustive list, they do provide a start toward addressing the potential pitfalls which may result in residential construction defect litigation in California in light of the Burch and
Liberty Mutual decisions.