California Fifth Appellate District Court Rules to Return to Strict Enforcement of the SB800 Functionality Standards in Construction Litigation

On August 26, 2015, the California Fifth Appellate District ruled in MCMILLIN ALBANY LLC et al., Petitioners, v. The SUPERIOR COURT of Kern County, Respondent, that SB800 (Civil Code, Section 895, et seq.) is, in fact, the sole remedy for homeowners in construction defect claims.  The Court roundly criticized the Fourth Appellate District’s 2013 opinion in Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 98, which weakened the application of SB800 and essentially held that SB800 was not an exclusive remedy for construction defect claims where property damage already occurred.

In this case, the developer defendant, McMillan, attempted to stay the litigation plaintiffs filed to enforce the pre-litigation procedures to investigate plaintiffs’ claim.  Plaintiffs then dismissed their cause of action for violation of SB800, alleged that the lack of SB800 allegations made the pre-litigation procedures unenforceable, and elected to proceed under common law theories (strict liability and negligence).  The trial court agreed and denied McMillan’s motion to stay.  McMillan appealed.

In a well-reasoned decision which blasted the reasoning in the Liberty Mutual case, the Appellate Court cited the language in SB800 which specifically addresses the exclusivity of SB800.

“The court’s entire analysis of these provisions consisted of one sentence:  “These code sections establish the Act itself acknowledges that other laws may apply to, and other remedies may be available for, construction defect claims, and, therefore, that the Act is not the exclusive means for seeking redress when construction defects cause actual property damage.”   (Liberty Mutual, supra, 219 Cal.App.4th at p. 107.)   The court did not discuss the effect of the first sentence of section 943, that “no other cause of action for a claim covered by this title or for damages recoverable under Section 944 is allowed.” (§ 943, subd. (a).)  It also did not discuss the specific list of exceptions set out immediately following that provision.   Neither list of exceptions, in section 943 or in section 931, includes common law causes of action, such as negligence or strict liability.   If the Legislature had intended to make such a wide-ranging exception to the restrictive language of the first sentence of section 943, we would have expected it to do so expressly.   It did so in the exception of condominium conversions from the scope of the Act:  “As to condominium conversions, this title does not apply to or does not supersede any other statutory or common law.” (§ 896.)”  [Emphasis added.]

The Appellate Court further discussed the interpretation of the California Legislature’s failure to repeal the statutes providing for latent and patent defects under common law:

“We do not interpret the failure to repeal Code of Civil Procedure sections 337.1 and 337.15 as evidence the Legislature retained them because it intended residential construction defect actions where the defects resulted in actual property damage to be actionable outside the Act. Those statutes of limitation continue to govern actions expressly excluded from the Act, such as actions for personal injuries arising out of construction defects and actions involving nonresidential construction.”  [Emphasis added.]

The Appellate Court further affirmed the codification of construction defects by the Legislature, citing the Legislative History:

“A principal feature of the bill is the codification of construction defects.   For the first time, California law would provide a uniform set of standards for the performance of residential building components and systems.   Rather than requiring resort to contentions about the significance of technical deviations from building codes, the bill specifies the standards that building systems and components must meet.   Significantly, these standards effectively end the debate over the controversial decision in the Aas case to the effect that homeowners may not recover for construction defects unless and until those defects have caused death, bodily injury, or property damage, no matter how imminent those threats may be.”  (Assem.  Com. on Judiciary, Analysis of Sen. Bill No. 800 (2001–2002 Reg. Sess.) as amended Aug. 26, 2002, p. 2, italics added.)

Finally, the Appellate Court concluded that SB800 is the sole remedy for construction defect claims for defined residential construction in California, that the construction defects allowed in California are those codified in the statute, and that homeowners must engage in the pre-litigation procedures unless the builder defendant waives it:

“[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 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 prelitigation procedures, regardless of whether the complaint expressly alleges a cause of action under the Act.”

This ruling is a victory for the construction industry and a clarification of law muddied in the last two years by court rulings which weakened the application of the law.  We at McCathern will return to strict enforcement of the SB800 functionality standards and prelitigation procedures in representing our construction clients in California.

Please contact Kelli Hawley in our Los Angeles office to discuss this case should you have any questions.