And So it Begins . . .

by Wendel, Rosen, Black & Dean LLP
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hourglass2This past year I wrote about a case that caused an uproar in the homebuilding industry - Liberty Mutual Insurance Company v. Brookfield Crystal Cove LLC, 219 Cal.App.4th 98 (August 28, 2013) – in which the California Court of Appeals for the Fourth District held or the first time that the Right to Repair Act, also known as “SB 800,” does not provide the exclusive remedy for construction defects which involve “actual,” as opposed to mere “economic,” damages.

The outcry by the homebuilding industry, which contended that the Right to Repair Act was intended to be the sole remedy for construction defect claims involving newly constructed single family homes, was so widespread that a number of trade organizations petitioned the California Supreme Court to review the case but their requests were ultimately denied.

In short, the Brookfield case is now good law, and can be relied upon by the courts.  And the courts have already begun to.

Burch v. Superior Court

The first decision to be published in the post-Brookfield world is Burch v. Superior Court, Case No. B248830 (February 19, 2014).  In Burch, homeowner Cynthia Burch purchased a newly constructed single family home in Pacific Palisades from developer Premier Homes, LLC (“Premier Homes”).  The home was built by general contractor Custom Home Builders, Inc. (“Custom Home Builders”).  In December 2008, Burch filed suit against Premier Homes, Custom Home Builders and others alleging that the home suffered from numerous construction defects.

Burch’s complaint alleged claims for: (1) breach of  contract; (2) negligence; (3) breach of implied warranty; (4) unjust enrichment; and other claims.

Premier Homes and Custom Home Builders moved for summary adjudication against the negligence and breach of implied warranty claims. Both Premier Homes and Custom Home Builders argued that the Right to Repair Act provided the exclusive remedy and Burch, therefore, could not sue Premier Homes or Custom Home Builders for negligence or breach of implied warranty.  Custom Home Builders also argued that, because it did not have any contractual relationship with Burch, it owed no duty to Burch and made no implied warranties to Burch such that it could be liable for negligence or breach of implied warranty.

The trial court agreed and Burch appealed.

The Court of Appeal Decision

On appeal, the California Court of Appeals for the Second District relying on Brookfield, held that the Right to Repair Act did not prevent Burch from pursuing her negligence and breach of implied warranty claims  because SB 800 only applies to construction defect claims arising out of newly constructed single family residences where there have been no actual damages:

[The Right to Repair Act] does not limit or preclude common law claims for damages for construction defects that have caused property damage.  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 of reconstruction defects that have caused property damage.  We agree.

It was all downhill from there for the developer and general contractor.

Finding that Burch was “a member of a class of prospective homebuyers” such that “in legal effect the construction may be considered to have been intended for her,” the Court of Appeals held that Premier Homes and Custom Home Builders owed a duty of care to Burch and that the trial court should not have found against Burch on her negligence claim.

As to Burch’s breach of implied warranty claim, the Court of Appeals held that while the general rule is that privity of contract is required in an action for breach of implied warranty, the trial court had not found that Burch was not an intended beneficiary of the work performed by Custom Home Builders so the trial court should also not have found against Burch on her breach of implied warranty claim.

Conclusion

The post-Brookfield world does not look promising for homebuilders. The California Supreme Court has denied review, the case has not been depublished and can now be cited as precedent by other courts as the Burch court did, and absent legislative clarification that the Right to Repair Act provides the exclusive remedy for construction defect claims involving newly constructed single family residences, it may mark the beginning of a rising tide in construction defect litigation involving newly constructed single family homes, which, oddly enough, was one of the very reasons why the Right to Repair Act was enacted to begin with.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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