In Supreme Court Showdown, California Appeals Courts Choose Sides Regarding Whether Right to Repair Act is Exclusive Remedy for Homeowners

by Wendel, Rosen, Black & Dean LLP
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Earlier, we wrote about an appellate court split concerning the Right to Repair Act (Civil Code sections 895 et seq.) which applies to construction defects in newly constructed residential properties including single-family homes and condominiums (but not condominium conversions) sold after January 1, 2003.

The California Court of Appeals for the Fourth District, in Liberty Mutual Insurance Company v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 98, held that the Right to Repair Act does not provide the exclusive remedy when pursing claims for construction defects involving “actual” property damage (e.g., a defectively constructed roof causing actual physical damage due to water intrusion as opposed to a defectively constructed roof that while constructed improperly does not cause actual physical damage). However, the California Court of Appeals for the Fifth District, in McMillin Albany LLC v. Superior Court (2015) 239 Cal.App.4th 1132, which is currently pending before the California Supreme Court, held that the Right to Repair Act does in fact provide the exclusive remedy when pursuing claims for construction defects whether they involve “actual” property damage or merely “economic” damages. For homeowners, they would prefer the option of pursuing remedies under either or both the Right to Repair Act (which includes detailed pre-litigation procedures and statutory construction standards) or under common law claims such as negligence (which do not include pre-litigation procedures and have more flexible standards of care).

The California Court of Appeals for the Third District has now thrown its hat into the ring . . . on the side of McMillan.

Gillotti v. Stewart

In Gillotti v. Stewart, Case No. C075611 (April 26, 2017), homeowner Ann Gillotti sued developer Knotty Bear Development, general contractor Knotty Bear Construction, Inc., grading subcontractor Rick Gerbo doing business as Gerbo Excavating and others for damage to trees on her property due to construction. Specifically, Gillotti claimed that trees on her property, located in Truckee, California, were dying due to the addition of mounds of soil on top of the tree roots in order to level the driveway of the property’s sloped lot.

After the jury found in favor of Gerbo, Gillotti filed a motion for judgment notwithstanding the verdict, or in the alternative, motion for new trial, arguing that the trial court improperly barred her from pursuing a negligence claim against Gerbo. The trial court denied Gillotti’s motions, noting that while its decision conflicted with the Fourth District Court of Appeals’ decision in Liberty Mutual, that it believed that the case was wrongly decided and because it was decided in a different appellate district that it was not binding in the trial court (note: the trial court was wrong that issue. Court of appeal decisions, irrespective of what appellate district they were decided in, are binding on all superior courts. Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d. 450).

Gillotti appealed.

The Court of Appeals Decision

On appeal, the Court of Appeals for the Third District affirmed the trial court, stating that it “disagree[d]” with the Fourth District’s decision in Liberty Mutual which did not analyze the language of Civil Code section 896 which provides:

In any action seeking recovery of damages arising out of, or related to deficiencies in, the residential construction, design, specifications, surveying, planning, supervision, testing, or observation of construction, a builder . . . . , a general contractor, subcontractor, material supplier, individual product manufacturer, or design professional, shall, except as specifically set forth in this title, be liable for, and the claimant’s claims or causes of action shall be limited to violation of, the following standards, except as specifically set forth in this title.

Civil Code section 896, explained the Court of Appeals, “as well the other sections (897, 931, 941, 943, 944) clearly and unequivocally expresses the legislative intent that the [Right to Repair] Act apply to all actions seeking recovery of damages arising out of, or related to deficiencies in, residential construction, except as specifically set forth in the Act” and “[t]he Act does not specifically except actions arising from actual damages.” “To the contrary, it authorizes recovery of damages, e.g., for ‘the reasonable cost of repairing and rectifying any damages resulting from the failure of the home to meet the standards. . . . ‘”

Conclusion

The California Supreme Court granted review of the McMillin case on November 24, 2015. Since then, briefs have been filed, including numerous amicus curiae briefs from the Consumer Attorneys of California, the California Building Industry Association and the California Professional Association of Specialty Contractors. Until the Supreme Court weighs in this will remain an open issue in California.

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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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