3. TIME: 9:00 CASE#: MSC09-03652
CASE NAME: BREWSTER VS MERITAGE HOMES
HEARING ON MOTION FOR SUMMARY JUDGMENT FILED BY MERITAGE HOMES
OF CALIFORNIA, INC
* TENTATIVE RULING: *

The motion by defendant/cross-complainant Meritage Homes of California, Inc. (Meritage) for summary judgment as to plaintiffs Lonnie and Jocelyn Jones (“plaintiffs” or “the Joneses”) is denied.

Meritage argues that because plaintiffs assigned any construction defect causes of action to their lender by means of their deed of trust, they have no standing to bring their two causes of action – for violation of standards for residential construction and for breach of express warranties – against Meritage. Suit must be brought by the real party in interest, Meritage argues: a party who has assigned the right to a cause of action is not the real party in interest and has no standing to sue on the claim. Searles Valley Mineral Operations, Inc. v. Ralph M. Parsons Service Company (2011) 101 Cal.App. 4th 1394, 1402.

Plaintiffs do not dispute that their deed of trust contains a clause purporting to assign the rights to bring legal action “for injury or damage to the Property” to their lender (“the assignment clause”). Meritage’s Separate Statement of Undisputed Material Facts (SSUMF) No. 7; Deed of Trust, Exhibit D to the Compendium of Exhibits, at Section 18. Plaintiffs make three arguments against the motion. First, plaintiffs argue that the motion is precluded because of the procedural history in this case regarding Meritage’s attempts to state causes of action for interpleader and declaratory relief, raising the same argument asserted here as to the assignment of plaintiffs’ causes of action. Second, plaintiffs argue that the assignment clause cannot be applied according to Meritage’s interpretation, denying plaintiffs standing to bring this case, because to do so would conflict with statutory law and case law regarding the respective rights of homeowners and their lenders as to construction defects actions. Finally, plaintiffs argue that Meritage lacks standing to enforce the assignment clause because Meritage is not a party to, nor even a third-party beneficiary of, the deed of trust.

Plaintiffs’ first argument is that Meritage should not be allowed to raise the issue of plaintiffs’ standing again because that issue has already been decided by the court. Meritage previously raised the issue of the effect of the assignment clause by including in its First Amended Complaint causes of action for interpleader and declaratory relief, based on allegations that the Joneses and other plaintiffs in this action had assigned their claims for, and their right to compensation for any damage to their homes to their lenders, pursuant to their deeds of trust. Declaration of Aman Syed in Opposition to Motion (Syed Decl.), ¶4 and Exh. 1, First Amended Complaint in Meritage v. Bass, MSC11-02367, ¶¶ 22-36. Plaintiffs demurred to those causes of action, and the demurrer was sustained with leave to amend to state facts “showing a reasonable probability of double vexation or multiplicity of claims[,]” and “an actual and present controversy concerning the deeds of trust…” Syed Decl., ¶ 5 and Exh. 2, February 21, 2012 Order Granting Plaintiffs’/Cross-defendants’ Demurrer. Meritage filed a Second Amended Complaint, and plaintiffs’ again demurred. This time, the demurrer to the cause of action for interpleader was sustained without leave to amend. Leave to amend was granted as to the cause of action for declaratory relief. Syed Decl. ¶¶6-9; Exh. 3, Second Amended Complaint and Exh. 4, May 24, 2012 Order Sustaining Plaintiffs’/Cross-Defendants’ Demurrer.

The parties subsequently stipulated to stay the declaratory relief cause of action pending settlement efforts, and to extend the time for Meritage to file a Third Amended Complaint. The Stipulation provided that any Third Amended Complaint was required to be filed no later than September 17, 2012. Meritage has not filed a Third Amended Complaint. Syed Decl., ¶¶10-12; Exh. 5, Joint Stipulation.

Plaintiffs argue that because the court sustained plaintiffs’ demurrers, and Meritage has chosen not to amend its Complaint so as to pursue its affirmative claim for declaratory relief regarding the assignment clause in plaintiffs’ deed of trust, Meritage should not be allowed to re-raise the issue by means of this motion. However, the court did not, in deciding on the demurrers, adjudicate the question of whether the Joneses (or any of the other plaintiffs) had assigned their construction defects causes of action to their lenders or what the effect of such an assignment would be. Nothing in the court’s rulings on the two demurrers, or in Meritage’s decision not to file a Third Amended Complaint, precludes Meritage from asserting the assignment issue by means of its motion for summary judgment.

Plaintiffs next argue that any interpretation of the assignment clause in their deed of trust that would deny them standing to sue for construction defects in their home would be inconsistent with the provisions of statutory law governing such suits. Plaintiffs point to the provisions of the Civil Code governing procedures in construction defects litigation, which confer the right to sue to individual homeowners. Civil Code §§ 895 et seq. Plaintiffs argue that to read the assignment clause as denying them standing would destroy the effectiveness of the statutory scheme governing construction defects actions by denying many homeowners the right to sue. Meritage, in reply, argues that there is nothing in the statutory scheme that would preclude assignment of such claims, noting that the general rule is that such a cause of action may be assigned. See, e.g., Keru Investments, Inc. v. Cube Co. (1998) 63 Cal.App. 4th 1412, 1414.

Plaintiffs further argue that case law also holds that assignment in a deed of trust of the right to bring a claim for damage to a home does not apply to a claim for damages caused by acts occurring prior to the sale of the home, citing American Savings & Loan Ass’n v. Leeds (1968) 68 Cal.2d 611.

In American Savings, plaintiff was the lender on a deed of trust for defendants’ purchase of their home. After purchase, the home became uninhabitable due to subsidence, having been built on improperly filled and compacted soil. The borrower-purchaser, Mr. Leeds, sued the sellers and settled. Plaintiff lender then sued both the sellers of the home and Leeds. As to Leeds, plaintiff sought to impose a trust in its favor on the settlement amount Leeds had received, citing the provision of the deed of trust that assigned to the lender any award of damages in connection with injury to the property. Id. at 612-613. The trial court sustained Leeds’ demurrer to the lender’s complaint without leave to amend. Id. at 612. The Supreme Court affirmed. Because the acts causing injury to the property – the failure to properly fill and compact the soil – occurred before the sale, the gravamen of Leeds’ action against the sellers “was to recover, not damages for physical injury to the property, but the economic loss he suffered by being induced to buy property that was worth substantially less than the purchase price.” Because Code of Civil Procedure Section 580b, prohibiting a deficiency judgment after a sale of real property under a deed of trust, “places the full risk of inadequate security on the purchase money lender[,]” the right to damages for injury caused by acts occurring before the sale could not be considered to be included in the assignment. Id. at 615.

Plaintiffs argue that here, as in American Savings, to read the assignment clause as giving plaintiffs’ lender the sole right to any recovery for construction defects would impermissibly shift the risk of inadequate security – the home not being worth what it was sold for – to plaintiffs as homeowners. Meritage, in reply, attempts to distinguish American Savings on the facts: there, Meritage argues, the Supreme Court interpreted the assignment provision as extending only to “condemnation awards for taking or damaging property.” Reply Brief, p. 9, citing American Savings, supra, 68 Cal.2d 611 at 616. Moreover, Meritage argues, the language of the assignment clause in this case is broader than that at issue in American Savings, expressly reaching arising before the date of the deed of trust, and plaintiffs’ claims here, unlike those in American Savings, are limited to property damage.

Meritage’s reading of American Savings is overly narrow. The Court in that case stated that the assignment provision was “arguably” limited to condemnation awards, but went on to hold that “even if it also include[d] an award for physical damages to property inflicted by a private tortfeasor” it did not include the settlement Leeds had made with the sellers, because that settlement was for Leeds’ economic loss from buying property worth less than what he paid. Id. The holding was not based on the specific language of the assignment provision and the claims at issue in that case. Instead, it relied on the Court’s interpretation of California law as providing that no assignment provision could be used by a lender to recover for harms from acts impairing the value of the property before the sale, as this would impermissibly shift the risk of inadequate security from lender to borrower. Because the holding in American Savings reaches beyond the specific language of the assignment provision at issue in that case to rule on what kinds of assignment are allowed, Meritage’s further arguments as to the scope of the assignment clause here, and its applicability to the claims in this case, must also fail.

Taking together the statutory language of the Civil Code regarding homeowners’ rights to bring construction defects action, and the longstanding rule of California law that certain kinds of claims for damage to real property cannot be assigned to a lender, the court finds that here Meritage has failed to show that as a matter of law, the assignment clause operates to deny plaintiffs’ standing to bring their claims.

Plaintiffs’ final argument is that Meritage does not have standing to enforce the assignment clause. One who is not a party to a contract generally has no standing to enforce the terms of that contract, even where the third-party may receive some incidental benefit from the performance of the contract. Civil Code §1559; Martinez v. Socoma Companies, Inc. (1979) 11 Cal.3d 394, 400. Meritage argues that its assertion that plaintiffs lack standing is not an attempt to enforce the deed of trust. However, Meritage points to no authority allowing a third-party defendant to assert that the plaintiff lacks standing due to the plaintiff having contractually assigned its claims. Such an assertion is an attempt to enforce the assignment, and Meritage cannot, as a third party, enforce the terms of a contract to which it is not a party.

For the reasons stated, the motion is denied.

Evidentiary Rulings

Meritage’s Request for Judicial Notice is granted in its entirety. Evidence Code §452 (d) and (h).

4. TIME: 9:00 CASE#: MSC09-03652
CASE NAME: BREWSTER VS MERITAGE HOMES
HEARING ON MOTION FOR SUMMARY JUDGMENT FILED BY MERITAGE HOMES
OF CALIFORNIA, INC
* TENTATIVE RULING: *

The motion by defendant/cross-complainant Meritage Homes of California, Inc. (Meritage) for summary adjudication on the first cause of action by plaintiffs Mario and Carlotta Balinton, Rick and Mariya Jackson and Rosemarie Villanueva (collectively, “plaintiffs”) is denied.

Meritage’s motion for summary adjudication of the first cause of action by these plaintiffs, for violation of standards for residential construction, is based on the same argument made by Meritage in its motion for summary judgment as to plaintiffs Lonnie and Jocelyn Jones. Meritage argues that because plaintiffs assigned any construction defect causes of action to their lender by means of their deed of trust, they have no standing to bring their cause of action for violation of standards for residential construction against Meritage. The arguments made by plaintiffs in opposition, and the arguments made by Meritage in reply, are the same as are made with regard to the motion for summary judgment as to the Joneses.

For the reasons stated in the court’s ruling on the motion for summary judgment as to the Joneses (Line 3), the motion for summary adjudication is denied.

Evidentiary Rulings:

Meritage’s Request for Judicial Notice is granted in its entirety. Evidence Code §452 (d) and (h).