Case Name: Mamarian, et al. v. KB Home South Bay, Inc.
Case No.: 2015-1-CV-288222

Defendant KB Home South Bay Inc. (“KB Homes”) brings this Motion to Stay the Action in its Entirety pending the Plaintiffs’ mandated compliance with California’s Right to Repair statute as set forth in California Civil Code Section 895 et seq (“SB 800”). The underlying litigation is a construction defect action brought by the Plaintiff owners of 6 single family residences located in San Jose, CA. All of the homes were originally sold on or after January 1, 2003.

KB now moves to stay this entire action pending Plaintiffs’ compliance with the pre-litigation procedures of the Right to Repair Act, California Civil Code section 895 et seq. (hereinafter the “Act” or “SB 800”). KB argues that the Act requires Plaintiffs to give KB notice of their claims and an opportunity to inspect and repair any alleged construction defects before a lawsuit is filed. KB anticipates Plaintiffs’ reliance on Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 98 (“Liberty Mutual”) as dispensing with the pre-litigation procedures for common law claims, but KB argues that Liberty Mutual is not controlling because it arose out of unique facts and concerns related to an insurer’s subrogation claims.

In opposition, Plaintiffs argue there is no basis to stay this action because they have not included a cause of action for violation of the SB800 building standards and the First Amended Complaint (“FAC”) only includes causes of action for negligence, strict liability, and breach of contract and warranty. Plaintiff argue that under Liberty Mutual, SB 800 does not prohibit homeowners from bringing non-SB 800 causes of action such as negligence, strict liability, and breach of contract for damages that result from violations of SB 800 building standards. According to the opposition papers, Liberty Mutual and Burch v. Superior Court (2014) 223 Cal.App.4th 1411 make it clear that homeowners may elect to bring common law causes of action instead of bringing a claim under SB800.

In reply, KB argues that the action should be stayed because Plaintiffs seek damages clearly covered by SB 800. KB argues that even though the FAC does not state a formal cause of action for violation of SB800, the common law causes of action in the FAC allege defects in foundation slabs, soil, electrical systems, mechanical systems, driveways, hardscapes, stucco, exterior finishing, windows, doors, HVAC units, roofs, plumbing and a wide variety of other areas. KB argues that since the SB800 process applies to “any action” seeking recovery for the categories of construction defects covered in Civil Code Sections 896 and 897, both of which overlap with the damages claimed in this lawsuit, Plaintiffs’ claims are clearly governed by SB800. KB further argues that Liberty Mutual is distinguishable as it does not deal with a defendant builder’s entitlement to a stay in order to perform pre-litigation repairs, as the builder in that case had performed pre-litigation repairs.

Discussion

The Right to Repair Act, California Civil Code section 895 et seq., sets forth various standards for residential constructions and procedures for construction defect actions brought under the Act.

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, and to the extent set forth in Chapter 4 (commencing with Section 910), 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.
(Cal. Civ. Code, § 896.)

The construction standards set forth in section 896 pertain to water issues (subd. (a)), structural issues (subd. (b)), soil issues (subd. (c)), fire protection issues (subd. (d)), plumbing and sewer issues (subd. (e)), electrical system issues (subd. (f)), and other areas of construction (subd. (g)). The Act also includes “a requirement that builders provide a one-year ‘fit and finish’ warranty (§ 900), and it established a new 10-year statute of limitations (§ 941). These provisions clearly benefit homeowners.” (Standard Pacific Corp. v. Superior Court (2009) 176 Cal.App.4th 828, 832.)

The Act establishes pre-litigation procedures that a claimant must initiate prior to filing an action for violation of these standards (Civ. Code, § 910). “These procedures include a requirement that the claimant provide notice of claim ‘to the builder.’ ([Cal. Civ. Code, § 910], subd. (a).) (Greystone Homes, Inc. v. Midtec, Inc. (2008) 168 Cal.App.4th 1194, 1211.) “The builder may elect to respond to the claim by inspecting the alleged violation (§ 916), offering to repair it (§ 917), and either repairing the violation, or arranging for a repair to be done (§§ 918, 921). If the builder fails to respond to the claim, or otherwise fails to comply with the requirements of the Act’s prelitigation procedures, the claimant may bring an action for a violation of the Act’s standards without further resort to the prelitigation procedures. (§§ 915, 920.) A claimant may also file an action for a violation of the Act’s standards alleging an inadequate repair. (§ 927.)” (Greystone Homes, supra, 168 Cal.App.4th at p. 1211.) “If the claimant does not conform with the requirements of this chapter, the builder may bring a motion to stay any subsequent court action or other proceeding until the requirements of this chapter have been satisfied. The court, in its discretion, may award the prevailing party on such a motion, his or her attorney’s fees and costs in bringing or opposing the motion.” (Cal. Civ. Code, § 930, subd. (b).)

The Act applies only to new residential units where the purchase agreement with the buyer was signed by the seller on or after January 1, 2003. (See Civ. Code, § 938.) In the immediate case, there does not appear to be a dispute that the homes were sold on or after January 1, 2003 and therefore subject to the requirements of Civil Code Section 895, et seq. Additionally, there does not appear to be a dispute that the Plaintiffs have not complied with the Act’s pre-litigation notice requirements.

In Liberty Mutual, supra, the Court of Appeal (4th App. Dist., Div. 3) reversed the dismissal of an insurer’s subrogation action against a housing developer for recovery of the insured’s relocation expenses incurred while the house was being repaired. The Liberty Mutual court examined the language and legislative history of the Act and found that “the Right to Repair Act does not expressly or impliedly support an argument that it mandates an exclusive remedy, and certainly does not derogate common law claims otherwise recognized by law. [Citation.]” (Liberty Mutual, supra, 219 Cal.App.4th at pp. 108-109.) The particular discussion of the Act’s history and purpose was in regard to the Act’s abrogation of the “economic loss rule” in residential construction defect cases:

In Aas v. Superior Court (2000) 24 Cal.4th 627, 632 [101 Cal. Rptr. 2d 718, 12 P.3d 1125], the California Supreme Court held that construction defects in residential properties, in the absence of actual property damage, were not actionable in tort. The plaintiffs in Aas v. Superior Court contended that their homes suffered a variety of construction defects, and sought as damages from the homebuilders the costs of repair and/or the diminution in the value of their homes. [Citation.] The trial court excluded evidence of any defects that had not caused property damage; both the Court of Appeal and the Supreme Court upheld that evidentiary ruling. [Citation.]

In 2002, the California Legislature enacted the Right to Repair Act. A key specified goal of the Act was to abrogate the holding of Aas v. Superior Court. “In response to the holding in Aas, the Legislature enacted Civil Code section 895 et seq.” [Citation.] The legislative history of the Act explained: “This bill would make major changes to the substance and process of the law governing construction defects. It is the product of extended negotiations between various interested parties. Among other things, the bill seeks to respond to concerns expressed by builders and insurers over the costs associated with construction defect litigation, as well as concerns expressed by homeowners and their advocates over the effects of a recent Supreme Court decision that held that defects must cause actual damage prior to being actionable in tort [Aas v. Superior Court, [supra,] 24 Cal.4th 627]. [¶] … [¶] … [E]xcept where explicitly specified otherwise, liability would accrue under the standards regardless of whether the violation of the standard had resulted in actual damage or injury. As a result, the standards would essentially overrule the Aas decision and, for most defects, eliminate that decision’s holding that construction defects must cause actual damage or injury prior to being actionable.” [Citations.] (Id. at pp. 103-104.)

The Liberty Mutual court held that “the Act does not provide the exclusive remedy in cases where actual damage has occurred because of construction defects. Therefore, Liberty Mutual’s subrogation claims were not time-barred for failing to comply with the Act.” (Id. at p. 109.)

KB argues that Liberty Mutual is distinguishable and does not control because it involved a subrogation claim in a case involving catastrophic loss where the builder had already performed repairs. KB further points out that Liberty Mutual did not discuss the Act’s pre-litigation notice requirement, but rather, the Act’s statute of limitations for plumbing and sewer systems (Cal. Civ. Code, § 896, subd. (e)).

In contrast, Plaintiffs argue that nothing in Liberty Mutual confines its holding to the subrogation context. In Burch v. Superior Court (2014) 223 Cal.App.4th 1411 (“Burch”), the Court of Appeal (2nd App. Dist., Div. 3) followed Liberty Mutual in reversing summary adjudication of claims for negligence and breach of implied warranty. Notably, Burch was not a subrogation action, but an action by the homeowner against the general contractor and developer. The court found that the plaintiff’s counts for negligence and breach of implied warranty “allege common law claims for damages for construction defects, including defects allegedly resulting in property damage. We conclude that the Right to Repair Act does not preclude such common law claims and that the summary adjudication of the second and third counts on this basis was error.” (Burch, supra, 223 Cal.App.4th at p. 1418.) Burch supports Plaintiffs’ position that Liberty Mutual is not confined to the subrogation insurance context.

However, neither Liberty Mutual nor Burch pertained to the pre-litigation notice requirements. As KB points out, the builder in Liberty Mutual had performed repairs before the subrogation action was brought. (Liberty Mutual, supra, 219 Cal.App.4th at p. 101.) Burch contains no mention of whether the plaintiff complied with the pre-litigation notice requirements, or whether those procedures applied to the plaintiff’s common law claims. Thus, neither case is directly controlling on the precise issue raised in this motion.

Furthermore, Liberty Mutual contains no discussion of California Civil Code section 943, subdivision (a), which provides:

Except as provided in this title, no other cause of action for a claim covered by this title or for damages recoverable under [Civil Code] Section 944 is allowed. In addition to the rights under this title, this title does not apply to any action by a claimant to enforce a contract or express contractual provision, or any action for fraud, personal injury, or violation of a statute. Damages awarded for the items set forth in Section 944 in such other cause of action shall be reduced by the amounts recovered pursuant to Section 944 for violation of the standards set forth in this title.

Section 944, referenced in section 943, subdivision (a), provides:

If a claim for damages is made under this title, the homeowner is only entitled to damages for the reasonable value of repairing any violation of the standards set forth in this title, the reasonable cost of repairing any damages caused by the repair efforts, the reasonable cost of repairing and rectifying any damages resulting from the failure of the home to meet the standards, the reasonable cost of removing and replacing any improper repair by the builder, reasonable relocation and storage expenses, lost business income if the home was used as a principal place of a business licensed to be operated from the home, reasonable investigative costs for each established violation, and all other costs or fees recoverable by contract or statute.

Liberty Mutual makes only a brief reference to section 943, subdivision (a), citing the exceptions set forth in the second sentence of section 943, subdivision (a) as support for the position that the Act “is not the exclusive means for seeking redress when construction defects cause actual property damage.” (See Liberty Mutual, supra, 219 Cal.App.4th at p. 107.) However, the court did not consider whether the subrogated insurer’s damages (e.g., relocation expenses) were “damages recoverable under Section 944” as stated in the first sentence of section 943, subdivision (a). In fact, section 944’s list of recoverable damages includes “reasonable relocation and storage expenses[.]” Section 944 also includes “the reasonable cost of repairing and rectifying any damages resulting from the failure of the home to meet the standards[.]” (Italics added.) Under these statutory provisions, even if a homeowner or subrogated insurer brings common law claims alleging actual damages, if those damages fall within the scope of section 944, then, under the first sentence of section 943, subdivision (a), those claims for section 944 damages can only be brought “as provided in this title[.]” (See Lovell v. Fong, (Apr. 2, 2014) 2014 Cal.App.Unpub. LEXIS 2311, *21, fn. 10 [criticizing Liberty Mutual as “inconsistent” with section 943, subdivision (a)].)

In the instant case, a review of the FAC confirms the fact that Plaintiffs’ damages allegations include expenses to cure the damage, defects and/or deficiencies, diminution in value of the properties, and expenses to retain expert consultants to analyze and determine the method of repairing the defects and damages. Section 944 includes the reasonable value of repairing any violation of the standards set forth in the Act, the reasonable cost of repairing and rectifying any damages resulting from the failure of the home to meet the standards, and reasonable investigative costs for each established violation. All of Plaintiffs’ causes of action are based on the same damages allegations. Under section 943, subdivision (a), Plaintiffs’ claims for damages recoverable under section 944 must be brought “as provided in this title[.]” Section 943 is found in Chapter 5 (Procedure) of Division 2, Part 2 of Title 7 (Requirements for Actions for Construction Defects). The pre-litigation notice requirements are found in Chapter 4 (Prelitigation Procedure) of the same title. Thus, Plaintiffs’ claims for damage recoverable under section 944 are subject to the pre-litigation notice requirements of the Act.

Applying these principles to the immediate litigation, the Court finds that it would be neither equitable nor fair to abrogate the pre-litigation requirements of Section 895 simply because the Plaintiffs have included common law causes of action. It would undermine the purpose of SB800 and invite gamesmanship in pleadings if Defendants were not able to employ the prelitigation requirements prior to the inception of full-blown litigation. Accordingly, the Defendant’s Motion to Stay the Proceedings is GRANTED until the prelitigation procedures in Civil Code 895 et seq. are completed.