Case Name: Yip, et al. vs. KB Home South Bay, Inc.
Case No.: 1-13-CV-250959

This is a construction defect action by the owners of sixteen single family homes in Milpitas, California. Plaintiffs sue the developer and/or general contractor defendant KB Home South Bay, Inc. (“KB”), and Doe defendants 1-100 (“Developer Defendants”), 101-200 (“Design Defendants”), 201-400 (“Contractor Defendants”), and 401-1,000 (“other persons and entities involved in the planning, design, construction, maintenance, repairs, and sale of the PROPERTY”) for: (1) strict products liability (against Developer Defendants); (2) strict products liability (against “Contractor Component Product Manufacturer Defendants”); (3) violation of building standards as set forth in California Civil Code section 896 (against all defendants); (4) breach of implied warranty of merchantability (against Developer Defendants); (5) breach of contract (against Developer Defendants); (6) negligence (against all defendants); (7) breach of express warranty (against Developer Defendants); and (8) violation of state/negligence per se (against all defendants).

The alleged defects include: “Faulty soil compaction, faulty existing underlying soils and expansive soils resulting in soil movement and damage to the structures, concrete slabs, flatwork and foundation defects, plumbing defects, electrical defects, drainage defects, roof defects, HVAC defects, waterproofing defects, window and door defects, landscaping and irrigation defects, framing, siding and structural defects, ceramic tile, vinyl flooring and countertop defects, drywall defects, fence and retaining wall defects, cabinet and wood trim defects, fireplace and chimney defects, bath and shower door defects, painting defects, sheet metal defects, and stucco defects.”

Plaintiffs allege damages in the form of “…expenses for the restoration and repairs of the PROPERTY to cure the damage, defects and/or deficiencies”; “the diminution in value of the PROPERTY”; and “[being] forced to retain expert consultants to analyze and determine the method of repairing the aforementioned defects and damage.”

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 intend to dismiss their third cause of action under SB 800, and 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.

In reply, KB argues that the action should be stayed because Plaintiffs seek damages clearly covered by SB 800. KB argues that dismissal of the SB 800 cause of action would not matter because the common law causes of action in the FAC are pleaded only as to the homeowners “not subject to Civil Code § 896”, and Plaintiffs admit in their opposition brief that all of them are subject to SB 800. KB further argues that Liberty Mutual 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. Finally, KB argues that Plaintiffs’ opposition brief is untimely and should be stricken.

Judicial Notice

KB requests judicial notice of the following legislative history materials: (1) Senate Committee on Judiciary, Analysis of Senate Bill No. 800 (RJN Exh. A); (2) Senate Rules Committee Analysis of SB 652 (RJN Exh. B). These records constitute cognizable legislative history materials for purposes of judicial notice. (See Kaufman & Broad Communities, Inc. v. Performance Plastering, Inc. (2005) 133 Cal.App.4th 26, 35-36 [reports and analyses of Senate Committee on Judiciary, Senate Rules Committee].)

The request is unopposed. The Court GRANTS the request for judicial notice of these legislative history materials.

Late Opposition Brief

Opposition briefs must be filed and served at least nine (9) court days before the hearing. (Cal. Code Civ. Proc., § 1005, subd. (b).)

The hearing on this matter was originally set for March 14, 2014, and Plaintiffs’ opposition brief was due by March 3, 2014, but it was not filed until March 5, 2014. The Court may, in its discretion, refuse to consider late-filed papers. (See Cal. Rules of Court, rule 3.1300(d).) However, it does not appear that KB was prejudiced by the late filing and was able to file a full reply brief addressing all of the opposition points in detail. Thus, the Court exercises its discretion to accept the late-filed opposition brief.

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.) Here, the FAC alleges that “Plaintiffs and each of them, purchased the PROPERTY on or after January 1, 2003.” Although the first, second and sixth causes of action are captioned “ONLY AS TO PLAINTIFFS NOT SUBJECT TO CALIFORNIA CIVIL CODE §896”, Plaintiffs admit in their opposition that “[a]ll of the home at issue were originally sold on or after January 1, 2003 and are therefore subject to the requirements of Civil Code section 895, et seq.”

There is no dispute that Plaintiffs have not complied with the Act’s pre-litigation notice requirements. In the FAC’s third cause of action under the Act, Plaintiffs allege that the pre-litigation procedures “are per se unconscionable, unenforceable, and violate public policy as well.”

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.)

In this matter, we have eight causes of action, one of which is expressly brought under the Act. Although Plaintiffs state in their opposition brief that they will dismiss this claim, they have not done so as of the date of this Order. At any rate, because KB seeks a stay of the entire action, the main issue is whether the remaining common law claims may proceed despite Plaintiffs’ non-compliance with the Act’s pre-litigation notice requirements.

As discussed above, the Act abrogated the economic loss rule as applied to construction defect actions, and Liberty Mutual holds that the Act does not provide the exclusive remedy in cases where actual damage is alleged. In this context, “actual damage” is contrasted with “the costs of repair and/or the diminution in the value of their homes.” (See Liberty Mutual, supra, 219 Cal.App.4th at p. 103, citing Aas, supra, 24 Cal.4th at pp. 632-634.) Moreover, “[v]iewing the home as a product, courts have also found a tort remedy in strict products liability, [fn. omitted] even when the property damage consists of harm to a sound part of the home caused by another, defective part.” (Greystone, supra, 168 Cal.App.4th at p. 1210.) Here, Plaintiffs allege three kinds of damages: expenses to cure “the damage, defects and/or deficiencies”; diminution in value of the homes; and expert consultant fees to analyze and determine the method of repairing the “defects and damage.” Diminution in value is economic loss and is not recoverable in tort, except when recovery is sought under the Act. Expenses to cure only the defective components themselves would also be economic loss. However, Plaintiffs allege expenses to cure not only the “defects” but the “damage”, which suggests property damages. Furthermore, the FAC alleges water damage from defective components like doors and moisture barriers. This is reasonably construed as “property damage consist[ing] of harm to a sound part of the home caused by another, defective part.” (See Greystone, supra, 168 Cal.App.4th at p. 1210.) Thus, Plaintiffs’ common law claims allege actual property damage.

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)). KB cites KB Home Greater Los Angeles, Inc. v. Superior Court (2014) 223 Cal.App.4th 1471 (“KB Home”) as controlling authority because it specifically deals with the Act’s pre-litigation notice requirements. In KB Home, the Court of Appeal (2nd App. Dist., Div. 4) granted a builder’s petition for writ of mandate and directed the trial court to grant the builder’s motion for summary judgment because the homeowner failed to comply with the Act’s pre-litigation notice requirements. However, a series of writ petitions in that case’s procedural history had eliminated the common law claims, and the only cause of action that was before the Court of Appeal was the SB 800 claim. (See KB Home, supra, 223 Cal.App.4th at pp. 1474-1475.) “Thus, whether the Act or tort common law applies in this case is not an issue properly before us at this time. [Citation.]” (Id. at p. 1475.) Accordingly, KB Home would only support staying Plaintiffs’ third cause of action under the Act.

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)].)

Here, 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 aforementioned defects and damage. 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.

However, under section 943, subdivision (a), “this title does not apply to any action by a claimant to enforce a contract or express contractual provision….” Here, Plaintiffs assert causes of action for breach of written contract and breach of express warranty based on an express contractual provision in the Real Estate Purchase Contracts. Because Title 7 “does not apply” to Plaintiffs’ actions to enforce a contract or express contractual provision, Plaintiffs’ non-compliance with Title 7’s pre-litigation requirements would not justify staying Plaintiffs’ fifth and seventh causes of action.

For all of these reasons, KB’s motion to stay is GRANTED IN PART as to the first, second, third, fourth, sixth and eighth causes of action and DENIED as to the fifth and seventh causes of action.