Significant Victory for the Building Industry: Liberty Mutual is Rejected Once Again, This Time by the Third Appellate District in Holding SB800 is the Exclusive Remedy
December 15, 2016 —
Richard H. Glucksman & Ravi R. Mehta – Chapman Glucksman Dean Roeb & Barger Bulletin I. Elliott Homes, Inc. v. Superior Court (Certified for Publication, Cal. Ct. App. Dec. 2, 2016
The California Court of Appeal for the Third Appellate District recently elaborated on the scope of the Right to Repair Act, commonly known as SB-800 (“Act”). In
Elliott Homes, Inc. v. Superior Court of Sacramento County (Kevin Hicks, et al.) (certified for publication, Cal. Ct. App. Dec. 2, 2016), the Court considered whether the Act (and specifically the Act’s pre-litigation procedure) applies, when homeowners plead construction defect claims based only on common law causes of action, as opposed to violations of the building standards set forth in the Act (
Civil Code §896). The Court answered this question affirmatively.
The homeowners of seventeen (17) single-family homes filed a Complaint against the builder of their homes, Elliott Homes, Inc. (“Elliott”), alleging common law causes of action for construction defects. Elliott filed a motion to stay the litigation on the ground that the homeowners failed to comply with the pre-litigation procedure set forth in the Act. The trial court denied the motion, agreeing with the homeowners that this pre-litigation procedure did not apply because the homeowners had not alleged a statutory violation of the Act. Elliott appealed. The Court of Appeal purely considered the question of whether the Act, including its pre-litigation procedure, applies when a homeowner pleads construction defect claims based on common law causes of action, and not on statutory violations of the Act’s building standards.
To answer this question, the Court analyzed a recent case decided by the Court of Appeal for the Fourth Appellate District:
Liberty Mutual Ins. Co. v. Brookfield Crystal Cove, LLC (2013) 219 Cal.App.4th 98. In this subrogation case, a builder’s insurer asserted common law causes of action (but not statutory building standard violations) alleging construction defects against the builder to recover amounts paid to the homeowner after a sprinkler system failure caused extensive damage to the subject property. The trial court sustained the builder’s demurrer to the Complaint on the ground that it was time-barred under the Act. The Court of Appeal reversed the trial court’s order, holding that common law construction defect claims arising from actual damages are not covered by the Act because “the Act does not provide the exclusive remedy in cases where actual damage has occurred.” (
Liberty Mutual, 219 Cal.App.4th 98, 109).
The
Elliott Court declined to follow
Liberty Mutual, finding that that Court failed to properly analyze the language of the Act. The
Elliott Court analyzed both the statutory scheme and the legislative history of the Act to arrive at the conclusion that common law causes of action for construction defects do indeed fall within the purview of the Act.
According to the
Elliott Court, the Act “broadly applies to
any action seeking recovery of damages arising out of, or related to deficiencies in…residential construction and in such an action, a homeowner’s claims or causes of action shall be limited to violation of the standards set forth in the Act, except as specified.” Further, the Act expressly provides that “no other cause of action for a claim covered by this title or for damages recoverable under Section 944 is allowed.”
Civil Code §943(a). In turn,
Civil Code §944 allows for a recovery for the cost of repairing a building standard violation, or for the cost of repairing any damage caused by such a violation, among other things.
The limited exceptions to the Act’s applicability concern the enforcement of a contract, or any action for fraud, personal injury, or violation of a statute. Civil Code §943(a). Additionally, the Act does not apply to condominium conversions. Civil Code §896.
The Elliott Court explains that apart from these exceptions, the Legislature intended the Act to apply to all construction defect claims (regardless of damage) relating to the construction of residential properties whose sales contracts are signed after January 1, 2003. There is no exception in the Act, express or implied, for common law causes of action.
Next, the Court turns to the Act’s legislative history to buttress this conclusion. This history makes clear that the Act is a legislative response to the California Supreme Court’s holding in
Aas v. Superior Court (2000) 24 Cal.4th 627, that construction defects in residential properties are only actionable in tort when actual property damage manifests. Senate Judiciary Committee hearings indicate that the Act was the product of protracted negotiations between varying interested parties, including construction industry trade groups and consumer protection groups. The Legislature intended (1) to promulgate building standards, violations of which would be actionable, even without damage, and (2) to allow homeowners to recover for actual damage caused by construction defects not covered by the building standards. In other words, the Act was intended to provide homeowners redress regardless of whether damage had manifested.
Therefore, the Court concluded that common law causes of action for construction defects, regardless of damage, are subject to the pre-litigation procedure set forth in the Act. The Court issued a writ of mandate directing the trial court to vacate its earlier order, and to enter a new order granting Elliott’s motion to stay the litigation until the homeowners (and Elliott) have satisfied the pre-litigation procedure of the Act.
II. McMillin Albany, LLC v. Superior Court (2015) 239 Cal.App.4th 1132
Similar to the Third Appellate District Court’s ruling in
Elliott, the Fifth Appellate District Court also rejected the holding of
Liberty Mutual in a matter now pending before the California Supreme Court:
McMillin Albany, LLC v. Superior Court (2015) 239 Cal.App.4th 1132 (review granted and opinion superseded sub nom.
Albany v. Superior Court 360 P.3d 1022). Also similar to
Elliott, in
McMillin a group of homeowners filed common law construction defect claims against the builder of their homes. The builder,
McMillin, moved to stay the litigation pending compliance with the Act’s pre-litigation procedure. The trial court denied the motion, holding that the Act does not apply because the homeowners have not asserted statutory building standard violations contained within the Act.
In reasoning substantially similar to that of
Elliott, the
McMillin Court rejected Liberty Mutual’s holding that the Act is not the exclusive remedy for pursuing construction defect claims, with or without damage. Thus, the
McMillin Court issued a writ of mandate to vacate the trial court’s earlier order and to enter a new order granting McMillin’s motion to stay.
On November 24, 2015, the California Supreme Court granted the homeowners’ petition for review. In August of 2016, briefing was completed and the matter is now awaiting the scheduling of arguments. CGDRB will continue to closely monitor the pending appeal of this matter to the California Supreme Court, as well as all related developments.
Reprinted courtesy of
Richard H. Glucksman, Chapman Glucksman Dean Roeb & Barger and
Ravi R. Mehta, Chapman Glucksman Dean Roeb & Barger
Mr. Glucksman may be contacted at rglucksman@cgdrblaw.com
Mr. Mehta may be contacted at rmehta@cgdrblaw.com
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Techniques for Resolving Construction Disputes
September 16, 2019 —
Jason Lambert - Construction ExecutiveWith most construction projects involving dozens, if not hundreds, of companies and individuals, it is no surprise that conflicts arise that are not always able to be resolved on the jobsite. But these conflicts need not always reach the court room or cost thousands (or much more) to resolve. With some planning, contractors can build faster and less expensive dispute resolution options into their project so they can spend more time keeping the project moving and less time arguing over who is right.
Even for modest-sized projects, a multi-tiered approached to dispute resolution can be helpful. As a first level of dispute resolution, consider requiring the relevant parties to attend informal or formal mediation. The benefits of even an informal mediation is that it can get stalemated parties to the table to talk again. Formal mediation adds the benefit of a neutral third-party who can help get talks moving or help antagonistic parties communicate.
Further, mediation allows each side an opportunity to hear what the other side is looking for to resolve the dispute. Not only is this valuable in reaching a compromise, but it also gives each side an idea of what the other will bring to the table in any subsequent litigation. Finally, there are many ways to implement these procedures. General contractors can require pre-suit mediation with their subcontractors to resolve one-on-one disputes but should also consider requiring subcontractors to use pre-suit mediation to resolve disputes between subcontractors or between subcontractors and sub-subcontractors or material suppliers if the dispute threatens the progress at the project.
Reprinted courtesy of
Jason Lambert, Construction Executive, a publication of Associated Builders and Contractors. All rights reserved.
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Construction Defect Dispute Governed by Contract Disputes Act not yet Suited to being a "Suit"
June 25, 2019 —
William S. Bennett - Saxe Doernberger & Vita, P.C.The Southern District of California recently held that a series of demands for a general contractor to investigate and repair several construction defects at a U.S. Army facility did not constitute a “suit” within the meaning of the general contractor’s commercial general liability (“CGL”) policy.
In Harper Construction Co., Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., the U.S. Government hired Harper Construction Company (“Harper”) to construct a U.S. Army training facility for the Patriot Missile System in Fort Sill, Oklahoma. No. 18-cv-00471-BAS-NLS (S.D. Cal. Mar. 28, 2019). During the project, Harper hired Harper Mechanical Contractors (“Harper Mechanical”), an independent company, as a subcontractor “to perform demolition, grading, and other work at the Project.”
After Harper completed the project, the government informed Harper of property damage at the project, “including, but not limited to, gypsum wallboard cracks and binding doors.” Harper attempted to repair the issues, but the problems continued. The issues were apparently the result of Harper Mechanical’s grading work. Subsequently, the government sent two letters requesting an investigation and asking Harper to “propose a plan to correct the issues.” As Harper undertook an investigation spanning multiple years, the government became increasingly frustrated with the delays. The government threatened to initiate “formal administrative recourse” and to demolish the project, forcing Harper to re-build from the ground up. It also sent Harper another letter requesting Harper submit a formal proposal to correct the issues.
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William S. Bennett, Saxe Doernberger & Vita, P.C.Mr. Bennett may be contacted at
wsb@sdvlaw.com
Lewis Brisbois’ Houston Office Selected as a 2020 Top Workplace by the Houston Chronicle
December 21, 2020 —
David Oubre - Lewis Brisbois Lewis Brisbois’ Houston office was recently selected for inclusion in the Houston Chronicle’s 2020 Top Workplaces section. To determine the recipients of this honor, the publication surveyed more than 37,000 Houston-area employees regarding their organization’s leadership, cooperation, communication, work-life balance, pay, and benefits. Based upon the employees’ feedback, the publication selected its Top Workplaces winners and announced them during a virtual awards ceremony in November.
Houston Office Administrator Kristi Kraeger expressed excitement concerning this honor, explaining, “In the two years I have been with Lewis Brisbois, we have more than doubled in size. We have created a friendly, professional, team-oriented environment, and we strive to provide growth and opportunity to our employees.”
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David Oubre, Lewis BrisboisMr. Oubre may be contacted at
David.Oubre@lewisbrisbois.com
California insured’s duty to cooperate and insurer’s right to select defense counsel
April 14, 2011 —
CDCoverage.comIn Travelers Property Casualty Co. v. Centex Homes, No. C 10-02757 (N.D. Cal. April 1, 2011), general contractor Centex was sued by homeowners for construction defects. Centex tendered its defense to Travelers as an additional insured under policies issued by Travelers to two Centex subcontractors. Travelers agreed to defend Centex under a reservation of rights and selected defense counsel to defend Centex. Centex refused to accept the defense, asserting that it was entitled to select defense counsel. Travelers filed suit against Centex seeking a declaratory judgment that Centex had breached the duty to cooperate condition in the Travelers’ policy.
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Reprinted courtesy of CDCoverage.com
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Construction Bidding for Success
May 22, 2023 —
The Hartford Staff - The Hartford InsightsWhen construction companies develop a history of successful projects, they often consider bidding on larger projects. However, larger projects can carry greater risks.
If your company has successfully completed numerous $10 million projects and is considering a bid on a $100 million project, there are several factors to consider before submitting a proposal. That is because bidding on the wrong project could potentially put you out of business.
“When a contractor bids a larger project, there is a greater financial risk,” says Tim Holicky, a senior executive underwriter at The Hartford. There are more subcontractors to manage and additional materials to purchase, which all leads to greater financial risk.
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The Hartford Staff, The Hartford Insights
Contractors with Ties to Trustees Reaped Benefits from LA Community College Modernization Program
March 03, 2011 —
Gale Holland, Michael Finnegan and Doug Smith, Los Angeles TimesIn the latest installment of the “Billions To Spend” series of investigative reports focused on construction defects, management, and cost issues relevant to LACC’s Community College Modernization Projects, the LA Times examines the costs associated with the various layers of construction management and benefits that accrued to contractors with ties to LACC trustees.
The reporting by the Times is seemingly critical of the project’s utilization of “body shops” an industry term for companies that function as employers of record. The article segment published today cites a number of circumstances wherein their utilization appears to have escalated costs substantially.
“To gauge the cost of the staffing system, The Times reviewed thousands of pages of financial records from April 2007, when URS began managing the program, to July 2010. Reporters identified two dozen contractors serving as conduits for pay and benefits for employees they did not supervise.
At least 230 people were employed in this manner, at a total cost of about $40 million, the records show.
Approximately $18 million of the total was paid to the employees, according to the Times analysis. The remaining $22 million went to profit and overhead for contractors, the records indicate.
For employees on its own payroll, the district says that medical and other benefits increase compensation costs 40% above base salaries. So if the district had employed its construction staff directly, the total cost for the period studied would have been $25 million instead of $40 million, a savings of $15 million, The Times calculated.”
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Suing the Lowest Bidder on Public Construction Projects
September 17, 2015 —
Craig Martin – Construction Contractor AdvisorThe California Court of Appeals has allowed the second lowest bidders on public construction projects to sue the lowest bidder where it appears that the lowest bidder was only the lowest because it paid its employees less than the established prevailing wage. This is a novel theory for recovery, but may provide for an opportunity to challenge improperly low bids.
Background
Between 2009 and 2012, American Asphalt outbid two asphalt companies on 23 public works projects, totaling nearly $15 million. The two asphalt companies sued American Asphalt alleging that they were the second lowest bidder all 23 construction projects and they would have been the lowest had American Asphalt paid its employees the required prevailing wage. Importantly, the municipality awarding the contracts was not sued by the second lowest bidders. Instead, the second lowest bidders alleged that American Asphalt intentionally interfered with a business expectancy and sought damages from American Asphalt, specifically the profit that they lost by not performing these contracts.
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Craig Martin, Lamson, Dugan and Murray, LLPMr. Martin may be contacted at
cmartin@ldmlaw.com
