Michael C. Parme and Zachary A. Price | Haight Brown & Bonesteel LLP | May 23, 2017
In Gillotti v. Stewart (No. C075611, filed 4/26/17, publication order 5/18/17), the California Court of Appeal for the Third Appellate District held that the Right to Repair Act, Civil Code section 895, et seq. (the “Act”) precludes common law claims for damages caused by construction defects within the scope of the Act, subject to its specific exclusions. The Gillotti decision deepens a split of authority between the Third and Fourth Appellate Districts regarding the scope and preclusive effect of the Act.
The Act was enacted by the Legislature in 2002 and establishes a set of building standards for new residential construction, prescribes prelitigation procedures to allow repair of defects without litigation, and provides homeowners with a statutory cause of action against builders involved in the sale of homes and others (including general contractors and subcontractors) not involved in the sale of homes, for violation of the building standards. The Act allows a homeowner to recover, upon a showing of violation of any applicable standard, economic losses without having to show property damage or personal injury. In that regard, the Act abrogates the economic loss rule and legislatively supersedes the California Supreme Court’s holding in Aas v. Superior Court (2000) 24 Cal.4th 627 that homeowners cannot recover damages in negligence from builders for construction defects that have not yet caused property damage or personal injury.
The Trial Court Decision
In Gillotti, the plaintiff purchased a newly-constructed vacation home that developed numerous problems, which included removal of two large trees from the front yard because they were dying and branches were falling from them. The plaintiff filed a construction defect lawsuit against the builder/seller, general contractor, and grading subcontractor. The plaintiff presented evidence the trees were dying due to the addition of mounds of soil on top of the tree roots by the grading subcontractor. This was done by the subcontractor in order to level the driveway on the sloped lot. As the subcontractor was not engaged in selling homes, liability under the Act depended on plaintiff proving the subcontractor negligently caused violations of the Act’s building standards. The jury found the subcontractor was not negligent in any respect. The plaintiff thereafter moved for judgment notwithstanding the verdict or a new trial, arguing in part that the trial court improperly barred a common law negligence theory against the subcontractor. The trial court denied the motions, ruling that Section 897 of the Act required the exclusion of plaintiff’s common law negligence theory.
In denying the motions, the trial court noted that its decision conflicted with the California Court of Appeal for the Fourth Appellate District’s decision in Liberty Mutual Insurance Company v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 98 (Liberty Mutual), issued subsequent to the jury verdict but not cited by the parties in post-trial motions. Liberty Mutual held that the Act “does not eliminate common law rights and remedies where actual damage has occurred” and, therefore, did not bar the common law claims in an insurer’s subrogation action to recover from the builder for payments made under a homeowner’s policy.
The Third District Court of Appeal Affirms
On appeal, the plaintiff argued that the trial court improperly construed the Act as barring a common law negligence claim and failed to follow the Liberty Mutual decision. The Court of Appeal expressly disapproved of the Liberty Mutual decision, concluding the Act does bar common law claims for damages caused by construction defects within the scope of the Act, subject to the Act’s specific exclusions (e.g. fraud, personal injury, etc.). It noted that the Act’s statutory language “clearly and unequivocally expresses the legislative intent that the Act apply to all actions seeking relief of recovery of damages arising out of, or related to deficiencies in, residential construction, except as specifically set forth in the Act,” and that the Act “does not specifically except actions arising from actual damages.” The court further confirmed that the specific driveway issues underlying the plaintiff’s claim were within the scope of section 897 of the Act.
Gillotti adopts a view of the Act that has gained traction in the courts since Liberty Mutual. Indeed, courts are interpreting the Act as a limitation on the legal theories and rights available to a plaintiff who pursues damages in a construction defect lawsuit. Over the past two years, the efficacy of the Liberty Mutual holding, and its narrow view of the Act’s preclusive effect, has been questioned by the developers, contractors, and insurers that defend such lawsuits. The deepening split on this question suggests it is likely to be resolved by the California Supreme Court. The case of McMillin Albany LLC v. Superior Court (2015) 192 Cal.Rptr.3d 53, currently pending before the Supreme Court, will most certainly provide guidance as to which view will ultimately prevail.