McMillin Albany LLC v. Superior Court of Kern Cnty.

• Decision Date: 18 January 2018
• Docket Number: S229762
• Court: California Supreme Court
• Parties: MCMILLIN ALBANY LLC et al., Petitioners, v. The SUPERIOR COURT of Kern County, Respondent; Carl Van Tassel et al., Real Parties in Interest.

4 Cal.5th 241

408 P.3d 797

227 Cal.Rptr.3d 191

MCMILLIN ALBANY LLC et al., Petitioners,

v.The SUPERIOR COURT of Kern County, Respondent;

Carl Van Tassel et al., Real Parties in Interest.

S229762

Supreme Court of California

Filed January 18, 2018

Borton Petrini, Calvin R. Stead and Andrew M. Morgan, Bakersfield for Petitioners.

Ulich Ganion Balmuth Fisher & Feld and Donald W. Fisher, Newport Beach as Amici Curiae on behalf of Petitioners.

Donahue Fitzgerald, Kathleen F. Carpenter, Walnut Creek, Amy R. Gowan ; Ware Law and Dee A. Ware, San Francisco for California Building Industry Association, Building Industry Legal Defense Foundation and California Infill Federation as Amici Curiae on behalf of Petitioners.

Ryan & Lifter, Jill J. Lifter, San Ramon; Chapman, Glucksman Dean Roeb & Barger and Glenn T. Barger, Los Angeles for Association of Defense Counsel of Northern California and Nevada and Association of Southern California Defense

Counsel as Amici Curiae on behalf of Petitioners.

Hirsch Closson, Robert V. Closson, San Diego and Jodi E. Lambert for California Professional Association of Specialty Contractors as Amicus Curiae on behalf of Petitioners.

Newmeyer & Dillion, Alan H. Packer, Walnut Creek, J. Nathan Owens, Paul L. Tetzloff and Jeffrey R. Brower, Newport Beach for Leading Builders of America as Amicus Curiae on behalf of Petitioners.

Epstein Grinnell & Howell, Anne L. Rauch, San Diego; Berding & Weil and Tyler P. Berding, Walnut Creek for Consumer Attorneys of California as Amicus Curiae on behalf of Petitioners.

No appearance for Respondent.

Milstein Adelman, Milstein Adelman Jackson Fairchild & Wade, Mark A. Milstein, Fred M. Adelman, Los Angeles and Mayo L. Makarcyzk for Real Parties in Interest.

Benson Legal, Susan M. Benson, Sherman Oaks; Williams | Palecek Law Group and Jason P. Williams for The National Association of Subrogation Professionals as Amicus Curiae on behalf of Real Parties in Interest.

Law Offices of Brian J. Ferber, Brian J. Ferber, Encino; Benedon & Serlin, Gerald M. Serlin and Wendy S. Albers, Woodland Hills as Amici Curiae on behalf of Real Parties in Interest.

Horvitz & Levy, H. Thomas Watson and Daniel J. Gonzalez, Burbank for MWI, Inc., as Amicus Curiae on behalf of Real Parties in Interest.

Kasdan Lippsmith Weber Turner, Kenneth S. Kasdan, Michael D. Tuner, Irvine, Bryan M. Zuetel and Derek J. Scott as Amici Curiae on behalf of Real Parties in Interest.

LIU, J.

In Aas v. Superior Court (2000) 24 Cal.4th 627, 632, 101 Cal.Rptr.2d 718, 12 P.3d 1125 ( Aas ), this court held that the economic loss rule bars homeowners suing in negligence for construction defects from recovering damages where there is no showing of actual property damage or personal injury. We explained that requiring a showing of more than economic loss was necessary to preserve the boundary between tort and contract theories of recovery, and to prevent tort law from expanding contractual warranties beyond what home builders had agreed to provide. ( Id. at pp. 635–636, 101 Cal.Rptr.2d 718, 12 P.3d 1125 ; see Seely v. White Motor Co. (1965) 63 Cal.2d 9, 18, 45 Cal.Rptr. 17, 403 P.2d 145.) We emphasized that the Legislature was free to alter these limits on recovery and to add whatever additional homeowner protections it deemed appropriate. ( Aas , at pp. 650, 653, 101 Cal.Rptr.2d 718, 12 P.3d 1125.)

Two years later, spurred by Aas and by lobbying from homeowner and construction interest groups, the Legislature passed comprehensive construction defect litigation reform. (Stats. 2002, ch. 722, principally codified at Civ. Code, §§ 895 – 945.5 (commonly known as the Right to Repair Act, hereafter the Act); all further unlabeled statutory references are to the Civil Code.) The Act sets forth detailed statewide standards that the components of a dwelling must satisfy. It also establishes a prelitigation dispute resolution process that affords builders notice of alleged construction defects and the opportunity to cure such defects, while granting homeowners the right to sue for deficiencies even in the absence of property damage or personal injury.

We are asked to decide whether the lawsuit here, a common law action alleging construction defects resulting in both economic loss and property damage, is subject to the Act's prelitigation notice and cure procedures. The answer depends on the extent to which the Act was intended to alter the common law—specifically, whether it was designed only to abrogate Aas , supplementing common law remedies with a statutory claim for purely economic loss, or to go further and supplant the common law with new rules governing the method of recovery in actions alleging property damage. Based on an examination of the text and legislative history of the Act, we conclude the Legislature intended the broader displacement. Although the Legislature preserved common law claims for personal injury, it made the Act the virtually exclusive remedy not just for economic loss but also for property damage arising from construction defects. The present suit for property damage is therefore subject to the Act's prelitigation procedures, and the Court of Appeal was correct to order a stay until those procedures have been followed.

I.

Plaintiffs Carl and Sandra Van Tassel and several dozen other homeowners (collectively the Van Tassels) purchased 37 new single-family homes from developer and general contractor McMillin Albany LLC (McMillin) at various times after January 2003. In 2013, the Van Tassels sued McMillin, alleging the homes were defective in nearly every aspect of their construction, including the foundations, plumbing, electrical systems, roofs, windows, floors, and chimneys. The operative first amended complaint included common law claims for negligence, strict product liability, breach of contract, and breach of warranty, and a statutory claim for violation of the construction standards set forth in section 896. The complaint alleged the defects had caused property damage to the homes and economic loss due to the cost of repairs and reduction in property values.

McMillin approached the Van Tassels seeking a stipulation to stay the litigation so the parties could proceed through the informal process contemplated by the Act. (§§ 910–938.) That process begins with written notice from the homeowner to the builder of allegations that the builder's construction falls short of the standards prescribed by the Act. (§ 910.) The builder must acknowledge receipt (§ 913) and thereafter has a right to inspect and test any alleged defect (§ 916). Following any inspection and testing, the builder may offer to repair the defect (§ 917) or pay compensation in lieu of a repair (§ 929). The Act regulates the procedures for any repair, authorizes mediation, and preserves the homeowner's right to sue in the event the repair is unsatisfactory and no settlement can be reached. (§§ 917–930.)

The Van Tassels elected not to stipulate to a stay and instead dismissed their section 896 claim. McMillin moved for a court-ordered stay. (§ 930, subd. (b) ["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."].) In response, the Van Tassels argued that because the complaint now omitted any claim under the Act, the Act's informal prelitigation process did not apply. The Van Tassels cited Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 98, 101, 163 Cal.Rptr.3d 600 ( Liberty Mutual ), which held that the Act was adopted to provide a remedy for construction defects causing only economic loss and did not alter preexisting common law remedies in cases where actual property damage or personal injuries resulted.

The trial court denied the motion for a stay. It observed that the issues decided in Liberty Mutual might be the subject of further appellate inquiry, but concluded it was bound to follow the case. Recognizing that the question was not free from doubt, the trial court certified the issue as one worthy of immediate review. ( Code Civ. Proc., § 166.1.) McMillin sought writ relief.

The Court of Appeal granted the petition and issued the writ, disagreeing with Liberty Mutual and another case that had followed it, Burch v. Superior Court (2014) 223 Cal.App.4th 1411, 168 Cal.Rptr.3d 81. The court examined the text and history of the Act and concluded that the Act was meant to at least partially supplant common law remedies in cases where property damage had occurred. In the Court of Appeal's view, "the Legislature intended that all claims arising out of defects in residential construction" involving post-2003 sales of new houses "be subject to the standards and the requirements of the Act." Accordingly, the Court of Appeal held the Act's prelitigation resolution process applied here even though the Van Tassels had dismissed their statutory claim under the Act. The court concluded that McMillin is entitled to a stay pending completion of the prelitigation process.

We granted review.

II.

In deciding whether a statutory scheme alters or displaces the common law, we begin with a presumption that the Legislature did not so intend. ( Fahlen v. Sutter Central Valley Hospitals (2014) 58 Cal.4th 655, 669, 168 Cal.Rptr.3d 165, 318 P.3d 833 ( Fahlen ); California Assn. of Health Facilities v. Department of Health Services (1997) 16 Cal.4th 284, 297, 65 Cal.Rptr.2d 872, 940 P.2d 323 ( Health Facilities ).) To the extent possible, we construe statutory enactments as consonant with existing common law and reconcile the two bodies of law. ( Verdugo v. Target Corp. (2014) 59 Cal.4th 312, 326, 173 Cal.Rptr.3d 662, 327 P.3d 774 ; People v. Ceja (2010) 49 Cal.4th 1, 10, 108 Cal.Rptr.3d 568, 229 P.3d 995.) Only " ‘where there is no rational basis for harmonizing’ " a statute with the common law will we conclude that settled common law principles must yield. ( Health Facilities , ...