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California Construction Defect Case

A New Construction Defect Case To Sink Your Teeth Into

Ron White
Febrary 8, 2011

For a long time construction defects and California law seemed to go together like peanut butter and jelly. It got a little sticky, however, for trial courts trying to deal with large, complex, multi-party cases, and builders who faced sizable jury verdicts. After many years of prolific construction defect cases, numerous vanguard appellate decisions,  and some intense lobbying by the construction industry, the California legislature enacted SB 800 in 2002. The law requires home owners to give notice and an opportunity to repair construction defects to builders prior to filing a lawsuit. However, the law, now codified in California Civil Code sections 895 through 945.5, gives builders the option of implementing their own contractual pre-litigation procedures for notice and repair of construction defects. The intent is to give builders an opportunity to repair construction defects before lawsuits are filed. If all goes well, contentious, expensive litigation can be avoided altogether.

Previously I posted an article and referred to a then new case that answered the question of whether the pre-litigation procedures under SB 800 amounted to a claim for purposes of triggering an insurance company's duty to defend ( See A Case of First Impression: Duty to Defend Construction Defect Claims in Pre-litigation Proceedings, July 28, 2010). This post addresses another aspect of the law: what happens if the builder elects to implement its own pre-litigation procedures into the purchase contract, and those procedures are found to be legally unenforceable? Can the builder then compel the buyer to follow the statutory pre-litigation procedures before filing a lawsuit?  In another case of first impression regarding the interpretation of SB 800, the California 5th District Court of Appeal said no. 

In Anders  v. Superior Court (Meritage Homes of California), home owners filed a construction defect lawsuit against Meritage Homes of California. Some of the home owners purchased their homes directly from Meritage and some of them purchased their homes from the original owners who had purchased their homes from Meritage. The original purchase contracts contained the builder's version of a pre-litigation notice and opportunity to repair procedure. In response to the lawsuit Meritage filed a motion to compel the home owners to follow the contractual pre-litigation procedures. The home owners opposed the motion. The trial court ruled that the alternative contractual procedures were unconscionable and unenforceable but also ruled that the homeowners would have to comply with the SB 800 requirements before proceeding with the lawsuit, and issued an order staying the litigation pending completion of the statutory pre-litigation procedures.

The home owners then filed a writ of mandate with the court of appeal to overturn that portion of the trial court's order requiring them to comply with the statutory procedures. The home owners argued that SB 800 provides that, if the builder's alternative procedures are found to be unenforceable, the builder may not enforce the statutory pre-litigation procedures and home owners are free to file a lawsuit without compliance with those procedures. The court of appeal agreed and issued a writ directing the trial court to vacate that portion of its order that required the home owners to comply with the statutory pre-litigation procedures. This meant the stay of the lawsuit would be lifted and the home owners could proceed with their lawsuit.

Practical Applications Of The Case

  • Builders may be more likely to choose the statutory pre-litigation procedures rather than attempt to draft procedures that can withstand judicial scrutiny; and
  • In the event the purchase contract does contain contractual pre-litigation procedures of the builder's making, home owners may be more willing to ignore them, file a lawsuit, and argue that the contractual procedures are unconscionable and unenforceable. 

Final thoughts: As long as people try to build homes, there will be construction defects. Which means there will always be construction defect litigation. Given this fact, it is important to try to find fair and efficient ways to resolve them. SB 800 was supposed to be the answer but in my work as a mediator, I have found that the pre-litigation procedures are effective only to the extent there is some element of good will and mutual respect among the parties and for the process. The Anders case illustrates what can happen when one side seeks to impose an unfair advantage over the other side. While contracts serve the important purpose of clearly establishing the terms and conditions of the deal, when you try to leverage your position by imposing  burdensome conditions on the other party, it can put you in a real jam.

http://www.resolvingconstructiondisputes.com

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