Construction Defects

During the lifetime of a home, it may have many owners.  This case considered a subsequent purchaser’s ability to pursue a claim for fraudulent concealment against a developer and, where the facts of notice were in dispute, whether and when causes of action for negligence and strict liability first accrued.

Shapell Industries built a home in San Ramon, California, for Timothy Wright, then Shapell’s Assistant General Superintendent and Assistant Vice President of Construction. Wright oversaw the construction of the home in December 2002.  Shapell transferred the property without “formal disclosures that would be transmitted in a more conventional transaction.” Wright and his wife sold the home to Dr. Laux in 2004.  In the Real Estate Transfer Disclosure Statement prepared as part of the sale to Dr. Laux, Wright stated he was unaware of the presence of fill soil on the property.  Dr. Laux owned the property from 2004-2008, at which time he sold it to plaintiff Donna Stofer.  During the time he owned the home, Dr. Laux submitted multiple warranty repair requests to Shapell for problems ranging from cracked sidewalks, exterior stucco, and issues with the home’s windows and doors. At the time he sold the home to plaintiff, Dr. Laux denied any knowledge of any fill or soil subsidence issues.

Two years later, plaintiff sued Shapell for strict liability, negligence, and fraudulent concealment.  Plaintiff claimed Shapell built the home on unstable and uncompacted “fill” soil and with an inadequate foundation, causing, “substantial differential movement” and numerous defects such as cracked floors, walls, and ceilings.

The fraudulent concealment cause of action alleged Shapell hired ENGEO Incorporated (Engeo) as a soil engineer and that Engeo advised Shapell of the “highly differential, high plasticity fill soil conditions” on the property in 1995 and 1999 reports. Plaintiff alleged Shapell concealed this information from its structural engineer.  As a result, Plaintiff alleged that the engineer “did not take into account these soil conditions when designing the foundations.”

Shapell moved for summary judgment, contending it did not conceal any material information and Plaintiff did not have standing to sue because her claims accrued while Dr. Laux owned the home.  The trial court granted the motion as to Plaintiff’s fraudulent concealment claim.  It denied the motion as to Plaintiff’s other claims, concluding that the conflicting evidence offered by Shapell and by plaintiff as to what complaints Dr. Laux had and what complaints plaintiff had raised a triable issue of fact as to when the causes of action may have accrued.  The court then held a bench trial on the accrual issue, and entered judgment for Shapell, ultimately concluding plaintiff had “no standing to sue” because her claims accrued when Dr. Laux owned the home and he did not pursue them or assign the claims to Plaintiff.

Plaintiff appealed, contending that the order granting summary adjudication of her fraudulent concealment claim must be reversed. Shapell had argued (1) there was no evidence it concealed or suppressed the Engeo reports from the engineer or the original owner, Wright; and (2) the soil conditions were disclosed to Plaintiff before she bought the home through general real estate advisory forms.   Plaintiff argued that the general statements in the advisory forms were no substitute for proper disclosure of specific information known to Shapell regarding the property.

The appellate court agreed with plaintiff regarding the fraudulent concealment cause of action.  When the Court viewed the evidence and reasonable inferences in a light most favorable to plaintiff, it found there was a triable issue of material fact regarding whether Shapell concealed material information about the property soil conditions.

Plaintiff also contended that the judgment must be reversed because she was entitled to have a jury determine the disputed factual issues of “when and to whom the causes of action accrued.” The Court agreed.  The Court stated that a trial court may decide whether a Plaintiff has standing to sue for negligent design, engineering or construction of a building where the facts underlying the determination are undisputed.  However, when a determination of accrual in the construction defect context turns on disputed facts or require credibility determinations, the jury must make factual findings as to when the cause of action accrued and not make those findings by way of bench trial.

Here, the question of whether certain defects and consequential damages manifested themselves during Dr. Laux’s ownership, or whether they manifested themselves during plaintiff’s ownership was in dispute.  These same questions were central to the substantive merits of plaintiff’s tort claims for negligence and strict liability.  The court’s decision on these factual issues would turn in part on credibility determinations as well.  Given these disputed facts, these were questions for a jury to decide, rather than the court.  Summary adjudication by the court on the accrual issue was therefore inappropriate.

The Court reversed the summary judgment order in favor of Shapell on the fraudulent concealment issue, as well as the judgment in favor of Shapell following the bench trial on the accrual question.

COMMENT AND EVALUATION

This case confirms that fraudulent concealment causes of action may survive, even if brought by subsequent purchasers down the line who did not deal directly with the developer. In addition, the case confirms that where facts are in dispute (as they usually are), a trial court may not be able to make the determination on when a cause of action accrued.

It is very rare to find a construction defect case where critical issues of material fact are not disputed and a jury must be called upon to decide.  However, at the very least, a summary judgment motion may allow you to properly frame critical issues and force the Plaintiff to set forth evidence in support of their case.