SAN DIEGO— A recent California Supreme Court affirmation upholding SB800 as a “virtually exclusive remedy” in certain construction-defect cases gives a clear pathway to developers, whether they follow the provisions in the legislation or not, Allen Matkins' senor counsel, San Diego, Tim Hutter tells GlobeSt.com.

On January 18, the Court affirmed an earlier appellate-court decision holding that SB800 (Civil Code sections 895 through 945.5, also known as the “Right to Repair Act”) is the “virtually exclusive remedy” available to a plaintiff in new for-sale-residential construction-defect cases. According to Allen Matkins, the Court's decision in McMillin Albany, LLC v. Superior Court (opinion here) restores the clarity that many in the development industry thought they had secured when the Right to Repair Act was originally negotiated by stakeholder groups and became law on January 1, 2003. The opinion affirms the 2015 decision from the Fifth Appellate District of the California Court of Appeal (covered here). It also rejects the reasoning and holding in Liberty Mutual Insurance Co. v. Brookfield Crystal Cove, LLC, a 2013 decision from the Fourth Appellate District that permitted property-damage claims for construction defects based on commo- law theories, even though those claims would have been time-barred under SB800. The decision carves out and allows common-law claims for defects causing personal injury or death, but that was understood by all parties based on the clear terms of the Act.

The recognition of SB800 as plaintiffs' exclusive remedy for economic loss and property damage claims reinvigorates the statutory requirements for pre-litigation notice and investigation, and reinforces the importance of established statutes of limitation. As Allen Matkins explains it, while some builders may prefer to forego their right to repair and dive straight into litigation, others will welcome the chance to meet with homeowners and perform repairs in hopes of avoiding or limiting litigation.

We spoke with Hutter about his opinion of the California Supreme Court decision, what he sees as the main outcomes of this decision for the development industry and what might change for the industry going forward.

GlobeSt.com: What is your opinion of the California Supreme Court's decision?

Hutter: I think it came out the right way. It is a bit more nuanced than maybe some observers were expecting because the Court carves out three different types of damage—economic loss, property damage and personal injury—traces each and how they're treated in the statute and talks about what the legislature's intentions must have been for those three areas. This is the first time that type of approach was implemented by the Court. This legislation was a response to a prior decision from 2000, and getting back into that legislative history and looking at these three categories of damages, this is the right way to look at it and gives a clear opinion about how the law should be operating.

GlobeSt.com: What do you see as the main outcomes of this decision for the development industry?

Hutter: I think it puts some teeth back into SB800 in terms of claims where there is actual damage, claims where homeowners are going to notice: something is breaking, for example, or water is getting into a unit. It's a classic case of where you start down the pathway of repair. Some cases to go around SB800, skip the litigation process and go straight to court, and we saw that plaintiffs were going straight to court through common-law claims that had been resurrected under the Liberty Mutual case. That avenue now has been closed by the Court. A nice piece of irony is that by trying to skip the litigation process, the Van Tassels (the plaintiffs in the McMillin case) have spent five years litigating and will now be ordered to go through a prelitigation process five years later.

GlobeSt.com: How should the development industry protect itself from legal action in case of defect going forward?

Hutter: I'm not sure the development industry can do much differently. Exposure for construction defect is still there, and the standards spelled out in SB800 are still there, but this creates a clear procedural path for how that lawsuit is going to proceed. It clarifies the rules of the road a little bit. After the passage of SB800 through 2013, lawyers on both sides realized that that was the exclusive remedy. Then this case came up, creating longer timelines and confusion and allowing some claims to survive. But now everyone has a clearer picture once again—clear instruction on how cases are going to play out going forward.

GlobeSt.com: What else should the real estate industry know about this decision?

Hutter: Individual developers make their own decisions and have formed own judgments over the past 15 years ago about the effectiveness of SB800. Some developers don't bother with it—they consider it a waste of time—while others value the right to go in and make repairs; it's an extension of their customer-service process, and it can head off construction-defect litigation. Developers take different approaches for this area of law, and this decision won't necessarily change that. Those participating in SB800 now have the ability to control everything by going through that process, and those skipping it will probably continue to do that. It has limited value, but value nonetheless.

Instant Insights /

Implications of “Repair Act” Decision on Developers

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