On January 18, 2018, the California Supreme Court resolved 15 years of debate when it issued McMillin Albany LLC v. Superior Court, S229762 (2018) __ Cal.4th __. In a broadly worded decision, the Court unequivocally held that the Right to Repair Act (the Act) is the “virtually exclusive remedy not just for economic loss but also for property damage arising from construction defects.” Accordingly, the defendant property developer was entitled to a stay of the litigation until plaintiffs complied with the Act’s pre-litigation notice, inspection and repair procedures.

The Right to Repair Act (codified at California Civil Code §§ 895 through 945.5) was passed as SB800 by the California legislature in 2002. The Act was the legislature’s response to lobbying from homeowner and construction interest groups reacting to the Supreme Court’s holding in Aas v. Superior Court (2000) 24 Cal.4th 627, 632, which 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.

The Act provides standards for building construction (§§ 896–897), governs builder obligations and warranties (§§ 900–907), creates a pre-litigation dispute resolution process (§§ 910–938) and sets procedures for lawsuits under the Act (§§ 941–945.5). The Act appeared to thoroughly revise the law for construction defect claims: “In any action seeking recovery of damages arising out of, or related to deficiencies in, the residential construction … the claimant’s claims or causes of action shall be limited to violation of the following standards, except as specifically set forth in this title.” Civil Code § 896.

Two cases interpreting the Act significantly limited its scope:

• In Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 98, the Fourth District held that a plaintiff may maintain common law causes of action for construction defects to residential property where actual damages had occurred because it was not clear that the Act intended to abrogate these common law causes of action.
• In Burch v. Superior Court (2014) 223 Cal.App.4th 1411, the Second District, citing to Liberty Mutual, held that the Act does not provide an exclusive remedy and does not limit or preclude common law claims for damages for construction defects that have caused property damage.

These issues reached the California Supreme Court in McMillin, where the plaintiffs’ complaint alleged construction defects in violation of the building standards in the Act in addition to common law causes of action. Plaintiffs later dismissed their cause of action under the Act. The developer, McMillin, filed a motion to stay the litigation pursuant to Civil Code § 930 until the plaintiffs complied with the pre-litigation notice, inspection and repair requirements. The trial court denied McMillin’s motion to stay because plaintiffs no longer maintained a cause of action under the Act, but recognized the question was not free from doubt and certified the issue for immediate review.

On appeal, the Fifth District thoroughly analyzed the plain language, statutory scheme and history of the Act and rejected Liberty Mutual and Burch, holding that the Act provides the exclusive remedy where the complaint alleges defective construction that constitutes violations of the standards set forth in Civil Code §§ 896 through 897.

The Supreme Court affirmed the Fifth District’s decision that McMillin was entitled to stay the litigation. It also thoroughly analyzed the Act’s plain language, statutory scheme and legislative history. In reaching its conclusion, the Court held that even though the plaintiffs dismissed their cause of action for violation of the Act’s building standards, their complaint still sought recovery for alleged construction defects. Therefore, the Act provided plaintiffs’ exclusive remedy.

The McMillin decision gives residential property developers authority to stay construction defect litigation until plaintiffs comply with the pre-litigation requirements. It also provides developers with a basis to eliminate common law causes of action except for breach of contract, fraud and personal injury claims, which are the only exceptions in the Right to Repair Act. This significant change is important as developers now are assured that they will have an opportunity to repair defects before expensive litigation is commenced. The decision also limits plaintiffs to the specific performance standards regarding each construction trade. Therefore, subcontractors could only be held liable for the specific standards and violations and the time periods set forth in the Act.