When the Right to Repair Act applies to suppliers

CONSTRUCTION CORNER

In 2002, the California Legislature passed Senate Bill 800 also known as the Right to Repair Act (Civil Code Sections 895 et seq.) in an effort to stem a then-rising tide of residential construction defect litigation.

The bill, which applies to newly constructed residential units including single-family homes and condominiums (but not condominium conversions) sold after Jan. 1, 2003, was intended to curb residential construction defect lawsuits by providing developers and others in the construction chain an opportunity to repair construction defects before being sued in court. SB 800 also sets forth minimum construction standards and limits the time in which a homeowner can bring a claim for construction defects.

In Acqua Vista Homeowners Association v. MWI, 7 Cal. App. 5th 1129 (2017), the 4th District Court of Appeal examined the circumstances in which homeowners can sue a material supplier under the Right to Repair Act.

The Case

Acqua Vista Condos, a 382-unit condo high-rise comprised of two towers, was built in 2004 in San Diego. In 2009, the Aqua Vista Homeowners Association sued the builder and others alleging various construction defects. Among the defendants was MWI, Inc., which supplied cast iron pipe for the project.

According to the homeowners association's complaint, the cast iron pipes, which had been manufactured in China, were failing in violation of the Right to Repair Act's minimum construction standards. The act provides that: (1) "[t]he lines and components of a plumbing system, sewer system, and utility systems shall not leak" and; (2) "[p]lumbing lines, sewer lines, and utility lines shall not corrode so as to impede the useful life of the systems."

At trial, tracking the language used in the Right to Repair Act, the jury was asked to determine if the cast iron pipe supplied by MWI "leaked" and whether they "corroded so as to impede the useful life of the plumbing/sewer system." The jury answered both questions in the affirmative finding MWI liable for a whopping $24 million in damages.

MWI appealed.

The Appeal

The Court of Appeal examined seemingly contradictory language contained in Section 936 of the Right to Repair Act which, on one hand, appeared to require that the homeowners association prove that MWI was either negligent or in breach of contract before being found liable. On the other hand, Section 936 could also be read to provide that the homeowners association need not prove that MWI was negligent or in breach of contract if it showed that MWI was strictly liable for the defective cast iron pipe:

"Each and every provision of the other chapter of this title apply to general contractors, subcontractors, material suppliers, individual product manufacturers, and design professionals to the extent that the general contractors, subcontractors, material suppliers, individual product manufacturers, and design professionals caused, in whole or in part, a violation of a particular standard as a result of a negligent act or omission or a breach of contract ... However, the negligence standard in this section does not apply to any general contractor, subcontractor, material supplier, individual product manufacturer, or design professional with respect to claims for which strict liability would apply."

That's a lot to digest, so let's break it down. In California, common law liability for defective construction is not recognized for mere economic loss (i.e., damage to the product itself but no resulting damage to someone (i.e., personal injury) or something else (i.e., property damage)). This is also known as the "economic loss rule." The Right to Repair Act abrogated the economic loss rule by setting forth minimum construction standards, and providing for liability for failure to meet those standards if a general contractor, subcontractor, material supplier, product manufacturer, or design professional "caused, in whole or in part a violation of a particular standard as a result of a negligent act or omission or a breach of contract."

In other words, so long as a minimum construction standard was not met, and that standard was not met because of the negligence of or breach of contract by a general contractor, subcontractor, material supplier, product manufacturer, design professional, the general contractor, subcontractor, material supplier, product manufacturer, or design professional could be held liable even where a defect is only to the product itself. That is, liability will be found even where damages are only for economic loss.

And, that's where the rub lies.

According to the homeowners association, the concluding language of Section 936, that, "[h]owever, the negligence standard in this section does not apply to any general contractor, subcontractor, material supplier, individual product manufacturer, or design professional with respect to claims for which strict liability would apply," meant that the homeowners association did not need to prove that MWI was negligent in order to be liable under the Right to Repair Act so long as the homeowners association could show that MWI would have been liable under common law strict liability.

The Court of Appeal disagreed. Reading Section 936 in context, the court explained that if the state Legislature intended to allow the homeowners association to prove liability based merely on the ground that MWI would have been found liable under common law strict liability, it would have eliminated both the negligence standard as well as the breach of contract standard. Rather, held the court, the Legislature intended that the homeowners association could who that MWI was liable for common law strict liability, but only if the homeowners association could also show that it suffered more than mere economic loss, which it could not do since the jury found only that the cast iron pipes "leaked" and that they "corroded" not that the defective pipe caused personal injury or property damage.

Conclusion

For homeowners, homeowners associations, and others with claims against contractors, material suppliers and design professionals subject to the Right to Repair Act, Acqua Vista clarifies that you can sue someone in the construction chain under the Right to Repair Act if you can show that they were either negligent or in breach of contract, or you can also sue them under common law strict liability. But if you do you will need to show either personal injury or property damage under the economic loss rule.