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Construction Defect

The following cases address mutiple issues that arise in construction defect litigation. For more information about construction defect litigation, visit our selection of educational articles on construction defects and our construction defect litigation practice area.

  • Aas v. Superior Court (Damages for Defects Causing Tangible Physical Property Damages – “Economic Loss Rule”)

    Aas v. Superior Court (Damages for Defects Causing Tangible Physical Property Damages – “Economic Loss Rule”)

    Citation

    Aas v. Superior Court (2000) 24 Cal.4th 627

    Facts

    This matter involved two construction defect actions brought by a condominium homeowners association and owners of single-family homes in a subdivision (collectively, “Plaintiffs”) against a developer, a contractor, and subcontractors (collectively, “Defendants”). Plaintiffs alleged their dwellings suffered from a variety of construction defects. Plaintiffs asserted causes of action for negligence, strict liability, and breach of express and implied warranty. In pretrial proceedings, Defendants moved to exclude evidence of those alleged construction defects that had not caused property damage. The trial court granted Defendants’ motions as to the tort claims. Plaintiffs sought review of the rulings by petition for writ of mandate. The Court of Appeal denied the petition. The California Supreme Court granted review of that decision and affirmed.

    Held

    The California Supreme Court concluded that Plaintiffs could not recover damages in negligence or strict liability from the developer, contractor or subcontractors who built their homes for existing construction defects that had not yet caused either property damage or personal injury. The court explained that while tort law provides a remedy for construction defects that cause property damage or personal injury, the “economic loss rule” precludes recovery for defects that have not yet resulted in property damage or personal injury.

    NOTE

    In response to the holding in Aas, the California Legislature enacted Civil Code §895 et seq., also known as the Right to Repair Act (the “Act”). The Act establishes a set of building standards pertaining to new residential construction, and provides homeowners with a cause of action against, among others, builders and individual product manufacturers for violation of the standards. The Act makes clear that upon a showing of violation of an applicable standard, a homeowner may recover economic losses from a builder without having to show that the violation caused property damage or personal injury. In such an instance, the Act abrogates the economic loss rule, thus legislatively superseding Aas.

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  • Erlich v. Menezes (No Emotional Distress Damages)

    Erlich v. Menezes (No Emotional Distress Damages)

    Citation

    Erlich v. Menezes (1999) 21 Cal.4th 543

    Facts

    Plaintiffs Barry and Sandra Erlich contracted with defendant John Menezes, a licensed general contractor, to build a “dream house” on their ocean-view lot. The Erlichs moved into their house in December 1990. In February 1991, the rains came. The house leaked from every conceivable location. Mr. Menezes’s efforts to remedy the situation were to no avail. The Erlichs testified that they suffered emotional distress as a result of the defective condition of the house and Menezes’s invasive and unsuccessful repair attempts. Mr. Erlich even developed a permanent heart condition. The Erlichs sought recovery against Mr. Menezes on several theories, including breach of contract, fraud, negligent misrepresentation, and negligent construction. At trial, the Erlichs were awarded emotional distress damages along with compensatory damages. The Court of Appeal affirmed. The Supreme Court reversed the judgment of the Court of Appeal and remanded for further proceedings.

    Held

    Mr. Menezes’s negligence directly caused only economic injury and property damage and breached no duty independent of the contract. As such, the Erlichs could not recover damages for emotional distress based upon breach of the contract to build the house.

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  • Stearman v. Centex (Right to Recover Expert Fees and Costs Incurred to Investigate Defects)

    Stearman v. Centex (Right to Recover Expert Fees and Costs Incurred to Investigate Defects)

    Citation

    Stearman v. Centex Homes (2000) 78 Cal.App.4th 611

    Facts

    Defendant Centex Homes was a mass producer of homes in Southern California. In February 1990, plaintiffs bought a Centex tract house in San Clemente. Problems with the property began to appear shortly after plaintiffs moved in and continued over the next few years. In 1993, plaintiffs sued Centex Homes, stating only one cause of action, for strict liability in tort. Plaintiffs alleged defendant constructed the home on inadequately compacted soil, causing slab movement and deformation which, in turn, damaged the structure and yard improvements, diminished the property’s value, and required plaintiffs to incur expenses for remedial measures, including employing various professionals to assess the situation and make recommendations. Following a judgment in favor of homeowners, the trial court denied defendant’s motions for a new trial and judgment notwithstanding the verdict. The Court of Appeal modified the judgment to award plaintiffs expert fees as damages and affirmed as modified.

    Held

    Plaintiffs can recover under strict liability when a defect in one component part of a house causes injury to other component parts of the house, even though the damage is not to persons or property apart from the structure. Further, plaintiffs are entitled to recover as damages, fees paid to experts who investigated the foundation problems in order to formulate an appropriate repair plan. The expenses were damages due for a portion of the cost of repair, which is an appropriate measure of damages in cases based on damage to real property.

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  • Treo @ Kettner Homeowners Association v. Superior Court (Association’s Right to Jury Trial)

    Treo @ Kettner Homeowners Association v. Superior Court (Association’s Right to Jury Trial)

    Citation

    Treo @ Kettner Homeowners Association v. Superior Court (2008) 166 Cal.App.4th 1055

    Facts

    The association brought a claim for construction defects alleging common area claims for construction defect. The CC&Rs had a provision purporting to require the association to submit its claims to judicial reference, which is a form of a jury trial waiver in which a private referee makes all decisions in the case instead of a judge and jury. The developer filed a motion to compel the association’s claims to judicial reference, citing the CC&R provision as the “contract” for judicial reference between the association and developer.

    Held

    The right to a jury trial is a fundamental right protected by the California constitution. It can only be waived in a manner expressly provided for by statute. The statute allowing for judicial reference of claims requires a contract between the parties with a judicial reference provision. Because of the manner in which the CC&Rs are created (years before the association is created), the CC&Rs are not the type of document in which there is the free and voluntary consent on the part of the association as required to support a waiver of the association’s Constitutional right to a jury trial.

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  • Villa Milano v. Il Davorge (Association’s Right to Jury Trial)

    Villa Milano v. Il Davorge (Association’s Right to Jury Trial)

    Citation

    Villa Milano v. Il Davorge (2000) 84 Cal.App.4th 819

    Facts

    The association brought a claim for construction defects alleging common area claims as a representative of its members. The CC&Rs had a provision requiring the association to submit construction defect claims to arbitration. The developer filed a motion to compel the association’s claims to arbitration, citing the CC&R provision as an “arbitration agreement.”

    Held

    While the CC&Rs may be construed as an “arbitration agreement,” it was unenforceable because it was recorded against the property as part of the CC&Rs in a manner which precluded a finding the association had voluntarily agreed to arbitration. In addition, there are statutes in California suggesting that the legislature does not favor binding arbitration of claims in purchase contracts for new homes, so by analogy to purchase contracts, the mandatory arbitration clauses in CC&Rs are also against public policy.

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  • Windham at Carmel Mountain Ranch v. Superior Court (Association’s Standing to Pursue Implied Warranty Claims)

    Windham at Carmel Mountain Ranch v. Superior Court (Association’s Standing to Pursue Implied Warranty Claims)

    Caption

    Windham at Carmel Mountain Ranch v. Superior Court (2003) 109 Cal. App. 4th 1162

    Facts

    Plaintiff condominium association brought a breach of implied warranty action against defendant condominium developer. Claims for breach of implied warranty are considered contractual in nature and such claims generally require a showing of “privity” between two parties. The Superior Court of San Diego County dismissed the association’s claim, concluding that the association lacked the requisite privity of contract with the developer. The association appealed.

    Held

    Reversed (for association). The association has sufficient “privity” with the developer, by statute. Code of Civil Procedure §383 provides that associations have standing to sue in their own names as real parties in interest for damage to common areas and it deems associations to be owners of causes of action for damage to common areas with the right to relief for that damage. As such, the association had the requisite privity of contract not because privity was transferred from the owner of the condominium, but because the legislature by statute deemed the association to have the requisite privity of contract. Accordingly, the trial court erred by sustaining the developer’s demurrer.

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