Last week, the Court of Appeal, Fifth Appellate District, was tasked with evaluating the enforceability of provisions in home purchase contracts containing alternative pre-litigation procedures which differ from the standard Right to Repair Act procedures. The Court of Appeal, in McCaffrey v. Superior Court of Fresno, et al. ultimately upheld the contractual provisions, and in overturning the trial court’s decision, preserved the rights of builders to contract around certain requirements set forth in the Right to Repair Act.
The McCaffrey Group, Inc. constructed single-family homes in a Fresno development. Plaintiffs consisted of 24 homeowners within the development who brought suit against McCaffrey for construction defects in their homes. The homeowners were comprised of three categories: (1) the original purchasers who bought their homes from McCaffrey before January 1, 2003 and had a 2001 version of McCaffrey’s contract; (2) the original purchasers who bought their homes from McCaffrey on or after January 1, 2003 and signed a 2003 version of McCaffrey’s contract; and (3) the subsequent purchasers who did not buy their homes directly from McCaffrey, but purchased their homes subject to either the 2001 or 2003 version of McCaffrey’s home purchase agreement.
In 2002, the Legislature enacted Senate Bill 800, often referred to as the Right to Repair Act. The Act includes a provision allowing a builder to contract for its own alternative nonadversarial pre-litigation procedures when a home is first sold (section 914). The homeowners filed suit against McCaffrey in May 2011 to recover damages due to defective construction of their homes, without engaging in the pre-litigation procedures contained in both versions of McCaffrey’s home purchase agreements. After answering the first amended complaint, McCaffrey filed a motion to compel enforcement of its non-adversarial procedures. The homeowners opposed the motion arguing all three categories of plaintiffs were not compelled to comply with the contractual procedures because these “alternative procedures” were irreconcilable with the standards set forth in Section 4 of the Right to Repair Act. After a substantial battle of briefs, the trial court eventually denied McCaffrey’s motion as to all homeowners on the ground the procedures were unconscionable, as the contracts were adhesive and the procedures lacked strict deadlines integral to the Right to Repair Act.
McCaffrey petitioned for a writ of mandate to overturn the court’s order denying its motion to compel compliance. By its motion, McCaffrey sought to compel Plaintiffs to engage in the nonadversarial dispute resolution process before being allowed to continue with their lawsuit. The Court of Appeal agreed.
The Court, having not previously addressed the issue presented in this matter, analyzed what constitutes enforceable contractual provisions, and held that if a builder opts out of the statutory procedures in favor of its own contractual procedures, then there is nothing in the Act requiring the builder to provide specific procedures or to comply with deadlines contained in Section 4 of the Act – the builder has, in essence, opted out of the entire Section 4. The Court further held that McCaffrey’s contractual provisions were not unenforceable merely because they deviated from the statutory procedures and that the homeowners had failed to meet their burden of establishing that the contractual procedures were unconscionable.
Applying this logic to all three categories of homeowners, the Court found all homeowners bound by the contractual provisions in both versions of McCaffrey’s home purchase agreement, vacated the trial court ruling and entered a new order granting the motion and compelling all of the real parties in interest to engage in the contractual pre-litigation procedures included in their contracts with McCaffrey.
The appellate court got it right. The Right to Repair Act allows builders to opt out of the standard SB 800 process. However, builders cannot enforce their own procedures and also demand compliance with the standard procedures.
This document is intended to provide you with information about construction law related developments. The contents of this document are not intended to provide specific legal advice. This communication may be considered advertising in some jurisdictions.