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CONSTRUCTION DEFECT:
SLIPPING AND CRUMBLING HOME DEVELOPMENTS
by
Raymond Paul Johnson
Thomas H. Schelly
Raymond Paul Johnson, A Law Corporation
2121 Rosecrans Avenue, Suite 3400
South Bay Los Angeles
El Segundo, CA 90245
I. INTRODUCTION
The construction of
new homes is always work in progress. In boom times and down times,
the demand for new houses may grow or shrink, but it never stops.
Home construction
however involves many aspects: Soil testing, grading, foundations,
fire-proofing, architectural drawings, framing, roofing,
fenestration, plumbing, and electrical work. Any or all of which
can be improperly performed, manufactured, or installed, often
causing widespread disaster. In fact, some defects cause complete
catastrophe, requiring major repairs that can cost more than the
original project itself. Liability can exist with any one of the
parties involved in the process.
Construction defect
litigation is a growing and developing area of law. A complete
discussion of the many situations, claims, and procedures could fill
volumes. This article will not help, for example, with telling the
difference between silty sand and sandy silt, or whether a torque
test is required for a shear wall hold down. It will however
provide insight, allowing the reader to better recognize and react
to potentially viable construction defect cases.
II. GETTING STARTED
A. The Applicable Law
Homeowners are often
the first to recognize major defects. After all, they live with
them. As a result, this article assumes that homeowners are your
potential clients.
First, consider when
the construction was completed. If the homes at issue were built
and first sold after 2003, you need to know the detailed changes in
the law created by Senate Bill 800, now sections 43.99, and 895
through 945.5 of the California Civil Code (“CCC”). Although
several of the statutes have been amended (including special
provisions for homes lost in the 2003 Cedar Fire in San Diego
County, which are set to expire in 2008) the statutes are generally
referred to as “SB 800.”
Despite the rather
sweeping nature of the statutes, these laws apply only to “new
residential units where the purchase agreement with the buyer was
signed by the seller on or after January 1, 2003.” Thus, all
commercial (i.e., nonresidential) developments, and residential
properties sold prior to 2003 are unaffected by SB 800.
If applicable, several
aspects of SB 800 must be kept in mind. First, prior to filing a
lawsuit, if a potential defendant is the builder, the homeowners
must give notice, providing the builder with detailed information
about the claim. CCC § 910. The builder then has the right to
inspect and even conduct testing of the property. In addition, the
builder can attempt to repair the problems. CCC §§ 917 and 919. If
the homeowners are not satisfied with the attempted repairs, they
must mediate the matter prior to filing the lawsuit. CCC
§ 928.
The builder can then
offer a cash settlement in exchange for a release from the
homeowners. CCC § 929. If mediation/settlement is unsuccessful,
only then may the homeowners proceed with filing a lawsuit. Also
note that the pre-litigation requirements imposed by SB 800 have
teeth – failure to provide the builder with their statutory rights
will not only stay the litigation, but the homeowners may have to
reimburse the builder’s legal fees for obtaining the stay. CCC §
930(b).
B. Statutes of Limitations
Generally,
construction claims are governed by the statutes-of-limitations one
would expect – four (4) years for breach of a written contract (CCP
§ 338), two (2) years for breach of an oral contract (CCP § 339),
and two (2) years for negligence causing personal injury (CCP §
335.1).
As to claims
specifically associated with “construction defects,” the
statutes-of-limitations vary depending on whether the property falls
within the provisions of SB 800 (i.e., new residential construction
sold after 1/1/2003). If the property does not, a lawsuit for
damage to property caused by builder negligence must be filed within
three (3) years of the date the homeowners knew, or should have
known of the wrongful conduct. CCP § 338(b). In addition,
homeowners have four (4) years from the date of substantial
completion of the subject property to bring an action for patent
defect or deficiency, and ten (10) years for any latent defect or
deficiency. CCP §§ 337.1 and 337.15.
For properties covered
by SB 800, the statutes-of-limitations are different and can vary
depending on the nature of the claim or defect. See e.g. CCC §§ 896
and 941. In no instance, however, including properties within the
purview of SB 800, may homeowners bring an action more than ten (10)
years after substantial completion of the project. CCC § 941.
C. Investigating the Claim
1. Investigation Techniques and Costs
Investigate early.
Nail down all of the defects and potentially liable defendants at
the beginning. Note that depending on circumstances, homeowners may
be precluded from adding new parties after a certain time.
In addition, depending
on the progress of the litigation, any new party may be entitled to
continue the trial date in order to have sufficient time to “get up
to speed” with the litigation. See Cal. Rules Court, Rule
3.1332 ( c)(5)(A). Even if a new party does not seek a trial
continuance, other defendants or cross-defendants may try seizing
the opportunity, claiming they need additional time to incorporate
the new party into their case. See Cal. Rules Court, Rule
3.1332 ( c)(5)(B).
Identifying the
defects will lead you to the potential defendants. And of course
the more viable defendants you join in the action, the more
insurance policies and assets available to facilitate early
settlement, or pay the verdict. The nature of the defects signals
the viability of the lawsuit, and the amount of recoverable
damages. For example, defects in grading or foundations causing
houses to slip or crumble could require removing some or all of the
subject homes, and will result in greater potential recovery than
less significant defects, such as negligently built retainer walls.
Fully investigating
the claims requires hiring experts in multiple disciplines and
various trades. For example, investigating homes that are sinking
into the ground (usually due to improper soils compaction and/or
defective foundations) could require an architect, a geotechnical
engineer, a geologist, a structural engineer, a general contractor
and/or a grading contractor. Such an investigation will require
testing of soil composition and compaction, the manner and method of
grading, the construction of the foundation, and whether the overall
construction of the homes was appropriate given ground conditions.
Depending on the results of the investigation, potential defendants
could include the architect, his/her consultants, the general
contractor and several subcontractors.
This type of
investigating can be expensive, time consuming and, if the
homeowners are still occupying their homes, very disruptive to your
clients’ lives. Occasionally, a portion of the property will have
to be destroyed or opened (referred to as destructive testing) to
investigate the problems. Careful planning and coordination are
necessary to minimize costs - in dollars, time and disruption.
Your investigation
will not only reveal the nature of the defects, but the cost to
repair. Traditionally, recoverable damages were the lesser of
diminution-in-value to the properties or the cost-to-repair the
defects. Repair costs, however, are usually greater than
diminution-in-value, and homeowners generally should emphasize
cost-of-repair as potential damages. Depending on the
circumstances, courts often allow homeowners to recover repair
costs, despite lesser diminution-in-value. See e.g. Raven's Cove
Townhomes, Inc. v. Knuppe Development Co. (1981) 114 Cal.App.3d
783, 801 - 02. In addition, CCC § 944 codified the determination of
damages as, inter alia, the cost of repairs.
Moreover, the
expenses associated with investigating the defects and the
cost-of-repair are often recoverable as part of the homeowners’
damages. See Stearman v. Centex Homes (2000)
78 Cal.App.4th 611. These are often referred to as “Stearman
costs” or “Stearman fees.” The recovery of
investigation costs was codified by SB 800 at CCC § 944. [Note: As
most construction contracts have attorney fees or litigation cost
provisions, which award costs and fees associated with bringing an
action to the prevailing parties, the homeowners may also be able to
recover investigation expenses pursuant to contract].
2. Experts
Experts are usually
essential to establish liability. See e.g. Miller v. Los Angeles
County Flood Control District (1973) 8 Cal. 3d 689. In
addition, if the homeowners’ claim is against the architect or any
other “licensed design professional” (as defined in California
Business & Professions Code §§ 5500, 6700, and 8700), expert
testimony is required to establish liability. See e.g.
Huber, Hunt & Nichols, Inc. v. Moore (1977) 67 Cal. App. 3d 278.
If the architect or
other design professional was responsible for the defects,
homeowners must comply with still another hurdle (not applicable to
developers or contractors). In that case, California law requires
that the plaintiffs’ attorney consult with at least one design
professional who is expert in the same discipline as the potential
defendant. See CCP § 411.35(b)(1); and Guinn v. Dotson
(1994) 23 Cal.App.4th 262. The attorney must also obtain an opinion
from the consultant that there is “reasonable and meritorious” cause
for filing of the lawsuit. CCP § 411.35(b)(1). In addition, the
consultant must render an opinion that the defendant was negligent
in performing the professional services. Id.
Having secured the
consultant’s opinions regarding the merits of the claim and the
defendant’s negligence, the attorney must sign a “certificate of
merit.” This certificate must then be filed and served on the
defendant along with (or even prior to) the complaint. CCP §
411.35(a).
If the statute of
limitations is looming and you do not have time to obtain a
consultation, you must file a certificate stating that you were
unable to obtain a consultation prior to the running of the statute
of limitations. CCP § 411.35(b)(2). You then have sixty days from
the filing of the complaint to consult with the appropriate design
professional, and file and serve a certificate of merit attesting
that the action is meritorious and that the defendant was negligent
in the performance of professional services.
You do not have to
reveal the name of your consultant, nor attach any additional
information to the certificate. However, failure to file a
certificate is grounds for demurrer and/or a motion to strike. CCP
§ 411.35(g). And failure to comply with these filing requirements
could constitute unprofessional conduct, and result in State Bar
discipline. CCP § 411.35(f).
In addition to the
experts mentioned above, homeowners may need others, including
cost-of-materials experts and economists. Keep in mind that experts
can be expensive. The hourly fee, especially for design
professionals, can be as high as that of highest-paid hourly
lawyers. In that regard, it is very important at the outset of any
construction defect case to clearly define and limit each expert’s
role in the investigation and ensuing litigation. Often, one expert
can be qualified in several different disciplines (e.g.,
architect/general contractor). Where practical, consider using an
expert who is multi-qualified to help control costs.
As the homeowners’
attorney, you must be diligent in keeping expert costs to a
minimum. Review the invoices and demand, at least orally, an
explanation of what was done and why. Not only are construction
defect cases multi-expert, multi-party and highly technical, they
are document intensive, often necessitating the use of a separate
facility to store and manage the documents (such as a depository).
As the homeowners’
attorney be judicious in deciding which documents which experts will
receive for review. Indiscriminately giving all documents to every
expert can skyrocket costs. You do not want to overwhelm your
“soils” experts with detailed architectural drawings that they spend
time reviewing to no avail. On the other hand, too little access to
important materials may result in documents not properly analyzed.
The associated level of understanding and judgment takes time to
develop. If necessary, consult with other plaintiff lawyers who are
experienced in the construction defect field for guidance.
III. THE MAJOR PLAYERS
Generally, the
defendants in a construction defect lawsuit fall into three broad
categories - the developer, the design professionals (e.g.
architects and engineers) and those involved with the actual
construction (contractors, subcontractors, material suppliers,
etc.). Each “set” of potential litigants has its own idiosyncracies.
In most construction
defect cases, the homeowners usually bring an action against the
developer and/or general contractor. The general contractor may
then bring a cross-action against the various subcontractors it
retained for the project. Issues of contractual privity, duty
(both contractual and tort-based), warranties (both express and
implied), indemnity (both express and equitable), to name a few, all
come into play in a construction defect action.
A. The Developer
Generally speaking,
the developer acquires the raw land and improves (i.e., develops)
it. The developer finances, either directly or with investors, the
subdividing of the property and preparations for later home
construction.
Often, the developer
takes the matter one step further and is responsible for actual
construction of the homes. It hires the contractor (although,
often, the developer is also the contractor) and the architect, and
ultimately is the one who sells the homes to individual homeowners.
Home building is big,
big business. Home building often involves enormous amounts of
money and affects the lives of hundreds, if not thousands, of people
(think “The American Dream.”). Consequently, the courts rightfully
consider the large-scale developer as they would any other
manufacturer of products for sale to the public.
Provided the developer
is engaged in the “mass production” of homes, homeowners may assert
a claim for strict liability, much as one would assert strict
liability against an automobile manufacturer. This was first
articulated in Kriegler v. Eichler Homes, Inc. (1969) 269
Cal.App.2d 224, 227-28, and recently upheld by the California
Supreme Court in Jimenez v. Superior Court (2002) 29 Cal.4th
473.
Who is and is not a
“mass developer” or “mass producer” of homes remains a question of
fact to be determined on a case-by-case basis. See e.g. Fleck v.
Bollinger Home Corp. (1997) 54 Cal. App. 4th 926, 934–35.
Clearly, however, a well-known builder (e.g., Centex Homes, Lennar,
KB Homes) who constructs a development with hundreds of homes would
be considered a “mass developer,” and therefore is strictly liable
for any defects in the construction.
When relatively few
homes are involved, the issue becomes more complicated. A cause of
action for strict liability has been denied where the number of
homes built was two. Oliver v. Superior Court (1989) 211
Cal.App.3d 86. It was upheld where the developer had only built
eleven homes. Fleck v. Bollinger Home Corp. (1997) 54
Cal.App.4th 926.
Investigate the
developer’s history, with respect to the homes at issue as well as
general background, to determine whether the developer is a “mass
developer” engaged in home building on an industrial scale, or a
small-time developer merely dabbling in occasional or sporadic home
building. See e.g. Siders v. Schloo (1987) 188 Cal. App. 3d
1217. Use the internet, visit the developer’s website, and get into
your car and put your eyes on the development.
In addition, if the
developer is also the seller of the homes (which is often the
case), the developer may be liable under additional tort theories,
including intentional torts. For example, the developer may be
liable for fraud for intentionally misrepresenting the condition of
the property, concealing or otherwise attempting to hide defects, or
failing to disclose defects which it knew or should have known
existed and which would affect the purchaser’s decision to buy
the property. With respect to fraud, intentional misrepresentation,
or any other fraud-based claim, the SB 800's statutory provisions do
not apply. CCC §§ 931 and 943. Of course, where fraud-based causes
of action are involved, the homeowners may seek punitive damages in
addition to any compensatory damages. See e.g. Walker v. Signal
Companies, Inc. (1978) 84 Cal.App.3d 982.
B. The Contractor
The general contractor
is responsible for the actual construction of the homes. It
determines the means and methods to be used in the construction of
the project in accordance with the contract documents. In nearly
every instance, the general contractor is responsible for soliciting
the bids and retaining the various subcontractors and trades,
supplying the material and equipment, and ensuring that the work is
performed in a good and workmanlike manner. See e.g. Pollard v.
Saxe & Yolles Development Company (1974) 12 Cal.3d 374. The
general contractor should always work closely with the architect and
the developer to ensure that the project is completed in a safe,
timely and cost effective manner. Occasionally, the general
contractor is also the project architect and/or the developer, which
makes coordination even easier.
Consequently, a
general contractor who fails to construct the homes in a defect-free
manner, selects insufficient or improper materials, fails to follow
the plans and specifications set forth by the architect and other
design professionals, or otherwise fails to exercise due care in the
construction of the homes is liable to the homeowners for resulting
damages. Moreover, general contractors are held to have impliedly
warranted that the construction will be completed in a good and
workmanlike manner, and as such can be liable for breach of implied
warranty. Pollard v. Saxe & Yolles Development Company, supra.
In addition, because
the general contractor also is liable for the damages caused by the
negligence of its subcontractors, the failure by any (or all) of the
subcontractors to perform their duties in a good and workmanlike
manner will rise up to the general contractor. One note of caution:
If the owner has knowledge of a defect prior to accepting
completion, the contractor may have a complete defense to a
negligence claim. See e.g. Sanchez v. Swinerton & Walberg Co.
(1996) 47 Cal.App.4th 1461.
Another item of
caution: Contractual breaches do not necessarily result in a
negligence claim. A general contractor’s breach of a contractual
duty, without more, may not be sufficient to support a negligence
claim, unless an independent tort duty (i.e., a duty other than
those outlined in the contract) has been violated. See e.g.
Erlich v. Menezes (1999) 21 Cal. 4th 543. Unless the breach of
contract also violates some social policy that would warrant the
imposition of tort remedies, the homeowners may be limited to
breach-of-contract claims. Id. Whether an independent tort
duty is owed is a question of law, dependent on the foreseeability
of the risk and various policy considerations. Id.
If the contractor’s
failure to complete the work results in property damage, however, an
independent negligence action is permissible. See e.g. Aas v.
Superior Court (2000) 24 Cal. 4th 627 [superceded in part by SB
800 statutes]. The issue of whether a homeowner could bring a tort
claim without attending property damage was highly contentious. In
Aas v. Superior Court, supra, the California Supreme Court
limited homeowners to a breach-of-contract claim in instances where
the defects had not caused physical damage to the property (often
referred to as the “economic loss rule”). Partially in response to
the Aas decision, the state legislature enacted SB 800, which
establishes a detailed statutory scheme regarding
construction defect actions.
C. The Subcontractors
The subcontractor is
typically an individual or company that specializes in a specific
area of construction (e.g., concrete, plumbing, electrical work,
etc.). It generally has contracted with the general contractor (or
another subcontractor) to work on a given project in accordance with
its specific specialty or trade. In addition, a subcontractor may
also be a materials supplier (e.g., lumber, concrete, etc.).
Generally, the
liabilities assumed by a subcontractor are similar to those assumed
by a general contractor, only scope and scale tend to be less.
Subcontractors are not responsible for the project’s completion,
only the completion of their own scope of work. If the
subcontractor completes its own specific work in a good and
workmanlike manner, in accordance with the project’s plans and
specifications, the subcontractor may not be liable to the
homeowners. Often, however, a gray area develops between the
subcontractor’s work and that of others which requires it to be a
party to the litigation.
D. The Architect
Generally, the
architect assumes three distinct roles in a construction project.
In the first instance, he or she prepares the initial plans and
specifications. In this role, the architect is an independent
contractor, and may be sued for negligence in the preparations of
plans and specifications by his or her client.
Secondly, during the construction phase of the
project, the architect is the homeowner’s agent, observing the
construction work as it progresses, reporting back to the homeowner
and responding to changes, modifications and events that occur “in
the field.” Thirdly, the architect is a quasi‑judicial officer who
may act as arbiter in resolving disputes between the homeowner and
the contractor. See e.g. Huber, Hunt & Nichols, Inc. v. Moore,
supra.
Some construction defect
cases, especially those involving mass developments, may not involve an
architect as a defendant, unless the architect was retained directly by
the homeowners (as opposed to the developer). Lawsuits involving
architects and other design professionals, as primary defendants,
typically involve issues ranging from design deficiencies to
intellectual property disputes. When architects are named as
defendants by homeowners, it is typically because of a “failure to
observe” by the architect. Architects will be held to the standard of
care applicable among the members of the profession in the community.
See e.g. Huber, Hunt & Nichols, Inc. v. Moore, supra. In nearly
every instance, this standard of care is established through expert
testimony. Id.
Although claims for strict
liability and warranty may be filed against the contractor and/or the
developer, because architects (and other design professionals) usually
provide a service (as opposed to materials or product), California law
generally precludes asserting a cause of action for strict liability or
breach of implied warranty against them. See e.g. Huang v. Garner
(1984) 157 Cal.App.3d 404 [disapproved on other grounds in Aas v.
Superior Court, supra]. SB 800 however establishes standards for
residential design and construction, the violation of which gives rise
to liability on the part of design professionals, including the
architect. CCC § 896. If applicable, SB 800 can be argued to establish
a type of statutory “strict liability” for architects.
IV. CONCLUSION
Construction defect
litigation is demanding, challenging, expensive and complicated, but
when properly handled, it is also very rewarding. Homes remain “The
American Dream.” To finally obtain one, and then fall victim to
construction defects is a “consumer nightmare.” When that nightmare
affects the lives of hundreds of homeowners in a California mass
development, it becomes a tragedy: A widespread wrong that can and
should be prosecuted by consumer lawyers.
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