Hicks v. Kaufman and Broad Home Corp. -
Recapturing Ground Lost In Community Association Construction Defect Litigation
by Daniel E. Angius, Esq. ANGIUS & TERRY LLP
Overview
During December 2000, the California Supreme Court released its ruling in Aas v. Superior Court (2000) 24 Cal.4th 627 (hereafter "Aas"). As discussed below, that ruling undermined the ability of, among others homeowners and/or community associations, to recover money from builders to repair construction defects arising out of their negligent acts and/or omissions.*
In June, 2001 the California Court of Appeal for the Second District released its decision in Hicks v. Kaufman and Broad Home Corp. (2001) 89 Cal.App.4th 908 (hereafter "Hicks"). Unlike the decision in Aas, the ruling in Hicks significantly advanced the interests of homeowners relative to the latters' ability to recover money from builders to repair construction defects in and to the homes in question.
By this article, the ramifications of the Hicks decision will be analyzed within the context of, among other things, the Supreme Court's decision in Aas.
Before exploring the ramifications of the ruling by the Supreme Court in Aas and the California Court of Appeal in Hicks it is important to understand certain of the legal duties that builders owe to home buyers. These duties are generally described below:
The builder owes a duty to a home buyer to construct the latter's home with reasonable care. What this means is that the builder will be held liable in a court of law if the builder was negligent with respect to the construction of the home and the home buyer suffered damage as result. A home buyer's legal claim for violation of such duty is generally referred to as a "negligence" claim. Sabella v. Wisler (1963) 59 Cal.2d 21.
The builder owes a duty to a home buyer to construct the latter's home in a manner so that it is free from "construction defects" regardless of whether or not the builder was negligent. What this means is that the builder will be held liable in a court of law if it is demonstrated that there are construction defects in and to the home. A home buyer's legal claim for violation of such duty is generally referred to as a "strict liability" claim. Avner v. Longridge Estates (1969) 272 Cal.App.2d 607.
The builder owes a duty to a home buyer to design and construct the latter's home in a reasonably workmanlike manner. A legal claim for violation of such duty is generally referred to as an "implied warranty" claim. Pollard v. Saxe & Yolles Development Company (1974) 12 Cal.3d 374.
The Holding In Aas
The Supreme Court's decision in Aas addressed the rights of a homeowner and/or community association to sue a builder for negligence**. The Supreme Court held that the homeowner and/or community association would only be permitted to recover money from the builder to correct the construction defects resulting from the builders' negligence if it could be demonstrated that actual physical property damage was caused to the homes within the development as a result of such negligence. By way of example, damage to a home that was caused by water infiltration through roofs, windows, doors or other exterior surfaces as a result of a construction defect would qualify as the physical property damage required for a negligence claim.
Conversely, the Supreme Court in Aas held that a homeowner and/or community association could not recover under a negligence claim if it could only show that it had suffered economic damage - as contrasted with physical property damage. Economic damages include the cost to repair a construction defect that has not yet caused any property damage, money to compensate for loss of use of the property, money to compensate for a diminution of value in the property, and the like. An example of economic damage would be circumstances in which a home was constructed with shear walls or other required structural building components that were either improperly installed or missing. No recovery would be allowed for such omission under a negligence claim unless it was first demonstrated that the home had suffered physical property damage (i.e., cracking, deflection and/or collapse of all or portions of the home) as a result. Likewise, and by way of further example, no recovery would be allowed in circumstances in which it was proven that all of the windows in the home were installed in a defective manner, but no leakage or other property damage had yet resulted.
Implied Warranty Claims Are Unaffected By The Ruling In Aas
The Aas decision did not, however, alter the law as it relates to the builder's liability with respect to an implied warranty claim. To these ends, it has long since been recognized by the Courts of this State that a builder owes an implied duty to build a home in a reasonably workmanlike manner so that it is of merchantable quality and fit for its intended purpose. See, Becker v. IRM Corporation (1985) 38 Cal.3d 454, 460; Pollard v. Saxe & Yolles (1974) 12 Cal.3d 374; Aced v. Hobbs-Sesack Plumbing Co. (1961) 55 Cal.2d 573. These warranties have their roots in Commercial Code Sections 2314 and 2315.***
As previously indicated, under the present state of the law, and unlike post-Aas claims for negligence, a homeowner may recover economic damages from the builder under an implied warranty claim.**** In this regard, recovery may be had for structural, fire resistivity, electrical, mechanical and, among others, plumbing deficiencies.
Though economic damages could, in principle, be recovered under implied warranty claims, prior to Hicks the trial courts in this State tended to require that the aggrieved homeowner demonstrate not only that he or she had suffered economic damages as a result of the construction defects in question, but that such construction defects were so severe that they rendered the home in question essentially uninhabitable. In so ruling, reliance was placed on decisions made by the California appellate courts in cases that did not involve construction defects in and to residential dwellings.
American Suzuki - The Implied Warranty Rule Before Hicks
The appellate court case often relied upon by the trial courts of this State to impose the rigorous standard that is described in the preceding paragraph was American Suzuki Motor Corp. v. Superior Court (1995) 37 Cal.App.4th 1291. In the American Suzuki case a class action was brought on behalf of the purchasers of Suzuki Samurai sports utility vehicles. It was the contention of the members of the class that the Samurai was manufactured so as to "create an unacceptable risk of a deadly roll-over accident when driven under reasonably anticipated and foreseeable driving conditions". Under the theory of implied warranty, the members of the plaintiff class sought to recover for themselves and all other owners of such vehicle the cost of repairing the inherent safety defect. The members of the American Suzuki class did not allege, however, that they had suffered any property damage or personal injuries as a result of the alleged design defect. Instead, the American Suzuki class members relied on the declaration of an expert who testified that the Samurai had a rollover design defect which rendered it unsafe.
The question addressed by the American Suzuki court was whether the members of the plaintiff class could recover for breach of implied warranty in circumstances in which the members of the class suffered no personal injury or property damage from the vehicle they claimed was defectively designed. The American Suzuki court concluded from the evidence that because only a small percentage of Samurais had been involved in rollover accidents, the Samurai was not defective as a matter of law and that the members of the plaintiff class could not, therefore, recover the money that they sought.
In making such ruling, the American Suzuki court established a standard that it believed must be met before a person suing under a claim for breach of implied warranty would be allowed to succeed with respect to his or her legal claim against the manufacturer/builder of the product that was allegedly defective. Specifically, the American Suzuki court held that before recovery would be allowed under a breach of implied warranty claim, the purchaser had to demonstrate that:
"the vehicle in question manifests a defect so basic that it renders the vehicle unfit for its ordinary purpose of providing transportation".
Translated within the context of construction defect litigation, the holding in American Suzuki was construed by many trial courts in the State to mean that recovery under the theory of breach of implied warranty would only be allowed if the home in question manifested a defect so basic that it rendered the home unfit for its ordinary purpose of providing shelter. This was a difficult standard to meet. For example, consider whether the following typical construction defects are so basic as to render a condominium unit unfit for its ordinary purpose of providing shelter:
Plywood shear wall panels that did not have the thickness to meet the minimum standards prescribed by the Uniform Building Code thereby giving rise to the increased likelihood of property damage and/or personal injury in the event of an earthquake.
Drain, waste and vent lines that had an interior diameter less than the minimum diameter prescribed by the Uniform Building Code thereby giving rise to the potential for line obstruction and effluent "backwash" into the home in question.
Party walls that were constructed without meeting the minimum Uniform Building Code required standards for fire resistivity.
Clearly, and upon appropriate disclosure to a prospective buyer, the existence of the above described construction defects would have a direct, immediate and downward impact on the sales price of the property in question thereby resulting in a monetary loss to the owner of such property. This loss would be directly attributable to the failure of the builder to construct the subject home in accordance with generally recognized standards in the building industry. However, the homeowner in question would probably have no right of recovery against the builder under Aas with respect to negligence or strict liability theories of liability as there was no resultant property damage in existence. In addition, recovery under an implied warranty claim under American Suzuki would be questionable because a jury could conclude that such construction defects were not so basic as to render the home in question unfit for its ordinary purpose of providing shelter. It is self-evident that such result is fundamentally wrong. As discussed below, the Hicks decision constituted a step towards remedying such wrong relative to implied warranty claims.
The Hicks Decision
In Hicks a group of homeowners brought a class action lawsuit against Kaufman and Broad Home Corporation (hereafter "Builders") in order to recover money to repair the concrete foundation slabs that supported the subject homes. It was the homeowners' contention that the concrete foundation slabs were inherently defective and subject to cracking because the Builders constructed them using Fibermesh, a polypropylene product, instead of welded wire mesh. The homeowners further claimed that by virtue of such inherent defect, the Builders had breached the implied warranties that were made to each of the class members at the time that they purchased their respective homes.
Both the homeowners and the Builders agreed that Fibermesh did not cause concrete slab foundations to crack. It was conceded that such cracking is caused by a loss of moisture as the concrete dries and by other occurrences such as soil erosion and earthquakes. It was also undisputed that neither welded wire mesh nor Fibermesh will prevent cracks from occurring in a concrete slab foundation. The homeowners claimed, however, that welded wire mesh will restrict such cracks to a hairline width and thus maintain the integrity of the concrete slab. On the other hand, the homeowners claimed that foundation slabs built with Fibermesh exhibit predominantly wider cracks which split the foundation into pieces and permit moisture, dirt and insects to intrude into the house, cause bumps in the flooring, and do not resist horizontal and vertical ground movement as well as slab built with welded wire mesh.
In response to the foregoing, the Builders claimed that the homeowners could not succeed in their case for breach of implied warranty unless each of them first proved that his or her Fibermesh foundation had already cracked or split in a way that would not have occurred if the foundation had been constructed using welded wire mesh.
The homeowners countered that they did not have to prove that their Fibermesh foundations had already cracked or split in order to succeed under the legal theory of breach of implied warranty. Instead, the homeowners argued that all that they were required to demonstrate relative to the condition of the foundations was that Fibermesh was an inherently defective product the use of which was substantially certain to lead to foundation failure in the future.*****
The Hicks Court agreed with the homeowners. It ruled that it was not necessary to demonstrate that the Fibermesh slabs had already cracked, split or evidenced any other form of malfunction in order to succeed under a breach of implied warranty theory. In so holding, the Hicks Court concluded as follows:
"We conclude therefore, if plaintiffs prove their foundations contain an inherent defect which is substantially certain to result in malfunction during the useful life of the product they have established a breach of [the Builder's] express and implied warranties. It is not necessary for each individual homeowner to prove his foundation has already cracked or split or that he has suffered property damage as a result of the cracking or splitting. We see no reason why a homeowner should have to wait for the inevitable injuries to occur before recovering damages to repair the defect and prevent the injuries from occurring."
In making the above ruling, the Hicks Court made it clear that its decision was entirely consistent with the holding and legal reasoning in American Suzuki. In harmonizing these decisions, the Hicks Court reiterated the obvious - a car is not a house. Nor is a tire a house. In so doing, it observed as follows:
"American Suzuki and Feinstein****** are distinguishable from the case at bench. Those implied warranty cases were not decided on the ground a defect must have resulted in the product malfunctioning in order to give rise to a suit for breach of warranty. Rather, they were decided on the ground that since there was no history of the products failing they were not, as a matter of law, defective. Foundations, however, are not like cars or tires. Cars and tires have a limited useful life. At the end of their lives they, and whatever defect they may have contained, wind up on a scrap heap. If the defect has not manifested itself in that time span, the buyer has received what he bargained for. A foundation's useful life, however, is indefinite. Some houses continue to provide shelter for centuries. And, in contrast to the cars and tires in American Suzuki and Feinstein, plaintiffs in the case at bench presented expert testimony based on observations and analysis showing foundations containing Fibermesh 'will someday most likely crack badly' and cause problems such as insect and vermin infestation, bumps in the floor and premature wearing of carpet and damage to vinyl floor coverings and ceramic tile."
In assessing the impact of Hicks, let us revisit the hypothetical construction defects that were analyzed above within the context of the Aas and American Suzuki court decisions. Under those decisions, the homeowner or community association in question faced an "uphill battle" to prove that they were entitled to recover money from the builders under an implied warranty claim to address the specified:
(1) Plywood shear wall defects;
(2) Drain, waste and vent line defects; and
(3) Party wall fire resistivity defects.
However, under Hicks it is most likely that a homeowner or community association would be in a position to demonstrate that by virtue of the presence of one or more of the above conditions, the homes in question demonstrated "an inherent defect which [was] substantially certain to result in malfunction during the useful life of the [homes]" so as to satisfy the rule set forth in such court decision. In short, proving the existence of present damage to a home or that such home has a defect so basic that it renders the home unfit for its ordinary purpose of providing shelter is no longer necessary to prove a claim for breach of implied warranty so long as there is a substantial certainty that such physical damage will manifest itself during the useful life of the home in question.
Conclusion
The Hicks decision has significantly advanced the rights of, among others, homeowners and community associations. Though it does not overturn the Supreme Court's decision in Aas, it rebukes the rule in American Suzuki and provides a much needed vehicle for consumers to recover money for construction defects under implied warranty claims.
Footnotes
__________________________
* California Code of Section 383 confers on community associations legal standing to sue, on behalf of the individual homeowner members of the association, the builders for construction defects which relate to the following: (a) damage to the common areas; (b) damage to the separate interests which the association is obligated to maintain or repair; (c) damage to the separate interests which arises out of, or is integrally related to, damage to the common areas or separate interests that the association is obligated to maintain and repair.
** At the trial court level, the Aas plaintiffs argued that they were entitled to recover economic damages under their strict liability claims. They did not, however, pursue such argument before the California Supreme Court. Their decision in this regard was in apparent recognition of pre-existing California case law standing for the proposition that recovery under a strict liability claim would be limited to recovery for actual physical property damage - not economic damages.
*** It is also to be recognized that Builders continue to be exposed for economic damages under breach of contract and or breach of express warranty claims. However, and because each such claim is fact specific to the contract in question, these theories will not be addressed here.
**** Unlike negligence or strict liability claims, however, in order to assert a claim for breach of implied warranty the person suing must have purchased the home directly from the builder in the typical case. A breach of warranty claim is typically not available to a subsequent purchaser.
***** In support of such contention the homeowners submitted to the trial court a declaration from an expert in such field. That declaration provided as follows:
"I have ... inspected and investigated the performance of both wire mesh and Fibermesh in holding concrete together after it cracks. Without exception, the wire mesh has held cracks closely together and they rarely exceed hairline proportion. Fibermesh allows the cracks to separate, causing a loss of the interlock of the aggregate and in effect creating multiple slab pieces from what was to have been one slab ... [S]lab replacement is necessary to correct the problem, regardless of the condition of the slab at the present time. Whether any particular slab has actually yet cracked, and or the width of any particular crack at the present time, are not material factors. The fact that a slab has not yet cracked which would be rare - does not mean that environmental factors will not later cause a crack. If a crack has not separated, environmental factors will later likely cause separation."
****** Feinstein v. Firestone Tire and Rubber Co. (1982) 535 F.Supp. 595. In Feinstein the Federal District Court for the Southern District Court of New York heard a class action lawsuit brought by purchasers of tires that were allegedly defective. In ruling against the class of purchasers, the Court held that the class had failed to demonstrate a malfunction of the subject tires. In so doing, it observed as follows:
"[t]he majority of the tires sold to putative class members [did] what they were supposed to do for as long as they were supposed to do it."
[END]
|
