Tuesday, February 8, 2011
C.A. Clarifies ADR Legislation on Home Construction Defects
Builder Whose Procedures Were Unconscionable Waived Rights Under Statute—Panel
By KENNETH OFGANG, Staff Writer
Homebuyers who contractually agreed to an alternative dispute resolution procedure that was subsequently held unconscionable by a court could not be compelled to engage in a statutory ADR process, the Fifth District Court of Appeal ruled yesterday.
Ruling on what it said was an issue of first impression, the court said the plain language of SB 800, enacted in 2002, gives the builder the right to choose between the statutory procedures and its own alternative. Having chosen an alternative, the builder may not then force the homeowner into the statutory process when its alternative is held unenforceable, the justices ruled.
The court granted a writ of mandate excusing 52 Stanislaus County purchasers from compulsory SB 800 procedures in their dispute with Meritage Homes of California, Inc. The justices denied relief, however, to two homeowners whose contracts with Meritage did not specify alternative procedures and who the court said were properly ordered to submit to the statutory process.
The 54 plaintiffs sued Meritage for alleged construction defects in their homes. Meritage moved to compel them to submit to ADR, based on SB 800, codified at Civil Code Secs. 895 through 945.5.
The statute allows the builder to include in its contract a provision requiring the buyer, or the buyer’s successors in interest, to submit either to the procedures set forth in chapter 4 of the law, or to those specified by the builder.
Of the 54 plaintiffs, 28 bought from Meritage under contracts requiring them to use alternative procedures set forth in the warranty section of the contract, 24 were successors to original purchasers whose contracts included similar provisions, and two signed contracts binding them to the statutory procedures.
Under the chapter 4 procedures, the homeowner must initiate the process by giving notice in writing. The builder must be given an opportunity to inspect the alleged damage, and then has a limited period of time in which to make repairs or offer a cash settlement.
The builder must also submit to mediation if the homeowner requests it. If the builder fails to act within the time limits of chapter 4, or makes an inadequate repair, or makes a rejected cash offer, the homeowner may sue.
In the Meritage case, Stanislaus Superior Court Judge Roger Beauchesne found that the alternative procedures set forth in the warranty section were unconscionable and unenforceable. But he also said he saw no reason why all of the plaintiffs could not be compelled to comply with the chapter 4 process.
Presiding Justice Brad Hill, however, writing for the Court of Appeal, said the judge’s ruling was—as to the 52 plaintiffs whose contracts included unenforceable processes—inconsistent with Civil Code Sec. 914.
The section provides, in part:
“A builder may attempt to commence nonadversarial contractual provisions other than the nonadversarial procedures and remedies set forth in this chapter, but may not, in addition to its own nonadversarial contractual provisions, require adherence to the nonadversarial procedures and remedies set forth in this chapter, regardless of whether the builder’s own alternative nonadversarial contractual provisions are successful in resolving the dispute or ultimately deemed enforceable.”
Noting that one of the purposes of the statute is to protect homeowners from inordinate delay in obtaining a remedy for construction defects, Hill elaborated:
“The statutes do not require the builder to repair any claimed defects; they simply give it the right to do so....Our interpretation of section 914 preserves that right; a builder who elects to use alternative prelitigation procedures in lieu of those set out in the statute has the right to attempt repairs, so long as it does so pursuant to procedures that are fair and enforceable. If, however, the builder imposes procedures that are found to be unenforceable, it forfeits its absolute right to attempt repairs. It may still offer to repair any defects, but the homeowner is not bound to accept the offer or to permit the builder to attempt the repairs prior to litigation. The builder thus has an incentive to ensure its alternative procedures are proper and enforceable, and the homeowner’s protection against unnecessary delay is preserved.”
In an unpublished part of the opinion, Hill said the court could not review the trial judge’s determination that the alternative procedures were unconscionable, because Meritage only raised the issue in its response to the writ petition and not by bringing its own petition or appeal.
The case is Anders v. Superior Court (Meritage Homes of California, Inc.). F059492.
Copyright 2011, Metropolitan News Company