Morrison Law Journal


The Morrison Law Journal January 2017 Volume XII, Edition 1 A Victory For Material Suppliers In Construction Defect Cases: Court Of Appeal Rules That Right To Repair Act Claim Against A Material Supplier Requires Proof Of Negligence Or Breach Of Contract By The Supplier By: Edward F. Morrison, Jr., Esq. Larry A. Schwartz, Esq.
As many are aware, the Right to Repair Act, codified in California Civil Code Section 895, et seq. (the "Act" or "Right to Repair Act"), applies to residential units in California which were sold pursuant to a purchase agreement entered into on or after January 1, 2003. The Right to Repair Act provides that general contractors, subcontractors, and/or design professionals shall be liable for violations of standards set forth in Civil Code Section 896 so long as there is negligence or breach of contract (abrogating the economic loss rule as to those claims). Civil Code Section 936.1 The Act also applies in the same way to material suppliers and individual product manufacturers. Id. Counsel for product manufacturers have seized on the language in Civil Code Section 936 and insisted that, absent evidence of negligence or breach of contract on the part of the manufacturer (which is often difficult to demonstrate or prove), there can be no liability under the Act for purely economic loss. In that regard, the Court of Appeal in Greystone Homes, Inc. v. Mid-Tec, Inc. (2008) 168 Cal.App.4th 1194, 1216 ruled that a product manufacturer is liable only where its “negligent act or omission or a breach of contract” caused a violation of the Act's standards. A question has still existed, however, as to whether claims against material suppliers under the Act require evidence of a negligent act or a breach of contract. That question has now been answered in the case of Acqua Vista Homeowners Association v. MWI, Inc. (2017) WL 371379 ("Acqua Vista Case"). In the Acqua Vista Case, an owners association for a condominium development filed suit in 2009 against, among others, MWI, Inc., a supplier of cast iron pipe. In 2013, the operative Complaint was amended to assert one, lone cause of action under the Right to Repair Act against MWI. The claim against MWI was that it had supplied defective cast iron pipe manufactured in China that had caused damages throughout the development. 1 Builders are strictly liable for a violation of a standard. Civil Code Section 942. 1 During the trial (near the close of evidence), MWI filed a Motion for Directed Verdict on the ground that owners association failed to present any evidence that MWI had caused a violation of the Act's standards as a result of MWI's negligence or breach of contract. The trial court denied the Motion and the jury returned an award against MWI. On appeal, the Court of Appeal reversed and ruled that, while Civil Code Section 936 could have been more clear, read as a whole, the Right to Repair Act required the owners association to have met its burden that the material supplier violated the Right to Repair Act as a result of negligence or breach of contract on the part of the supplier. While the Acqua Vista Case may have a limited reach insofar as its holding (the owners association did not pursue a claim based on strict liability), it demonstrates, as the Court did in Greystone Homes, Inc. v. Mid-Tec, Inc., that the claimant under the Right to Repair Act who wishes to pursue a material supplier must demonstrate negligence or breach of contract on the part of the supplier. About the Authors: Edward F. Morrison, Jr. is the founding partner and Larry A. Schwartz is Of Counsel to The Morrison Law Group, a professional corporation. Their biographies can be viewed at www.morrisonlawgroup.com. Publication Note: The Morrison Law Group wishes to disseminate this publication to all clients and colleagues of the Firm who wish to receive it. Should any recipient desire to be removed from the distribution list, or wishes to have a colleague added, please contact Jim Van Dusen at The Morrison Law Group at 213 356-5504 or vandusen@morrisonlawgroup.com. Disclaimer Note: The legal article presented above is intended to provide general information which may be of interest or use to clients and colleagues of The Morrison Law Group and should not be construed as legal advice on any matter. 2

As many are aware, the Right to Repair Act, codified in California Civil Code Section 895, et seq. (the "Act" or "Right to Repair Act"), applies to residential units in California which were sold pursuant to a purchase agreement entered into on or after January 1, 2003. The Right to Repair Act provides that general contractors, subcontractors, and/or design professionals shall be liable for violations of standards set forth in Civil Code Section 896 so long as there is negligence or breach of contract (abrogating the economic loss rule as to those claims). Civil Code Section 936.1 The Act also applies in the same way to material suppliers and individual product manufacturers. Id.

Counsel for product manufacturers have seized on the language in Civil Code Section 936 and insisted that, absent evidence of negligence or breach of contract on the part of the manufacturer (which is often difficult to demonstrate or prove), there can be no liability under the Act for purely economic loss. In that regard, the Court of Appeal in Greystone Homes, Inc. v. Mid-Tec, Inc. (2008) 168 Cal.App.4th 1194, 1216 ruled that a product manufacturer is liable only where its “negligent act or omission or a breach of contract” caused a violation of the Act's standards.

A question has still existed, however, as to whether claims against material suppliers under the Act require evidence of a negligent act or a breach of contract. That question has now been answered in the case of Acqua Vista Homeowners Association v. MWI, Inc. (2017) WL 371379 ("Acqua Vista Case").

In the Acqua Vista Case, an owners association for a condominium development filed suit in 2009 against, among others, MWI, Inc., a supplier of cast iron pipe. In 2013, the operative Complaint was amended to assert one, lone cause of action under the Right to Repair Act against MWI. The claim against MWI was that it had supplied defective cast iron pipe manufactured in China that had caused damages throughout the development.

1 Builders are strictly liable for a violation of a standard. Civil Code Section 942.

During the trial (near the close of evidence), MWI filed a Motion for Directed Verdict on the ground that owners association failed to present any evidence that MWI had caused a violation of the Act's standards as a result of MWI's negligence or breach of contract. The trial court denied the Motion and the jury returned an award against MWI.

On appeal, the Court of Appeal reversed and ruled that, while Civil Code Section 936 could have been more clear, read as a whole, the Right to Repair Act required the owners association to have met its burden that the material supplier violated the Right to Repair Act as a result of negligence or breach of contract on the part of the supplier.

While the Acqua Vista Case may have a limited reach insofar as its holding (the owners association did not pursue a claim based on strict liability), it demonstrates, as the Court did in Greystone Homes, Inc. v. Mid-Tec, Inc., that the claimant under the Right to Repair Act who wishes to pursue a material supplier must demonstrate negligence or breach of contract on the part of the supplier.

About the Authors: Edward F. Morrison, Jr. is the founding partner and Larry A. Schwartz is Of Counsel to The Morrison Law Group, a professional corporation. Their biographies can be viewed at www.morrisonlawgroup.com.

Publication Note: The Morrison Law Group wishes to disseminate this publication to all clients and colleagues of the Firm who wish to receive it. Should any recipient desire to be removed from the distribution list, or wishes to have a colleague added, please contact Jim Van Dusen at The Morrison Law Group at 213 356-5504 or vandusen@morrisonlawgroup.com.

Disclaimer Note: The legal article presented above is intended to provide general information which may be of interest or use to clients and colleagues of The Morrison Law Group and should not be construed as legal advice on any matter.