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By
Daniel Lee Jacobson
In a Dec. 4, 2000 decision that could have far-reaching
consequences on California construction-defect litigation, the
California Supreme Court decided that homeowner plaintiffs
cannot receive tort recovery for negligent construction that has
not yet resulted in damage. In Aas v. Superior Court, 24
Cal.4th 627 (2000), the court decided that negligent
construction itself does not constitute "damage" for which a
plaintiff can be compensated in tort.
The five-member majority opinion was authored by Justice
Kathryn M. Werdegar. Chief Justice Ronald M. George and Justice
Stanley Mosk each wrote separate concurring and dissenting
opinions.
The plaintiffs alleged in negligence and strict
liability that the builders of their homes had improperly
constructed those homes. They sought damages for alleged failure
to properly construct "shear walls" and "one-hour and two-hour
fire protection in party walls" and for other defective
construction that allegedly did not meet the requirements of the
Uniform Building Code and other applicable codes.
"Shear walls" are required to have adequate strength to
withstand wind and earthquakes. "One-hour and two-hour fire
protection" is supposed to prevent a fire from passing from one
condominium to another. The plaintiffs also sought damages for
less-serious defects, such as "discolored drain stoppers and
inoperable garbage disposals."
Defendants brought motions in limine requesting the
exclusion of evidence of those alleged construction defects that
had not yet caused property damage. The trial court granted the
motions. The 4th District Court of Appeal upheld the trial
court's decision. Aas v. Superior Court, 64 Cal.App.4th
916 (1998). Now the Supreme Court has affirmed.
The Supreme Court treated the motions in limine as the
functional equivalent of common-law motions for judgment on the
pleadings and, thus, reviewed their disposition as a matter of
law. The court said that the issue was not a simple one: ["I]t
arises from the nebulous and troublesome margin between tort and
contract law." The court acknowledged that the plaintiffs may
have homes that were negligently constructed but went on to hold
that negligent construction itself does not equate to damages
that are recoverable in tort.
Regarding the plaintiffs' allegation that there were
improperly constructed shear walls, the court decided that
because those walls have not yet succumb to an earthquake or
wind, the plaintiffs have not yet suffered tort damages.
Regarding the allegation that the homes lacked reasonable fire
protection, the court decided that since that lack of fire
protection has not yet led to damage caused by a fire, the
plaintiffs have not yet suffered tort damages. As to every
allegation of negligent construction that had not yet resulted
in harm, the court concluded that there were no recoverable tort
damages.
The court conducted an extensive review of its
product-liability decisions and their cumulative effect on
construction-defect remedies. As to strict-liability remedies,
the court quoted extensively from Seely v. White Motor Co.,
63 Cal.2d 9 (1965): "'The distinction that the law has drawn
between tort recovery for physical injuries and warranty
recovery for economic loss,' we wrote, 'is not arbitrary and
does not rest on the 'luck' of one plaintiff in having an
accident causing physical injury. The distinction rests, rather,
on an understanding of the nature of the responsibility a
manufacturer must undertake in distributing his products.' ... A
manufacturer 'can appropriately be held liable for physical
injuries caused by defects by requiring his good to meet a
standard of safety,' but not 'for the level of performance' of
its products unless the manufacturer 'agrees that the product
was designed to meet the consumer's demands.'"
Relying on this language, the court concluded that
"strict liability affords a remedy only when the defective
product causes property damage or personal injury. The tort [of
strict liability] does not support recovery of damages
representing the lost benefit of a bargain, such as the cost of
repairing a defective product or compensation for its diminished
value."
Addressing the issue of remedies available in
negligence, the court again quoted from Seely: "Even in
actions for negligence, a manufacturer's liability is limited to
damages for physical injuries and there is no recovery for
economic loss alone." The court said that this statement
embodied "the economic loss rule," which kept the Aas
plaintiffs from recovering in negligence.
The court acknowledged that an exception to the
economic-loss rule is found in Biakanja v. Irving, 49
Cal.2d 647 (1958), and J'Aire Corp. v. Gregory, 86
Cal.App.3d 499 (1979). Those cases applied a six-factor test in
determining whether a plaintiff can recover in negligence for
economic loss.
The factors were listed in Biakanja as follows:
"[1] the extent to which the transaction was intended to affect
the plaintiff, [2] the foreseeability of harm to him, [3] the
degree of certainty that the plaintiff suffered injury, [4] the
closeness of the connection between the defendant's conduct and
the injury suffered, [5] the moral blame attached to the
defendant's conduct, and [6] the policy of preventing future
harm."
The Aas court concentrated on the foreseeability
of harm and the degree of certainty that the plaintiff suffered
injury. The plaintiffs had argued that their damages were the
cost of repairing their negligently constructed homes and
bringing them up to code. The court responded: "This confuses
the measurement of alleged damages with the ability of
particular facts to support a tort action. To say that one's
house needs repairs costing a certain amount is not necessarily
to say that one has suffered the type of harm cognizable in
tort, as opposed to contract."
The court concluded: "We do not believe ... that the
J'Aire court intended to dispense with the rule that
appreciable, nonspeculative, present injury is an essential
element of a tort cause of action." The court decided that the
plaintiffs do not have nonspeculative, present injury and thus
cannot rely on these factors.
In applying the six factors, the court distinguished two
cases and overruled one. The court explained that in Sumitomo
Bank v. Taurus Developers Inc., 185 Cal.App.3d 211 (1986),
the distinction between economic damages and physical harm was
not raised as an issue and that the conclusion in Cooper v.
Jevne, 56 Cal.App.3d 860 (1976), that the economic-loss rule
does not apply to professional-negligence claims, was dictum.
The court overruled Huang v. Garner, 157
Cal.App.3d 404 (1984), in which plaintiffs had been allowed to
recover repair costs for construction defects that had not
resulted in property damage.
In an unusual move, the court voiced its deference to
the Legislature on the issue raised in Aas, saying: "The
Legislature, whose lawmaking power is not encumbered by
precedent is free to adopt a rule like that proposed in the
Chief Justice's concurring and dissenting opinion." The court
noted: "In our view, the many considerations of social policy
this case implicates, rather than justifying the imposition of
liability for construction defects that have not caused harm of
the sort traditionally compensable in tort ... , serve instead
to emphasize that certain choices are better left to the
Legislature."
George's concurring and dissenting opinion was strongly
critical of the majority, saying: "In determining that a
negligently constructed home must first collapse or be gutted by
fire before a homeowner may sue in tort to collect costs
necessary to repair negligently constructed shear walls or fire
walls, the majority today embraces a ruling that offends both
established common law and basic common sense."
George would have imposed a rule whereby a homeowner may
maintain a cause of action in negligence to recover the costs of
correcting significant building safety-code violations. Such
significant violations would include improperly constructed
shear walls that would put the structure at risk of collapse and
improperly constructed fire walls that would allow a fire to
spread rapidly. Under this rule, such significant code
violations would not have had to yet manifest themselves in
physical damage; but there would be no tort recovery for the
minor defects alleged by the plaintiffs, such as "discolored
drain stoppers and inoperable garbage disposals."
George began his analysis with Connor v. Great
Western Sav. & Loan Ass'n, 69 Cal.2d 850 (1968). In that
case, then-Chief Justice Roger Traynor authored the opinion,
which upheld a negligence cause of action by homeowners against
a lending institution that had financially backed and
extensively controlled a new housing development. The Connor
court said that "a home is not only a major investment for
the usual buyer but also the only shelter he has. Hence it
becomes doubly important to protect him against structural
defects that could prove beyond his capacity to remedy."
The fact that Traynor wrote the Connor decision
is important because Traynor also wrote the Seely
decision, upon which the Aas majority heavily relied.
George found it difficult to believe that the author of
Connor, which afforded tort protection for construction
defects, would have meant to limit that protection in Seely.
George pointed out that Seely was not a
negligence case but was instead a warranty and strict-liability
case. The Seely court approved damages to the plaintiff
based on the plaintiff's warranty theory. According to George,
the Seely court discussed the strict-liability theory in
dictum and then addressed a nonexistent negligence theory "in
dictum within dictum."
So, George did not feel at all restrained in allowing
the Aas plaintiffs a tort recovery. But, rather than
allowing the plaintiffs a traditional lump-sum recovery, George
would have provided for a "fund recovery." In a fund recovery,
the court would supervise the expenditure of the money that the
plaintiffs were awarded to encourage the spending of money only
on appropriate items and to limit the liability of the
defendants to the amount of expenses actually incurred. See
Potter v. Firestone Tire & Rubber Co., 6 Cal.4th 965 (1993).
Mosk also wrote a concurring and dissenting opinion in
which he stated that it is unnecessary to apply the six
Biakanja/J'Aire factors. He wrote, "The rule I favor
would state that property damage occurs when what may be termed
fixtures for purposes of discussion, inseparable from the
structure of the houses or condominiums and inaccessible for
repair without destroying existing features, are negligently
built or installed." Under this rule, significant defects could
be remedied in tort, but minor defects such as "discolored drain
stoppers and inoperable garbage disposals" could not be so
remedied.
Mosk stated that "I believe that by being subjected to
the risk posed by defective shear walls and fire walls,
plaintiffs would have suffered appreciable present compensable
injury. Indeed, plaintiffs' knowledge of these defects places
upon them a legal duty to make necessary repairs or
corrections."
The majority opinion and the concurring and dissenting
opinions allow for the recovery of contract damages for
construction defects that have not yet manifested themselves in
further property damage. But George pointed out in his opinion
that "contract or warranty claims in this setting are difficult
to prove and to enforce, and our decisions have recognized that
problems with privity, disclaimers inserted into contracts by
developers or contractors, and notice requirements, often
frustrate the ability to recover on contract or warranty
theories."
Daniel Lee Jacobson is a senior trial attorney at
Tustin's Kelley, Downes, Jacobson, Chase & Martin and an adjunct
professor at Pacific West College of Law. |