Judge: Teresa A. Beaudet, Case: 22STCV03916, Date: 2023-03-06 Tentative Ruling

Case Number: 22STCV03916    Hearing Date: March 6, 2023    Dept: 50

Superior Court of California

County of Los Angeles

Department 50

Background

Plaintiffs Daniel Wang and Grace Lee (jointly, “Plaintiffs”) filed this action on January 31, 2022 against Defendants 360 Capital Ventures Inc. (“360”), Sachi Patel, and Miguel Soltero (collectively, “Defendants”). The Complaint alleges causes of action for (1) restitution, (2) negligence, and (3) breach of written contract.  

Defendants now demur to the second cause of action of the Complaint. Plaintiffs oppose.  

Discussion

A.    Legal Standard

A demurrer can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.) For the purpose of testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.) A demurrer “does not admit contentions, deductions or conclusions of fact or law.” (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.)

B.    Allegations of the Complaint

In the Complaint, Plaintiffs allege that they own the residential real property located at 15105 Weddington Street, Sherman Oaks, California 91411 (the “Property”). (Compl., ¶ 1.) On or about December 8, 2018, Plaintiffs and 360 entered into a Fixed Contract (“Contract”) pursuant to which 360 agreed to build a new, two-story, single-family dwelling with an attached garage at the Property. (Compl., ¶ 9.) The Contract was for $1,145,000, subject to additions and deductions pursuant to authorized change orders and allowances. (Compl., ¶ 9.) Under the Contract, 360 agreed to commence the project on December 17, 2018 and complete it by approximately October 1, 2019, subject to any change orders and weather delays. (Compl., ¶ 10.)

On or about February 4, 2021, 360’s work under the Contract stopped when the project was only approximately 70% complete. (Compl., ¶ 13.) At that time, Plaintiffs had paid 360 a total of $949,122.39, which included payments for work not yet performed. (Compl., ¶ 13.) Plaintiff thus paid 360 more than 83% of the fixed Contract price even though the work was only about 70% complete, which amounted to an overpayment of over $250,000. (Compl., ¶ 13.) In addition, the project was well over two years past the targeted completion date. (Compl., ¶ 13.) Much of the work done by Defendants was either incomplete or defective, causing damage to Plaintiffs. (See Compl., ¶ 14.)

C.    Second Cause of Action for Negligence

In support of the second cause of action for negligence, Plaintiffs allege that Defendants owe a duty of due care to Plaintiffs with respect to construction of the Property and all products installed therein.[1] (Compl., ¶ 22.) Plaintiffs allege that “[i]n violation of their duties to Plaintiff, Defendants so carelessly and negligently constructed, modified, inspected, repaired, or performed work and services at the Property as to proximately cause resulting damage to the Property as alleged in [the] Complaint.” (Compl., ¶ 23.)

Defendants assert that Plaintiffs’ negligence cause of action is barred by the economic loss rule. More specifically, Defendants assert that the “Right to Repair Act” is the exclusive remedy for construction defects with purely economic losses, and that the alleged construction defects at issue in this case do not fall within the limits of the Right to Repair Act.

Defendants cite to McMillin Albany LLC v. Superior Court (2018) 4 Cal.5th 241, 246-247, where the California Supreme Court noted the following:

“In Aas v. Superior Court (2000) 24 Cal.4th 627, 632 [101 Cal. Rptr. 2d 718, 12 P.3d 1125] (Aas), this court held that the economic loss rule bars homeowners suing in negligence for construction defects from recovering damages where there is no showing of actual property damage or personal injury. We explained that requiring a showing of more than economic loss was necessary to preserve the boundary between tort and contract theories of recovery, and to prevent tort law from expanding contractual warranties beyond what homebuilders had agreed to provide…We emphasized that the Legislature was free to alter these limits on recovery and to add whatever additional homeowner protections it deemed appropriate. (Aas, at pp. 650, 653.)

Two years later, spurred by Aas and by lobbying from homeowner and construction interest groups, the Legislature passed comprehensive construction defect litigation reform. (Stats. 2002, ch. 722, principally codified at Civ. Code, §§ 895–945.5 (commonly known as the Right to Repair Act; hereafter the Act)…The Act sets forth detailed statewide standards that the components of a dwelling must satisfy. It also establishes a prelitigation dispute resolution process that affords builders notice of alleged construction defects and the opportunity to cure such defects, while granting homeowners the right to sue for deficiencies even in the absence of property damage or personal injury.”

The McMillin Court further noted that “before the Act, tort recovery of purely economic losses occasioned by construction defects was forbidden by this court’s decision in Aas. Section 944 now specifies that various forms of economic loss are recoverable in an action under the Act.” (McMillin Albany LLC v. Superior Court, supra, 4 Cal.5th at p. 252.)

Defendants assert that here, Plaintiffs are unable to leverage the benefits of the Right to Repair Act. (See McMillin Albany LLC v. Superior Court, supra, 4 Cal.5th at pp. 246-247, the Right to Repair Act is “codified at Civ. Code, §§ 895–945.5.”) Defendants note Civil Code section 896 provides that “[t]his title applies to original construction intended to be sold as an individual dwelling unit.” In addition, Civil Code section 938 provides that “[t]his title applies only to new residential units where the purchase agreement with the buyer was signed by the seller on or after January 1, 2003.”

Defendants argue that Plaintiffs’ property does not fall under either of the qualifications specified in Civil Code sections 896 or 938. Defendants assert that Plaintiffs allege that they were already owners of the subject Property, such that the construction at issue here was not “original construction intended to be sold as an individual dwelling unit.” (Civ. Code, § 896.) Indeed, in the Complaint, Plaintiffs allege that “[o]n or about December 8, 2018, Plaintiffs, as owners, and 360, as the purported contractor, entered into a Fixed Contract…pursuant to which 360 agreed to build a new, two-story, single-family dwelling with an attached garage at the Property.” (Compl., ¶ 9, emphasis added.) Defendants also assert that there is not a “purchase agreement with the buyer” at issue here. (See Civ. Code, § 938.)

            In the opposition, Plaintiffs agree that “the Right to Repair Act does not apply to this case.” (Opp’n at p. 3:18.) This supports Defendants’ position in the demurrer. As noted by Defendants, “[a]lthough the Legislature preserved common law claims for personal injury, it made the [Right to Repair Act] the virtually exclusive remedy not just for economic loss but also for property damage arising from construction defects.” (McMillin Albany LLC v. Superior Court, supra, 4 Cal.5th at p. 247.) In the Complaint, Plaintiffs allege that “Defendants so carelessly and negligently constructed, modified, inspected, repaired, or performed work and services at the Property as to proximately cause resulting damage to the Property” (Compl.,        ¶ 23), but do not allege that they suffered personal injury.

The McMillin Court explained that “[a]s with economic losses, the Act expressly includes property damages resulting from construction defects among the categories of damages recoverable under the Act…This places claims involving property damages within the purview of section 943, subdivision (a), which makes a claim under the Act the exclusive way to recover such damages. And unlike personal injury claims, negligence and strict liability claims for property damages are not among the few types of claims expressly excepted from section 943’s exclusivity. (§ 943, subd. (a); see § 931 [noting claims for personal injury, but not property damage, fall outside the Act’s coverage].) To sum up this portion of the statutory scheme: For economic losses, the Legislature intended to supersede Aas and provide a statutory basis for recovery. For personal injuries, the Legislature preserved the status quo, retaining the common law as an avenue for recovery. And for property damage, the Legislature replaced the common law methods of recovery with the new statutory scheme.” (McMillin Albany LLC v. Superior Court, supra, 4 Cal.5th at pp. 252-253.)

            Lastly, Plaintiffs assert that “if the Right to Repair Act applied, 360 failed to comply with the Act by not providing plans to Plaintiffs within 30 days of their request.” (Opp’n at p. 5:1-3.)

In addition, Plaintiffs argue that “if 360 could show that the Right to Repair Act applied, the remedy for noncompliance with its pre-litigation procedures is a motion to stay the action, not a demurrer.” (Opp’n at p. 5:17-18.) But as discussed above, Defendants assert that the Right to Repair Act does not apply here.

            Based on the foregoing, the Court sustains Defendants’ demurrer to the second cause of action for negligence.

Conclusion

For the foregoing reasons, the Court sustains Defendants’ demurrer to the second cause of action for negligence, without leave to amend. Plaintiffs have not demonstrated any way that they could amend the second cause of action to alleviate the problems with the cause of action discussed above.   

Defendants are ordered to file their answer to the Complaint within 10 days of this Order. 

Defendants are ordered to give notice of this Order.¿ 

DATED:  March 6, 2023                                ________________________________

Hon. Teresa A. Beaudet

Judge, Los Angeles Superior Court