Judge: Teresa A. Beaudet, Case: 22STCV03916, Date: 2023-04-04 Tentative Ruling

Case Number: 22STCV03916    Hearing Date: April 4, 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”), Sachin 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. 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.” ((Id. 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, 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.) As noted by Defendants, the Court in McMillin Albany LLC v. Superior Court, supra, 4 Cal.5th at page 247 stated that “[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.” However, elsewhere in the case, the McMillin Court makes it clear that the Right to Repair Act only applies to construction that is covered by the Act. The McMillin Court noted as follows:

“Section 896, which codifies a lengthy set of standards for the construction of individual dwellings, begins with a preamble describing the intended effect of those standards. As relevant here, the preamble says: ‘In any action seeking recovery of damages arising out of, or related to deficiencies in, the residential construction, design, specifications, surveying, planning, supervision, testing, or observation of construction, a builder … shall, except as specifically set forth in this title, be liable for, and the claimant’s claims or causes of action shall be limited to violation of, the following standards, except as specifically set forth in this title. This title applies to original construction intended to be sold as an individual dwelling unit. As to condominium conversions, this title does not apply to or does not supersede any other statutory or common law.’ (§ 896.)

Three aspects of this text are instructive. First, the provision applies to ‘any action’ seeking damages for a construction defect, not just any action under the title. (§ 896.) This suggests an intent to create not merely a remedy for construction defects but the remedy. Second, ‘the claimant’s claims or causes of action shall be limited to violation of … the following standards, except as specifically set forth in this title.’ (Ibid.) This express language of limitation means that a party seeking damages for a construction defect may sue for violation of these standards, and only violation of these standards, unless the Act provides an exception. This clause evinces a clear intent to displace, in whole or in part, existing remedies for construction defects. Third, ‘[t]his title applies to original construction intended to be sold as an individual dwelling unit,’ but ‘[a]s to condominium conversions, this title does not apply to or does not supersede any other statutory or common law.’ (§ 896.) The Act governs claims concerning stand-alone homes; for such disputes, the Act’s provisions do ‘supersede any other statutory or common law’ except as elsewhere provided. (§ 896.)” (McMillin Albany LLC v. Superior Court, supra, 4 Cal.5th 241, 250.)

Defendants also assert that the economic loss rule still applies to Plaintiffs’ negligence cause of action. As set forth above, the McMillin Court noted that “[i]n 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.”
(McMillin Albany LLC v. Superior Court, supra, 4 Cal.5th 241 at p. 246.)

Plaintiffs assert that Aas does not apply to this case, because Aas was limited to “new construction–a construction development sold as new homes by a developer.” (Opp’n at p. 3:2-3.) In Aas, the California Supreme Court was “asked to decide whether homeowners and a homeowners association may recover damages in negligence from the developer, contractor and subcontractors who built their dwellings for construction defects that have not caused property damage.” ((Aas v. Superior Court (2000) 24 Cal.4th 627, 632.) However, the Aas Court does not state that its holding is limited to “construction development sold as new homes by a developer,” as Plaintiffs contend. (See also McMillin Albany LLC v. Superior Court, supra, 4 Cal.5th at       p. 252, “[a]s noted, before the Act, tort recovery of purely economic losses occasioned by construction defects was forbidden by this court’s decision in Aas…”)

 Plaintiffs also assert that the Right to Repair Act superseded Aas and rendered it a nullity. (Citing McMillin Albany LLC v. Superior Court, supra, 4 Cal.5th at p. 256, “although there is no doubt that the Act had the intended effect of overriding Aas’s limits on construction defect actions, that effect was treated in both the Assembly and Senate as one consequence of the overall reform package, not as the principal goal of the Act.”) But as discussed, the parties agree that the Right to Repair Act does not apply to the claims alleged in this case.

Defendants argue that Plaintiffs’ claims in paragraph 14 of the Complaint allege construction defects that have caused neither property damage nor personal injury, and that consequently, “these alleged defects are purely economic losses that are outside the realm of recovery under a negligence claim.” (Demurrer at p. 4:21-22.) Paragraph 14 of the Complaint alleges as follows:

“Much of the work done by Defendants was either incomplete or defective, causing

damage to Plaintiffs. By way of example only: the roof leaks; the pool leaks; there is a missing bench in the spa; the pool plumbing and electrical is stubbed out in the wrong location; the balcony does not have a minimum slope of 2% away from the Property; there is missing electrical in the master bedroom closet; there is a missing niche in guest bathroom shower; there is no water proofing at the balcony edges; the kitchen island wall was built too long; the kitchen wall was built too short; the kitchen pot filler was installed too low; the shade boxes were built incorrectly; the guest closet was not built per plans; the driveway apron does not line up with the house; there is no access to the master bathroom smart shower devise; the bathtub in the Jack and Jill Bathroom was installed too far from the plumbing; and the tub filler rough-in valve was not installed.” (Compl.,  ¶ 14.)

            Plaintiffs counter that they allege that they have suffered property damage, citing to paragraphs 23, 25, and 26 of the Complaint. (Opp’n at p. 3:15-17.) However, the Court finds that these paragraphs of the Complaint allege in a conclusory manner that Plaintiffs suffered property damage. In paragraph 23, 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 this Complaint.” (Compl., ¶ 23.) In paragraph 25, Plaintiffs allege that “Defendants knew or should have known that Plaintiffs would suffer resulting property damage if Defendants failed to perform their services and to provide the materials with due care and in a proper, non-negligent and workmanlike manner.” (Compl., ¶ 25.)  In paragraph 26, Plaintiffs allege, inter alia, that “[b]ecause of the defective conditions of the Property as alleged above, Plaintiffs have been damaged in the following ways, as well as others…damage to the Property…” (Compl., ¶ 26.) The Court does not find that Plaintiffs have pointed to sufficient factual allegations of property damage. 

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

Conclusion

For the foregoing reasons, the Court sustains Defendants’ demurrer to the second cause of action for negligence, with leave to amend.   

The Court orders Plaintiffs to file and serve an amended complaint, if any, within 20 days of the date of this order. If no amended complaint is filed within 20 days, the Court orders Defendants to file and serve their Answer within 30 days of the date of this order.¿¿¿ 

Defendants are ordered to give notice of this Order.¿ 

DATED:  April 4, 2023                                  ________________________________

Hon. Teresa A. Beaudet

Judge, Los Angeles Superior Court