Greystone Homes, Inc. v. Midtec, Inc.

168 Cal.App.4th 1194

86 Cal. Rptr. 3d 196

GREYSTONE HOMES, INC., Plaintiff and Appellant, v. MIDTEC, INC., Defendant and Respondent.

No. D051556.

Court of Appeals of California, Fourth District, Division One.

December 2, 2008.

Payne & Fears, Thomas L. Vincent and Erik M. Anderson for Plaintiff and Appellant.

Cooper, White & Cooper and Kathleen F. Carpenter for California Building Industry Association as Amicus Curiae on behalf of Plaintiff and Appellant.

Lewis Brisbois Bisgaard & Smith, Peter L. Garchie, Lisa W. Cooney and Shauna L. Hagan for Defendant and Respondent.

OPINION

AARON, J.

I. INTRODUCTION

In Aas v. Superior Court (2000) 24 Cal.4th 627, 636 [101 Cal.Rptr.2d 718, 12 P.3d 1125] (Aas), the California Supreme Court concluded that a group of homeowners could not recover damages in negligence from the developer, contractor or subcontractors who built their homes, for existing construction defects that had not yet caused either property damage or personal injury. In reaching this conclusion, the Aas court explained that while "tort law provides a remedy for construction defects that cause property damage or personal injury" (id. at p. 635), the "economic loss rule" precludes recovery for damages such as "the difference between price paid and value received, and deviations from standards of quality that have not resulted in property damage or personal injury" (id. at p. 636).

In response to the holding in Aas, the Legislature enacted Civil Code¹ section 895 et seq. (the Right to Repair Act or the Act). The Act establishes a set of building standards pertaining to new residential construction, and provides homeowners with a cause of action against, among others, builders and individual product manufacturers for violation of the standards (§§ 896, 936). The Act makes clear that upon a showing of violation of an applicable standard, a homeowner may recover economic losses from a builder without having to show that the violation caused property damage or personal injury (§§ 896, 942). In such an instance, the Act abrogates the economic loss rule, thus legislatively superseding Aas.

Greystone Homes, Inc. (Greystone), a homebuilder, brought this action against Midtec, Inc. (Midtec), among others. In its complaint, Greystone alleged that various homeowners had made claims against Greystone for damage caused by plumbing fittings that Midtec manufactured, and that the fittings were defective within the meaning of the Act. Greystone claimed that it had incurred costs to replace the defective fittings, and alleged claims including negligence and equitable indemnity causes of action against Midtec.

Midtec brought a motion for summary judgment and/or summary adjudication in which it claimed that Greystone could not recover for purely economic losses that it incurred in replacing the fittings. In opposition, Greystone claimed that the Right to Repair Act abolished the economic loss rule under the circumstances of this case, and argued that both builders and individual product manufacturers are liable under the Act for the costs of repairing construction defects. In reply, Midtec contended that the Act did not apply to Greystone's action, and that the economic loss rule precluded Greystone from prevailing against Midtec on its claims.

The trial court granted Midtec's motion for summary judgment. The court acknowledged that the Act provides an exception to the economic loss rule for actions brought under the Act by homeowners. However, the court concluded that Greystone is not entitled to pursue the statutorily created cause of action because Greystone is not a homeowner. The court ruled that the economic loss rule bars Greystone from recovering against Midtec on Greystone's common law claims.

Greystone's appeal raises two questions of first impression concerning the Right to Repair Act. The first question is whether a builder may recover for economic losses caused by a product manufacturer's violations of the Act's standards, through an equitable indemnity claim against the manufacturer. The second question is whether a builder may recover its economic losses from an individual product manufacturer through a direct negligence claim based on the product manufacturer's violation of the Act's standards. We conclude that a builder may recover from a product manufacturer for economic losses caused by the manufacturer's violation of the standards set forth in the Act, through an equitable indemnity action, but that a builder may not recover for these losses through a direct negligence claim against the manufacturer. We therefore reverse the trial court's summary judgment and remand the matter to the trial court with directions to consider Midtec's alternative motion for summary adjudication.

II. FACTUAL AND PROCEDURAL BACKGROUND²

A. Factual background

In late 2000 or early 2001, Radiant Technologies, Inc. (RTI), purchased plastic plumbing fittings from Midtec. RTI used the fittings as a component part in its Plum-Pex plumbing system. RTI distributed the Plum-Pex system to plumbing wholesalers, who in turn sold the system to plumbing subcontractors.

Greystone is a merchant homebuilder. Beginning in approximately 2003, Greystone developed and built a new home community in Chula Vista known as Willow Bend. Willow Bend is composed of 110 condominiums/townhouses, clustered in 17 buildings. Greystone's plumbing subcontractor, Production Plus Plumbing, installed the RTI Plum-Pex system, which contain Midtec fittings, in 66 of the Willow Bend units, between 2003 and 2005.

The owners of some of the units that contained the Midtec fittings began to complain to Greystone about leaks in their plumbing systems. Twenty-two of the units experienced failures of Midtec fittings. In some instances, there were multiple failures in a single unit. The Midtec fittings failed primarily due to fatigue caused by a molding defect in the manufacturing process. Fittings continued to fail during Greystone's investigation of the homeowners' complaints. Water leaks associated with the fitting failures presented a health risk to homeowners.

There were a total of approximately 1,980 Midtec fittings in the 66 homes. Greystone determined that if it did not replace the Midtec fittings, it was highly probable that there would be additional failures. Greystone replaced all of the Midtec fittings, including those that had not yet actually failed. The total cost to replace all of the fittings was approximately $1,494,904.04. The cost for repairs related to fittings that had failed was approximately $106,000.

While Midtec had a contractual relationship with RTI, it did not have a contractual relationship with Greystone. Midtec did not provide a warranty to RTI for the fittings. The only warranty that was provided to either Greystone or to homeowners in the Willow Bend project that related to plumbing was RTI's warranty for the Plumb-Pex system.

Greystone sued RTI and Midtec. Greystone reached a settlement with RTI. As part of the settlement, RTI paid Greystone $460,000—an amount that exceeds Greystone's costs to repair water damage caused by fittings that actually failed.

B. Procedural background

In May 2005, Greystone filed a complaint against RTI, RTI's insurance company, Zurich American Insurance Company (Zurich), and Midtec. As to Midtec, Greystone brought a claim for negligence, a separate claim for indemnity and contribution, and requested declaratory relief. Greystone subsequently reached a settlement with RTI. In February 2007, the trial court found that Greystone and RTI had entered into the settlement in good faith. The court subsequently dismissed Greystone's complaint as to RTI and Zurich.

In April 2007, Midtec filed a motion for summary judgment or, in the alternative, for summary adjudication. In its motion, Midtec noted that pursuant to the economic loss rule, a plaintiff may not recover, in tort, economic losses caused by an allegedly defective product when those losses are unrelated to either property damage or bodily injury. Midtec argued that Greystone had already recovered all of its damages that were related to property damage caused by the allegedly defective fittings, through its settlement with RTI, and maintained that the economic loss rule precluded Greystone from recovering additional damages from Midtec related to the cost of replacing fittings that had not failed or caused property damage.

Greystone opposed the motion. In its opposition, Greystone argued that the Right to Repair Act had entirely abrogated the economic loss rule in construction defect litigation. Specifically, Greystone argued that the Act imposed "cost-of-repair liability upon builders and individual product manufacturers whose products are defective, even in the absence of any specific property damage or bodily injury." Greystone claimed that Midtec was thus liable to Greystone for Greystone's costs to replace all of the fittings, including those that had not yet caused property damage. Greystone noted that its total cost to repair all of the fittings was approximately $1.5 million, which far exceeds the $460,000 it received in its settlement with RTI.

In its reply to Greystone's opposition, Midtec argued that the Right to Repair Act is "completely inapplicable to the circumstances of this case." Midtec maintained that only homeowners are authorized to bring an action pursuant to the Act.³ Midtec also noted that section 936 provides in part, "Nothing in this title modifies the law pertaining to joint and several liability for builders, general contractors, subcontractors, material suppliers, individual product manufacturer[s], and design professionals that contribute to any specific violation of this title." Based on this language, Midtec argued that "[s]ection 936 alone is dispositive of the issue that [s]ections 895 et seq. do not apply to this action between the developer and a component part manufacturer."

In July 2007, the trial...