McCaffrey Group, Inc. v. Superior Court , 169 Cal. Rptr. 3d 766 ( 2014 )

Filed 3/24/14
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIFTH APPELLATE DISTRICT
THE McCAFFREY GROUP, INC.,
F066080
Petitioner,
(Super. Ct. No. 11CECG01451)
v.
SUPERIOR COURT OF CALIFORNIA, OPINION
COUNTY OF FRESNO,
Respondent,
JESUS CITAL, et al.,
Real Parties in Interest.
ORIGINAL PROCEEDING: petition for writ of mandate. Alan M. Simpson and
Kristi Culver Kapetan, Judges.
Jackson, DeMarco, Tidus & Peckenpaugh, Edward A. Galloway and Paige H.
Gosney for Petitioner.
No appearance for Respondent.
Milstein Adelman, Fred M. Adelman, Mayo L. Makarczyk, and Jonathan P.
Staffeldt for Real Parties in Interest.
-ooOoo-
In this case, we are asked to determine the enforceability of provisions in home
purchase contracts that require the homeowners to submit their construction defect claims
to nonadversarial prelitigation procedures before proceeding with a lawsuit. Those
procedures include providing the builder with notice of the claimed defect, giving the
builder the right to inspect and correct it, and, if the homeowner is still unsatisfied,
engaging in non-binding mediation. In contrast to the trial court, we find the provisions
enforceable and grant the relief the petitioner seeks.
FACTUAL AND PROCEDURAL BACKGROUND
Petitioner The McCaffrey Group, Inc. (McCaffrey) constructed single-family
homes in a Fresno development. Real parties in interest own 24 homes within the
development. Nineteen of those homes are owned by 32 individuals who purchased their
homes directly from McCaffrey (the original purchasers). Nine of the 19 homes were
sold before 2003 using the 2001 version of McCaffrey’s “Combined Purchase and Sale
Agreement and Joint Escrow Instructions” and “Homeowner Warranty;” the other ten
homes were sold on or after January 1, 2003 using the 2003 version of McCaffrey’s
“Combined Purchase and Sale Agreement and Joint Escrow Instructions” and
“Homeowner Warranty and Claims Procedure.” Five of the 24 homes are owned by
eight individuals who purchased their homes from someone other than McCaffrey after
January 1, 2003 (the subsequent purchasers).
The distinction in purchase dates is significant because in 2002, the Legislature
added Title 7 to Part 2 of the Civil Code, (Civ. Code, § 895 et seq.; Sen. Bill No. 800),1
which we will refer to as the Right to Repair Act or the Act.2 The Act applies to new
residential units where the seller signed the purchase agreement on or after January 1,
2003. It establishes a nonadversarial prelitigation procedure that a homeowner must
1 All further statutory references are to the Civil Code, unless otherwise stated.
2As noted in Baeza v. Superior Court (2011) 201 Cal.App.4th 1214, 1222, fn. 5
(Baeza), the Act was not given an official name, but has been referred to in other cases as
the “Right to Repair Act” or the “Fix-it law.”
2.
initiate before bringing an action against the builder for alleged construction defects (the
statutory procedure). The statutory procedure requires the homeowner to provide the
builder with notice of the defects, and an opportunity to investigate and repair them.
(§§ 910–938.) The builder, however, has the option of contracting for its own alternative
nonadversarial prelitigation procedure (the contractual procedure) when the home is first
sold. (§ 914, subd. (a).)
McCaffrey did so in this case, notifying the real parties who purchased their
homes on or after January 1, 2003, through a provision in their home warranties, that the
“following contractual provisions for the nonadversarial resolution of claims are intended
to, and do hereby, replace the statutory nonadversarial procedures contained in Civil
Code Sections 910-938. Homeowner hereby acknowledges the existence of such
provisions and procedures and that the same impact the legal rights of Homeowner.”
Both the real parties and McCaffrey initialed this provision.
McCaffrey’s contractual procedure, set forth in both the 2001 and 2003 versions
of the sale agreements and home warranties, contains the same two-step process for
addressing disputes over alleged construction defects. The first step requires the
homeowner to provide McCaffrey with written notice of the claimed defects and an
opportunity to inspect and repair them.3
3 Paragraph 11 of the 2003 sale agreement provides:
“11. ALTERNATIVE DISPUTE RESOLUTION AND JUDICIAL REFERENCE.
“Each party agrees not to commence any lawsuit against the other party without
first complying with the Alternative Dispute Resolution procedures set forth below in
paragraphs (a), (b) and (c). If any party breaches this agreement not to commence any
lawsuit without first complying with such Alternative Dispute Resolution procedures, the
other party may then commence a lawsuit seeking to compel compliance with such
agreement.
“(a) Dispute Notification and Resolution Procedure. Any claim, dispute or other
controversy between the parties . . . arising out of or relating to this Agreement,
including, but not limited to, the use, condition or operation of the Property and any
improvements to the Property, including, but not limited to, the design, specifications,
3.
Once McCaffrey receives notice of the claim, it has “a reasonable period of
time,” not to exceed 60 days, to “meet and confer at a mutually-acceptable place in
Fresno County, California, to discuss the Claim.” Either at that meeting or another
mutually agreed-upon time, “the parties and their authorized representatives shall have
full access to the Property that is subject of the Claim for purposes of inspecting the
Property[,]” and if McCaffrey “decides to take any corrective action,” it must be provided
full access to the Property to do so.
The second step requires the parties to submit the claim to non-binding mediation
if it has not been resolved.4 The claim must be “submitted to non-binding mediation
surveying, grading, construction, maintenance, and repair of the Property and any
improvements to the Property (individually and collectively a ‘Claim’) shall be subject to
the procedures set forth in this Paragraph 11.
“(b) Claim Notice: Right to Inspect and Correct. Any party with a Claim shall
notify the other party or parties in writing of the Claim. Such writing shall (i) identify the
claimant’s name and address, (ii) state that the claimant elects to commence the
procedures set forth in this section F [sic], and (iii) describe the nature and location of the
Claim in reasonable detail (the ‘Claim Notice’). Within a reasonable period of time after
receipt of the Claim Notice, which period shall not exceed sixty (60) days, the party or
parties receiving the Claim Notice and the party making the Claim shall meet and confer
at a mutually-acceptable place in Fresno County, California, to discuss the Claim. At
such meeting or at such other mutually-agreeable time, the parties and their authorized
representatives shall have full access to the Property that is subject of the Claim for the
purposes of inspecting the Property. If the party or parties against whom the Claim is
made decides to take any corrective action, that party or parties and their representatives
shall be provided full access to the Property to take such corrective action.”
The only difference between the 2001 and 2003 versions is that the 2001 version
states the notice need only describe the nature of the claim and the proposed remedy.
4 The mediation provision in paragraph 11(c) provides:
“(c) Nonbinding Mediation. If the parties cannot resolve the Claim pursuant to the
procedures described in section 4 [sic] above, the Claim shall be submitted to non-
binding mediation pursuant to the mediation procedures adopted by JAMS or any
successor entity thereto or to any other entity offering mediation services that is
acceptable to the parties. The parties shall cooperate so that the mediation hearing can be
held as soon as practicable. No person shall serve as a mediator in which the person has
any financial or personal interest in the result of the mediation, except by the written
consent of all parties.
4.
pursuant to the mediation procedures adopted by JAMS” or any other entity offering
mediation services that is acceptable to the parties. Within 10 days of the mediator’s
selection, or a time frame set by the mediator, each party must submit a brief
memorandum setting forth its position regarding the issue to be resolved. The mediation
is to be held in Fresno County, commence within ten days of submission of the
memoranda, and conclude within 15 days, unless the parties mutually agree otherwise in
writing. The mediator has discretion to conduct the mediation in whatever manner he or
she determinates is most appropriate to settle the claim, but does not have authority to
impose a settlement. Each party is to bear its own mediation expenses, except the parties
“Each party shall submit a brief memorandum setting forth its position with regard
to the issues that need to be resolved within ten (10) days of the selection of the mediator
or within such time frame established by the mediator. The mediation shall be
commenced within ten (10) days following the submittal of the memoranda and shall be
concluded within fifteen (15) days from the commencement of the mediation unless the
parties mutually agree in writing otherwise. The mediation shall be held in Fresno
County, California, or such other place as the parties agree in writing.
“The mediator shall have discretion to conduct the mediation in the manner in
which the mediator believes is most appropriate for reaching a settlement of the Claim.
The mediator shall be authorized to conduct joint and separate meetings with the parties
and to make oral and written recommendations for settlement. The mediator shall not
have the authority to impose a settlement on the parties.
“The mediation shall be subject to the provisions of Evidence Code Sections 1115
through 1128, or any successor statutes thereto, except as the parties may agree otherwise
in writing or orally in accordance with the provisions of Evidence Code Section 1118.
“No persons may attend the mediation other than the parties, their representatives
(including, but not limited to, counsel) and the mediator other than with the permission of
the parties and the consent of the mediator. Confidential information disclosed to a
mediator by the parties in the course of the mediation shall not be divulged by the
mediator. All records, reports, or other documents received by the mediator while
serving in such capacity shall be considered confidential. There shall be no stenographic
record of the mediation session.
“Each party shall bear their own mediation expenses, provided that the mediation
administrative fee and costs and the mediator’s fee and costs shall be borne equally by
the parties unless the parties agree otherwise in writing.”
5.
are to share equally the mediation administrative fees and costs, as well as the mediator’s
fee and costs, unless they agree otherwise in writing.
Finally, if the mediation does not resolve the claim, either party may file a lawsuit.
If a lawsuit is filed, “the Claim shall be resolved by means of a general reference made
under the provisions of Code of Civil Procedure Sections 638, et seq., by a general
referee appointed under the provisions of Code of Civil Procedure Section 638(a) . . . ”
The referee has the authority to decide all issues in the action and issue a statement of
decision. The judicial reference provision sets out the rules and procedures applicable to
the reference, and states that the parties retain the same appeal rights from the judgment
entered on the referee’s statement of decision as if judgment had been entered on a trial
court judge’s statement of decision. The parties agreed to bear their own attorney fees
and costs.5 The 2001 version does not mention who is to pay the referee’s fees and costs,
5 The judicial reference provision appears in paragraph 12 as follows:
“12. Judicial Reference. If the parties cannot resolve the Claim pursuant to the
procedures described in Paragraphs 11 (a), (b) and (c) above, either party may then file a
lawsuit to resolve the Claim. If a lawsuit is filed, the Claim shall be resolved by means of
a general reference made under the provisions of Code of Civil Procedure Sections 638,
et seq. by a general referee appointed under the provisions of Code of Civil Procedure
Section 638(a), or any successor statutes (‘Referee’). Either or both parties may take the
steps necessary to secure the appointment of the Referee.
“The Referee shall have the authority to hear and determine any and all issues in
the action or proceeding, whether of fact or law, and to issue a statement of decision
thereon. Each party waives the right to a jury trial. The following rules and
procedures shall apply in all cases unless the parties agree otherwise in writing:
“(i) The proceedings shall be heard in Fresno County, California;
“(ii) The Referee shall be a retired judge, or an attorney with at least five years’
real estate experience; provided that either party may object to the appointment of a
particular referee on any grounds authorized under Code of Civil Procedure Section 641
or any successor statute;
“(iii) Any dispute regarding the selection of the Referee shall be resolved by the
entity providing the reference services or, if no entity is involved, by the court in which
the action or proceeding is pending;
6.
while the 2003 version states that “[t]he referee’s fees and costs shall be borne equally by
the parties unless the parties agree otherwise in writing.”
Real parties filed suit against McCaffrey in May 2011 to recover damages
allegedly suffered due to defective construction of their homes. After answering the first
amended complaint, McCaffrey filed a “Motion to Compel ADR” and stay the action.
McCaffrey asserted the original purchasers had breached their agreements to follow the
mandatory “ADR” and judicial reference procedures set forth therein; therefore, it was
contractually entitled to seek a court order staying the action and compelling the original
purchasers to comply with those procedures. With respect to the subsequent purchasers,
“(iv) The parties shall be entitled to all rights of discovery permitted by California
law;
“(v) The Referee shall have the power to hear and dispose of motions in the same
manner as a trial court judge;
“(vi) The Referee shall apply the rules of law, including the rules of evidence,
unless expressly waived by the parties in writing;
“(vii) A stenographic record of the trial shall be made, provided that the record
shall remain confidential to the extent permitted by California law;
“(viii) The Referee’s statement of decision shall stand as the decision of the court
as authorized under Code of Civil Procedure Section 644(a), and judgment may be
entered thereon in the same manner as if the action had been tried by a court; and
“(ix) The Referee shall have the authority to rule on all post-trial motions in the
same manner as a trial court judge.
“Each party retains the same appeal rights from the judgment entered on the
Referee’s statement of decision as if judgment had been entered on a trial court judge’s
statement of decision.
“The Referee’s fee and costs shall be borne equally by the parties unless the
parties agree otherwise in writing.
“Nothing herein shall be considered to reduce or extend any applicable statutes of
limitations.
“The parties acknowledge and agree that by entering into this Agreement,
they are waiving certain rights including the right to a jury trial and the right to a
trial by a trial court judge. The parties confirm this acknowledgment by placing
their initials below:
“Buyer’s Initials (________) Seller’s Initials (______)”
7.
McCaffrey contended they were subject to the statutory procedures set forth in the Act;
because they failed to follow those procedures, McCaffrey was statutorily entitled to seek
a court order staying the action and compelling compliance with the Act. In a footnote in
its memorandum of points and authorities, McCaffrey explained that while it had not
attempted to enforce the “ADR” and judicial reference provisions in its homeowner
agreements and “CC&Rs” against the subsequent purchasers, if the subsequent
purchasers contended or conceded they were bound to such terms, it reserved the right to
enforce those terms against them.
Real parties opposed the motion. They first argued the subsequent purchasers
could not be compelled to comply with the statutory procedure because they are subject
to the contractual procedure. Real parties asserted that because McCaffrey elected to
implement a contractual procedure in lieu of the statutory procedure when the homes
were first sold, the election was binding on the subsequent purchasers since the original
buyers were instructed to pass notice of the election on to subsequent purchasers as
covenants that run with the land.6 Real parties contended McCaffrey’s contractual
procedure was unenforceable against all of them because its “‘alternative procedure’”
was irreconcilable with the standards set forth in Section 4 of the Act. With respect to the
judicial reference provision, real parties argued it should not be enforced because it is
procedurally and substantively unconscionable, would result in the deprivation of the
6 Real parties attached a copy of the covenants, conditions and restrictions
(CC&Rs), which they asserted McCaffrey recorded on the title for all homes located in
Tract 4974 of the development. Real parties claimed that McCaffrey recorded similar
CC&Rs on the title for the other tracts at issue in the action. Article 7 of the CC&Rs
provides, in part, that any claim, dispute or controversy between any owner and
McCaffrey relating to the CC&Rs or the use or condition of any lot, including claims
made under Civil Code sections 896 or 897, shall be subject to the claims procedures set
forth in Exhibit A attached thereto. Exhibit A sets forth the same prelitigation and
judicial reference procedures contained in the 2003 version of the purchase and sales
agreements and warranties.
8.
right to a jury trial, and would only delay the action and increase costs to the plaintiffs.
Real parties asked the court to exercise its discretion and refuse to enforce the judicial
reference provision pursuant to Tarrant Bell Property, LLC v. Superior Court (2011) 51
Cal.4th 538 (Tarrant Bell).
Five of the real parties who were original purchasers of four of the homes
submitted declarations as part of the opposition.7 Three of the five declared this was their
first home, and one declared this was her first home in California. They decided to buy
their homes for a variety of reasons, including McCaffrey’s “unique payment plan,” the
models were “unique” and “spacious,” McCaffrey had “unique incentives such as front
yard landscaping,” and they loved the location. All stated they were not real estate agents
and had “zero knowledge” about purchasing real estate.
They each declared they signed a lot of documents at McCaffrey’s model home
office when purchasing their homes, which they were not able to review thoroughly
because they felt rushed by the sales agent. They signed, however, for various reasons,
including that they “really wanted the home,” they “were urged to sign quickly in order to
get a home at the current price,” the sales agent urged them to “sign immediately” as “the
prices were going up every week[,]” and they did not think they would be able to find
another home for the same price. The declarants also stated they “had no bargaining or
negotiation power” when purchasing their homes, and if they “had refused to sign any
portion of the documents,” they would not have been able to purchase the home. They
stated that the “implications of the various paragraphs” were not explained, the sales
agent’s explanations were “extremely weak,” and a lot of information was presented in a
short amount of time. They were confused by the process or the documents. Finally,
they did not understand, and were not told, that by signing the documents they were
7The real parties who submitted declarations were Angelique and Jesus Cital,
Hattie McKay, Philip Ramirez, and Renee Phillips.
9.
forfeiting the right to a jury trial in the event they discovered construction defects in the
home.
The attorney for real parties declared that in construction defect cases, his firm’s
custom and practice is to file a complaint against the developer for all construction
defects found in the plaintiffs’ homes. Once they learn the identities of the
subcontractors and manufacturers involved, they bring those parties into the lawsuit. As
of January 2012, real parties had amended the complaint to add as defendants 28
manufacturers and subcontractors involved in the construction of their homes.
In reply, McCaffrey argued the statutory procedures could be enforced against the
subsequent purchasers, but also accepted real parties’ stipulation they are bound to
McCaffrey’s contractual procedures. McCaffrey asked the court to enforce the
contractual procedures against the subsequent purchasers pursuant to the stipulation.
Following the May 31, 2012 oral argument on the motion before the Honorable
Alan Simpson, the court adopted its tentative decision denying the motion as to the
original purchasers who submitted declarations and to the subsequent purchasers. The
court continued the hearing on the motion to June 21, 2012 to allow the remainder of the
plaintiffs to submit declarations evidencing procedural unconscionability, if they could
do so truthfully.
As to the original purchasers who submitted declarations, the trial court found the
provisions unconscionable. The trial court determined those plaintiffs had made a “fairly
we[a]k showing of procedural unconscionability” which was offset by a strong showing
of substantive unconscionability. The court explained these plaintiffs had presented
“some evidence” their agreements were contracts of adhesion, as, based on the court’s
recollection, the price range of the homes when purchased “approximates the price of
entry level homes in the Fresno vicinity,” each declarant enumerated a combination of
features that made their home specifically desirable to them, and, while the contractual
provisions are “clear, easily understandable and separately initialed, the only evidence
10.
before the court is the entire contract was presented in a ‘take-it-or-leave-it’ fashion.”
The court determined the contractual provisions were substantively unconscionable
because they did not contain timelines like those in the Act, which require the builder to
act within specified time limits and protect homeowners from inordinate delay in the
pursuit of a remedy.
With respect to the subsequent purchasers, the court found that McCaffrey could
not enforce the Act against them because it had opted out of the Act’s prelitigation
procedure when the homes originally were sold. The court determined McCaffrey’s
contractual provisions, not the Act, applied to the subsequent purchasers, therefore it
would not compel compliance with the Act.
Real parties subsequently filed declarations from nine original purchasers, seven
of whom own four of the 19 original purchaser homes, and two of whom were original
purchasers of a home on which one of the owners previously submitted a declaration.8
McCaffrey filed an opposition and objections to the declarations. McCaffrey argued that
as to these eight purchasers, there was no evidence of procedural unconscionability
because they had over a month to review their home purchase documents before
McCaffrey accepted them, during which time they could have withdrawn their purchase
offers, and the contractual provisions are not substantively unconscionable. McCaffrey
made various evidentiary objections to the declarations, including that statements in them
lacked foundation, were irrelevant, conclusory and argumentative, and constituted
improper speculation and opinion.
On June 21, 2012, the trial court continued the hearing on the motion to July 14,
2012 to permit the plaintiffs who had not yet filed declarations evidencing procedural
8Declarations were submitted by Wesley and Dorothy Hodson, Micah and Miko
Johnson, Paul and Gloria Ruiz, Marina and Philip Ramirez, and Timothy Timmons.
Philip Ramirez, however, already had submitted a declaration with the original
opposition.
11.
unconscionability to do so. Real parties subsequently filed three more declarations from
three original purchasers, but only one was from a real party who had not previously
submitted a declaration.9 McCaffrey filed an opposition, arguing the court erred in
giving the plaintiffs additional time to file declarations, the court should disregard two of
the declarations because they were from a dismissed party and a party who already
submitted a declaration, and the third declaration did not establish procedural
unconscionability. McCaffrey asked the court to sever those provisions it found
unconscionable and enforce the others. McCaffrey filed evidentiary objections to the
three declarations.
On July 13, 2012, the case was reassigned to another judge, the Honorable Kristi
Culver Kapetan, for all purposes. After being continued twice, the hearing ultimately
was held on August 8, 2012. The court took the matter under advisement and
subsequently issued a written ruling denying the motion as to all of the real parties. The
court overruled McCaffrey’s evidentiary objections. The court concluded that as to the
original purchasers who submitted declarations, the agreements were contracts of
adhesion and the provisions were substantively unconscionable “for lack of the strict
deadlines that are integral to the [] Act.” The court denied McCaffrey’s request for
severance, as “all three pre-litigation provisions are unconscionable.”
As to the subsequent purchasers, the court determined McCaffrey could not
enforce the Act because it had opted out of it and the contractual procedures are binding
on the subsequent purchasers. Finally, with respect to the original purchasers who did
not submit declarations, the court exercised its discretion and denied enforcement of the
judicial reference provisions under Tarrant Bell, supra, 51 Cal.4th at p. 541, as there was
9 Declarations were submitted by Carol Sanchez, Avtar Singh and Renee Phillips.
Phillips previously had submitted a declaration and Sanchez had been dismissed from the
action.
12.
a “distinct possibility of a multiplicity of actions and a duplication of effort and the
danger of inconsistent results, as well as delays in resolution.”
McCaffrey petitioned for a writ of mandate or prohibition to overturn the court’s
order denying its motion to compel compliance with the contractual procedures and
judicial reference. McCaffrey contends the provisions in question are not
unconscionable. We issued an order to show cause and received additional briefing in
order to consider this issue of first impression.
DISCUSSION
By its motion, McCaffrey sought to compel real parties to engage in a
nonadversarial dispute resolution process before being allowed to continue with their
lawsuit. The motion involved three categories of plaintiffs, namely: (1) the original
purchasers who bought their homes from McCaffrey before January 1, 2003; (2) the
original purchasers who bought their homes from McCaffrey on or after January 1, 2003;
and (3) the subsequent purchasers who did not buy their homes from McCaffrey. With
respect to the original purchasers in the first two categories, McCaffrey sought to enforce
its contractual procedures that (1) require the homeowner to provide McCaffrey with
notice of the claimed construction defects and an opportunity to inspect and correct them,
and (2) if the claim is not resolved, require the parties to participate in non-binding
mediation. If the court found those provisions were unenforceable, then McCaffrey
sought to enforce the contractual provision that requires judicial reference of real parties’
claims. With respect to the subsequent purchasers, McCaffrey argued they were subject
to the statutory procedures of the Right to Repair Act, but if they conceded the
contractual procedures were applicable to them, then those procedures should be
enforced.
The trial court refused to enforce any of the contractual procedures with respect to
all of the categories of real parties on the ground the procedures are unconscionable, as
the contracts are adhesive and the procedures lack strict deadlines that are integral to the
13.
Right to Repair Act. By its writ, McCaffrey argues the provisions are not unconscionable
and should be enforced as to all real parties. The resolution of this issue first requires an
overview of the Right to Repair Act.
The Right to Repair Act
The Legislature enacted the Right to Repair Act to “‘specify the rights and
requirements of a homeowner to bring an action for construction defects, including
applicable standards for home construction, the statute of limitations, the burden of proof,
the damages recoverable, a detailed prelitigation procedure, and the obligations of the
homeowner.’ (Legis. Counsel’s Dig., Sen. Bill No. 800 (2001-2002 Reg. Sess.).)”
(Anders v. Superior Court (2011) 192 Cal.App.4th 579, 585 (Anders).) The Legislature
declared that “prompt and fair resolution of construction defect claims is in the interest of
consumers, homeowners, and the builders of homes . . . [but] under current procedures
and standards, homeowners and builders alike are not afforded the opportunity for quick
and fair resolution of claims. Both need clear standards and mechanisms for the prompt
resolution of claims.” (Stats. 2006, Reg. Sess. 2001-2002, ch. 722, § 1 (Sen. Bill No.
800, 2 West’s Cal. Session Laws 2002, pp. 3399-3400.) The Legislature further declared
it intended the Act to “improve the procedures for the administration of civil justice,
including standards and procedures for early disposition of construction defects.” (Ibid.)
The Act contains five chapters. Chapter 1 lists definitions applicable to the Act.
(§ 895.) Chapter 2 sets out building standards which, if violated, constitute a deficiency
in construction for which the builder may be held liable to the homeowner. (§§ 896,
897.) Chapter 3 imposes an obligation on the builder to furnish a minimum one year
express written limited warranty covering the fit and finish of specified building
components (§ 900), but allows the builder to offer a greater or longer warranty through
an “enhanced protection agreement.” (§§ 901-906.) Chapter 3 also imposes an
obligation on the homeowner to follow all reasonable maintenance obligations and
schedules. (§ 907.) Chapter 5 sets out the procedure for claims brought under the Act,
14.
including the applicable statute of limitations (§ 941), the burden of proof (§ 942), the
exclusiveness of the Act (§ 943), the damages that may be recovered (§ 944), and the
affirmative defenses that may be asserted (§ 945.5). It also provides that the Act’s
“provisions, standards, rights and obligations . . . are binding upon all original purchasers
and their successors in interest.” (§ 945.)
The chapter at issue here, Chapter 4, prescribes nonadversarial prelitigation
procedures a homeowner must initiate before bringing a civil action against the builder
for alleged construction defects. (§§ 910-938.) The homeowner is required to provide
the builder with written notice of the claim that the construction of his or her residence
violated any of the standards set forth in Chapter 2, and must “describe the claim in
reasonable detail sufficient to determine the nature and location, to the extent known, of
the claimed violation.” (§ 910, subd. (a).) Once the builder has received the claim, it has
14 days to provide written acknowledgment of the claim and another 14 days to inspect
and test the claimed defects. (§§ 913, 916.) The builder has an additional 40 days to
conduct a second inspection or testing. (§ 916.)
Within 30 days of the last inspection or testing, the builder may offer to repair the
violation, set a reasonable completion date, and compensate the homeowner for all
recoverable damages. (§ 917.) The homeowner has 30 days to either authorize repairs as
proposed or request repairs by a different contractor. (§ 918.) The repairs must be
commenced within 14 days of acceptance, done “with the utmost diligence,” and
“completed as soon as reasonably possible,” with every effort made to complete them
within 120 days. (§ 921.)
The builder’s offer to repair must be accompanied by an offer to mediate the
dispute if the homeowner chooses; the mediation is limited to four hours, except as
otherwise mutually agreed, before a nonaffiliated mediator selected and paid for by the
builder, and must occur within 15 days after the request to mediate is received. (§ 919.)
The mediator may be selected jointly if the homeowner agrees to split the mediator’s
15.
cost. (§ 919.) If the builder offered to repair a violation and the mediation fails to
resolve the dispute, the homeowner must allow the repair to be performed. (§ 919.)
When the repair is completed, the homeowner may file an action for violation of the
applicable standard or a claim of inadequate repair. (§ 926.) If the builder has completed
a repair and no previous mediation was conducted, a mediation must be held before the
homeowner may file suit against the builder. (§ 928.)
The time periods and requirements of Chapter 4 are to be strictly construed and,
unless extended by the parties’ mutual agreement, govern the rights and obligations under
the Act. (§ 930.) If the builder fails to acknowledge receipt of the claim, elects to not go
through the process set forth in Chapter 4, fails to request an inspection within the time
specified, fails to make an offer to repair, fails to complete the repair within the time
specified, or fails to “strictly comply with this chapter within the times specified,” the
homeowner is released from the requirements of Chapter 4 and may proceed with the
filing of an action. (§§ 915, 920, 925, 930.) The standards set forth in the other chapters
of the Act, however, continue to apply to the action. (§§ 915, 920, 925, 930.)
The builder has the option of contracting for an alternative nonadversarial
prelitigation procedure in lieu of the statutory procedure. Section 914 provides: “(a)
This chapter establishes a nonadversarial procedure, including the remedies available
under this chapter which, if the procedure does not resolve the dispute between the
parties, may result in a subsequent action to enforce the other chapters of this title. A
builder may attempt to commence nonadversarial contractual provisions other than the
nonadversarial procedures and remedies set forth in this chapter, but may not, in addition
to its own nonadversarial contractual provisions, require adherence to the nonadversarial
procedures and remedies set forth in this chapter, regardless of whether the builder’s own
alternative nonadversarial contractual provisions are successful in resolving the dispute or
ultimately deemed enforceable.
16.
“At the time the sales agreement is executed, the builder shall notify the
homeowner whether the builder intends to engage in the nonadversarial procedure of this
section or attempt to enforce alternative nonadversarial contractual provisions. If the
builder elects to use alternative nonadversarial contractual provisions in lieu of this
chapter, the election is binding, regardless of whether the builder’s alternative
nonadversarial contractual provisions are successful in resolving the ultimate dispute or
are ultimately deemed enforceable.
“(b) Nothing in this title is intended to affect existing statutory or decisional law
pertaining to the applicability, viability, or enforceability of alternative dispute resolution
methods, alternative remedies, or contractual arbitration, judicial reference, or similar
procedure requiring a binding resolution to enforce the other chapters of this title or any
other disputes between homeowners and builders. Nothing in this title is intended to
affect the applicability, viability, or enforceability, if any, of contractual arbitration or
judicial reference after a nonadversarial procedure or provision has been completed.”
This court has addressed issues involving contractual nonadversarial prelitigation
procedures builders have adopted in lieu of the Act’s statutory procedures in Anders,
supra, 192 Cal.App.4th 579, and Baeza, supra, 201 Cal.App.4th 1214. In Anders, the
trial court found the builder’s contractual procedures unconscionable and unenforceable,
but nevertheless ordered the homeowners who sued the builder due to construction
defects to comply with the statutory procedures. (Anders, supra, 192 Cal.App.4th at
p. 587.) We held that the trial court erred in ordering compliance with Chapter 4, as
section 914, subdivision (a) provides that a builder who elects or attempts to use its own
prelitigation procedures in lieu of the statutory ones is bound by that decision and cannot
enforce the statutory procedures. (Anders, supra, 192 Cal.App.4th at p. 589.)
In so holding, we explained that “a builder who elects to use alternative
prelitigation procedures in lieu of those set out in the statute has the right to attempt
repairs, so long as it does so pursuant to procedures that are fair and enforceable. If,
17.
however, the builder imposes procedures that are found to be unenforceable, it forfeits its
absolute right to attempt repairs. It may still offer to repair any defects, but the
homeowner is not bound to accept the offer or to permit the builder to attempt the repairs
prior to litigation. The builder thus has an incentive to ensure its alternative procedures
are proper and enforceable, and the homeowner’s protection against unnecessary delay is
preserved.” (Anders, supra, 192 Cal.App.4th at p. 591.)10 The issue of whether the trial
court correctly found the builder’s contractual procedures unconscionable and
unenforceable was not before us. (Id. at p. 584.)
In Baeza, supra, 201 Cal.App.4th 1214, the trial court ordered homeowners who
had sued the builder for construction defects to comply with the builder’s contractual
procedure and judicial reference provisions. (Id. at p. 1220.) In a writ petition, the
homeowners argued they were not required to comply with the contractual provisions
because the builder failed to comply with the statutory disclosure requirements contained
in section 912 of Chapter 4. (Baeza, supra, 201 Cal.App.4th at pp. 1220, 1224.) We
rejected this argument, holding that “a builder who opts out of the Chapter 4
nonadversarial statutory prelitigation procedures in favor of its own contractual
procedures opts out of the entirety of Chapter 4, and the disclosure provisions of section
912 do not apply to such a builder.” (Baeza, supra, 201 Cal.App.4th at pp. 1225-1226.)
We did not address the propriety of the trial court’s order requiring compliance with the
10 We also noted that the legislative history of the Act, particularly a Senate
Judiciary Committee analysis of Senate Bill No. 800, showed that “one of the major
purposes of the legislation is to promote prelitigation repairs of construction defects in
order to avoid the costs of litigation and the resulting increased costs of construction.”
(Anders, supra, 192 Cal.App.4th at p. 590; Sen. Com. on Judiciary, Analysis of Sen. Bill
No. 800 (2001-2002 Reg. Sess.) as amended Aug. 28, 2002, pp. 4, 5.) We further noted
the “provisions establishing a time table for the repairs also protect homeowners by
preventing inordinate delay in their pursuit of a remedy.” (Anders, supra, 192
Cal.App.4th at p. 590.) As in Anders, we grant real parties’ request for judicial notice of
the Senate Judiciary Analysis. (Anders, supra, 192 Cal.App.4th at p. 590, fn. 3.)
18.
contractual provisions for mediation, arbitration and judicial reference, as the
homeowners failed to present a separate argument on the issue. (Id. at p. 1231, fn. 7.)
Neither case addressed the issue presented here, namely what constitutes
enforceable contractual provisions. The trial court found the contractual provisions
unconscionable. Real parties assert that we need not decide whether McCaffrey’s
contractual provisions are unconscionable because they are “unlawful” under the Right to
Repair Act, as they provide “no meaningful timetable” for the builder to act. Real parties
contend the absence of deadlines comparable to those in the Act renders the contractual
provisions unenforceable, without regard to whether the provisions are unconscionable.
But as we explained in Baeza, if a builder opts out of the statutory procedures in
favor of its own contractual procedures, the builder opts out of all of Chapter 4. (Baeza,
supra, 201 Cal.App.4th at pp. 1225-1226.) There is nothing in the Act that requires the
builder who elects to use contractual procedures to provide a particular procedure or to
comply with the deadlines contained in Chapter 4. Instead, section 914, subdivision (a)
simply provides that “[a] builder may attempt to commence nonadversarial contractual
provisions other than the nonadversarial procedures and remedies set forth in this
chapter . . .”. (Emphasis added.) The statute does not impose any requirement for the
contents of those nonadversarial contractual provisions.
If the Legislature had intended to require a builder’s contractual provisions to
include certain deadlines, it could have stated so within section 914. It also could have
made the deadlines of Chapter 4 applicable to a builder’s contractual provisions by
setting the deadlines as a minimum standard and allowing the builder to offer more
generous terms. That the Legislature knew how to do that is demonstrated in Chapter 3,
where under section 900 builders are required to provide a minimum one-year express
written limited warranty, but under section 901 they may “offer greater protection or
protection for longer time periods” in their contracts with the homeowner. The
19.
Legislature did not do so. Instead, it included all of the deadlines in Chapter 4, then
authorized builders to opt out of Chapter 4.
Since McCaffrey’s contractual provisions are not rendered unenforceable merely
because they deviate from the statutory procedure, we consider the only other argument
on enforceability that real parties make, namely whether the contractual provisions are
unenforceable because they are unconscionable.
Unconscionability and the Standard of Review
“Unconscionability is ultimately a question of law for the court.” (Flores v.
Transamerica HomeFirst, Inc. (2001) 93 Cal.App.4th 846, 851, citing § 1670.5.)
However, numerous factual issues may bear on that question. [Citation.] Where the trial
court’s determination of unconscionability is based upon the trial court’s resolution of
conflicts in the evidence, or on the factual inferences which may be drawn therefrom, we
consider the evidence in the light most favorable to the court’s determination and review
those aspects of the determination for substantial evidence.” (Gutierrez v. Autowest, Inc.
(2003) 114 Cal.App.4th 77, 89 (Gutierrez).) If there are no material conflicts in the
evidence bearing on the issue of unconscionability, our review is de novo. (Higgins v.
Superior Court (2006) 140 Cal.App.4th 1238, 1250.)
Section 1670.5 “‘provides a statutory basis for refusing to enforce a contract
which the court finds “as a matter of law . . . to have been unconscionable at the time it
was made. . . . ”’’ (Trend Homes, Inc. v. Superior Court (2005) 131 Cal.App.4th 950,
956, (Trend Homes), disapproved on another point in Tarrant Bell, supra, 51 Cal.4th at p.
545, fn. 5.) Our Supreme Court has summarized the law of unconscionability as follows:
“Unconscionability consists of both procedural and substantive elements. The procedural
element addresses the circumstances of contract negotiation and formation, focusing on
oppression or surprise due to unequal bargaining power. [Citations.] Substantive
unconscionability pertains to the fairness of an agreement’s actual terms and to
assessments of whether they are overly harsh or one-sided. [Citations.] A contract term
20.
is not substantively unconscionable when it merely gives one side a greater benefit;
rather, the term must be ‘so one-sided as to “shock the conscience.”’” (Pinnacle Museum
Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 246
(Pinnacle); see also Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071 (Little)
[procedural unconscionability “generally takes the form of a contract of adhesion”];
Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 113-114
(Armendariz).)
“Both procedural unconscionability and substantive unconscionability must be
shown, but ‘they need not be present in the same degree’ and are evaluated on ‘“a sliding
scale.”’ [Citation.] ‘[T]he more substantively oppressive the contract term, the less
evidence of procedural unconscionability is required to come to the conclusion that the
term is unenforceable, and vice versa.’” (Pinnacle, supra, 55 Cal.4th at p. 247, citing
Armendariz, supra, 24 Cal.4th at p. 114.) The party who prepared and submitted the
contract has the burden of showing the other party had notice of the contract terms at
issue, while the party asserting unconscionability has the burden of establishing it.
(Trend Homes, supra, 131 Cal.App.4th at p. 956.)
We begin with the enforceability of the contractual procedures with respect to the
original purchasers who bought their homes on or after January 1, 2003. These
procedures appear in the original purchasers’ standardized sale agreements and home
warranties, as well as the CC&Rs. Real parties contend these provisions are
substantively unconscionable because they do not comport with the Right to Repair Act
and are procedurally unconscionable because they are contained in contracts of adhesion
that were presented to them on a take-it-or-leave-it basis.
Procedural Unconscionability
In the present case, the trial court found procedural unconscionability had been
established because the sale agreements are contracts of adhesion, and while the
contractual procedures are “clear, easily understandable and separately initialed[,]” the
21.
contracts were presented to the original purchasers on a take-it-or-leave-it basis.
McCaffrey challenges this finding, arguing the declarations real parties submitted are
insufficient to satisfy their burden of proof, the original purchasers initialed the
contractual provisions, and McCaffrey submitted undisputed evidence the declarants had
an opportunity to negotiate and never did so.
As we have stated, procedural unconscionability requires either oppression or
surprise. “‘“Oppression occurs where a contract involves lack of negotiation and
meaningful choice, surprise where the allegedly unconscionable provision is hidden
within a prolix printed form.”’” (Pinnacle, supra, 55 Cal.4th at p. 247.) Procedural
unconscionability, and in particular “‘oppression,’” generally entails a contract of
adhesion; that is, “‘a standardized contract, which, imposed and drafted by the party of
superior bargaining strength, relegates to the subscribing party only the opportunity to
adhere to the contract or reject it.’” (Armendariz, supra, 24 Cal.4th at p. 113; see also
Walnut Producers of California v. Diamond Foods, Inc. (2010) 187 Cal.App.4th 634,
645-646.) “‘[S]urprise’” typically involves a provision “‘“hidden”’” within the prolixity
of a preprinted form contract drafted by the party having superior bargaining strength.
(Baker v. Osborne Development Co. (2008) 159 Cal.App.4th 884, 895; A & M Produce v.
FMC Corp. (1982) 135 Cal.App.3d 473, 486; Armendariz, supra, at p. 114.)
Real parties do not contend that procedural unconscionability exists based on
surprise or even misrepresentation; instead, they contend it exists because the sale
agreements are contracts of adhesion. We need not decide this issue because, even if we
assume real parties have shown an imbalance of bargaining power, that McCaffrey
prepared the contracts as the stronger party to its own advantage, and McCaffrey would
not have stricken the prelitigation provisions if real parties had asked, real parties have
shown only a low level of procedural unconscionability, as the elements of surprise or
misrepresentation are not present. (See Trend Homes, supra, 131 Cal.App.4th at p. 960.)
22.
Accordingly, in order to prevail, real parties must establish a high level of substantive
unconscionability. (Ibid.)
Substantive Unconscionability
Even if the provisions are procedurally unconscionable, they are not substantively
unconscionable. The substantive element of unconscionability “pertains to the fairness of
an agreement’s actual terms and to assessments of whether they are overly harsh or one-
sided.” (Pinnacle, supra, 55 Cal.4th at p. 246.) This includes consideration of the extent
to which the disputed term is outside the reasonable expectation of the nondrafting party
or is unduly oppressive. (Gutierrez, supra, 114 Cal.App.4th at p. 88.) “Substantively
unconscionable terms may take various forms, but may generally be described as unfairly
one-sided.” (Little, supra, 29 Cal.4th at p. 1071, italics added.) Unconscionability is
measured as of the time the contract was entered. (§ 1670.5, subd. (a).)
McCaffrey’s contractual procedure begins with the homeowner providing notice
of the claim of construction defects. After McCaffrey receives the claim, the parties are
required to meet and confer within a reasonable time, not to exceed 60 days. At that
meeting, the homeowner is to provide McCaffrey with access to the property for the
purpose of inspection. If McCaffrey decides to take corrective action, then the
homeowner must provide McCaffrey full access to the property so it can do so. If the
claim is not resolved, then the claim must be submitted to mediation according to the
procedures adopted by “JAMS” or another entity offering mediation services. The
mediation is to be held “as soon as practicable.” Within 10 days of the selection of the
mediator, or within a time frame set by the mediator, the parties are to submit brief
memoranda on their positions. The mediation is to begin at most 10 days later, and must
conclude within 15 days of its start. The parties bear their own mediation expenses with
the exception of the mediation administrative fee and costs and the mediator’s fee and
costs, which are shared equally unless the parties agree otherwise.
23.
Real parties contend these contractual provisions are substantively unconscionable
because (1) they state no meaningful timeline within which McCaffrey must act, thereby
giving McCaffrey a license to delay, (2) the homeowner is required to pay half the cost of
the mediation, (3) the notice provision disadvantages homeowners, and (4) the provisions
take away other rights enumerated in Chapter 4 that are not included in the contractual
procedures.
The purpose of Chapter 4 of the Act “is to give a builder the opportunity to resolve
a homeowner’s construction defect claim in an expeditious and nonadversarial manner.”
(Darling v. Superior Court (2012) 211 Cal.App.4th 69, 82.) As this court explained in
Anders, “one of the major purposes of the legislation is to promote prelitigation repairs of
construction defects in order to avoid the costs of litigation and the resulting increased
costs of construction. The provision establishing a time table for the repairs also protects
homeowners by preventing inordinate delay in their pursuit of a remedy.” (Anders,
supra, 192 Cal.App.4th at p. 590.)
The contractual provisions at issue here set out a procedure that gives McCaffrey
the right to repair any claimed construction defects and requires mediation should the
homeowner remain dissatisfied. While the provisions do not contain express timelines
like those in the Right to Repair Act, they are not without any time frames whatsoever.
McCaffrey has 60 days to inspect the property, and after that may decide to take
corrective action. The mediation must be held as soon as practicable and once the parties
select a mediator, briefs must be filed within 10 days, and the mediation must begin
within 10 days thereafter and conclude within 15 days. Although the provisions do not
contain set deadlines within which McCaffrey must decide to take corrective action or
complete repairs, a reasonable time to perform may be implied. As McCaffrey points
out, it is a well established principle of contract law that “[i]f no time is specified for the
performance of an act required to be performed, a reasonable time is allowed.” (§ 1657;
Wagner Construction Co. v. Pacific Mechanical Corp. (2007) 41 Cal.4th 19, 30
24.
(Wagner).) Courts have applied section 1657 to contractual alternative dispute resolution
procedures (Wagner, supra, 41 Cal.4th at p. 30; Sawday v. Vista Irrigation District
(1966) 64 Cal.2d 833, 836), and to a real estate option contract (Patel v. Liebermensch
(2008) 45 Cal.4th 344, 351-352). Since a reasonable time to perform is imputed in the
contract, the absence of express timelines does not render the contractual procedures
unfair or overly harsh.
Real parties disagree, arguing the absence of express deadlines for McCaffrey to
act renders the procedures unfair, as a homeowner would not know precisely when to file
suit should McCaffrey either delay in acting or fail to act, and the homeowner necessarily
would have to litigate the issue of reasonableness once a lawsuit is filed. It is true that
“‘[w]hat constitutes a reasonable time is a question of fact,’” which depends on “‘the
situation of the parties, the nature of the transaction and the facts of the particular case.’”
(Wagner, supra, 41 Cal.4th at p. 30.) But real parties have not shown that, in the context
of construction defect claims, it is difficult to know when a builder has decided not to
repair the claimed defect, has agreed to repair it but failed to initiate the repair, or did not
complete the repair. Either the builder responds to demands for action or it does not. If it
does not respond, the homeowner may be reasonably assured that he or she is relieved of
any further requirement to engage in a prelitigation resolution process.
Notably, when filing a lawsuit without completing the Right to Repair Act’s
prelitigation procedures, it is the homeowner’s burden to “factually establish” that he or
she has been released from those procedures due to the builder’s failure to comply with
them. (Standard Pacific Corp. v. Superior Court (2009) 176 Cal.App.4th 828, 834.) The
burden under McCaffrey’s contractual provisions is no different; a homeowner may
establish excuse from the contractual procedures by showing that McCaffrey
unreasonably delayed in making an offer to repair, initiating the repairs, or completing
the repairs, and thus proceed with the lawsuit. Determining whether that delay was
reasonable or unreasonable would not place a significant burden on the homeowner.
25.
Real parties assert the absence of express deadlines in McCaffrey’s procedure is a
“license to delay.” But implied in this contract, as in all contracts, is the covenant of
good faith and fair dealing, which prevents one contracting party from unfairly frustrating
the other party’s right to receive the agreement’s benefits. (Guz v. Bechtel National, Inc.
(2000) 24 Cal.4th 317, 349; Habitat Trust for Wildlife, Inc. v. City of Rancho Cucamonga
(2009) 175 Cal.App.4th 1306, 1332.) The “‘precise nature and extent of the duty
imposed . . . will depend on the contractual purposes.’” (Careau & Co. v. Security
Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1393.) The covenant of good
faith is particularly applicable in situations where one party has discretionary power
affecting the other party’s rights; “[s]uch power must be exercised in good faith.”
(Carma Developers, Inc. v. Marathon Development, Inc. (1992) 2 Cal.4th 342, 372;
Peak-Las Positas Partners v. Bollag (2009) 172 Cal.App.4th 101, 106.)
Thus, McCaffrey is required to act in good faith in conducting the inspection,
determining whether to repair, and in completing the repairs. If it fails to do so, it
exposes itself to additional liability for breach of the covenant of good faith and fair
dealing. For this reason, McCaffrey has an incentive to cooperate with the homeowner in
the repair process, and to promptly exert its contractual rights and carry out its
contractual responsibilities.
Real parties contend the Legislature enacted the “highly detailed process” of
Chapter 4 because it wanted the process to begin and end without court supervision
before a lawsuit is filed. While that may be true, the Legislature allowed builders to opt
out of that process and adopt their own prelitigation procedures. In doing so, the
Legislature did not place any restrictions on what those procedures must include. Real
parties question why the Legislature would adopt such detailed procedures only to allow
the builder to circumvent them by creating stripped down procedures of which
homebuyers are seldom aware. There is no clear answer to that question other than to say
it did not do so.
26.
Significantly, a homebuyer is given notice of the contractual procedures before
entering into a home purchase contract, as those procedures do not become part of the
bargain unless they are set out in the contractual documents and the buyer agrees to them.
(Baeza, supra, 201 Cal.App.4th at p. 1227.) Since section 914 requires the contract to
reflect the builder’s election to follow its own contractual procedures, the buyer has
notice of those procedures and the builder’s election “because the builder’s procedures
and the election are part of the contract to which the buyer agrees.” (Baeza, supra, 201
Cal.App.4th at p. 1227.)
Real parties next contend the contractual mediation provision is unconscionable
because it requires the homeowner to pay half the cost of the mediation, which could go
on as long as the mediator chooses since the mediator has discretion to conduct the
mediation as he or she sees fit. For this reason, real parties complain that the mediation
fees are likely to be sizeable and therefore would function as a penalty or tax they must
pay before being granted access to the court system.
Real parties, however, made no attempt to show that the mediation fees they are
likely to pay would be exorbitant or place an unreasonable burden on them, or that a
mediation is likely to take an undue amount of time. (Pinnacle, supra, 55 Cal.4th at p.
247 [“The party resisting arbitration bears the burden of proving unconscionability.”];
Trend Homes, supra, 131 Cal.App.4th at p. 963 [noting it was the homeowners’ burden
to demonstrate the reference fees they were likely to pay were greater than those that
would accrue in litigation before the court].) We recognize that the contractual procedure
requires the homeowner to pay half the cost of the mediation, while under the Act the
homeowner splits the cost of the mediator only if the homeowner agrees to do so. Courts
have concluded, however, that it is not unconscionable for a homebuyer to pay half the
costs of judicial reference as provided in a home purchase agreement. (Greenbriar
Homes Communities, Inc. v. Superior Court (2004) 117 Cal.App.4th 337, 345-346
(Greenbriar), disapproved on another point in Tarrant Bell, supra, 51 Cal.4th at p. 547;
27.
Woodside Homes of California, Inc. v. Superior Court (2003) 107 Cal.App.4th 723, 732-
733.) There is no reason why a different result should apply to the mediation clause at
issue here.
Real parties argue they are disadvantaged because the notice provision requires the
notice of claim to “describe the nature and location of the Claim in reasonable detail.”
Real parties assert this is a different standard than the Right to Repair Act, which states
that the notice “shall describe the claim in reasonable detail sufficient to determine the
nature and location, to the extent known, of the claimed violation.” (§ 910, subd. (a).)
Real parties reason that instead of being required to state what they know, the contractual
provision requires them to “provide an objectively reasonable amount of detail in
describing the nature and location of the defects in their home.” Real parties claim the
contractual standard is problematic because it is more stringent and invites litigation of
the meaning of what is “reasonable.”
There is nothing unfair, however, in requiring the homeowner to describe the
nature and location of the claim in reasonable detail. The absence of the term “to the
extent known” in the contractual provision does not mean the homeowner must provide
anything other than the information about the nature and location of the defect that the
homeowner knows. The notice requirement does not render the contractual procedure
unconscionable.
Finally, real parties contend that the contractual procedure is unconscionable
because it takes away various rights they would have otherwise under Chapter 4, such as
the right to request copies of documents pertaining to the construction (§ 912), the right
to be provided with documents pertaining to any repairs made (§ 923), and the
prohibition against the builder obtaining a release or waiver in exchange for the repair
work mandated by the Act (§ 926). As real parties point out, we held in Baeza that a
builder who opts out of the statutory procedure opts out of all of Chapter 4. (Baeza,
supra, 201 Cal.App.4th at pp. 1225-1226.) But, as we have already explained,
28.
contractual procedures are not rendered unconscionable merely because they do not
include the same requirements as the Act. This is because the Legislature did not
mandate that anything within the Act be included in the builder’s contractual procedures.
By entering into their purchase contracts, real parties agreed to the alternative procedures.
In sum, real parties have not met their burden of establishing that the contractual
procedures, as stated in the paragraphs entitled “Claim Notice: Right to Inspect and
Correct” and “Nonbinding Mediation,” are unconscionable. We therefore find these
provisions are enforceable as to the original purchasers who bought their homes on or
after January 1, 2003.
Turning to the original purchasers who bought their homes before 2003, we note
that real parties do not argue the contractual procedures in the pre-2003 sale agreements
and home warranties are unconscionable apart from comparing them to the Right to
Repair Act. The Act, however, was not applicable when those homeowners entered into
their contracts with McCaffrey. Because unconscionability is measured as of the time the
contracts were entered into, the Act cannot be the basis for an unconscionability finding
with respect to the pre-2003 home sales. (§ 1670.5, subd. (a).) Since we have concluded
the contractual procedures in the sale agreements and home warranties for those homes
purchased on or after January 1, 2003 are not substantively unconscionable in light of the
Act, we necessarily also find the procedures in the pre-2003 contracts are not
substantively unconscionable and therefore are enforceable.
That leaves the subsequent purchasers. As real parties explain, “[t]he court
refused to enforce the statutory SB800 prelitigation procedure against the subsequent
purchaser plaintiffs, because it is undisputed that for all of the SB800 homes at issue in
this action, McCaffrey elected at the time of sale to utilize a contractual prelitigation
procedure under Civil Code section 914(a).” Real parties assert that the trial court’s
reasoning on this point, which includes a finding that the contractual procedures in the
CC&Rs are binding on the subsequent purchasers, is highly compelling and should be
29.
upheld. Real parties assert the trial court’s ruling that the subsequent purchasers do not
have to follow the contractual procedures is valid because (1) the contractual procedures
violate the Act, and (2) McCaffrey did not ask the court in its moving papers to enforce
its contractual procedures as to the subsequent purchasers.
Real parties conceded below, and concede in this proceeding, that the contractual
procedures apply to the subsequent purchasers. As we have determined, those procedures
are enforceable. While in its moving papers below McCaffrey sought to force the
subsequent purchasers to comply with the Right to Repair Act’s procedures, it also stated
that if the subsequent purchasers contended or conceded they were bound to the
contractual procedures, it reserved the right to enforce those terms against them. In their
opposition below, real parties conceded the subsequent purchasers were subject to the
contractual procedures. Based on this concession, McCaffrey asked the trial court to
enforce the contractual procedures against the subsequent purchasers. Having requested
the relief below, and as real parties do not assert any other argument with respect to the
enforceability of the contractual procedures against the subsequent purchasers, we
conclude that the subsequent purchasers must comply with them.
In sum, all of the real parties must comply with the contractual procedures in their
contracts with McCaffrey, which include providing notice of the claim, giving McCaffrey
an opportunity to repair and correct, and participating in nonbinding mediation. Since we
are ordering compliance with the contractual procedures, we do not decide whether the
judicial reference clause is enforceable against any of the real parties, as some or all of
the real parties may resolve their complaints with McCaffrey.
DISPOSITION
The petition for writ of mandate is granted. Let a peremptory writ of mandate
issue directing the respondent court to (1) vacate its orders of May 31, 2012 and August
27, 2012, denying petitioner’s “Motion to Compel ADR,” and (2) enter a new order
granting the motion and compelling all of the real parties to engage in the contractual
30.
prelitigation procedures included in their contracts with petitioner. Our stay of the
underlying action will be vacated upon finality of this opinion. The parties shall bear
their own costs in these writ proceedings.
_____________________
Gomes, J.
WE CONCUR:
_____________________
Cornell, Acting P.J.
_____________________
Franson, J.
31.