Original Proceeding: petition for writ of mandate Super. Ct. No. 11CECG01451, Alan M. Simpson and Kristi Culver Kapetan, Judges.
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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.
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 division 2, part 2 of the Civil Code, (Civ. Code, § 895 et seq.; Sen. Bill No. 800 (2001-2002 Reg. Sess.),  which we will refer to as the Right to Repair Act or the Act. 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 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 in interest 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 in interest 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.
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 the 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. The claim must be “submitted to non-binding mediation 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 determines 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 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. The 2001 version does not mention who is to pay the referee’s fees and costs, 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 in interest 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, 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 in interest 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 in interest 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. Real parties in interest contended McCaffrey’s contractual procedure was unenforceable against all of them because its “‘alternative procedure’” was irreconcilable with the standards set forth in division 2, part 2, title 7, chapter 4 of the Civil Code,
of the Act. With respect to the judicial reference provision, real parties in interest argued it should not be enforced because it is procedurally and substantively unconscionable, would result in the deprivation of the right to a jury trial, and would only delay the action and increase costs to plaintiffs. Real parties in interest 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 [121 Cal.Rptr.3d 312, 247 P.3d 542] (Tarrant Bell).
Five of the real parties in interest who were original purchasers of four of the homes submitted declarations as part of the opposition. 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 forfeiting the right to a jury trial in the event they discovered construction defects in the home.
The attorney for real parties in interest 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 in interest
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 in interest's stipulation they are bound to McCaffrey’s contractual procedures. McCaffrey asked the court to enforce the contractual ...