The McAffrey Group Inc v The Superior Court of California County of Fresno

HOMEOWNERS MUST COMPLY WITH BUILDER’S PRE-LITIGATION PROCEDURES IN PURCHASE AGREEMENT BEFORE SUING FOR ALLEGED CONSTRUCTION DEFECTS UNDER RIGHT TO REPAIR ACT

THE MCAFFREY GROUP INC (PETITIONER) V THE SUPERIOR COURT OF CALIFORNIA COUNTY OF FRESNO (RESPONDENT–JESUS CITAL ET. AL REAL PARTIES IN INTEREST 2014 DJDAR 3712(2014 )

This case is a petition for a writ of mandate brought by McAffrey Group which is a builder and developer of single family homes in Fresno.  Real parties in interest own 24 homes within the development, 19 of those homes are owned by 32 individual who purchased their homes directly from McCaffrey.  Nine of the 19 homes were sold before 2013 using a 2001 version of McCaffrey’s “Combined Purchase and Sale Agreement and Joint Escrow instructions” and “Homeowner Warranty.”  Five of the 24 homes are owned by eight individuals who purchased their homes from someone other than McCaffrey after January 1, 2014 (the subsequent purchasers).

The distinction in purchase dates is significant because there was a Right to Repair Act passed in 2002 effective January 1 ,2003 which applied to new residential units and established a non-adversarial method for a homeowner to deal with construction defects.  The builder has the alternative to contract for its own alternative method of dealing with homeowner defect complaint issues which is what McCaffrey did in this case.

The homeowners who purchased their homes after January 1, 2003 were notified by McCaffrey that the non-adversarial statutory remedy was replaced by the remedy proposed by McCaffrey which was perfectly legal.  There was a two-step process.  The first step requires the homeowner to notify McCaffrey of the claimed defects in writing and gives McCaffrey an opportunity to inspect and repair them

McCaffrey has up to 60 days to meet and confer with the homeowner and then McCaffrey is to have access to the property to inspect.

The second step involved non-binding mediation of the matter cannot be resolved through JAMS (Judicial Arbitration and Mediation Services) –there is a short briefing schedule to be held in Fresno County and the matter is to conclude within 15 days of the submission of briefs.  If the mediation does not resolve the claim then either party may file a lawsuit.

The Real parties filed a suit against McCaffrey in 2011 to recover damages for the alleged defective construction of their homes.  McCaffrey filed a motion to compel the ADR or suit resolution subject to mediation as set forth in their agreements with the homeowners.

The motions were opposed by Real Parties.  The Real Parties contended that there was procedural and substantively unconscionable due to the lack of jury trial and McCaffrey’s procedure would increase the costs to Real Parties.

The trial Court agreed with the Real Parties and the Petition for Writ of Mandate was filed by McCaffrey to force the compliance with the Purchase Agreement.

The Appellate Court-5th District found that the Legislature enacted the Right to Repair Act to deal with homeowners and construction defects and set applicable s standards for dealing with the situation in a prompt and fair manner.  There is a discussion of the Act and its various provisions and requirements.

The Court also stated that the Act provided that the builder (McCaffrey) has the right to opt out of the procedure in lieu of its own procedure and can attempt repairs provided the procedure is fair and enforceable.

Here, in this case, the Court deals with what constitutes enforceable contractual provisions.  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 deadlines contained in the Act.

The Trial Court found both procedural and substantive unconscionability which was reversed by the Appellate Court. The Appellate Court found no contracts of adhesion; there was no oppression or surprise in McCaffrey’s contracts.  Furthermore the Appellate Court found no contracts of adhesion.  Since there was no surprise or misrepresentation by McCaffrey.  The Appellate court found only a low level of procedural unconscionability at best.

As to substantive unconscionability, the Appellate Court didn’t find any.  The substantive item pertains to the fairness of an agreement’s actual terms and to assessments of whether they are overly harsh or one-sided.

Real parties content the contractual provisions and the 60 day time period and JAMS requirements and the time period set forth above are substantively unconscionable.  Whether there are express time lines set forth, the provisions provide for a methodology to repair the defects. The Appellate Court found imputation of a reasonable time to perform the contract repairs and time line.  Furthermore there is a good faith covenant in all contracts.  Therefore McCaffrey was required to act in good faith in conducting the inspection, finding the repairs and completing the repairs.

Real Parties contended that there should be no Court supervision that the cost of the mediation would be too high but did not show that the fees would actually be exorbitant. The fact that the Real Parties had to detail their claims would be required under the statutory or any type of situation where the Seller/Builder is attempting to fix the defect. The mere fact that contractual procedures required by McCaffrey do not have the same terms as the statutory procedure do not render McCaffrey’s procedures unconscionable.

The Court granted the writ stating that the Real Parties had to comply with the McCaffrey contractual procedures in their contracts.  Furthermore the subsequent purchasers also had to comply with the procedures as this was requested by McCaffrey as well.