Failure Of Contractual Dispute Resolution Procedures In Contract To Track Protections In The Right To Repair Act Did Not Make The Provisions Unconscionable
The Right To Repair Act, Civ. Code sections 895 et seq., (Act) require a homeowner to provide a builder with notice of defects and an opportunity to investigate and repair them. However, the builder has the option of contracting for its own alternative nonadversarial prelitigation procedures when the home is sold. The Act applies to new residential units where the seller signed the purchase agreement on or after January 1, 2003.
Are homeowners who have purchased before January 1, 2003, or who have purchased after January 1, 2003, or who have purchased from those purchasers, bound by contractual prelitigation procedures, if those procedures do not track the procedures in the Act? That’s the problem presented in The McCaffrey Group, Inc. v. Superior Court, F066080 (5th Dist. March 24, 2014) (Gomes, Cornell, Franson).
And the answer? Yes, they are bound here, because the Court of Appeal found that the contractual procedures were not unconscionable, merely because they did not track the procedures in the Act. Furthermore, since unconscionability is determined as of the time of entering into the contract, the Act could not even be used as a yardstick for measuring unconscionability of those contracts entered into by purchasers who signed before the effective date of the Act.
When the homebuilder elected a contractual procedure, the homebuilder opted out of the nonadversarial prelitigation procedures prescribed by Chapter 4 of the Act, and the parties were bound by the contractual procedure. Here, the contractual procedure, while not providing all the same time deadlines as the Act, did provide times for accomplishing steps in prelitigation procedure. Also, the covenant of good faith and fair dealing placed an obligation on the homebuilder to act reasonably.
Here, the Court found a lack of substantive unconscionability, notwithstanding that the homeowners were contractually bound to pay half the mediation fees, while under the Act, the homeowner only splits fees if the homeowner agrees to do so. The Court signaled that there was a failure of proof, because the homeowners “made no attempt to show that the mediation fees they are likely to pay would be exorbitant or place an unreasonable burden on them . . . “
On one issue, however the Court punted: “Since we are ordering compliance with the contractual procedures, we do not decide whether the judicial reference clause is enforceable . . as some or all of the parties may resolve their complaints . . . “
Petition of The McCaffrey Group, Inc. granted.
Congratulations to attorney for petitioner Eddie Galloway (a former colleague of mine) and to his team at Jackson, DeMarco, Tidus & Peckenpaugh.