Aug 8 2005
The construction industry won a closely watched case handed down Friday by the Fourth Appellate District which otherwise would have extended the statute of limitations for homeowners suing home builders for construction defects. In closing a loophole widely argued by trial lawyers, the court recognized this decision which would protect "a vital industry from the damaging consequences of indefinite liability exposure."
In Inco Development v. Superior Court, 215 owners of single family homes located in Adelanto, California, banded together and sued their home builder for construction defects. 157 of the homes at issue were completed more than ten years before the lawsuit was first filed. While California law requires suits for construction defects to be filed within ten years after the home is constructed, these 157 homeowners claimed the bankruptcy filing of their home builder resulted in an extension, or tolling, of the time within which they needed to bring the lawsuit. Federal bankruptcy statutes, after all, provide an automatic stay of litigation which the homeowners claimed extended for the 19 month automatic stay period the ten years California allows for the commencement of construction defect lawsuits. In rejecting the arguments of the homeowners, the appellate court provided a powerful ruling that effectively closed a loophole for this and other situations which arguably would toll the statute of repose.
"Of import to the construction industry is the fact the ten year time within which builders can be sued was characterized as a statute of repose, not a statute of limitations," said Lee Thunberg, a partner with the Rancho Cucamonga office of Wood, Smith, Henning & Berman which represented the home builder, Inco. Added lawyer Paul Nolan, who argued the appeal, "the court recognized under normal circumstances, the bankruptcy stay would be clear-cut and extend the statute of limitations 19 months." Nolan added, "This argument was rejected because tolling is not applicable to a statute of repose, which is what the ten year rule really is in the first instance."
At issue was a lawsuit filed on May 16, 2003 naming home builder Inco who immediately moved for Summary Judgment as to 157 of the homes in the lawsuit on the basis that the notices of completion proved the homes had been substantially complete on or before May, 16, 1993, more than ten years allowed by California statute. Plaintiffs opposed the motion arguing the statute of limitations was tolled for a 19-month period from October 1999 when Inco filed for bankruptcy through May 2001 when the stay was lifted. After lengthy briefing and oral arguments, the trial court denied Inco's Motion for Summary judgment on grounds that the 10-year statute of limitations period governing construction defect litigation in California was subject to the tolling provision of Section 356 of the Code of Civil Procedure which was reversed by the court of Appeal. Immediately thereafter, Inco filed its successful petition for writ of mandate.
Inco Development Corporation is represented by Daniel A. Berman, Lee M. Thunberg, and Paul J. Nolan of Wood, Smith, Henning & Berman.