Suing Developer Could Cost Residents Their Homes : Courts: Property owners are ordered to pay the builder’s legal costs after lawsuit over taxes is thrown out. ‘It’s turned into the American nightmare,’ says one.
When homeowners Susan and Marvin Wait joined three neighbors in this northern San Diego County town in suing their subdivision developer, the last thing they expected was to lose their very homes in the process.
But that is the prospect they face. Not only was their lawsuit rejected out of hand, but they have been ordered to pay their developer’s legal defense costs of $226,843.
Split it three ways, and going to court for these people will have been by way of the cleaners.
“We moved up into a nicer neighborhood because that’s the American dream,” Susan Wait said, “and now it’s turned into the American nightmare.”
A Superior Court judge in Vista told the homeowners Thursday that Baldwin Building Contractors, a subsidiary of the Baldwin Co., is legally entitled to the $226,843, the money it paid to defend itself in a case where the stakes could have hit $50 million.
At issue was a contention by the three plaintiffs--the Waits, Jim and Barbara Berk and Robert Conway--that when they moved into their new neighborhood up the street from the local community college, they were not properly informed of the amount of Mello-Roos taxes they would be assessed, and for how many years.
Mello-Roos taxes, authorized by a 1982 state law, are collected from homeowners to repay debts incurred by the developer in installing such public amenities as roads, sewers, schools and parks in a neighborhood.
The builder set up a Mello-Roos tax district as a way of funding $75 million in public improvements in the new community, designed to eventually accommodate 2,550 families. A typical Mello-Roos tax bill for the community’s residents amounted to about $2,000 a year.
The improvement bonds are repaid over 30 years by homeowners who are assessed Mello-Roos taxes over and above normal property taxes. In this case, the three plaintiffs--backed, they said, by about 70 other local homeowners--claimed Baldwin did not fairly disclose the Mello-Roos details.
Six weeks ago, Superior Court Judge Ronald L. Johnson threw out the case even before it went to trial, saying there was no legitimate gripe with Baldwin because it had made full disclosure of the Mello-Roos financing details.
And as they threatened to do, Baldwin’s attorneys invoked a 1988 state law that allows developers to be reimbursed for defending Mello-Roos challenges.
On Thursday, the judge said not only that Baldwin deserved reimbursement, but also that the costs were fair, given the complexity of the case.
“We’re looking at a year and a half of legal activities,” said Robert Gilbert, one of two attorneys assigned to the case. “There was a lot at stake for Baldwin: a potential class-action lawsuit that could have involved 250 households at $200,000 a complaint. That’s $50 million.”
The Mello-Roos statute allowing for reimbursement of legal costs is intended, Gilbert said, to discourage flaky lawsuits and to promote out-of-court settlements.
Gilbert said he did not know how vigorously his client would go after the three homeowners. Baldwin executives did not return phone calls, but homeowners say they have been told there will be a meeting next week to discuss what comes next.
“Our objective has never been to punish anyone,” Gilbert said. “And we don’t want to drive these people out of their homes, our development.”
This was the first time, lawyers say, that the reimbursement part of the Mello-Roos statute has been applied in California.
“This will drive us into bankruptcy,” said Susan Wait, who with her husband, Marvin, owns a cabinet door manufacturing shop. “We’ve already bought the house. That was $250,000. We can’t afford anything more. This is just frightening.”
Co-plaintiff Jim Berk, a mid-level executive with Burger King, said he hoped Baldwin “will be rational” in expecting reimbursement. “This will mean bankruptcy for some of us, and close to it for others. We would have to sell our home.”
One of the rubs, Berk said, is that one of the alleged faults with Baldwin’s Mello-Roos district that the lawsuit addressed has since been corrected by the developer and the city of San Marcos, to everyone’s satisfaction.
The other plaintiff, Bob Conway, a manufacturing sales representative, said he is especially grieved because of how he found his name on the lawsuit in the first place. The legal challenge originally was intended to be a class-action lawsuit on behalf of all the neighbors.
When the judge refused to certify the lawsuit as a class action, “they chose to use me as a representative member of the other homeowners who expressed interest in participating in this. I did what I thought was the morally correct thing to do. None of us were in this for personal gain. Now it appears I may be financially ruined for my role,” he said.
The homeowners’ attorney, Patrick Catalano of San Francisco--who took the case on contingency--said he was shocked by Thursday’s ruling, and hoped to appeal.
“I’m absolutely mystified the judge would grant them that amount (of reimbursement),” he said. “It’s unbelievable. The motion for summary judgment (which won the case for Baldwin) could have been filed for $10,000 in attorney fees.”
