San Marcos Homeowners Face High Cost of Tax Fight : Courts: Judge who rejected lawsuit against developer orders defendants to pay builder’s court costs.
When homeowners Susan and Marvin Wait joined three neighbors here in suing their subdivision developer, the last thing they expected was to lose their very homes in the process.
But that’s the prospect they now face. Not only was their lawsuit rejected out of hand, but they’ve been ordered to pay their developer’s legal defense costs of nearly a quarter-million dollars.
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 reimbursement of $226,843.21, the money it shelled out 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 spanking-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.
Baldwin, the builder, set up a Mello-Roos tax district as a way of funding $75 million in road, sewer, park, school and other public improvements in their new community, designed to eventually accommodate 2,550 families.
Those improvement bonds are repayed over 30 years by the eventual homeowners who are assessed Mello-Roos taxes over and above normal property taxes. In this case, the three plaintiffs--backed, they said, by 70 or so other local homeowners--claimed Baldwin didn’t fairly disclose the Mello-Roos details.
They sued. Baldwin told its attorneys to defend the case vigorously. There were depositions. Talks of mediation. Amended complaints. The file got larger, and larger, and . . . 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.
As they threatened to do, Baldwin’s attorneys--who said they tried unsuccessfully to discourage the homeowners’ lawsuit in the first place--invoked a 1988 state law that allows developers to be reimbursed for defending Mello-Roos challenges.
Baldwin’s law firm, Latham & Watkins, got out the adding machine. Depositions. Ching . Transcripts. Ka-ching . Mediator payments. Ching . Associate hours. Partner’s hours, all at $210 an hour. Ching, ching, ching.
“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 for the prevailing party is intended, Gilbert said, to dissuade flaky lawsuits and to promote out-of-court settlements rather than to gobble up precious courtroom time. But in this case, Gilbert contended, the plaintiffs weren’t willing to settle for anything short of a trial--and now that they’ve lost, they legally must pay up.
Gilbert, the Baldwin attorney, said he didn’t know how vigorously his client would now go after the three homeowners. While Baldwin executives did not return phone calls, homeowners say both sides have agreed to meet next week to talk.
“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.”
On Thursday, the judge said that not only did Baldwin deserve reimbursement, but that the actual costs were fair, given the complexity of the case.
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, own a ma-and-pa cabinet door manufacturing shop in San Marcos. “We’ve already bought the house. That was $250,000. We can’t afford anything more. This is just frightening.
“How can people sue for redress of grievances if this is what they’ll face? I had hoped the judge would be reasonable. I hoped the judge would consider the little people.”
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,” he said. “We would have to sell our home.
“Our options are to appeal, or to generate a tremendous amount of publicity which Baldwin won’t want to see, of people getting kicked out of their homes at this time.”
One of the rubs, Berk said, is that one of the lawsuit-alleged faults with Baldwin’s Mello-Roos district has since been corrected by the developer and the city of San Marcos, to everyone’s satisfaction.
The developer, he said, should absorb the cost of the legal battle. “We stand to lose everything, or they could take a hit that will just hit them for one (financial) quarter,” he offered.
The other plaintiff, Bob Conway, a manufacturing sales rep, said he’s 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, but to correct the home purchase documents.
“Now it appears I may be financially ruined for my role. More than 75 other homeowners are behind us in principle on this case, but it’s my name on the lawsuit,” he said.
The losing homeowners’ attorney, Patrick Catalano of San Francisco--who took the case on contingency--said he too was shocked by Thursday’s ruling, and hoped everything would be upset on 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.”
