Lyon Co., Others Agree to Pay $8.7 Million to Homeowners : Settlement: Award to Lake Forest group, which filed the construction-defects suit, is legacy of boom times.
William Lyon Co. and more than a dozen of its subcontractors have agreed to pay $8.7 million in damages to a Lake Forest condominium development’s homeowners association to settle a massive construction-defects lawsuit.
The settlement, which represents one of the largest such awards against an Orange County home builder, tarnishes the image of one of the nation’s largest residential developers at a time when it is struggling to rearrange a staggering debt load.
It also reveals what many in the building industry agree happens all too often during boom periods--a rush to build that results in inadequate supervision, sloppy construction techniques and, ultimately, a problem-plagued development.
“It’s a bittersweet victory,” Dan Masucci, president of the homeowners group, said Monday. “We should never have had to go through the extremes we’ve had to go through to get what we paid for, and it has hurt 350 families, but it has been a real eye-opener about how big business operates. And while some of the homeowners were opposed, we did stick it out, and we won.”
The agreement must be ratified by the trial judge. That action is scheduled for Wednesday before Superior Court Judge William F. Rylaarsdam in Santa Ana.
Lyon Co. built the 350 Whispering Hills condos in what then was El Toro between 1985 and 1987, the beginning of the Southern California building boom that ended in 1990.
The new-home market was flourishing then, and potential buyers often camped out for weeks to be at the front of the line when a development’s sales office opened. Consumer demand drove builders to push for rapid completion, and that, in turn, resulted in a shortage of skilled construction workers.
Depositions taken in the Whispering Hills case show that Lyon Co. superintendents were paid bonuses if units in the development were finished on time or ahead of schedule. But that led to a situation in which subcontractors on the project were forced by those superintendents to hurry through their portions of the construction with little regard for the quality of the work, several of the subcontractors alleged in depositions taken by the homeowners association’s attorneys.
Flaws uncovered included shoddy roofs on all 80 buildings, missing fire insulation, improperly installed wiring and missing or improperly installed structural components, said Kenneth Kasdan, a partner in the Irvine law firm Capretz & Kasdan and one of two lawyers who handled the case for the homeowners.
The settlement, much of which will be paid by various insurance companies, comes to about $23,000 per unit. The condos initially sold for $85,000 to $120,000.
“It would have cost pennies to do a lot of this right during construction,” Kasdan said. “Now it will cost millions to make repairs.”
The suit, filed in 1988, first sought merely to force Lyon Co. and its roofing subcontractor to replace the roofs on the buildings because the composition shingles kept blowing off in windstorms. But the suit was amended several times as construction inspectors for both sides uncovered new flaws, and the homeowners group ultimately asked for $9.5 million in actual damages plus an unspecified sum for punitive damages.
Although comparative statistics were not available Monday, an article in a recent issue of California Lawyer magazine suggests that the Lyon case is near but not at the top of the list of construction-defect settlements.
In San Diego County, the magazine reported, the largest jury awards in such cases have included a $23-million settlement against Irvine Co. Chairman Donald L. Bren’s private construction company, California Pacific Homes; $36.5 million for homeowners near a landfill; and $6.75 million for homeowners in a Del Coronado development.
In the Whispering Hills case, William Lyon Co. and its insurer agreed to pay at least $3.2 million of the settlement amount and to make up any shortfall if other parties are unable to pay their share, Kasdan said.
Newport Beach-based Lyon Co.’s liability stems from its roles as project owner, general contractor and construction supervisor.
Other major parties in the suit were John Wilson Framing Co. of Brea, which agreed to pay $3 million for structural framing defects; and Davey Roofing Inc. in Irvine, which already paid $1.4 million to repair flawed roofing.
Officials at William Lyon Co., Davey Roofing and Wilson Framing did not respond Monday to requests for comment.
Kasdan said the case grew to include numerous fire and earthquake safety matters when Lyon Co. officials in 1991 insisted on obtaining damage reports on specific areas of the flawed roofs rather than granting the homeowners group’s request simply to replace all the roofs.
“Once they opened up a few of the roofs, we discovered a lot worse,” Kasdan said.
In one deposition, a foreman for the framing contractor “testified that he made 18 changes in the plans, including changes in how the roof ridge was built, without ever getting the architect’s approval,” Kasdan said.
That change in the roof ridge design was discovered by a county building inspector after the first 100 units were completed, Kasdan said, and at that point Lyon Co. and Wilson Framing hired a structural engineer who revised the plan to call for steel straps to be added to provide increased structural support.
“So they did the next 100 units using the straps, but they never went back to repair the inadequate ridge on the first 100 units,” Kasdan said. “Lyon’s supervisors made the conscious decision to disregard the structural engineer’s finding that, without the strap, the ridge was not built properly.”
“Everyone who testified painted a picture of rush, of demand for a lot of speed with little regard for quality,” Kasdan said.
Other flaws specified in the final complaint included improperly fastened roofing joists and missing or poorly spaced nails where the plywood roof sheathing was joined to the tops of the wall frames--a joint that is critical for rigidity and the transfer of stress during earthquakes.
Kasdan said inspectors also found that plywood wall sheathing called for in the building plans to add strength to critical walls for earthquake safety were missing in some units and improperly installed in others; that electrical wiring was run through large holes in the attic fire walls without being encased in metal conduit, as called for in the electrical code; and that the holes often were left open, creating a pathway for flames to spread through attic areas.
By tearing out the interior walls in several units, inspectors also discovered that some of the gypsum board on fire walls between units was installed incorrectly and would not block flames for the two hours required by code, Kasdan said. They also discovered that fire stops--lengths of insulation used to keep fire from spreading through the walls and from floor to floor--often were missing, he said.
The cost for installing the fire stop material now, Kasdan said, will be more than $2 million and will require the removal and replacement of large wall sections in many of the units.
He said that repair of all 80 buildings will take from 12 to 18 months and that the residents will be relocated, one building at a time, while the work is being done. The relocation costs account for $1 million of the settlement, Kasdan said.
