Builder Braces for Another Suit : Litigation: Condo owners in Stanton complex allege shoddy construction by William Lyon Co., which denies charges.

Beleaguered William Lyon Co., in debt to several of its banks and red-faced over a recent $8.7-million settlement in a faulty construction lawsuit, faces a bigger embarrassment next month as a $20-million suit alleging poor construction of a large Stanton condominium complex goes to trial.

The negligence suit by the Crosspointe Village Condominium Home Owners Assn. seeks to force Lyon and dozens of its subcontractors to pay for hundreds of repairs, many involving major structural and fire safety deficiencies, throughout the 495-unit complex.

Officials at Newport Beach-based William Lyon Co. declined comment on the case.

Gregory L. Dillion, the Newport Beach attorney representing the Lyon company, said, “This firm does not try its cases in the press. That is a tactic of construction defect litigation counsel who sometimes, in my opinion, do this against the best interests of their clients in order to generate new business here in Orange County in what I believe to be unnecessary and counterproductive litigation.”

Dillion did say, however, that the William Lyon Co. has denied the allegations in papers filed with the court.

The suit--scheduled to begin trial July 26 in Santa Ana before Orange County Superior Court Judge James L. Smith--alleges that the condos were built without proper supervision by Lyon, which was the general contractor and therefore hired the subcontractors who did the actual work.

The homeowners group hired the San Diego law firm of Aguirre & Eckman, which has helped pioneer the growing field of construction defects litigation in California.

In a promotional brochure, the firm said it handled 71 construction defect cases and won judgments or out-of-court settlements in all of them, for a total of $150 million.

Most of those cases have been in San Diego County, where the bulk of California’s construction defect litigation has occurred since the mid-1970s, when the state passed a law that made developers liable for all defects for 10 years from the completion of a project.

Until this so-called doctrine of strict liability was imposed on the industry, homeowners generally had to prove negligence or fraud to win damages after a builder’s limited warranty expired--usually just a year or so after the house, condo or apartment complex had been built.

Attorneys who specialize in such suits say the residential building boom of the 1980s resulted in a sizable amount of poorly built housing in Southern California that is only now becoming evident because of leaks and soil movement from last winter’s heavy rains.

Industry supporters, however, say it is wrong to smear the whole building business for the errors of a few.

The scope of the problems is difficult to determine because many cases never go to court but are settled in private arbitrations or by prompt repairs by the builder. But this latest suit is sure to focus even more attention on the issue of construction defects, centering as it does on one of California’s largest and most reputable home builders. Since it was founded in 1954, the company has built about 60,000 homes and apartments.

Gary Aguirre, the homeowners’ attorney, argues that the Crosspointe condos were shoddily built because Lyon--which prides itself on using far fewer workers than other large builders--did not adequately supervise the more than 30 subcontractors who had crews working at the site during the 1983-85 construction period.

Problems multiplied, he said, because Lyon encouraged haste by rewarding managers with bonuses for completing projects early--a situation compounded at Crosspointe because of heavy rains in 1983 and 1984 that had already slashed weeks from the time available to meet the project’s regular construction schedule.

“The project was pretty shoddily built most everywhere the eye doesn’t see,” Aguirre said. “There are problems with the walls, the roofs, the mechanical systems and with critical operational and structural components. . . . It all looked good when it was new, but we have testimony from court-appointed experts who found almost $10 million worth of damage, and our own experts say the damages are more than twice that.”

Among the flaws alleged in the suit are missing waterproofing paper under the roofing material; roofs that are not properly attached to the rest of the building, and missing or improperly built fire walls used between units to impede the spread of flames.

The suit also alleges improperly installed wiring and missing shear walls, which are required by the state building code to transmit wind and earthquake forces from the roof of a structure down through the walls and into the foundation, where the energy can be dissipated without excess damage to the building.

Aguirre’s claims are similar to those used by Irvine attorneys Kenneth Kasdan and Stirling Smith in a suit against the William Lyon Co. filed in 1988 and settled last December. In that case, which also involved some of the same subcontractors, the Lyon company and the subcontractors agreed to pay $8.7 million in damages to the homeowners association of the 350-unit Whispering Hills condominium complex in Lake Forest to repair a lengthy list of defects, many relating to structural soundness and fire safety. The Lyon Co. and its insurer agreed to pay almost $3.2 million of that settlement.

Although the Whispering Hills suit was filed before the Crosspointe case, the Stanton condos were built first. The Crosspointe suit wasn’t filed until 1990, Aguirre said, because “until 1988 the Lyon company was making repairs that the owners requested. Lyon quit making repairs around April of 1988, and it took the homeowner association a couple of years to decide that it had to sue to get things done.”

Philip Dube, 30, a law student and Crosspointe condominium owner since 1989, said that since the suit was filed it has been impossible to obtain refinancing or home-improvement loans.

“I could take advantage of all kinds of wonderful, low-interest loan programs that are out there right now if it wasn’t for all this litigation and these construction problems,” he said.

Dube said it also is difficult to sell a unit at the complex because of the need to tell potential buyers of the construction problems.

“It is inconceivable to me that one of the nation’s largest builders--with a reputation for being a quality builder--would take Lyon’s position and when problems are pointed out would choose not to resolve those issues but to go to court,” said Lisa Dale, president of the management company that operates Crosspointe.

Dale’s company, Seabreeze Management Co. Inc. in Aliso Viejo, manages 70 condominium complexes in Southern California. She said Seabreeze is spending increasing amounts of time fighting similar battles to get builders to repair construction-related problems.

“It is a relatively prominent thing,” Dale said. “We are handling 18 communities that are involved in this kind of litigation, and all of them are in Orange County.”