Contractors’ Track Records Prove Hard to Nail Down : Policy: Consumers enraged at both O.C. builder, who denies wrongdoing, and state board meant to protect them.

Ernesto Honores’ emotions swing from rage to despair as he considers the place he once longed to call home.

The Chilean immigrant and his wife, Ruby, bought an ocean-view San Juan Capistrano lot in 1988 and hired an Orange County custom home builder to design and construct their dream house. But almost four years after signing the contract and paying more than $200,000, the airline mechanic claims in a recently filed lawsuit, he had nothing but a concrete foundation and a rotting, warped pile of framing.

“All this leaves a bad taste, a very bad taste,” Honores said, his voice quaking with anger. “They have ruined the dream.”

The Honoreses’ contractor was Systems Construction Co., whose owner now does business as Gotech Builders Inc. The Orange company boasts of designing and building homes for hundreds of customers from the Antelope Valley to Temecula since the mid-1980s.

Many of those customers, however, are as unhappy as the Honores couple, who recently fired Gotech, filed a fraud suit against the company and hired a new contractor to build a scaled-down house on their lot.

Many of the homes that Gotech and its predecessor, Systems Construction Co. in Anaheim, contracted to build were never completed.

While the owner of the companies denies any wrongdoing, dozens of former clients have alleged in lawsuits, complaints and arbitration petitions that the companies did shoddy work, overcharged them and kept hundreds of thousands of dollars that were supposed to go to subcontractors.

Until earlier this year, however, the companies’ troubled history was never reflected in Contractors State License Board reports to potential clients who called to check on Systems, founded in 1979, and Gotech, which was incorporated in 1990 and assumed all of Systems’ contracts early last year.

The companies’ problems with the license board now seem to be mounting--and are coming at a time that company owner Jeffrey C. Weiner claims he has overcome past difficulties and is doing business as a changed and improved Gotech.

But the fact that Gotech’s license remained unblemished in state records for so long despite a string of lawsuits and other actions by dozens of bitterly unhappy clients raises questions about the effectiveness of the state’s contractor licensing system in regulating contractors or protecting consumers.

Numerous dissatisfied clients tried and failed to communicate their problems to the Contractors State License Board, which licenses and regulates 43 classifications of construction industry contractors and is supported entirely from the fees and fines it collects.

“The contractors board is aptly named,” said Gina Lamourelle, who, with her husband, Alain, won a $165,000 arbitration award last year from Gotech. “It is there to look out for the contractors. I don’t understand how the board never once sent an investigator out to look at the code violations that were found in my house” after she complained.

Nearly a dozen former customers and subcontractors of Systems and Gotech said that when they tried to file complaints about the companies with the license board they were told the complaints would not be investigated. And in several cases, consumers said they were told that the board would not even accept their written complaints.

In addition to those who attempted to complain to the license board, dozens of Systems and Gotech customers have filed suits against the companies and their principals over the past six years.

Yet from mid-1987 to early 1991, while the fraud, negligence and breach of contract suits were being filed against the two companies, state license board employees routinely told consumers that the companies’ licenses were unblemished by complaints.

This year, the heat is on.

The state attorney general’s office in late July charged that Weiner is guilty of misrepresentation on his 1990 renewal application for Systems’ license because he stated there were no outstanding judgments or suits against the company when, in fact, there were several.

The accusation could result in the revocation of both companies’ licenses. If found guilty, Weiner would also be forced to surrender any contractors licenses he holds and would not be allowed to have any ownership interest or other association with a building company in the state for at least one year.

Although Systems and Gotech have separate state licenses, both are owned by Weiner, a 35-year-old Fullerton man whose family has been in the home building business for more than 20 years.

Weiner started Systems when he was still in college to assemble housing components built by his father’s company. He said he later obtained a separate license for a new company called Gotech for business reasons. The companies shared staff, clients and business operations until Weiner folded Systems as an operating entity in 1992 after transferring all its contracts to Gotech. He renewed the Systems license, however, and it doesn’t expire until Sept. 30.

Weiner said he is trying to get the state charges dropped, arguing that he misunderstood a question on the application.

“Liens and suits are public record, so it would not have been very smart of me” to deny their existence, he said.

Weiner also denies clients’ allegations that his companies have not performed properly, blaming his difficulties on unjustified complaints by laid-off workers, subcontractors who felt they hadn’t been paid properly and by clients who expected more than the company ever promised. He acknowledges problems created by an internal reorganization.

“Construction is not rocket science.” Weiner said. “Once in a while people are going to be unhappy.”

The case of Systems and Gotech, however, raises questions about whether the complaints of contractors’ unhappy clients will be examined by the board and whether justified complaints will be placed on the public record for other potential customers to see.

Over the past decade, the 64-year-old Contractors State License Board, which now has a staff of 400, has campaigned hard to train California residents to look to it for word on the integrity of the builders they hire.

The board hosts information booths at building and home improvement shows throughout the state where, said staff deputy Bob Porter, “there are people actively looking to enter into building contracts.” The board also has installed a toll-free hot line for consumer complaints and sends speakers to any consumer group that requests a presentation.

But apparently slamming the door on many consumers, the board also has adopted a hands-off policy for contractors who use arbitration to resolve their disputes with clients.

The policy, established in the mid-1980s when construction activity hit a post-World War II peak in California, has enabled the license board to shrug off complaints about Gotech--and possibly hundreds of other building contractors who use arbitration--by limiting investigation of complaints against such contractors to cases of apparent fraud or other illegality.

The reasoning, said Porter, was that the board’s limited investigative staff--20 investigators in a state where there are 300,000 active contractor licenses--would be freer to pursue cases involving major fraud.

Under the arbitration policy, Porter said, staff members at the board’s 22 offices are supposed to accept complaints against contractors but also are supposed to inform consumers that the board rarely investigates a contractor who is subject to arbitration.

The board’s policy calls for consumers to be told in writing of the disposition of their complaints. Porter said he has no explanation for why so many Systems and Gotech clients say that their attempts to file complaints were rebuffed.

Arbitration proceedings have also offered contractors protective cover. Unlike public court hearings, they are conducted in private, and testimony and hearing officers’ decisions often are subject to secrecy agreements.

Except for one run by the license board, the various arbitration organizations in California don’t report their rulings to the license board. And it has only been in the past two years that contractors who lose an arbitration have been required to report that fact to the board, said Ed Backstrom, an assistant licensing deputy in Sacramento. Consumers can also take independent action and send the board a copy of a court judgment or an award letter received from an arbitrator.

“As soon as we get that notification, we send a notice to the contractor giving 90 days to (satisfy the judgment or award) or to post a bond to cover it,” Backstrom said. “If they don’t do one of those two things, we automatically suspend their license.”

Backstrom acknowledged, however, that the board has no way of checking to make sure that licensed contractors report arbitration awards. If the contractor doesn’t follow the rules and consumers don’t inform the board on their own, then there is no record for other consumers to check.

Both Weiner and his attorney said they had no idea that the license board now requires contractors to report any judgments, liens and awards their customers obtain.

Before the 1991 rule change, the only time an arbitration decision was recorded anywhere was if the winning side asked a judge to issue a formal order for payment and then reported it to the license board. That step was not often taken, said Lori Markowicz, regional vice president in Santa Ana for the American Arbitration Assn., which has heard most of the complaints against Systems and Gotech.

Even when court judgments and arbitration decisions are reported to the license board, the amount of the award and the reason for it--including findings of fraud or incompetence--are deemed confidential and not disclosed.

The regulatory loopholes have left consumers paying a heavy price.

The Lamourelles, of Mission Viejo, spent several years and almost $100,000 for attorneys and expert witnesses in their quest to prove that Systems and Gotech had built them a house that was not safe. Both sides signed an agreement not to discuss the arbitration award, but Gina Lamourelle says the fact that she won a cash settlement supports her claims.

Weiner has refused to discuss the case, citing the confidentiality agreement.

In interviews before the arbitration pact was signed, however, Lamourelle said she and her husband signed a contract in 1987 for a $178,000 house. To date, they have spent almost $300,000 on the house, repairs to it and the costs of their battle with Weiner’s companies. And Gina Lamourelle has become a crusader for major changes in the contractor licensing system.

Lamourelle, who said she diligently checked with the license board before hiring Systems, says she has told her story to numerous local and state officials, so far with little response.

“There are millions of dollars released to builders in California every month for work that passes inspection” by city or county building departments, she said, “and if it later turns out to be in violation of the codes, the inspectors don’t have any authority to come back and make the builder perform. To me that means that the system has failed.”

The director of the Orange County Environmental Management Agency, which includes the department that inspected the Lamourelle house, said the entire system operates “on the assumption that the Contractors State License Board is providing oversight.”

Agency Director Michael Ruane said that he was “very concerned when (he) learned that the board doesn’t routinely investigate complaints.”

Prospective clients who now call to check on Gotech are told it has four black marks on its license because of the state’s misrepresentation charge in July, a brief license suspension in March for failing to pay a judgment on time, and an arbitration award and a Municipal Court judgment that were reported to the license board during the summer.

Though two arbitrations are mentioned, Weiner says that he has lost “six to eight” arbitrations in recent years. He also acknowledges that numerous complaints and lawsuits have been filed against him and his businesses. Most of the cases involved work done by Systems and Gotech from 1987 to 1991.

Weiner says the complaints against his company are related to the recession.

As property values began falling in late 1989, he said, “a lot of clients tried to bail out and not pay for work that we had done.” Also, Gotech laid off a number of employees as the slump grew worse, Weiner said, and several of them launched a campaign to turn customers against him.

“Considering our volume, the number of complaints is negligible. If we were doing $6 million a year with an average contract of $220,000” during the late 1980s, he said. “That’s a lot of houses. . . . Once in a while, people are going to be unhappy.”

The Times obtained a list of 100 people who hired Systems and Gotech during those years and has interviewed 30 of them. Only one of that group expressed satisfaction with his dealings with the company.

Typical of those interviewed are Jane and Al Fink, a Burbank couple who hired Systems in November, 1989, to build a 4,000-square-foot home and garage for $357,000. They fired the company after months of delays that they say ultimately added $140,000 to their costs.

The couple complained in writing to the state license board about their problems with Systems shortly after construction on the project finally began in February, 1991. The complaint claims the company misrepresented its ability to provide a completed home in six months “when obtaining a building permit alone took over 11 months”; intentionally underestimated costs not covered in the written contract and presented the Finks with much larger estimates after work had started, and front-loaded the payment schedule to obtain a substantial amount of money before starting construction.

Jane Fink said she was told by a staff worker at the license board that the arbitration clause in their contract precluded a board investigation. “I always thought that is why we have a state board, to keep an eye on contractors that people complain about,” she said. “But I guess not.”

Weiner at first refused to provide The Times with a list of his current customers, saying that questions from a reporter might poison a client’s mind.

This spring, however, Weiner did offer the names of several new clients.

One of them, private investigator Leo Jackson of West Los Angeles, blasted Gotech for poor supervision, delays that have added thousands of dollars in interest charges to his construction loan and slow payment of subcontractors. But Jackson did say he was pleased with the quality of construction at the 6,200-square-foot home Gotech is building for him in Apple Valley at a cost of $352,363. Two other recent clients, Pablito Adrados in Pacoima and Mohammed Riaz in Moorpark, also said they are pleased with Gotech and that work on their homes was done well and on schedule without cost overruns.

Weiner refers to such positive comments as proof that Gotech these days is a changed company from the one that garnered so many complaints before the 1991 reorganization.

“Jeff has been hustling his butt to make the change,” his attorney said, adding that “the quality of the personnel” working for the company has been improving.

But Jackson’s comments suggest that not all of the problems have been overcome.

Most of the unhappy Gotech and Systems clients interviewed by The Times said they were attracted to the companies because of the low prices quoted in advertisements. Since the late 1980s and continuing today, the company’s ads promise high-quality custom homes on customers’ lots at less than $70 a square foot in most cases. The typical tract home in Orange County now sells for about $85 to $100 a square foot when land costs are excluded.

In several cases, Weiner customers said that the actual bills they received for grading work were three or four times the estimates.

Weiner disputes allegations of impropriety and insists that his prices are fair and accurate. His company’s homes are bare-boned at the advertised costs, he acknowledges, but can be built for the prices quoted. And complaints that his workers don’t finish their jobs are not accurate, he said.

“I finish the jobs I start. . . . Whatever goes right or wrong, I won’t leave unless someone throws me off” the job.

Ernesto and Ruby Honores, the San Juan Capistrano couple, finally did just that.

The Honoreses also filed a lawsuit in March alleging fraud against Gotech, Systems and several related companies and individuals, including Weiner. They allege that the companies had no intention of completing a job for which they had collected more than $200,000.

The Honoreses’ further allege that they were charged almost $69,000 for wall framing and roof trusses that their attorney discovered had cost Systems only $6,000.

Weiner denies the Honoreses’ charges that he sought to defraud them. The couple, he said, simply decided to fix the blame for ordinary construction delays and soil engineering problems on Systems.

Honores said he is confident that he will win in court but adds that whatever the outcome of his lawsuit, his experiences with Gotech have taught him a painful lesson about consumer protection in California.

“I’m just a little guy,” he said, “and the system doesn’t work for us.”

How to Check on a Contractor

By placing a few phone calls and conducting a little research, you may keep your relationship with a contractor from turning into a nightmare.

WHERE TO START

* Get this free booklet: “What You Should Know Before You Hire a Contractor,” published by the Contractors State License Board, (800) 321-2752. It explains how to negotiate a contract; what to include in the written agreement; how to check a contractor’s references. Also: How to keep track of project records and establish fund controls and the types of bonds available to help ensure the job gets done or that your losses are covered if problems develop.

CHECK FOR ARBITRATION ACTIVITY

* Signed release: Ask contractor for letter instructing arbitration and mediation services to release results of any hearings involving the contractor. Refusal could indicate a problem.

* Records check: Send letter of release to American Arbitration Assn. along with cover letter asking it to release information on the contractor. American Arbitration Assn. offices:

Orange County 2601 Main St., Suite 240 Irvine, Calif. 92714-6220 (714) 474-5090

Los Angeles County 3055 Wilshire Blvd., 7th Floor Los Angeles, Calif. 90010-1108 (213) 383-6516

San Diego County 600 B St., Suite 1450 San Diego, Calif. 92101-4586 (619) 239-3051

* Other arbitration groups: State Bar of California publishes the “Dispute Resolution Directory,” which lists information on other mediation and arbitration groups that you may want to contact. Directories are available for $15 each. Write or call: State Bar of California, Office of Legal Services, 555 Franklin St., San Francisco, 91402-4498; (800) 628-4858.

CIVIL SUITS AND LIENS

* Superior Court indexes: Go to local Superior Court clerk’s office, check indexes of civil suit filings. These are cross-indexed by plaintiff and defendant, so it’s possible to find out who has sued a contractor and why and to check whom the contractor has sued. Orange County Superior Court is at 700 Civic Center Drive West, Santa Ana.

* County recorder’s office: This is where any liens against property are filed under the names of the property owners, contractors and subcontractors involved in a dispute. Indexes and actual documents show if a contractor has a history of not paying subcontractors, who then file claims against the contractor and the customer’s property. Orange County office is at 630 N. Broadway, Santa Ana.

Sources: American Arbitration Assn., Contractors State License Board;

Researched by JOHN O’DELL and JANICE L. JONES / Los Angeles Times