Post-Growth O.C. Is Ripe for Building Defect Cases : Litigation: In wake of construction boom comes boom for lawyers representing unhappy homeowners.
Henry Nahoum severed his East Coast ties in 1990 as a dental professor at Columbia University and retired to Orange County to be near his grandchildren.
South County was then at the tail end of a huge building boom; new homes were selling faster than builders could frame them. With only a model to judge, Nahoum put much of his nest egg down on a $600,000 home to be built amid the rolling hills of Nellie Gail Ranch, an exclusive neighborhood with an equestrian bent.
But instead of a genteel retired life, Nahoum descended into a quagmire that has made his wife ill and left him embittered. The expensive new home he purchased five years ago is falling apart. The swimming pool leaks. So do some windows that cannot be closed. The fence is pitching over. The patio is cracked.
Nahoum says his house is moving because of shoddy construction; the builder blames over-watering and a poorly constructed pool from another contractor. Enter Lloyd A. Charton, Nahoum’s attorney, who thinks it will cost “hundreds of thousands of dollars” to stabilize the slope under Nahoum’s now-unsalable home.
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Charton is part of the latest boom in Orange County: He is a lawyer who specializes in construction defects.
After nearly a decade of unbridled growth here and statewide, where home construction at its peak was triple today’s annual building rate of 100,000 units, Orange County has become a hotbed for a handful of lawyers whose sole practice is representing construction defect plaintiffs, many of them condominium homeowner associations.
As California law does not award attorney fees for construction defect suits, lawyers who make these types of cases their sole practice only hit pay dirt when they win, and then they usually take one-third of the award.
Among the best-known plaintiffs’ lawyers are Thomas E. Miller and Howard Sildorf, who both got their starts in San Diego, where the defect litigation boom started in the early ‘80s. Others include Ken Kasdan of Irvine, Joel Castro of Santa Ana and Lon Hurwitz of Orange.
Establishing a construction defect case is more expert-intense than a medical malpractice case and can balloon to scores of defendants.
Builders usually try to spread potential liability by cross-suing the subcontractors they hire. So despite big potential paydays for these lawyers, agreeing to litigate a construction defect case is a risky and costly undertaking. Even so, since most builders and subcontractors carry insurance, there usually are assets to be tapped.
For many homeowners, these lawyers have won jaw-dropping, million-dollar awards. This has prompted changes in business practices that please some construction industry critics. However, some of the resulting changes are more backlash than progress, industry executives say, and hurt consumers.
For example, in an effort to head off lawsuits, some condo developers are borrowing a practice used by surgeons. Before buyers even move in, they are asked to agree to settle disputes via arbitration instead of in a courtroom.
Equally wary of lawsuits, some tradesmen routinely reject projects unless they are drawn by architects with a reputation for staying out of court.
Liability insurance to defend against defect accusations is a huge expense, said Robert Lausen, a Laguna Beach structural engineer who made an eye-opening discovery while chairman of South Coast Medical Center: “The only doctor who paid more money for insurance than I was a neurosurgeon.”
Suits are also being blamed in part for the steep nose-dive in condo construction statewide. The state Building Industry Assn. says lack of entry-level housing could make ownership harder for first-time buyers.
An affordable-housing shortage, which is a byproduct of construction defect litigation, prompted state Sen. Charles M. Calderon (D-Whittier) to author a tort reform bill aimed at keeping defect complaints out of court.
It was approved by a Senate committee earlier this month but still needs the approval of the full Senate and Assembly and the governor to become law. The measure would force homeowners with complaints to initially seek redress out of court and would require builders to respond to such complaints within 130 days.
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Construction defect litigation got its jump-start in a precedent-setting 1981 case involving the Del Mar Beach Club, which shifted the burden of proof from the homeowner to the developer.
These legal fights now appear to favor plaintiffs, who no longer must prove that builders were either negligent or had violated industry standards. Instead, owners need only demonstrate that their home became defective within 10 years of its being built.
The result is out-of-court deals like the $5.17-million settlement won earlier this month by the owners of a Dana Point condominium complex against the project’s builder, D.T. Smith Inc. of Los Angeles.
The builder’s contractor’s license was suspended Dec. 9. The settlement amounts to $54,000 for each of the 92 units at Tennis Villas, which leaked so badly that toadstools grew on ceilings and walls blossomed with mold. The pink stucco ocean-view homes sold new for $400,000 in 1990. Prices have since plummeted to $250,000, but defects can only partly be blamed, said Kasdan, the condo owners’ lawyer.
Other Tennis Villas defects included the absence of internal panels that give walls rigidity and fire-stopping insulation. Installing insulation during construction would have cost about $100 per unit. Now installation will cost tens of thousands of dollars per house, Kasdan said. “When you take shortcuts at the front end, this is what happens,” he said.
Kasdan, who took surveying classes in high school and built his own Coto de Caza home, began specializing in defect work three years ago. He knows his cases intimately. He personally investigates crawl spaces armed with a flashlight and hard hat. His office keeps an unusual library of construction materials and a database of changes to uniform building codes.
In another sizable settlement, the Villa Balboa Homeowners Assn. won $3.1 million for 162 owners in January. The dispute over leaking roofs, missing fire walls and noise transmission was resolved in less than two years without witness depositions or a formal discovery process, said Miller, the association’s lawyer.
Lawyers who defend builders invariably describe such lofty settlements as an attempt by plaintiffs to transform a Chevy (or a Pinto or Volkswagen) into a Cadillac.
“The analogy is apt,” said Serge Tomassian, chairman of the construction law section of the Orange County Bar Assn., who defends builders. “We need the fix to be commensurate with the value of the product.”
Kasdan counters that builders who cry foul over plaintiffs’ repair demands are “in denial.” “It is a true fact it costs more to repair than to build,” he said.
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Miller, who ended up a loser in the Del Mar case, switched sides afterward and has never looked back.
At 47, he is regarded by peers in the construction defect bar as one of the specialty’s leading practitioners. He has won million-dollar awards in 35 cases, a cumulative total of $92.7 million, and has written two textbooks on construction defect litigation.
Miller’s style is low-key, but his Newport Beach office struts his achievements. The lobby of his 11th-floor suite is sheathed with dark-stained paneling and old-world crown molding. Levity comes from a stack of oversize books, reproductions of the ones Miller wrote.
He, like Sildorf, migrated from San Diego. There, ‘70s-era growth and poor soil yielded a bumper crop of defect cases and a winning record in the 1980s for plaintiffs’ lawyers.
These same hired guns are now moving on to the next fertile field, riding the powerful housing cycle that surged through the region’s economy. Orange County is expected to remain a hot construction defect seedbed for another five years. Corona and Moreno Valley are already sprouting defects.
Some lawyers are also readying for cases arising from the Arizona and Nevada land booms.
Roxanne M. Wilson, a Los Angeles defense lawyer whose clients have included contractors, roofers and plumbers, is seeing yet another mini-boom in defect cases arising from the 1994 Northridge earthquake and 1993 fires in Malibu and Altadena.
“There are a lot of qualified people in this area that will see their practices grow,” she said.
