Building Is Booming And California Lawyers Are Massing On State Line
Las Vegas, NV - It happened first in California 15 years ago: a housing boom touched off
a litigation boom as legions of lawyers filed lawsuits accusing builders
of shoddy workmanship.
Now it is Nevada's turn.
Fueled by Americans' gambling fever, Las Vegas and other Nevada resort
cities have seen dizzying economic and population growth the last decade.
And California lawyers who specialize in cases involving home construction
defects, hit by a slump in their state's housing market, are practically
drooling over the prospects next door. They are taking the Nevada bar exam
at double the rate of three years ago and are aggressively wooing Nevada
property managers and homeowners associations.
Ross Feinberg, a lawyer in Newport Beach, Calif., who has won $25 million
in defect settlements for 21 California homeowners associations since 1986,
described Nevada as a "few years away from being as busy as we are
here." Two of his associates were admitted to the Nevada bar in October.
The rush of plaintiffs' lawyers into virgin territory to prospect for litigation
gold - whether in boomtowns, new products or fast-growth companies - is
nothing new, of course. But what makes the carpetbaggers' invasion of Nevada
different is that it is taking place at the height of a national backlash
against the litigation explosion of recent years.
Last December, Congress enacted a law aimed at curbing frivolous class-action
shareholder lawsuits. In November, voters in bellwether California defeated
3 to 1 a measure supported by plaintiffs' lawyers that would have made
it easier to bring such suits in cases involving stock fraud. Also last
month, Gov. Pete Wilson of California called for limits on damages in disputes
involving construction defects.
As the political climate shifts, Nevada could join California in testing
trial lawyers' resilience. Already, the forces aligned against them are
formidable: builders are threatening to stop building; insurers are raising
rates, and some homeowners are revolting against lawsuits being pursued
in their names.
For now, though, the plaintiffs' lawyers seem undeterred, even cocky. "There's
been such a vast amount of construction at a fever pace, Nevada will be
a good place to practice for years," said Dave Johnson, a Las Vegas
lawyer whose clients are homeowners associations.
The lawyers, who typically take defect cases on contingency and get a third
of any award, troll for clients at trade shows for condominium managers
and put on slide shows, prodding homeowners associations to sue their builders.
Several construction experts from San Diego, who specialize in testifying
in court, have obtained professional licenses in Nevada and are considering
opening satellite offices.
After attending a recent trade show, Kathy D. Grimes, co-founder of a Las
Vegas company that manages 130 condominium complexes, was deluged with
boxes of cookies and other gifts sent by lawyers and participants. "We've
been in business 15 years, and we've never had this kind of attention,"
she said.
Such pitches are apparently paying off. A year ago, only one of her clients
was suing a developer, Ms. Grimes said; today, six are.
About a dozen construction defect cases are pending in Clark County District
Court in Las Vegas, and lawyers say that is only the beginning of the wave
of lawsuits that is expected.
That the California lawyers would focus on Nevada was probably inevitable.
Housing construction has plummeted in California, while Nevada's exploding
economy has produced an almost insatiable demand for it. And the number
of new-home sales in Las Vegas, one of America's fastest-growing cities,
with a population of nearly a million, has accelerated from 12,000 a decade
ago to 27,000 last year to more than 23,000 in the first nine months of
this year. The blistering pace has earned Las Vegas the title "City
on Steroids".
It has also resulted, some people say, in leaky roofs and other construction
deficiencies. Terry Strong, who bought a $380,000 lakeside home in a development
northwest of the city in 1990, says she dreads the summer thunderstorms
that sweep across the 12,000-foot Spring Mountains and onto the new subdivisions
that blanket the desert plateau. The wind sets off a kettle drum symphony
from three unsecured sheet-metal chimney flues, she says, and the rain
seeps through the tile roof and into the walls, ruining carpet, staining
ceilings and warping windows. She figures the repairs will cost $90,000.
Mrs. Strong, 52, was not about to foot the bill. Nor would 11 neighbors
who said they had similar problems. Last month, they settled a construction
defect suit for $1.1 million with their builder's insurer.
But the story does not end there. Many residents of the development are
furious at Mrs. Strong and her fellow plaintiffs. They believe the suit
drove down property values, Mrs. Strong said. Some are refusing to speak
to her. "Once you start this thing, you're stuck with living with
the problems," she added.
Builders portray plaintiffs' lawyers as sharks out for a kill. In California,
many developers say they are pulling out of the condominium market because
condo owners have the organizational and financial influence to undertake
expensive lawsuits. And they complaint that they are at a particular disadvantage
because California is one of the few states that holds them accountable
for material variations from architects' plans or industry standards by
any of their subcontractors, even if no damage results.
Such strict liability makes them an easy target for spurious claims, the
builders contend. "It's legalized extortion," Michael D. Pattinson,
president of Barratt America, Inc., said. "They can pull out anything
and say this doesn't comply, and they've got us. In the majority of cases
I've been involved with, the case always contains massive exaggerations
of defects. In some cases, I believe there are no defects at all."
Mr. Pattinson points to a $10.5 million settlement his company reached
with a 300-unit San Diego project, which included claims like $28,000 to
tighten shower heads. The lawyers' share was $4 million, leaving homeowners
with $6.5 million, he said, but by Barratt's estimate, the litigation
knocked $8.7 million off the value of the property. "It is the exaggeration
of claims that accelerates the diminution of value," Mr. Pattinson
said.
Plaintiffs' lawyers are pushing for adoption of strict liability in Nevada.
The state's supreme court has heard oral arguments on the issue and is
expected to rule as early as January.
Barring some form of relief, builders in California are predicting a shortage
of affordable housing. Construction of new homes is plummeting to a projected
95,000 this year from 314,000 in 1989. Of the total, the number of new
condos has fallen even faster, to 19,000 from more than 168,000.
A recent industry study of 64 California condominium builders found that
two-thirds were no longer building attached housing, creating an estimated
$460,000 million annual economic loss for the state. "We're not touching
them anymore," Robert Rivinius, director of California's Building
Industry Association, said. "Any large project that has insurance
will be sued."Builders, he said, "don't want to stand in line
to be sued."
Charles W. Quackenbush, the California insurance commissioner, said he
had no doubt the market had dried up because of litigation. "It's
a very serious problem," he said. "The most affordable housing
in California is condos, and no one is building them."
Builders say the litigiousness of homeowners is partly responsible for
stalling the prestigious 1,000-acre Playa Vista project in coastal Los
Angeles, which is to include the new headquarters of Dreamworks SKG, the
Hollywood studio, and 13,000 condominiums. Despite the project's cachet,
no established builders want to participate. "The legal climate associated
with multifamily housing could compromise this vision," Douglas J.
Gardner, project manager for Maguire Thomas Partners, a Los Angeles developer,
said in a letter in May letter urging legislative reform.
To all the criticism, trial lawyers retort that they play a constructive
role, putting pressure on real estate developers to live up to the highest
standards. Too many people see their home investment sour from rotting
balconies, mushroom-sprouting carpets and stucco-cracking earth movement,
they say.
"It's not the lawyers who build these crummy values," said Kenneth
S. Kasdan, a plaintiffs' counsel in Irvine, Calif., who is working as a
consultant on a Las Vegas case. "It's shoddy construction. The alternative
is to build them right."
Some contractors do take short cuts. A California study of the damage caused
by the 1994 earthquake found numerous cases of inadequate design and construction,
including frequent substitution of smaller, vinyl-coated box nails for
the more expensive, higher-strength common nails required under the state's
building code.
Plaintiffs' lawyers say California consumers are benefiting from improved
home designs and from self-policing by builders - legacies, they say, of
litigation. "It's no longer a buyer beware state," said Thomas
E. Miller, a lawyer in Newport Beach, Calif., who has won $150 million
for plaintiffs in settlements and awards in 15 years. Regarded as the king
of construction defect litigation and the author of a textbook on the subject,
Mr. Miller drives a white Porsche with a license plate that reads: "DEFECT."
But big insurers, including Ohio Casualty and Cigna, have abandoned the
liability market for condo and townhouse construction in California, leaving
it to small, unregulated carriers. The reason is simple, says Thomas G.
McCall, a construction specialist with Anderson & Anderson, an Irvine,
Calif. insurance broker. "San Diego," he explained, "has
a 100 percent rate of home builders' being sued by associations."
He says California rates are nearly double the national average, while
those in Nevada and other high-growth states are 25 percent higher.
Some homeowners say they wish the trial lawyers would go away. Kristin
Cihos Williams blamed a lawsuit filed by the board of her former condominium
complex in Spring Valley, Calif. for driving down the value of her condo,
which she recently sold at a $38,000 loss. She says the complaints of shoddy
construction work scared away mortgage lenders, though inspectors hired
by her buyer found none of the problems cited in the lawsuit.
"I think lawyers are taking advantage of weaknesses in associations,"
Ms. Cihos Williams said. "It's their meal ticket."
© Copyright 2008 The Miller Law Firm. All rights Reserved.
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