CONSTRUCTION DEFECTS:

Trapped by lawsuits, subcontractors seek relief

Sam Morris

Sens., from left, Valerie Wiener, D-Las Vegas, Terry Care, D-Las Vegas, and David Parks, D-Las Vegas, listen to testimony during a Senate Judiciary committee meeting this month. Care, the committee chairman, has created a subcommittee to draft a bill on homeowner associations because of alleged corruption involving construction defect law firms.

By J. Patrick Coolican (contact)

Sunday, Feb. 22, 2009 | 2 a.m.

Assembly unanimously upholds veto of HOA bill (2-3-2009)
A campaign closer to home (11-29-2008)
Judge approves $90 million faulty plumbing settlement (2-2-2009)

Pete King Nevada Corporation helped build 1,200 homes in Nevada last year. In the fourth quarter alone, the company received 110 notices of alleged construction defect.

Perhaps it seems as if the company must do shoddy work. In fact, the company is a victim of the state’s system for dealing with construction defects.

That system squeezes subcontractors between aggressive lawyers for homeowners and general contractors, whose first response to any notice of a potential lawsuit is to sweep in all their subcontractors, even if the alleged problem has nothing to do with their work.

So drywallers get sued when the roof is leaking, and so on.

“Once the attorneys are involved, it’s not about repairing the house, it’s about collecting fees,” said Bruce King, president of Pete King Nevada Corporation.

Nevada’s development and construction industry, including builders and subcontractors, is the one of the most powerful in the state, despite the recent steep downturn.

It has enlisted a legion of lobbyists, who in turn are working the Legislature hard for relief.

The construction industry will square off against another powerful interest, trial lawyers, who say they want to protect the rights of homeowners confronted with unexpected problems resulting from defective work.

Scott Canepa, one of Nevada’s most respected defect litigators, said the efforts of builders and their allies in Carson City will take the state “back to the dark ages when people had no rights against faulty construction.”

Regardless, the drive to change construction defect law has real momentum, in part because of an apparent FBI investigation into whether homeowner associations and their elections were manipulated by businesses — including possibly construction defect law firms — so they could bring suits against builders.

In these alleged schemes, people would buy 1 percent stakes in homes and then win seats on homeowners boards, after which they would bring construction defect lawsuits and steer the legal work to favored firms.

Reform legislation is on the way on homeowner associations, including criminal penalties for those who corrupt them.

Also, last week, state Sen. Terry Care, chairman of the Judiciary Committee, created a special subcommittee to draft a construction defect bill. He said his chief concern is protecting subcontractors who get caught up in the lawsuits undeservedly.

For plaintiffs’ attorneys, Care’s impartiality is an issue. One of his law partners, Paul Georgeson, is general counsel for the Nevada chapter of Associated General Contractors and said he has talked to Care about the issue.

There is no dispute that in southern Nevada’s rapid growth and red-hot real estate market, a shortage of skilled craftsmen and difficult working conditions led to some slipshod building, though it’s unknown how many structures are defective. Civil attorneys estimate 31,000 Clark County homes need faulty Kitec brass pipe fittings replaced, for instance.

The law governing construction defect lawsuits, known as chapter 40 for its place in Nevada statutes, was a compromise developed during the mid-’90s building boom, a process to resolve disputes before litigation. As part of the compromise, if the homeowner wound up suing, he couldn’t sue for non-economic damages, such as emotional distress.

In 2003, at the behest of the builders, the Legislature instituted what’s called “right of repair,” which gave builders the right to repair damaged homes while limiting attorney fees and the hassle of legal proceedings.

Now the builders are back, with an ambitious goal: They want to eliminate chapter 40.

“The net effect of chapter 40 is that the victims are homeowners and subcontractors,” said Craig Marquiz, general counsel for the Nevada Subcontractors Association.

Marquiz said the Nevada State Contractors Board provides homeowners a place to register complaints that can be investigated and fixed, while imposing sanctions on builders.

Who’s on the board? Contractors, including King.

But Marquiz said the current situation is untenable, and explained why.

He said the statute requires a chapter 40 notification letter to say what’s wrong, where the defect is, and its nature and severity.

Instead, he said, most of the letters are broad and generic. They list anything that could possibly be wrong, from drywall to soil engineering, doors, electrical work, etc.

The builder or often its insurance company then informs all the subcontractors, essentially making them party to the lawsuit.

Attorneys have tremendous incentive to bring chapter 40 complaints, the vast majority of which are settled out of court, because the statute guarantees attorney and expert fees, Marquiz and a number of contractors said.

Once they’re named in the lawsuits, the subcontractors say, they have no incentive to fix any problems because they won’t be released from the suits, as the general contractor or his insurance company seeks to spread the cost around.

Canepa acknowledged that subcontractors are a “thorny issue.” He said he hopes the Legislature can find a way to insulate subcontractors who aren’t at fault.

But otherwise, Canepa offers a forceful argument on behalf of chapter 40.

He notes that the statute says the court can deny attorney’s fees and award attorney fees to the contractor if it finds the plaintiff “unreasonably rejects a reasonable ... settlement.”

Without some guarantee of fees, homeowners would have to pay a $5,000 retainer to get an attorney, which would prevent many from getting their defect fixed.

Repealing chapter 40 would deal a severe blow to the rights of homeowners, he said. Without chapter 40, Nevada case law denies homeowners the right to sue for negligence. Instead, they could sue only for breach of contract, Canepa said. Builders would then force homebuyers to sign contracts that protect them from liability.

“The remedy would be determined by the four corners of a contract, written by the people who built the bad house,” he said.

Canepa said he fears Nevada will become known as a place where the consumer has no protection.

“Why make it harder for people who bought bad houses?” he said.

But from Bruce King’s perspective, current law is making it harder for people like him to stay afloat and build good houses: “This has been an albatross, a millstone ...”

Discussion: 15 comments so far…

By Bob635

2/22/09 at 5:51 a.m.

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I deal with construction defects related to water intrusions. My experience includes homes of varying ages, even more than 100 years old. The amount of poor craftsmanship I see in new homes is unbelievable.

The issue of putting subcontractors and other on notice in a legal case, has more to do with "who saw what, and when" rather than liability. It is an issue that deals with the US's adversarial legal system.

The problem is that other contractors saw defective work, but looked the other way. The result is the home buyer gets screwed.

In rare cases, a subcontractor may have informed the builder of a problem, and the builder ignored the warning. For example, the drywall contractor covers up defective plumbing by installing the drywall. The drywall contractor limits his liability by informing the general contractor of defective workmanship.

If home builders took on the philosophy of building homes right, rather than making the most money, this problem would go away.

Remember the home owners did not cause these problems, it was the people who built the shoddy home.
By fremmasmind

2/22/09 at 6:01 a.m.

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If the default is in design, the engineers and architects are liable. If the defualt is in installation, the contractor is liable.
By dapperdoog

2/22/09 at 6:53 a.m.

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I've been getting numerous letters from attorneys regarding joining a class action suit in my subdivision. The letter includes pictures of "suggested" problems, and asks me to fill out forms with my "problems". And the problem is that I have no problems. Never had any. Subdivision is 8 years old. None of my neighbors have any problems. IMHO, many of the complainants are the people who didn't buy the house new, grossly overpaid during the boom times, and are now underwater. They are looking for a settlement, urged on by their ambulance chasing mentors, to somehow "get even" for their stupidity. Change the laws, please
By mgkrebsii

2/22/09 at 8:21 a.m.

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The problem is as much in the inspections as it is in the construction. Typically, the inspector arrives and a foreman walks him/her into a particular house. The shill house. Nothing is wrong and the inspector assumes the other 299 are identical. Then proceeds to sign off on all 300 inspection certificates without looking at the others!

For example, my neighbor had outrageous power bills. He called a local company to come add insulation. The contractor went into the attic and there was no insulation at all! The contractor admitted that his crew insulated that subdivision. He explained that his trucks go out in the morning with enough insulation to spray x number of houses. That sometimes the house at the end of the day gets shorted because the crew used too much on other houses. This is supposed to be caught by the inspector. It wasn't!

Fortunately for my neighbor he was dealing with an honest contractor who then double insulated his attic for free.

Get the inspectors off their lazy butts and make them do the jobs! How about criminal penalties for them?
By Babyboomer

2/22/09 at 9:04 a.m.

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Where'e the new home owner in all this ? I was on the site "daily" checking things out and stopping any further work until things were corrected.Believe me...that in itself was almost a full time job. Once the walls are up...forget it.As it was I had a small leak in a pipe on the 2nd floor that resulted in taking a hammer to walls in the kitchen,one bathroom and the linen closet to find the damn thing. What a mess. It could have been diverted if the contractor visited his sites more often.The homeowner needs to play a very active daily role in construction without getting in the way.
By homer

2/22/09 at 9:35 a.m.

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I have purchased two new homes in Las Vegas in both cases I was denied the right to have a licensed inspector accompany me in the walk through or final inspection before closing. Just what were these builders affraid of? I soon found out.
The law is simple.Attorney fees are granted to the winner, thus preventing frivolous law suits. Anyone who wants to do away with 40 is in a coma.
Regarding dapperdogs position it is nearly impossible to sue and collect unless you are the original homeowner, and someone who is 'underwater' so to speak usually can not afford the drive to an attorneys office let alone a small retianer.
By 2zero

2/22/09 at 10:56 a.m.

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Paper houses built with chicken wire on postage stamps by third world workers...buyer beware.
By growler

2/22/09 at 12:38 p.m.

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110 notices on 1200 homes, If he can not resolve the issues he should not be A builder. Spending to much time trying to justify poor workmanship or get out of correcting mistakes is A poor business practice. You always get what you pay for. The builders have had A great ride on the real estate fantasy tour. Now they have to go back and correct the mistakes pulling money out of there pockets. If they are not willing to do that, they should go over to Loews and sell the "do it yourself" sheds, Too Bad.
By Gregory

2/22/09 at 5:39 p.m.

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The construction industry in Nevada is another virtual closed shop industry in the state, often at odds with another powerful, opportunistic industry, attorneys. The legislature becomes a dinner table for their needs every two years, albiet they have to find their own seat at the table.

General contractors who do the job right should have subs who perform quality, consistent work, and these subs should have enough liability insurance to stand alone behind their work. It's very simple, it they do not, then they should not be subs on your construction site.

The law should not allow either the general contractor, or all subcontractors, to be in the courthouse for issues that relate to defective, or omission, work by one or two subs.

Cardboard subdivisions thrown up quickly for big profits during boom peaks will result in shortages for good sub work, skilled and experiened employees, and coordination problems among subs week to week in completing a house.

Simply put, the house is not going to received the oversight by the general contractor that it would if it were a custom home. Is that right? No. But the subs need to be accountable for their work, first and foremost, in legal actions.

Probably, some of these problem homes were built in mass by builders who were also providing financing for their homes. That is the area where homebuilders need scrutiny, financing to sellers with things like "upgrade money" in the sales contract.
By Paratrooper

2/22/09 at 6:53 p.m.

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"Regardless, the drive to change construction defect law has real momentum, in part because of an apparent FBI investigation into whether homeowner associations and their elections were manipulated by businesses -- including possibly construction defect law firms -- so they could bring suits against builders."

This is the most interesting part of the article. Anyone in the industry paying attention realizes that the FBI investigation has gone well past election fraud so that dishonest HOA board members could bring lawsuits against builders in collusion with law firms and other contractors that would benefit from the corrections of the so called defects. This has become a real growth industry. Perhaps surpassing personal injury lawsuits and the physicians that are willing to lie for them. I am not trying to say that all such suits are phony but lots of them are.

Some, not all, community management companies may be involved in these kick back schemes. The Review Journal reported a trip to Cabo San Lucas given to community management companies by an appreciative law firm. I doubt that it ends there, lots of money may be involved. One rumor is that a community management company shops around for law firms that will give them the biggest kick back. All the while, the FBI is willing to accept information but is closed lipped when sharing anything. Unless they really enjoy visiting Las Vegas, lots of people are being interviewed and I doubt they know anything about elections.

Construction defects are real. Don't allow them to use the FBI investigation to weaken the legal position of homeowners.
By mkelizabeth

2/23/09 at 2:39 p.m.

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I work for a subcontractor. Every lawsuit that we have been brought into had NOTHING to do with our work. Why are we brought into these? 1) IF the home has been sold there is no telling what changes the new homeowner has made, or changes could have been made by the orignal owner 2) How long ago was the house built? (There is no time limit. Again, why are the subcontractors that had nothing to do with the alleged defect brought into these lawsuits?
By mkelizabeth

2/23/09 at 2:42 p.m.

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Sorry, I'm back. We inspected an alleged defect in the concrete in the driveway, although it was to industry standard we agreed to replace two squares. The builders attorney would not let us. This is right????
By wedontneednostinkingcodes

4/23/09 at 5:43 p.m.

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this is the biggest joke ever perpetrated. trapped by lawsuits over their shoddy work, subcontractors seek immunity, that's what the headline should read. oh yeah, and to eliminate a homeowners right to their attorneys' fees and costs that has to sue to get their home fixed RIGHT. it's not like contractors get their attorneys fees and cost when they sue to get paid after 'substantially completing' (ie, not completing) the work. oh, sorry about that, they do get those fees and costs after almost getting the job finished...and low and behold the awards are in fact mandatory and guaranteed.
By wedontneednostinkingcodes

4/23/09 at 5:50 p.m.

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PS - caught a news story about Pete King the other day - they are about to destroy a local business (My Left Foot) because of a mechanic's lien claim that had/has an exorbitant amount of attorneys fees before the owner even knew what was going on?