Foes under defects law unite to push for its change

By J. Patrick Coolican, David McGrath Schwartz

Tuesday, March 24, 2009 | 2 a.m.

Another day, another construction defect notice. That’s the routine for Jack Ramsay, a founding partner and vice president of Sierra Air Conditioning, which installs AC units in new homes.

In the vast majority of the homes, Ramsay says, nothing is wrong with the air conditioning.

Still, Ramsay has to send a technician out to the homes, where other subcontractors also are crawling around the property looking for problems alleged by the homeowner’s attorney. Tom Williams, a representative of Milgard Windows, is also at this Henderson house even though his company’s windows were not used on the home.

Ramsay, Williams and the others are there because they got a notice from Lennar Corp., which had received a letter from the homeowner’s attorney complaining of problems. The letter included a reference to problems with heating and cooling.

Lennar, in turn, sent out a notice to its subcontractors, and here they are.

Ramsay says nothing is wrong with the air-conditioning unit at the home, which is about a decade old, unless you count some insulation tape missing from the copper line that runs from the unit into the house. Ramsay thinks the family pet chewed it.

Ramsay asks Lennar’s representative, seemingly half in jest, to take his company off the suit.

“Can’t do it,” says Pete Selter, an area manager for Lennar.

If all subcontractors stay on the complaint, they or their insurers will all share the cost of the guaranteed legal fees that go to homeowners’ attorneys.

Does this all sound crazy?

The construction industry, already reeling from the worst residential housing recession in state history, also deals with a constant stream of construction defect notices.

That this would happen is no surprise.

Southern Nevada’s 20 years of rapid growth, a shortage of skilled craftsmen and difficult working conditions led to some slipshod building, though it’s unknown how many structures are bad. Civil attorneys estimate 31,000 Clark County homes need replacement of faulty Kitec brass pipe fittings, for instance.

But builders and subcontractors cite another culprit: Guaranteed fees for experts and attorneys for the plaintiffs. Those fees give construction defect law firms perverse incentives to bring suits, builders say.

Plaintiffs’ attorneys say builders and subcontractors could cut down on their legal fees if they built fewer defective homes, and they note that the court can deny attorneys fees and award them to the contractor if it finds the plaintiff “unreasonably rejects a reasonable ... settlement.”

The law governing construction defect suits, 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, homeowners who file lawsuits can’t claim noneconomic damages, such as emotional distress. On the other hand, builders are obligated to pay the homeowners’ costs of bringing the lawsuits, provided the homeowner agrees to a reasonable settlement.

Builders now want the Legislature to change the law. They want to eliminate Chapter 40 and those guaranteed attorneys fees, and they’ve enlisted the subcontractors as their allies at the Legislature.

In the drive to repeal Chapter 40, homebuilders and the subcontractors would seem to be unlikely allies, and their alliance offers a window into the shifting dynamics of legislative politics.

In fact, in 2007, the subcontractors sought indemnification provisions that would have offered some protection from lawsuits. They were crushed by the powerful homebuilding industry, which wants as many parties to the suits as possible so as to spread the cost.

But in politics, there are no permanent friends and no permanent enemies, so the two have joined forces this year to fight the plaintiffs’ attorneys.

Craig Marquiz, general counsel for the Nevada Subcontractors Association, said the indemnification idea is merely a Band-Aid.

“Indemnification only addresses the issue of who pays, not what is being paid for,” Marquiz said. “It comes back to entitlement of attorney fees. Incentive is essentially what motivates these firms to bring claims, whether they are legitimate or not.”

Not true, say the trial lawyers. The construction defect attorneys say the real motivation from the builders is to eliminate the right of homeowners to get their broken homes fixed.

Repealing Chapter 40 would deal a severe blow to the rights of homeowners, said Scott Canepa, one of the state’s most respected construction defect litigators. 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 force homebuyers to sign bad contracts that protect the homebuilder from liability. No lawyer would take any case for the homeowner without a significant retainer, which most people — especially now — can’t afford, Canepa said.

The plaintiffs’ attorneys will get a sympathetic hearing from Assembly Democrats.

Plus, the coalition between subcontractors and builders is “fragile,” according to one lobbyist on the side of the builders’ coalition.

Lobbyists expect the coalition to get some legislation out of the state Senate that would deal with the guaranteed attorneys fees. As a counteroffer, Assembly Democrats and plaintiffs’ attorneys would then propose some lawsuit protection for subcontractors.

A trial attorney lobbyist speculated that subcontractors would be happy to run with such an offer.

But if that happens, their homebuilder masters would probably succeed in killing the legislation, as they did in 2007.

And the issue would have come full circle.

Nonsense, says James Wadhams, a lobbyist for the homebuilders.

“The subcontractors we work with know we’re in this business together,” he said. “This issue of dealing with indemnity between general and subcontractors is a red herring.”

He said the issue has been raised by the trial attorneys “to splinter the coalition and distract from the issues at hand: getting homes repaired quickly or going to court.”