Construction Defects to be
Major Issue in 2007 State Legislative Session
Legislation Sought to Clarify
Whether Home Defects Can be Grouped in Class Action
Mark Twain was right –
and he may have been thinking of Nevada’s state legislature when he wrote:
"No man's life, liberty, or property are safe
while the legislature is in session."
For Nevada’s construction industry, the 2007 legislative session
may prove that sarcastic observation to be the literal truth.
With the December, 2005 Nevada Supreme Court decision gutting the
previous “class-action” approach to construction defect litigation, and
with Judge Michael Cherry’s follow-on ruling against extrapolation, the
ongoing fight over home construction defect litigation in Nevada is going to
move from the courtroom to the Legislature. In
the face of a series of decisions that have gutted previous class-action
abuses, homeowners' lawyers are already lobbying for a law that would
strengthen their arsenal in court. While
the courts have given contractors a tactical victory, the battle goes on.
In the face of predictable lobbying from plaintiff’s lawyers –
who “took it in the shorts” in Nevada’s courts over the past five
months – representatives of Nevada’s home construction and
sub-contractors’ industries are girding their loins for a Battle-Royal,
one designed to stop the attorneys’ efforts to reinstate their
class-action and extrapolation gravy-trains.
The construction industry is expected to push for broad legal
protection from potentially expensive class action lawsuits in defect cases.
While the courts have ruled in contractors’ favor, those rulings
can be modified, even overturned, by subsequent legislative action.
That’s what plaintiff’s attorneys are hoping to do – and they
are both highly-motivated and well-funded for the forthcoming legislative
battle.
"I know it is going to be a big fight," said Assemblyman
Bernie Anderson, D-Sparks, chairman of the Judiciary Committee, told the Las
Vegas Sun. "It is going to
take a great deal of time in the Legislature to get to the point where we
can find a solution."
This means endless hearings, aggressive lobbying, back-room deals and
11th-hour compromises.
History of Contention
For more than a decade,
construction defect lawsuit issues have focused the attention of the
construction industry – and plaintiff’s attorneys – on Carson City.
The December opinion of
Nevada
’s Supreme Court has upped the ante for the 2007 legislative session.
That ruling was specific: except in rare and specific cases,
construction defect suits involving single-family homes could not be grouped
together into a class action suits, if only because the damage claims are
typically diverse and often hard to prove.
Prior to this ruling, Nevada’s contractors were planning to ask the
legislature for relief from the compromise solution of 2003 – a solution
that proved to be under-funded and grossly ineffective in preventing
courtroom abuses of contractors. The
sharp rise in class action lawsuits from 2004 to 2005 demonstrated that the
legislature’s “solution” was no solution at all.
However, that issue may now be swept under the rug – with the
plaintiff’s trial attorneys on the rampage, contractors will be fighting
to protect gains they’ve won from recent court rulings.
Reforms beyond that may have to wait for 2009 – or beyond.
Extrapolation at Issue
Robert Maddox – who lost
the Supreme Court case in December, is a member of the Nevada Trial Lawyers
Association told the Las Vegas Sun that the state’s lawyers want
legislation allowing them to estimate damages for entire subdivisions by
testing only a small percentage of homes. Extrapolation,
as the process is known, is far more valuable to attorneys than is the right
to form class actions. With
extrapolation, a single favorable settlement can open the door for every
homeowner in a development to demand a similar settlement, without proving
any damages.
Nevada’s Supreme Court found "no reasonable basis" for
extrapolating damage, a finding that was put into place in subsequent
lower-court decisions issued in early 2006.
"Extrapolation is used in almost every area of the law,"
Maddox told the Sun. "Imagine if police had to test every grain of
white powder in a kilogram bag of cocaine. That would be ridiculous."
Courts have found this spurious analogy unpersuasive, reasoning that
homes built separately – often by separate contractors and sub-contractors
over a period of months or years – are far more unlike than Maddox’s
cocaine example suggests. True
construction defects are often the result of individual, one-time human
error, and are seldom repeated throughout a development.
Yet that concept has been at the heart of class action attorneys’
success to date, finding all libel for the mistakes of the few.
Home builders have rightly praised the Supreme Court ruling. They
have long contended that class action suits make it likely for residents
whose homes have suffered no damage to receive unearned and justified legal
settlements. These class actions
also siphon settlement money away from those who have experienced legitimate
construction defects – in effect, significantly lowering settlement
payments to neighbors whose houses have actually suffered from construction
defects.
The Gravy-Train Has Left the Station
Jim Wadhams, an attorney representing the Nevada Subcontractors
Association and the Southern Nevada Home Builders Association, told the Sun
that he’d initially hoped the court ruling would become a standing
precedent that would guide future cases, but now he fears that this won’t
occur. "There is way too
much money moving in this process because of the use of extrapolation in
class action lawsuits," Wadhams said. "It is not surprising that
the battle lines are forming on the issue. It is not about getting repairs
done. It's about getting money."
More specifically, it’s about class action attorneys putting their
remarkably lucrative class-action gravy-train back on track, and with the
courts closed to them, they are focusing on the legislature.
State Senator Warren Hardy, R-Las Vegas, who serves as president of
the Associated Builders and Contractors of Las Vegas, told the Sun that home
builders will organize and oppose legislation that would reinstate – or
expand – extrapolation. "I expect it to be a major issue," Hardy
said. "I think this Supreme Court decision is troublesome to the trial
attorneys, and there will be an effort to resolve it."
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