(Michael Chamberlain/Nevada Business Coalition) – A massive scandal involving attorneys and homeowners associations boards that may run deep into the legal community has produced the first of many expected plea bargains and convictions. The scams involved directing lucrative construction defect litigation cases and the repair work to favored attorneys and construction companies, defrauding homeowners, construction contractors and insurance companies of millions. FBI agents raided several law firms and construction companies nearly three years ago seeking evidence in this scandal.
Certain law firms allegedly conspired with accomplices to purchase homes in condominium developments. They would work to get individuals involved in the scheme elected to the HOA boards, often by rigging the elections. Then these boardmembers would work with the attorneys to file construction defect cases and award the resulting repair work to favored contractors.
The recent developments are just the tip of the iceberg. Press reports indicate that there could be 100 people who are subjects of the various investigations, including attorneys, judges and police officers. According to an article in the Las Vegas Review-Journal prosecutors may file two dozen plea agreements related to this case.
Longtime Republican political operative Steve Wark pleaded guilty last week and has agreed to cooperate with investigators in the first of these plea deals. In addition to Wark, noted plaintiff attorney Nancy Quon has been implicated.
The scandal associated with these construction defect cases come as no surprise to those who have been involved in the industry. They confirm what many have been saying for years – that the construction defect litigation system in Nevada has been ripe for abuse.
The laws were created with the presumption that the plaintiffs’ attorneys were the good guys. They intervened with completely selfless motives, concerned only with helping poor homeowners getting their problems fixed. This scandal should shatter that myth.
Law firms involved in construction litigation raked in billions of dollars during the last decade with much of that money going to firms involved in the cases associated with these scams. Their actions helped drive up the price of housing that led to the boom and resultant bust in real estate pricing that was at the heart of the collapse of the economy.
There were many people who were focused solely on lining their own pockets. And the law, as written, encouraged that behavior.
Chapter 40, the section of Nevada Revised Statutes dealing with defects in construction, creates the perfect storm of incentives and disincentives to encourage lawsuits and discourage correction of genuine problems. It both rewards law firms for filing lawsuits, instead of seeking corrections, and creates disincentives for companies to repair legitimate construction issues.
The scam for which so many may soon be going to jail may have been one reason that a truism within the construction industry during the last decade is that anyone working on a condo project was going to get sued. As a result of the widespread litigation on condominium projects, virtually all insurance companies ceased offering policies for any work on multi-family construction.
But the abuse of Chapter 40 extends far beyond that one narrow slice of the construction industry. It encompasses construction of all kinds. Past attempts at correcting the deficiencies of Chapter 40 have not been successful.
Although Republicans in the Legislature made construction lawsuit fairness reform one of their priorities, they were unable to get such a bill through to the Governor’s desk. In fact, only one proposal addressing this issue made it to the floor of either house and it was a reform in name only that did not correct any of the deficiencies in the current law. After passing the Assembly bipartisan opposition defeated it in the Senate on the last day of the session when two Democrats joined all ten Republicans in voting against it.
In past sessions, this reform has encountered bipartisan opposition, even as the carnage of the litigation debacle spread.
If nothing is done, Chapter 40 will continue to wreak havoc upon innocent business owners, employees, homeowners and the other Nevadans harmed by its abuse. The Nevada Business Coalition has made enactment of Construction Litigation Fairness one of its major issues for the next Legislature.
(Michael Chamberlain is Executive Director of Nevada Business Coalition.)