 their addition of condo insider. I was down at the legislature last yesterday listening to testimony and I heard a member of the real estate commission staff say that there's a hundred and sixty eight thousand condominium units in the state of Hawaii. Now if you said figured there were three people per condominium that's four hundred and eighty thousand residents were pretty much more than about forty percent of our population. So we hope our show brings a lot of interesting educational material to board members and homeowners alike about living in an association. That being said we've had a tremendous rise of the state bird the construction crane and if you look all over Kakako and all over the state we're seeing more and more construction for many more new condominiums. I thought I'd invite back to visit with us today D Hopper who's a lawyer and expert on construction litigation to help guide boards through the issues that may be related to that. So D welcome again to the show good to see you. Thank you Richard I appreciate it. Would you remind everybody a little bit about your background and your firm. Well basically my firm has focused on construction defect litigation for over twenty years and that is something that I have done my partners have done and we have cases here in Oahu we have cases in Maui all around the area. And is that a prevalent problem construction defect litigation. Unfortunately it can be it's it's it's more prevalent than we would like to see but you know it's in condos and townhomes and individual single family homes. We've also seen it in commercial litigation. It's you know it's not limited to just homes. So when a new board of directors and a new condo I guess it applies to older condos that may have had a big construction project or a renovation project as well. But when that board starts to think it may have some problems so just wait till they know they have a problem or what should they start thinking about when they when they suspect it might be some issues. We think boards should be proactive in fact what we what we would recommend is that they contact a law firm that does construction defect litigation tell them that they think they may or may not have problems and then set up an evaluation of their project to see if they in fact have issues. Now is there any validity to a concept maybe after the construction is complete they should just get an inspection generally speaking or or you know kind of say well thank you Mr. developer and thank you Mr. builder but we're just going to have everything checked out once is a value to that or absolutely I think that is a very valuable tool. There's you know they have a duty the boards to the members of the association to make sure that everything is is functional and running properly. That's one of the things they can do is early on is provide and get an evaluation or an inspection of the properties and then can continue to do that on a regular basis. So from your experience here in Hawaii anyway now you also do business on the mainland are there any particular the normal things you find in construction litigation is it mechanical plumbing is it structural where is there any kind of common thread to all of this. You know there's really not we've seen issues that range from for example in a home you might have cracking in the ceilings in the walls around the doors or windows. You might have leaks in the roofs leaks around the doors and windows. There's structural issues. There's defects with certain systems like the plumbing system the electrical system the air conditioning heating systems. There there is no single issue that we see prevalent in any place. It really depends upon the project how it was built and what was done. I would assume not everything they see would be necessarily construction defect. It could be normal wear and tear or normal useful life like you know sometimes buildings settle and you get some light cracking in the drywall which wouldn't necessarily mean it's a construction litigation serious defect. Correct. That's why we believe you need to bring in an expert some an architect an engineer somebody who's familiar with these types of problems to evaluate them. One of the things I and I know probably more than the average person about this but you know they always say it's the developer. The developer built me a bad building but doesn't he really hire architects and engineers and they hire contractors is it is it quote the developer is it really a bunch of people. Well it can be it can be anyone from the developer all the way down the line to the subcontractor that's involved in this process. You have the developer who starts it they bring in their contractor the contractor brings in subcontractors and just like we people always ask us well who are the bad builders and we always tell them there are no specifically bad builders per se this builder you know can have lots of good properties that they've built but they bring in the wrong sub or the developer brings in a certain contractor who brings in certain subs and they cut corners and you can have problems with that project. It's not one particular builder or developer that's bad. So some of that come from hypothetically because the sub bids it and he bid it too low and now he sees he's going to lose money or not make any money and so maybe I don't want to say it sounds intentional or unintentional he starts for looking for ways to cut corners. That can very well be the case unfortunately it can be. So when you're a board and there's problems I would assume that there's statute of limitations issues as well if you don't I mean if the board starts to see the problem I don't think they have forever to to figure out when they're going to do something otherwise they could lose their rights. Right. What is that what is the statute of limitations here in Hawaii it's 10 years. So what we always encourage boards to do like you said earlier you know the sooner you start the better but if once you start getting especially towards that 10 year period that age in your property you want to be very proactive as far as getting inspections done to check to make sure that you don't because after the 10 years there's not a lot you can do you're in trouble if you have problems. Another example is just say they saw something after two years and they did nothing about it for six years. So it's now eight years into the project. Wouldn't that defendant the developer the contractor whoever be able to say if you told me about it six years ago wouldn't be as bad as it is now. And you should have mitigated your losses and told me about it instead of letting you get worse and worse and worse. So doesn't that kind of say you should get on this right away because they're going to try to use the defense. I would think that gosh you've known about this for six years and you haven't told me and it's now worse than the fix that it was originally. Yes I mean you it's like anything you want to be active as far as looking for these things if you're board members as far as your maintenance people you want to keep excellent maintenance schedules as well that's another thing that we've come across dealing with this because eventually if you have a problem and the builder sees that you had it early on they may very well try to use it as a defense against you. Can it be successful that defense? It can be it can be that's why you want to that's why you want to be active with these types of cases. Certainly it's a plausible argument to make before an arbitrator or a judge that you know judge if I had known about this earlier if I'd fixed it it wouldn't be anywhere near the cost or expense and a problem today as it would be before so I mean when judges and arbitrators from my experience they look at that and say well there's some validity to that and that kind of maybe chops down what they think you might be entitled to. Very well Ken and in fact in Hawaii there is a right to repair by the builders so they can come in and say if you say that there is a defect and the builder comes in and inspects it they have the right to come in and repair that and if they say well if I would have known about it sooner I could have done a better repair there's always going to be those types of arguments back and forth. Well that's that's a good point let's let's go back and review the process so the board looking around I think they have a problem they see they do have a problem they get your firm or another firm to come in and some experts and they say you know we have a problem. What is the process from that moment forward? What do they do next and kind of walk me through the steps that they go through? The first thing that takes place is if we go out we provide an expert to come out and do an evaluation of the property if in fact there are defects we produce a report attach that to a notice that notice then is sent to the builder. The builder then sends that notice to all the subcontractors and then that group comes out and does their own inspection of the property to determine what types of problems there are. The builder then at that point decides are they going to make repairs are they going to offer a settlement possibly for repairs or they're going to deny any problems. That process then the next step is the mediation where there's a mandatory mediation requirement in Hawaii and the two sides get together for the for that mediation to try to work something out. And does mediation work? Mediation can work it's really a difficult process if there is no pressure being put on both sides. The plaintiff side the sides that we represent the homeowners we believe that we always want to get repairs done we always want to move forward and get the case resolved. The other side with the builders doesn't always have that pressure unless there's been a lawsuit filed and during the notice process you're not allowed to to follow lawsuit until you've gone through that mediation. So oftentimes we find that it's after the mediation when a lawsuit is filed and the builders allowed they bring in their insurance companies and their lawyers that's when we find that there's oftentimes more pressure put to the situation. And to clarify the definition what is a builder? Is that the tenor contractor? Is that the developer? Is that the subs? Is that all of the above or when you say we give notice to the builder who is that? It's typically the contractor the general contractor and do you notice the developer at the same time or we do we can it depends on the on the circumstances on each case but usually we will. And so you've gotten an expert now to look at the costs and the repairs and say I have this problem. When you look at that I've had some experience with boards that because all of a sudden someone said we have a million dollar problem they kind of say well we need a million dollars and my experience in construction litigation in other cases is that boards need to have a realistic look at what they might or might not be able to get. It's never always one-sided and so clear that because an expert has said a million dollars you can just hammer that in your head and say I'm not taking a penny less. How do you feel about that? I think that's pretty accurate oftentimes if you say it's a million dollar case it may very well be a million dollars worth of problems whether you're gonna get a million dollars to solve all of those problems is the question that you're raising and more often than not if you settle a case if it's resolved outside of court outside of a trial then you're not gonna get that million dollars because it's a mediation or in some cases even an arbitration where the two sides have to come to some type of middle ground in order to resolve this so sides have to be realistic. We didn't think of breaking a few seconds let me ask you one quick question for a quick answer who if association files this construction litigation who pays the legal fees and is that recoverable in the mediation? The legal fees are paid by well in our cases we're contingency fee based so we don't get anything unless the other side and let's our side win something in the end and in the end it is our hope that the builder will step up and pay those legal fees. All right well we're gonna take a short break we're on condo insider talking about construction litigation with all the cases and all the new building we have going on in Hawaii they'll be right back in one minute. Aloha everybody my name is Mark Shklav I'd like you to join me for my program Law Across the Sea on thinktechhawaii.com. Aloha. Hello and Aloha my name is Raya Salter and I am the host of Power of Hawaii where Hawaii comes together to figure out how we're going to work towards a clean and renewable energy future. We have exciting conversations with all kinds of stakeholders everyone who needs to come together to talk about renewable energy be they engineers advocates lawyers utility executives musicians or artists to see how we can come together to make a renewable future Tuesdays at 1 p.m. Hello this is Martin Despeng I want to get you get excited about my new show which is humane architecture for Hawaii and beyond we're going to broadcast on Tuesdays 5 p.m. here on thinktech Hawaii. Welcome back to condo insider we're sitting here with the hopper talking about construction litigation and why it's important for a board to examine these issues early so they don't lose any of their rights due to statute of limitations and before we went on break we were talking to you about legal fees and I'd ask him about whether the legal fees in association and CURS are recoverable in the mediation and you basically were saying you hope that we recover as part of the settlement because it's a settlement amount more times than not you feel that you get to meet legal fees you think more times than not boards have to be cautious about how they pursue this well I think it depends upon the type of the firm that they hire because firms approach this differently like I said we do it in a contingency fee basis meaning unless we recover something for the board of the board doesn't owe us anything we cover the cost and the fees in a case there's other firms out there that handle it on an hourly basis where the board has to pay by the hour for whatever it is they're doing but we just have a different business model that's how we do it yeah I guess the example being I don't mean to be unfair to anybody but if you take a settlement offer to just make it up again per million dollars and the board thinks they need a million too and you go spend $200,000 to get a hundred thousand dollars more on our traditional bill by the hour basis you're really a hundred thousand dollars short yes because of the fact that trying to get that last bit of money the expense and the time and the cost even the time value of money may make it not a good a good thing you have to look at this and example I would use as a condo association I'm aware recently settled a construction lawsuit and it was for some of money a substantial sum of money and it probably was in fact I know it wasn't near what they were asking although it was pretty sizable when they looked at the case number one the defendants had a very limited type of insurance policy so all the claims of the association weren't covered by insurance then they look at the original builders and developers the people involved they didn't have much financial net worth correct and so the issue is going to be sometimes where's the money going where's the beef where's the money going to come from right there's a lot of factors to consider and you oftentimes have to compromise and you find that how usually works as compromise in all this there it really does it really is very few of these cases ever actually go to trial to a jury for a verdict so who was going to trial we got through the mandatory mediation and and the disc and to evaluate in the building for its deficiencies this but then we have to go to trial what happens you probably complain that what okay we file the complaint and at that point then the next steps after that are what's called discovery and that's where both sides get together and they exchange information we had asked for documents in a document production the builder the defendant has to then produce certain documents to us they will ask us for documents we produce those documents to them after both sides have gone through and examined and reviewed all those documents then you sit down and you have what are called depositions depositions is where you like for example will depose the expert engineer for the for the contractor will sit down and ask him all about everything that he believes he found were defects out on the property they'll do the same thing with our experts after we've gone through all that process then will typically have another mediation at that point to try to resolve the case once we've gone through all these documents and depositions it seems to me and I know nothing about this but that mediation might have a better chance of being successful because there's more facts on the table you know we're early on this I I've had experience where builders have said yeah that's a problem I can fix it in the early stages because it wasn't a big problem so that early mediation has worked but it's not primarily in major cases been successful from my point of view correct I agree with you on that and you find that when it gets to the second mediation is it usually a mediation or arbitration typically mediations typically mediations in what we do there are some cases where there are binding arbitration clauses in the contracts with the builders between the homeowners and the builders and in those cases will go through an arbitration but if there's not those types of clauses then it's a mediation that we do during the litigation process and then after that does they're usually go to trial or does it go to binding arbitration to people when the trial has a lot more rules of conduct and procedure and stuff I think so does it you find as they get really close to the end they end up agreeing to binding arbitration is a more time than not go to trial I think more often than not you you your desires to push it to trial because I believe that has more serious consequences and ramifications for the other side I believe that the closer we get to trial the closer we get to resolving the case in a solution well let me go back to this mediation thing as you know under the current law they have to go to mediation and I'm gonna take a minute and just describe this to you our legislature in 2013 passed Act 187 for condo associations and the condo association basically on governing document issues house rule issues homeowner board type issues can do what they call a valued of mediation where they can each for about a hundred and fifty bucks get before retired judge and that retired judge with can take the gloves off and tell each side this is what I think of your case and try to drive a settlement there's currently a bill before our legislature to mend act 187 to allow it to include construction defect litigation cases and there's a mixed bag and how people feel about that in the sense the current statute only gives you thirty five hundred dollars to do the mediation under a value of mediation and possibly another thirty five hundred seven thousand if the mediator feels he's making progress and can resolve it with a little bit additional money I have a hard time seeing that that would be really effective based on the process because at that moment in time you haven't gone through all this discovery period I agree I think like we discussed earlier in the program the mediation process can be beneficial it but it depends upon when that mediation takes place in the process when it's early on prior to complaint being filed prior to discovery with the document production and the depositions it's hard to get any type of resolution at that point because there just hasn't been enough typically done for for for the in our opinion for the other side to see that they need to move on this I guess the counter argument be you take the first mediation which we know is the builders right and probably more times than not doesn't work so now you get through all the discovery which you've paid money for and you've hired your attorney then the question is well can you begin the second mediation by beginning with that one eighty seven mediation saying well let's try to get the first seven thousand from the condominium education fund in this sense we'll start it this way but it seems to me from my experience those cases are going to take much longer than the seven thousand dollar word chest you might have and you get the argument why should other people in the condominium education fund all the other condos the 1700 condos in the state be subsidizing an individual construction defect dispute right by subsidizing the first seven thousand I might feel differently if there was a high chance of success with seven thousand dollars to cure a construction defect litigation case but the small cases that really small cases probably get resolved on their own I mean it's not worth anybody spending all those legal fees to do it so correct smaller cases can't have successful results but some of the larger more complex cases like we were talking about you're saying a minute ago you referenced you know a sizable case with worth hundreds of thousands if not millions of dollars those very difficult but I don't know what the legislature is going to do on the act 187 I know there's other components to the proposed amendment we support act 187 for a homeowner condo board member disputes we also believe that we want to allow the parties themselves to use act 187 for binding arbitration of both parties agree it just makes it another step to having finality to a dispute but most of us in industry have concerns about adding in construction litigation because it's kind of a whole lot of other issues are relating to this that I'm not sure that having a condo education fund subsidize it makes business sense but we shall see what the legislature does those bills are before the legislature today and I am not I think some of them are still alive they've been passed out of committees with changes but no one has seen the amendments yet so we're not you know it's kind of a moving target over there and and so it's a process well I know that someone asked me today whether it's causing me to drink more red wine I said I am confident the consumption of red wine and Hawaii has gone up significantly since January 18th yes you know I'm not taking personal liability responsibly for that but I would say I played my small part on that because we all do it's it's the legislature and zone rights an interesting process and I frankly thank the legislators for their hard work as they're cast into having to do the best for the people of Hawaii and they're not gonna be experts in all this either so you know they rely on other people like yourself right and it's just like we see nationally and locally and in politics just two sides and both sides not only argue their position maybe at times exaggerate their position and sometimes hard for people in the middle like the legislator to understand really what is the right thing to do and so I respect that and I've been in this a long time and all in all I think we have a good system and I'm just not sure about that part of the bill right so is there things that board can do to mitigate cost of doing one of these construction defect litigations or sure I mean construction defect litigation cases are very costly regardless no matter what you do they're gonna cost typically a large amount of money because you are involving experts on both sides have to come in architects engineers those types of experts come in and have to spend a significant amount of time providing reports and evaluations and inspections testing but again that's one thing that our firm does is we pay all those costs for a client so that they don't have to and that then they are recoverable at the end of a case so we're down to our final minutes so tell me what's your number one recommendation to a board who thinks they might have some construction defects contact us contact another firm contact a lawyer that does this type of stuff get in touch with them so that they can then take you through the process of at least providing from the beginning an evaluation or an inspection of your property to see if in fact you do have defects so in my late term just don't stick your head in the sand investigate it because the board member you have a fiduciary duty and by failing to investigate it you may expose yourself to some liability you can't ignore these things you've got to investigate them as your business judgment rule to make sure that the you had the best information for making your decisions you took the words out of my mouth you just don't put your head in the sand all right well again thanks all of you for watching condo insider this week we hope you've enjoyed our conversation with the offer and I certainly hope you never have construction litigation problems but in the real world it happens all the time so again aloha and thank you for watching condo insider