 Welcome to another episode of Condo Insider. My name is Jane Sugimura, I'm your host for the show today, and today we're going to be talking about the Contractors Repair Act, and this deals with condominium defects. And my guest today is Scott Batterman, and Scott is an attorney with a law firm, Clay Chapman, Iwamora Police and Nervell. And thank you, Scott, for being with us today. My pleasure. Can you tell us what kind of practice you do? I do a lot of complex litigation of various kinds, but my main focus now is construction law, and that involves both consultation and dispute resolution. So part of what I do is negotiating contracts, writing contracts, and part of what I do is dispute resolution. I've represented general contractors, subcontractors, equipment suppliers, equipment rental companies, material suppliers, but also owners and developers. So again, sometimes I draft construction contracts, sometimes I'm representing a condominium that's suing because the contractor had a defective job, sometimes I'm defending the contractor, because the condominium is suing them, or also non-payment to get a lot of those kind of cases. So that's basically my practice, but I also do a lot of general contract law as well. So you're here on our show, and condo and cider deals with condominium living, and most of our viewers are boards of directors or property managers. And so I guess the issue would be when a condominium has a problem, and they would be calling you, it would be because they have a construction defect. Yes. I've handled those cases. And so this would happen if it's a brand new condominium, they would be suing the developer, and if it's an existing condominium, they might be suing a contractor who just put in pipes in the building or other kind of work. So what does a condominium have to do? If they have a complaint against, they think that they have a complaint against a contractor or a developer about work that was done on the building. Well, they have to go through a process that was put in place called the Contractors Repair Act. The Contractors Repair Act is a law that was passed by the legislature around 2004. The idea was to try to force the parties to work things out amongst themselves before they take the case to court. The idea being that construction litigation is complex, uses up a lot of time of the court. Cases settle anyway, so let's force them into a process where they're forced to deal with each other and maybe settle the case before it goes to court. And so there are things a condominium or any other homeowner has to do before they can file a lawsuit. The interesting thing with condominiums, by the way, is that there are certain time limits in the law that are 30 days, but for condominiums, those times are always 45 days. They give them an extra 15 days because they assume that they don't have to have an important meeting before they can do anything. So they take that into consideration. The law was written with condominiums in mind. Okay. And why was that? I mean, in 2004, what was the reason why the Condominium Repair Act was... This contract was written, when I said with condominiums of mind, it was with the understanding that a lot of the major construction defect litigation involves condominiums. Those are the big case. A home construction condominium case, remember the home construction contractor case. It's one house. They don't tend to be very complicated, but you have a condominium and now you've got contractor. You've got the developer, the general contractor who built it, the mechanical contractor, the plumbing contractor, the electrical contractor, and very subcontractors. A lot of subcontractors, I mean a lot of subcontractors, and there may be 15 different insurance companies, there may be one. They're very complex cases, and it makes sense to try to settle them before they go, but this will apply to any homeowner, but the interesting thing is, again, it's called the Contractor Repair Act, but contractor is defined under the law to mean anyone who's engaged in the business of designing, manufacturing, supplying products for developing or building a dwelling. It's basically, it covers everybody but the broker. The brokers are specifically taken out of the law. So it would include going after an architect then. Yeah, the designer's part of it. Yeah, the architect is part of it. If the defect is a defect in design, the architect's a part of it. If the defect is something, you know, from any of the subcontractors, they're involved with it. As an example, outside of condos, you have like people doing like multi-house units or duplexes or things like that. They're covered too. The law specifically includes multi-unit residential associations and a defect is very broadly defined. A defect is anything in or rising from the design, specifications, surveying, planning, construction, supervision of the construction or anything or even the observation of the construction. So anybody who basically had a finger in the building. Even the project manager. If the company hires a separate project manager, they're considered a contractor for the purposes of the law. Okay. So that means that this law would cover everybody in the chain, so to speak. Yeah, that's the idea. Has it applied to licensed contractors? Absolutely. And with spectacular licensed contractors, any licensed contractor who enters into a contract has to include a paragraph in his contract that says, warning, if you want to sue me, actually, in the contract of a paragraph, it's in section 613 of the law. It says, in your contract, you have to have this paragraph in all capital letters. It tells you, it basically says, you know, the paraphrase, before you can sue me, you'll have to go through the contract as a paragraph and do all the things that that act says. You should be aware of that fact. Okay. So what if you get a condominium who doesn't have a clue or doesn't know about that and decides to sue a contractor? What happens? If the contractor wants to, he can have the case dismissed. The law specifically says, if you don't go through the whole contractor repair act process, and I'll talk to you about what that is, the court is supposed to dismiss it without prejudice. You can bring it again. But if you file a lawsuit before you've gone through all that, there goes your filing fee. And there goes the complaint, and you got to start all over again. And if you're the lawyer who filed that complaint, you look like an idiot. Yeah. And now the condominium's got some questions about, you know, the lawyer that they hired. So that's not a good thing to have in the relationship, obviously. And then you put back here. And the other thing is, you're now starting the process later on. Now there's an exception to that. The statute of limitations is about to run, or the contractor refuses to go along with the process for some reason. Then you don't have to go through all of the steps. But there are a lot of steps to be followed. Normally, the statute assumes at least 90 days and possibly quite a bit more from when you first start the process to when you can finally get to court. Why don't you tell us about the process then? It starts with writing a letter to the contractor or the developer whoever. The letter is called the notice of claim. And it basically has to list in detail all the defects that you're complaining about. And it has to be sent by either personal service, like you're serving a summons, or by certified mail. And if you don't do that, you haven't followed the statute. And so you could, the contractor can say, you haven't done this right, serve me right. They could slow it up. So let's say that you, and let's say you have, have you had testing done on the condom. Typically speaking, a condominium before it files a lawsuit will have hired an architect or an engineer to look at the problem, say, this is what's wrong. They may do some testing. They may give you a report. Any testing, you have to tell the contractor about in your notice of claim of defect. And you have to give them copies of any test results and things like that. You have to send it to the contractor. Now the contractor, once he gets it, they've got 30 days to act. If they don't act within 30 days, they've rejected the claim. Within those 30 days, they can do, they have several choices. They can basically say, no, I disagree with everything here. Don't wait to 30 days, just say, no, I'm not doing anything. That's rejection. Or they can say, oh, look, I'll fix these three. And I'll give you this much money for everything else. But that's what I'm doing. Nothing more. Or and this is the most common thing. They can say, I want to look at the problem. Can you tell me there's a problem? I've got, they have a right to inspect. So if that happens, and the process comes to a halt until they do their inspection, and they can do more than just look at it, they can do destructive testing, they can open walls, dig holes, as long as they put it back the way it was when they found it. And it can go on, let's say they do a little testing, and they find something else that requires even more testing. They get to basically find out what the real problem is. And if it goes to a lawsuit, they'd be happy to have the same rights. This gives them those rights in advance. So it helps to get everything out on the table. Now, if you're condominium, they may, some of the issues may be inside individuals' apartment. Condominium is required to arrange the association required to arrange for the contractor or the developer, however, to go into each unit where we would have a right to do an inspection. And the process isn't over until you see every unit that he would reasonably have a right to inspect. So the association gets a reasonable amount of time to arrange for the initial inspections. So you can see that this could take a long time because they arrange for inspections. And they do some physical, oh, this shows a different kind of problem. We now have to go back and do some more. This can take a while. At the same time, also by the way, let's say the condominium is doing more testing. Yeah, from the point you send the notice of claim, you've got to allow the contractor in to look at any other testing you do. Lab tests, onsite tests, whatever. So at this point, everything's open, you're looking at everything. So finally, at the end of this process, the contractor now has 14 days. He's back to the start of the issue, which is at that point, this is the notice of claim and then, and then he gets to do all the inspections, all the inspections. So he finishes all that. Now, at that point, he has 14 days to once again, either reject it, accept it or make an offer. Basically, that's his chance to respond. By the way, he's probably not doing this alone, because the law also suggests that the contractor should, as a developer, he'll contact the contractor, the general contractor, the general contractor will contact all the subs, and basically he has to go to each one of them and say, we have a problem, he has to send them by certified mail again or personal service, whatever it is he got from the condo. And so that the typical condo defect case, I've been involved in them, architect comes in, makes a report about the thick. And this is a problem, this is a problem, problem with the building envelope, problem with the plumbing problem with this problem with that, we have to send that to each one of the subs who might have been involved in that particular problem. They have a right also to be part of the testing and see what's going on and to do their inspection. Probably they'll do the inspection at the same time as the general contractor. So that process goes forward as well. And again, at the end of it, the contractor and the different subs also can all say, this is the deal we want to make. Now what happens at that point? Then the association can either accept it or reject it. Now, or they can make a counteroffer, obviously, at any point during this, you can always make over a settlement of some kind. This is one of those cases where let's say one party that says, I'll sell. The condominium says, I'll take X dollars, the contractors, I'll pay X dollars, but they can't come to an agreement. If they make the offer under the law and the thing goes all the way through to a hearing and a trial, then if you don't do as well as you would have done if you've taken the settlement, you're liable for the other side's costs from the point forward where they made it. There are other similar ways to do it in other cases, but basically, if you're the condominium and you say, we'll take 100,000 dollars and the contractor says, no, we're going to trial and they get a order of 125,000 dollars, they can also say, okay, fine, now you have to pay all my costs. And I incurred going forward on this. So it's something to be careful about. It's also a tool you can use if you're the condominium to try to settle the case. It's a bit of a hammer. So there you stand with the, at this point, let's say they can't come to a deal. Can you go to court then? No. Well, this is a good time to take a break and why don't you hold that and we will answer your question when we get back from our break. So we're going to take a one minute break now. Aloha. I'm Keisha King, host of At the Crossroads where we have conversations that are real and relevant. We have spoken with community leaders from right here locally in Hawaii and all around the world. Won't you join us on thinktecawaii.com or on YouTube on the Think Tech Hawaii channel. Our conversations are real, relevant, and lots of fun. I'll see you at the Crossroads. Aloha. Hi, I'm Rusty Komori, host of Beyond the Lines. I was the head coach for the Punahou Boys varsity tennis team for 22 years and we're fortunate to win 22 consecutive state championship. This show is based on my book which is also titled Beyond the Lines and it's about leadership, creating a superior culture of excellence, achieving and sustaining success, and finding greatness. If you're a student, parent, sports or business person and want to improve your life and the lives of people around you, tune in and join me on Mondays at 11 a.m. as we go beyond the lines on thinktecawaii. Aloha. Okay, welcome back. This is Kondo Insider. My name is Jane Sugimura. I'm your host today and my guest today is Kat Baderman and he's an attorney who specializes in construction defect litigation and during the break we were talking and Scott used to serve as a board president of his association. I bought into 909 Capulani when it first opened. I was on the first board and I was the second president after the developer had sold enough units that I couldn't stay on the board anymore and we had construction defect litigation. I went through that process and I want to talk a little bit about that as we go forward in this. There's one other thing I wanted to mention by the way which is that sometimes you don't find all the problems in a building at once and the question is let's say you set your notice of claim letter and the process has started then then you find something else wrong. What happens? You have to send a new notice of claim letter to cover the new defect you found, tend it the same way as the other one and you're back at the process again. What the law says is that if you find a new defect and you don't go through the process again you can't include that defect in any lawsuit you may file. So you have to go through it. That's one thing I wanted to mention. Another thing I wanted to mention is that this applies the idea that you can't file a lawsuit. You also cannot file an arbitration. The law says that if again you file a lawsuit or you file a dispute resolution before you go through this process the court or the arbitrator is required to dismiss the proceeding without prejudice until you finish the process. Now we're in this What happens when you if the parties can't settle the monks themselves? What is fairly common? The law requires you to go to mediation. I want to talk a little bit about that for a while. Yeah we want to tell I mean so where do they I mean who who does the mediation and they just open up you know just go on the internet and figure you know find a company that does mediation or how do you find a mediator? Well normally your lawyer should know who the good mediators are in town there are a number of companies and a number of individuals who do mediation and any lawyer who practices in construction or who practices in any sort of dispute area will have gone through mediation and will know the mediators. There's a local company that the American Arbitration Association has a roster of mediators dispute prevention and resolution which is a local company has a roster of mediators. My firm does mediation I know other firms that do mediation. If you have a lawyer who's in this and who doesn't know the name of the mediators who are out there who are good at this particular area you should think twice about who it is you've hired because if you're a construct if you're representing a kind of medium or you're in the construction area and you don't know who the mediators in town are there's a problem there. Yeah because the thing is mediation has been extremely hard pushed in the last few years. They passed a court rule that allows courts to send cases to mediation even when it's normally mediation has to be an agreement in advance. I agree to mediate. Now what this act says is whether there's agreement or not you have to mediate and they go a little bit further. They say that they define mediation as having a third party who comes in and tries to bring the parties together. There was a case recently where a developer tried to avoid the contractor or a parent arguing well we sat down and talked with them. That's as good as mediation and the federal judge said no it's not. Mediation says you bring somebody in to help you mediate. So what happens with mediation? With mediation you basically hire somebody who understands construction understands the insurance companies that are involved in this because the insurance company will probably for the contractor or the developer will probably send a representative to the mediation because that's where the money is and the both parties basically provide a written brief to the mediator stating their case. They'll have experts involved. They'll give their extra reports to the mediator and the mediator if he's a good mediator before anything else happens he'll talk to each side you know on the phone before the mediator trying to get more information that he needs. Then comes the big day everybody goes down to the mediator's office or one of the attorney's office. What will happen is we'll sit in a room together you on one side the other side on the other side sometimes there may be three or four different sides you may have a developer a contractor subcontractors they may be aligned in interest they may be opposing each other and how many sides is this how many rooms you're going to need to divide everybody up at the end. The mediator will start off by telling you what mediation is how you don't have to settle the case if you don't want to and that it's your last chance to have control over the process before you give it to an arbitrator or a judge or a judge or a jury and so then what it'll do is we'll sit down with each side and with each side he'll tell them you know this is you this is where I see the problems in your case this is where I see the problems in your case this is what you'll have questions it'll take them back and forth the parties will not be sitting in the same room together because that just leads to people pointing fingers at each other and accusing the mediator basically he's Henry Kissinger going between the Israelis and the Palestinians trying to you know make peace amongst them and he'll go back and forth and at some point during the process they'll start throwing numbers around and that's how we'll go now some one of the things that's good about both mediation and to some extent arbitration is the use of experts I want to talk about this just for a minute in court if you have experts here's how it goes each does a report then you take a deposition of their expert they take the addition deposition of your expert then you go to trial their expert testifies you cross examine them the other guys expert test your expert testifies they cross examine them and it it's a long drawn-out process and very often it just leaves everybody confused with mediation particularly with a mediator or an arbitrator who knows the parties in this town knows the experts and again Honolulu is not a large community and most of the experts know each other most of the construction attorneys and the mediators know the experts and what they'll do is they'll put the experts together sometimes they'll put them together in a room by themselves talks about where they're coming from and see where they can actually reach common ground and then sometimes they'll put them together with the mediator or the arbitrator and one will make his point and the other expert will then question the expert on the other side and this is very efficient because the experts understand and speak the same language it takes less time it crystallizes the issues it saves money and it helps very often to bring the parties together and to limit the issues so but you said the experts are there and and sometimes the mediator or the arbitrator is there are the parties also oh yeah they're also in the room too okay here's how we're going in that case the one expert will make his will make his statement the other expert will question him about it try to poke holes in it then the mediator or the lawyers may ask some questions but the thing of it is in order to question the other guy's expert you have to have your expert educate you and you go back and forth and you're still not going to know it as well you're not an architect i'm a lawyer i deal with attorneys i deal with architects and engineers and i understand what they're doing but not as well as they understand what they're doing so they can get to the heart of it a lot quicker than i can and also it gets rid of some some of the you know atmospherics and the gamesmanship have them go after each other and then have the mediator or the arbitrator be able to ask them in the presence of the other the questions that he has and it all gets done at once it gets done in in a compact form it ends up saving a lot of time and it's something that you can do that really can you know cut the cost of it down and so what is that called i mean is that called mediation or what do you call that process with the with the experts it's called an experts round table oh that's what we call it it's you're doing an expert round table either within the mediation within the arbitration i've done it several times and it works i've done it in cases where the experts got together and by the time they got done their points of difference after they had basically gone after each other and pointed out you know where one was strong one was weak were narrowed to only a few areas it streamlined the case i've also done in cases where you know they've been in the room and the arbitrator's been able to ask them both questions at the same time and have them go back and forth and it is a much more efficient and educational way of doing things than the other more formal court-oriented way of doing it and here's something else to consider in this whole process mediation works the vast majority of cases do settle mainly because it's so expensive to to mitigate it exactly and there's very there's very little certainty involved in litigation exactly and the thing about mediation is it settles at an earlier stage the other thing is with the mediated what you're getting and what you're paying for in part we're paying for somebody who hopefully has two different sets of skills one is the skill of bringing people together and that's a separate skill of getting people to settle cases and there are some guys who are very good at that the other skill you're also getting is somebody who knows instruction litigation and defect litigation and who can look at your case and say i understand what you're saying here this part's nonsense you know condominiums now for disputes between board members and they pay for a free form of mediation that provides an analysis value of mediation value of mediation well in construction litigation you can also get that to a certain degree and and a good meter will tell you to some degree you know if the parties aren't coming together quickly enough he can he can go back and forth and tell them okay in my experience this part's going to work this part isn't and another an important thing is as an attorney or as a party you suddenly get tunnel vision about your case and sometimes it's good to have a neutral party who doesn't really have a dog in the fight you know give you a reality check on where you're weak and where you're strong and to help the parties come together so that's a very useful aspect of it so i'm very strongly favorite now if you get all the way through mediation and you still haven't settled the case well finally now you're back in court and you're about to spend a lot of money yes and litigation is incredibly expensive because what you're gonna end up doing again is taking depositions you know be looking construction litigation used to be expensive because of all the documents now it's 10 times as expensive this are 10 times as many documents because now you've got email and so fine during the course of this construction project each side set the other side about 10 000 emails in total and someone's got to be paid to read them all go through the construction litigation has gotten more and more expensive just because all the litigation has just because word processors and email have vastly increased the bulk of documentation so it becomes much more expensive incredibly more expensive and that's why i support the county's repair act forcing the parties into mediation was in mediation you're more you're probably going to settle the case anyway better settle at the front end before you spent two hundred thousand dollars and at the back end right and especially too if you're on a board and you have to spend and you end up spending two hundred thousand in litigation you got a bunch of homeowners who probably very angry at you i've been to those kind of meetings right and then so both as the attorney and as a court member and so you know you that that's another that's another reason why you associations would probably want to uh you know resolve these things quickly and and try to make the best deal they can and and and have to be done with it you know we're running out of time right now and thank you scott for being with us and and informing us about uh the contractor's repair act and what you have what it all entails because it looks like it's very complicated and so for our listening audience i mean the the lesson here is if you have a construction defect you got to get yourself a construction defect attorney and uh to guide you through the process because it's not doesn't sound very simple and and this is our last show of the year so for our listening audience and for those people who who are regular viewers of condo insider we want to wish you a happy and safe holiday and please join us next year for more episodes of condo insider uh merry christmas merry karikimaka and happy hanukkah yeah and thank you for joining us