 This is Think Tech Hawaii. Community matters here. Good afternoon and welcome to another edition of Kondo Insider. Hawaii's show about association living, whether you're a board member or an owner or just an interested person, we hope you find a lot of value in watching our educational series about how to make your experience living in an association worthwhile, positive and create value for your association. I do want to remind everybody that this Saturday, September 16th, from 9 to 12, the mayor is sponsoring, or I should say council members Ozawa, Kobayashi and Fukunaga are sponsoring a special seminar on fire safety issues as a result of the recent fire at the Marco Polo. They're going to be a vibrant discussion regarding the risks, the potential costs, what the issues are and looking for a lot of public input, so if you feel compelled, please join us on September 16th at 9 a.m. You can find the address on the website and also if you're interested, you can feel free to call our hotline 808-374-2014 if you have any questions, but you know, we've had a lot of construction in Kakaako and you know, there's been a lot of construction for decades here in Hawaii and often we hear about construction defect litigation. In fact, I've had several phone calls recently from attorneys talking about new issues with regarding the construction litigation and some of the things that are kind of surfacing and so I thought it might be helpful to bring in a real expert on this, a good friend of mine, Francis Lynch from Lynch Hopper. Welcome to the show. Hey, Richard, how are you? Good. Why don't you tell us what about it? I know you're a lawyer, which means you're driving to drink the best. It's a short drive though, you know, so tell me a little about yourself and where you live and your firm. Way too many lawyers. My name is Francis Lynch. I'm an attorney. I've been an attorney for, seems like forever, over 25 years. We have an office in Las Vegas. We have an office in Oahu probably the last six or seven years and we just open up an office in Maui where I live, which makes the commute so much easier for me. Our firm is primarily, I've got two partners and our firm is small, but we've dedicated ourselves to consumer protection issues. We've represented clients on Kauai against GMOs for pesticide intrusion. We've represented AOAOs and homeowners living next to golf courses where builders have taken their rights away. We represented lots of homeowners in Eva, Eva Basin against a builder who promised to build a marina in Dind. So we do these kinds of litigation, like to call ourselves resolution experts, construction resolution as opposed to litigators, although we litigate if we have to, but it is in everybody's best interest to try to solve problems as opposed to have to go to court and get somebody else on a jury to solve them for you. We all know there's laws, I mean federal laws, state laws, laws related to construction. Believe it or not, my wife has her own set of laws. The penalties for violating those are much greater than you'll find from any judge in the state of Hawaii, but you may have experienced that. There's no death penalty from the judges. So anyway, I'm not so sure that torture is even greater than the death penalty. But anyway, kind of refresh your memory with the construction laws as far as the defect side of a guard, as far as the statute of limitations, what that is, and kind of how that starts out. In Hawaii, essentially there's two statutory schemes that construction defect, construction resolution, construction issues fall under. One is 672, it's the right to repair. You give the contractor the ability to come out and fix things. We all know about that law. Another one is 657, which talks about the statutes of limitation for all sorts of claims, not just construction issues. Here in Hawaii, the statute of limitations is quick. It's only two years after a homeowner or an association knows or should know essentially about what a problem is. That's fast. In many other states that we've practiced in before, it's a lot longer than that. We can get into that a little bit later. There's a statute of repose in Hawaii, which no matter when you find out what the problem is, it's 10 years, when you find the problem, it doesn't matter. 10 years from the substantial completion of the project is when a homeowner is foreclosed from bringing any action at all. For construction defects today, if in fact you discover the problem, you have two years to do something, otherwise you'll be barred from pursuing the claim because you had knowledge and you did nothing about it. Or at 10 years, whether you found out or didn't find out, you're just done because of the fact the statute of repose means that, I don't know why attorneys have always, why don't they say ending date or something that all the common people know. They have an entire semester to talk about the difference between limitation and repose. Super complicated. Don't give me a quiz on that. I will flunk. But the reality is, so basically it seems like at the time of the essence thing for our board, I mean if you're a newly elected board of directors and an association and you start to experience problems, it's a serious saying that they should take a look at this. You should. And there's different points of opportunity to take a look at things. You know, the first thing I tell my clients, even before their clients, they'll call me and say, you know, we think we have some of these issues. Help us walk us through it a little bit. Even before they hire us. The first thing I tell everybody is just take a deep breath. When you're on a board, you have a ton of homeowners there and they're your best resource. Sometimes they'll complain to you. They'll do incident reports, write them down, talk to the property manager, get all your information together, and then hound the builder. You know, most places, the first couple of years that you move into a place has a warranty from the builder, so hound them, find them, tell them what's wrong with it, force them to come back. Sometimes they're willing, sometimes they're not. Always, however, no matter what you do, keep in mind that there is a statute of limitations. Not to be a conspiracy theorist. But, you know, when associations are born, you know, the developer turns them over to a board. Oftentimes that developer controls the board in the interim to the rest of the units are sold. Forgive me for being a non-lawyer and saying there might be a conflict of interest there. But the reality seems to me, how does that fit into the equation? You have a developer dominated board, or maybe he's not even a developer himself. It's people who work for them or whatever. How does that fit into the equation of the statute of limitations? Well, it fits in poorly. It happens, and it happens often. I mean, we'll talk about it later. If I, once again, if I was king of the world, I can tell you what I would do to change some of the statutes. But one of the things that has always been a pet peeve of mine is you've got this quick statute of limitation, right? But in the meantime, you're still three years away from transitioning from the builder to the homeowner control. So then what do you do? The builder isn't going to point out these problems that he's created to the board. We have a case going on right now out in Maui. It's close to the statute when we first got involved. The statute repos what makes it serious. But the builder has a representative, and it has. It still does for years on there. And every time the board tried to say, we need to fix this. We need to take care of this. We need to call this builder. He'd obfuscate for your layman. It means he'd confuse things. He was never helpful. He's still not helpful. We really have a resolution amongst those board members that when we talked about the litigation, that he wasn't going to be involved in any of this. So it is a problem. It's a big problem. And in our opinion, if you've got a builder representative or the builder, you haven't even transitioned out, the statute of limitation should not even begin running. Couldn't you make the argument that you put them on notice since he's the builder's representative, even always sitting on the board when you discussed all these things? You can. You absolutely can. And we do. And we have. But once again, you know, when you're in front of a judge who looks at the statute and sees that, okay, these folks had roof leaks, you know, and then you didn't even send that notice to contractor that letter under 672 until three years later, potentially running into a statute issue. And so it's our job to convince the judge, well, we wanted to, but we couldn't. And probably the best thing is for the board to take action earlier and void all the argument in the first place. They're going to spend legal fees to argue this statute of limitations issue that were, if they had taken necessary action earlier, they could have avoided that particular argument or that particular challenge in this particular suit. Well, I mean, it's a fine line. I mean, we are homeowners, you know, for fortune. I've lived in AOAO's associations. I mean, I've been doing this a long time. I have never had a homeowner call me after they first found out about a roof leak or their plumbing broke or they got cracks. The last person in the world they want to call is a lawyer, and I don't want them to call me. I want them to call the contractor. I want them to call their cousin who used to be a plumber. Try to get it fixed. Do everything you can before you find a lawyer. In the meantime, you've got this quick statute, which therein lies the problem. Well, you may not know this, but I have special powers. And so I'm going to anoint you, the king of the world. And how do you tell me what's wrong with the statute and what should be fixed? If you said if you were king of the world, you'd make changes. So I'm going to temporarily anoint you, king of the world. We'll deal with North Korea and the rest of things shortly, but right now let's deal with construction defect litigation. Small problems first. Well, the statute of limitations, like I said, is quick. And there are so many different kinds of construction problems that associations and homeowners experience that you just can't put them all under one bundle of two years or you're out. There's patent construction defects, stuff that you can see, cracks, leaks. There's latent construction defects. Many of my firms spent the last 15 years going over the country arguing plumbing cases. The plumbing didn't break in the walls until years after a local statute ran. But unless you're Superman, you can see through the wall, you wouldn't know that it's broken. It's got a small leak in there, but it's causing havoc, right? So I would change that. I would move the statute of limitations, pick a number. I would change it maybe six years for patent and eight years for latent. And that doesn't even... Then there's some builders who've done all this on purpose, you know, to save money and nefariously, right? I would give it ten years. You know, you find that out during litigation. It should be longer than that. It should be way longer than two years. So that's one thing. Mediation, we talked about a minute ago. I love mediations. That's part of the statute here. You send a notice to contractor, get him a chance to come back and fix. He does or he doesn't. Then before you can file your litigation, before you file your complaint, you have to mediate, which is a great idea. Does it work? At that stage, most of the time it doesn't. The mediations... Well, the statute is stacked up against homeowners from beginning to end, including mediation. Everybody wants to mediate. Nobody wants to litigate. I get all that. I don't want to. But the statutes are stacked up against homeowners because what they have to do is to get to a mediation, got to hire a bunch of experts, find out what's wrong, cost tons of money, hire an attorney who nobody wants to see. Our firm works on a contingency. Most firms don't. So you have to pay attorneys. That takes months to do all that, the investigation. You go to the mediation, and then you sit down with the builder who doesn't even have to bring his insurance carrier, who is driving the bus and all this stuff, at the mediation, and very seldom, almost never, do things get solved at that first mediation. Well, share with me, or I understand, but for our viewing audience, the difference between contingency, what I'm going to call a fee-based type program, and after we want to do that in about a minute, because we're going to take a short break, so give me a brief answer on that. Contingency is what our firm has always done, ever since I've been a lawyer, a baby lawyer. We work for an association or a homeowner or a group of neighbors, and we only charge them a percentage, a fee, at the conclusion of the case, if you're successful. If you're not successful, then they don't have to pay us anything. Fee-based is fee-based. Most lawyers work by the hour. Early on, I worked for an insurance defense firm, had to charge hourly, and I hated that, so I promised myself I would never do that again the rest of my life. So we charge a percentage, and hopefully at the end of the case, it works out. We can come back to that, I have a question on that, but we're going to take a short break, but since you asked me, you said pick a number for the statute of limitations. Hey, I'm a homeowner guy. I'm voting for 100 years, so that's where I'm at. Anyway, we're going to take a short break with Francis Lynch of Lynch Hopper on construction litigation issues, and we'll be right back in one minute. Aloha. So caught up in the confusion Nothing is making sense These solutions How to make a party Get to check me out right here, The Prince of Investings. I'm your host, Prince Dykes. Each and every Tuesdays at 11 a.m. Hawaii time, I'm going to be right here. Stop by here from some of the best investment minds across the globe, and real estate, finances, stocks, hedge funds, managers, all that great stuff. Thank you. Welcome back to Kondo Insider. We're having an exhilarating conversation with Francis Lynch, who's an attorney, you know, one thing I love attorney, they drive me to drink. Short drive, but they drive me to drink. But the reality of it is we're talking about very serious issues because we have so much new construction here in Hawaii, and I use Kaka Ako as an example, but it's really widespread throughout the island, and he was explaining to us that if you have a legitimate claim against a contractor or developer with respect to a property, the importance of doing that, but we were talking about how expensive it is, and you were commenting that you can go on fee pay where you pay the lawyer by the hour, basically, and you have firms like yourselves that may do it on a contingency basis where you pay at the end, and it's kind of based on success in a way. Well, how about the cost and expenses in between, you know, the contingency you'd have to pay for experts like me who's very expensive to... Senior bills, they are expensive. Costs are exorbitant. And we're only half an hour show, but that's another pet peeve of mine. That's why the deck is so stacked up against homeowners and associations because the costs to pursue even to the first level of mediation are exorbitant. In our experience, I mean, it ranges all of our lives. I've spent two, three, four million dollars in four years of litigation on cases, $50,000 just to get to the first mediation, right? Our firm pays for all that up front for the homeowner, but nonetheless, it's expensive. You know, it comes off the back end, but homeowners don't have that kind of money. Now, you were talking about it can be very expensive for experts and things like that, but you're correct me that you said that my fees are extremely reasonable for the incredible value of the services I provide. Is that what I heard you say? That's exactly what you said. I thought so. Maybe I missed that. The power of TV. The power of TV, but anyway, I'm only joking because I don't do that much expert work on construction litigation and stuff. I do mostly reserve studies and other conduit issues. That being said, you're the board. You suspect you've got problems. What do you have to do and walk me through? I may have some questions on the way. If you have to get into the Sumi mode, kind of the steps. Sure. First of all, as an association, if you've got complaints or you see problems, roof leaks, water leaks, whatever they may be, first thing you do is, like we talked about before, just take a deep breath, get organized as a group. Find out what the problems are. As association board members, you hear everything every week, every complaint known to man, every week, right? It's important that if you go forward with litigation or even mediation or do it on your own, it's important to narrow down the issues. Only go after the big issues, roof leaks, plumbing issues. I mean, I've got 100 stories. We've had multi-million dollar cases in our career, but in one case, for instance, one board member was so enthralled about having her grills painted because she was convinced that the builder didn't paint the grills the right color. And so she wanted that as part of the litigation. First. And of course, that's not that important in the scheme of things. So as a board, proactive, once you get to the point that it's, you've talked to the builder, he's not doing anything, he's shining you on, he's still on the board, he's got a representative there, you've made the tough, tough decision to find a lawyer. Once you've done that, then the real fun starts. Isn't there another issue as an example? Of course, I know nothing about anything. But you have an association, they have some cracking. And so the contractor comes on and says, oh, I'll clock that and cover it up for you. But then the board, and they sometimes are asked to sign some kind of settlement agreement or some kind of agreement that they accept that as a fix. That's right. And they don't look to see if maybe that's a structural crack that's going to come back again. Cosmetically they could have covered it up for the short term. I do hidden issues like that they have to consider really careful of that because once they sign agreements and kind of go through this statutory issue of limitations they could leave themselves very exposed if they didn't do their due diligence. That's right. And seeing that too if I had a nickel for every pound of caulk that contractors come out to fix cracks, I'd almost be as rich as you. That's what they do. They come out and they band aid. And they come out and force you to sign and they're not going to band aid it unless you absolve me of all problems, right? That is a red flag. First of all, don't sign anything if that were to be the case. But at the end of the day what not only is there expertise a lawyer can bring towards this process but the experts that you've hired are vitally important. But if I understand in your firm what they do and we were talking earlier off camera before today was that the boards who think they have problems they can call your firm and you'll get an expert and you'll come evaluate it for them so you can really narrow the box. So they know whether by having an independent expert they pretty much have done their business judgment requirement as a board, right? That's right. And in the meantime it's not somebody else saying I don't want to spend the money. Your firm will actually do some forensic work for them when there's issues are defined to help them through that process. We do and there's two points that are real important. Number one you've been given a warranty and so we recommend that evaluation prior to the expiration of the warranty period. Number one. Number two, prior to the expiration of the transition period we think it's important to bring out our experts. We do it for free to give an evaluation not only to see if there's systemic problems that are behind walls or you may not know about but it helps with your reserve analysis as well. You know what in 10 or 15 years made and up by breaking down the road. This product here is good now but we know that history tells us we know that product but in 15 years that's going to break. So you need to put more money into reserves just for that product because we've seen it and so it's important to do that kind of evaluation at least at those two places. So now you're a board and they've hired a firm to come out either an expert or an engineer or a law firm and they have problems. Kind of walk me through the very simple basic steps what happens forward. Real quickly, here in Hawaii as in many states there's a notice to contractor you have the experts put an evaluation together you send a letter to the contractor give him an opportunity to come back and fix things. They may come back and fix some things like in one case we're doing now but they haven't fixed the major things which unfortunately is typical. And then at that point when everything is not fixed to your satisfaction then you enter into the mediation and we've talked a lot about that go there in good faith if the mediation is unsuccessful then you can sue here in Hawaii under the statute. Once you sue things happen pretty rapidly you've already prepared your expert report essentially you serve the complaint you know what the problems are you start gathering all the documents we had five million documents gathered in a case that we worked on for five years that's important obviously. Once you got the documents that gives you some more questions to inquire about depositions begin you've been through that process that's super fun to go through I'm sure you know that after the depositions you get a trial date and then just because you start your litigation process doesn't mean that mediation stop homeowners associations think that. The mediation is required by statute prior to litigation but once you start the litigation that's when the real mediations the successful mediations occur My experience is that preliminary litigation mandated by statutes before any discoveries been done and any real works been done so it's very hard to resolve until you get into the seriousness of having a lawsuit filed and you look for more will it be mediation or arbitration more formal ways to to deal with this I know there's no standardization not one size fits all but if you had a suit and you started that process from beginning to end are you talking about six months a year or two years? What time? I wish I had a good answer that's the first question everybody asks me sometimes very often they last maybe four or five years very often and does it cost more than $20 to do this? It does unfortunately it does cost more than $20 it's expensive it's uncomfortable I'm one of the few lawyers out there that probably convinces more clients not to go forward with the process then go forward but once you've in a board or homeowners made that decision from your builder unfortunately there is that process that we can help them with We have one minute left believe it and all those have been very fun What's your one piece of advice to the board if they suspect they have problems? Maybe you're going to ask that question so I do have some recommendations number one use common sense get all your ducks in a row number two more importantly is preserve the statute get that notice to contract your letter going okay that's that'll toll the statute that'll begin the process and then if you decide to go forward call us we do the evaluation for you well thank you for being on the show today this has been very interesting and like I said there's a lot of new construction here in Hawaii and boards I can tell you from experience as an association manager for years sometimes in order to save money or they don't want to create bad feelings they kind of push this down kick this can down the road and I would just advise them that the most important thing you can do for the homeowners that protect the value of their property we just suspect you have a problem use your good business judgment and check it out and find out what the facts are now that note Aloha for watching we'll see you next week actually Scott Shirley is talking about hoarding so come back and learn all about hoarders and what you can do as a board or an owner to make your place more pleasant to live Aloha