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CULTIVATING A Construction Defect Niche

David M. Peters has created a name for himself by successfully pursuing Chinese Pipe Construction Defect Cases.

Successful construction defect litigation is not an accident. It is about precision, skill and a willingness to devote the necessary time and resources to the case,” says David M. Peters, founding partner of Peters & Freedman, L.L.P. This is evidenced by the November 8, 2013 court-approved $21,500,000.00 partial settlement in Acqua Vista Homeowners Association v. K. Hovnanian at Acqua Vista, LLC, et al, case No. 37-2009-00104348, wherein he served as lead attorney for Acqua Vista.

Through this case and other similar litigation, Peters has come to be regarded as a true virtuoso when it comes to San Diego construction defect cases involving Chinese pipe. According to Peters, poorly made cast iron waste and storm pipe imported from China represented the majority of the damages in the $21,500,000.00 dollar partial settlement. “Acqua Vista has an
estimated 50,000 lineal feet of cast iron pipe, so the case is still ongoing against the pipe suppliers,” he explains.
For Peters, who graduated from Pepperdine University before earning his Masters of Business Administration at UC Riverside and consequently his J.D. from Hastings School of Law, the decision to enter the highly specialized field of construction defect cases was born of a determination to carve a niche in the highly competitive field of law. Indeed, Peters saw the opportunity to distinguish himself by becoming the area’s leading expert in Chinese pipe disputes, and delved into the field with gusto.
“Over the last several decades, China had become a significant supplier of less expensive building supplies,” Peters recalls. “However, I learned quickly that less expensive did not necessarily translate into savings in the long run. During the building boom from 2000-2008, most of the cast iron pipe in San Diego’s mid-rise and high-rise buildings was imported from China. Cast iron pipe is supposed to remove sewer and storm water from buildings, which is why it is primarily seen in the garage of a building. However, when that pipe is defective, it corrodes, and the smell emitted from leaking cast iron sewer pipe is absolutely unbearable,” he says. Even worse, Peters explains, “replacing defective pipe in a mid- or highrise development is nothing short of a herculean task, not to mention extraordinarily expensive.”

Proving The Value of Precision

It is precisely that cost that has driven so many firms to aggressively market to building owners, according to Peters. Yet, many of the firms simply do not have the skill set required to
achieve sufficient recovery that Peters is determined to recover for his clients. “As attorneys, we have an obligation to put forth our full effort to fighting a case, whether it is profitable or not. Lawyers have been disbarred for taking on case after case and settling them for cents on the dollar, and never stepping foot in a courtroom,” Peters says.
“I’ve been representing associations for more than 26 years, and I have seen far too many building owners settle for an insufficient recovery by what I call ‘blow and go’ attorneys.
Chinese pipe defect cases require highly specialized skills in order to ensure that the building owners are fairly compensated.

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When attorneys take on these cases without the proper resolve, the result is that they often place building owners at even greater risk.”
By contrast, Peters explains that his professional career has been in the field of construction defect litigation, and as such, he has served the building industry in multiple advisory roles. He served on the California Department of Real Estate Subdivision Advisory Committee Litigation Task Force. He is also a member of the Community Associations Institute where he served as a past Director and Committee Chairman. “Unfortunately, I’ve seen more and more firms implementing the ‘blow and go’ marketing strategy for profit in these types of cases. They are almost always handled on a contingency fee basis, where the attorney advances the expert fees and costs and thereafter controls the process. In order to sign up more clients, the ‘blow and go’ firms offer to charge less than other firms. Instead of charging, for example, 28% of the gross, they will offer to provide the contingency at 27% or less. What they fail to mention is the ‘less’ means ‘less’ for the client.”
“For example, take a moderate sized construction defect case that is worth $6.6 million. A skilled attorney will do whatever is necessary to recover the full amount, and the association will receive more than $4 million, after expert and attorney fees. When these ‘blow and go’ firms offer to charge less, that means they are going to charge less to the responsible party, so they will often settle a case like this for $2.5 million. Sure, they may take 1% less than another firm, but the net result to the association winds up being roughly $1.3 million. It’s unfortunate because the attorneys’ fees are nearly identical, but the association loses out,” Peters explains.

Setting Standards of Excellence in Skills 

According to Peters, the second way he’s been able to earn his reputation as the “bulldog” of Chinese pipe construction defect cases lies in his ability to manage the experts involved in a case.
“Managing the experts is absolutely a skill,” he says. “It requires the recognition that no attorney knows as much as the experts know. It also requires an understanding that there are only a few true experts for each discipline in the industry. Naturally, the true experts are extraordinarily busy. Out of necessity and especially early on in the case, these experts send subordinates who do not have near the expertise and insight as the retained person who will ultimately testify. But we have found a way to manage this,” says Peters.
“The solution for Peters & Freedman, L.L.P. is to engage a building engineer as a consultant at the sole expense of Peters & Freedman, L.L.P. By retaining a qualified building engineer
who has built high rises and routinely works with sophisticated mechanical systems to assist with the early identification and elimination of legitimate defects, the process is dramatically
streamlined and becomes accurate early on,” Peters explains.
Continuing, he adds, “When I first starting working in Chinese pipe construction defect cases, I expected backlash from the experts. I incorrectly thought that these experts loved
the scenario in which they were set loose with no direction and could bill what they wanted. I was so wrong. What I learned is that the experts were effectively being compelled to
do the attorney’s work and proceed with no direction. This process resulted in huge invoices which the client did not want to pay and also served to diminish the quality of the experts’ performance.

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As one expert I worked with early on put it, ‘you are not a construction expert and I am not an attorney. I do not want to do your job because that creates a parade of horribles and ends up making me look bad,’” Peters recalls. What is clear to Peters is that the economic reality facing expert firms is that “they sometimes have no choice but to send out their “C” team with little direction. They know that their “C” team will catch only that which is obvious. They also know that when an attorney is not on top of their game, about halfway into the case, the plaintiff’s experts will eventually learn most of what is going on from the defense experts whose job it is to refute the plaintiff’s experts’ findings. This typically happens at one of the first few mediations. The experts then end up redoing, duplicating, revising and sometimes blatantly contradicting the opinions and cost estimates of their own “C” team,” he says. Moreover, according to Peters, “multiple experts have confided that if the plaintiff’s attorney spent the time to know the project and learn what the problems were before sending them out with no direction, the outcome for the clients would be significantly better.”
Peters has also learned over his tenure in working with experts that another area wherein attorneys fail to properly manage them occurs when the attorney refuses to let the experts investigate all issues thoroughly. “Incredible as it may seem, an attorney who wants the case settled often does not want to be burdened with knowing that there are more defects.
Such knowledge makes the case much longer and requires that attorney to spend 10 to 20 times the amount of time. The experts then find themselves writing CYAs back to the attorney
advising that they were thwarted from doing a complete investigation. The crazy thing is that this correspondence is discoverable to the defense who is then able to deduce that the
plaintiff’s attorney can be compelled to settle very cheap. This is just wrong,” Peters says.

Devotion of Time & Resources

For Peters & Freedman, L.L.P., neither time nor resources are spared in an effort to obtain maximum recovery for its association clients. “Blow and go firms are easy to spot,” says Peters. “Find out how many cases a law firm is handling. If the firm has 10 attorneys yet has offices all over California, Nevada and/or Arizona with 80 ongoing cases, this is a big red flag,” he  says.
“Under that paradigm, assuming each attorney in a 10 attorney law firm works 50 hours a week or 2500 hours a year, this leaves a total possible amount of that firm’s attorney hours
over that two year period of 50,000 attorney hours. Dividing 50,000 hours by 80 cases provides a maximum of 625 attorney hours that can be devoted to each case during any 2 year period.
That is scary math! Most committed attorneys will spend 10 to 20 times the amount of attorney hours on a case to obtain the kind of recovery for the association that it deserves,” he adds. Similarly, Peters cautions against associations retaining attorneys promising quick settlements. “A common marketing gimmick for the ‘blow and go’ law firm is to promise to resolve the case faster than other firms. This is an error and a trap. If an association is going to embark on construction defect litigation, the association should be prepared to do it right or not do it at all. For example, the Acqua Vista case took over 3 years and resulted in a far better recovery for the client. When all is said and done, it may be the largest construction defect case in San Diego’s history,” he adds.

11“Attorneys need to spend as much time on a case as it takes. It could take 2 years or it could take 4 years. The reality is that until there is the pressure of trial, most cases can only settle for a small fraction of what they are worth. In the Acqua Vista case, there were opportunities to settle the case for approximately $5,000,000.00 much earlier. But we kept pursuing the maximum recovery because our client deserved it.”
For Peters, part of doing what is in the best interest of his clients occasionally means informing clients that he will not devote time and resources to cases that will not pan out favorably for the client; hence, he will not take the case. “While some associations and commercial buildings will and should eventually be in construction defect litigation, many should not. Construction defect litigation should not be automatic and is not inevitable. The problem is that ‘blow and go’ mass marketing attorneys rush to pursue construction defect cases, regardless of whether or not it is in the client’s best interest. The most common argument is that there may be a statute of limitations issue. Of course, there are some shorter statutes of limitations, but the truth is that often the defects which are subject to this shortened statute of limitations are small and inconsequential,” Peters says.
In other instances, construction defect cases are not warranted because there simply is not enough information available at a given time. “Bringing a lawsuit too soon is very risky. For example, consider that there has been almost no rain in the last two years. It would be better to see how the roof, windows, foundations, and storm pipes perform after some weather. Actual leaks are a lot more persuasive than an expert claiming that any particular component will leak,” Peters says with a chuckle.
As for the future of Peters & Freedman, L.L.P., Peters is adamant that his firm will stay the course in providing skill, precision and devotion to clients. “We are here as specialists, and we devote everything we have to every single case. We will never be in a position to try to represent 70-140 cases at the same time. It is unethical and unfair to our clients. Plus, I would rather be a chef who serves fine steaks and wine to a few, than to be known for ‘Billions & Billions served.’”

 

Karen Gorden

Karen Gorden is a Staff Writer for Attorney Journal.

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About the Author: Karen Gorden is a Staff Writer for Attorney Journal.

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