Burg Simpson Construction Defect Team Secures $19 Million Arbitration Award

Arbitration included rented hotel space and findings include ‘shell’ LLCs owned by defendant

Burg Simpson secured a $19 million-plus award in arbitration for a residential community alleging construction defects and deficiencies by a builder. 

Burg Simpson attorneys represented homeowners in an Aurora townhome community who saw a range of defects in their homes, such as leaks, foundation movement, structural framing problems, drainage problems, fire code issues and others. In the arbitration lasting more than 17 days, the arbitrator reached an award believed to be the largest award of its kind in the state.

Residents of a 17-building, 82-unit residential area in Aurora built by Century Communities, Inc., filed a lawsuit against the multi-state publicly traded home building company and the related corporate entities that acted as developer, builder and general contractors for the project.

According to Burg Simpson partner Mari Perczak, a mix of young families, single parents and retirees live in the community, and none of the owners had their own means to correct their concerns. The townhomes were built on a site “over-excavated” due to concerns about swelling soils, she said. The community’s homeowners’ association alleged that individual units and common elements suffered multiple construction deficiencies and defects, according to the release.

“They thought they were buying a new home that met the minimum requirements, and that’s not what they got,” she said.

Homeowners alleged the soil engineer had recommended removing large quantities of soil under the foundation, compacting the soil and then putting it back. That was done some time before the start of the project, and some of that work had started to dry and lose effectiveness.

Perczak said soil engineers can suggest using a technique called over-excavation when dealing with swelling soil. In this process, the soil is removed, treated with water causing it to swell, and it is then replaced to make it able to hold a foundation, she said. 

However, disturbing soil to the depth suggested, often 10 feet below the foundation, subjects the soil to settlement. If the soil is not compacted 100% correctly, over time, when water hits the disturbed soil, settlement begins. That can cause significant distress beyond the tolerances of the foundation.

Both sides’ engineers noted that many items in the case did not meet the plans for the project or local code, Perczak said.

Many different issues came forward ranging from leaks to foundation movement, structural framing problems, draining and drainage problems, fire code issues and others. Many aspects were highly technical and on an over-excavated site, which Perczak believed to be the cause of the homes’ foundations to begin moving.

“I think that this [case] was especially complex just because of the breadth of the issues,” Perczak said, adding that many of the foundation claims were disputed, she said. The repairs for the homes were expensive, and the buildings aren’t old, making it easier to argue that in the long term the homes would be alright.

The Aurora homeowners made attempts to work things out with the developer prior to Burg Simpson’s involvement, Perczak said. Most homeowners or communities don’t want to deal with litigation, they just want their homes fixed. As a result, she said lawyers are not contacted until the builder has failed to respond, there have been promises with no follow-through or have done “Band-Aids” to fix the problem.

Such was the case with the Aurora community, she said. Many problems appeared during the warranty period, and small repairs were made, but no serious efforts to correct these problems were made. 

Some of the issues that came up for Century were due to subcontractors not following plans approved by the city, Perczak said. The architectural plans were detailed and called for waterproofing that would have prevented issues if they had been followed.

But the construction was moving quickly for completion with lack of supervision of the subcontractors, Perczak said. Some of Century’s management testified that their primary responsibility was scheduling and to finish the project on time, not building homes right.

The arbitration itself focused on demonstrating Century was the responsible party. Typically, defects cases are dealt with after the construction is finished. During construction and during the selling of the property, the units are controlled by the developer, and this was the case here, Perczak said. Century controlled the board throughout the construction and throughout the first sale period. Usually, control is not turned over to homeowners until 75% of the property is sold.

A recurring theme in these construction cases is the use of “shell LLCs” to act as the declarant and developer who sells, Perczak said. Then, the company owns a unit in that shell LLC name temporarily, and then sells it.

 By the time the community is sold, and homeowners control the board, the shell LLC is dissolved or has no assets.

She said Century used this process and claimed it did not sell the property and was not the developer or the general contractor and shouldn’t be held responsible. As such, Perczak said her team was left arguing about those issues and finding out who employed the decision-makers, who paid for the permits — which were all Century, she said. 

Burg Simpson shareholder Diana Sada checked the general contractor license to see who held it, Perczak said, and saw the license was really held by Century Communities, Inc. — not the shell entity that it said it was.

At that point, the arbitrator saw that Century Communities were the declarant, developer and builder and the arbitrator found that the entities, including the parent company, all acted together in concerted action, and found the company liable, Perczak said. This made a big difference in allowing the community to collect the amounts needed for repair, Perczak said.

The homeowners were awarded a secured total of $19.48 million, however, an increased final award is possible, as a hearing on attorney’s fees and costs is scheduled for December, according to the release. “We think this is the largest [arbitration award] so far, in either a verdict or an award, in residential construction in the state of Colorado,” Perczak said.

The arbitrator, of Heiserman Resolution Trust Company, said the closing issues should focus on soil issues on the foundation, she said. “Clearly, because in his mind, that was the hardest for him to decide.” The vast majority of time in arbitration was spent on this aspect, a challenge to prove. 

The arbitration itself took place over three weeks, and Perczak mentioned a large room at a hotel was rented to allow main players in the case to gather safely in the same location. Other members joined via Zoom.

In addition to Perczak, the Burg Simpson team included shareholders Mike Menghini and Sada, trial lawyers Ryan Pardue and Joe Smith. 

Fox Rothschild, opposing counsel, said they could not comment on pending litigation.

“We’re pleased about the outcome we obtained for our client,” Perczak said. “I know the clients are very happy, they’re ready to get going with repairs and excited they can get started on those next construction season.”

— Avery Martinez

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