Tidal Wave

The sheer number of competing claims, parties, insurance issues and theories of liability geometrically increased the complexity of settling a case involving some 5,000 homeowners.

BY LEONARD NOVARRO

With only three other cases on the court's calendar, Paul R. Kiesel expected to find a seat when he arrived 10 minutes before his case was called. But every seat was taken.

It was an auspicious start to a year and a half of complex litigation involving 2,500 homeowners in 14 separate actions suing seven developers over poor plumbing. Kiesel, founding partner of Beverly Hills' Kiesel, Boucher & Larson and the lead plaintiffs' counsel on the matter, tucked himself into a corner and waited.

"It was standing room only," Kiesel says. When the clerk called his case, which eventually became In Re Galvanized Steel Pipe Litigation, BC174649 (L.A. Super. Ct., settlement June 29, 2001), almost the entire courtroom rose as 42 defense attorneys took their places.

At one point, a status conference moved to the 17th floor conference room of Los Angeles Superior Court's Central Civil West division to accommodate the 164 lawyers.

The matter was further complicated because the cases were in four courts. And while one judge certified class action to expedite matters, the rest didn't.

First filed in 1997, the cases were already dragging on in the minds of some homeowners, who wanted to settle.

At the same time, with potentially millions of dollars at stake, dozens of defendants, most of them subcontractors, hundreds of insurance companies and more than 100 attorneys didn't know quite what they wanted.

Kiesel came up with the common denominator that bound all parties and moved the matter to settlement - plumbing.

"There were 10 different actions," Los Angeles Superior Court Judge Peter Lichtman, who presided over the combined cases, says.

"One of the homeowner suits against the developers had a whole set of issues and defects that didn't even involve plumbing," Lichtman says. "What [Kiesel] did was to coordinate and consolidate the plumbing issues of all those actions and make them a global action - a phenomenal feat.

"I've never seen that done in any other case."

To further settlement efforts, Lichtman appointed construction-defect mediator Ross Hart to help out.  

Hart set up a seven-step process to facilitate resolution. He required participants to agree on the cost of repairs. Parties also had to develop criteria to determine who would qualify for compensation and in what amount.

At the same time, the galvanized steel pipe litigation was the first significant test of the court's complex litigation pilot program. The new procedures were initiated in April 2000.

"The special complex panel of seven judges in the Los Angeles Superior Court was a perfect vehicle for bringing the claims together," Hart says. The parties, with Hart's assistance, achieved global settlement in one year. On June 29, the developers agreed to $41 million, shared among 2,500 affected single family residences.

"The amount of the settlement will provide almost all the homeowners with a sufficient amount of money to replumb their homes," Hart says. "This was a truly complex matter that resulted in a most successful outcome."

The mammoth complexity and nuances of the galvanized steel plumbing cases were evident in the initial suit, filed in Los Angeles Superior Court's Central District in 1997.

Ronald Hartmann of Los Angeles' Quisenberry & Kabateck handled a significant number of these matters from early in the litigation process.

"[We] pieced together a random series of plumbing problems to discover a pattern of consumer abuse," Brian S. Kabateck, also a partner with Quisenberry & Kabateck, says. "This case sends a message to the construction industry to think twice before cutting corners just to save a buck."

Homeowners in four communities, mostly in the Santa Clarita Valley, sued several developers over construction defects, including galvanized pipes manufactured in Korea and installed in their homes.

"These cases were uniquely structured on a community-by-community basis, certified as class actions, coordinated into one large action and settled in a manner that allowed the efficient resolution of thousands of repeating claims," Kabateck says.

Newport Beach's Feinberg, Grant, Kaneda & Litt filed the original lawsuit on behalf of four groups of homeowners. In 1999, the plaintiffs contacted Kiesel.

"The first thing we tried to do was consolidate all the cases before one court. But the administration department, which makes that decision, wouldn't do it," Kiesel says.

Kiesel won certification as a construction defect class action from one judge presiding over one of the actions. This allowed Kiesel to proceed with a case involving 650 homes in the Northbridge section of Santa Clarita.

However, this sort of efficiency did not reach every corner of the judicial system. Four days later, another judge heard another suit involving a group of homeowners in Mountain View, five miles from the Northbridge homes.

The judge on the Mountain View matter faxed his reply to Kiesel's motion to certify a class action: "Denied."

"That meant that 750 homes would not be able to pursue a remedy unless they individually retained a lawyer. The developer's biggest argument was that no one in the community was interested in the problem," Kiesel says. "To me, that was laying down the gauntlet."

Eight weeks later, Kiesel filed an action listing more than 1,000 plaintiffs individually.

The following year, the complex litigation program debuted. Kiesel saw the new process as an opportunity to convince all the attorneys in all the cases to agree to class certification on all of the homes. And ultimately, he succeeded.

"This was the single greatest watershed event," Kiesel says. "It allowed one judge to survey the entire landscape and coordinate an approach to help us resolve these cases."

Lichtman was now the linchpin.

The court system assigned Lichtman six more condominium complex cases. These communities had sued the same developers as the other homeowners.

In May 2000, Lichtman allowed Kiesel to solicit the other plaintiffs' lawyers in all of the consolidated matters to try to get their permission to sever the cases limited to one issue - defective steel pipes.

At a later, standing-room-only trial conference, Lichtman consolidated Kiesel's four galvanized steel cases with four similar cases. He ordered all the plumbing issues to be addressed, and turned the matter over to Hart to mediate.

"That's where the seeds of the idea that created the momentum for resolution came together," Kiesel says. "We knew that what everyone wanted was to get full and complete closure of this problem in one environment."

Hartmann agrees.

"We were able to bring together more than 5,000 homes and condominiums, spread across several separate lawsuits, involving more than 40 law firms and dozens of insurance companies. We established a multitiered mediation protocol among the plaintiffs and the developer defendants on one level, and the developers and all other parties on other levels," Hartmann says. "At the same time, ongoing mediation resolved insurance issues."

Kiesel followed up with a meeting of defense attorneys and insurance company representatives. He outlined the problem on a CD-ROM he created. He presented interviews of plaintiffs and experts and photos of damage caused by plumbing leaks.

"The idea was to present to 150 people that they should stop fighting us on class certification ... so they could pay funds to one account and walk away from the liability," Kiesel says. "I wanted those people to leave the room and go back to their supervisors and say, `We got a serious problem here' and present them with the CD that laid out the problem."

That was the beginning of four months of meetings that developed the framework for the eventual settlement.

While these theories were sound, the challenge was how to manage the settlement and litigation processes for the group.

Kiesel faced the daunting task of keeping everyone informed of developments. He quickly learned that paper was not the way to do it.

"Like a snow storm off the Great Lakes, the paper began falling heavier and heavier," he says, as correspondence began among the principals. "Our associate counsel had only sued the developers; the developers, in turn, cross-complained against the subcontractors and each one was cross-complaining against the next. By the end of the month, we had two litigation boxes of material and my paralegal could barely keep up with the indexing."

Hartmann echoes the sentiment.

"This was a tidal wave of litigation," Hartmann says. "The sheer number of competing claims, parties, insurance issues and theories of liability geometrically increased the complexity." Kiesel contacted the lead defense counsel, Mark Juhas of Los Angeles' Harrington Foxx Dubrow & Canter and Richard E. Buck of Costa Mesa's Cooksey Howard Martin & Toolen, and the trio agreed to e-mail contact. Several weeks later, they completed an amendment to the case management order in which all parties, except two firms, agreed to the procedure.

Lichtman suggested using a service called ICRS.com, now called Casehomepage.com.

This service offers daily postings on its Web site of all procedures, including depositions, discovery and responses. The company daily files documents such as motions, court rulings and recommendations in Internet-accessible folders. The site also includes a bulletin board for messages to the court and the judge's responses.

Meanwhile, Hart was crafting the formula for settlement. The final resolution called for a consensus on the cost to replumb the homes, which homes qualified for participation, how a settlement fund would be set up and for what amount, and how the fund would actually be distributed, among other things.

"Overall, it was the right thing to do," Buck says. "Ross Hart deserves accolades for putting this together. This was a wicked case from a number of complexities. He deserves high praise for keeping us active and involved. Most of the time we were certain this was due for failure."

But Hart was able to get the parties together.

"[The settlement] saved everyone millions of dollars in costs and fees and allowed an excellent recovery," Hart says. Most importantly, according to Kiesel, it moved class-action tort litigation into the 21st century.