The Committee on Judiciary was called to order at 8:18 a.m., on Thursday, May 13, 1999. Chairman Bernie Anderson presided in Room 3138 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All Exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Mr. Bernie Anderson, Chairman

Mr. Mark Manendo, Vice Chairman

Ms. Sharron Angle

Ms. Barbara Buckley

Mr. John Carpenter

Mr. Jerry Claborn

Mr. Tom Collins

Mr. Don Gustavson

Mrs. Ellen Koivisto

Ms. Sheila Leslie

Ms. Kathy McClain

Ms. Genie Ohrenschall

COMMITTEE MEMBERS ABSENT:

Mr. Greg Brower (Excused)

Mr. Dennis Nolan (Excused)

STAFF MEMBERS PRESENT:

OTHERS PRESENT:

Roll was called and a quorum was present. Chairman Anderson noted the committee would be addressing any proposed amendments to Senate Bill 32, commenting section 5 of the bill was focused on at the last hearing.

Chairman Anderson called a few people up to the witness table. Robert Lyle, representing the Nevada Trial Lawyer’s Association, came forward and explained his principle area of expertise was in construction defect and environmental law. James Jackson introduced himself. He would participate in the discussion on behalf of the plumbers and mechanical contractor’s network. Jim Wadhams representing the Southern Nevada Homebuilder’s and Paul Jorgeson, representing the Nevada Chapter of Associated General Contractors (AGC), also came forward.

Mr. Wadhams explained the Southern Nevada Homebuilders had raised the issue as well as homeowners and trial lawyers. He noted a compilation of amendments had been passed out to the members of the committee, all of which had been discussed and agreed upon by the interested parties, specifically those who accompanied him at the witness table. The amendments were attached as Exhibit C.

Assemblyman Carpenter questioned who was responsible for the inspection of the homes in a large development. Mr. Wadhams replied the responsibility of the construction rests ultimately with the contractor who built the house. That was a matter of contract between the homebuilder and the person who bought the house. He pointed out the issue of the local building departments was separate from the homebuilder’s responsibility to comply with the contract specifications. Mr. Wadhams remarked that was the issue of S.B. 32 addressed.

Mr. Carpenter opined the responsibility of inspecting those homes should be changed. He said in many cases the people buying the homes did not know who the contractor was. He hoped that on a large project, "the contractors would have somebody making sure that it was done right."

Irene Porter, Executive Director of the Southern Nevada Homebuilders Association, explained to Mr. Carpenter that large projects, mentioning Lewis Homes by name, had superintendents on the projects that oversaw the construction. Quite often they also had an assistant superintendent or a production assistant to help with expediting the project. They also had walkthrough people who handled the final quality inspection as well as inspectors who were responsible for the walkthroughs with the owners of the home. Those people were specially trained and were there to oversee on behalf of the contractor the construction. She also told the committee the Clark County Building Department had testified that they do 27 separate inspections on a home.

Chairman Anderson stated he was aware of two additional amendments that were not on the Exhibit C. Mr. Wadhams replied he was correct. They were both amendments to section 5 and he would review them during his presentation.

The committee expressed their interest in specifically reviewing any amendments to section 5, believing the proposed amendments to other sections of the bill were straightforward.

Chairman Anderson asked if the interested parties had reached an agreement in regard to the language to amend section 5 and if it satisfied the concerns of all the parties sitting at the witness table. Mr. Wadhams said he was satisfied with the modifications.

Based on a meeting that was held yesterday, Mr. Jorgeson told the committee the AGC was able to agree on an amendment of section 5 which would allow the AGC to support the bill. The proposed amendment to section 5 was attached as Exhibit D. He explained the AGC’s concern with section 5, as it was written, was it would interfere with existing legal rights and obligations between the contractors as well as subcontractors and the developers. The proposed language would clarify that a party other than the original claimant who had existing legal rights and obligations with regard to the master developer could make a claim against those existing rights and obligations. He further clarified it might potentially be that the master developer might end up in the original construction defect action based on those claims by the contractor or subcontractor on their existing rights against the master developer.

Chairman Anderson commented that was consistent with what was heard by the committee at the initial and subsequent hearings.

Mr. Jackson, Mr. Lyle and Mr. Wadhams all expressed support of Exhibit D.

Mr. Lyle drew the committee’s attention to page 5, line 15 of the first reprint of the bill. He pointed out another amendment would be to delete the words "or acts as a broker". He explained the reason was because there was an implication with those words present that an independent licensed real estate broker who was not involved in the construction otherwise, might be involved in the process. Mr. Lyle stated the deletion was agreed upon by the Nevada Association of Realtors. He mentioned the word "sells" was still there so direct sales would still involve the master developer.

Pat Coward, Legislative Representative for the Nevada Association of Realtors, confirmed the association concurred with that deletion.

Chairman Anderson asked if a realtor had an exclusive opportunity to sell, for example Lewis Homes, would they be included. Mr. Coward replied if they were the selling the property after it construction was done, they would be excluded. They would not be part of the development itself, but they had contracted to sell the property as a broker.

Assemblywoman Angle stated she was most concerned about the homeowners. She offered a scenario whereby there were five homeowners that had a grievance. She questioned how many suits would they have to file. She noted it they were able to sue one suit against the developer and then he sued the people he felt were at fault, that would be easy and less expensive for the homeowner.

Mr. Lyle emphasized the homeowner could bring one action against the homebuilder/developer. S.B. 32 streamlined the process from what currently existed in Chapter 40 of the Nevada Revised Statutes. Currently, the insurance carriers were not coming in expeditiously and the process was taking 6 to 12 months longer than it should. Under S.B. 32, the contractor could bring those people, who he felt to be at fault, in immediately. The bill would allow everybody to get involved and identified at an earlier stage at less cost to the homeowner.

Chairman Anderson posed another scenario in which a person bought a brand new home and everything was fine except the toilet leaked. The homeowner called the developer who contacted the subcontractor but the problem still exists four months later. He asked how S.B. 32 would change that set of circumstances.

Mr. Lyle said there were provisions in the bill which would be helpful with that scenario. He stated at the original sale of the house, the homeowner would be given a copy of NRS Chapter 40 and therefore, would know exactly what his rights were. Under section 3, if the homeowner gave the developer written notice of the problem, the developer or homebuilder would be required to repair the problem within 45 days. He pointed out under existing law, if the toilet leak was creating a health issue, the homeowner could repair it himself and send the bill to the developer. If the flooring was damaged due to the leak of the toilet, the developer would be responsible for that as well. All the subcontractors would be "under his umbrella".

Assemblywoman Buckley reminded the committee at the last hearing the responsibilities of the master developer depending on his role in the construction of the homes was discussed. She noted the bill said "an action may not be commenced against a master developer to the extent that the appurtenance was constructed by a licensed contractor." She further noted it did not talk about master developer’s culpability. She would like to see an amendment which addressed that issue more closely.

Mr. Wadhams answered the homeowner had a direct contract with the homebuilder. Through the homebuilder, all subcontractors or parties believed to be responsible would be contacted including, if necessary, the master developer. The homeowner would only have to contact the homebuilder though.

Ms. Buckley more specifically questioned if the master developer had something to do with the defect, can the homeowner sue them directly in the beginning. "Do they have to rely on the person they had the contract with to bring them in even if they do something wrong?"

Mr. Lyle explained if the master developer was involved in the construction or the sale, section 5 would not apply and the homeowner could bring them into the suit immediately.

Responding to a request for where that was said in the bill, he replied the language addressing that issue was on page 5, subsection 3, line 10: "nothing in this section prohibits the commencement of an action".

Ms. Buckley emphasized she would like to see the bill clearly state, "You can not bring an action against the master developer early on under these circumstances but you can under these circumstances." She believed that was ambiguous.

Ms. Lang pointed out some confusion might exist because subsection 1 spoke about a defect in an appurtenance where as subsection 3 addressed a defect in the resident. She offered those were two different things. "The appurtenance is not the dwelling. It is the things that are pertinent to the dwelling like the sidewalks and things like that."

Mr. Lyle, Mr. Wadhams, Mr. Jorgeson, and Mr. Jackson all agreed with Ms. Lang’s explanation.

Ms. Buckley inquired where the term "appurtenance" was defined. She further inquired what would happen if the master developer had involvement with the defect in the appurtenance.

Mr. Wadhams answered the definition of "appurtenance" was contained in page 6, section 8.

Answering Ms. Buckley’s second inquiry, Mr. Lyle explained if the master developer was involved in the construction process of a defect in the home, then he would be included under S.B. 32. The newly proposed amendment to section 5 would address the situation if the master developer was not involved in the construction but did supply specifications or drawings. He further explained the homeowner would bring the initial action against the contractor. The contractor would then have the right to bring suit against the master developer.

Ms. Buckley questioned, "How is public policy served by not allowing a homeowner to bring in someone who is at fault and only letting the general or whoever else to bring them in?"

Mr. Wadhams responded public policy was served by the efficiency of the complaint against the party with whom the homeowner had a contract.

Mr. Carpenter expressed concern with the proposed amendment to section 5 (Exhibit D). He believed the previous discussion focused on the contractor and was concerned that if the contractor was "not a good guy", the homeowner "was being left out there on a limb."

Mr. Wadhams explained "In American law, you go after the person with whom you have a deal. If I buy a car and it doesn’t work, I don’t have to go figure out who built the starter. I sue General Motors or the dealership that sold me the car and it is up to them to find out who built the defective starter."

Ms. Buckley said that was true in contract law but in tort law there was no contract. In tort law, an individual sued the person who hurt him.

Mr. Wadhams pointed out the opinion given in a lawsuit, which was currently being reviewed, stated that the action was against the contractor and those contractual rights were the basis for recovery. Excluded from the law from 1995 to the present, were personal injury actions. They were not involved with the issue before the committee.

Ms. Ohrenschall believed back in the 1930’s, it was decided that privity of contract did not have to be proven in any tort action. She also opined "Obviously, we are impacting access to joint and several tort feasors. Are we in any way also impacting the effect of common law, joint and several liability for torts?"

Mr. Lyle disagreed with her first comment, noting privity did not have to be shown and in response to her question he replied, "You are not affecting joint and several." He explained in the beginning the homeowner was not going to know whom all the parties were. Under S.B. 32, the homeowner only had to sue the general contractor and then the rest of the parties would be brought into the suit if it was determined they were responsible. He reiterated that took the onus off the homeowner and his or her counsel. The homeowner could file suit against the master developer after the resources of the contractor were exhausted.

Ms. Ohrenschall asked what would happen if the contractor was bankrupt or his location was unknown.

Mr. Lyle said, "The homeowner does not have to wait. If it turns out that the contractor has left, is bankrupt, or insolvent, once that is readily apparent then the homeowner is allowed under this legislation to go directly back to the master developer." He noted if that information was not readily available, the homeowner would have to go through the process but he also noted under the Nevada Rules of Civil Procedure, a litigant could demand information regarding insurance at an early stage. If the contractor was found to be without insurance or had disappeared, the homeowner could sue the master developer. There would be no deferral of priority.

Chairman Anderson and Ms. Ohrenschall noted his explanation raised their comfort level.

Mr. Lyle remarked he had a comment to make on another amendment listed on Exhibit C, specifically the amendment to section 2.1(b), lines 2 through 5 where the words "valid and reliable" were going to be inserted before the word "representative". He clarified it was the understanding of the involved parties that the addition of those words did not mean a homeowner had to hire a statistician as an expert to participate in a complex case.

Commenting on a personal situation Ms. Angle had shared with the committee, Mr. Lyle pointed out section 3 which provided that a homeowner could demand the contractor to fix a defect within 45 days. If the problem was not remedied, there was a provision that allowed the contractor’s board to immediately discipline the contractor for failure to comply. He commented that provision was new law.

Chairman Anderson wanting to make certain all parties were comfortable with the bill and the amendments, asked if there was any additional information that needed to be presented to the committee.

Mr. Jackson, Mr. Jorgeson, Mr. Wadhams, and Mr. Lyle all agreed and were satisfied with the bill and proposed amendments (Exhibits C and D).

Chairman Anderson thanked the panel. He recognized a witness, Bob Cantor, who had expressed a problem with section 6. He asked him to come to the witness table.

Bob Cantor, a private citizen, commented most of the previous testimony focused on a responsible contractor. His experience had been if a person was dealing with a responsible contractor, generally there would not be a problem with lawsuits. He explained the reason he was testifying in opposition to section 6 was because it did not "do much for disclosure of defects. It instead addresses disclosure of events. The event particularly that you file under 40.600." He stated section 6 required disclosure to a prospective purchaser of a residence of any claim filed under existing law, NRS 40.600, and it required the attorney of the client to advise the client before filing of a claim of the requirement to make that disclosure. He did not believe it would a positive effect. Furthermore, he opined it established an undesirable stigma to use NRS 40.600 to get the defect fixed. Mr. Cantor believed NRS 40.600 to be good law and law he could understand. He believed the process was clearly laid out, it was good for both the homeowner and contractor, and established "a pretty level playing field."

Chairman Anderson asked Mr. Cantor if he had specific language in regard to his concerns about section 6 that he would propose to be added to the bill.

Mr. Cantor stated his recommendation would be to delete section 6. He explained, "Section 6 has nothing to do with defects. It has everything to do with reporting of an event." He further explained NRS 113 addressed the condition that must be reported at the time of sale. He said it was time dependent. If a defect occurred before that and was fixed, it would no longer be a defect to be reported under NRS 113. Under S.B. 32, section 6 required reporting of things that were trivial and inconsequential under NRS 113.

Chairman Anderson expressed concern with where the discussion was leading. He asked if Mr. Cantor saw any benefits to be gained by S.B. 32. Mr. Cantor hesitantly, said most of the changes made by the bill were based upon complex property. He disclosed he would "shoot the bill" before he approved of section 6.

Mr. Cantor pointed out NRS 40.600 included a definition of a construction defect. Quoting NRS 40.615, he noted it "spread a fairly wide net." It would cover dying landscaping, cracked tile, and foundation problems. NRS 113.100 through 113.150 also had a definition of a defect. Mr. Cantor said under that provision a dying rose bush or a cracked time would not be conditions that would require reporting but a lack of foundation would. He exclaimed if section 6 was to pass, it would require disclosure of conditions against the property not merited reportable by NRS 113. Under NRS 113, cracked tile, fixed or not, would not be required to be disclosed. Mr. Cantor described a couple different scenarios whereby disclosure of a defect was not necessary, noting a report was only necessary when a claim was made under NRS 40.600. He questioned "What is the purpose of section 6?" He opined it was not based upon the disclosure of defects because the same defect was reported or not based upon how it was cured. He exclaimed, "It must be the fact that a claim was filed under NRS 40.600. He was concerned that the only way a homeowner could bring suit in Nevada against the contractor was to go through NRS 40.600 and yet, the bill would make it more difficult for the homeowner to use that statute. Mr. Cantor concluded, "This whole thing was not the homeowner’s fault. It was the fault of the contractor and yet, the homeowner is being stigmatized by having to report this at the time of sale when it is not required under 113."

The Chair and Mr. Cantor discussed whether disclosure of a defect that the homeowner did not feel had been sufficiently repaired should be made when the homeowner sells the house. Chairman Anderson believed the responsibility was there to protect the next prospective buyer from buying a potentially defective home. Mr. Cantor offered the scenario of the toilet leaking causing the need for the floorboard to be repaired. He hypothesized he would make the contractor repair the damage and yet, he would not be satisfied with it. He stated he would not have to report. Section 6 would not apply because he did not file a claim. Mr. Cantor stated he believed it would be helpful to require reporting of all defects and the contractor should be responsible for reporting those defects. He also suggested having the contractor’s board codify that information and create a database which would allow for the public to see who the bad contractors were, how long it took to fix a defect, and whether a review of a contractor’s license was necessary because they were incompetent. He concluded that would be comprehensive compared to section 6 which was not.

Chairman Anderson recognized the validity of Mr. Cantor’s concerns in regard to section of the bill. He asked what the binding time requirement of section 6 was, if there was any.

Mr. Wadhams replied section 6 was an important piece of consumer disclosure so people understand what they were purchasing. He explained if the homebuyer identified a defect in the house and decided to buy it anyway, that should not be an issue for litigation. It would be the homebuyer’s choice but the disclosure would be necessary. Mr. Wadhams said he saw no distinction between the first homebuyer and the second homebuyer. Answering the Chair’s question, he replied there was a statute to repose in the statutes which provided for a 10-year time limit.

Chairman Anderson reiterated the concerns posed by Mr. Cantor. He explained the homeowner would be "victimized" twice because, his construction was defective and then again, because when he tried to sell the house he would have to disclose a defect which might have been satisfactorily repaired and he would have to prove that to the second purchaser.

Mr. Wadhams expressed strong disagreement with that statement, stating the homeowner did not get "victimized" twice. He stated he would be very unhappy if he were to find out about a potential defect that the homeowner maybe chose not to fix after he bought the house. S.B. 32 was an attempt to make sure people were provided with knowledge and information so they would be able to make informed decisions.

Chairman Anderson stated the homeowner would recognize that by calling the contractor to fix a defect, he would be placing the opportunity to sell the house at risk. He pondered if section 6 created a disincentive to file a legitimate claim.

Mr. Wadhams stated he was perplexed by the discussion. He said if he had a defect which he had repaired, he believed he should show that to the potential homebuyer. "It is a positive thing."

Mr. Lyle said Mr. Cantor’s comments were valid in terms of the examples he gave. He opined S.B. 32 dealt with the choice the homeowner had. If he received monies to fix something, he had a choice. He could fix it or not fix it. If he chose not to fix it, he then would have to make a disclosure to the new buyer.

Ms. Ohrenschall stated she saw the value of disclosure but understood Mr. Cantor’s comments.

Scott Rasmussen, representing the Plumbing and Mechanical Contractor’s Network, stated he had been closely monitoring all the construction defect bills during the session. He noted there were a number of subcontractors watching the meeting in Las Vegas because passage of the bill would personally affect them. He recognized the other parties involved with the outcome of the bill believing they had done "a diligent job of trying to bring a very balanced bill to the forefront that will provide as much protection as it does to every party and helps everyone out."

Chairman Anderson stated he would entertain a motion.

Mr. Carpenter told the committee he would vote for the bill but expressed hesitancy that it might not do everything he had been told it would do. He hoped the parties involved would work to make sure that everyone "keeps the faith".

Mr. Collins disclosed he was a licensed subcontractor and a member of the Southern Nevada Home Builders. He would be voting though because it would not affect him any differently than it would any other subcontractor.

Ms. Angle stated she was in agreement with Mr. Cantor and wanted section 6 deleted. She stated her intention to put forth a subsequent amendment to the bill but there was no second.

Chairman Anderson repeated the motion and clarified the amendments were to be those listed in Exhibit C, Exhibit D, and the removal of "acts as a broker" in section 5, subsection 4.

At 10:15 a.m., Chairman Anderson said the committee would stand in recess until 10:30 a.m.

At 10:30 a.m., the committee reconvened and Chairman Anderson adjourned the meeting.

RESPECTFULLY SUBMITTED:

Jennifer Carnahan,

Committee Secretary

APPROVED BY:

Assemblyman Bernie Anderson, Chairman

DATE: