ZM Corporation dba QwikResponse (Santa Barbara) v. Simi Valley Le Parc Homeowners Association (Simi Valley)
Published: Nov. 7, 1998 | Result Date: Jul. 10, 1998 | Filing Date: Jan. 1, 1900 |Case number: 72Y11043095 Arbitration – $6,636,190
Arbitrator
Court
American Arbitration Association
Attorneys
Claimant
Respondent
Experts
Claimant
Kenneth Walheim
(technical)
Respondent
Donald W. Pyne
(technical)
Roger Schlonsky
(technical)
Robert D. Johnson
(technical)
Facts
In June 1994, plaintiff ZM Corp., a disaster reconstruction contractor, bid and received a $6 million plus, attorney-negotiated contract to reconstruct defendant Le Parc's 264 unit condominium complex which was damaged in the January 1994 Northridge earthquake. Farmers Insurance provided the funds to the homeowners unders its $20 million earthquake policy subject to a $1 million deductible. The contract bound ZM to complete the scope of work for the amount authorized by Farmers Insurance, plus the deductible. Le Parc did not disclose that a construction defect suit was pending. ZM was delayed in beginning reconstruction because of forensic testing related to the defect suit. In January 1995, respondent elected a new board and, at the urging of Le Parc's separately hired construction manager, the new board began to impose additional conditions upon ZM and withheld progress payments due. The claimant claimed that the exterior work was postponed by Le Parc in an effort to combine the earthquake funds with the anticipated defect recovery, re-bid the job and pocket the difference. The result was that the winter rains produced massive leaks throughout the complex because of unrepaired roofs, forcing the contractor to do emergency repairs and re-do finished units, delaying the work even further. Le Parc also failed to completely raise the deductible assessments on each unit, thereby forcing ZM to "snake" through the complex rather than working building-by-building as contemplated. Le Parc then barred ZM from loss adjusting walk-throughs with Farmers, demanded that ZM now obtain three new bids from subcontractors on scopes of work with the Farmers's pricing blanked out and demanded upgrades beyond the Farmers scope. The claimant claimed that Le Parc refused to honor a large change order although Farmers had approved it and had paid Le Parc, and that the change order was held hostage for a deletion of the exterior work previously authorized, although work had begun under that change order's scope. Le Parc then demanded an audit and accounting from ZM on the original downpayment although there was no contractual provision for an audit or accounting. Nevertheless, ZM did provide an explanation of the ramp-up, mobilization and delay costs on the project and agreed to back out the downpayment on future progress payments. This was rejected by Le Parc. Le Parc then withheld progress payments until ZM was forced to close down the job site. The claimant also claimed that after ZM left the job site, Le Parc and its agents falsely accused ZM of diverting funds from the project (a crime), of using unlicensed subcontractors, of defective workmanship on already approved units and of using substandard materials. ZM was also falsely accused of creating defects which were actually problems with the original construction of the complex. ZM then triggered the arbitration clause to bring its claims against Le Parc. The claimant brought this action against the respondent based on breach of contract, defamation, trade disparagement and intentional interference with prospective business economic advantage. Le Parc brought a counterclaim for the costs of finishing the work ZM started and for unpaid subcontractors.
Settlement Discussions
The claimant made a settlement demand for $6 million. The respondent made no offer.
Damages
The claimant asked the arbitrator to award $6.6 million.
Other Information
The verdict was reached approximately three years and three months after the case was filed. There were 84 arbitration hearing days over two years. A mediation was held in December 1997 before Lynn Mitanyahu resulting in no settlement. After commencement of the arbitration, it was stayed so that a court trial could be held before Judge John Hunter of the Ventura Superior Court, on the issue of the legality of the contract due to claimed defects in ZM's license. ZM prevailed, the matter was ordered back to arbitration, and Le Parc unsuccessfully appealed. The California Supreme Court denied review. ZM was awarded attorney fees for the trial and appeal. 28 micro-cassette recordings of board meetings were heard during the arbitration and 10 video tapes were seen which revealed Le Parc's motives and were evidence of the defamation. The arbitration consumed over 84 hearing days over two years, with hearings held in Los Angeles, Simi Valley and Arizona. Over 40 witnesses were examined. At the hearing, a witness from Farmers Insurance claimed that Farmers had lost its files concerning Le Parc. Le Parc filed for Chapter 11 reorganization and the arbitration was completed under relief from the automatic stay. Le Parc sued its counsel, who negotiated the original contract, for malpractice and settled the case for $400,000, as disclosed in the bankruptcy court. Le Parc's request to vacate the award on various grounds was denied on Aug. 11, 1998, and the petition to confirm the award was granted. A creditor's plan is being asserted to assess the individual homeowners above available insurance proceeds for the tort recovery. Two other actions by ZM are pending against the individual Le Parc board members and against Le Parc's construction manager.
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