Preserving the Balance of Power

By Bob Ewegen
Denver Post

The nuclear bomb is an invaluable deterrent that does horrific damage if it actually must be used. To lawyers - ethical lawyers, anyway - punitive damages serve the same purpose in law that the bomb serves in diplomacy: a threat that forces negotiations to resolve differences peacefully.

Scott Sullan is just such an ethical lawyer . His specialty has been representing homeowners in suits against homebuilders to repair damages caused by expansive soils – a frequent problem in some of our newer suburbs.

Sullan stopped in last week to discuss a recent Post editorial endorsing SB 143, a bill that would remove the current automatic triple damages that can be awarded in such suits. Instead of such windfalls, The Post opined, homeowners should be assured recovery of their actual damages and reasonable attorneys fees. But we argued that automatically tripling such awards could put builders who only made an honest mistake out of business – and thus needlessly drive up the cost of new housing. Instead, we supported the procedure outlined in SB 143 that would award punitive damages only if the homebuilder could have been shown to have acted fraudulently or in bad faith.

In theory, such punitive damages can quadruple the award of actual damages. But to get such high punitive damages, plaintiffs must prove beyond reasonable doubt that the defendants “engaged in willful and wanton conduct” - a very high standard for a civil case.

Somewhat to my surprise, Sullan said he agreed with The Post’s premise that homeowners should receive only reimbursement for their actual costs, including reasonable legal fees and the costs of any expert witnesses they had to hire. Indeed he has actually told clients who wanted to go for the gold and seek triple damages after being offered a reasonable settlement to cool their ardor and take what is just rather than enter what amounts to a judicial lottery.

Still, Sullan argued persuasively that the shift to the more difficult punitive damage standard might tip the balance of power too far toward homebuilders in the out-of-court negotiations that settle most lawsuits.

Simply put, if I’m a homebuilder who knows the worst that can happen in trial is that I have to pay your damages and expenses, why should I agree to give you that much in negotiations when I might escape liability entirely in trial? That’s like a bet where: “heads I win, tails you tie.”

Sullan has been able to win fair settlements for his clients by out-of-court negations in the vast majority of cases. But the threat of triple damages in trial has always been his nuclear bomb – the incentive needed to get homebuilders to offer a fair settlement out of court.

Sullan conceded that the current automatic triple damage threat is more than he needs to win a fair settlement. But he does need some stick to get recalcitrant homebuilders to settle. And while the punitive damages allowed by SB 154 would in theory give him such a stick, Sullan thinks the legal standard would be too high for most plaintiffs to meet in practice.

In contrast, Sullan presented language drafted by Garth Lucero in the Colorado Attorney General’s office that would limit the triple damages only to case of “knowing, intentional or willful conduct.”

That’s a standard higher than the current automatic tripling but lower that the “willful and wanton” standard that would have to be met for punitive damages if SB 154 passes in its current form. Again, Sullan said it might be enough to merely double damages in such cases. But he wants some leverage.

The point is to get as many cases as possible out of court and into settlements where homeowners get what they deserve but only what they deserve – allowing honest homebuilders to survive honest mistakes while ensuring that the handful of crooks are driven out of business.

I find this a fascinating debate, in part because the Senate sponsor, Ed Perlmutter, is one of the state’s most thoughtful and constructive legislators. I also found Sullan to be one of those truly ethical and fair-minded attorneys who bring honor to an often maligned profession.

I hope the Legislature can listen to Perlmutter and Sullan and strike a balance that is fair to homebuilder and homeowner alike.