Key Facts & Figures:

• • The mansion, originally listed for $45 million, was once touted as the most expensive home in San Francisco.
  • The developer, Troon Pacific, was allegedly trying to develop five luxury spec homes in SF simultaneously despite a track record of never having completed a project of that scale before.
  • In a separate action, an arbitrator found Troon and CEO Gregory Malin had embezzled $30 million in investor funds through their development scheme, diverting money into management fees rather than construction.
  • The Lombard property was reportedly plagued with emergencies, delays and crises throughout construction due to underfunding and the developer’s financial woes.
  • Malin/Troon are accused of using company funds interchangeably as if they were personal assets, decapitalizing project-specific LLCs, and rushing sales to cover mounting losses.
  • Unpaid subcontractors on the Lombard project allegedly sabotaged work in retaliation, stuffing trash bags into sewer lines and causing other intentional damage.

How It Affects You:

• • Even in a multi-million dollar home sale, developers may cut corners or conceal information to make a deal, leaving buyers holding the bag. Proper due diligence is critical.
  • If a seller is over-extended, underfunded, or facing legal threats, they may rush to unload a problem property before issues emerge. Beware of developers wrapping up long-delayed projects with sudden urgency.
  • Always look beyond the flashy finishes and dig deep into the bones of a home, especially if it has a history of construction crises. Retain your own inspection experts to assess the property stem to stern.
  • “Luxury” doesn’t necessarily equal quality. Do your homework on the developer’s litigation and complaint history, no matter how glowing their marketing may be.
  • If you discover major defects after purchasing a home, consult with an experienced real estate attorney to explore your options for holding the seller accountable, even if they tried to contractually avoid liability.

FAQs:

• • What drew the buyer to purchase 950 Lombard St? The estate was marketed as an ultra-luxury, high-tech property with designer finishes, stunning views, and over-the-top amenities. Malin promoted it as “as though it were our own dream home.”
  • When did 950 Lombard LLC discover the alleged defects? Not until 2-3 years after purchase, as the issues were latent defects hidden behind the walls, under the floors, etc. Discovery was prompted by a major flood event in 2023.
  • How did the buyer react to finding all these problems? 950 Lombard LLC promptly got experts out to investigate and document the issues, notified the developer of the claims, then filed suit when they failed to take responsibility.
  • Will the seller’s “as is” clause and liability waiver block the buyer’s claims? Not necessarily – such provisions can’t be used to shield a seller from accountability for intentionally concealing known defects.
  • Why is an alter ego claim being made against Troon and Malin individually? The plaintiff alleges they abused the corporate form, treated company and project funds as their own, and undercapitalized the LLC, so the veil should be pierced.

Key Facts & Figures:

• • In marketing materials, Malin proclaimed: “We designed 950 Lombard as though it were our own dream home” and touted “sought-after amenities and materials” and a “signature level of quality.”
  • In a 2019 interview, Malin said “One thing we don’t do is create false history for a home. We won’t add finishes or details simply for the sake of adding them. I’m committed to quality, efficiency, beauty and going that extra mile.”
  • Seller disclosures provided to the buyer indicated only a “few occasions where mistakes were made that resulted in some water leaking” by the plumbing subcontractor and claimed these were “deemed dry.”
  • In reality, the complaint alleges the plumbing sub made pervasive errors that caused substantial leaks and may have even sabotaged the project by intentionally stuffing trash bags into pipes.
  • The developer also claimed the home’s waterproofing had been inspected during construction and any issues were promptly corrected. But in fact, the waterproofing was “poor and substandard” per the complaint.

Why It Matters:

• • Sellers often make grand statements and provide rosy disclosures to paint their property in the best light, but buyers must be alert for red flags suggesting problems lurking beneath the surface.
  • Especially with renovated or new construction homes, it’s critical to look beyond the seller’s descriptions to uncover the true history and state of the property with your own expert inspections.
  • If disclosures hint at limited issues, press for more details – a few leaks can be a sign of major systemic plumbing problems. Get everything in writing and assume there may be more to the story.
  • No matter how comprehensive a disclosure appears or how adamant the seller is about the property’s quality, never take their word for it. Verify, verify, verify with your own due diligence.
  • If you discover evidence the seller lied to you or intentionally hid material information to get you to buy, consult an attorney, as you may have strong fraud claims even if the contract purports to limit liability.

FAQs:

• • What’s the difference between fraudulent inducement and breach of contract? Fraudulent inducement occurs when misrepresentations are made to persuade someone to enter a contract in the first place. Breach of contract relates to violations of the agreement itself.
  • How can you prove a seller knew about defects they failed to disclose? Emails, texts, or internal company documents may show the seller’s awareness. Depositions may also reveal who knew what when.
  • What if the seller claims the defects weren’t actually present at the time of sale? Expert witnesses can testify certain issues must have predated the sale based on their nature and extent. Subsequent repair records may also confirm this.
  • Can a corporation or LLC be liable for fraud or just individuals? Business entities can be held responsible for fraud too based on the collective knowledge and actions of their key personnel. Individuals can also be personally liable.
  • What’s the statute of limitations to sue for fraudulent inducement in a property sale? In California, it’s 3 years from discovery of the facts constituting the fraud, which can be longer than the closing date if the defects were latent.

Key Facts & Figures:

• • The purchase agreement required the seller to complete a Real Estate Transfer Disclosure Statement (TDS) and San Francisco Seller Disclosure, answering all questions about known property defects.
  • Seller also agreed to amend those disclosures prior to closing if it became aware of any inaccuracies or previously undisclosed material facts about the property condition.
  • The contract obligated the seller to deliver the property “free of debris and in broom clean condition,” but the sewer lines and drains were allegedly clogged with construction debris and trash at closing.
  • California law implies a warranty that new construction by a developer will be done in a reasonably workmanlike manner and the property will be fit for its intended purpose – here, as a habitable luxury residence.
  • Every contract carries with it an implied covenant of good faith and fair dealing, meaning the parties will not do anything to destroy or interfere with the other’s rights to receive the benefits of the agreement.

Why It Matters:

• • Real estate contracts impose mandatory disclosure obligations on sellers – closely review all disclosures provided and press for more details on any red flags before agreeing to buy.
  • Insist on contractual language requiring the seller to provide updated disclosures if new issues emerge prior to closing, so you’re not ambushed with nasty surprises later on.
  • Protect yourself by confirming via final walk-through that the property is being delivered in the condition promised, free of trash, debris, or shoddy attempts at concealing problems.
  • Even if a contract is silent, the law may imply certain warranties about the quality of new construction – research whether such implied warranties exist in your state.
  • If the seller hid known defects to induce the sale, that bad faith may override any as-is clause or liability waivers, as they can’t be used to shield fraud.

FAQs:

• • How can you prove the seller knew about defects they didn’t disclose? It may require subpoenaing internal company records, emails, reports, or deposing employees to show the seller’s knowledge.
  • What if the problems weren’t obvious during your final walk-through? That’s often the case with latent construction defects – document the issues thoroughly as soon as discovered to support your claims.
  • Do you have to prove the seller acted intentionally to violate the implied warranty? No, breaching this warranty turns on whether the construction was done in a reasonably workmanlike manner, regardless of intent.
  • What kinds of behaviors can constitute a breach of the implied covenant of good faith? Interfering with inspections, providing false info, concealing problems, or improperly terminating the contract, for example.
  • Can a buyer sue the seller’s contractors directly or only the seller? The buyer may have claims against the builders too if the buyer is an intended third-party beneficiary of their contract with the seller/developer.

Key Facts & Figures:

• • Developers and general contractors generally owe a duty of care to future homeowners to construct the property in a good and workmanlike manner per industry standards.
  • Subcontractors also owe a duty to perform their scope of work competently in a way that avoids creating a hazard to later owners/occupants.
  • The developer allegedly hired “unqualified, negligent subcontractors” to work on key systems like plumbing, then failed to adequately supervise them or correct defective work.
  • Multiple examples of shoddy workmanship were discovered after closing – leaking pipes, clogged drains, raw sewage dumping, defective waterproofing, etc.
  • The pool subcontractor allegedly failed to meet industry standards in designing and constructing the cantilevered pool and its associated waterproofing systems.

Why It Matters:

• • Even if you don’t have a contract with the builder or subs, they still owe duties to avoid causing you harm by performing negligently. Research the scope of these duties in your state.
  • When buying new or renovated construction, examine the developer or seller’s reputation for hiring skilled contractors and properly managing their work.
  • Bring in your own specialized experts to assess complex systems like plumbing, electrical, mechanical, etc. General inspectors may miss technical defects in these areas.
  • If you discover shoddy work after move-in, document it thoroughly with photos, videos, samples, and expert analyses to build a solid negligence case.
  • Don’t let builders off the hook just because you didn’t contract with them directly – most states allow claims by subsequent purchasers if negligence created a hazardous condition.

FAQs:

• • How do you prove the builder failed to meet the standard of care? Expert witnesses in the same field can testify what the standard is and how the builder’s work fell short. Industry codes/guidelines may also show standards.
  • What if the builder claims it’s not responsible for subcontractor negligence? Argue the developer was negligent in hiring that sub without vetting them and in failing to properly supervise or correct problems.
  • Do you need an expert for every defect or can some be obvious to a layperson? Experts are often key to proving breach of the standard of care, but jurors may be able to grasp negligence if defects are blatant or rampant.
  • What’s the statute of limitations for a negligent construction claim in California? Generally 3 years from discovery for patent (obvious) defects and 10 years from completion for latent defects, but many exceptions may apply.
  • How can you show problems were from builder negligence vs. normal wear & tear? An expert can assess if the nature and extent of issues exceed what’s expected for the property’s age/use and pinpoint workmanship failures.

Key Facts & Figures:

• • Some states like Colorado, for example, make developers/builders strictly liable for defects causing a lack of habitability, but that claim is not asserted in this California action.
  • Negligent misrepresentation is a form of “fraud lite” that doesn’t require intent to deceive – only that the defendant lacked a reasonable ground for believing its statements were true.
  • A fiduciary duty is a heightened responsibility to act with utmost good faith and loyalty to another party – it can arise from an agent/principal or trustee/beneficiary relationship, for instance.
  • California’s B&P Code 17200 broadly prohibits “unfair competition” in the form of any unlawful, unfair or fraudulent business act, beyond just anti-competitive conduct.
  • Unjust enrichment requires showing: (1) defendant received a benefit; (2) at plaintiff’s expense; and (3) under circumstances making it unjust for defendant to retain the benefit.

Why It Matters:

• • Research whether your state imposes any form of strict liability on developers, builders or sellers for construction defects – it may ease your burden of proof in some scenarios.
  • Even if you can’t show a seller intentionally lied, you may have a negligent misrepresentation claim if they made positive assertions without a reasonable basis.
  • If a developer or agent took on a fiduciary role, consider whether their actions breached that duty of utmost loyalty and care – but get ethics advice before asserting such claims.
  • Don’t overlook broad consumer protection laws prohibiting unfair and deceptive business acts – they may provide added remedies beyond common law claims.
  • If the seller made money off you through misconduct, explore unjust enrichment – but know it’s often barred if you also have a contract claim for the same loss.

FAQs:

• • What’s the benefit of a strict liability claim vs. negligence? Strict liability requires only proof the home had a defect when it left the builder’s control and the defect caused harm – no need to prove builder fault.
  • How do I know if I have a negligent misrepresentation claim? Identify any statements by the seller about the home’s condition that weren’t purely opinion – then assess if they lacked a reasonable basis for making those assertions.
  • Can home inspectors be liable for breaching a fiduciary duty? Perhaps, if their contract or actions established a heightened duty to protect your interests vs. just a general duty of care. Consult an attorney on your unique facts.
  • What remedies are available under consumer protection laws? Many unfair competition statutes allow recovering money damages, injunctions, attorney’s fees, and civil penalties – research the available relief in your jurisdiction.
  • Is unjust enrichment a separate claim from breach of contract? While there’s overlap, unjust enrichment is an equitable claim focused on unfairly retained benefits vs. contract damages for breaching a promise.

Key Facts & Figures:

• • Malin was the sole shareholder of Troon, which was the sole owner of Eight Forty One, suggesting a lack of separation between the individuals and entities.
  • Complaint alleges Malin diverted assets from Eight Forty One for his personal benefit, commingled funds between Troon and the LLC, and treated the project as his “personal piggy bank.”
  • Plaintiff claims Eight Forty One was undercapitalized, decapitalized at Malin’s whim, and used as a mere shell for Troon/Malin’s interests in avoiding liability to the buyer.
  • Malin is accused of using the LLC to induce the sale with the intent to avoid personal liability for the entity’s misconduct in rushing the defective home to market.
  • Punitive damages require showing fraud, oppression or malice by clear and convincing evidence – the complaint alleges intentional fraudulent misrepresentations and concealment.

Why It Matters:

• • If you’re contracting with an entity, research who the principals are and how they operate the company – look for red flags of them using it as a mere shell.
  • Beware if the business is undercapitalized compared to the scope of the project or transaction – that may set them up to be judgment-proof and leave you holding the bag.
  • If you later discover fraud or misconduct, explore the potential to pierce the corporate veil and hold the individuals accountable, not just the entity.
  • Thoroughly document all damages caused by construction defects, including hard costs to investigate and repair, lost property value, emotional distress, attorney’s fees, etc.
  • If the seller acted maliciously, oppressively or fraudulently, consider seeking punitive damages to punish and deter their egregious behavior (subject to any contractual limitations).

FAQs:

• • What factors do courts consider in deciding whether to pierce the corporate veil? Failure to follow corporate formalities, commingling assets, undercapitalization, treating corporate assets as one’s own, and using the entity for fraud.
  • How do you prove alter ego at trial? Through corporate records, financial documents, emails, and testimony showing the company was a mere instrumentality of the individual(s).
  • What types of experts are needed to prove construction defect damages? Typically general contractors, engineers, architects and construction managers to testify to the defects and repair costs, and appraisers for diminution in value.
  • Can you recover damages for aggravation and stress from dealing with defects? Possibly – some courts allow compensation for the aggravation and inconvenience of living with defects and managing repairs if foreseeable.
  • How can you prove entitlement to punitive damages? Through clear and convincing evidence the defendant acted with fraud, malice or oppression – merely negligent or reckless conduct isn’t enough.

Questions: California Construction Defect Law

• • 1. In California, what’s the statute of limitations to sue for latent construction defects?
    • A) 4 years from close of escrow
    • B) 10 years from substantial completion
    • C) 3 years from discovery of the defect
    • D) No time limit if defects are intentionally concealed
  • 2. Which of these is NOT an element of fraudulent concealment of defects?
    • A) The seller knew of a material defect
    • B) The seller hid or didn’t disclose the defect
    • C) The seller had no obligation to disclose the defect
    • D) The buyer didn’t know of the defect
  • 3. What type of damages can you typically recover in a California construction defect case?
    • A) Cost of repairs + relocation expenses during repairs
    • B) Diminution in property value from the defects
    • C) Punitive damages if fraud or malice is proven
    • D) All of the above
  • 4. When can a developer be held strictly liable for defective construction?
    • A) Never in California – strict liability doesn’t apply
    • B) When the defect violates building codes
    • C) When the defect causes property damage/loss of use
    • D) When the buyer relies on the developer’s expertise
  • 5. How can you hold a developer entity’s executives personally liable for construction defects?
    • A) If they participated in the negligent construction
    • B) If they knew of and failed to disclose the defects
    • C) If they treated the entity as their “alter ego”
    • D) All of the above

Answers: California Construction Defect Law

• • 1. B) California Code of Civil Procedure Section 337.15 sets a firm 10 year statute of repose for latent construction defects, running from substantial completion of the project.
  • 2. C) For fraudulent concealment, the seller must have a duty to disclose the defect, know of the defect, and intentionally fail to disclose to mislead the buyer, who is unaware of it.
  • 3. D) Compensatory damages in CA defect cases can include costs of repair, relocation expenses during repairs, lost property value, investigative costs, and attorney’s fees. Punitives may be added for fraud.
  • 4. A) Unlike some states, California does not allow strict liability claims against developers – negligence or breach of contract/warranty must typically be proven.
  • 5. D) Developers may be personally liable if they participated in negligent construction, fraudulently hid known defects, or abused the corporate form, treated the entity as their “alter ego.”

Questions: Construction Defect Damages & Experts

• • 1. What’s the most common type of damages sought in defect cases?
    • A) Cost of repairs
    • B) Punitive damages
    • C) Personal injury
    • D) Lost profits
  • 2. Who usually pays for repairs while a defect lawsuit is pending?
    • A) The builder or developer
    • B) The homeowner
    • C) The insurance company
    • D) The court
  • 3. When are attorney’s fees recoverable in a defect claim?
    • A) Always
    • B) Only if you win at trial
    • C) If the contract or a statute allows it
    • D) Only in class actions
  • 4. What’s the most important type of expert in a defect case?
    • A) General contractor
    • B) Structural engineer
    • C) Real estate appraiser
    • D) It varies case by case
  • 5. What’s a common defense to construction defect claims?
    • A) Lack of causation
    • B) Statute of limitations
    • C) Waiver of warranties
    • D) All of the above

Answers: Construction Defect Damages & Experts

• • 1. A) Cost of repairs is the most commonly sought and awarded type of damages in construction defect cases. The goal is to compensate the owner for fixing the defects.
  • 2. B) Usually the homeowner must front the costs of repairs while the case is pending, though some insurers may pick up the tab. The lawsuit seeks reimbursement of those costs.
  • 3. C) Attorney’s fees are only recoverable if authorized by the parties’ contract or a specific statute. Most defect cases don’t automatically trigger fee shifting.
  • 4. D) The key experts depend on the defects at issue. Defects in the building structure may need a structural engineer, while plumbing or electrical issues call for specialists in those systems.
  • 5. D) Developers often argue the defects didn’t cause the damage, the statute of limitations expired, the contract waived warranties, or the problems arose from normal wear and tear.

Disclaimer

This overview of the 950 Lombard LLC construction defect and fraud lawsuit is for general informational and educational purposes only. It is based solely on the allegations of the publicly filed complaint.

None of the claims have been proven in court and the defendants dispute the plaintiff’s allegations. This article does not portray a comprehensive account of all parties’ positions.

The legal information here is not a substitute for professional legal advice from a licensed attorney regarding your individual claim or situation. Laws and cases discussed may have changed in the time since publication.

If you believe you have a potential construction defect or real estate fraud claim, please contact a qualified lawyer in your area to discuss the best options for your unique circumstances.