By David G. Savage L.A. Times Staff Writer
BELLAIRE, Texas — On his first day as governor of Texas, George W. Bush declared that limiting lawsuits was an "emergency issue" for his state.
"We must put a stop to the frivolous and junk lawsuits which clog our courts," he said in January 1995, a popular line he has repeated often since then.
Getting rid of "frivolous" suits — or even defining them — proved difficult, but the new governor won limits on how much money could be awarded in the biggest cases. For example, punitive damages were capped at twice the amount of a victim's loss.
But the legal-reform movement Bush launched in Texas has gone far beyond questions of monetary awards. Among other things, it has led to limits on the right to sue in the first place.
"Texas has gone from one of the most friendly states for consumer protection to one of the most anti-consumer states," said University of Houston law professor Richard M. Alderman, an expert on consumer rights. "It all began in 1995. Bush oversaw a significant retreat for consumer protection, and it was all done under the guise of attacking 'frivolous' lawsuits."
The impact has been felt by home buyers such as Mary and Keith Cohn, whose elegant new residence in this well-off Houston suburb came with a leaky roof that led to rotting and moldy wallboard throughout the structure. After their daughters became ill, the Cohns moved out. The repairs ultimately cost more than $300,000.
To their astonishment and dismay, they learned that when the builder refused to repair most of the damage, they could not sue him for redress. Instead, they could pursue private arbitration, a process they considered stacked against them.
"This is the largest purchase of your life," said Mary Cohn, "but you have zero consumer protection."
Since leaving Texas for Washington, Bush has continued to voice his disdain for "frivolous and junk lawsuits," although his administration has pushed only two relatively modest changes so far: capping noneconomic damages in medical malpractice claims and funneling class-action lawsuits into federal courts. Democrats in the Senate have stalled both proposals.
But Bush served notice at this summer's Republican National Convention that if reelected, he plans to make "tort reform" a key part of his second-term agenda. In the president's view, lawsuits raise costs for businesses, doctors and ultimately consumers. He says there are better ways to protect the public against shoddy products and services.
Bush's legacy in Texas, supporters here say, was the reining in of a civil justice system that was out of control.
"This state was known for egregious abuses of the legal system," said Ken Hoagland, a spokesman for Texans for Lawsuit Reform. "It was entrepreneurial law. The trial lawyers would find a moneymaking cause and then go recruit some plaintiffs. But since 1995, we've really changed the landscape."
To hear critics tell it, however, Bush-style legal reform is bad news for consumers.
Until the mid-1990s, Texas had one of the nation's strongest consumer-protection laws. Known as the Deceptive Trade Practices Act, it allowed cheated consumers to sue and take their claims before a jury. The targets of these suits ranged widely: car dealers, health clubs, home-repair contractors, promoters of get-rich-quick and weight-loss schemes, even marketers of fake sports memorabilia.
In legal changes, some begun under Bush and others that occurred after he became president, the pro-business Texas Legislature and state Supreme Court made it harder for consumers to sue and win damages. One industry after another — including real estate brokers, architects and engineers — won protections against being sued.
No industry was more effective in protecting its interests than the politically powerful homebuilders.
Even before Bush became governor, the builders won passage of the Residential Construction Liability Act, which gave them the "right to repair" defects before homeowners could sue. But a series of amendments under Bush, and more since his tenure, tilted the law heavily toward builders, critics say.
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In practice, the "right to repair" became the "right to delay" without penalty, according to aggrieved buyers. Later amendments made it harder for homeowners to prove that damage was caused by the original construction. If the builder was shown to be at fault, the law limited how much money could be awarded.
At the same time, builders began adding arbitration clauses to their contracts so that unhappy homeowners were forced to take their complaints before a privately hired arbitrator, rather than a judge and jury. As of last year, inspectors chosen by an industry-dominated panel determined the facts on which the arbitration was decided.
None of the legal changes was promoted as a means to shortchange consumers. Rather, industry lobbyists said it was better for both buyers and sellers if disputes were resolved quickly and without costly lawsuits.
Developers and home contractors say juries cannot be trusted to fairly resolve these disputes between a builder and a buyer.
"The last place you want to go is the civil court system. The facts don't matter to a jury," said Bobby Bowling IV, a builder from El Paso and president of the Texas Assn. of Builders. "In court, the plaintiff's lawyer makes it rich versus poor. It's about the redistribution of wealth."
Bowling said he and other builders were convinced that private arbitration was the best way to settle disputes.
"It's been a great system for me. I had a woman who had about 60 things she wanted fixed. I finally said, 'Let's go to arbitration,' " he said. "It cost about $10,000 to take care of it all. And it was done in 30 to 60 days. There's nothing like that in the civil justice system."
But consumer advocates say that closing the courthouse door to buyers removes a strong incentive for builders to do right by their customers.
"Having a legal remedy does two things," said Reggie James, director of Consumers Union in Austin. "It gives an individual a right to be compensated. And it is a deterrent for business in the future.
"And businesses respond to that. By the late 1990s, the builders here didn't have to worry about the risk of liability."
When Mary Cohn and her family moved out of their still-new home, she said, her builder offered $8,000 to repair the roof. That did not begin to cover the cost of replacing the moldy wallboard.
After concluding that the arbitration process was stacked against the buyer and would cost them several thousand dollars, the Cohns hired a lawyer and tried to sue the builder.
"They got screwed big-time. They paid three-quarters of a million dollars for a house that they couldn't live in," said Jim Moriarty, their lawyer. "This was as obvious a case of a construction defect you will ever see."
However, a succession of judges threw out their claim, saying their only choice was to take their dispute before a privately hired arbitrator.
In the end, a generous interpretation of their homeowners insurance policy paid most of the $300,000-plus repair cost. But the Cohns say they paid $35,000 in upfront deductibles.
The Cohns almost got their wish to go to court. While the repair work was underway, they put a bright orange sign in front of their home that urged others to "Think Twice" before hiring their builder. When they refused to take down the sign, he sued them for slander.
"I couldn't believe it. I couldn't sue my builder, but he could sue me," Mary Cohn said.
A judge eventually dismissed the lawsuit, citing the Cohns' right to free speech.
The new climate for Texas home buyers has spawned a vigorous and well-organized consumer movement that is calling on the Legislature to enact a "home lemon law."
It has also focused attention on arbitration, the business community's preferred alternative to going to court. The practice has become widespread, partly in response to criticism of costly lawsuits and what sometimes appear to be outlandish damage verdicts.
But courts are divided on whether unwitting consumers can sign away their right to sue, which is enshrined in the U.S. — and Texas — constitutions.
In California, for example, some judges have refused to enforce arbitration agreements because the pacts are tilted against the consumer. Others have ruled that the buyer has no choice but to go to arbitration.
The Texas Supreme Court and its nine elected justices, all Republicans, have consistently sided with builders in upholding arbitration clauses.
"There is no place in the country like Texas. The Texas courts have rejected the notion that something could be unfair to consumers," said Paul Bland, an attorney for Trial Lawyers for Public Justice in Washington.
Arbitration is often surprisingly costly, especially for consumers, as trial lawyers like to point out. Several Texas homeowners who had extensive mold damage said they were shocked to learn they would have to pay as much as $14,000 to take their claims to arbitration — the cost of paying for the arbitrator and construction experts.
If a consumer sues in court, a trial lawyer will usually take the case for free and cover the cost of hiring experts and investigating the defendant through "discovery" ordered by the court. If the consumer wins the lawsuit, the lawyer's fee is a percentage of the monetary verdict, often one-third of the total.
"Arbitration is a scam. We pay taxes for judges and juries and a courthouse, but we can't use them," said John Cobarruvias, a software engineer for NASA (news - web sites) in Houston who became a homeowner activist after he had to pay $20,000 to repair defective windows in his new home. "The builders are afraid of juries."
Texas homebuilders are big contributors to Republican political campaigns.
In the 2002 election cycle, Bob Perry and his wife, Doylene, the owners of Houston-based Perry Homes, gave $4.2 million to Texas candidates and their political action committees, including $905,000 to the Texas Republican Party.
Dubbed by the Dallas Morning News the "most influential man in Texas you have never met," the reclusive Perry gave three times more money to state politicians than anyone else in 2001-02.
A longtime friend and ally of Karl Rove, President Bush (news - web sites)'s political strategist, Perry also gave most of the money that funded this summer's ad campaign by the Swift Boat Veterans for Truth attacking the military record of Democratic presidential candidate John F. Kerry.
As a homebuilder, Perry had plenty of allies in winning a business-friendly state government. The group that has given the most money to Texas politicians — other than the two parties — is Texans for Lawsuit Reform.
The group gave $1.98 million to Texas candidates in the 2002 election, which saw Republicans win a clean sweep of the governor's office, Legislature and Supreme Court.
The Legislature didn't give a hearing to the consumer-backed home lemon law last year.
Instead, lawmakers passed another bill drafted by the homebuilders. It says homeowners must take their complaint to a new state commission — whose nine-member board is dominated by builders and lacks any consumer representative — before they consider going to arbitration.
The commission chooses the inspectors who will determine the "factual" basis on which arbitration will be based.
This "neutral" evaluation can lead to a speedy resolution and "avoid time-consuming lawsuits," the commission says.
Consumer advocates are skeptical. "This commission was created by the builders for the builders. They didn't want our input. It has nothing to do with consumer protection," Cobarruvias said.
Indeed, the new brochure says: "Attention Builders and Remodelers! The Texas Residential Construction Commission serves you, your business and your industry."
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