News

Woodside couple ordered to pay $5.75 million in construction dispute over $18 million home

A panel of arbitrators has ordered Woodside homeowner and venture capitalist Jeff Drazan and his wife Stacy Drazan to pay Palo Alto-based housing contractor Vance Brown Corp. a total of $5.75 million in a dispute over a construction project on an $18 million home on Bridle Lane in Woodside.

The three arbitrators concluded, after 51 days of hearings, that the couple's excessive number of changes to the home's design and the failure to pay the costs associated with those changes was a "material breach" of a contract, according to a Sept. 7 statement from contractor Loren Brown.

While the case actually concluded in February, Mr. Brown said he was waiting for the dust to settle before making news of the award. "You never really know when the thing is over," he said.

The Drazans' attorney, Dan Alberti of Palo Alto-based McDermott, Will & Emory, said that the Drazans "desperately needed to be in front of a jury" but that Vance Brown fought for two years to keep the case out of a courtroom.

An appellate court panel of three judges eventually ordered the case into arbitration, overturning a recommendation for a jury trial on two occasions in San Mateo County Superior Court and once by an earlier and different three-judge appellate panel, Mr. Alberti said.

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The arbitration panel, Mr. Alberti said, consisted of three retired construction lawyers. "From the outset, the deck was stacked against the homeowner," Mr. Alberti said. "It was just banging your head against a wall."

Under the rules of arbitration, lawyers from both sides said, the decision can be appealed only if there is proof of fraud on the panel. Unlike a trial, legal and factual errors during the proceedings are not a basis for appeal.

The award included payment of $2.5 million for Vance Brown's attorney fees, about $2.5 million spent by the contractor that the Drazans "refused to pay for," and another $663,300 in attorney fees during the years that the case was in court, said Vance Brown attorney Gregg Dulik of the San Francisco law firm Sedgwick, Detert, Moran and Arnold.

The couple have paid "every penny," Mr. Dulik said.

"It's a spectacular house," he added. "It was just a nightmare getting it built for them." Had the couple not paid up, Vance Brown could have put the finished $18 million home up for auction to recoup its costs, Mr. Dulik said.

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After the award had been granted, Vance Brown took the case back to Superior Court to get the decision "confirmed," which allowed the contractor to put the Drazans' house up for auction should there be difficulty in getting payment, according to the lawyers for both sides.

The couple's own outlay for attorneys was about $3.75 million for the arbitration part of the proceedings, and that was on top of what they paid during the court proceedings, Mr. Dulik said.

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Woodside couple ordered to pay $5.75 million in construction dispute over $18 million home

by Dave Boyce / Almanac

Uploaded: Thu, Sep 9, 2010, 11:01 am
Updated: Thu, Sep 9, 2010, 1:30 pm

A panel of arbitrators has ordered Woodside homeowner and venture capitalist Jeff Drazan and his wife Stacy Drazan to pay Palo Alto-based housing contractor Vance Brown Corp. a total of $5.75 million in a dispute over a construction project on an $18 million home on Bridle Lane in Woodside.

The three arbitrators concluded, after 51 days of hearings, that the couple's excessive number of changes to the home's design and the failure to pay the costs associated with those changes was a "material breach" of a contract, according to a Sept. 7 statement from contractor Loren Brown.

While the case actually concluded in February, Mr. Brown said he was waiting for the dust to settle before making news of the award. "You never really know when the thing is over," he said.

The Drazans' attorney, Dan Alberti of Palo Alto-based McDermott, Will & Emory, said that the Drazans "desperately needed to be in front of a jury" but that Vance Brown fought for two years to keep the case out of a courtroom.

An appellate court panel of three judges eventually ordered the case into arbitration, overturning a recommendation for a jury trial on two occasions in San Mateo County Superior Court and once by an earlier and different three-judge appellate panel, Mr. Alberti said.

The arbitration panel, Mr. Alberti said, consisted of three retired construction lawyers. "From the outset, the deck was stacked against the homeowner," Mr. Alberti said. "It was just banging your head against a wall."

Under the rules of arbitration, lawyers from both sides said, the decision can be appealed only if there is proof of fraud on the panel. Unlike a trial, legal and factual errors during the proceedings are not a basis for appeal.

The award included payment of $2.5 million for Vance Brown's attorney fees, about $2.5 million spent by the contractor that the Drazans "refused to pay for," and another $663,300 in attorney fees during the years that the case was in court, said Vance Brown attorney Gregg Dulik of the San Francisco law firm Sedgwick, Detert, Moran and Arnold.

The couple have paid "every penny," Mr. Dulik said.

"It's a spectacular house," he added. "It was just a nightmare getting it built for them." Had the couple not paid up, Vance Brown could have put the finished $18 million home up for auction to recoup its costs, Mr. Dulik said.

After the award had been granted, Vance Brown took the case back to Superior Court to get the decision "confirmed," which allowed the contractor to put the Drazans' house up for auction should there be difficulty in getting payment, according to the lawyers for both sides.

The couple's own outlay for attorneys was about $3.75 million for the arbitration part of the proceedings, and that was on top of what they paid during the court proceedings, Mr. Dulik said.

Comments

cc
Woodside: Mountain Home Road
on Sep 9, 2010 at 12:11 pm
cc, Woodside: Mountain Home Road
on Sep 9, 2010 at 12:11 pm

Congratulations Loren Brown....The three arbitrators concluded, after 51 days of hearings, that the couple's EXCESSIVE number of changes to the home's design and the failure to pay the costs associated with those changes was a "material breach" of a contract.


AKA
Atherton: West Atherton
on Sep 9, 2010 at 12:21 pm
AKA, Atherton: West Atherton
on Sep 9, 2010 at 12:21 pm

Justice served...

I am in the home building business and deal with this all the time. Most homeowners are reasonable about the concept * If I change my mind it usually impacts the cost.* But some...OMG...

I want the walls a different color than what was approved and applied so why is that extra to paint the rooms again? ...I know I approved that custom (stone, tile, roofing, plaster, etc.) but now I want something else and I want it for free and no restock...


Scholar
Menlo Park: Sharon Heights
on Sep 9, 2010 at 12:26 pm
Scholar, Menlo Park: Sharon Heights
on Sep 9, 2010 at 12:26 pm

Change orders will kill a budget. Pre-specifying typical change order costs is the way to go. All change orders must be priced and approved before they are implemented. Otherwise it is very easy for contractors to "gold-plate" their change order prices to make up for other areas that were low-bid. Yes it happens all the time.


Menlo Voter
Menlo Park: other
on Sep 9, 2010 at 12:35 pm
Menlo Voter, Menlo Park: other
on Sep 9, 2010 at 12:35 pm

Yes scholar, it happens all the time - NOT. Most builders are honest. I find that people that don't kow anything about construction don't realize there are more than just the direct costs associated with a change. That gives them the impression a contractor is "gold plating" his change orders when actually all we are trying to do is recoup ALL costs associated with the change.

Congrats to Vance Brown.


Willy
Woodside: other
on Sep 9, 2010 at 1:10 pm
Willy, Woodside: other
on Sep 9, 2010 at 1:10 pm

Where are the rants from Hank and the rest of the "personal responsibly" crowd, the "frivolous lawsuit by those darn lawyers who own the democrat party" crowd, etc..?

Never seems to come out when it's someone from this side of the tracks using the courts, or a small business man defending his company, eh?


Sandy
another community
on Sep 9, 2010 at 1:41 pm
Sandy, another community
on Sep 9, 2010 at 1:41 pm

I think that if the former Supervisor had been in his seat, things would have gone a lot differently.
Most contractors are honest, but those who aren't are agressively in cahoots with some of our questionable building supervisors and their relationships with the owners. IOW, this would not have come out the same way now that San Mateo County officials have to watch their movements and actions and decisions.
I blame the builders as much as I do anyone, but it was bad timing on their parts to be so extravagant and the County does not give one bit. It is "now their official duty to see justice"..Cough


Electrician
another community
on Sep 9, 2010 at 1:52 pm
Electrician, another community
on Sep 9, 2010 at 1:52 pm

Having worked on many homes and for a couple of contractors, it is highly unusual for Woodside residents to EVER be found culpable of wrongdoing and especially "venture capitalists" who seem to know their ways around the SAN MATEO COUNTY and all of the building codes.The comment by "Sandy" is something almost all crews know what is going on while getting their weekly paychecks.We just pick up our checks and watch all of the "changes and errors in construction" formerly go unnoticed. I would have liked to seen what really went on between the Browns and the contractors and the city now that it has to maintain a "squeeky clean" image before election time.


Moe
Menlo Park: Central Menlo Park
on Sep 9, 2010 at 3:45 pm
Moe, Menlo Park: Central Menlo Park
on Sep 9, 2010 at 3:45 pm

Not knowing the details of the Dazan's agreement with the contractor I can only offer a general observation. Get someone to administer the contract (normally a qualified archiect)and do not proceed with ANY changes until you have established who is responsible for the change, what EXACTLY is to be changed, for what cost, and who is going to pay for it.


Jury
another community
on Sep 9, 2010 at 4:21 pm
Jury, another community
on Sep 9, 2010 at 4:21 pm

At those prices, someone did not do something honest and I think it was both parties and the Drazans made an obvious mistake in choosing an attorney who wasn't from San Francisco and a cutthroat type who isn't up for election or afraid of being on the wrong side of Brown and these election year b.s. panics. For a million bucks, they could have had people climbing out of the woodwork because this thing reeks of high heaven.


just a thought
another community
on Sep 9, 2010 at 4:44 pm
just a thought, another community
on Sep 9, 2010 at 4:44 pm

do ya really think "the deck was stacked"? what else is the attorney who lost the case - big time - and cost his client megamillions in lawyer fees is gonna say? of course he is going to deflect blame.


woman
Atherton: West Atherton
on Sep 9, 2010 at 7:24 pm
woman, Atherton: West Atherton
on Sep 9, 2010 at 7:24 pm

Too bad people's private business has to be aired in a public forum. This is a private matter between the contractor and the homeowner and details like that shouldn't be made public.


busy body
Atherton: other
on Sep 9, 2010 at 8:18 pm
busy body, Atherton: other
on Sep 9, 2010 at 8:18 pm

Woman:
This story was on the front page of several papers today!--a little late to be considered a private matter--don't you think--plus the broader themes have relevance to current issues in several local cities--Atherton comes to mind.


Thomas
Menlo Park: Sharon Heights
on Sep 9, 2010 at 11:32 pm
Thomas, Menlo Park: Sharon Heights
on Sep 9, 2010 at 11:32 pm

Busy Body...
What broader themes? It becomes clear why we haven't heard lately
from Ms.Sweidy and why she has yet to sue the town of Atherton with
another frivolous lawsuit.


John
Atherton: other
on Sep 10, 2010 at 12:27 am
John, Atherton: other
on Sep 10, 2010 at 12:27 am

Woman:

Private Matter? Contractor obviously wants to share news of their victory. Losing homeowner and/or attorney want news suppressed to minimize their embarrassment of defeat. No one else cares. Which one are you (Drazen or Alberti)?


Jon Buckheit
Atherton: West Atherton
on Sep 10, 2010 at 1:01 am
Jon Buckheit, Atherton: West Atherton
on Sep 10, 2010 at 1:01 am

There are a couple of interesting aspects of this situation:

1. I've kept up with the news stories over the past several months/years and I think the homeowner signed one version of the contract, and the contractor signed another. This most likely created the conflict over what the rights and responsibilities were.

2. Normally I would have thought that the written terms of the person paying for the good/services (the homeowner) would trump the written terms of the provider.

3. My understanding is that arbitrators do not even need to follow the law. They are entitled to mete "substantial justice", even if that conflicts with the law. The case that established this in California was the Intel vs. AMD arbitration that set the stage for Intel to become the dominant provider of microprocessors. Arbitrations cannot be appealed (unless you can show the arbitrator was bribed, or had an improper relationship with a party that was not disclosed).

4. How could a legal fight over a house generate more than $6.25M in attorney's fees???


POGO
Woodside: other
on Sep 10, 2010 at 9:26 am
POGO, Woodside: other
on Sep 10, 2010 at 9:26 am

Mr. Buckheit -

Arbitration clauses usually state who and the number of arbitrators, the place for the arbitration and the rules they must follow. It depends entirely on the contract.


Law Guy
Portola Valley: Westridge
on Sep 10, 2010 at 4:08 pm
Law Guy, Portola Valley: Westridge
on Sep 10, 2010 at 4:08 pm

Addendum to POGO comment:

Arbitration only occurs if BOTH parties agree in advance to arbitrate disputes - and the specifics of the arbitration.

Why is Alberti complaining about the process that his client would have agreed to? Wrong guy for the job?


Jury
another community
on Sep 10, 2010 at 4:13 pm
Jury, another community
on Sep 10, 2010 at 4:13 pm

This goes beyond arbitration and contracts. It is WHEN those contracts were written and it sounds to me like this is going to go on in spite of how much money the Woodside couple have.
This goes beyond bucks.
This is hot stuff for election time and it all really looks devious and mostly, badly timed.
An 18 million dollar house is not that much in this world of summer homes in the Hamptons and Chateaux in France which cost much more.
This is just a case of a lot of bad moves made by the clients with their builders and attornies. It is kind of disgusting in view of the people who are the majority and think their $20 million dollars is a lot of money.....no longer.


Jon Buckheit
Atherton: West Atherton
on Sep 10, 2010 at 4:19 pm
Jon Buckheit, Atherton: West Atherton
on Sep 10, 2010 at 4:19 pm

Law Guy, I don't know the particulars of the situation. I do know there were two signed contracts that were different (one with the signature of the homeowner, one with the signature of the contractor).

The cautionary tale in this for most people is that arbitration agreements can include a clause, as this one (or one of the contracts, at least) apparently did, that the arbitration will be handled by an industry panel. In this case, by a group of construction attorneys.

This can be viewed as a positive (expertise), or a negative (de facto sympathy for the contractor).

Whenever any one of us opens a brokerage account, there is an arbitration agreement that any dispute be brought before FINRA, which consists of arbitration panels made up of securities industry attorneys. Many people have reported these are kangaroo courts.

I have no idea whether this was a kangaroo court or not. It could be the contractor was 100% right. I'm just bringing up some of the issues that are traditionally associated with these types of agreements. One thing is for certain: arbitration is great for the winner (the finality of it).


interesting
another community
on Sep 10, 2010 at 4:27 pm
interesting, another community
on Sep 10, 2010 at 4:27 pm
Congrats
Atherton: other
on Sep 11, 2010 at 5:56 pm
Congrats, Atherton: other
on Sep 11, 2010 at 5:56 pm

Mr. Buckheit,
The only thing you have said that makes sense is "I don't know the particulars of the situation". One wishes you would take the same tact on all your posts on every issue. You have set yourself up as an expert on everything Atherton and now Woodside.


Play Nice
Woodside: Woodside Hills
on Sep 11, 2010 at 6:29 pm
Play Nice, Woodside: Woodside Hills
on Sep 11, 2010 at 6:29 pm

There's nothing in his post that is Woodside-specific, Congrats. I found it informative. Please play nice or find another sandbox.


Jury
another community
on Sep 12, 2010 at 1:01 pm
Jury, another community
on Sep 12, 2010 at 1:01 pm

"Play nice" of Woodside.......evidently you didn't read the web link posted above by "interesting" and the timing of it in 1997 along with the players involved from Woodside.
Nothing has changed except I know quite a few "venture capitalists" well and they took enormous "hits" financially which caused them to rethink of just how rich they are today.
I notice that some IPO's are just beginning to show themselves and I believe that they are being hyped by those Woodside elite.
EVERYONE knows there is something illegal, corrupt, and misleading about this dispute and it is going to be a much bigger deal as it is pursued.
It is not good for anyone on the Peninsula except it does not involve the "extremely rich" who probably haven't a clue or care to know about this corruption on the parts of neighbors.


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