The following section is part of a larger article that discusses the ethical and insurance issues raised by a series of construction defect claims in Nevada that are under scrutiny of the Department of Justice. Many indictments have been filed and many more are expected to follow.
Until 2008, Las Vegas had always been America’s boomtown; always growing and never affected by national economic cycles. However, the 2008 Recession turned that boom into bust, and a wide range of problems were exposed, not the least of which was a construction defect conspiracy scheme between a group of attorneys, construction companies, and property managers. The Las Vegas legal community is currently witnessing the unfolding of a cautionary take of how a few plaintiffs’ lawyers gained control over several Homeowner Associations, transforming them into construction defect plaintiffs, and in the process, pocket millions of dollars.
Dozens of individuals have been indicted. Twenty four participants have already pled guilty. The original investigation and prosecution by local law enforcement has now been taken over by the U.S. Justice Department due to concerns that local officials and politicians were connected to the scheme. Jeff German, “Federal Prosecutors Under Investigation for Alleged Obstruction of Justice In HOA Probe”, Las Vegas Review Journal (March 2, 2011). Rumors of judicial and political involvement in the scheme have continued to circulate but have not been validated. Adding to the sensation is the mysterious death of two of the attorneys who were allegedly the masterminds of the scheme. Jennifer Abbey, “Attorneys in Nevada Homeowners Association Scandal Dead” ABC News (March 28, 2012).
Growth in Las Vegas
Las Vegas is ranked 30th in population of large cities in the United States. U.S. Census Bureau, Statistical Abstract of the United States 27 tbl.20 (2012). However, it is the largest American city founded in the 20th Century. Las Vegas was first established as a railroad town in 1905 with approximately 30 people. The town was merely a rest stop on the railroad until the 1930s when Nevada legalized gambling and the Hoover Dam was built, creating Lake Mead. Since then, the population has grown exponentially. The 2010 Census lists the Las Vegas metropolitan area with 1.95 million residents. (Id.) During the years 2000 to 2008, it was not uncommon to have 6000 to 8000 new residents move to Las Vegas every month. Hubble Smith, “Index Sees growth In Population Slowing” Las Vegas Review Journal, (August 11, 2007). The city added nearly 1.5 million people between 1980 and 2007. Historical Economic Data Metropolitan Las Vegas, UNLV Center for Business and Economic Research.
Of course, all of these new residents needed a place to live, which spurred Las Vegas’ second largest industry – construction. Between 2000 and 2007 alone, approximately 262,232 new residential unit construction permits were issued in the Las Vegas metropolitan area. U.S. Census Bureau, New Residential Construction Permits By Metropolitan Area.
Construction Defect Litigation
Due to the rapid pace of construction and the sheer number of housing units, starting in the 1990’s, Las Vegas experienced a steady increase in the amount of construction defect claims. (8th Judicial District Court 2003 Annual Report, page 10). In 2003 there were more than 340 construction defect lawsuits pending at the local court with an average of seven new cases being filed each month (each case representing an entire subdivision or multiple subdivisions). Id. Hubble Smith, “Construction Defect Lawsuits: falling between the cracks”, Las Vegas Review Journal, (February 2, 2003). The number of new filings spiked in 2007, when 113 construction defect lawsuits were filed in a single year. (8th Judicial District Court 2008 annual Report, page 16).
In response to the increase in lawsuits, the Nevada State Court created a special set of courts to specifically handle these complex lawsuits where homeowner associations would sue the builders, all of the subcontractors, and any business who played any part in the construction of the particular subdivision. (Id.) A construction defect courtroom with space to seat 40 attorneys at trial tables was established. (Id.) Three judges were assigned to exclusively handle the lawsuits. Two of those judges, Michael Cherry and Nancy Saitta currently serve on the Nevada Supreme Court.
Most of these construction defect cases involved multi- million dollar claims. Smaller subcontractors who may or may not have provided services connected to an alleged defect would eventually agree to settlement payments simply to get out of the litigation, leaving the larger home builders, and their insurance companies to finish the litigation. Insurance premiums reportedly tripled and quadrupled for home builders and their subcontractors. (Id.).
From 1990 to 2010, dozens of verdicts in excess of one million dollars were awarded to plaintiff Homeowner Associations as a result of construction defect lawsuits. The alleged defects spanned all aspects of the construction industry, including leaky roofs, ill fitting joints and connections, cracked stucco, misplaced wiring, expansive soil, shifting foundations, cracked concrete and faulty landscaping.
This explosion in the number of construction defect lawsuits apparently created the conditions where an alliance was formed between attorneys, repair companies and property managers to take advantage of, and access, the millions being paid in these lawsuits.
Collusion Between Attorneys, Repair Contractors and Homeowners’ Associations
In the indictments which have been filed, it is alleged that up until 2008, a group of plaintiff attorneys, construction repair businesses and property managers knowingly conspired and participated in a scheme to gain control over various Homeowner Association (HOA) boards of directors, forcing the HOA boards to hire specific law firms and construction companies to handle construction defect lawsuits and remedial construction contracts, as designated by the co-conspirators. Plea Memorandum for David Amesbury, Case No. 2:11-cr-00337-JCM-GWF, p. 11 (D. Nev., Oct. 24, 2011).
This group allegedly developed a scheme whereby it would purchase several housing units in a community using straw buyers. While pretending to be full time residents of the neighborhood, these “straw buyers” would then run for leadership positions on the boards of directors for the Homeowner Association. To ensure they would gain those leadership positions, the straw buyers would allegedly make payments to community property managers, hire private investigators to discover damaging information on legitimate candidates, and would manipulate the election process to their favor
The indicted attorneys are charged with agreeing to run the HOA board elections in order to create the appearance that the elections were legitimate. (Id.) These attorneys and other “special election masters” were supposed to (i) contact the bonafide homeowners to inform them of the election; (ii) mail the bonafide homeowners election ballots and voting instructions; (iii) collect and secure those elections ballots returned by mail until the date of election and (iv) preside over the HOA board election, including supervision of counting of ballots. (Id.)
However, instead of conducting the elections as proposed, the individuals used their access to open the ballots, pre-count the number of votes entered for each candidate to know the number of fake ballots which needed to be created to ensure the co-conspirator up for election won the seat on the HOA board. (Id.) If needed, the fake ballots would be sent across state lines to be mailed from the state of residence of actual property owners who owned second homes within the HOA.
Once the straw buyers gained leadership status in the HOA, the straw buyers would direct the HOA into the filing of a construction defect lawsuit using real and fabricated evidence of alleged defects in the community. The straw buyers would also direct the HOA to chose and hire the co-conspirator law firm to prosecute the defect lawsuit. They would also direct the HOA to hire the co-conspirator repair contractor to immediately begin remedial repair on the alleged defects. Plea Memorandum of Angela Esparza, Case 2:11-cr-00338-PMP-GWF, p. 12 (D. Nev. Oct. 11). The civil lawsuits alleged defects that were either non-existent or not as severe as indicated. Moreover, Silver Lining Construction LLC v. Vistana Condominium Owners, Amended Cross-Complaint, Case A578306, Eighth Judicial District Court, Clark County Nevada. The contractor also did not complete the work alleged, and was paid excessive amounts for the minimal work. (Id.)
The civil complaints further allege the co-conspirator law firm would prosecute the construction defect lawsuit, using their hand-picked co-conspirator experts and contractors with the single vision of maximizing monetary gain, rather than the repair of the alleged defects. (Id.) The civil complaints further allege that the straw buyers on the HOA board of directors would regularly authorize the payment of work orders and attorney fees without scrutiny or review. (Id.) The straw buyers on the HOA board of directors would also recommend and authorize the acquisition of large lines of credit from lenders to pay for the “repairs” as well as authorize special assessments against all property owners to pay the co-conspirators for their repair work. This indebtedness would be fully supported and recommended by the co-conspirator law firm. (Id.)
Once the lawsuit was resolved, the straw buyers on the HOA board of directors would authorize distribution of the settlement proceeds among the various co-conspirators, all to the detriment of the HOA. (Id.) In one specific lawsuit, it is alleged that “all but $2,000 of the $19,100,000 received by Vistana [HOA] from its settlement with the Developer was paid to [the co-conspirators]” (Id.) That same lawsuit alleges that the remediation contractor received over $7,250,000 for repair work estimated to have a value of no more than $600,000. (Id.)
Under the then existing Nevada statutory scheme, the plaintiff HOA boards would nearly always be awarded attorneys fees, no matter how large or small the defects allegedly were. Nevada Revised Statutes 40.655. There was also no incentive to narrow the list of defendant contractors to the few sub-contractors who actually constructed the alleged defect. As a result, millions of dollars of remediation and attorneys fees were awarded after seemingly cookie-cutter-like lawsuits were filed on behalf of unsuspecting HOAs.
Suspicions of Collusion and Investigation
As this scheme rolled forward, there were several instances where an existing law firm or repair company, previously working on a construction defect lawsuit, would be suddenly replaced after a homeowner board election that saw the existing HOA board replaced with newcomers. Coincidently, the replacement law firm would repeatedly be either the S&K law firm or the Quon Bruce Christensen law firm, both of which were affiliated with celebrity attorney Nancy Quon. The replacement construction repair company would also repeatedly be Silver Lining Construction (“SLC”) or a company associated with businessman Leon Benzer. Also in the mix would be attorney David Amesbury who frequently served as a special election master in HOA elections and represented construction companies.
Ms. Quon had received hundreds of millions of dollars in construction defect verdicts. She was well connected with local judiciary and politicians. She also had her own television talk show and newspaper column where she offered advice to homeowners and homeowner associations. Ms Quon was also connected with law enforcement through her live-in partner, Las Vegas police officer William Webb. Attorney Amesbury was also well connected and was a part owner of the coffee shop located inside the courthouse.
As the number of cases increased where Ms. Quon was involved, and the verdicts continued to rise, an investigation was launched by local law enforcement and the FBI. It is currently not disclosed how the authorities were tipped off.
In September of 2008, the FBI served search warrants and confiscated records at several businesses, including the offices of Silver Lining Construction, Platinum Community Services and Quon Bruce Christensen law firm. Felix Gillette, “The King of All Vegas Real Estate Scams”, Business Week (December 8, 2011). There was an initial flurry of activity and press reports, but then became very quiet for over a year. It is rumored that prosecutors were frustrated at Quon’s ability to know how the investigation was proceeding. In December 2010, the Department of Justice’s Public Integrity and Fraud Section took over the investigation from the Las Vegas office of the Department of Justice. Jeff German, “Federal Prosecutors Under Investigation for Alleged Obstruction of Justice In HOA Probe”, Las Vegas Review Journal (March 2, 2011). In March of 2011, the Department of Justice’s Washington-based public corruption unit began a separate investigation of suspected leaks of sensitive information about the HOA probe. (Id.) The investigation reportedly included prominent officials who might have picked up confidential information that was passed on the Quon. (Id.).
Ms. Quon’s First Suicide Attempt
On the morning of October 28, 2010, Daniel Webb, a corrections officer with the Las Vegas Metropolitan Police department was awakened before dawn by a phone call. Felix Gillette, “The King of All Vegas Real Estate Scams”, Business Week (December 8, 2011). It was his younger brother William Webb, who was Ms. Quon’s boyfriend. William was calling from San Diego, was worried that something had happened to Ms. Quon, and asked Daniel to check on her. Daniel drove to Ms. Quon’s residence, let himself in using a spare key, and discovered the house was on fire. (Id.). Daniel called 911 and went back inside to find Ms. Quon. He found her in a TV room underneath a pile of blankets; she was grey and her breathing was shallow, but she was alive. (Id.) The paramedics arrived and treated her for a narcotic overdose. (Id.) Quon acknowledged taking sleeping pills and a high-alcohol energy drink before the fire but denied it was a suicide attempt. Ms. Quon also denied setting the fire and indicated that after taking the sleeping pills, she had a bath and lit some candles. She did not know how she ended up in the TV room but indicated her belief that she must have knocked over some of the candles as she moved from one room to the next. Both Quon and Mr. Webb were indicted for arson, which was later dismissed.
Two weeks later, on November 9, 2010, the FBI arrested William Webb in connection with another apparent suicide scheme. The arrest report for Webb refers to Quon as one of the top targets in the homeowners association investigation and indicates that her indictment was imminent. News reports indicate Quon had met with investigators at the US Attorneys office on October 26, 2010 and was described as upset, detached and despondent. (Id.). Subsequently, Mr. Webb unknowingly met with an undercover detective seeking to purchase 51.4 grams of the club drug GHB [date rape drug], to be used to kill Quon. Jeff German, "Arrest Made in Suicide Scheme Involving Lawyer, Ex-cop," Las Vegas Review Journal (Nov. 12, 2010).
"Webb and Miss Quon were nervous because the elections were coming up . . . . and that . . . it was going to be a big turnover, and that certain people were going to be in office that weren’t going to be friendly to Webb and Quon and that their indictments from the FBI might be coming down that day. Winston Ross, “The Las Vegas Suicide Mystery”, The Daily Beast (February 24, 2011). Webb indicated that he and Quon had agreed to arrange Quon’s death so that Webb could collect life insurance money for her children. Webb indicated that he, too, would kill himself after settling Quon’s affairs. Jeff German, "Arrest Made in Suicide Scheme Involving Lawyer, Ex-cop," Las Vegas Review Journal (Nov. 12, 2010). Web and Quon allegedly wanted to use GHB in fear that the insurance company wouldn’t pay unless the death appeared natural and Webb thought an overdose of the drug would not be detected after death.
Quon denied any knowledge of the plot to kill her. She also denied setting the fire. The investigation continued, but seemed to cool off. Then, in August 2011, ten months after the fire, a Clark County grand jury indicted Quon on multiple felony charges, including first-degree arson and insurance fraud. Felix Gillette, “The King of All Vegas Real Estate Scams”, Business Week (December 8, 2011). The police arrested Quon on August 17, 2011. At the time of her arrest, she was carrying her passport and $7,000 in cash. Ms. Quon denied any wrongdoing and vowed to contest the charges.
Mr. Amesbury’s Indictment and Plea Agreement
Throughout the fall of 2011, a series of 11 other indictments and plea agreements were announced. The highest profile plea agreement involved Mr. Amesbury. Amesbury was the attorney who agreed to run on HOA board elections to perpetuate the scheme. Plea Memorandum for David Amesbury, Case No. 2:11-cr-00337-JCM-GWF, p. 11 (D. Nev., Oct. 24, 2011). He was apparently appointed as “special election master” with the purported job of making sure the elections were above-board and legitimate. (Id.) Indeed, ballots were mailed to his office. Amesbury plead guilty to counting the ballots and then telling his conspirators how many “fake” ballots needed to be created to win. He then facilitated the submission of the fake ballots. (Id.)
Mr. Amesbury’s plea agreement on October 24, 2011 revitalized the publicity surrounding the investigation. Mr. Amesbury had closed his courthouse café in January of 2011, and had been attempting to stay out of the spotlight.
Mr. Amesbury’s Highway Encounter
Unfortunately, three weeks later, police found Mr. Amesbury lying beaten on the side of the road. Gregan Wingert, “Henderson Lawyer Who Pleaded Guilty on HOA Scheme Found Beaten on Roadside”, Las Vegas Sun (November 16, 2011).
Investigators commented that there was no evidence that the assault was in any way related to the homeowners association investigation. Jeff German, “Lawyer Who Pleaded Guilty in HOA Probe Found Beaten on Street”, Las Vegas Review Journal (November 16, 2011).
Ms. Quon’s Death
On March 20, 2012, Ms. Quon was found dead in a bathtub of the condominium she moved into after the fire in her home. Gregan Wingert, “Attorney found dead in bathtub of Henderson Condo, Police Say”, Las Vegas Sun ( March 20, 2012).
The police indicated that no foul play was suspected, but that an autopsy would be performed and an investigation pursued. Jeff German, “Nancy Quon Found Dead in Bathtub”, Las Vegas Review Journal (March 20, 2012). The reports of her death indicated that alcohol may have played a role in Quon’s death. One source said she had been drinking in the bathtub and may have passed out (Id.)
The Federal prosecutors investigating the HOA scandal indicated that Ms. Quon’s death was not likely to slow the momentum of their case, and that they would press forward with charges against other targets. Jeff German, “Federal Probe To Go On Despite Quon’s Death”, Las Vegas Review Journal (March 21, 2012). Defense attorney Todd Leventhal indicated that the prosecutors never expected to strike a deal with Ms. Quon. (Id.) "I don’t believe her death is going to change the focus of where they’re going. They’re still moving forward.” (Id.)
Former District Attorney David Rogers indicated that, “the circumstances surrounding her death are eerily similar to what we believe to be a prior suicide attempt…In both cases, it appears she was in the bathtub, and in both cases at a minimum alcohol appears to have been involved.” (Id.)
Now that Mr. Amesbury has plead guilty and Ms. Quon is deceased, it is anticipated that prosecutors will focus more intensely on Leon Benzer, the former construction company boss who prosecutors have alleged was a co-conspirator with Quon and Amesbury. (Id.)
Mr. Amesbury’s Death
On March 26, 2012, Mr. Amesbury was found dead, hanging from a tree, at a Sacramento Ranch owned by his brother. Mr. Amesbury had apparently gone to Sacramento to recover from his injuries stemming from the beating in November of 2011. Police classified the death as a possible suicide, but indicated that the investigation would not be complete for 10 weeks. Jennifer Abbey, “Attorneys in Nevada Homeowners Association Scandal Dead” ABC News (March 28, 2012); “Man convicted in Vegas HOA scheme found dead in CA”, Mercury News (March 26, 2012). There has not been much, if any, further information regarding the death since it was announced.
Consolidation of Cases and 14 New Indictments
On April 9, 2012 14 new plea deals were filed by the Department of Justice. In announcing the plea agreements prosecutors indicated, “As charged and admitted in the filed plea agreements, the conspirators, through a coordinated scheme to control the HOAs’ boards of directors, general counsel and property managers, instructed the board members to vote in a particular manner that was in the interests of the conspirators . . . This included designating lawyers to handle construction defect litigation at the condominium complexes, construction companies to perform construction defect repair work and emergency repair work, attorneys to advise the particular HOA board and community management companies to manage the condominium properties.“ Jeff German, “14 New Plea Deals Filed in Las Vegas-area HOA Fraud Case”, Las Vegas Review Journal (April 9, 2012). On May 1, 2012, U.S. District Court Judge James Mahan consolidated and ordered unsealed the cases against new defendants in the federal investigation. Jeff German, “Judge Unseals HOA Cases, Pledges to Keep Process Open”, Las Vegas Review Journal (May 1, 2012). The 14 defendants agreed to plead guilty to one count of conspiracy to commit mail and wire fraud. They will join 11 others who previously pleaded guilty in the scheme. (Id.) The plead will be heard on May 31, 2012. Prosecutors indicated they expect to seek grand jury indictments against a dozen more targets who declined to strike plea agreements. (Id.) Lawyers and former police officers are apparently among the remaining targets. (Id.) Some judges were targeted early in the high-profile investigation but none, so far, has been charged. (Id.)
This story has been full of turns and twists, revelations and sensations. However, as might be surmised, there is no conclusion to this series of events yet. It is anticipated that even more indictments will be forthcoming. None of the rumored government or politician participants have yet been indicted. Mr. Benzer, the construction company owner, is rumored to be structuring a plea agreement, which might result in a cascade of other indictments. So far, only two of the affected homeowners associations have filed civil complaints against the conspirators. More will follow. Furthermore, once the details of the scheme have been verified and established, larger questions remain involving insurance coverage, civil liability, criminal charges, professional malpractice issues, as well as the legitimacy of the prior construction defect settlements paid to the conspirators.
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