The Houston Lawyer 
March/April 2005 Edition
Pitfalls and Successes at the Residential Construction Commission 

By ANTHONY SPAETH

Tort reform has taken hold in Texas. Both Governor Rick Perry and the Texas Hospital Association have recently linked reductions in insurance premiums to medical malpractice reforms.1 Less widely reported than those reforms – but potentially more important to many Texans – were statutory changes related to litigation between new home buyers and residential builders.

House Bill 730 Creates the Texas Residential
Construction Commission
When the legislature created the Texas Residential Construction Commission (“TRCC”) in 2003, it charged the TRCC with “resolv[ing] construction issues without costly and time-consuming litigation.”2 In res-ponse, the TRCC has set up a mandatory procedure requiring homeowners to submit to (and pay for) an independent, third party inspection before they can take any other legal action against their builders. If a homeowner rejects the TRCC inspector’s conclusions, then he or she must first appeal the result within the TRCC and then appeal it in court or arbitration. At any subsequent hearing – whether before a judge, jury, or arbitrator – the initial TRCC inspection report creates a “rebuttable presumption” concerning the quality of the home’s construction. If the TRCC finds no construction defect, then a homeowner must overcome a serious legal hurdle.

Reactions to the Mechanics of the TRCC Are Mixed
Many consumer advocates, such as Janet Ahmad of Home Owners for Better Building, believe the TRCC’s State-Sponsored Inspection and Dis-pute Resolution Process (SIRP) is essentially a sham crafted by industry-friendly legislators. As evidence of SIRP’s alleged bias, Ms. Ahmad points to the fact that Perry Homes’ vice president and other industry officials have been named to the TRCC. She also suggests that the TRCC’s control over where it steers third-party inspection business could lead to abuses. For example, if a particular inspector repeatedly finds defects during his inspections, he may be passed over for future inspections. To date, however, no instances of such abuse have been reported. Nevertheless, addressing the passage of House Bill 730, Ms. Ahmad remarked, “Home builders got the best bill they could buy.”

Some lawyers are also troubled by perceived inequities in the SIRP. John Grayson, a Houston-based attorney who has represented homeowners in the past, believes the TRCC and the legislature have effectively created a “protected class” of homebuilders, whose rights supersede the rights of normal residents. According to Mr. Grayson, “Essentially, [by preventing homeowners from filing suit before submitting to the SIRP] we are protecting builders from court claims for failing to perform.” He puts his argument in terms of a builder’s responsibility for his product: “Though [Texans] like to talk about holding people responsible for their conduct, when it comes to civil damage claims, our legislature is doing the opposite.”

Other lawyers point out that, in the end, the TRCC may not achieve its goal of reducing the number of construction-related lawsuits. According to Clayton Cannon, a Houston lawyer who participated in a Q & A session with TRCC Commissioners late last year, the legislative reforms “will result in more confusion and more litigation because only homebuilders and homeowners may participate in the SIRP.” Specifically, Mr. Cannon finds fault with the fact that the statute creating the TRCC does not permit the involvement of other potentially responsible parties, such as subcontractors and building material suppliers: “If the homebuilder [involved in SIRP] believes the defect was caused by its subcontractors or manufacturers of defective products, it may be reluctant to accept the decision of the SIRP without the financial participation of others parties who may be responsible.” Mr. Cannon believes this could lead to a situation “where there would be two forums of litigation instead of one – one in the TRCC involving the owner and builder, and one in the courts involving the builder, owner, subcontractors, and manufacturers.” If this proved true, the TRCC and its underlying statutory authority could increase the overall burden of construction defect disputes.

The TRCC Responds to its Critics
The Deputy Executive Director of the TRCC, Duane Waddill, acknowledges the facts underlying Mr. Cannon’s argument, and concedes that, “[a]s it relates to a builder and his commercial vendors, we do not have any regulatory authority.” However, Mr. Waddill believes that builder-vendor contracts are sophisticated transactions where the SIRP is not required. He answers criticisms, like those offered by Ms. Ahmad and Mr. Grayson, by emphasizing that the TRCC’s standards actually in-crease the burdens on builders, requiring them to register with the state and mandating that the homes they produce perform as intended. Because the TRCC’s standards are “performance-based,” Mr. Waddill says, “even if a builder builds something to code, if it fails, [under the TRCC’s standards] he will be required to go back and fix it.”

Problems Remain Unresolved
No one, even tort reform’s detractors, seriously contests the idea that if professional, capable, disinterested members controlled the TRCC, then its SIRP would be preferable to protracted and expensive litigation. At the end of the day, the issue may be one of faith: How much faith do Texans have in the neutrality of the TRCC, its commissioners, and its inspection process? If those processes are not as neutral as they purport to be, Texas’ “excessive” construction defect litigation of the past could give way to a system where builders are no longer obligated to stand behind their homes.

Will that happen? Even people with a favorable view of the TRCC recognize that the construction industry has substantial influence over the Commission. According to the TRCC’s website, Vice Chairman Art Cuevas serves as president of his own construction company, Commissioner John Krugh is senior vice president of Perry Homes, Commissioner Glenda Mariott is vice president of Mariott Homes, and Commissioner Scott M. Porter is president of Porter Contracting Co., a registered home builder. These four commissioners occupy “builder seats,” which are built into the statute.3 However, the same statute requires only three “representatives of the general public.”4 For some, the 4-to-3 ratio raises concerns about bias and equality of representation.

That said, early results from the SIRP suggest a balance or even predisposition in favor of homeowners. As of March 7, 2005, the Commission has received a total of 115 applications. Of the 53 homes that have already been inspected, 50 (94 percent) have been found to have at least one defect. However, not all of these “defective” homes have been repaired and the net effectiveness of the TRCC remains an open question. According to Mr. Waddill, “Thirty days [after the finding of a defect], we’re asking the builders to tell us where they’re at. Then we send a post card to the homeowners asking them if they’re satisfied. We just haven’t received that many of those back yet.”

Endnotes
1. Press Release, Press Office of Governor Rick Perry, Governor Perry Says Medical Liability Reforms are Healing Healthcare in Texas, (Aug. 24, 2004) (available at http://www.governor.state.tx.us/divisions/press/ pressreleases/ PressRelease.2004-08-24.2607/view). 2. Senate Comm. on Business & Commerce, Bill Analysis, Tex. H.B. 730, 78th Leg., R.S. (2003) (available at http://www.capitol.state.tx.us/ cgi-bin/tlo/ textframe.cmd?LEG=78&SESS= R&CHAMBER=H&BILLTYPE= B&BILLSUFFIX=00730&VERSION= 4&TYPE=A). The provisions of House Bill 730 addressing the Commission and its related programs and standards were codified in Chapters 401, 406-09, 516-18, and 426-30 of the Texas Property Code. 3. Tex. Prop. Code § 406.001(a)(1). 4. Tex. Prop. Code § 406.001(a)(2).

Anthony Spaeth is General Counsel for Wireless Inspection Technology, Inc., and is a solo practitioner. He is a Plan II Honors Program graduate of the University of Texas at Austin. He graduated from the University of Texas Law School in 2000.

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