Ban on Illegal Practices Nixed as Vague by Court

(CN) - The 9th Circuit on Wednesday vacated portions of an injunction against a home-inspection company that encouraged Nevada homeowners to sue retirement-community developer Del Webb, saying the trial court cannot proscribe on "illegal, unlicensed and false practices."

The federal appeals panel in San Francisco upheld most of the injunction against M.C. Mojave Construction, which the U.S. District Court in Nevada determined had performed inspections without a license and interfered with Del Webb's warranty contracts. But the three-judge panel vacated the injunction's ban on "illegal, unlicensed and false practices," finding it too vague, and took U.S. District Judge Robert Jones to task for introducing the common law of champtery into the case.

Mojave Construction blanketed Sun City Anthem, a Del Webb retirement community in Henderson, Nev., with fliers and placards, offering free home inspections. The company encouraged homeowners to sue Del Webb for alleged deficiencies, providing attorney referrals and contracts that "required the homeowners to pay all litigation costs if the homeowners terminated the attorney-client relationship but obtained home repairs," according to the ruling.

The contracts also assigned Mojave the "the right to recover any and all inspection fees from the builder if the builder fails to pay all the inspection fees." Once engaged, attorneys warned Del Webb not to communicate with the homeowner, even though most homeowners had a 10-year warranty with the developer.

In its advertising, Mojave claimed its inspectors were licensed and were working with the "builder," the ruling states. This and other claims led Judge Jones to issue a permanent injunction against M.C. Mojave for deceptive practices and for interfering with Del Webb's warranty contracts. In a summary judgment ruling in favor of the developer, Jones also found that Mojave had violated the common-law prohibition against champtery and maintenance - a centuries-old law that makes it illegal to encourage a party to file a lawsuit, especially by offering to pay for it, if the proponent lacks any direct interest.

On appeal, the three-judge panel unanimously upheld most of the injunction, but vacated a portion as unduly vague. But the judges disagreed that champerty played a role in the case.

Finding that "the consistent trend across the country is toward limiting, not expanding, champerty's reach," the judges said "there was no secure basis for the District Court to predict that the Nevada Supreme Court would recognize a common-law tort cause of action for damages or equitable relief asserted by a stranger to an allegedly champertous agreement."

"Del Webb did not assert champerty as a contract defense," wrote U.S. District Judge Lee Rosenthal, sitting on the panel by designation from Texas' Southern District in Houston. "Nor is Del Webb a party to the allegedly champertous agreements between Mojave and its homeowners."

Rosenthal added that "no Nevada state court has recognized even such a limited tort. The district court's approach nonetheless predicts that the Nevada Supreme Court would recognize a tort action for champerty that would be among the country's most expansive."

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