Four months after purchasing a condo from Kimberly Orlando and Nguyen Nguyen in Huntington Beach, California, the buyers filed a lawsuit against the sellers, their real estate agent, the homeowners association, the termite inspector and the home inspector. The plaintiffs alleged causes of action for negligence, fraud, breach of contract, and negligent misrepresentation against the sellers and sought over $250,000 in damages from the sellers. Others in the lawsuits had already settled, but Orlando and Nguyen decided to take their chances in court.

"The main reason my clients decided to take this to trial, is that the money was coming out of their pockets," explains Santa Ana, California defense attorney Kevin J. Gramling, an expert in toxic tort litigation. "All they had was content insurance. My clients did have liability insurance, but the main issue with the insurance carrier was that the allegations were of an intentional nature (fraud and misrepresentation), such that they denied coverage."

Gramling says he and his clients, facing $250,000 in damages, explored settlement early. "My clients were willing to pay up to $5,000 to plaintiffs if they could get dismissed. My counseling to them was that it would take at least $5,000 for us to answer the complaint and propound some basic discovery. They determined that it would be reasonable to try to settle the whole case for such an amount. When we were met with a $250,000 demand, the settlement discussions broke off quickly. Obviously, at the end of the day, with my client paying me over $50,000, had they been able to get out for $5,000, and not go through a year of litigation and a trial, they felt they would have been better off. Although they feel completely vindicated now."

Orlando and Nguyen insisted they did nothing wrong, and that's why they were willing to go to trial, but that didn't stop others from settling. According to Gramling, the plaintiffs got $50,000 from the HOA, $15,000 from the Realtor and broker, and $5,000 from the termite company. As they headed to court with the sellers, the plaintiffs' attorney said they would dismiss the suit if the defendants agreed not to pursue fees and costs.

"They knew it would be difficult to prove, and they thought we would walk away," says Gramling. "The clients were adamant that we are going to pursue costs and fees and try the case."

Escrow closed in November 2004, and the plaintiffs filed their suit in February 2005, claiming the defendants had painted over mold and water stains in the 1300-square-foot condo. In the interim, California experienced the heaviest rains in 100 years in the winter of 2004 and 2005. "They did get water intrusion into the garage and deck upstairs," admits Gramling, "but there was no evidence my clients knew about this."

He continues, "My clients were credible. All they did was prepare the house for sale by painting the kitchen, and not even the areas where the mold was found, in the wall under the sink. A friend painted the kitchen and testified she didn't see any staining or mold and their Realtor testified that she recommended that they paint the kitchen to prepare the home for sale, and there was no evidence to show mold."

There were other allegations, but the bottom line was that the Plaintiffs hired numerous experts including a general contractor and certified industrial hygienist to prove their case, but Mr. Gramling was able to refute the witnesses without calling any experts of his own, including HOA and property management company officials who stated that there were no other "rampant" mold claims by residents. The sellers had lived in the home just two and a half years before selling.

What Gramling said he was able to prove were myths about mold:

• that just because mold is present doesn't mean it's toxic or letting off spores

• that mold continues to cause long-term suffering once you get out of the mold environment

"We admit that mold can cause exacerbation of symptoms like runny nose and itchy eyes, but once out of that environment, you're fine. The plaintiffs were claiming that mold was found in two or three areas and that they needed to tear the home down and rebuild from the studs. The condo was 25 years old, a fact that didn't go unnoticed by the judge.

And that's where the plaintiffs may have overplayed their hand.

On June 29, 2006, a minute order was issued finding in favor of the defendants in the bench trial, but it's not over yet. The defendants have to file a memorandum of costs, and a motion for attorneys fees to recoup the nearly $60,000 in defense counsel fees and costs they've already paid.

So what's the lesson for sellers? "The takeaway is in California, the law is specific about what a seller needs to disclose. Disclose every conceivable problem you are aware of. It's expensive to take a case to trial where you must be prepared to incur at least $50,000. You could settle the thing for $5000 early on and get out."

The impact of this case could be far-reaching, says Gramling. "There are still too many myths about mold, and we expect these failure-to-disclose lawsuits to continue in the future."

Published: August 21, 2006