exv10w37



 





EXHIBIT
10.37


WILLIAM BRANIFF

United States Attorney

Southern District of California

940 Front Street

San Diego, California 92101




(619) 557-5610





Attorney for Plaintiff



ELROY H. WOLFF

Sidley & Austin

1722 Eye Street, N.W.

Washington, D.C. 20006



(202) 429-4000

Attorney for Defendant



IN THE UNITED STATES DISTRICT COURT




FOR THE SOUTHERN DISTRICT OF CALIFORNIA




	 	 	 	 	 	 	 
	 


	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	UNITED STATES OF AMERICA,

	 	 	)	 	 	CIVIL ACTION NO.
	 

	 	 	)	 	 	 
	Plaintiff,

	 	 	)	 	 	 
	v.

	 	 	)

)	 	 	CONSENT DECREE
	KAUFMAN AND BROAD HOME CORPORATION,

	 	 	)

)	 	 	 
	Defendant.

	 	 	)

)	 	 	 
	 


	 	 	 	 	 	 






     WHEREAS plaintiff, the
United States of America, commenced this action on           , 1991,
by filing the complaint herein; and whereas defendant Kaufman and Broad Home Corporation has waived service of the
summons and complaint; and whereas the parties have been represented by the attorneys whose names appear hereafter; and
whereas plaintiff and defendant have agreed to settlement of this action upon the following terms and condition
and without defendant admitting liability for any of















 




the violations charged or admitting the accuracy of any of the allegations in the complaint;




     Now on the joint motion of plaintiff and defendant,



     IT IS HEREBY ORDERED, ADJUDGED, AND DECREED as follows:



     1. This Court has jurisdiction of the subject matter herein and of the parties hereto. The
complaint states a claim upon which relief may be granted against defendant under Sections 5(1), 9,
13(b) and 16(a)(1) of the Federal Trade Commission Act, 15 U.S.C. §§ 45(1), 49, 53(b) and 56(a)(1).



     2. Defendant is ordered, pursuant to Section 5(1) of the Federal Trade Commission Act, 15
U.S.C § 45(1), to pay a monetary civil penalty in the total amount of $595,000. Such payment shall
be by wire transfer of the funds, in accordance with instructions received from the Office of
Consumer Litigation, Civil Division, U.S. Department of Justice, Washington, D.C. 20530, to the
United States Treasury within ten (10) days of entry of this Consent Decree.



     3. In the event of default in payment, which default continues for ten (10) days beyond the
due date of the payment, interest shall be computed pursuant to 28 U.S.C. § 1961(a). Interest shall
accrue from the date of default to the date of payment.



     4. Defendant
Kaufman and Broad Home Corporation, its successors and assigns, and its officers,
agents, representatives, and employees, directly or through any corporation, subsidiary, division,
or other device, in connection with the production, advertising, offering for sale or sale of
on-site residential housing in or affecting commerce, as




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“commerce” is defined in the Federal Trade Commission Act, are hereby enjoined from ever violating
any provision of the Commission’s order in FTC Docket No. C-2954, 93 F.T.C. 235 (1979), a copy of
which is attached herewith as Appendix A and made a part of this Consent Decree.




     5. This Court shall retain jurisdiction of this matter for the purpose of enabling any of the
parties to this Consent Decree to apply to the Court at any time for such further orders or
directives as may be necessary or appropriate for the interpretation or modification of this
Consent Decree, for the enforcement of the compliance therewith, or for the punishment of the
violations thereof.



     JUDGMENT IS THEREFORE ENTERED in favor of plaintiff, the United States of America, and against
defendant Kaufman and Broad Home Corporation pursuant to all the terms and conditions recited
above.



DATED: 7-2-91




	 	 	 	 	 
	 	 	 
	 	JUDITH N.KEEP
 	 
	 	United States District Judge 	 
	 	 	 
	 




     The parties, by their respective counsel, hereby consent to the terms and conditions of the Consent
Decree as set forth above and consent to the entry thereof. Each party shall bear its own costs and
attorney’s fees.




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	 	 	FOR THE UNITED STATES



STUART M. GERSON

Assistant Attorney General

Civil Division



WILLIAM BRANIFF

United States Attorney

Southern District of California



 	 
	 	By:  	/s/ JOHN R. NEECE
 	 
	 	 	JOHN R. NEECE 	 
	 	 	Assistant United States Attorney 	 
	 
	 	 	 
	 	  	/s/ JOHN R. FLEDER
 	 
	 	 	JOHN R. FLEDER 	 
	 	 	Director

Office of Consumer Litigation 	 
	 
	 	 	 
	 	  	/s/ DAVID A. LEVITT
 	 
	 	 	DAVID A. LEVITT 	 
	 	 	Attorney

Office of Consumer Litigation

Civil Division

U.S. Department of Justice

Washington, D.C. 20530



(202) 514-6786 	 
	 
	 
	 	 	FOR THE FEDERAL TRADE COMMISSION



 	 
	 	  	/s/ WILLIAM S. SANGER
 	 
	 	 	WILLIAM S. SANGER 	 
	 	 	Associate Director for Enforcement 	 
	 
	 	 	 
	 	  	/s/ JUSTIN DINGFELDER
 	 
	 	 	JUSTIN DINGFELDER 	 
	 	 	Assistant Director 	 



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	 	  	/s/ THOMAS D. MASSIE
 	 
	 	 	THOMAS D. MASSIE 	 
	 	 	Attorney 	 
	 
	 	 	 
	 	  	/s/ ROBERT M. FRISBY
 	 
	 	 	ROBERT M. FRISBY 	 
	 	 	Attorney



Division of Enforcement

Federal Trade Commission

Washington, D.C. 20580



(202) 326-2982 	 
	 
	 
	 	 	FOR THE DEFENDANT

KAUFMAN AND BROAD HOME CORPORATION:


 	 
	 	By:  	/s/ ALBERT Z. PRAW
 	 
	 	 	ALBERT Z. PRAW 	 
	 	 	General Counsel and Senior Vice President 	 
	 
	 
	 	 	SIDLEY & AUSTIN


 	 
	 	By:  	/s/ ELROY H. WOLFF
 	 
	 	 	ELROY H. WOLFF 	 
	 	 	A Member of the Firm
 1722 Eye Street, N.W.

Washington, D.C. 20006


(202) 429-4000 	 
	 
	 
	 	 	MORGAN, LEWIS & BOCKIUS


 	 
	 	By:  	/s/ CASWELL O. HOBBS
 	 
	 	 	CASWELL O. HOBBS 	 
	 	 	A Member of the Firm

1800 M Street, N.W.

Washington, D.C. 20036




(202) 467-7200 	 



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WILLIAM BRANIFF

United States Attorney

Southern District of California

940 Front Street

San Diego, California 92101




(619) 557-5610




Attorney for Plaintiff




IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF CALIFORNIA




	 	 	 	 	 	 	 
	UNITED STATES OF AMERICA,

	 	 	)	 	 	CIVIL ACTION NO.
	 

	 	 	)	 	 	 
	Plaintiff,

	 	 	)	 	 	 
	 

	 	 	)	 	 	COMPLAINT FOR CIVIL
	v.

	 	 	)	 	 	PENALTIES AND OTHER
	 

	 	 	)	 	 	RELIEF
	KAUFMAN AND BROAD HOME CORPORATION,

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	Defendant.

	 	 	)	 	 	 






     Plaintiff, the Unites States of America, by its attorney, William Braniff, United States Attorney
for the Southern District of California, acting upon notification and authorization to the Attorney
General of the United States by the Federal Trade Commission (“Commission”), alleges that:



     1. This is an action brought under Sections 5(l), 9, and 13(b), of the Federal Trade Commission Act
(“FTC Act”), 15 U.S.C. §§ 45(l), 49, and 53(b), as amended, to recover from defendant monetary civil
penalties for violations of a final cease and desist order issued by the Commission and to secure
injunctive and other relief.




 











 





Jurisdiction and Venue




     2. This
Court has jurisdiction over this matter under 28 U.S.C. §§ 1331, 1337(a), 1345, and 1355,
under 15 U.S.C. §§ 45(1), 49 and 53(b).



     3. Venue in the
Southern District of California is based on 28 U.S.C. §§ 1391(b) and (c) and
1395(a) and on 15 U.S.C. § 53(b).



Defendant and Its Business




     4. Defendant,
Kaufman and Broad Home Corporation, is a corporation organized, existing, and
doing business under and by virtue of the laws of the State of Delaware and has its office and
principal place of business located at 10877 Wilshire Boulevard, Los Angeles, California 90024.
Defendant is the successor or assign of Kaufman and Broad, Inc.



     5. At all times material herein, Kaufman and Broad Home Corporation and/or Kaufman and Broad,
Inc. have done and transacted business within the Southern District of California.



     6. At all times
material herein, Kaufman and Broad Home Corporation and/or Kaufman
and Broad,
Inc. (hereinafter “K&B) have engaged in the production,
advertising, offering for sale, and sale of
on-site residential housing in or affecting commerce, as “commerce” is defined in Section 4 of
the FTC Act, 15 U.S.C. § 44.



Prior Commission Proceeding




     7. In a Commission proceeding bearing Docket No. C-2954, in which Kaufman and Broad, Inc., was
charged with violating Section 5(a)(1) of the FTC Act, 15
U.S.C. § 45(a)(1), the Commission on




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February 12, 1979, issued against Kaufman and Broad, Inc., its successors and assigns, a consent
order to cease and desist certain business practices, 93 F.T.C. 235 (1979) (“Commission’s Order”).
The Commission’s Order was served upon Kaufman and Broad, Inc., on February 23, 1979, and became
final and enforceable by operation of law on that date and has remained in full force and effect
ever since that date.




     8. Included in the Commission’s Order are the following provisions which have been final and
enforceable since on or about February 23, 1979:



I




DEFINITIONS





     “On-site residential housing” shall mean housing structures, including lots,
consisting of single family dwelling units or housing structures consisting of multi-family
dwelling units (including condominiums) represented and sold by respondents in the United
States as completely constructed or partially constructed units.




     An “express warranty” as used in this order shall mean any written affirmation of fact
or written promise made or assigned by respondents to a purchaser as part of the
transaction of the sale of a unit of on-site residential housing.




     The “HOW warranty” as used in this order shall mean the warranty issued under the Home
Owners Warranty Corporation’s national home warranty program.




     A “major construction defect” as used in this order shall mean a “major construction
defect” as defined in the Home Owners Warranty Corporation Home Warranty Agreement ...



*      *      *




II





     IT IS ORDERED that respondents Kaufman and Broad, Inc., a corporation, Kaufman and
Broad Homes, Inc., a corporation, and Kaufman and Broad Home Sales, Inc., a corporation,
their successors and assigns, and their officers, and respondents’ agents, representatives
and employees, directly or through



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any corporation, subsidiary, division or other device, in connection with the conduct and operation
of their business in or affecting commerce as “commerce” is defined in the Federal Trade Commission
Act in the production, advertising, offering for sale or sale of a unit of on-site residential
housing, do cease and desist from :




     l. Selling and delivering any housing unit for use as on-site residential housing which is not
built in accordance with the approved standards or which contains a major construction defect
without taking the necessary action to repair, replace, or to pay the cost of repairing or
replacing the defect in such housing unit in accordance with the provisions of respondents’ express
warranty required under Part III B of this order.



     *     *     *


     6. Failing to repair, replace or to pay the cost of repairing or replacing any major construction
defect or any other defect in accordance with the provisions of respondents’ express warranty
required under Part III B of this order or in the performance of respondents’ obligations under
Part VII of this order within a reasonable time after receipt of written notice of such defect from
the purchaser or past purchaser of respondents’ on-site residential housing; provided, however,
that:





     (a) Where respondents for any reason are unable to complete such requested repairs within thirty
(30) calendar days after receipt of written notice of such defect from the purchaser or past
purchaser of respondents’ on-site residential housing, respondents shall furnish to such purchaser
or past purchaser (as defined in Part VIII) a written statement setting forth the reason or reasons
why such requested repairs cannot be undertaken or completed within such thirty day period and a
scheduled date on which the requested repairs are, in fact, to be completed within the next sixty
(60) day period.





     (b) Where respondents are or were prevented from completing repairs by scheduled date referred to
in subparagraph 6(a) above due to intervening circumstances beyond their control, such as labor
strike, supplier or subcontractor failure to deliver materials or perform work, or unsuitable
weather conditions, such repairs will be completed within a reasonable period of time not to exceed
sixty (60) days from the date of the termination of the
intervening circumstance.




     (c) Where
respondents for any reason elect not to honor such requests for repairs, respondents
shall,




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within twenty-one (21) calendar days of receiving such request for repairs, notify the
purchaser or past purchaser in writing why respondents will not honor the request.



*       *       *




III




*       *       *





     B. IT IS FURTHER ORDERED that respondents shall furnish purchasers of each unit of
respondents’ on-site residential housing with a warranty that is substantially identical to the
insurer’s and the warrantor’s undertaking in the Home Owners Warranty Corporation’s Home Warranty
Agreement . . . currently in use . . . and incorporated by reference in this order, including the
procedures for the settlement of disputes, provided that respondents’ undertaking for major
construction defects shall be for a term of at least four years from the commencement date of each
such warranty furnished, and provided further that nothing in this order shall relieve respondents
from complying with the Magnuson-Moss Warranty Act, Section 101
et seq. (15 U.S.C. §§ 2301
et seq.), the rules promulgated thereunder, and interpretations issued by the Federal Trade
Commission in respect thereto.



*       *      *




V





     IT IS FURTHER ORDERED that in connection with the advertising, offering for sale or sale of
on-site residential housing, respondents shall make available to each and every prospective
purchaser who visits respondents’ sales offices or model homes a brochure or a written statement
relating to such housing that will include the following disclosures in a clear, conspicuous and
affirmative manner:




     1. For on-site residential housing not covered by the National Flood Insurance Program
administered by the U.S. Department of Housing and Urban Development, the identity, address and
telephone number of the individual, business firm and government agency that conducted soil tests
on land used in the construction of the residential housing offered for sale. In addition,
respondents shall require their contractors to state in non-technical language to each prospective
purchaser who contacts such contractors whether the land tested is suitable for residential use;




     2. The identity or title, address and telephone number of the responsible public school
district authority who will



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furnish information relating to the identity and location of schools for the particular housing
unit;




     3. Each room or area of the particular housing unit to be purchased that is not insulated to
retain the same degree of warmth as rooms designed for use as principal living areas;



     4. Each room or area of the particular housing unit to be purchased that is constructed
without waterproofing adequate to render such room or area suitable for use as a habitable living
area;



     5. The most recent official tax rate and estimate obtained from the officially responsible tax
assessing authority and the identity or title, address and telephone number
of such tax assessing authority;



     6. A list containing each and every architectural design, construction feature, appurtenance,
optional item or equipment or other characteristic or feature
exhibited to the particular
purchaser in connection with a model home sample or style offered for sale to such purchaser which
characteristic or feature is not included in the model or style of respondents’ housing unit
offered for sale to such purchaser at the offered or advertised price;



     7. A list containing each and every construction feature, appurtenance, optional item or
equipment or other characteristic or feature exhibited to the particular purchaser in connection
with a model home sample or style offered for sale to such purchaser which characteristic or
feature cannot be included or duplicated in the particular housing unit offered for sale to such
purchaser even upon the payment of an additional charge because of the style, size, location or any
other reason associated with the land or the design of the particular housing unit offered;



     8. A notice that plans and specifications for each home being offered for sale are available
for inspection by prospective purchasers at respondents’ sales offices during normal business
hours; provided that such specifications shall include a full description of the materials and
components used by respondents in the construction of their on-site residential housing; and
provided further, that such description will be satisfied if it substantially includes the type of
information contained in the “Description of Materials” disclosure statements required by the United
States Federal Housing Administration (FHA Form 2005, as amended from time to time) or the United
States Veterans Administration (VA Form 26-1852, as revised from time to time);




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     9. A notice that
purchasers of respondents’ housing may select any lending institution
of their choice for the purpose of securing a mortgage and are not limited to the lending
institution provided by respondents;




     10. A statement setting forth respondents’ arrangement for repairs and the satisfaction
of warranties or in lieu thereof, a copy of the warranty required by Part III B of this
order that will be furnished with the housing being offered for sale and a statement of the
procedure for settlement of disputes under such warranty.



VI





     IT IS FURTHER ORDERED that respondents shall secure a written acknowledgement from each
purchaser of respondents’ on-site residential housing which shall state the following
information:




     1. That the disclosures referred to in Paragraph V of this order were received.




     2. The date on which the disclosures referred to in Paragraph V of this order were
received.



Residential Housing Developments




     9. In the five years immediately preceding the filing of
this complaint K&B produced, advertised, offered for sale and
sold units of on-site residential housing in 103 residential
housing developments in the State of California, including
Southridge, a development located in the City of Fontana, County
of San Bernardino, State of California.



Plan 3 Homes




     10. Commencing in 1983 and continuing for some period of
time thereafter, K&B built and sold a number of substantially
identical two story single family homes in Tracts numbered 7503,
17734, 18502 and 18574 located in the City of Riverside, County
of Riverside, State of California, and in Tracts numbered 11804



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and 12859 located in the City of Corona, County of Riverside, State of California (generally
referred to a Plan 3 homes).




First Cause of Action




     11. K&B
sold and delivered with a major construction defect a number of the above-described Plan 3
homes for use as on-site residential housing yet failed to take the necessary action to repair,
replace, or to pay the cost of repairing or replacing the defect in those housing units in
accordance with the provisions of K&B’s express warranty that was required under Part III B of the
Commission’s Order, thereby violating Part II 1 of the Commission’s Order.



Second Cause of Action




     12. K&B failed to repair, replace or to pay the cost of repairing or replacing major construction
defects under the terms of K&B’s express warranty required under Part III B of the Commission’s
Order within a reasonable period of time after receipt of a written request for warranty service
from the purchasers of a number of the Plan 3 homes, thereby violating Part II 6 of the
Commission’s Order.



Third Cause of Action




     13. K&B
failed to repair, replace or to pay the cost of repairing or replacing defects under the
terms of K&B’s express warranty required under Part III B of the Commission’s Order within a
reasonable period of time after receipt of a written request for warranty service from the
purchasers of a substantial number of units of K&B’s on-site residential housing in the




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Southridge development, thereby violating Part II 6 of the Commission’s Order.




Fourth Cause of Action




     14. K&B, in connection with the advertising, offering for
sale or sale of on-site residential housing, failed to make
available to numerous prospective purchasers who visited K&B’s
sales offices or model homes in K&B’s on-site residential housing
developments the disclosures required under Part V of the Commission’s Order, thereby violating Part V of the Commission’s Order.



Fifth Cause of Action




     15. K&B did not secure from numerous purchasers of K&B’s
on-site residential housing in a number of the residential
housing developments the written acknowledgement of the receipt
of one or more of the disclosures required by Part V of the
Commission’s Order, thereby violating Part VI of the Commission’s Order.



Violations Charged




     16. Each unit of on-site residential housing in which K&B in the five years prior to the
filing of the complaint failed to comply with the Commission’s Order in one or more of the ways
described above, except with respect to the Fourth and Fifth Causes of Action, constitutes a
separate violation of the Commission’s Order for which plaintiff seeks a civil penalty.



     17. Each prospective purchaser or purchaser of on-site residential housing with respect to
whom K&B in the five years prior to the filing of the complaint failed to comply with the



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Commission’s Order in the way described in the Fourth and Fifth Causes of Action constitutes a
separate violation of the Commission’s Order for which plaintiff seeks a civil penalty.




Prayer




     WHEREFORE, plaintiff respectfully requests that this Court pursuant to 15 U.S.C §§ 45(1),
49, and 53(b) and the Court’s own equity powers:



     1. Enter judgment against defendant and in favor of plaintiff for each violation charged in
this complaint;



     2. Award
plaintiff monetary civil penalties from defendant for the violations alleged in this
complaint;



     3. Enjoin defendant
from further violations of the Commission’s Order in Docket No. C-2954; and



     4. Award plaintiff such other and further relief as the Court may deem just and proper.



Dated: ____________________




	 	 	 	 	 
	 	 	STUART M. GERSON

Assistant Attorney General

Civil Division



WILLIAM BRANIFF

United States Attorney

Southern District of California


 	 
	 	By:  	/s/ JOHN R. NEECE
 	 
	 	 	JOHN R. NEECE 	 
	 	 	Assistant United States Attorney

Southern District of California

940 Front Street

San Diego, California 92101 	 
	 




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OF COUNSEL:




	 	 	 
	 

	 	/s/ JOHN R. FLEDER
	 

	 	 
	WILLIAM S. SANGER

	 	JOHN R. FLEDER
	Associate Director for

	 	Director
	        Enforcement

	 	Office of Consumer Litigation
	 
	JUSTIN DINGFELDER
	 	 
	Assistant Director

	 	/s/ DAVID LEVITT
	 

	 	 
	Division of Enforcement

	 	DAVID LEVITT
	 

	 	Attorney
	THOMAS D. MASSIE

	 	Office of Consumer Litigation
	Attorney

	 	U.S. Department of Justice
	Division of Enforcement

	 	P.O. Box 386
	 

	 	Washington, D.C. 20044
	ROBERT M. FRISBY

	 	(202) 514-6786
	Attorney
	 	 
	Division of Enforcement
	 	 
	Federal Trade Commission
	 	 
	Washington, D.C. 20580
	 	 







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