A district court in Northern California dismissed a class action lawsuit filed against Pulte Homes that accused the builder and two affiliated companies of defrauding home buyers through unfair business practices.

A Seattle-based firm, Hagens Berman Sobol Shapiro, filed a 25-page complaint on October 23, 2009, on behalf of buyers and owners of Pulte-built homes. The complaint asserted that Pulte had perpetrated a “scheme” on its customers, which dated back to 2006. That scheme consisted of artificially propping up sales prices by creating demand through predatory marketing, lending and appraisal practices. The builder offered customers “massive” incentives to purchase homes through its mortgage company, which in turn increasingly pushed the vast majority of those customers, between the years 2005 and 2007, into adjustable-rate interest-only loans.

The complaint also claimed that appraisers did Pulte’s bidding by overvaluing homes. It pointed to one subdivision in Northern California, Ariel of Mossdale, where home prices in 2006 ranged from $558,000 to $694,000. The last home sold in this community, according to the complaint, was priced at $500,000; by the end of 2008, that same home was valued at $230,000.

All told, the complaint alleged that these practices placed buyers in homes they couldn’t afford and “created toxic subdivisions populated with homes built and financed at inflated values that were owned by homeowners who did not qualify and could not service their loans.”

The court rejected the complaint’s accusations “with prejudice,” as well as the overriding theme of the complaint that Pulte’s “misconduct” had contributed to the current mortgage and foreclosure crises. The court stated that the plaintiff’s claim wasn’t plausible because it could not show the alleged damages were caused by Pulte’s actions.

The court cited several other factors—including rising unemployment, and the overall economic weakness during the years in question—that also helped cause the housing recession and were outside of Pulte’s control.

In its statement about the court’s decision, Pulte cited previous associations between Hagens Berman and the Laborers International Union of North America (LiUNA), which for several years has been accusing the builder of unfair labor practices in an attempt—according to Pulte—to get the builder and its trade partners to sign union agreements. Pulte stated that the suit “drew on reports” about its business practices that LiUNA and other union-related groups have been amassing. However, a LiUNA spokesman, Jacob Hays, told BUILDER, on Monday that his organization was not involved in bringing this class action to court.

Pulte and LiUNA have tussled before. In a similar matter, Pulte announced Tuesday that the U.S. District Court for the Eastern District of Missouri has denied LiUNA's motion to dismiss the builder's lawsuit against the union for allegedly assaulting employees at a company meeting.

Steve Berman, a managing partner with Hagens Berman, issued a statement disagreeing with the court’s dismissal of the plaintiff’s case. “In effect, the court is telling homeowners ‘let’s wait and see.’ That is not providing justice to the thousands of Pulte homeowners who have lost their homes or are about to, due to Pulte’s manipulation of the market.”

Berman added that his firm would “certainly” appeal the court’s decision.

John Caulfield is senior editor for BUILDER magazine.

Learn more about markets featured in this article: San Francisco, CA, Seattle, WA, Los Angeles, CA.