Sierra Ventures Co-Founder Ordered to Pay $5.75 Million For New House

What sort of houses do successful VC and PE execs live in? Really nice ones that are very expensive.

An arbitration case sheds light on the lengths Jeff Drazan, the head of Bertram Capital, went to build a house in Woodside, Calif. Drazan co-founded Sierra Ventures and helped it raise eight funds before founding Bertram Capital in 2006.

This past February, Drazan and his wife Stacy had to fork over $5.75 million to Vance Brown Inc., a contractor, in a dispute over construction of the Woodside home, according to a story in The Alamanac. The Drazans ended up spending $18 million on the house, which initially was slated to cost $11.3 milllion.

The Drazans made “thousands and thousands and thousands” of alterations when constructing their new home and refused to pay for many of them, said Gregg Dulik, an attorney with Sedgwick, Detert, Moran & Arnold, who represented Vance Brown.

In October 2002, the Drazans contracted with Vance Brown to build the 13,000 square-foot house. The project included a main home, a tennis court, stables, a four car garage, a pool and pool house, as well as a spa. Construction on the 12-acre site began immediately, Dulik told peHUB. The project was supposed to take a couple of years but ended up taking longer due to the continued alterations. Dulik estimates that the Drazans made more than 5,000 modifications that had ripple effects on construction that were “catastrophic to the project.”

What sorts of things did the Drazans want changed? Well, they wanted to increase the capacity of the wine cellar, as well as change the cabinets and the doors and modify the interior beams of the house. The original plans called for a specific fireplace to be installed in the living room of the main house. But the Drazans went out “on a whim” and bought an extremely heavy, antique fireplace surround from Europe that required “extreme structural revisions” to the house to support it, Dulik said. Vance Brown ended up quitting in February 2005, because the Drazans refused to pay for many of the changes. The project was only 70% completed. “They were not paying the full amount that we were billing them,” Dulik said.

Another contractor came in to finish the project. Frog Creek Partners LLC, a limited liability company set up by the Drazans to own their home, sued Vance Brown for terminating the work early. A provision in Vance Brown’s construction contract called for any complaints to be handled in arbitration (Dulik claims Jeff Drazan is the one who wanted the condition). But the Drazans filed their complaint in San Mateo Superior Court.

The parties spent two years fighting about where the case would be decided before it was moved to arbitration in 2008. The parties spent 51 days arbitrating the case in 2009 before a decision, in February, was reached in favor of Vance Brown.

An arbitration panel concluded that the couple’s excessive number of changes to the home’s design and their failure to pay the costs associated with those changes was a “material breach” of a contract, the Almanac said. The Drazans ended up paying $5.75 million to Vance Brown, which included $2.5 million in damages, $2.5 million in attorney’s fees and $663,000 in pre-arbitration litigation costs (the $2.5 million is included in the over $18 million cost of the house). An $8 million counterclaim from Frog Creek was denied.

“[Jeff] Drazan thought he could push Vance Brown around and Vance Brown decided to stand up to him. Drazan lost on every count,” says Dulik. “The house is beautiful.”

Jeff Drazan and his attorney, Dan Alberti of McDermott, Will & Emory, could not be reached for comment.