Monday, October 27, 2014

In effort to reopen modular factory, Forest City modular affiliate asks judge to intervene in dispute with Skanska

Two months since the factory producing modules for the stalled B2 tower shut down, FCRC Modular, the affiliate of developer Forest City Ratner, has asked a judge to intervene to allow it to reopen the factory without its former partner Skanska Modular.

The ill-fated partnership, known as FCS Modular, had signed a contract to produce modules for Skanska USA Building, which was hired by the B2 Owner, an affiliate of Forest City, to construct the tower. 

But Skanska has canceled both contracts, while claiming $50 million in damages from cost overruns. Skanska blames Forest City for defective intellectual property, while Forest City says Skanska agreed that the project was buildable without an increase in cost. The two parties filed dueling lawsuits, and B2 owner filed a separate lawsuit aiming to reopen the factory.

At a hearing 9/23/14 on that suit, Forest City unsuccessfully asked state Supreme Court Justice Saliann Scarpulla to order the reopening of the factory. She did not, but did order the parties to have a board meeting that, presumably, could hasten resolution of the dispute. It did not, so the court battle continues. (Also see Wall Street Journal article on whether Forest City's modular plan is feasible.)

Board deadlock

In a letter filed 10/23/14 with the court, FCRC Modular seeks a conference "to discuss defendant Skanska Modular's continued efforts to prevent the reopening" of the modular factory.

FCRC attorney Harold Weinberger noted that Skanska Modular had argued in court that FCRC Modular could reopen the factory immediately by presenting an opportunity to FCS Modular board--three directors from each partner--and if the board said no, the presenting member could go alone, licensing and using the company’s intellectual property and resources, including the factory.

Scarpulla last month did order a board meeting, which would trigger a “Buy-Sell” procedure so that one member could buy out the other. As expected the board deadlocked.

New opportunity must be equivalent?

FCRC Modular, according to Weinberger's letter, then informed the board of the new opportunity. Skanska Modular refused to consider it, according to FCRC Modular, "unjustifiably" claiming the financial aspects of the proposal had to be identical to the previous one. Skanska also said the parties had to agree with a license agreement regarding intellectual property and the factory.

After a phone conference, Skanska Modular’s counsel said the proposal only needed to be “functionally equivalent.”

FCRC Modular, in a 10/15/14 letter, said it would functionally equivalent, given that the B2 Owner would enter into a fixed price purchase order with FCRC Modular, and B2 Owner would pay cost overruns previously proposed to be borne by Skanska Modular and guaranteed by Skanska USA.

But B2 Owner would have the right to claim cost overruns against Skanska USA "as damages arising from the termination of their prior contract"--surely a major sticking point.

Mediation not enough

Skanska Modular, which FCRC Modular said "failed to respond to FCRC Modular’s letter for a week" (six days, to be precise), said it disagreed, because the proposal was "materially different," and said the issue should be addressed at the first scheduled mediation session between Skanska and Forest City, which also concerns the dueling lawsuits filed over cost overruns and breach of contract.

That session is set for November 3--a week from today.

FCRC Modular, according to Weinberger, said that was neither adequate nor appropriate, and has asked Judge Scarpulla to set a conference to address the dispute as soon as possible.

Earlier this month, Forest City, a minority owner of B2, bought out the majority owner, the Arizona State Retirement System. B2 is the only Atlantic Yards/Pacific Park tower not owned in partnership with the Greenland Group, which owns 70% of the project (sans arena) going forward, and--who knows--may well own a share of B2 when the legal battle is resolved.

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