Sunday, November 16, 2014

Forest City seems ready to buy out Skanska's interest in closed modular factory; deal could close tomorrow

Forest City Ratner seems ready to buy out former partner Skanska from its share of the troubled, shuttered factory at the Brooklyn Navy Yard that was producing modules for the stalled B2 tower at the corner of Dean Street and Flatbush Avenue.

That deal--between the companies' modular subsidiaries--presumably would hasten the process to re-start the factory and resume construction, which has reached only ten of 32 floors.

The two partners, who've filed a total of three lawsuits, blame each other for delays and cost overruns in the tower. Skanska, which as manager of the factory shut it down in late August, on 9/23/14 terminated the overall contract to build B2, including the purchase order for the modules.

The reopening of the factory presumably could resolve one lawsuit, but the other two--regarding who should pay for the cost overruns--are on a schedule requiring papers to be filed by 12/9/14.

Deal closing tomorrow?

A letter dated Thursday, 11/13/14, from Skanksa attorney Bruce Meller to Justice Saliann Scarpulla (and filed with the court, bottom) indicates that closing on the deal was scheduled for tomorrow, 11/17/14, though "there remains a lot of work to be done."

He wrote:
Presently, the members of the Limited Liability Company, FC+Skanska Modular LLC ("FC+S") have accelerated the buy/sell provisions of the Limited Liability Company Agreement ("LLC Agreement"). The parties have agreed to a stated price, pursuant to which FCRC shall acquire Skanska Modular's interest in FC+S in accordance with the provisions of the LLC Agreement.
According to Section 13.2 of the LLC Agreement, the process begins with a proposed price from the Offeror (in this case Forest City). Then the Offeree (in this case Skanska) has up to 60 days to sell for the Proposed Offer Amount or to buy out the Offeror for the price that was offered.

Judicial conference this week?

Meller disclosed the news while informing Scarpulla that Skanska believes a request by Forest City Ratner Modular for a judicial conference on November 19 is no longer necessary. Forest City disagrees.

Meller wrote that "both parties are proceeding as rapidly as reasonable, and we expect that the transaction will close without a need to involve the Court." But if the closing has not occurred by November 19 and Forest City insists that the conference proceed, Skanska wanted to respond to Forest City's contentions.

A dispute

Meller's letter also addresses a previous letter from Forest City, which asserted that Skanska Modular engaged in "efforts to prevent the reopening of the factory which is at the heart of the parties' dispute."

Meller asserted that Forest City improperly used of § 3.7 of the LLC Agreement:
Section 3.7 embodies the "corporate opportunity doctrine" pursuant to which one member has the ability to offer to FC+S the opportunity to perform work upon stated terms and conditions. If FC+S declines to proceed with the opportunity upon the stated terms and conditions, FCRC has the right to proceed with the opportunity on the same stated terms and conditions.

Simply put, as of October 23, FCRC had presented one opportunity to FC+S and, after it was rejected, attempted to proceed with a different opportunity than the one offered to FC+S. Further, in apparent recognition that its actions were not in accord with the LLC Agreement, FCRC forwarded to Skanska Modular's Directors a different 3.7 proposal on October 31, 2014.

No further action was taken on that proposal, as within a few days thereafter, the parties made the buy-sell agreement described above.
Section 3.7 states that those utilizing the "Exclusive IP [intellectual property]" developed by the modular company have to present that business to use the company. If the company board says no, the Member (there were two members), could then pursue the project via a license agreement.

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