Skip to main content

In key preliminary ruling, judge rejects some Skanska arguments in dispute with FCR over modular factory

B2 from Flatbush Avenue
Forest City Ratner has won what seems a significant preliminary victory in one legal battle over its ill-fated partnership with Skanska USA to build the world's tallest modular tower.

The decision does not resolve any of the three pending cases, but does show a judge rejecting some Skanska arguments.

Among them: the claims that Forest City had promised to build the first three Atlantic Yards towers using modular techniques and that the Opportunity Brief, a business proposal from Forest City, made binding promises.

That judge, state Supreme Court Justice Saliann Scarpulla, is hearing all the cases, which face a 10/19/16 hearing.

Both Forest City and Skanska, when queried, declined comment.

For the 461 Dean Street tower flanking the Barclays Center, aka B2, Skanska USA agreed to fabricate, deliver, and erect the modules, and perform construction management services.

Skanska USA then hired FC+Skanska Modular (now FC Modular) to supply modules at fixed price of $31.4 million. Skanska Modular served as manager of the company, based at the Brooklyn Navy Yard. The goal: a revolutionary example of high-rise, modular construction.

Bitter dispute

Forest City had publicly said it aimed to build the entire project via this purportedly cost-saving technology, but B2, which broke ground in December 2012, took far longer than the two years announced. The new Greenland Forest City Partners joint venture, led by Shanghai-based Greenland Holdings, in 2014 decided to build the next towers conventionally.

In early September 2014, after Skanska closed down the factory at the Brooklyn Navy Yard, both Forest City and Skanska filed dueling lawsuits, blaming the other partner for causing delays and cost overruns. Indeed, 461 Dean will take nearly twice the time and cost far more than expected.

Skanska blamed a Forest City affiliate, the Atlantic Yards B2 Owner, for providing an inadequate design and an insufficient factory, among other things. It sought at least $50 million in damages. Forest City's affiliate blamed Skanska for breaching the parties' Construction Management and Fabrication Services Agreement (aka CM Agreement), causing delays and cost overruns.

Those cases remain pending, and the latest decision does not directly affect them, but Scarpulla's reasoning could have an impact.

Breach of contract

This latest decision regards a breach of contract suit filed in September 2014 by FCRC Modular against Skanska Modular, one-time partners in the factory. (Forest City bought out Skanska in November 2014 and later reopened the factory on its own to finish the tower.)

Forest City said Skanska Modular, led by President Richard Kennedy, unilaterally decided to shut down the factory, violating the parties' LLC Agreement. Forest City sought to have the factory reopened--which is now moot--and be awarded monetary damages and attorney's fees. Skanska said the B2 owner could have cured the various defaults on its side.

In response to Forest City's suit, Skanska Modular and Kennedy asserted 19 affirmative defenses, eight counter-claims and third-party claims. The judge agreed to dismiss all of the counter-claims--though perhaps left Skanska an opportunity to refile one of them.

But the judge dismissed only one of the affirmative defenses, which presumably sets up future battles in court.

The arguments, and the decision

For example, in its counter-claims, Skanska charged that Forest City failed to provide a sufficient capital contribution, factory, and labor pool, and provided defective and deficient intellectual property.

Justice Scarpulla agreed with Forest City that the LLC Agreement specified only that FCRC Modular was required to contribute the transfer of intellectual property, to negotiate a lease, and a collective bargaining agreement.

Skanska also asserts a breach of contract based on the Opportunity Brief Forest City circulated to prospective partners. But judge called the argument "meritless" because the brief was not a contract but a business proposal.

Skanska also charged that Forest City made false representations in the Opportunity Brief to induce it to enter into the LLC Agreement, including that there was a built-in pipeline of future towers, and that the modular design would be cost-effective. The LLC Agreement, the judge wrote, would rule.

Skanska alleged that Forest City repudiated its obligation by deciding that the modular company would not receive the contract to build two additional towers around the arena. The judge said that FCRC Modular was not bound by that pledge.

Additionally, the LLC agreement provided that such contracts would come only after completion and construction of B2, with certain leasing targets for it met, as well as financing targets for B3. So it seems Forest City would win on the merits.

In response to Forest City's request to recover $1.5 million paid to settle claims of furloughed workers, Skanska blamed Forest City for failing to negotiate a collective bargaining agreement that would permit the company to furlough workers. The judge agreement that the LLC Agreement contained no requirement for such a provision.

What's next?

Could Skanska open up its claims? The judge noted that "standard integration clauses" in the LLC Agreement and CM Agreement do not preclude Skanska Modular's reliance on representations outside of the agreement.

But she found that Skanska failed to state a claim against Forest City for fraudulent or negligent misrepresentation because such claims require more specificity. So I suspect that could leave open the possibility that Skanska re-files such claims.

Also, while Forest City moved to dismiss Skanska Modular and Kennedy's affirmative defenses, which blamed Forest City for negligence and the failure to mitigate production problems, the judge agreed that only one of those affirmative defenses was without merit.

So that suggests that, however many Skanska arguments were easily shut down, others will be further ventilated in court.

Going after third parties

Also, Skanska made some over-reaching claims that suggest the intensity of the dispute. Kennedy alleged that Forest City authorized publication of a press release that contained false and defamatory statements about him.

Forest City said the statement was a fair and true report of a judicial proceeding, and the judge agreed, noting that no facts backed the allegation that this was a malicious act.

Skanska and Kennedy also tried to get Forest City's p.r./lobbing firm Berlin Rosen and partner Greenland Holdings found in contempt, to produce documents, and pay attorney's fees.

The judge called the motion versus Greenland moot because she dismissed the counterclaims regarding alleged promises that the B3 and B4 towers would be built modularly. And she denied the motion against Berlin Rosen after denying the counter-claim regarding the press release.

FCR Skanska Modular Case Motion Decision 8/4/16 by AYReport on Scribd


Comments

Popular posts from this blog

Forest City acknowledges unspecified delays in Pacific Park, cites $300 million "impairment" in project value; what about affordable housing pledge?

Updated Monday Nov. 7 am: Note follow-up coverage of stock price drop and investor conference call and pending questions.

Pacific Park Brooklyn is seriously delayed, Forest City Realty Trust said yesterday in a news release, which further acknowledged that the project has caused a $300 million impairment, or write-down of the asset, as the expected revenues no longer exceed the carrying cost.

The Cleveland-based developer, parent of Brooklyn-based Forest City Ratner, which is a 30% investor in Pacific Park along with 70% partner/overseer Greenland USA, blamed the "significant impairment" on an oversupply of market-rate apartments, the uncertain fate of the 421-a tax break, and a continued increase in construction costs.

While the delay essentially confirms the obvious, given that two major buildings have not launched despite plans to do so, it raises significant questions about the future of the project, including:
if market-rate construction is delayed, will the affordable h…

Revising official figures, new report reveals Nets averaged just 11,622 home fans last season, Islanders drew 11,200 (and have option to leave in 2018)

The Brooklyn Nets drew an average of only 11,622 fans per home game in their most recent (and lousy) season, more than 23% below the announced official attendance figure, and little more than 65% of the Barclays Center's capacity.

The New York Islanders also drew some 19.4% below announced attendance, or 11,200 fans per home game.

The surprising numbers were disclosed in a consultant's report attached to the Preliminary Official Statement for the refinancing of some $462 million in tax-exempt bonds for the Barclays Center (plus another $20 million in taxable bonds). The refinancing should lower costs to Mikhail Prokhorov, owner of the arena operating company, by and average of $3.4 million a year through 2044 in paying off arena construction.

According to official figures, the Brooklyn Nets attendance averaged 17,187 in the debut season, 2012-13, 17,251 in 2013-14, 17,037 in 2014-15, and 15,125 in the most recent season, 2015-16. For hoops, the arena holds 17,732.

But official…

Is Barclays Center dumping the Islanders, or are they renegotiating? Evidence varies (bond doc, cash receipts); NHL attendance biggest variable

The Internet has been abuzz since Bloomberg's Scott Soshnick reported 1/30/17, using an overly conclusory headline, that Brooklyn’s Barclays Center Is Dumping the Islanders.

That would end an unusual arrangement in which the arena agrees to pay the team a fixed sum (minus certain expenses), in exchange for keeping tickets, suite, and sponsorship revenue.

The arena would earn more without the hockey team, according to Bloomberg, which cited “a financial projection shared with potential investors showed the Islanders won’t contribute any revenue after the 2018-19 season--a clear signal that the team won’t play there, the people said."

That "signal," however, is hardly definitive, as are the media leaks about a prospective new arena in Queens, as shown in the screenshot below from Newsday. Both sides are surely pushing for advantage, if not bluffing.

Consider: the arena and the Islanders can't even formally begin their opt-out talks until after this season. The disc…

Skanska says it "expected to assemble a properly designed modular building, not engage in an iterative R&D experiment"

On 12/10/16, I noted that FastCo.Design's Prefab's Moment of Reckoning article dialed back the gush on the 461 Dean modular tower compared to the publication's previous coverage.

Still, I noted that the article relied on developer Forest City Ratner and architect SHoP to put the best possible spin on what was clearly a failure. From the article: At the project's outset, it took the factory (managed by Skanska at the time) two to three weeks to build a module. By the end, under FCRC's management, the builders cut that down to six days. "The project took a little longer than expected and cost a little bit more than expected because we started the project with the wrong contractor," [Forest City's Adam] Greene says.Skanska jabs back
Well, Forest City's estranged partner Skanska later weighed in--not sure whether they weren't asked or just missed a deadline--and their article was updated 12/13/16. Here's Skanska's statement, which shows th…

Not just logistics: bypassing Brooklyn for DNC 2016 also saved on optics (role of Russian oligarch, Shanghai government)

Surely the logistical challenges of holding a national presidential nominating convention in Brooklyn were the main (and stated) reasons for the Democratic National Committee's choice of Philadelphia.

And, as I wrote in NY Slant, the huge security cordon in Philadelphia would have been impossible in Brooklyn.

But consider also the optics. As I wrote in my 1/21/15 op-ed in the Times arguing that the choice of Brooklyn was a bad idea:
The arena also raises ethically sticky questions for the Democrats. While the Barclays Center is owned primarily by Forest City Ratner, 45 percent of it is owned by the Russian billionaire Mikhail D. Prokhorov (who also owns 80 percent of the Brooklyn Nets). Mr. Prokhorov has a necessarily cordial relationship with Russia’s president, Vladimir V. Putin — though he has been critical of Mr. Putin in the past, last year, at the Russian president’s request, he tried to transfer ownership of the Nets to one of his Moscow-based companies. An oligarch-owned a…

Former ESDC CEO Lago returns to NYC to head City Planning Commission

Carl Weisbrod, Mayor Bill de Blasio's City Planning Commission Chairman and Director of the Department of City Planning, is resigning,

And he's being replaced by Marisa Lago, currently a federal official, but who Atlantic Yards-ologists remember as the short-term Empire State Development Corporation CEO who, in an impolitic but candid 2009 statement, acknowledged that the project would take "decades."

Still, Lago not long after that played the good soldier at a May 2009 Senate oversight hearing, justifying changes in the project but claiming the public benefits remained the same.

By returning to City Planning, Lago will join former ESDC General Counsel Anita Laremont, who after retiring from the state (and taking a pension) got the job with the city.

Back at planning

Lago, a lawyer, in 1983 began work as an aide to City Planning Chairman Herb Sturz, and later served as the General Counsel to the president of the NYC Economic Development Corporation, Weisbrod himself.