Skip to main content

In modular tower dispute, judge mostly rejects Forest City effort to narrow Skanska's case for damages

Ruling in the preliminary stages of a bitter legal battle, state Supreme Court Justice Saliann Scarpulla rejected most of Forest City Ratner's efforts to narrow one of the three lawsuits between it and Skanska USA regarding their ill-fated and now dissolved partnership over the delayed modular tower known as B2.

Forest City Ratner and its affiliate Atlantic Yards B2 Owner aimed to get most of Skanska's lawsuit dismissed before the case moved further toward trial. The decision (see bottom), dated 7/16/15 and released on 7/20/15, mostly favored Skanska, although it's still early in the process and does not portend an ultimate victory. Forest City did win on a few arguments.

Neither side publicized the decision, perhaps because neither could claim unambiguous good news. But I suspect that had Forest City won more, given its aggressive press strategy, it would have pitched the news to a receptive reporter.

The background

Skanska agreed to lead the fabrication of the modules for B2, slated to be the world's tallest modular tower, and to construct the building, the first of what was purported to be a 100% modular buildout for the full Atlantic Yards project. A company affiliate, Skanska Modular, partnered with FCRC Modular, a Forest City affiliate to form FC+Skanska Modular, to build the modules.

After cost overruns, delays, and warnings about defects, Skanska closed the factory in August 2014, to Forest City's protest, with B2 having risen only about one third of the planned 32 stories. Forest City has since reopened the factory under its own management and is completing the building, which it owns 100%, after buying out partner Arizona State Retirement System.

However, Greenland USA, the new majority owner of the remaining Atlantic Yards/Pacific Park project, has decided that the next buildings would be built conventionally. Only after B2 is completed will we see whether the factory at the Brooklyn Navy Yard is used for other project buildings or other buildings in New York City.

Efforts to narrow the case rejected

The defense aimed to partially dismiss Skanska USA Building's second and third causes of action, as well as parts of the first cause of action. The first two causes of action each sought $30 million in damages.

In the first cause of action, Skanska claimed that the B2 Owner breached the Construction Management Agreement (CM Agreement) in seven ways, including by providing an incomplete design, failing to make timely payments, and failing to provide a factory and factory workers with sufficient skills. The defense argued that five of the seven breaches should be dismissed.

Regarding the alleged breach regarding insufficient and incorrect design, Forest City claimed the charges were vague. Scarpulla wrote that Skanska did provide sufficient specifics and that, contra Forest City's claim that Skanska waived any chance to protest against defects, the B2 Owner had agreed it would be liable to increased costs resulting from design flaws.

Scarpulla did not, however, grant Skanska's opposing request for summary judgment regarding these issues, instead leaving them for future court motions and a potential trial.

Regarding the alleged breach regarding the failure to issue change orders or directed changes for additional work or costs, Scarpulla agreed that the request for dismissal was "procedurally premature."

Regarding the alleged breach regarding Forest City's failure to make financial arrangements to fulfill its obligations, "B2 Owner fails to conclusively demonstrate that it provided financial assurances," wrote the judge, again leaving the issue for future legal jousting.

Efforts to narrow the case accepted

Regarding the alleged breach in failing to post a bond, the judge agreed that, in this case, there was no contractual provision that requires B2 Owner to comply with the Lien Law.

Regarding the alleged breach in failing to deliver a sufficient factory and labor force in a timely manner, B2 Owner cited a union agreement and a lease--and the judge agreed that the CM Agreement does not require a timely factory and adequate workforce.

Another route to damages OK so far

In the second cause of action, Skanska again charged  that it hadn't been paid on time and that B2 Owner had failed to issue change orders and pay for increases in costs caused by the owner.

The defense argued that this should be dismissed as duplicative, while Skanska said that this was an alternate theory, seeking common-law damages rather than those based on contract terms. The judge agreed that it was not entirely duplicative and did not dismiss it.

Piercing the corporate veil

In the third cause of action, Skanska aimed to "pierce the corporate veil," arguing that Forest City and its affiliates controlled B2 Owner, while that entity has no assets from which it can pay a judgment.

The judge denied Forest City's motion to dismiss, noting that Skanska showed that B2 Owner and other Forest City entities had overlapping ownership, personnel, and addresses.

 "Using underfunded subsidiaries or related single-purpose entities as a shield from liability arising from a construction contract is conduct that may support a claim for piercing the corporate veil," Scarpulla wrote.

Forest City keeps defense counsel

Skanska unsuccessfully tried to disqualify the defense counsel Troutman Sanders, saying that the firm represents another subsidiary of Skanska USA, Skanska Civil Southeast. According to the Rules of Professional Conduct, the judge wrote, a lawyer must get consent to represent a party adverse to the corporation's affiliates only when that affiliate "should also be considered a client of the lawyer."

Skanska and Skanska Civil, wrote Scarpulla, "do not have such an overlapping structure that Skanska should be considered a client of Troutman." For example, they have separate presidents and separate general counsels. There was no evidence that Troutman's role representing the Skanska affiliate could yield secrets related to the Skanska-Forest City dispute, she wrote.

Skanska also said the representation was adverse to a Skanska Civil director, Richard Kennedy, who is a defendant in a related suit filed by Forest City against Skanska. Troutman is not formally  involved in that case, but Skanska alleged that the firm is collaborating with the counsel of record, Kramer, Levin. The judge did not directly address that allegation but subsumed it, apparently, under her overall ruling regarding the issue of representation.

Comments

Popular posts from this blog

Barclays Center/Levy Restaurants hit with suit charging discrimination on disability, race; supervisors said to use vicious slurs, pursue retaliation

The Daily News has an article today, Barclays Center hit with $5M suit claiming discrimination against disabled, while the New York Post headlined its article Barclays Center sued over taunting disabled employees.

While that's part of the lawsuit, more prominent are claims of racial discrimination and retaliation, with black employees claiming repeated abuse by white supervisors, preferential treatment toward Hispanic colleagues, and retaliation in response to complaints.

Two individual supervisors, for example, are charged with  referring to black employees as “black motherfucker,” “dumb black bitch,” “black monkey,” “piece of shit” and “nigger.”

Two have referred to an employee blind in one eye as “cyclops,” and “the one-eyed guy,” and an employee with a nose disorder as “the nose guy.”

There's been no official response yet though arena spokesman Barry Baum told the Daily News they, but take “allegations of this kind very seriously” and have "a zero tolerance policy for…

Behind the "empty railyards": 40 years of ATURA, Baruch's plan, and the city's diffidence

To supporters of Forest City Ratner's Atlantic Yards project, it's a long-awaited plan for long-overlooked land. "The Atlantic Yards area has been available for any developer in America for over 100 years,” declared Borough President Marty Markowitz at a 5/26/05 City Council hearing.

Charles Gargano, chairman of the Empire State Development Corporation, mused on 11/15/05 to WNYC's Brian Lehrer, “Isn’t it interesting that these railyards have sat for decades and decades and decades, and no one has done a thing about them.” Forest City Ratner spokesman Joe DePlasco, in a 12/19/04 New York Times article ("In a War of Words, One Has the Power to Wound") described the railyards as "an empty scar dividing the community."

But why exactly has the Metropolitan Transportation Authority’s Vanderbilt Yard never been developed? Do public officials have some responsibility?

At a hearing yesterday of the Brooklyn Borough Board Atlantic Yards Committee, Kate Suisma…

Barclays Center event June 11 to protest plans to expand Israeli draft; questions about logistics

At right is a photo of a poster spotted in Hasidic Williamsburg right. Clearly there's an event scheduled at the Barclays Center aimed at the Haredi Jewish community (strict Orthodox Jews who reject secular culture), but the lack of English text makes it cryptic.

The website Matzav.com explains, Protest Against Israeli Draft of Bnei Yeshiva Rescheduled for Barclays Center:
A large asifa to protest the drafting of bnei yeshiva in Eretz Yisroel into the Israeli army that had been set to take place this month will instead be held on Sunday, 17 Sivan/June 11, at the Barclays Center in Downtown Brooklyn, NY. So attendees at a big gathering will protest an apparent change of policy that will make it much more difficult for traditional Orthodox Jewish students--both Hasidic (who follow a rebbe) and non-Hasidic (who don't)--to get deferments from the draft. Comments on the Yeshiva World website explain some of the debate.

The logistical questions

What's unclear is how large the ev…

Atlanta's Atlantic Yards moves ahead

First mentioned in April, the Atlantic Yards project in Atlanta is moving ahead--and has the potential to nudge Atlantic Yards in Brooklyn further down in Google searches.

According to a 5/30/17 press release, Hines and Invesco Real Estate Announce T3 West Midtown and Atlantic Yards:
Hines, the international real estate firm, and Invesco Real Estate, a global real estate investment manager, today announced a joint venture on behalf of one of Invesco Real Estate’s institutional clients to develop two progressive office projects in Atlanta totalling 700,000 square feet. T3 West Midtown will be a 200,000-square-foot heavy timber office development and Atlantic Yards will consist of 500,000 square feet of progressive office space in two buildings. Both projects are located on sites within Atlantic Station in the flourishing Midtown submarket.
Hines will work with Hartshorne Plunkard Architecture (HPA) as the design architect for both T3 West Midtown and Atlantic Yards. DLR Group will be t…

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…

"There is no alternative": DM Glen on de Blasio's affordable housing strategy

As I've written, Mayor Bill de Blasio sure knows how to steer and spin coverage of his affordable housing initiatives.

Indeed, his latest announcement, claiming significant progress, came with a pre-press release op-ed in the New York Daily News and then a friendly photo-op press conference with an understandably grateful--and very lucky--winner of an affordable housing lottery.

To me, though, the most significant quote came from Deputy Mayor Alicia Glen, who, as the Wall Street Journal reported:
said public housing had been “starved” of federal support for years now, leaving the city with fewer ways of creating affordable housing. “Are we relying too heavily on the private sector?” she said. “There is no alternative.” Though Glen was using what she surely sees as a common-sense phrase, it recalls the slogan of a politician with whom I doubt de Blasio identifies: former British Prime Minister Margaret Thatcher, a Conservative who believed in free markets.

It suggests the limits to …