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Forest City wins skirmish in modular case after Court of Appeals decision, but battle continues

The long-running legal battle between Skanska USA Building and Forest City New York (and affiliates) over responsibility of cost overruns in the ill-fated modular project recently saw a partial win for the latter in the New York Court of Appeals.

In a decision dated 4/26/18 (but only recently made public), the court agreed that lower courts properly dismissed part of Skanska's claim, which alleged that Atlantic Yards B2 Owner, the special purpose entity that owned the building now known as 461 Dean, had breached the Construction Management and Fabrication Services Agreement (CM Agreement) by allegedly failing to comply with a state law.

Skanksa noted that Forest City's lease with Empire State Development (ESD), which formally owns the project site, requires that it to "satisfy all requirements of Section 5 of the New York State Lien Law . . . as such requirements and law are interpreted from time to time by [ESD]."

Skanska alleged that B2 Owner breached the CM Agreement by failing to post a bond or undertaking in violation of Lien Law § 5. An appellate court held that a guaranty issued by Forest City's parent, then called Forest City Enterprises, satisfied the law, while dissenting Justices disagreed.

The Court of Appeals noted that "the CM Agreement contains no express provision requiring compliance with the Lien Law" and said that "we decline to interpret the CM Agreement as 'impliedly stating something which [plaintiff and B2 Owner] have neglected to specifically include.'"

The case continues

The case is by no means over. In a stipulation filed 5/29/18, the parties agreed to withdraw certain documents (a Motion to Amend and Motion to Dismiss) and stated:
The parties will continue to work to resolve the issues raised in the Motion to Amend and the Motion to Dismiss, including by Skanska preparing revised proposed pleadings in the B2 Owner Action and the Skanska Action and by B2 Owner reviewing such proposed pleadings to determine if the amendments can be completed on consent. To the extent the parties are unable to resolve these issues, each party reserves the right to seek further guidance from the Court, including without limitation by asserting the arguments and positions in the Motion to Amend and the Motion to Dismiss, which are hereby fully reserved.

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