Aggressive Cooperation Yields Great Results for Owner-Client
Our client, the owner of a downtown office tower with a glass curtain wall system had significant leakage problems throughout the building. The curtain wall contractor was applying band-aid solutions that were not working. The tenants (in a building that was 95% leased) were complaining and their complaints were growing louder by the month. The owner had a strong direct contract with the curtain wall installer that contained a favorable indemnification clause. We brought suit against the contractor and its insurer under breach of contract, indemnification and negligence theories, fully expecting the curtain wall contractor to implead the national curtain wall designer, who had deeper pockets. They did so.
However, we recognized that an indemnification clause is only as good as the indemnitor’s ability to pay. While a less experienced construction counsel may have marched forward with expensive depositions, written discovery and motions, we recognized that large legal bills did not equal success and did not address the biggest risk to the client --- the ongoing leaking.
Though the negligence allegation triggered insurance coverage and provided a defense for the glass contractor, the insurer reserved its rights to contest coverage, and the contractor claimed that without coverage, it may be forced out of business. While that was clear posturing, we knew we were not dealing with a deep-pocket contractor. We held early settlement discussions, which while they did not result in a settlement, they did accomplish a framework for damage mitigation and open communications.
The glass contractor hired a competent independent expert. That expert, along with our expert, began a process over a few years of investigating the leaks, limited water testing, and learning from the findings and ultimately resolving the vast majority of the leak issues. During this period, all parteis reserved all rights at the discovery was informal and streamlined. Periodically, we held settlement/planning conferences with the defendants and their counsel and experts and were able to obtain multiple extensions on the scheduling order to accommodate this process. While the process took time, we didn't needlessly burn client money.
Once our damages, which included attorneys’ fees reimbursement, were finalized, we mediated the case and took an aggressive position at mediation. We were able to obtain a result that included repayment of all attorneys’ fees, all out-of-pocket costs paid by our client for its experts, covering all repair work, and a fund to address any future leaks. The building is largely leak-free and has remained 95% leased throughout the five-year process. We are confident that had traditional legal discovery taken place, the fees that would have been incurred would have been multiple times those incurred and would have precluded settlement on the advantageous terms achieved.
Protecting Contractor’s Lien Rights: A Multi-Disciplinary Approach
A client subcontractor called us about a project that they sensed was in trouble. They hadn’t been paid in a few draws and the general contractor, who was affiliated with the developer, was asking it to continue working while “financing was put in order.” We advised the client to be extremely wary. We recognized that the lien protection that the contractors had was their best (but not a perfect) weapon. We advised the client to condition continued work on a payment of certain invoices. We further warned the client against using the standard lien waiver forms made available by title companies. We recognized that those forms often waived lien rights that the contractors don’t realize they are waiving. This specifically involves waiving lien rights to retainage amounts. The client contractor conditioned continued work upon the use of the correct lien waiver form, which waived rights only to amounts for which the contractor had been paid.
We specifically referenced a draconian Wisconsin Statute in the lien waiver in order to insure we were not waiving rights we shouldn’t. Our client was paid and continued working.
Not surprisingly, the job ultimately shut down and was left half-completed for several years. The contractor developer began a state court receivership (a quasi-bankruptcy procedure) and embarked upon a no holds barred discovery fight with the lender. We recognized that the costs of this fight would severely compromise the client. Working with the client, we arranged for a joint representation agreement among several similarly-situated subcontractors. This helped each of the subs decrease their legal costs. We negotiated conflict waivers because all contractors were in slightly different positions based on the condition of the lien waivers they signed.
While state and national banks and savings and loans have a super priority under Wisconsin Statutes to place them ahead of contractor’s liens in priority, we noticed that the lender here was non-traditional. Working with our Financial Services Industry Team, we were able to develop an argument that the lender was not entitled to that priority. While other less reliable and more discovery-heavy theories were championed by others, we opted out of that activity. The circuit court adopted our rationale, placing the subs in first position. We then agreed to a special master proceeding to determine lien waiver and perfection issues. The clients in our subcontractor group had varying success based upon the strength of their lien waivers. The client who first came to us and obtained our advice on the lien waiver at the front end received the best recovery because they had properly perfected and not waived their lien rights. Others received less and some subcontractors received nothing.
The multi-disciplinary approach allowed us to obtain a six-figure recovery for a subcontractor in a situation where it otherwise would have received nothing. The attorneys’ fees were managed, minimized and a fraction of the amount recovered.