Reading the Law Right
Recently, the U.S. Department of Housing and Urban Development reclaimed millions of dollars in housing funds that had been awarded to an Arizona Native American tribe, under questionable circumstances and with the tribe’s belief that federal law had been violated in the process. The dispute boiled down to the interpretation of federal statutes governing the use of such funds, requiring the Quarles & Brady team to argue in federal court against the Department of Justice. We were able to convince the court that the tribe’s reading of the key statutes was correct, and the court ordered that the funds be returned to the tribe.
It Is Not a Warehouse Without a Floor
Our client’s new 200,000-square-foot warehouse had a defective concrete floor. We moved quickly to assemble the right team to assess the situation, confirm workplace safety for the client’s employees, and identify where and how the construction defects occurred. While navigating the complexities of the economic waste doctrine, we coordinated the correct scope of repair and convinced the general contractor and its insurer as to a reasonable settlement early in the litigation to reduce the client’s costs and potential downtime―so the client could go back to focusing on its business.
Under Illinois Law
Following nearly two years of litigation and a two-day bench trial, we obtained a judgment on claims for both successor liability and fraudulent transfer related to a breach of a commercial lease. The trial stemmed from a prior trial victory in December 2012, when we won a $1 million judgment against a commercial tenant that breached its lease obligations to the firm’s client, the landlord. On the day before the December 2012 damages trial, the tenant’s primary secured lenders—which also had a minority ownership interest in the tenant—foreclosed their $55 million lien in the tenant’s assets and sold them all at sale under Article 9 of the UCC to a newly created company owned by the lenders. The theories on which the court granted relief in favor of our client were novel under Illinois law.
If Your Work Was Part of the Problem…
A developer hired a general contractor to construct four apartment complexes in Wisconsin. The general contractor and some of the subcontractors made a number of serious errors during the construction that caused significant water penetration and mold. Quarles & Brady, working with one of its construction experts, worked quickly to identify the defects, the scope of repairs, and total cost to repair. The general contractor, the subcontractors, and their insurers were joined in a lawsuit. Based upon our analysis of the law and the problems at issue, the defendants contributed their percentage of fault during mediation and our client received a seven-figure settlement to repair the buildings without the expense of a trial.
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.
Fair Is Fair
A national construction company had established itself as the low bidder on a $54 million contract. However, before work could begin, the municipality offering the contract disallowed the client’s bid, claiming that it had failed to meet the Disadvantaged Business Enterprise goal. The Quarles team argued the constructor’s case in an administrative trial and was able to convince the judge to reverse the order. The contract was fairly awarded to the low bidder, as originally promised.
Defending Good Work
Quarles & Brady represented an industrial general contractor in an American Arbitration Association arbitration case concerning a construction defects dispute with an Arizona municipality. We were able to prove to the arbitrator that the defect had been caused by poor engineering, not by the construction, and recovered more than $1 million in withheld payments as a result.
If You Can’t Obtain a Fair Settlement, We’re Fully Prepared to Take the Case to a Jury
Our client purchased an interest, via a §1031 exchange, in a building that was to be used as a daycare. Unfortunately, errors occurred in the lease and option to purchase negotiations by the client’s former counsel. As a result, our client lost its valuable, exclusive option to purchase the remaining 50-percent interest in the daycare. That error lead ultimately to our client selling its interest and losing the significant equity that would have come had it been able to exercise its option.
When the parties were unable to settle the claim, Quarles & Brady tried the case to a jury in Wisconsin. After a five-day trial, the jury awarded our client a verdict to reimburse them for their losses.
Early Resolution of an Owner’s Claim
When one of our contractor clients received an arbitration demand claiming a few million dollars in additional costs to complete a wastewater treatment plant, the contractor turned to Quarles & Brady not only to defend the claim, but to try and defend the claim in a way that would limit the damage to the client's relationship with its customer. We did just that. After taking a few key depositions and engaging in an early mediation, we were able to convince the owner to withdraw its demand without having to engage in extended dispute resolution proceedings.
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.