Unconventional Strategy and Team Effort Produced Hefty Construction Defect Settlement

Published on: February 13, 2014

 

This office’s recent $12,250,000.00 settlement of a construction defect lawsuit filed by One Charles Condominium provides a noteworthy example of how a dedicated board and a committed team of professionals can effectively manage and successfully resolve even the most complex and challenging litigation matters.

The One Charles Condominium is a luxury condominium building located on Charles Street in downtown Boston. The project was developed by MDA Park, LLC, a single purpose entity related to and affiliated with Millennium Partners.

In 2007, the condominium association sued MDA alleging, among other defects, that the heating, ventilation and air conditioning (“HVAC”) system was negligently designed. The condominium association amended its complaint two years later to add claims directly against the company that designed the building’s HVAC system.

The association’s primary claim was that because of design flaws, the amount of air the building mechanically exhausted significantly exceeded the amount that was mechanically supplied. Compounding that problem, the association claimed, the air mechanically supplied by rooftop air handling units was effectively trapped in the common corridors of the building. This created a significant imbalance in the air pressure inside the units and outside of them that drew excessive amounts of untempered and unconditioned outside air into the units directly through the building envelope, resulting in high interior humidity at certain times and under certain conditions.

 

Flawed Design

Although there are no certainties in any litigation, this office was confident that the our expert witness could support his opinion that the flawed design of the HVAC system was responsible for the air quality, high humidity and other problems the community had been experiencing. The engineering analysis together with anecdotal and empirical evidence, we thought, demonstrated sufficient liability risk for the defendants and sufficient likelihood of a damage award against them to bring them to the settlement table. We were puzzled when that was not the case.

As the pre-trial process continued, it became apparent that the engineering firm responsible for the design was expecting the developer (MDA Park, LLC), who had the deepest pockets and ostensibly the most at risk, to handle the defense and pay the lion’s share of any damages the association was awarded.

However, we saw no circumstance in which MDA would willingly absorb the loss resulting from a settlement, when the association’s evidence suggested that the engineering firm was primarily responsible for the problem.

MDA had already asserted claims for contribution and contractual indemnification against the engineering firm. This suggested that if MDA was found to have liability to the association, it would expect reimbursement from the engineering for any damages the company (MDA) had to pay. Because MDA could reasonably expect to recover the engineer’s contribution at trial, the company clearly would have little motivation to pay a significant portion of any settlement.

That explained why the settlement process had bogged down and suggested a solution to the problem. The problem: Everyone involved ― the developer, the engineering firm and the contractors – was assuming that someone else would be on the hook for any loss, so no one was interested in settling. The solution: A ‘divide- and-conquer’ strategy to change the risk reward calculation and make settling a more appealing option.

The board decided to break the log-jam by making MDA an offer it couldn’t – and didn’t – refuse: A settlement amount significantly lower than even the limited share of the damages the company would probably have been willing to pay as part of a universal settlement or damage award. Taking MDA off the field left the engineering firm with far more liability exposure than it expected, and without the legal team (MDA’s) that had been handling the defense.

 

Sudden Exposure

The engineering firm must have felt a little like a quarterback dropping back to pass who sees four huge tackles heading toward him, and discovers that the front line he thought was defending him is sitting on the sidelines. That could not have been a comfortable feeling and it became even less comfortable when the trial judge took two definitive actions in the board’s favor: The first was the entry of an order barring the “supplemental” expert testimony the engineering firm wanted to submit (because it raised new issues); the second was a statement, in open court, that the defendant’s expert disclosures were unacceptably vague and did not comply with the minimum requirements necessary to allow the experts to testify. Those developments left the engineering firm in an even worse defensive position and much more receptive to the settlement we eventually negotiated.

While confidentiality provisions prevent disclosure of the settlement details, including who ultimately paid how much, the association’s board was not disappointed in the $12.25 million the association received.

 

Team Effort

The significant role the board and the management company (The Dartmouth Group) played throughout the process cannot be overstated. The board members were sophisticated, conscientious, dedicated, motivated and deeply involved in the case during the four years of active litigation. During the last two years, the board was meeting or at least speaking with counsel virtually every week to discuss strategy and assess options.

The building manager, Brian Buhler, worked tirelessly on the board’s behalf and was always responsive, working with counsel and experts to make sure the information needed to support the claims was made available and the protocols established to protect confidential information were closely followed.

The board’s forensic experts from CCA, Construction Consulting Associates, LLC, Dr. Martin Barry and Clark Griffith, provided rock solid analysis and assisted greatly in converting highly technical engineering and architectural issues into a comprehensive and comprehensible narrative.

 

Walking a Tightrope

 

The board had to walk a tightrope – keeping owners informed without divulging expert testimony, strategies and other privileged information that, if disclosed to the opposition, would have seriously weakened the association’s case. It was a very difficult balancing act, and the board handled it well. Board members also deserve tremendous credit for their ability to focus on and assess the complicated legal and financial issues involved and make informed decisions about how best to protect the association’s interests.

The board was demanding at all times, with counsel and with its experts, and those high expectations contributed in no small part to the quality of the product at the end of the day. The board valued the opinions of each member of the team, but it challenged everything in insightful and productive ways.

While the legal strategy devised worked out well for the board, executing the strategy was a team effort all the way. And that team effort – the involvement of a dedicated board, a responsive and professional management company and intelligent and skilled experts – was every bit as important as the legal strategy in securing the positive outcome achieved.

By: David M. Rogers