Dragados Gets Less After $22M Verdict Overhaul
(CN) - After the company it bought came under fire from Uncle Sam, New York City construction giant Dragados can recover just 5 percent of what it lost from that company's former owner, a federal judge ruled.
Dragados, a division of the multibillion-dollar Spanish construction company Grupo ACS, bought the Secaucus, N.J.-based Schiavone Construction from Raymond Donovan and his partner Ronald Schiavone for $150 million in December 2007.
Donovan and Schiavone fully divested themselves of their shares of the company's stock, and Dragados paid them $65 million each and owed each $10 million payable a year later.
Federal agents raided Schiavone's corporate office less than two months later.
Prosecutors seized $20 million from the firm in December 2010, claiming Schiavone had failed to honor public contracts that required it to comply with the New York State Minority and Women-owned Business Enterprises program.
From 2002 and 2009, the firm accepted public contracts in New York City, including projects on the Croton Filtration Plant, worth a combined $330 million, and on the Times Square subway rehabilitation and South Ferry station construction, which cost a total of $351 million.
It hired women- and minority-owned businesses to meet its minority percentage goal required under each contract, but passed the actual work off to a different company.
Dragados ultimately entered into a nonprosecution agreement with the U.S. Attorney for the Eastern District of New York, and informed Donovan and Schiavone that it would not be paying the scheduled installments. It said the stock purchase agreement entitled it to indemnification for losses arising from the investigations by several government agencies.
Donovan and Schiavone ultimately filed separate breach-of-contract suits against Dragados, which were consolidated in the District of New Jersey.
With Dragados and Schiavone reaching a settlement, a bench trial went ahead judg between Dragados and Donovan.
U.S. District Judge Katharine Hayden found this past June 28 that Donovan had breached the stock purchase agreement and that Dragados could recover the $22.37 million payment made to the government to resolve the criminal investigation.
Both parties asked the court to reconsider, and Hayden amended her judgment Tuesday.
"The anomaly here is that Dragados settled with Schiavone and remitted $1.6 million to his estate," the unpublished opinion states. "Dragados agreed, in effect, to take less than Schiavone's portion of the installment payment and none of the amount of its losses over the installment payment. Applying the Section 10.5 formula to calculate Donovan's obligations so that more than his $10 million portion of the installment payment is imputed as an offset would result in Donovan's absorbing an extra $1.6 million in the fund as his responsibility, when the terms of the SPA allocated each partner as equally contributing to the $20 million that Dragados could use to offset any losses, just as the SPA required each to contribute 50 percent toward any losses above the $20 million. Dragados may not go beyond the SPA's clear and bargained for terms, by relying on Sections 289 and 294 of the Restatement (Second) of Contracts along with broad recitations of contract law with the aim of getting back from Donovan what it did not get from Schiavone. It is impossible to interpret the SPA as putting either Donovan or Schiavone in the position of funding the other's portion of the installment payment plus the other's portion of any losses above the installment payment for a loss arising out of a joint representation." (Emphasis in original).
After subtracting $20 million from $22.37 million, and dividing that figure in two, Donovan is liable for $1.185 million. It also owes one-half of the investigation attorneys' fee award, and all of the trial attorneys' fees. Pre-closing tax credits plus interest is to be subtracted from the amount, the ruling states.