For developer Tommy Spinosa, this can’t be an easy time.
As Spinosa tries to secure financing for Rouzan, his controversial traditiona neighborhood development planned for Perkins Road, a team of?attorneys is in federal court fighting national lenders trying to foreclose on his Perkins Rowe mixed-use development.
Meanwhile, other attorneys are in St. Tammany Parish court to defend his construction company, Echelon Construction Services, against dozens of liens and lawsuits by subcontractors who claim Echelon owes them millions for their work on Chenier, a Mandeville mixed-use development.
And on top of that, Echelon lost its residential and commercial contractor’s licenses earlier this fall. The State Contractor’s Licensing Board revoked the licenses in September after the company voluntarily surrendered them to the board, which had given it 30 days to settle two unpaid judgments to subcontractors on Perkins Rowe.
An attorney for Spinosa says he chose to surrender Echelon’s licenses so he could restructure his companies to focus on real-estate developments like Rouzan. Spinosa’s friends and colleagues say the legal problems and apparent hurdles are unrelated, and, more important, won’t affect the development of Rouzan.
But other people acknowledge with so much controversy surrounding Spinosa, at some point lenders looking at Rouzan will start to ask questions, regardless of the merits of the project.
“You can’t assume that the same composition of ownership exists between Rouzan and the other projects,” says Larry Denison, the Baton Rouge president of BancorpSouth, which financed part of the land acquisition for Rouzan. “But common sense would tell you that people [in the lending community] would think about those other problems when deciding whether or not they want to lend on Rouzan.”
Only Spinosa knows for sure to what extent his worlds might be colliding, but he’s not talking. His attorney, Brian McCullough, responded to questions about the revocation of Echelon’s licenses but would not comment on the other legal matters.
At the moment, Spinosa publicly says he is moving forward with Rouzan. The Planning Commission recently approved a second phase of the development, and though work has yet to begin on the first phase, work crews appear to be clearing parts of the property. But no final site plans have been submitted to the Department of Public Works, no permits have been filed and people familiar with the project say financing has yet to be secured.
To what extent the lenders weighing the project might be eyeing the foreclosure suit by KeyBank National Association, which is owed $170 million for financing construction of Perkins Rowe, is anyone’s guess. But local lenders suggest it factors into the decision-making process. Local developers say attorneys tell them the case is being closely watched around the country by people in real-estate development.
Last month, Spinosa’s attorneys were unsuccessful in trying to get the foreclosure lawsuit thrown out of federal court, a move that lawyers for KeyBank viewed as a stalling tactic. Meanwhile, dozens of subcontractors continue to seek payment for their work on the project, while others are receiving judgments in state and federal courts.
It’s a pattern being replicated in another set of lawsuits that have been filed against Echelon in St. Tammany Parish. Those suits are miniscule compared to the ones filed in the Perkins Rowe case. At stake is just $3 million on a $30 million project. Still, attorneys involved in the Chenier case say the lawsuits suggest a pattern.
“Although construction disputes at the end of a large construction contract are not uncommon, it is disturbing that the same contractor is involved at Chenier as with Perkins Rowe, and that similar allegations are involved,” says Sonny Shields, the New Orleans attorney who represents the plaintiffs in the case. He declined to discuss the case in detail.
According to other attorneys and court documents, however, the case dates to January 2007. That’s when Echelon entered into a contract with Chenier Property Partners, a group of Metairie investors, to build the Chenier Apartments on U.S. Highway 190. The project was financed with a mortgage insured by the U.S. Department of Housing and Urban Development, and was bonded by Travelers Insurance Company. It was completed on schedule early this year.
But in November 2008, subcontractors and vendors started filing liens in St. Tammany Parish court against Echelon—some claiming they hadn’t been paid in more than a year. SWC Services, which provided labor and construction equipment, was owed money as far back as September 2007, according to court documents. [The outstanding balance of $122,500 was eventually settled by Travelers.] Cole’s Equipment Rental has been owed money since September 2008.
“The thing that’s really troubling to us is that we pretty much haven’t been paid from the beginning,” says Carl Conrad, an attorney whose client, Wilserv, is owed $44,000 for mirrors and shelves it installed in the apartments.
In total, liens and lawsuits have been filed by 20 vendors and subcontractors. In court documents, attorneys for Echelon argue that the subs haven’t been paid because Chenier withheld Echelon’s final $3.14 million draw on the project in March 2009.
For its part, Chenier says in court filings it withheld the $3.14 million because Echelon did not satisfactorily complete the punch list. Perhaps more significantly, Chenier claims that Echelon repeatedly refused requests for a certificate of actual cost, which is required by HUD and is part of the mortgage agreement with the federal agency.
In court records, Echelon does not address the allegation that it refused to provide the certificate. It argues, instead, that its contract with Chenier calls for the two sides to seek arbitration should disputes over performance and payments arise. Court documents also fail to address the subcontractors’ claims their invoices were being ignored long before the final draw was withheld.
“The remaining 10% is a pretty typical holdback in construction projects,” Conrad says. “But they haven’t paid 90% of what they owe us.”
Conrad’s client, Robert Wilson, was so upset he filed a complaint with the State Licensing Board for Contractors.
“I don’t think it’s right when a contractor like that, on a repeated basis, is taking advantage of smaller contractors,” he says. “How can they allow him to continue working in this state?”
As it turns out, the state isn’t letting Echelon work in Louisiana anymore, though not because of the complaint filed by Wilson.
Coincidentally, about the same time Wilson filed his letter with the state, the board was hearing a complaint from two subcontractors from Perkins Rowe that at the time had not been paid the judgments awarded them in May by the 19th Judicial District Court. Firestop International was owed more than $71,000, and Gypsum Subfloors was owed nearly $130,000.
The board held an administrative hearing on Aug. 20 and ordered Echelon to settle the two judgments within 30 days or surrender its contractors’ licenses. According to a spokesperson for the board, Kris Fitch, the company voluntarily surrendered the licenses on the 29th day, at which time they were officially placed in revoked status. That means Echelon can no longer bid on jobs or work as a contractor in Louisiana.
McCullough says that’s not a big deal and won’t affect the development of Rouzan. In a written statement, he says Echelon voluntarily surrendered the licenses and has since settled the judgments with Firestop International and Gypsum Subfloors. He adds that because of the current economic conditions and a lack of construction projects, Spinosa chose to restructure his companies to focus more on real estate.
“For this reason we have deemphasized Echelon for the time being and voluntarily surrendered our license,” he says. “This will have no impact on the development of Rouzan or any future development.”
Spinosa’s friends and associates also point out that Echelon, which typically has been the contractor on his projects, can just as easily sub out those jobs to other contractors.
“He’ll be able to find someone else to do it,” one local developer says. “People are hungry for jobs right now. This is just a little hurdle, but Tommy will be able to overcome it.”
