Union workers win $76M from Midtown construction firm that used alter-ego company to skirt collective bargaining

A Midtown construction company accused of creating a bogus business to avoid union wages and union benefit payments has to cough up $76 million to the workers it cheated.

In a decision with potentially far-reaching consequences for city developers, Manhattan Federal Court Judge Colleen McMahon found that Navillus Tile fraudulently invented an alter-ego company to try and get around collectively bargained agreements it had with several major city construction unions.

The company also had one of its legitimate offshoot businesses act as a Navillus stand-in on a job it wanted to do non-union, the ruling found.

The collusion also involved real estate giant Related, one of the city's most prolific developers.

It knowingly engaged with one of the alter-ego companies on its Upper East Side luxury development on 92nd St., Judge McMahon's ruling said.


 In her scathing, 95-page ruling delivered late Thursday after a three-year court battle, McMahon said that Navillus' founder, Donal O'Sullivan had "perjured himself" more than once and noted that another company principal was "obviously lying" in some testimony.

Her feelings were clear in the $76 million award — a massive hit for Navillus Tile.

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It's also a strong warning to other New York companies looking to cheat their way out of union contracts, said attorney Tom Kennedy, who represented the coalition of unions that sued Navillus in 2014.

Attorney Tom Kennedy (Jefferson Siegel/New York Daily News)

"The scale of the verdict is, we think, the largest of its type in the U.S. and it will grow at 9% interest until it's paid off," said Kennedy.

"People will now recognize that they are betting their entire company and can lose it if they are caught cheating with one of these double-breasted alter-ego operations," he said.

The financial pain has to be carried by Navillus, which was the main generator of the alter-ego scam, but developer Related - which is currently doing the city's Hudson Yards project — also played a role, the attorney noted.

"It looks they were involved up to their eyeballs in this," he said.

In a statement Navillus said it was a "staunch" labor backer and supporter of union pension funds.
"We are very disappointed by the court's verdict, a decision that is inconsistent with long-standing legal principles applicable to alleged alter ego cases such as this," the statement said.

"We are currently reviewing all of our options including appealing to a higher court to reverse this erroneous decision," it concluded.

The collusion also involved real estate giant Related, one of the city's most prolific developers. (Drazen_/Getty Images)

The $76 million in back wages and contributions to health, pension and general welfare funds will be split between the Metal Lathers Local 46, Cement and Concrete Workers District Council, Cement Masons Local 780, the District Council of Carpenters and Teamsters Local 282.

They came together in 2014 to launch the complicated lawsuit against Navillus Tile, which had signed collective-bargaining agreements with all of them for a variety of jobs on construction sites.

"An alter-ego case is one of the most difficult to prove, you need a whole set of criteria and it can be very hard to find the documentation to back up the claims," said Terry Moore, business manager of Local 46.
"We were lucky that we were able to get a lot of things through discovery," he added.

What the unions were able to show Judge McMahon was a clear money trail linking Navillus Tile to the creation of a company known as ACS.

ACS was created to allow Navillus to tap non-union labor for its bids on projects — like the 92nd St. one done by Related.

But such a move was in violation of Navillus' collectively bargained contracts with Local 46 and the other unions.

The $76 million in back wages and contributions to health, pension and general welfare funds will be split between the Metal Lathers Local 46, Cement and Concrete Workers District Council, Cement Masons Local 780, the District Council of Carpenters and Teamsters Local 282.(bezov/Getty Images/iStockphoto)

Those contracts stipulate that the company can't fill their jobs with non-union workers.
ACS existed on paper - but in reality it was just a sham for Navillus, Judge McMahon's ruling found.
Navillus also got smacked for using one of its separate entities — a development company called Times Sq. — as an illegal stand in on a project known as the Sugar Hill job.

For that deal, Times Sq. acted as the principal contractor — but it was merely a facade for Navillus, McMahon said.

In arriving at her $76 million award, McMahon calculated the wages that the union workers would have gotten if they had been deployed on Navillus' jobs per their contract.

She also calculated what the company would have paid in to the unions' health and benefit funds over the same time frame.

In a peculiar twist of logic, the attorneys for Navillus had argued in court that McMahon's calculations were off.

They claimed the judge should reduce the hours spent with non-union workers — because if the company had used union labor, the jobs would have been done faster.

"They produced expert testimony saying union companies were 17 to 22% more efficient ... and so the hours should be reduced based on that," said Kennedy. "That's a lot of chutzpah."

Source: NY Daily News