Article taken from the Santa Barbara News Press 
Published with permission

Bacara sues builders, engineers, insurers

Owners allege defects in construction

By FRANK NELSON 
NEWS-PRESS STAFF WRITER

11/07/04

 

Bacara Resort & Spa is embroiled in a huge civil lawsuit that has already tarnished the luxury hideaway's five stars and could jeopardize the resort's future, according to attorneys for the owners.

Underneath its impeccable glossy surface, the complex is rotting, cracking and crumbling away, the result of a litany of building defects, court documents allege.

Over the course of two years, the case has bogged down in a morass of multiple claims ricocheting among the resort owners, insurance companies, contractors, engineers, architects, subcontractors and sub-subcontractors.

This civil case has already generated well over one million pages of evidentiary documents and a stack of 30 door-stop files in the records office at the Santa Barbara Courthouse, and any trial is still more than six months away.

At the most recent case management conference there was barely room for the roughly 40 lawyers and assorted legal staff who crowded into the Santa Barbara Superior Court to hear Judge James Brown deal with technical submissions and set a timetable for the months ahead.

The case first surfaced in Los Angeles at the end of 2002 and initially involved four civil claims filed in Los Angeles, Santa Clara and Ventura counties.

 

Bacara's owners wanted the cases to proceed separately and fought to keep them away from the glare of publicity in Santa Barbara. "The slightest negative press or publicity can stigmatize and ruin a hard-earned five-star reputation," argued Peter Sheridan, one of the owners' attorneys, in a court document.

However, all matters were later bundled into a single action and moved to Santa Barbara, a decision taken for judicial and financial economy, and to avoid the possibility of conflicting or inconsistent rulings and judgments coming from different courts.

Representatives of New York developer Alvin Dworman's ADCO Group, one of three of his companies named in court documents as owners of the resort, declined to comment for this story. The half dozen law firms representing leading parties in the suit either did not return repeated calls or declined to comment.

Perched on a cliff top overlooking the ocean, with access from Hollister Avenue, the tony resort has been a jewel in the crown of Santa Barbara's hospitality industry since it opened in 2000.

 

On the surface everything seems serene and orderly as attentive staff purr quietly after well-heeled guests who pay from $425 per night for a garden view room to $2,600 for one night in a penthouse suite.

But Bacara owners say a closer look reveals cracked Saltillo tiles and marble floors, warped and pitted concrete balconies, uneven guest room floors, leaking door and window frames and buckled maplewood flooring in the exclusive Miro restaurant.

Not everyone agrees about the state of the 360 richly appointed guest rooms and suites, the 42,000-square-foot spa, the main lobby, three restaurants, four bars or the score of other buildings that dot the 78-acre resort.

And there's no agreement in sight on who's to blame or who should pay for the cost of repairs and damages which, according to some court documents, is closing in on $300 million.

Bacara has said it cost about $220 million to build the resort in the first place.

Among the people the resort owners have relied on for expert evidence to pinpoint the cause of Bacara's problems is James Carlson, a technical consultant for a roofing, waterproofing and cladding consulting firm in Seattle.

In his opinion, damage resulted from the prolonged exposure of building materials to rain and bad weather during construction, suggesting bad management and poor quality control by the contractors, Mr. Carlson's report said.

"Numerous wood-frame buildings were apparently exposed for months and were not protected or only partially protected from the rain," said the report, which is part of the court record.

"In some cases, the interior finished flooring of Saltillo tile was placed before windows and doors were installed," which allowed water to leak into porous concrete, wood framing and supporting beams.

In other court documents, the resort owners alleged that Colorado-based contractors Hensel Phelps ignored and tried to conceal warnings from various subcontractors about faulty construction along with a timber manufacturer's warning not to use wet materials.

The resort owners also alleged that Hensel Phelps engaged in a "long series of frauds, concealments and deceptions" after the defects were discovered, including not revealing test results that showed windows leaked.

Calls to the company and its legal firm were not returned.

Mr. Carlson said moisture is at "saturation levels" in many areas of the resort, meaning structures will continue to weaken, decay and degrade from the inside out.

In submissions to the court, a team of Los Angeles attorneys, led by Mr. Sheridan, has emphasized the severity of the impact being felt by the owners as a result of these problems and the time it is taking to resolve them.

In September last year he wrote that the ongoing loss of use and business interruption as a result of the defects was growing daily and was already into the "tens of millions of dollars."

In November he said related expenses and losses were running at more than $1 million a month.

The havoc caused by inspections and repair crews, he said, and the sounds of testing and repairs, have "driven vacation seekers away from the resort, resulting in a substantial and ongoing loss of business."

Mr. Sheridan said that since July last year the resort has been forced to close some of its more profitable penthouse and guest suites for inspection, testing or because of serious defects.

Buried in the court files is an extract from an online site posted by a disgruntled guest who complained about the state of the room and the response from staff, and advised others not to bother visiting Bacara.

"Even the resort's employees are voicing concerns to senior management about the future viability of the resort," wrote Mr. Sheridan, who also said -- 12 months ago -- that if the damage was not corrected immediately, it "will become irreparable."

The original $77,750,000 contract to design and build the five-star resort was signed with Hensel Phelps in October 1998 and a phased opening began in late 2000.

Court documents show that within months cracked and crushed floor tiles began showing up in several guest rooms and the resort subsequently added a list of other complaints, ranging from cracked concrete and marble to water intrusion and a leaking spa roof.

The owners say they have conducted thousands of tests around the resort. "Virtually every building . . . suffers from the structural effects of water intrusion and damage," court documents allege. "The resort suffers from systemic, progressive water damage."

In a Catch-22 echo that is causing gridlock within the case, insurance carriers are denying major liability while contractors and other defendants argue that $200 million worth of insurance coverage should be the first call for claims that have rebounded on them.

Numerous submissions have been filed over which should proceed first -- the insurance claims or the construction defects claims. The defendants also maintain that when the owners signed the insurance policies, they waived all rights against the main contractor and subcontractors.

TIG Insurance Company, which says it has already paid several million dollars to repair cracked tiles in guest rooms, argues that the water intrusion problem was discovered after the TIG policy expired.

"Faced with a multimillion-dollar intrusion problem in a year in which there was no coverage, ADCO devised a theory attempting to connect the water damaged discovered in 2003 with the cracked guest room tiles discovered in 2001," say the insurance attorneys in a court record.

Their submission goes on to say the resort then hired two groups of consultants to inspect and test and give credence to this new theory. Further, the insurance companies complain they have not been given adequate access to conduct their own testing.

However, in court documents Bacara's owners accuse the insurance companies of trying to turn "all-risk coverage into no-risk coverage."

They also suggest the insurance carriers have deep pockets and are deliberately stalling to increase financial pressure on the resort.

"ADCO justifiably blisters when it sees the requests for delay oozing from every position taken" by the insurers and contractors, Mr. Sheridan argued.

The insurance companies have responded that claims for damage and the costs of repair and mitigation are constantly changing and they need time to do their own checks.

They say they also need to be able to verify Bacara's claims of business interruption losses.

"Every time the insurance parties commit to dates and time frames, ADCO does something to disrupt their investigation and further delay matters," complained the Travelers Indemnity Company, which went on to accuse ADCO of "transparent gamesmanship."

Huge volumes of documents are being exchanged between the parties. In May this year TIG's attorney David Levy said the insurance company was reviewing 693,314 pages of documents and estimated there were another 500,000 to come.

At the most recent case management conference, more testing at Bacara was set for between Oct. 18 and Nov. 19 with additional time, if needed, from Nov. 29 through Dec. 17. Further conferences are scheduled for Nov. 17 and Dec. 15, while 68 days have been set aside for depositions.

The court has settled on June 1 for the start of the trial, overriding submissions from Bacara owners who wanted an earlier date and some other parties who felt that June was an unrealistically early target.

Estimates of the trial length range from four to 20 weeks.

ALLEGATIONS DETAILED

A 30-page document in the court files, dated August 2003, lists the alleged building defects and the cost of repairs:

  • Cracked tiles in guest rooms, deflection and deformation of guest room floors, damaged framing, defective waterproofing, cracked and pitted concrete on guest room balconies -- $118 million
  • Exterior cladding -- $42.2 million

  • Roofing -- $16 million

  • Defective waterproofing and other faults to corridors and stairs -- $14.6 million

  • Waterproofing -- $7.2 million

  • Guest room door frames and windows -- $5 million

  • Other buildings' doors and frames -- $4.7 million

  • Cracked marble flooring in the main entrance -- $3 million

  • Drainage defects at main entrance and terraces -- $2.2 million

  • Defective concrete and related waterproofing -- $1 million

  • Exterior nonstructural columns -- $700,000

  • Return air system -- $700,000

  • Missing gutters and downspouts -- $600,000

  • Guest room rugs -- $500,000

  • Property-wide electrical defects -- $450,000

  • Buckled and warped flooring in Miro restaurant -- $22,500

  • Defective water treatment, hot water piping and hot water return system -- $ to be determined

  • Projected cost of business interruption for seven years during repairs -- $68 million

  • Projected loss adjustment for seven years during repairs -- $11 million

    THE PARTIES

    The list of defendants, some of whom have launched cross-complaints against other parties, includes:

    Travelers Indemnity Company (Illinois)

    TIG Insurance Company (Los Angeles)

    Hensel Phelps Construction Co. (general contractors, Greeley, Colorado)

    KPFF Consulting Engineers (San Francisco)

    Hill Glazier Architects (Santa Clara)

    CalMat Co., doing business as Vulcan Materials Company, Western Division (Los Angeles)

    Granite Construction (Watsonville)

    Union Asphalt (Santa Maria)

    ETC Laboratories (Rochester, N.Y.)

    Access Consulting

    Sand Gravel Inc.

    Mendez Concrete

    Other subcontractors, sub-subcontractors and suppliers cover areas such as roofing, plastering, doors and windows, waterproofing and tiling.

    MIKE ELIASON / NEWS-PRESS FILE

    Underneath Bacara Resort & Spa's luxurious exterior, there are a number of building defects, according to court documents.

    RAFAEL MALDONADO / NEWS-PRESS FILE PHOTOS

    This 2000 photo shows the poolside area of Bacara & Spa under construction. Guests at the luxury resort can pay anywhere from $425 to $2,600 per night to stay in rooms such as the Presidential Suite.

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