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Lender sues building owner to enforce development contract

For the past seven years, motorists driving on the 22 Freeway in Orange County have seen the steel framework for an unfinished six-story building in Garden Grove. Virtually no work was done on the structure during those seven years, and the framework acquired the nickname “Rusty Skeleton.” Now another contract dispute threatens to derail recent plans to finish the structure.

In 2014, Cathay Bank signed a development contract with the Hoag Foundation, the owner of the building, in which the parties agreed to work together to complete a mixed-use development. Hoag, however, has now expressed strong opposition to moving forward, saying that the project is no longer financially feasible. To complicate matters, the city of Garden Grove issued a demolition order for the structure in 2013, but it has delayed execution in the hope that the Bank and Hoag can resolve their differences.

In December 2015, Hoag filed a notice that the Bank had defaulted on the agreement by failing to finish construction. The Bank has responded by commencing litigation in Orange County Superior Court accusing Hoag of fraud and breach of contract. In its complaint, the Bank alleges that it has spent more than $20 million on construction. The Bank is seeking $4 million in damages and an order compelling Hoag to move forward.

Like most such lawsuits, this case could take months or even years to resolve. On the other hand, the large amounts of money involved provide both parties with a powerful incentive to settle the case and proceed with construction. One of the keys to success in such litigation is the early retention of an experienced construction law attorney. Such a lawyer can provide an initial analysis of the case, an estimate of the changes of prevailing and potential litigation strategies.

Source: Orange County Register, “Money lender sues property owner as Rusty Skeleton saga drags on,” Chris Haire, Jan. 20, 2016