Fire district settles lawsuit

LACEY - A lengthy and complex lawsuit stemming from the construction of three fire stations has been resolved, and neither Lacey Fire District No. 3 nor the general contractor has to pay a penny in settlement costs.

In October 2005, Scott Wall Construction of Olympia sued Lacey Fire District No. 3 for $7.3 million for breach of contract. It alleged the district was responsible for deficient plans and unfair management by the architect and construction manager that added time and millions of dollars in costs to the project.

Scott Wall Construction had no legal right to sue the architect or construction manager individually because its contract was with the district. In a bid to shield itself from heavy losses, the district signed a "pass-through" agreement that enabled Scott Wall Construction to sue the architect and construction manager directly in the district's name.

The parties were required to try to resolve the lawsuit through mediation before trial and reached the settlement during a meeting July 17 in Seattle.

Thurston County Superior Judge Richard Hicks formally dismissed the lawsuit Aug. 23. The three-week trial was set to begin Oct. 1.

Under the settlement, the architect and construction manager will pay $1 million through their insurers, although both maintain they did nothing wrong. The fire district and Scott Wall Construction paid nothing.

"We didn't feel like we had any responsibility here, but that's the nature of litigation," said C. Scott Penner, the lawyer representing Olympic Associates.

The money will be split between the fire district and Scott Wall Construction, with the contractor receiving the bulk of the money to pay for a portion of its initial claim and help pay its legal costs, said W. Gregory Guedel, the attorney representing the fire district. The portion of the money going to the fire district will pay a "significant amount" of its legal fees, he said.

"It was a good result for the district and the taxpayers," Guedel said.

TCF Architecture of Tacoma and Olympic Associates Co. of Seattle agreed to settle the lawsuit to avoid a costly trial and the possibility of a costly verdict, their lawyers said.

The role change of the fire district from a co-defendant to a plaintiff "put us in a position of having to fight a battle over the contract that one of the parties in the contract wasn't interested in enforcing," said Kenneth Yalowitz, the attorney representing the architect.

It also exposed the TCF Architecture to possibly having to pay a multimillion-dollar judgment well above what its insurance could cover, he added.

Penner added there was a "very good prospect that the case was going up on appeal and continue for a significant period of time."

A surety bond was used to finish the project after Scott Wall Construction ran out of money for the project because of the extra costs. Contractors must secure a surety bond, usually from an insurance company, for the value of the project to ensure its completion.

With no bonding capacity, the company has been unable to work on anything but small construction projects since, said Scott Wall, its president.

"I'm pleased to be in a position to start moving forward with this company again," he said of the settlement. "... We took a huge hit, and we're carrying on."

Thomas Cook had continued to seek more than $100,000 in unpaid work from the fire district after it signed the pass-through agreement, but that claim was dismissed with the settlement.

The lawsuit stems from construction of three fire stations, a headquarters on Franz Street and stations on Mullen Road and Willamette Drive; expansion of a station on Steilacoom Road; and a new vehicle-repair shop. The district paid for the project using a portion of the $11.8 million in bond proceeds that voters approved in 2002.

The buildings opened in July 2005.

In the original lawsuit, Scott Wall Construction sought $6.9 million in damages for the extra cost and time it took to finish the project, and recovery of a $355,925 retainer used as an initial "good faith" payment.

In March, the fire district filed an amended complaint to reflect its new role as plaintiff in the lawsuit, seeking damages "in an amount to be proven at trial, but known to exceed the claims made by Scott Wall Construction."

Christian Hill covers the city of Lacey and military for The Olympian. He can be reached at 360-754-5427 or chill@theolympian.com.