SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK x ATLANTIC YARDS B2 OWNER, LLC,

Plaintiff,

-against-

SKANSKA USA BUILDING INC.,

Defendant.

::::::::::x

Index No.

COMPLAINT

Plaintiff Atlantic Yards B2 Owner, LLC (B2 Owner), by its attorneys, Kramer

Levin Naftalis & Frankel LLP, for its complaint against defendant Skanska USA Building Inc.

(Skanska or Contractor), alleges on personal knowledge as to its own actions and on

information and belief as to the actions of others, as follows:

Overview

1. This action seeks damages and related declaratory relief arising from

Skanskas numerous prior breaches, its recent anticipatory breach, and its repudiation of the

parties Construction Management and Fabrication Services Agreement, dated October 31, 2012

(the CM Agreement).

2. B2 Owner engaged Skanska to construct a modular residential building

called B2 BKLYN in Prospect Heights, Brooklyn (the Project or B2 BKLYN) for a fixed

sum and in accordance with an agreed-to Project schedule. From the outset, however, Skanska

failed to perform under the CM Agreement as required. Skanska and the personnel it assigned to

this Project lacked the skill, experience and diligence to complete the Project in accordance with

the promised schedule and price. As a result, the Project has suffered significant delays and cost

overruns for which Skanska is responsible.

FILED: NEW YORK COUNTY CLERK 09/02/2014 11:52 AM INDEX NO. 652681/2014NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 09/02/2014

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3. The more Skanska floundered, the more it manufactured excuses to evade

responsibility for its own malfeasance. The Project was to be constructed using modular

technology i.e., with prefabricated modules that fit together to create completed apartments

that was thoroughly reviewed and approved in advance by Skanska and also approved by the

New York City Department of Buildings. However, when Skanska and its subcontractors

proved incapable of producing or assembling the modules in accordance with the pre-agreed

schedule and cost, Skanska belatedly and falsely claimed the modular design was defective

and required modification. Similarly, when B2 Owner required Skanska to accelerate its work to

recover from its own delays in accordance with the CM Agreement, Skanska refused. Instead of

taking responsibility for its own failures, Skanska chose to fabricate the excuse that delays were

caused by others. This excuse was both false as Skanska was responsible for the delays (and

costs associated with them) and had been waived as a contractual matter because Skanska

repeatedly failed to follow the notice procedures required under the CM Agreement. Of course,

Skanska failed to follow the notice procedures because its delay excuse was belatedly contrived

long after any applicable notice periods had expired. Simply put, Skanska was in over its head

from the outset and lacked the wherewithal or the willingness to invest the time, energy and

funds to recover from its delays, as required by the CM Agreement.

4. Skanskas mounting delays have caused, and continue to cause, significant

harm to B2 Owner. Among other things, B2 Owners construction lender temporarily stopped

advancing funds on its loan until it received a new anticipated substantial completion date.

Skanska, however, has refused to provide a new date, intentionally frustrating and delaying the

resumption of B2 Owners construction funding. B2 Owner has, therefore, been forced to fund

the construction costs out of its own moneys.

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5. Over the last six months, Skanskas desperate efforts to avoid

responsibility for its own delays and cost overruns (now in the tens of millions of dollars) have

become more extreme. In particular, on August 8, 2014, Skanska attempted to turn reality on its

head by sending a notice to B2 Owner wrongly blaming B2 Owner for all of these issues and

purporting to terminate the CM Agreement, effective September 22, 2014.

6. Compounding its wrongful conduct, on August 26, 2014, Skanska sent a

notice of its intent to stop all work on the Project, effective immediately, because B2 Owner

purportedly failed to provide Skanska adequate assurance of B2 Owners ability to perform its

financial obligations under the CM Agreement. Skanska, however, had no right to issue this

notice. Under the terms of the CM Agreement, B2 Owner was and is not presently obligated to

provide adequate assurance of its financial ability to perform as a condition precedent to work

continuing. In any event, even assuming, arguendo, that it were, B2 Owner has repeatedly

provided such assurances by timely paying Skanska with its own funds, demonstrating to

Skanska that it has additional funds available upon resumption of its construction financing, and

also by showing Skanska that B2 Owner has obtained additional equity financing to cover all

construction costs. Despite these assurances, Skanska wrongfully delivered notices to stop work

to subcontractors at the Project and the work has come to a standstill, demonstrating Skanskas

reckless and callous disregard of the trade subcontractors employed by Skanska and all of their

laborers and employees that are adversely impacted. Skanskas unilateral decision has

needlessly put more than 150 people out of work, and has also compounded damages caused to

B2 Owner.

7. Skanskas failure to complete the Work in accordance with the terms of

the CM Agreement has damaged B2 Owner and substantially delayed the completion of the

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Project. Skanskas current stoppage of work constitutes a further breach of the CM Agreement.

Moreover, Skanskas notice of termination and stop work notice constitute anticipatory breaches

and repudiations of Skanskas obligations under the CM Agreement. The Court should declare

that Skanskas notices were wrongful and in breach of the CM Agreement, and award B2 Owner

the damages already caused by Skanskas breaches as well as damages that B2 Owner will incur

in the future.

The Parties, Jurisdiction and Venue

8. Plaintiff B2 Owner is a Delaware limited liability company with offices in

New York.

9. Defendant Skanska is a Delaware corporation with offices in New York.

10. This Court has jurisdiction over Skanska under CPLR Sections 301 and

302. Skanska regularly conducts business in the State of New York, including in connection

with the transaction from which this action arises.

11. Venue is appropriate in New York County under CPLR Sections 501 and

503 because the forum selection clause in the CM Agreement so provides, and because

Skanskas offices are located in New York County.

The Pacific Park Brooklyn/Atlantic Yards Project and the B2 Site, Building and Modules

12. B2 BKLYN is the first residential building to be constructed at the Pacific

Park Brooklyn site (formerly known as Atlantic Yards). Anchored by the Barclays Center,

Pacific Park Brooklyn is a mixed residential and commercial development situated on 22 acres

that is ultimately expected to include 247,000 square feet of retail space, 336,000 square feet of

commercial space and 6,430 units of housing (2,250 of which will be affordable for low,

moderate, and middle income families).

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13. B2 BKLYN, located directly adjacent to the Barclays Center, is expected

to contain 363 rental apartments (50 percent of which will be affordable housing). Upon

completion, it is expected that B2 BKLYN will be 346,000-square-feet, and stand 32-stories

high.

14. B2 BKLYN was designed to be built using modular construction practices

and technology. B2 BKLYN is planned to consist of 930 pre-fabricated steel modules, which fit

together to create completed apartments. The modules are required to be fabricated at an off-site

factory, trucked from the factory to the Project site, and then stacked like blocks to form the

finished building.

15. This modular design was conceived by B2 Owner and its design team,

which included Ove Arup and Partners, P.C., as engineer, and SHoP Architects P.C., as architect,

and was reflected in drawings and specifications prepared by the design team for the Project,

which were reviewed and approved by Skanska. Unlike previous modular approaches, this

design allowed for the construction of a high-rise building.

16. Because modular construction requires a factory in which to assemble the

pre-fabricated modules, Forest City Ratner Companies, LLC (FCRC), an affiliate of B2

Owner, began a search for a partner to establish a modular factory business, and issued a request

for proposal to prospective partners with experience in modular design, manufacturing and

construction.

17. Skanska submitted a proposal, which, among other things, represented that

it had experience in modular building and manufacturing know-how. Skanska was selected in

large measure because of these representations, and the parties embarked on an information

sharing, due diligence and negotiation process that lasted approximately 10 months.

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18. During this process, Skanska was provided with a complete set of the

drawings, specifications and other documents and material information prepared by the Projects

design team, a peer review of the structural design prepared by Thornton-Tomasetti Inc., an

engineering firm, and proposed factory organization documents. Critically, Skanska had

approximately 10 months to review and verify this information, engage its own consultants, and

raise any concerns it had with the design, factory organization, or any other aspect of the

modular process.

19. Skanska availed itself of the opportunity to perform its own due diligence

by, among other things, thoroughly reviewing, testing and verifying the modular technology that

was to be used on the Project, thoroughly reviewing the drawings and specifications for the

Project, engaging its own exterior wall consultant to review the design (including such issues as

the faade system design), enlisting the assistance of its own European modular expert, and

commissioning full-scale prototype modules to test for design or other flaws. Skanska also

engaged various subcontractors, including such key trades as plumbing, fire sprinkler, carpentry

and electrical, to assist with its due diligence, many of whom later became subcontractors to

Skanska on the actual construction of the Project. Upon completion of its lengthy due diligence,

Skanska acknowledged and confirmed in writing that there were no flaws in the design or

constructability of the modular units that would have caused a material increase in the price of

fabricating modular units in connection with the Project. Ultimately, and based upon its own

review, verification and acceptance of the design and constructability of the Project, Skanska

determined the price and schedule for completion of the Project, as set forth, respectively, in

paragraphs 27 and 28 below.

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20. Contemporaneously with Skanskas due diligence and design review

process, the parties agreed to an economic and legal structure for the modular business and

construction of the Project. Under this structure, Skanska Modular, LLC (Skanska Modular), a

Skanska-related single purpose entity, would enter into a joint venture with FCRC Modular, LLC

(FCRC Modular), an FCRC-related single purpose entity, to form FC+Skanska Modular, LLC

(FCS Modular), the new modular business, of which Skanska Modular would be Managing

Member with control of the day-to-day operations of FCS Modulars factory. The intellectual

property necessary to conduct the business would be contributed by FCRC and FCRC Modular.

Skanska would be engaged by B2 Owner under a fixed-price contract (which ultimately became

the CM Agreement) for the construction of the Project, including all module fabrication and on-

site work, such as the excavation and foundation, structural brace frame, module erection, and

connection of the modules to one another. FCS Modular was to be hired as a subcontractor to

Skanska under the CM Agreement and would furnish it with modules under a fixed-price

purchase order contract. As between FCRC Modular and Skanska Modular, Skanska Modular

undertook responsibility for all cost overruns in performing this purchase order, and provided

security for this responsibility through a corporate guaranty provided by Skanska.

The CM Agreement

21. On October 31, 2012, the parties entered into the CM Agreement. The

provisions of the CM Agreement most relevant to this dispute are as follows:

22. Performance of Work: The CM Agreement states that Skanska, as

Contractor, is required to provide and perform, or cause to be provided and performed, all of

the Work. CM Agreement 3.1 Similarly, Contractor is responsible for fabricating the B2

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Modules and performing its other Work in accordance with this Agreement, the B2 Design and

approved Design Submittals. Id. at 2.4(a).

23. Work, is defined in the CM Agreement as all obligations, duties and

responsibilities of Contractor pursuant to this Agreement for the fabrication, delivery and

erection of the B2 Modules and construction management services in connection with the B2

Building, including all labor necessary to produce such construction, together with all

workmanship, transportation, and other services or things to be furnished by Contractor, to the

extent required by this Agreement. Id. at 1.1 (definitions, p. 5).

24. Skanska is required to supervise and direct the Work (id. at 3.6(a)),

establish quality control procedures (id. at 3.3), and perform the Work in a good and

workmanlike manner, in conformity with this Agreement, free of any faults or defects in

equipment, material, or workmanship performed by Contractor, or any Subcontractor retained by

Contractor for purposes of performing the Work. Id. at 8.1.

25. Skanska is required to hire and retain a sufficient number of employees

and other personnel with the requisite skill, training and experience to enable Contractor to

perform the Work in conformity with this Agreement. Id. at 2.3(c).

26. The CM Agreement allows Skanska to hire subcontractors to perform the

Work, however, [n]otwithstanding the foregoing, Contractor shall be responsible to Owner [i.e.,

B2 Owner] for the full performance of all obligations hereunder, irrespective of the conduct,

liability or default of any such Subcontractor. Id. at 2.1.

27. Price: For performance of the Work, B2 Owner is required to pay

Contractor the fixed sum of $116,875,078. Id. at 6.1.

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28. Schedule: The CM Agreement provides that the Scheduled Date for

Substantial Completion is 416 Business Days from the effective date of B2 Owners Notice to

Proceed (i.e., to commence the Work) to Skanska. Id. at 1.1 (definitions p. 5).

29. Moreover, the CM Agreement provides that Skanska shall promptly and

diligently perform, or cause[] to be performed, and coordinate the Work in accordance with the

Contractors Schedule including all Milestones Events. Id. at 5.3.

30. Schedule Changes: The CM Agreement contemplates that there could be

events that could change the schedule, and divides those changes into three categories. First, the

CM Agreement references a Force Majeure Event, which includes labor unrest, acts of war and

acts of God. Id. at 5.4(a). Second, the CM Agreement contemplates that there may be

Owner-Caused Events, such as changes in Work requested by the Owner, and events that are

the fault, neglect or other negligent or wrongful act or failure to act by Owner, Owners

Representative, Design Professionals, Owners Other Contractors, and others for whom Owner is

responsible. Id. at 5.4(b). The third is a Contractor-Caused Delay, which includes delays

to the extent caused by the fault, error, omission or negligence of Contractor, Subcontractors or

anyone directly or indirectly employed by them for whom they are responsible. Id. at 5.4(c).

31. The CM Agreement allows for adjustments of the schedule in the event of

Force Majeure Events and Owner-Caused Events, under specific circumstances and provided

Skanska takes certain steps. Only Force Majeure Events and Owner-Caused Events that

adversely impact activities on the critical path of the Contractors Schedule, trigger the

possibility of a Time Extension. Id. The Contractor is not entitled to a Time Extension for

delays that do not adversely impact activities on the critical path of the Contractors Schedule or

for Contractor-Caused Delays. Id.

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32. Even where a Time Extension is potentially available, it is not automatic.

The CM Agreement first requires that Contractor shall notify Owner in writing within five (5)

days after Contractor has actual knowledge of the occurrence of any Force Majeure Event or

Owner-Caused Event for which Contractor may be entitled to a Time Extension . . . which

written notice shall set forth the circumstances or activities that are the basis for the Owner-

Caused Event or Force Majeure Event. Id. at 5.4(d). The CM Agreement also requires a

second notice to be issued setting forth a claim for the Time Extension, with (i) Contractors

reasonably detailed explanation for its claim; (ii) an estimate of the then known probable effect

of any delay; and (iii) such supporting evidence reasonably available at the time and as Owner

may deem reasonably necessary for a determination whether Contractor is entitled to its claim

under the provisions of this Agreement. Id. This notice must be sent within forty-five (45)

days after the end of the circumstances or activities constituting the Owner-Caused Event or

Force Majeure Event or forty-five (45) days after Contractor has provided Owner the above

referenced five (5) day notice, whichever is later. Id. The failure to provide either of these two

notices in a timely fashion results in the waiver of the potential right to a Time Extension. Id.

33. Compensation Changes: The CM Agreement allows Skanskas

compensation to be increased, under certain circumstances, if there are Force Majeure Events or

Owner-Caused Events that increase its costs to perform the Work. Id. at 5.4(e) and (f).

However, as with delays, for compensation changes the CM Agreement requires Skanska to

provide the two notices similar to those described above. Id. at 15.4(a). If it fails to send those

notices, its claim shall be deemed waived. Id. Any increase in compensation must be

documented via a Change Order issued by B2 Owner. Id. at 15.2. Upon signatures from B2

Owner and Skanska, the Change Order becomes a part of the CM Agreement. Id.

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34. In addition to Force Majeure or Owner-Caused Events, a Change Order

may also be issued by B2 Owner when B2 Owner requests changes in the scope of Work. Id. at

15.1 and 15.2. If B2 Owner and Skanska cannot agree upon a Change Order with respect to a

change in scope, Owner has the right to issue a directed Change Order directing Contractor to

proceed with the Work constituting such change and, if applicable, providing for any undisputed

adjustment in the Contract Price and Contractors Schedule resulting therefrom. Id. at 15.3.

35. If Force Majeure Events or Owner-Caused Events delay the Work for an

aggregate period of 180 days or more and the parties cannot agree on a Time Extension and

increase in the Contract Price, Contractor shall be entitled to terminate the Agreement and such

termination shall be treated as a termination for Owners convenience under Section 14.5. Id. at

5.4(g). See 41, below.

36. Acceleration of the Work: The CM Agreement describes how time lost to

delays can be recaptured. If a Force Majeure Event or an Owner-Caused Event delays the

Work, Contractor shall promptly take appropriate action to regain the Contractors Schedule to

the extent it does not require Contractor to incur additional cost or expense. Id. at 5.4(h)(i).

Even if there will be additional cost or expense, the Owner can still seek acceleration of the

Work. The CM Agreement allows Owner to require Contractor to submit a written recovery

plan that (1) describes how Contractor intends to reorganize, re-sequence and/or accelerate the

Work to mitigate delays and their impact on the Contractors Schedule, and (2) demonstrates the

manner and extent in which the lost time in the Contractors Schedule may be regained. Under

this scenario, Contractors costs of accelerating the Work are to be compensated under the CM

Agreements change order procedures. Id.

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37. The CM Agreement also allows the Owner to demand that Contractor

accelerate the work in the event of a Contractor-Caused Delay. In that circumstance:

Owner has the right to require Contractor to, without increase in the Contract Price, submit a written recovery plan and take corrective measures to accelerate the progress of the Work, including (1) working additional shifts or overtime, (2) supplying additional manpower, equipment and facilities, and (3) other similar measures, as necessary to regain the Contractors Schedule. Such acceleration measures shall continue until the progress of the Work complies with the requirements of the Contractors Schedule.

Id. at 5.4(h)(ii).

38. Financial Assurance: The CM Agreement describes different occasions

when financial assurance of performance may be required of B2 Owner. First, at the outset of

performance and as a condition precedent to the commencement of the Work, B2 Owner has the

obligation to provide evidence that it has obtained financing for the Project so that it can pay

Skanska in accordance with the then anticipated Payment Schedule annexed to the CM

Agreement. Id. at 4.3 and 5.1(e). In addition, after commencement of the Work, Contractor

may request in writing that Owner provide reasonable evidence that the Owner has made

financial arrangements to fulfill Owners obligations under the [CM] Agreement. Id. at 4.3.

The furnishing of such evidence is described as a condition precedent to the continuation of the

Work only in two limited circumstances if the request is made because (i) Owner fails to

make payments to Contractor as the Agreement requires; or (ii) a change in the Work materially

increases the Contract Price. Id.

39. Liquidated Damages for Delay: Skanska agreed that if it could not

achieve Substantial Completion by the Scheduled Date for Substantial Completion, and such

failure was due to its fault, or the fault of Subcontractors, or those for whom it is responsible

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Owner would be entitled to Liquidated Damages. Id. at 5.5(a). Those damages are

calculated based on the duration of the delay, but generally cannot exceed $3,300,000. Id. at

5.5(b). However, if the duration of the delay is such that more than the full $3,300,000 would

be due as liquidated damages, Owner may terminate the CM Agreement for cause and

thereafter pursue termination remedies under Section 14.3 in addition to Liquidated Damages.

Id. See 40, below.

40. Termination: The CM Agreement permits the parties to terminate the CM

Agreement under certain circumstances, including for cause by Owner, for convenience by

Owner and for cause by Contractor. Id. at Art. 14. A for cause termination by Owner

generally involves a notice that Contractor has defaulted in a specified manner, including by

failing to perform the Work in accordance with the Contractors Schedule or the provisions of

this Agreement, or for failing to meet any other material obligation, among others. Id. at

14.1. Contractor is afforded 45 days to cure the default (or to diligently commence curing a

default that requires more than 45 days to cure). Id. at 14.2. If the default is not cured within

the required time, Owner may terminate. Id. In the event of a termination for cause, Contractor

shall cease all performance under the Agreement and Owner shall be entitled to collect from

Contractor the reasonable and direct additional costs paid by Owner to a replacement contractor

to complete the terminated scope of Work. Id. at 14.3. These termination remedies are in

addition to those that may be available as liquidated delay damages. Id.

41. Owner is also permitted to terminate for convenience on 10 days notice.

Id. at 14.5(a). In the event of such a termination, the Contractor is required to take steps to

protect and preserve the site, terminate subcontractors and eliminate expenditures. Id. at

14.5(b). If the work is terminated for Owner's convenience, Contractor shall be entitled to

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compensation for all Work performed prior to the effective date of the termination, as well as

compensation for any costs and expenses reasonably incurred by reason of termination of

Contractor's activities and commitments. Id. at 14.5(c). However, Owner is not liable for

lost profits on unperformed portions of the Work or other consequential damages resulting from

such a termination for convenience. Id.

42. Finally, Contractor is permitted to terminate for cause as well, including if

Owner fails to pay Contractor, or if Owner fails to meet any other material obligation

contained herein or is otherwise in material breach of this Agreement. Id. at 14.7. First, the

Contractor must serve a notice stating its intent to terminate (id.), and afford Owner 45 days to

cure (or to diligently commence curing a default that requires more than 45 days to cure). Id. at

14.8. The CM Agreement provides that a termination by Contractor for cause shall be treated

as a termination for Owners convenience[.] Id. at 14.9.

43. Dispute Resolution: The CM Agreement provides a dispute resolution

procedure so as to avoid unnecessary losses, delays and disruptions to the Work. Id. at

16.1(a). In Step One, the parties are to try to resolve the dispute through field-level

discussions among particular representatives. Id. at 16.1(b). These discussions are initiated by

either partys written request to the other, and are supposed to conclude within 10 days from

when the notice is received. Id. If those discussions are unsuccessful, Step Two requires

executives of Contractor and Owner to meet. Id. at 16.1(c). That meeting is supposed to take

place no later than 14 days after the field-level discussions. Id. The parties are required to

exchange relevant information, in written format, concerning their dispute five days prior to their

meeting. Id. If the dispute is still not resolved, there is a Step Three involving a mediation

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under certain circumstances (id. at 16.1(d)), none of which are present here. Step Four

permits the the aggrieved party to commence a litigation. Id. at 16.1(e).

44. Choice of Law and Forum Selection: The parties agreed that the CM

Agreement would be governed by New York law and that any suit concerning the CM

Agreement would be litigated in a court in New York County. Id. at 16.1(e) and 17.3.

Events Leading to this Dispute

45. B2 Owner closed on construction financing in December of 2012, and on

December 14, 2012, issued to Skanska a notice to proceed with the work, effective as of

December 21, 2012. Based on this notice, the actual date of Substantial Completion was July 25,

2014 and the Milestone Events were as follows:

Milestone Event Date Per

Contractors Schedule

1. CommenceProductionofpileinstallation February 11, 2013

2. Commencefactorytenantimprovements March 4, 2013

3. Commenceonsitesteelerection June 17, 2013

4. Commencefactorymoduleproduction July 8, 2013

5. Beginmoduleerectiononsite August 19, 2013

6. Onsitemoduleerectioncomplete April 18, 2014

7. ElevatormachineroomacceptancebyelevatorSubcontractor May 19, 2014

8. Onsitematelineworkcomplete June 9, 2014

9. SubstantialCompletion July 25, 2014

10. CloseOut/FinalCompletion October 10, 2014

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46. From the start, Skanska mismanaged the Project through gross

incompetence, causing it to be riddled with delays and cost overruns. Skanska has stumbled

through every step of the Project, and has repeatedly and routinely failed to meet any self-

imposed or contractual deadlines, goals, or targets. As noted, the Construction Schedule

stipulated that the building would be substantially completed by July 25, 2014. That date has

come and gone and, as of today, only 10 floors of the planned 32-stories have been erected at the

Project site.

47. This mismanagement began with the initial startup of the modular factory.

Before the actual work of fabricating modules could commence, the factory where the modules

would be fabricated needed to be fitted out, i.e., renovated such that it could be equipped for

fabrication. Though FCS Modular was responsible for the fit-out of its own factory, Skanska

Modular, as manager of the factory, and Skanska employees engaged all the design professionals

and managed all aspects of the design, construction, permitting, purchasing and execution of the

fit-out work. But from the beginning, this process was delayed due to Skanskas

mismanagement. For example, Skanska employed three different project managers over the

course of a fit-out process that was supposed to take approximately five months.

48. Ultimately, due to Skanskas mismanagement, the factory fit out was

delayed by seven months, significantly delaying the production of modules, and in turn, the

entire Project.

49. Once fabrication of modules finally began, the Project continued to suffer

significant delays resulting from Skanska Modulars inability to successfully purchase essential

building materials, such as doors, frames, hardware, flooring, and items needed for painting,

roofing and insulation. Due to procurement delays, by the time production of the first modular

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floor began, Skanska Modular had secured less than 20% of the materials needed to fabricate

those modules. These problems were undoubtedly compounded by the apparent revolving door

within Skanska Modulars factory management ranks, which deprived this nascent business of

consistent leadership. Skanska, which is responsible under the CM Agreement for the

performance of its subcontractors (id. at 3.6(a)), took insufficient steps, if any, to address

Skanska Modulars failures.

50. An attempt at course correction was made by B2 Owner on January 15,

2014, when its representatives met with Skanskas Bill Flemming to discuss mounting delays.

During that meeting, B2 Owner proposed a written recovery plan to Skanska to fill the vacuum

created by Skanskas inaction, despite the fact that the contractual onus was on Skanska to

produce such a plan.

51. Skanska failed to respond to B2 Owners recovery plan, prompting B2

Owner to issue a notice of default on February 21, 2014, pursuant to Sections 14.1 and 14.2 of

the CM Agreement. In that notice, B2 Owner pointed to breaches of the CM Agreement

resulting from delays by Skanska and demanded that Skanska furnish and implement a schedule

recovery plan under Section 5.4(h)(ii) of the CM Agreement to accelerate the progress of the

work on the Project.

52. Skanska responded to B2 Owners notice one week later, on February 28,

2014. Skanska denied any responsibility for Project delays or any breaches of the CM

Agreement and, as such, refused to provide a recovery plan pursuant to Section 5.4(h)(ii).

Instead, Skanska claimed that any delays were the result of Force Majeure or Owner-Caused

Events and offered to proceed under Section 5.4(h)(i), which would permit Skanska to request

additional remuneration for acceleration of Work. Up until this point, Skanska had never sought

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a Time Extension or served either of the written notices procedurally required under Section

5.4(d). In fact, with respect to many of the changes for which Skanska now claimed entitlement

to an extension of time, Skanska had previously indicated that it was not seeking any additional

time with respect to such changes, as shown by Change Order requests already submitted to B2

Owner. Accordingly, Skanska had already conceded that it was not entitled to a Time Extension,

and, even if there had been delays due to Force Majeure or Owner-Caused Events (which there

had not been), Skanska had waived any right to demand Time Extensions or other compensation

because of them.

53. In a follow-up letter dated March 21, 2014, Skanska provided to B2

Owner three alternative recovery plans for an accelerated completion of the Project without

making any recommendations as to which plan was the most viable. The cost estimates for each

scenario were vastly higher than the cost agreed to in the CM Agreement. In the letter,

Skanska also threatened to terminate the CM Agreement under Section 5.4(g) because Force

Majeure and Owner-Caused Events had purportedly delayed the Work for an aggregate of more

than 180 days and no Change Order had been issued granting Skanska a Time Extension and

increase in the Contract Price. In doing so, Skanska attempted to shift cost increases to B2

Owner, despite B2 Owners previous notices, and despite the fact that Skanska was not entitled

to a Time Extension or an increase in the Contract Price for Contractor-Caused Delay under the

terms of the CM Agreement.

54. On March 24, 2014, B2 Owner rejected Skanskas characterization of the

Project delays as being caused by Force Majeure or Owner-Caused Events, as well as Skanskas

claim for entitlement of a Change Order increasing the Contract Price and extending the

Contractors Schedule. B2 Owner also rejected Skanskas position that it could seek termination

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of the CM Agreement under Section 5.4(g). Instead, B2 owner pointed to numerous breaches of

the CM Agreement by Skanska and demonstrated that the delays to the Project were, in fact,

Contractor-Caused Delays resulting from Skanskas and FSC Modulars failures, including

delays in the procurement process; delays in the factory fit-out; and Skanskas failure of

leadership and management.

55. Skanska, however, continued to refuse B2 Owners request for an

acceleration of the Work. Instead, on March 31, 2014, Skanska proposed a Change Order to

extend the TCO date to August 18, 2015 and increase the contract value in the amount of

$28,427,465. This compared to prior Change Orders to date, many in which Skanska already

conceded that it was not entitled to a Time Extension and which had totaled less than $122,000.

56. Although Change Orders requested pursuant to either of Sections 5.4(d) or

15.4(a) of the CM Agreement required detailed explanation for the claim and supporting

evidence, Skanska provided neither. Rather, it merely said in vague, conclusory fashion that the

proposed Change Order was predicated on numerous impacts caused by B2 Owner which

have prevented orderly performance by Skanska. The sole impact that was identified more

specifically was the ostensible failure by B2 Owner to provide a detailed design for the B2

project. However, Skanska provided no specific examples of design flaws or the alleged impact

any such flaw could have had on the critical path of the schedule. Therefore, there could be no

timely Change Order claim based on this assertion.

57. B2 Owner denied the Change Order request on April 4, 2014, on the

grounds that any claim for delays resulting from purported design flaws was waived by Skanska,

undercut by its own documents and wholly lacking in substantive merit.

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58. On June 17, 2014 Skanska sent B2 Owner a notice, ostensibly pursuant to

Section 4.3 of the CM Agreement, requesting that B2 Owner provide financial assurance of its

ability to fulfill its obligations under the agreement (the Request for Assurance). As grounds

for the Request for Assurance, Skanska cited B2 Owners purported failure to make timely

payments under the CM Agreement, changes in the Work that have materially increased the

contract price with a failure to execute Change Orders for that Work, and a statement by the

Chief Operating Officer of FCRC that the existence of delays have caused the Construction

Lender for B2 to stop funding.

59. B2 Owner rejected the Request for Assurance on July 7, 2014, because it

was groundless. In its letter, B2 Owner noted that it had fully complied with its payment

obligations under the CM Agreement and that Skanska could not demonstrate that a change in

the Work had materially increased the Contract Price (failure to pay and material increase in the

Contract Price being the only two preconditions to Skanskas continuation of Work in the

absence of evidence of financial arrangements). With respect to the suspension of funding by B2

Owners lender, B2 Owner noted that the suspension was caused by Skanskas delays and failure

to provide a viable plan for acceleration. Nevertheless, B2 Owner advised Skanska that its

funding for the B2 Project remains in place, as does its legal entitlement to access those funds,

and once Skanska has provided a credible Completion Date, those funds will be made available

to be drawn upon by the Owner.

60. On July 9, 2014, Skanska reiterated its Request for Assurance, this time

basing such request solely on its contractual right to do so under Section 4.3, and not

conditioned by the events for which the furnishing of such evidence is a condition precedent to

the continuation of the Work.

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61. In response, on August 1, 2014, B2 Owner provided further financial

assurance by pointing Skanska to mortgages filed and maintained by the New York City Housing

Development Corporation against the B2 property, which evidenced funds available to B2

Owner for construction of the Project. B2 Owner also directed Skanska to the publicly available

SEC filings of Forest City Enterprises Inc. (FCE), for proof of sufficient equity/liquidity

necessary to complete the construction of B2.

The Notice of Termination

62. Despite the efforts discussed above, on August 8, 2014, Skanska issued a

Notice of Termination of the CM Agreement to B2 Owner (the Notice of Termination) in

which it stated its intent to terminate all Work under the CM Agreement pursuant to Sections 5.4

and 14.7. Skanska purported to justify termination of the CM Agreement on its assertion that the

Project has been delayed for a period of at least 180 days by Force Majeure and/or Owner

Caused Events and a Change Order has not been executed to grant Skanska a Time Extension

and increase in the Contract Price. Notwithstanding its prior failure to request any Time

Extensions, Skanska asserted that B2 Owner was to blame for all construction delays and cost

overruns on the Project.

63. Skanska argued that its entitlement to an extension of time and additional

compensation derived from identifiable root causes, including: (a) a delay in the factory fit out,

(b) defective intellectual property, (c) design impacts, (d) failures of the Design Professionals

and others for whom the Owner is responsible, and (e) Changes to the Work. The Notice of

Termination provided that the termination would become effective in the event that the purported

breaches were not cured to the extent that any cure period is applicable under the CM

Agreement. The 45-day cure period provided in the CM Agreement expires on September 22,

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2014. Skanska also forecasted that, as of July 1, 2014, the anticipated amount purportedly due to

Skanska through Project completion, over and above the Contract Price, is at least $49,757,746.

64. Each purported cause for delay specified in the Notice of Termination has

been fabricated by Skanska to cover up its massive failures as construction manager. As a

threshold matter, even if Skanskas assertions had any validity, each was waived because

Skanska failed to comply with the Time Extension and Change Order provisions by notifying B2

Owner within the 5-day and 45-day time periods afforded under the CM Agreement. Moreover,

Skanskas assertions are wrong as a substantive matter, as described below.

65. Factory Fit Out: Skanska claims in the Notice of Termination that it is not

responsible for delays in the factory fit-out because the fit-out was under the sole control and

direction of FCS Modular and was impacted by FCRC Modulars decisions and Force Majeure

Events. However, Skanska is responsible to B2 Owner for the performance of its subcontractors

and committed to construct the Project in accordance with the Contractors Schedule. A

fundamental predicate to that commitment is being able to procure modules from FCS Modular

per that schedule. Delays in factory fit-out work, which was the responsibility of Skanska and its

subcontractor FCS Modular, in turn delayed the Contractors Schedule and manifestly

constituted a Contractor-Caused Delay.

66. Defective Intellectual Property: The Notice of Termination argues that

Skanska is entitled to a Change Order for a Time Extension and increase in compensation

because the intellectual property regarding hi-rise modular construction (the IP) conveyed to

FCS Modular by FCRC Modular and FCRC via an October 31, 2012 Intellectual Property

Transfer and Development Agreement (the IP Transfer Agreement) was defective in most

every respect such that, despite a disclaimer of warranties, FCRC Modular and FCRC

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purportedly breached an implied promise within the IP Transfer Agreement that the IP was

sufficient to complete the Work within the agreed time frame. Skanska essentially ignores the

fact that B2 Owner is not a party to and has no obligations under the IP Transfer Agreement, and

therefore, cannot be liable for any alleged defects in the IP.

67. Pursuant to the CM Agreement, Skanska shall be responsible to Owner

for the full performance of all obligations hereunder, irrespective of the conduct, liability or

default of any such Subcontractor. CM Agreement 2.1. Thus, Skanska is responsible to B2

Owner irrespective of any delays caused by FCS Modulars inability to construct the modules in

accordance with the Contractors Schedule.

68. Moreover, Section 4(a)(iv) of the IP Transfer Agreement contains an

express disclaimer of any warranty, and does not contain any representations that the IP is

complete or sufficient to execute the Project. Further, nothing in the IP Transfer Agreement

absolved FCS Modulars responsibility to adapt, refine and supplement the IP to the extent

necessary to timely fulfill its obligations. Accordingly, even if Skanskas allegations were true,

which they are not, and Skanska had directed its claim of defective intellectual property to FCRC

and FCRC Modular (the parties to the IP Transfer Agreement), they could not be held liable.

69. Design Impacts: Skanska posits that the eighth recital in the CM

Agreement that the design for the modules and the Project was sufficient for the completion of

the Work as of the Effective Date constitutes a representation and warranty that the design for

the modules and the Project was sufficient for completion of Skanskas Work in accordance with

the CM Agreements terms and timetable. Skanska claims in the Notice of Termination that B2

Owner purportedly breached that warranty by providing incorrect and incomplete designs.

Beyond the fact that recitals are generally not viewed as operative parts of an agreement and that

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the term represents does not in and of itself create a warranty, Skanskas reading of the CM

Agreement distorts the interpretation of the term sufficient and ignores the fact that terms

without specific definitions in the CM Agreement are to be interpreted in accordance with their

well-known meanings in the construction industry. See id. at 1.2. Moreover, even a warranty

that the design for the Project was complete and buildable as delivered would not be a warranty

that the Project was buildable within a projected budget, time frame, or without creative

contribution from Skanska.

70. Importantly, Skanskas claim ignores the role that was required of it under

the CM Agreement. While the design and specifications for the overall B2 BKLYN building

were provided by B2 Owners design professionals, it was Skanska and its subcontractors who

were delegated with responsibility to provide design, means and methods for fabrication and

production of the modules themselves, including without limitation how the modules would be

mated together to form the completed building. In this critical role, Skanska and its

subcontractors failed miserably.

71. Failures of the Design Professionals: The Notice of Termination claims

that design defects resulting from the inadequacies of FCRCs design professionals constitute a

material breach of the CM Agreement and a cause of continuing damage to Skanska.

Specifically, the design team purportedly failed to recognize or address significant design defects

and rebuffed any attempts by Skanska to engage in mutual efforts at problem solving. In

addition to ignoring the critical role played by Skanska and its subcontractors in determining the

design, means and methods for fabrication and erection of the modules, this argument is

meritless because Skanska has failed to identify actual design errors in the drawings and

specifications for the Project, and has conveniently chosen to ignore the efforts of the design

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team to perform its contractually and legally defined function, as well as its efforts to assist

Skanska where no assistance was owed.

72. Changes to the Work: The Notice of Termination points to outstanding

requests for additional cost and/or time arising from Bulletins, Field Cost Events, FCS Modular

Cost Events and Anticipated Subcontractor Claims and asserts that B2 Owner has rejected

change requests improperly, has disingenuously asserted lack of notice, and has repudiated its

contractual obligation by refusing to issue Directed Changes as provided for in Section 15.3 of

the CM Agreement. These assertions are also meritless. The substance of the Bulletins makes it

clear that the items in the Bulletins had little, if any, impact on the critical path of the Project,

had no impact on the pace of module production, and for the most part, constituted minor

modifications related to matters such as trade coordination and code compliance. B2 Owners

reliance on lack of proper notice was in accordance with the terms of the CM Agreement, which

were intended to prevent unanticipated cost exposures and exactly the sort of post-hoc distortion

of the facts that Skanska is attempting here. There is also no basis for Skanskas claim that B2

Owners refusal to issue Directed Changes had an impact on the critical path of the schedule or

was in any way inconsistent with the terms of Section 15.3 of the CM Agreement. Skanska first

demanded that a Directed Change be issued in connection with change order 4 in June of 2014,

and as explained in a July 1, 2014 letter from B2 Owner to Skanska, this demand was rejected

because Owner was under no obligation to issue a Directed Change for work that had been

performed months earlier. Section 15.3 provides the B2 Owner with the right, not the obligation,

to issue Directed Changes so that changes in the work can be implemented promptly and

contemporaneously with the parties inability to agree on a negotiated Change Order. By its

plain language, it does not address changes in the work that have already been performed.

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73. Skanskas Other Claims: Skanskas claims in the Notice of Termination

that B2 Owner has breached the CM Agreement due to purported lack of payment and failure to

provide security for payment and adequate financial assurances are also meritless. B2 Owner

has consistently complied with its payment obligations under the CM Agreement. To date,

Skanska has been paid all sums B2 Owner has been required to pay. Any delays in the payment

process are entirely attributable to Skanskas own failures to timely and accurately submit proper

invoices, including required supporting documentation. Evidence of financial arrangements

sufficient for B2 Owner to perform its obligations, in compliance with Section 4.3 of the CM

Agreement, has been provided to Skanska even though it was not a condition precedent to

continuation of the Work.

74. The issuance of the Notice of Termination thus constitutes a threat to

terminate the CM Agreement predicated on arguments that utterly disregard the contractual

provisions concerning Time Extensions and Change Orders and the actual facts, and

demonstrates that Skanska has completely abandoned and repudiated, and has anticipatorily

breached, the CM Agreement.

75. Compounding its anticipatory breach, on August 26, 2014, Skanska issued

the Stop Work Notice to B2 Owner stating that it intended to stop the continuation of Work

ostensibly pursuant to Section 4.3 of the CM Agreement until Skanska received reasonable

evidence that B2 Owner had made financial arrangements to fulfill its obligations under the CM

Agreement. The Stop Work Notice was improper because neither of the two specific events that

could trigger the right to stop work under the CM Agreement had occurred, namely, (i) B2

Owner had not failed to make payments to Skanska and (ii) there had been no change in the

Work that materially increased the Contract Price. Furthermore, even though not required to do

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so as a condition precedent to Skanska continuing the Work, B2 Owner has provided Skanska

with financial assurance by notifying it about the availability of construction financing and by its

continuous payment of Skanskas invoices. As of August 27, 2014 Skanska notified all of its

subcontractors and suppliers of the exercise of its purported rights. The Stop Work Notice was

issued before the 45-day cure period provided in the Notice of Termination had expired.

76. Also on August 26, 2014, FCRC Modular received a letter from FCS

Modular stating that, in furtherance of the Stop Work Notice, FCS Modular would stop the

continuation of Work under the subcontract for the modules, and would furlough the trade

associates employed by FCS Modular, effective August 27, 2014. The letter also provided that

FCS Modular would issue notices under the federal and state WARN Acts to all trade

associates informing them of the possibility that their employment would be terminated.

77. Following receipt of the Stop Work Notice, B2 Owner once again

provided Skanska with assurance that it has made financial arrangements to satisfy its

obligations under the CM Agreements. This time those assurances came in the form of a letter

from David LaRue and Charles Ratner, Chief Executive Officer and Chairman of the Board,

respectively, of FCE, to MaryAnne Gilmartin, Chief Executive Officer of FCRC, acting as B2

Owners representative. The letter affirmed FCEs access to six hundred million dollars

($600,000,000) in cash and credit, as well as its financial commitment to funding the completion

of the Project by B2 Owner, and advised that the company and its Board are fully committed to

funding the remaining, properly due and payable construction costs with the necessary corporate

cash or other means to complete [the Project]. B2 Owner also provided Skanska with copies of

completion guarantees that FCE had previously made to the New York State Urban

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Development Corporation d/b/a Empire State Development Corporation and B2 Owners lenders

for the Project.

78. Nevertheless, on August 27, 2014, as a result of Skanskas actions, Work

on the Project ceased.

79. Every day that the Work stoppage continues adds substantial construction

costs to the Projects budget. Shutting down and re-starting a work-site of the size and

magnitude of B2 BKLYN is no small matter, because the project must be secured against the

elements, equipment and machinery must be properly stowed, and materials have to be tied down

and covered. If Skanska is determined not to complete the Project, and B2 Owner is required to

contract with an alternate contractor, the costs of completing construction will increase

substantially.

80. Prior to commencing this lawsuit, B2 Owner complied with the dispute

resolution procedure set forth in the CM Agreement. Both sides waived a field-level meeting

and then had an executive level meeting on September 2, 2014. Despite requests by B2 Owner

that Skanska withdraw its Notice of Termination and reaffirm the validity of the CM Agreement,

Skanska refused and continued to insist that B2 Owners purported breaches of the CM

Agreement entitled it to terminate.

81. Skanskas failure to withdraw its Notice of Termination and its Stop Work

Notice constitute anticipatory breaches of the CM Agreement and grounds for termination for

cause under Section 14.1(d) and (e), which B2 Owner intends to timely exercise. In addition,

Skanskas refusal to resume Work under the CM Agreement and its failure to comply with the

Contractors Schedule in the CM Agreement are material breaches of that agreement.

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First Cause of Action for Breach of Contract

82. B2 Owner repeats the allegations of paragraphs 1 through 81 above.

83. The CM Agreement requires Skanska to perform all of the Work in

accordance with the Contractors Schedule, including all Milestone Events. Skanska failed to do

so, including by failing to meet the following Milestone Events by the applicable deadline:

Milestone Event Date Per Contractors Schedule

Actual(A)/Projected(P)Completion Date

1. CommenceProductionofpileinstallation February 11, 2013 February 13, 2013 (A)

2. Commencefactorytenantimprovements March 4, 2013 April 8, 2013 (A)

3. Commenceonsitesteelerection June 17, 2013 August 15, 2013 (A)

4. Commencefactorymoduleproduction July 8, 2013 July 31, 2013 (A)

5. Beginmoduleerectiononsite August 19, 2013 December 12, 2013 (A)

6. Onsitemoduleerectioncomplete April 18, 2014 June 15, 2015 (P)

7. ElevatormachineroomacceptancebyelevatorSubcontractor

May 19, 2014 September 2, 2015 (P)

8. Onsitematelineworkcomplete June 9, 2014 June 29, 2015 (P)

9. SubstantialCompletion July 25, 2014 September 9, 2015 (P)

84. Skanska has also failed to hire and retain a sufficient number of employees

with the requisite skill to perform the Work in conformity with the CM Agreement, and has

failed to supervise and direct the Work to ensure that all construction means, methods, and

techniques have been properly performed.

85. Moreover, Skanska has now stopped Work under the CM Agreement as of

August 27, 2014.

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86. Skanska is not permitted to stop Work under the CM Agreement because

neither of the triggering events (i.e., failure to pay or material increase to the Contract Price) has

occurred. Moreover, Skanska has already been provided with financial assurances of

performance that it unjustifiably rejected.

87. B2 Owner has performed all of its obligations under the CM Agreement.

88. B2 Owner has demanded that Skanska resume Work under the CM

Agreement, but Skanska has refused.

89. B2 Owner has been damaged by Skanskas breaches in an amount to be

determined at trial.

Second Cause of Action for Anticipatory Breach

90. B2 Owner repeats the allegations of paragraphs 1 through 81 and 83

through 89 above.

91. Skanskas Notice of Termination constitutes an anticipatory breach of the

CM Agreement. The Notice of Termination makes an improper threat of premature termination

that has no basis whatsoever in the CM Agreement. To the contrary, the Notice of Termination

so utterly disregards and misconstrues the CM Agreements provisions that it unequivocally

demonstrates that Skanska has repudiated the CM Agreement and will not abide by its terms.

92. Skanskas Stop Work Notice is an additional anticipatory breach, and

constitutes further evidence of Skanskas repudiation of the CM Agreement. Skanska is not

permitted to stop Work under the CM Agreement because neither of the triggering events (i.e.,

failure to pay or material increase to the Contract Price) has occurred. Moreover, Skanska had

already been provided with financial assurances of performance that it unjustifiably rejected.

93. B2 Owner has demanded that Skanska retract its repudiations and resume

Work under the CM Agreement, but Skanska has refused.

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94. B2 Owner has been damaged by Skanskas anticipatory breaches in an

amount to be determined at trial.

Third Cause of Action for Declaratory Judgment

95. B2 Owner repeats the allegations of paragraphs 1 through 81, 83 through

89 and 91 through 94 above.

96. Through its Notice of Termination, Skanska has threatened to terminate

the CM Agreement. This threat is improper and unjustified for the reasons described at length

above.

97. Through its Stop Work Notice, Skanska threatened to stop Work. This

threat was improper and unjustified for the reasons described at length above. Skanska has

nevertheless stopped Work.

98. An actual and justiciable controversy currently exists between the parties

concerning their rights and obligations under the CM Agreement with respect to each of these

issues.

99. Accordingly, B2 Owner is entitled to a declaration that the Notice of

Termination is void and of no effect; that Skanska may not Terminate for Cause under either

Section 5.4 or 14.7 of the Agreement; that the Stop Work Notice is void and of no effect; and

that Skanska may not suspend Work under Section 4.3 of the CM Agreement.

WHEREFORE, B2 Owner respectfully requests judgment:

(i) on the First and Second Causes of Action, awarding damages in an

amount to be determined at trial;

(ii) on the Third Cause of Action, declaring that the Notice of

Termination is void and of no effect; that Skanska may not Terminate for Cause under either