Reference no: EM133338739

Case: You are Tipical A. Student, the Vice-President of Building Operations for Scarlet Hawk Construction, a multi-division conglomerate organized under Illinois Law. It is Monday morning, and the President has texted you to meet him in the Board Room when you get in.

When you get to the Board Room the in-house Counsel, Learned Hand, is there. You say, "Morn' Ray and Learned. Let me get my coffee here," and you head for the carafe. Ahh... the smell of fresh coffee.

The President chats while you're taking your first sip, "So how's the Southeast Division doing?"

"Well Fatima is doing an excellent job running that Division. I went to a few of the projects, went over Costs to and profit projections with her. She's having a bit of a challenge finding talent, but HR here is going to get involved."

"Well Tip we have a new problem and I need you to get into it quickly. On the Iowa Stadium job we have a fabrication and erection sub by the name of Bessimer Fab and Erection (BFE). Right after you left last week we got notice they had declared bankruptcy. Learned here got on the horn with the bankruptcy attorney and went out there. In 4 days he pretty much worked a miracle with a Federal Bankruptcy Judge in Omaha.

BFE is critical at this point to the stadium job and they are an unbonded sub to us. So we had an impromptu Zoom board meeting with Learned and decided to try to buy BFE to keep the job running. The other option was a new sub with all new submittals. Learned met with the bankruptcy attorney and they put together a packaged sales deal. Took it to the Judge on Thursday and got it approved on Friday, with conditions for the creditors.

So, where we are is you and Learned are flying out this afternoon to take over the company for Red Hawk in the morning. You know that Project Manager Gustave Effiel you hired last year? If you remember he worked in steel erection before you hired him. We're thinking make him the new President of BFE with guidance from our PM on the stadium and you. Sorry to make such a personnel decision without you, but if it doesn't work, we can change it."

Then Learned piped in, "I was a little bit concerned about preserving any evidence we might need and having a workspace that is ours and not inside the BFE offices. BFE is a Nebraska corporation based in Lincoln and the stadium job of course is in Iowa. Ray here suggested that we go to the company that we rent job trailers from and rent a mobile office from them. It seems it works out because we need to have our IT people go in tomorrow and change over the network to one of our networks for accounting and HR. The trailer people have mobile offices in an RV type vehicle for things like insurance companies at tornados, so we rented one and IT is loading it today with their gear. Gustave and the IT guy are driving out tonight and should be there midmorning."

Tuesday Morning at BFE.

You and Learned Hand arrive and walk into BFE to meet the company's founder Ben D. Rodriguez and his attorney John Gibbons. Introductions are made all around.

Learned Hand, "John and I have been over all of this last week. The new Board of Directors will be the same people on the Red Hawk board. We are bringing in Gustave Eiffel as the new president, other corporate officers remain the same for now. We will have an IT person here today to slave your HR and Accounting systems into the Red Hawk systems. So the Order of the Day is for John and I to get the proper filings in to show our ownership and that our people have the authority to conduct business. The Bankruptcy Judge gave us until Friday to show we have done this, but we need it as soon as possible to handle business."

 

They leave and you say to Ben, "I know it's hard to lose a business, but what is critical that I need to know?"

Ben, "I think the biggest problem is the word on the street with our suppliers. We have a dozen lien notices, most because we filed the BK then the creditors wrote notices of intent to file a lien. I've been ignoring them this week because John said the BK stops all legal action but Nebraska has a short fuse on filing liens so I expect them to file shortly. And we need steel to fabricate beams."

"The other problem I have, that partially prompted the bankruptcy, is I have a former PM that two of my women employees accused him of sexual harassment, so I laid him off. He has sued the company for $20 Million for wrongful termination. John Gibbons filed an appearance and then filed the bankruptcy. We can't afford the attorney bills with the margin we operate on."

Question #3 What additional measure should Ben have taken upon receiving the lawsuit and now that Red Hawk owns the company will you take?

There's a knock at the door. "Mr. Rodriguez, there's a gentleman and a lady here to see Mr. Student."

Gustav walks in, "Ben, this is Gustav Eiffel and this is..." the woman steps forward "Stephanie Nicks from the IT department, call me Stevie."

"Ben, Gustav should be the new company president by the end of the day. Could you show him around the facility. It's up to you if you keep it secret today but we will have a company meeting tomorrow as the formal introduction. I usually find these things work best with bagels, donuts, and coffee.

On your way around can you send your IT person in. I need to them and Stevie to talk."

As they leave, "So Stevie what did you bring and what are you going to do?"

"Well Tip, it was not a bad idea of Learned to bring an office. I have a couple of servers and I am going to create digital twins of their servers. That will give us both a snapshot of technical files, accounting records, and HR records. Plus it it ill give us a full copy of data and emails back and forth. I wlll be installing our corporate operating systems on their machines, basically Microsoft but with our icons for each department so Estimating or HR or Accounting can start talking to home office on a data tunnel."

"Sweet, not like the old days where we photocopied a truckload of documents then sorted through them at home to find out what we bought. Ok, set up a zoom meeting with Home office for 9:30 tomorrow in the trailer with section heads after our coffee social. All of us will be there."

Next morning in the Office RV

"Hello Chicago! We got the whole crew here; Learned, Gustav, and Stevie. And Ray I see we have Charlie Ponzi in accounting and George Mayo from HR. We just had bagels and coffee with the employees and told them that they are now a subsidiary company of Red Hawk and Gustav is the new President. Everyone seems reassured.

Let's start with Gustav."

Gustav "The old Owner, Ben Rodriguez, took me around and I spent quite a bit of time looking at the shop records with him and the contracts. The good news is they do good work, and our Iowa Stadium job has been their high priority project. So, our direct interests are covered.

The bad news is there are 4 other jobs with contract problems and stale extras, they just weren't making claims for extra work until the jobs are finished. I think we're going to have to jump on these.

The Forget Me Not Retirement Home is a project in Iowa for Alzheimer's patients that has been completed for 6 months. There was $300,000 in changes to the structural steel. BFE did put the GC on notice on the changes but did not file any change order requests until the end of the project. The GC and the Owner have denied all change orders saying it wasn't fair to submit the costs at the end of the project and they don't have that kind of money, it's the Architect's fault due to bad design. Sue the Architect.

PBE has delivered $500,000 worth of steel to the I-80 bridge job in Lincoln. The GC has had a number of problems and the steel has sat there for 5 months. NDOT standard specs allows for payment of stored materials but they haven't done so. Story is confusing with NDOT saying it wasn't requested by the GC and the GC saying NDOT refuses to pay.

PBE is behind about 2 months on delivery of steel for the Dunbar HS job. Its only 2 truckloads, about 35 tons. The GC is refusing to pay for the steel that has been delivered, 500 tons, citing potential damages. It's an AIA contract and formal claims procedures have not been started for non-payment.

Another NDOT job is the Visitors Center in the rest area at the state line. Seems a tornado hit the building when the frame was 75% up and turned it to spaghetti. The last 25% is in the yard ready to ship but now they need new steel to replaced what was destroyed. NDOT says it's a Builders Risk policy problem for the GC. The GC want their deductible on the Builders Risk policy."

Question #4 - for each of the 4 cases above what should Gustav do? Specifically, does he give it to an attorney or does he handle it himself. In those cases he handles himself, what is his course of action?