This article originally appeared in the New Jersey Law Journal. Reprinted with permission.
In Grandview at Riverwalk Port Imperial Condominium Association v. K. Hovnanian at Port Imperial, a Hudson County jury on June 1 awarded a $10 million construction defect verdict against a publicly traded developer and an architectural company.
The plaintiffs, condominium association members, claimed they learned after buying units in a six-story West New York development that the building was not code-compliant— and that the developer’s parent company, Hovnanian Enterprises, was aware of it.
The relevant building codes provide for five types of buildings, ranging from the most fire-resistant Type 1—often a skyscraper— to Type 5, which could be a wood-frame house, according to John Cottle of Becker & Poliakoff in Fort Walton Beach, Florida, who represented the plaintiffs, along with Matthew Meyers of the firm’s Morristown office, and others at the firm.
According to the suit, the Grandview I building on the Hudson River was initially conceived as a Type 2 building by the Hovnanian subsidiary, K. Hovnanian at Port Imperial Urban Renewal II, and architect RTKL New Jersey Architects. The architect allegedly warned the developer that the structure had plywood sub-flooring.
The plan was then to get the development reclassified as a Type 3, which would have allowed plywood, but which also would
require masonry exterior walls that the building did not have. New plans were submitted to the town, but they were never approved, Cottle said.
The problem was first discovered in April 2015, and meeting minutes from November of that year showed the developer knew the plans to switch to Type 3 had not been approved, Cottle said.
But, the plaintiffs alleged, Hovnanian sought approval directly from the mayor’s office rather than the building department.
At trial before Hudson Count Superior Court Judge Jeffrey Jablonski, the defense argued the building was safe, and that the plywood flooring was not a life-safety issue, since fire alarms and exits would allow all residents to safely vacate the building in the event of a fire. But the plaintiffs contended that the plywood would still result in more property damage in the event of a fire.
The plaintiffs had to pierce the corporate veil, showing Hovnanian was responsible for its subsidiary’s actions, Cottle said. There were several tiers of companies between K. Hovnanian and its publicly traded parent, Cottle said. The plaintiffs persuaded the jury that Hovnanian Enterprises dominated and controlled the subsidiary, and used it to perpetrate an injustice.
The jury apportioned $3 million in damages to Hovnanian—which was trebled to $9 million under the state Consumer Fraud Act—and an additional $1 million against the architect.
Defense attorneys did not respond to requests for comment: Donald Taylor and Richard Byrnes of Wilentz, Goldman & Spitzer in Woodbridge,; James Cardenas of Lewis Brisbois Bisgaard & Smith in New York; and Gary Chiumento of Chiumento McNally in Voorhees.
A case about Grandview II, a companio development,is scheduled to go to trial in January.