A Philadelphia jury awarded a total of $5.05 million to a luxury condo association after finding the developer and engineering firm failed to disclose to potential buyers certain defects of the property.
The Belgravia Condominium Association sued developer 1811 Belgravia Associates and PMC/Belgravia Associates along with engineering firm O'Donnell & Naccarato under the Uniform Condominium Act, arguing the entities specifically withdrew certain findings about the building's condition from the public offering statement given to potential buyers, according to court documents.
The association claimed more than $5.6 million in damages, including the cost it had to incur to make repairs the developer and engineering firm didn't disclose as well as for the alleged failure of the developer to give a realistic budget of what it would cost the association to maintain the building annually.
The defendants argued they made the appropriate disclosures required under the UCA for a conversion of a building into a condo complex, according to their pretrial memoranda.
The nine-member jury found in favor of the association, awarding $3.8 million in compensatory damages against the Belgravia defendants and $350,000 in compensatory damages against O'Donnell & Naccarato. The jury also awarded the plaintiff $900,000 in punitive damages against the Belgravia defendants after it found those defendants intentionally violated the UCA, according to the association's attorney, Robert S. Tintner of Fox Rothschild.
"By awarding the association significant compensatory damages to repair the Belgravia building and, by further awarding punitive damages, the jury in this case sent a very resounding message to the developer that conduct like that engaged in by the developer and its representatives should not have occurred and would not go unpunished," Tintner said in a statement.
The Belgravia Condominium is located at 18th and Chestnut streets in Philadelphia. The eight-story building was initially constructed as a hotel in 1902 and was converted to commercial office space during the 1980s. Beginning in June 2006, the Belgravia defendants converted the building to residential condominiums, according to court papers.
Pursuant to the UCA, the developer was required to present the condition of the structural components and major utility installations in the property, including the expected life cycle of those installations, according to court filings. Because the building was being converted from offices to residential units, the association also argued additional disclosures were required under the UCA based on a report by an engineering firm. Those additional disclosures, the plaintiff argued, included descriptions of the mechanical and electrical installations and any visible conditions that adversely affect the health or safety of the occupants. The Belgravia defendants hired O'Donnell & Naccarato to conduct the engineering inspection and report.
According to its pretrial memorandum, the association alleged the Belgravia defendants and O'Donnell & Naccarato minimized certain defects and eliminated mention of others.
"The declarant and the developer compounded this fraud by failing to attach several subcontractor reports to the final report that was published to consumers in Belgravia's public offering statement, and by 'lowballing' the building's initial budget and reserves," the plaintiff said in its pretrial memorandum.
Once in the building, the owners realized the cost of repairs and running the building were higher than expected. Tintner said the association, which took over running the building in November 2008, has taken more than $1 million in assessments from unit owners to pay for the replacement of the building's roof and the refacing of the facade of the historic building.
According to their pretrial memorandum, the Belgravia defendants argued the UCA specifically restricts the warranties provided to purchasers of converted condo buildings. A developer of a new project must warrant against all structural defects, the Belgravia defendants argued, while developers of converted projects must warrant only that there are no structural defects in the components the developer installed or in improvements the developer made.
"Indeed, plaintiff effectively seeks to require the Belgravia defendants to provide an entirely new building, as contrasted with a 110-year-old structure, much of which the Belgravia defendants did not renovate and are not required by law to repair," the Belgravia defendants said in their court filings.
In its pretrial memorandum, O'Donnell & Naccarato said its liability was limited by the contract it signed with the Belgravia defendants. The engineering firm also argued it had nothing to do with the preparation of the building's budgets and that it did not undertake an inspection of any of the rehabilitation work done under the direction of other licensed professionals.
Tintner said he supposed it could be argued that when purchasing a condo unit, a buyer should have the entire building inspected. But he said the jury's verdict rejected that theory, showing that if a developer is going to profit from the sale of a building, it should provide accurate disclosures.
"To purchase a condo unit in Pennsylvania, you should not have to hire an engineer and an attorney," Tintner said.
According to Tintner, the jury did not find that there was a breach of the statutory warranty. The plaintiff's implied warranty claim was dismissed on summary judgment. Two individual defendants related to the Belgravia defendants were dismissed on nonsuit after the plaintiff's case, Tintner said.
Philadelphia Court of Common Pleas Judge Patricia A. McInerney presided over the trial, which reached a verdict June 19. The settlement offer from the Belgravia defendants before trial was $150,000 plus repairs to certain portions of the building for what the defendants valued as a total settlement offer of $600,000, according to their court filings. Tintner said there were other offers during trial, but nothing that was acceptable to the plaintiff.
Raymond Quaglia of Ballard Spahr represented the Belgravia defendants and declined to comment on the verdict. Andrew Fylypovych of Burns White represented O'Donnell & Naccarato. He didn't return a call for comment. Tintner worked on the case with Fox Rothschild partners Ronald L. Williams and Peter C. Buckley.
The association called as its expert witnesses engineer Patrick McCoy of SSM Group, electrical engineer Ralph J. Nevel of SSM, engineer William T. Payne of Consulting Engineers and building reserve funds expert Gregory S. Bustamante of Criterium-Bustamante Engineers. The Belgravia defendants called engineering expert Fritz Marth. O'Donnell & Naccarato called architect Kevin Wagstaff and engineer Matthew Cofone.