Behind the Navillus Bankruptcy, a Union Contractor's Ties to Nonunion Firms
A huge damage award sends big New York City contractor to bankruptcy court
In an interview with a reporter last July, Donal O'Sullivan, CEO and owner of one of New York City's biggest contractors, Navillus, talked about the gradual swing toward nonunion construction work.
"How has the growth of open-shop construction in the city impacted your business?" asked the interviewer from The Real Deal, a real estate publication.
"Open shop has really had a huge effect on our business," especially concrete construction, said O'Sullivan, an Irish immigrant who still speaks with a brogue. "That's going to drop off quite a bit on the private side. There's a lot of nonunion concrete work."
Expressing what appeared to be a commitment to union contracting, O'Sullivan added, "We just shift focus a little bit and move along with the more public work for a while."
One thing O'Sullivan didn't mention in the interview: That very month, Navillus and other companies owned and run by O'Sullivan's brother Kevin O'Sullivan and former Navillus employees were fending off lawsuits from five of 18 union locals with which Navillus had collective bargaining agreements.
The lawsuits accused O'Sullivan and Navillus of maintaining only a cosmetic commitment to union work, while the other companies freely worked open shop, allowing them to pay wages and benefits that are 30% to 50% lower.
Court decisions in those lawsuits, including a $76-million damage award against Navillus, have brought the company to its knees since late September.
"The scale of the … court's [Navillus] verdict is considered one of the largest of its type in the United States and is a strong warning to New York construction and development firms seeking to avoid union requirements," wrote attorneys Kirk R. Dungca and Gerald A. Francese on the website of law firm Troutman Sanders.
Navillus' fall could be either a milestone in the decline of union construction in New York City or a significant victory for the unions in keeping their contractors committed—the trouble is deciding which.
O'Sullivan founded Navillus as a tile contractor in 1984. While it still has significant business as a tile-setting and masonry subcontractor, Navillus also performs much concrete construction under a collective bargaining agreement with the carpenters district council, a reinforcing ironworkers union local and other unions. One of the company's signature projects is the National September 11 Memorial in lower Manhattan. Another company project, called One Vanderbilt, is a commercial office tower that will be one of the tallest in Manhattan.
The unions had been pressuring Navillus and the O'Sullivan brothers over the nonunion companies since about 2007, claimed Navillus' attorney, who characterized the pressure as a campaign of intimidation.
But the conflict went to court in a major way in 2014.
Terrence Moore, a key plaintiff in one of the lawsuits and business manager of reinforcing ironworkers Local 46, said in a recent letter to members that, "during 2014, it became very apparent to all of the trades that Donal was setting up alternate shops in order to build reinforced concrete high rises."
Claims Over 'Covered Work' in Union Pacts
The unions initiated the current lawsuits in U.S. federal court in Manhattan that year, claiming that Navillus, O'Sullivan, and his relatives and associates were violating the terms of Navillus' collective bargaining agreements and the federal Employee Retirement Income Security Act. The unions alleged that Navillus' nonunion companies, including Times Square Construction and Advanced Construction Solutions (ACS), violated the provisions of the contracts that reserve all the covered work by Navillus to its signatory building trades unions.
The unions also charged that Times Square and ACS, via their ties to Navillus and O'Sulllivan, qualified as prohibited alter-ego companies.
Navillus' attorney vowed to appeal the initial September judgment against the company and filed a motion for a stay pending the appeal.
Payment Due: $76 Million
But the judges in New York's Court of Appeals, James Lloyd Cott and Colleen McMahon, ruled that the hefty $76-million damage award should be enforced immediately. Soon after that ruling in November, Navillus filed for protection from its creditors in U.S. bankruptcy court in Manhattan and said it is seeking a $13.5-million injection of funds in the form of a loan from Liberty Mutual, its surety.
The size of the judgment and the implications for double-breasted construction operations turned heads in New York City's construction community, where unions and union employers have yet to devise an effective plan for keeping market share.
Double-breasted operations are not illegal, but they must meet specific criteria.
On July 7, days before O'Sullivan's interview appeared, an attorney for Navillus and O'Sullivan sought to convince the federal court that the companies were separate and distinct and that the union trust funds suffered no damage.
Navillus' Attorney: Companies Were Separate
Although Donal O'Sullivan founded nonunion Times Square Construction, which also performs concrete construction, with Kevin O'Sullivan in 2006, the latter resigned from Navillus and, in 2012, bought Donal's half of the company. The customers, staff and operations are separate, the attorney argued. Navillus sold Times Square some equipment on one occasion, but Navillus, which has its headquarters in Manhattan, never shared facilities with the nonunion firm.
Moreover, three years after Time Square was formed, a Southern District of New York judge in another federal lawsuit held that Time Square was not an illegal alter-ego company, joint employer, single employer or double-breasted operation with Navillus, the Navillus attorney argued.
But that didn't convince the unions and the judges.
According to Dungca and Francese's review of the Navillus case, the nonunion company's management team was not separated by very much from Navillus, with key employees having worked at Navillus. According to Dungca and Francese, Navillus staff helped the nonunion companies with a bid and a contract negotiation.
The judges, the two attorneys wrote, clearly didn't believe O'Sullivan's testimony. What stood out to the court, they wrote, was Donal O'Sullivan's work for the nonunion companies, "negotiating contracts, fixing problems, appearing at jobsites, financing, and securing property and equipment for the nonunion businesses."
The judges also heard testimony that Navillus had provided visas for staff of the nonunion firms as well as some company insurance coverage. According to the testimony, the nonunion companies levered the union contractor's "track record to win contracts and secure insurance and bonds."
Meanwhile, the legal wheels keep turning as Navillus pursues its appeal.
In a statement following the September verdict, a spokesman for the company described the ruling as "inconsistent with long-standing legal principles applicable to alleged alter-ego cases such as this … the court admitted that it had no prior case to point to like this one—where there was zero evidence that a union company took steps to steer jobs nonunion yet found alter-ego liability."
Since its inception, "Navillus Contracting has been a staunch union supporter and employer," the spokesman added.