KPH suing Kahler Slater over Hotel Northland fallout

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After emerging from bankruptcy, the Milwaukee contractor KPH Construction is suing the architectural firm Kahler Slater in the latest dispute to arise from the redevelopment of the Hotel Northland property in Green Bay.

KPH is accusing Kahler Slater of taking steps that led to its being kicked off the Hotel Northland project, an event that gave rise to years of litigation and a bankruptcy filing in early 2019. If the suit is successful, proceeds from it will be used to pay back creditors under the terms of a settlement agreement that brought KPH out of bankruptcy earlier this year.

The lawsuit is another result of fallout from the redevelopment of Hotel Northland, a historic property in downtown Green Bay that opened to the public in late 2018. KPH was overseeing the project when the work ground to a halt because its developer had defaulted on a loan. The project was later completed by Ganther Construction, of Oshkosh, and the property was sold and rebranded.

KPH’s lawsuit contends Kahler Slater filed a letter of certification that led to a receiver’s terminating KPH as the Northland’ general contractor. After being fired, KPH argued it was never paid $12 million it was still owed on the Northland project, forcing it into bankruptcy last year.

“We have claims against Kahler Slater that we are pursuing for our losses,” said Keith Harenda, president and CEO of KPH.

Kahler Slater did not immediately return a message seeking comment. It has not yet registered an attorney or responded to KPH’s lawsuit, which was filed Monday.

KPH signed on as the Hotel Northland’s general contractor and part-owner in 2014. But the deal crumbled after the project developer, Mike Frantz, defaulted on a loan, bringing construction to a halt and pushing the hotel into receivership in 2017. Frantz was then also pursuing large redevelopments in Fond du Lac and Wausau — projects that he either eventually abandoned or was pushed out of.

At the heart of the lawsuit against Kahler Slater are questions about how KPH was removed from the Hotel Northland project. That happened soon after the hotel went into receivership. That removal, according to the firm, was a fraudulent step intended to deprive KPH of millions.

According to the suit, the project receiver, the Oshkosh attorney Paul Swanson, had no authority under the project contract to independently fire KPH. But a company brought on by Swanson Kahler Slater, was in a position to decide if KPH had met its obligations.

When the financing for the hotel became strained in October 2017, a representative of Swanson asked Kahler Slater to write a letter saying KPH should be fired, according to the lawsuit. KPH was then owed millions for its work on Hotel Northland. Reviewing the project, a Kahler Slater official concluded that KPH couldn’t be fired unless it was found to have violated its contract by not paying subcontractors.

KPH acknowledged that it hadn’t paid certain subcontractors. Even so, according to its suit, those non-payments did not violate its contracts. Some contracts, for instance, required KPH to pay subcontractors only after KPH itself had been paid for its work on Hotel Northland.

Kahler Slater acted anyway.

“Although the Kahler Slater Defendants knew that the grounds for terminating KPH were not present, they nonetheless certified and approved the owner’s decision to improperly terminate KPH for cause,” according to the suit.

KPH’s firing wiped out the millions it was owed for work on the hotel. Swanson, as receiver, later put the property up for sale. Hotel Northland was eventually bought out of a receivership by a company owned by the management consultant Greenwood Hospitality and an affiliate of the investment firm Octagon Credit Partners for $33.3 million. Their bid was the only one submitted.

KPH fought the sale for years in court. Then, in late 2018, the insurer Liberty Mutual sued KPH, arguing the contractor had exposed it to more than $3 million in liabilities for failing to pay more than two dozen subcontractors on the project.

The contractor filed for bankruptcy soon afterward, a step KPH said came as a “direct result” of its not being paid for its work on the hotel.

KPH, meanwhile, has remained in business. Follow @natebeck9