Two contractors that worked on the defunct Staybridge Suites project in Milwaukee, and have been waiting years for payment, may never get compensated.
The Court of Appeals, in a ruling issued Thursday, said that $12 million netted from auctioning off developer DOC Milwaukee LP’s property – including the half-completed hotel and apartment building at 1150 N. Water St. – should go toward an unpaid mortgage and note issued by Specialty Finance Group Venture LLC.
The project broke ground in 2007 but shut down in 2009 amidst financial problems for DOC Milwaukee. When the building was auctioned, DOC Milwaukee owed more than $14 million on the mortgage.
The 14-story building went through several owners before the Milwaukee School of Engineering bought it in 2013. The school plans to use the building, which is under construction, for student housing, apartments, retail space and parking.
In the wake of the failed hotel project, multiple suits were filed in state and federal court and DOC Milwaukee went into receivership to pay back the millions it owed.
Thursday’s decision by Judge Paul Lundsten reverses a ruling made by Milwaukee Circuit Judge Jane Carroll, who in 2012 decided that money from the auction should go toward liens placed on the project by Butters-Fetting Co. Inc. and Klein-Dickert Milwaukee Inc.
Butters-Fetting, which worked on the building’s HVAC system, is owed $400,000 and Klein-Dickert, which did glasswork, is owed $600,000.
“Because we conclude that Venture’s mortgage does have priority,” Lundsten’s opinion states, “and because the amount owed Venture exceeds the proceeds of the auction, there is no money left to satisfy either Butters-Fetting’s or Klein-Dickert’s liens.”
The appellate court left a decision of whether Specialty Finance is allowed to collect interest and court costs up to whatever Milwaukee County circuit judge rehears the case. It also declined to rule on challenges Butters-Fetting and Klein-Dickert brought concerning the validity of the liens both companies filed, stating that the point was “moot” because the mortgage should be paid first.
Kevin Long, an attorney with Quarles & Brady LLP who represents Butters-Fetting, said Thursday that his client “respectfully disagrees with the decision and believes the contractors are entitled to first priority.”
He said the company is debating whether to appeal to the state Supreme Court.
Ralph Weber, an attorney with Gass Weber Mullins LLC who represents Klein-Dickert, could not immediately respond to the suit, as he had not received consent to do so from his client.
Nancy Sennett, an attorney with Foley & Lardner LLP who represents Specialty Finance, did not immediately return a message.
Despite the ongoing legal issues, new construction is well underway, Kevin Morin, MSOE’s vice president of operations, said.
The city of Milwaukee’s Common Council unanimously approved a zoning change for the project in October to accommodate the building’s student housing. Hunzinger Construction Co. is the general contractor for the project. And a proposed timeline submitted to the city of Milwaukee has been moved up, Morin said, since so much work was done the first time around.
MSOE’s goal, he said, is to have the first nine floors – which include business space, parking and student housing – done by fall. The top six floors – which include more student housing and apartments for faculty and graduate students – are expected to be done by September 2015, he said.
“Some of the floors have quite a bit of the finished drywall,” Morin said. “Plumbing is through the walls … it’s pretty far along. Farther along than I anticipated.”Follow @eheisigWLJ tweet