Perspective is everything when you look at five buildings that were put up in far western Maryland four years ago. To builder-developer Greg Mortimer, they're examples of construction by 84 Lumber that was so shoddy and rife with code violations that they can't be sold, while to 84 they're an example of what happens when a developer can't accept the truth and won't pay his bills.
The dispute between Mortimer and 84 is heading to federal court this fall, and while the ultimate winner hasn't been determined, there's already been one loss: the relationship between Mortimer and 84's president, Maggie Hardy Magerko.
Mortimer will tell you repeatedly that he likes and admires Magerko. He says she used to own a home at a resort area in western Maryland where Mortimer has built and sold scores of houses, and she regularly dined at one of his restaurants and contributed to some of Mortimer’s charity causes. It was a business relationship as well, built in part on 15 years’ worth of buying upwards of $2 million worth of materials at 84 annually.
And even now—with Mortimer countersuing 84 for millions to fix 84’s allegedly shoddy construction work on his project—there’s a pleading note in Mortimer’s voice when he asks: “Do you think Maggie knows?”
The federal case now driving the dispute will see more depositions and fact-finding this fall. But there’s already enough in the files for dealers to do their own case-study analysis on how to run an installed sales division.
At issue is 84’s work on two buildings at Mortimer’s Cedar Creek project and three more at his Timberlake project. Both are in Garrett County, the westernmost end of Maryland’s panhandle, and both are near the Deep Creek Lake and the Wisp ski resorts. Each building had two homes apiece.
Mortimer says he has developed, built and sold more than 115 homes in the Deep Creek Lake area since the late 1990s. Until this dispute arose, he had bought from 84 consistently. He had put up all the buildings himself but occasionally used 84-provided labor supervised by his own foremen.
In 2008, he was occupied with expanding his restaurants when the opportunity to develop Cedar Creek and Timberlake arose. 84 offered to manage construction of the residences.
Mortimer agreed. But what 84 erected, he says in a March 2011 letter to Magerko, was “horrifically deficient and defective construction work” in which buildings leaked like sieves and, in at least one inspector’s report, appeared to be put together with barely a strip of tape or flashing. Leaks and related problems have made the buildings uninhabitable and unsellable, documents and affidavits supplied by Mortimer assert.
According to the developer, the problems began with a lack of oversight of the subcontractors 84 hired. “Essentially, 84 Lumber represented to me that 84 Lumber would construct these buildings so that I could attend to other matters,” Mortimer wrote in his letter to Magerko. “84 Lumber represented to me that it had construction experts specially trained for this work who would be assigned to my projects. Not only was this false; it now appears that the representations were fraudulent.”
Indeed, in an excerpt from a deposition provided to ProSales by Mortimer, 84’s field installation manager—the company official supervising the subcontractors putting up the Timberlake buildings—said he never went to the jobsite until Mortimer’s company, Mortimer Builders, started complaining. That led to this exchange in the deposition:
Q: So when you say you assist in supervising the subs, what does that mean?
A: To manage the quality.
Q: But you did it from off-site?
A: You could say I didn’t do it.
Q: You did not do it?
A: Yes, didn’t manage these crews.
84’s chief operating officer, Frank Cicero, disputed Mortimer’s claims of rotten construction. “As a matter of policy 84 does not discuss issues in litigation; but clearly we do not believe that our work was faulty,” Cicero wrote in an e-mail to ProSales. “This is about someone who has refused to pay 84 Lumber more than $800K that is rightfully owed us.” Mortimer agrees he has held up at least $300,000 due to 84.
Although Cicero flat-out rejects any connection, it is notable that the year 2008, when Mortimer bought 84’s pitch to have it build his buildings, also was a rough time in 84’s history. The housing crash hit 84 hard, and in April of that year it went to lenders twice. The first was to get an asset-based loan, secured by 84’s operating assets, that had a limit of $340 million.
The second was a $195 million loan from Cerberus Capital Management that charged 18% interest. The money kept 84 alive but did little more, because a provision of the Cerberus loan barred 84 from using sales of one of its biggest assets—its land—to bolster day-to-day activities. Rather, any money from land sales had to go toward paying down that loan.
84 closed 115 facilities in 2008, including at least 30 the same month it got Cerberus’ money, and followed with 24 more closures through March 2009. That was the first month in which leaks began sprouting at Cedar Creek. 84 at first claimed (according to Mortimer) that Mortimer Builders caused the leaks because it hadn’t properly installed electrical outlets. The firm recaulked those areas, but the water kept coming. In August 2009, Mortimer says, 84 Lumber’s then-head of installation said he’d get the problems fixed.
“Since that time, 84 Lumber has removed windows, doors, balconies and siding, and on a number of occasions and during a period of over two years, but has failed to cure these problems,” Mortimer told Magerko.
Those two years through March 2011 saw 84 claw back up the financial cliff. It closed another 42 facilities but managed to re-open three it had shuttered. By late summer 2010, 84 had $55 million left on the Cerberus loan. That’s when it sought a total of $20 million in Community Development Block Grants.
The federal government approved the loans in December 2010. With that commitment in hand, 84 used federal and new private loans in February 2011 to pay off what by then was the final $40 million due to Cerberus.
Asked about the parallel timing, Cicero declared to ProSales: “Our lenders have nothing to do with this.”
In March 2011, one month after Cerberus was paid off, Mortimer had become so frustrated with local and regional 84 officials that he drove to Eighty Four, Pa., to hand-deliver a letter to Magerko. He said Magerko indicated initially that she would speak with him but had to go to a meeting first. She never came back, Mortimer said.
On April 4, 2011, 84 sued Mortimer in a Pennsylvania court for $578,000 worth of bills on the projects that 84 said he had refused to pay. Mortimer counter-sued 24 days later in U.S. District Court for the Western District of Pennsylvania. He thinks it will take at least $4 million to fix the dwellings, plus legal fees and penalties.
The two sides went to mediation last fall but failed to reach agreement. Meanwhile, the bank that had lent Mortimer the original money for the projects was pressing to be paid. But eventually that bank turned on 84.
On May 25, 2012, Branch Banking and Trust Co. (BB&T) filed a third-party complaint against 84, saying that its construction work “… was performed in a negligent manner, by persons hired by 84 Lumber who were not properly trained to perform the required work and who used defective materials and relied upon deficient plans and drawings …” BB&T argued that 84 did such poor work that Mortimer couldn’t hope to sell the places—and thus repay his bank loan—unless 84 made things right.
On July 31, however, the bank withdrew its complaint after discussions with 84. Mortimer said it’s because 84 wanted to force several BB&T officials to appear at depositions. Cicero dismisses that notion.
For Mortimer, his assumption that going to the top rungs of 84’s management would help his case now gives him extra frustrations.
“I just want them to do what’s right,” he said. “I’m thinking, here’s a big company that represented they could do these projects, and here we are three years later, with multiple promises to fix that, and they’re still defective. … As a small-business owner, it’s devastating.”