A White Plains construction company has been awarded a $1.4 million court judgment against a Nevada loan broker that filed liens that led to the collapse of the company.
U.S. District Judge Cathy Seibel awarded damages last month, from Blue Acquisition LLC, Las Vegas, to Forthill Construction Corp. and Martin and Margaret McKernan of Stamford.
“The upshot of the defendant’s actions,” Forthill’s Manhattan attorney, William A Thomas, said in a recent letter to the court, “was to destroy, nearly overnight, a $13 million construction company.”
In 2016, Forthill began negotiating with Blue for funds to shore up its cash flow and to finance growth. Forthill agreed to borrow $1.6 million and the McKernans agreed to a $300,000 promissory note, both contingent on closing the loan.
Before the deal was scheduled to close in 2017, Martin McKernan, Forthill’s president and sole owner, decided that the terms were “too onerous,” he states in a court filing. “And with the express blessing of Blue Acquisition’s principal (Robert Entler) we opted to look elsewhere for financing.”
Forthill borrowed $1.2 million from Dime Community Bank, and the McKernans personally guaranteed the loan.
Blue notified Forthill that it was in default on the proposed loan, claimed it was owed $300,000 under the promissory note, and demanded a 5% stake in the company.
Then Blue filed a financing statement with the New York Secretary of State, asserting an interest in Forthill’s construction equipment and contracts.
Entler filed a claim on the McKernans’ Stamford property. Blue also sent letters and lien notices to six general contractors for whom Forthill was working on major projects. Payments that the general contractors owed to Forthill, the letters stated, should be sent to Blue instead.
Some of the general contractors withheld payments to Forthill.
Forthill was unable to meet its weekly payroll, cover its monthly insurance, pay suppliers and make loan payments to Dime. Employees were laid off. Projects were delayed. Forthill was unable to win bids on new projects.
“The upshot,” McKernan said in a court declaration, “was a snowballing breakdown in Forthill’s relationship with all its clients, as well as with its workforce and vendors, ultimately leading to the effective collapse of the company.”
Dime sued Forthill and the McKernans and won a judgment.
They sued Blue, arguing that the financing statement was illegal because the loan was never finalized.
Judge Seibel ruled last year that Blue’s liens against Forthill and the McKernans were invalid. She voided the financing statement and ordered an inquest on the damages.
Magistrate Judge Lisa M. Smith recommended that Blue pay Forthill and the McKernans $1,435,326, the amount they owed Dime Bank. She rejected their claims for losses of $525,000 in future corporate profits and $875,000 in Martin McKernan’s future earnings.
On Feb. 27, Seibel agreed with Smith’s report and recommendations.