In an economy that has battered the construction industry, Louis Sulla has managed to keep his Hawthorne carpentry company in business. Now a state agency poses a new threat to his company”™s financial standing and threatens too the survival of hundreds of other small businesses in Westchester and around the state.
Sulla opened his Precision Carpentry of Westchester contracting business in 1991. Starting in 1999, the company thrived as Sulla took on regular subcontracting work for developer Louis Cappelli at his massive mixed-use redevelopment projects that transformed downtown New Rochelle and White Plains. In 2007, when Cappelli was building the Ritz-Carlton residential towers and hotel in White Plains, Precision Carpentry did $28 million in sales volume and employed about 300 union workers.
Then came the recession in late 2008.
“2009 was a terrible year,” Sulla said at his office trailer in Hawthorne. “We survived it” by taking renovation projects outside the company”™s “comfort zone.”
The good years of steady work from Cappelli are gone. “In these lean years, I”™m trying to do a $10 million volume,” Sulla said. He has expanded his company”™s geographical range beyond Westchester and in the last year has worked for the Engel Burman Group, the Long Island developer of assisted living facilities in the metropolitan region.
But Sulla and his wife, Sally Bartolotta, are preoccupied now by a business matter in Albany that has simmered in and out of state courts since 2008. It seems about to boil over in a slew of state-initiated debt judgments against companies. Those companies later could be issued stop-work orders or have bank accounts frozen if they fail to make payments determined by the state. The businesses, which Sulla said likely include “a fair number” of Westchester companies, have followed their attorneys”™ advice and have not made the payments.
At issue is a $924-mllion deficit in funding for injured workers”™ compensation claims that the state Workers”™ Compensation Board is trying to collect from companies that were members of insolvent group self-insurance trusts. About 4,500 employers statewide reportedly were involved in the 17 failed trusts. A joint-liability provision in their trust contracts prompted the state”™s effort to collect deficit payments from individual companies.
The state board in its most recent accounting in 2011 said Precision Carpentry and other companies in the failed Elite Contractors Trust of New York were liable for a deficit totaling $82.2 million.
At his office conference table, Sulla tapped a pile of correspondence with the state Workers”™ Compensation Board and attorneys at an upstate law firm representing Precision Carpentry and about 250 small New York businesses from a range of industries in legal actions against the state board. “This is my priority,” he said.
The state board claims Precision Carpentry is liable for an additional $336,000 payment as its share to cover workers”™ claims from the defunct trust. State officials have not provided Sulla and class-action attorneys at Phillips Lytle L.L.P. in Albany with a detailed accounting of how the state arrived at that figure, which has fluctuated annually.
“For a company our size to come up with $336,000 is not doable, especially in this economy,” Bartolotta said.
Sulla said paying the assessments would not end the matter for businesses. The state will not release the companies from further liability, he said.
A former Poughkeepsie company, Compensation Risk Managers (CRM), administered about 90 percent of the 17 failed trusts, said Richard E. Honen, Sulla”™s attorney at Phillips Lytle. CRM is in bankruptcy and no criminal charges have been brought against the company.
Though the trusts were audited annually by the Workers”™ Compensation Board, Sulla and Bartolotta said Elite Contractors Trust, formed of construction-industry companies with like risk exposure, might already have been in financial trouble when Precision Carpentry joined it in 2000. They joined at the urging of their former insurance carrier in Poughkeepsie, Hickey-Finn & Co. Inc. Sulla said Dan Hickey, president of Hickey-Finn, also was a principal of trust administrator CRM.
The trust”™s discounted premium rates did save money for Precision Carpentry, which Sulla says pays about $1 million a year in workers”™ compensation and liability insurance. But those rates might have been insufficient to cover workers”™ injury claims, said Honen, whose firm represents from 230 to 250 members in various industry-based group trusts.
“It”™s not clear exactly what went wrong,” Honen said. “And what”™s really not clear is how did the Workers”™ Compensation Board let this go on?” State officials, said Honen, were “asleep at the wheel.”
As the Elite Contractors Trust grew, companies in higher-risk classes, such as demolition contractors, were included and approved by the state board, said Bartolotta. “There appears to be collusion between the comp board and the trustees,” she said. “They cut them so much slack.”
Sulla said he has tried to alert state and federal elected officials representing Westchester to the crisis faced by his company and others. “Politically, this is a red herring for these guys,” he said. As a small business, “We”™re a small portion of their voting pool.”
Sulla thinks legislation will be needed to settle the dispute and relieve small businesses of the large liability claim.
Bartolotta said trust members could end up suing each other. “Without government intervention, I don”™t know what”™s going to happen here,” she said. “It”™s a billion-dollar problem. If it doesn”™t get resolved, the taxpayers will have to be on the hook for all this money.”
“We did nothing wrong,” Sulla said. “We”™re just the jerks who wrote the checks every month” to a mismanaged trust.
