Case History 82
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[00:00:00] Tim: Welcome to the GBA case series, brought to you by the GBA podcast. My name is Tim Rodriguez and I'm the Chief Operating Officer at BSK Associates.

[00:00:13] Liz: And I am Elizabeth Brown, principal geotechnical engineer at JLT consultants. Today we're examining GBA case history 82, which perfectly illustrates how a tiny $2,000 project spiraled into a $150,000 nightmare.

[00:00:31] Tim: Yeah, this is one of those stories that makes you wince, but it's packed with valuable lessons for firms of all sizes.

[00:00:38] Liz: Oh, absolutely. So how about we break down what happened and then discuss some of those key takeaways or lessons learned that could really save our listeners from some similar headaches?

[00:00:51] Tim: Sounds good. So here's the situation. A development company was interested in purchasing property to construct an office building at a [00:01:00] location owned by a heating oil distribution company. They used the site as a maintenance facility. They hired a GBA member firm to conduct an environmental site assessment ahead of the transaction.

[00:01:13] Liz: This site had previously been used as like a gas station service station, and they had some previously installed underground storage tanks. Well, these tanks had reportedly been removed, but without the proper documentation of their removal. So during the site assessment, the member firm found contamination levels that triggered regulatory reporting requirements.

[00:01:36] The developer suggested to the property owner, Hey, why don't you guys just hire this member firm to do some additional sampling?

[00:01:45] Tim: So this is where things get interesting. The project manager recognized a potential conflict of interest in working for both the buyer and the seller of the property.

[00:01:55] Liz: Oh, that was a good catch. So because of that, the member firm's [00:02:00] project manager made sure to speak with both the owner and the developer, both of which agreed to the conflict of interest risk, and they even put it in writing. So because of that, the member firm proceeded with additional sampling for the property owner.

[00:02:16] Tim: The second route of sampling showed contamination levels slightly below reporting thresholds, but the regulation still required the property owner to report the original above threshold of findings to the state regulators.

[00:02:31] Liz: So the member firm completed its services and they submitted their $2,000 invoice to the property owner. But, that's when the trouble started.

[00:02:40] Tim: Yep. The property owner simply refused to pay. Finally, after multiple letters and phone calls, the owner wrote the member firm and promised to pay if they would provide him a copy of their report. The member firm checked with the developer and they approved releasing the report to the owner, but then [00:03:00] six weeks passed and still the property owner refused to pay.

[00:03:04] Liz: I hate those situations. So instead, this property owner decided to retain an entirely different environmental firm. But here's the catch, is that that firm didn't have any licensed professionals, so that firm reviewed the member's work. They resampled the observation well at the site, but they decided to do things maybe a little bit differently.

[00:03:30] They took an average of all the various tests and they concluded that the conditions were not reportable, even though this was against the regulatory agency requirements.

[00:03:44] Tim: Right. So in response, the member firm sent a letter to the property owner documenting the regulatory requirement and continue to submit monthly payment reminders to them. It took more than a year that they did this, of those reminders and phone calls, and they were being ignored. [00:04:00] They also made a visit to the owner's office, and the member's firm's calls for mediation just went unnoticed.

[00:04:06] So the member firm COO decided to take the matter to small claims court.

[00:04:11] Liz: Yeah, and things just continued to get worse from there. So just three days before the court date, the property owner filed a $20,000 counterclaim. In that claim, they were alleging that the member firm had contaminated the property with diesel fuel from their drilling rig.

[00:04:31] Tim: This was such a bogus claim. It had absolutely no evidence. As we later discovered.

[00:04:36] Liz: Exactly. The cases were consolidated in district court, and the member firm retained counsel. Who was confident that they would prevail and they estimated their legal fees to be about $5,000.

[00:04:52] Tim: But that estimate turned out to be way too optimistic. The property owner refused mediation despite the mediation requirements included in [00:05:00] the member firm's agreement, and the judge denied the member firm's motions to enforce the contract language and for a summary judgment.

[00:05:09] Liz: So the case dragged on, right? They had to go through all of those things like the discovery and subpoenas and document reviews and interviews and I mean, you, you name it, depositions and getting expert witnesses and all of those things that come along with going to court. So all of those things just continued.

[00:05:31] Tim: Yeah. All the things we try to avoid and that's part of what actually came out during the depositions was the property owner actually admitted on record that he had fabricated his claim about the fuel leak contamination he alleged was caused by the member firm. And his expert acknowledged he had no evidence of negligence by the member firm.

[00:05:51] Liz: So the member firm's attorney again moved for summary judgment and to bar the owner's expert from testifying since he wasn't even a licensed [00:06:00] professional and really he had no relevant testimony.

[00:06:04] Tim: Then the property owner retained a new attorney and made additional allegations, not in the original complaint. Forcing the member firm almost back to square one. And this is just a nightmare that nobody wants to entertain.

[00:06:16] Liz: Just keeps going. So after all of this they're going all of this back and forth. The property owner offered, they say, Hey, let's settle for $7,000. But the member firm was like, no, not happening. So at the pretrial conference, the judge indicated that she would likely bar the owner's expert and might accept an abuse of process claim.

[00:06:38] Tim: So following that meeting, the owner offered to settle for $3,500 as things kept mounting against him. The member firm countered. Asking for the original $2,000 fee, plus their attorney and expert fees, which by then totaled $85,000.

[00:06:55] Liz: Oh, such a lot of money for a $2,000 job. [00:07:00] So the member firm, COO, initially, he wanted to go to trial believing that they could recover their legal fees, right? But then here comes the reality check.

[00:07:13] Tim: The attorney explained that even with a successful abusive process claim, they might recover only one third of their legal costs, which wasn't the news they wanted to hear. So after that, reluctantly, the COO then agreed to accept a $42,500 settlement.

[00:07:31] Liz: And the owner responded with a check for 27,500, which the COO accepted. So all told the member firm had invested more than $150,000 in out-of-pocket expenses, plus staff time to collect on their original debt of only $2,000.

[00:07:52] Tim: And even with the $27,500 settlement, they were still out more than $125,000, not [00:08:00] counting the intangibles of lost morale, opportunities and honestly, just sleep.

[00:08:07] Liz: So what was a small little project turned into this big mess with lots of money at stake. Maybe we should talk about some of the things that we can learn from what happened in this situation.

[00:08:21] Tim: Yeah this definitely has GBA best practices and things to avoid written all over it. First and foremost perform a go no go analysis. Had the project manager or the COO just spent 30 minutes talking and inquiring, looking into who the property owner was, what the reputation was, they might've discovered that he had a history of filing frivolous lawsuits and maybe avoided this altogether.

[00:08:45] So talk about learning that the hard way.

[00:08:47] Liz: Oh, absolutely. A little pre-work sometimes goes a long way. The firm made no effort to learn more before agreeing to take on this project, and unfortunately, they had to pay for that failure.[00:09:00] 

[00:09:01] Tim: Right. The second lesson has been mentioned throughout GBA so many times. And this has unfortunately been proven true in this case. Project risk is often inversely proportional to project size, complexity, and fees. Being aware that small projects can create big problems just because of poor attitudes on the part of a lot of the players involved is something to keep in mind.

[00:09:22] Liz: Oh, that is so true. If your firm cannot respond to a small project with the same concern and quality and effort that it applies to a major project, maybe you shouldn't accept the small project. Project size should be a concern whenever there's a go, no go analysis.

[00:09:40] Tim: For sure. So third, you really wanna avoid litigation whenever you reasonably can you. The agreement in this case required both parties to mediate before going to litigation, but that requirement wasn't enforced.

[00:09:54] And even with that, a $2,000 loss in the very beginning of the fees would've been far [00:10:00] better than the outcome of what this situation presented.

[00:10:04] Liz: Yeah, agreed. And finally, don't waive your retainer requirements, especially for first time clients or even for the small projects. The member firm waived its 50 percent retainer requirement because of timing issues and because, it really was a small scope and fee.

[00:10:23] Tim: Yeah, and think about that. That would've been a $1,000 retainer that might have saved them $125,000 in the long run. Such a small insurance policy really.

[00:10:34] Liz: And I don't know about you, Tim, but I know what I've seen in the industry is it's fairly common to ask for that retainer. I don't usually get a lot of pushback when we're asking for a retainer for services.

[00:10:47] Tim: No, you're right. And I think the hardest part is just getting our folks to know and realize that they should be asking for it in particular, when it's a new client, someone that you don't have experience with, or somebody that, as in this case, [00:11:00] maybe had some questionable background.

[00:11:02] Liz: Agreed. So a lot of training with staff I think perhaps could go a long way as well and maybe even teaching staff. How to ask for a retainer or maybe internal processes of how to go about that.

[00:11:15] Tim: Right. Increasing awareness all around, I think would go a long way for this one.

[00:11:19] Liz: Absolutely. This case really highlights how important it is to maintain those consistent business practices. Regardless if it's a $2,000 project or several hundred thousand dollars project.

[00:11:34] Tim: Totally, and it's a good reminder that sometimes the best project is the one you don't take. Giving every opportunity a good and thorough go no go analysis can always reveal some potential red flags that you want to be aware of. And it doesn't mean you don't go after it anyway. If it's a known risk, you might actually still feel fine about pursuing it, but at least you know that going in.

[00:11:53] Liz: Exactly, or maybe you you build some stuff into your contract to help mitigate some of that [00:12:00] risk. Hey, Tim, what would you say is your biggest takeaway from this case?

[00:12:06] Tim: Well, for me I think that it's that we need to trust our instincts and our processes. The project manager was aware of things, recognized the potential conflict of interest, which was a great move on their part. But the firm still proceeded without doing due diligence on the property owner.

[00:12:21] And I think listening to that inner voice sometimes is actually a really important thing.

[00:12:26] Liz: Oh yeah, totally agree. And I'd add that we should never underestimate the potential liability of even those small projects. In this scenario that $2,000 fee ended up costing 75 times what that initial fee was.

[00:12:42] Tim: Absolutely. Well said, before we wrap up, let's remind our listeners that the full GB 82 is available through the Geoprofessional Business Association website.

[00:12:53] Liz: And if you enjoyed this discussion, please subscribe to the GBA podcast wherever you get your podcasts.[00:13:00] 

[00:13:02] Tim: That concludes this episode of the Case History Series brought to you by the GBA podcast. I hope you were able to take away some useful information that will help you and others at your firm make good risk-based decisions in the future.