Accused Big Dig firm files for Ch. 11
Facing US charges, seeks financial shield; Modern Continental cites $1b in debts
Modern
It was a long-feared turn for a company that started with a wheelbarrow and a single sidewalk contract in Peabody 30 years ago and morphed into a construction giant on the back of its Central Artery work.
Ultimately, Modern Continental became one of the biggest symbols for all that went wrong on the $15 billion project. US prosecutors filed 49 individual charges against the company on Friday, alleging that it was responsible for flaws that caused a series of tunnel leaks as well as a ceiling collapse in 2006 that killed a motorist.
Modern Continental's Chapter 11 bankruptcy could complicate attempts for financial recovery on many fronts.
Legal specialists said bankruptcy status could hamper attempts by relatives of motorist Milena Del Valle to collect on their multimillion-dollar negligence claim against the firm. The filing is expected to greatly diminish the value of hundreds of business debts, to just pennies on the dollar. It also could help Modern Continental, meanwhile, to win $20 million it says it is owed by the state.
A lawyer who specializes in bankruptcy said yesterday's filing appeared to be skeletal, indicating the firm may have rushed to bankruptcy court in response to the criminal complaint.
Modern Continental has probably been considering the move for some time and kept that option "in their hip pocket," then hastily filed the petition when federal prosecutors brought charges, said Jeffrey Sternklar, a veteran bankruptcy lawyer in Boston who is not involved in the case.
The effect on the government's criminal case was not clear. Lawyers contacted by the Globe disagreed over whether the filing would hurt the government's ability to recover up to $24.5 million in fines that the privately held firm would face if it is convicted on the federal criminal charges.
Lee Harrington, a bankruptcy lawyer not involved in the case, said fines that might stem from the federal prosecution would be treated like any debt owed by the company: Creditors might get only a fraction of what they are seeking.
But US Attorney Michael J. Sullivan, who said Friday that prosecutors charged Modern Continental after extended negotiations toward a plea bargain collapsed, said yesterday the bankruptcy petition "does not impact the government's criminal case and will not deter us from trying to recover taxpayer dollars."
Modern Continental has said it would vigorously contest the criminal charges, but yesterday the company sought to blame the state for at least some of its financial problems. The Massachusetts Turnpike Authority, which oversaw the construction of the $15 billion project and which faces severe financial hardships of its own because of the debt it took on in that capacity, is withholding $20 million in payment to the company as a means to guarantee the work's completion.
"As a result of Modern's struggle to collect due and owing contract balances from the Commonwealth, Modern's ability to timely fulfill its remaining contractual requirements as well as its obligations to its creditors has been placed in jeopardy," the company's statement said. "Modern hopes that the Commonwealth will fulfill its contractual obligations and allow Modern to reach its continuing goal of meeting all of its obligations."
The Turnpike Authority would not comment on the dispute, except to say that the $20 million being withheld is meant to compel the company to finish the job.
"The work is not complete and there are outstanding punch list items," said Mac Daniel, a spokesman for the Turnpike Authority. "But because of pending litigation, we can't comment further."
A lawyer for Del Valle's children, Brad Henry, said the family intends to persevere in its claims. Modern Continental's general liability insurers may be forced to pay a negotiated settlement or a court judgment, without regard to the company's financial condition, he said.
"This may cause some short-term delay but it won't stop the family from ultimately establishing Modern Continental's role in this tragedy," Henry said.
The company's financial problems have long been a source of major concern among state officials. For five years, the firm built by the Italian immigrant Lelio "Les" Marino has been considered a virtual shell corporation, teetering on the edge of bankruptcy and kept on life-support by its surety company through the infusion of hundreds of millions of dollars.
The company fell behind on two dozen contracts on the Big Dig in 2003 - contracts it often won by underbidding other contractors by substantial sums. Since then, Modern Continental has been kept in business by Travelers Insurance, which in 1999 contracted with the company to insure its performance on the Big Dig, guaranteeing to the state that the work then underway by the building contractor would be completed.
Amid the crisis, the 69-year-old Marino, the company's driving force, died months after having open-heart surgery and undergoing chemotherapy for stomach cancer.
Travelers decided it would be cheaper to pay the firm's burgeoning debts and keep it operating than to bring in another company to finish the job.
As of 2006, Travelers had poured $435 million into Modern Continental, most of it to keep work going forward on the Big Dig, according to court filings in a case unrelated to the present bankruptcy proceedings.
Shane Boyd, a corporate spokesman for Travelers Insurance, said he could not comment.
Sean Murphy can be reached at Smurphy@globe.com.
