An Interview With: Kathy Taub

Kathy Taub recently testified on construction contracts in proceedings concerning the collapse of the World Trade Center complex. From 1984 to 1995, she served as Vice President and General Counsel of Clark Enterprises, the parent company of Clark Construction. Currently an attorney at Arent Fox (a Real Estate Weekly sponsor), she has been involved in, among many prominent developments in Washington, legal issues related to the Wax Museum/City Vista site around 5th and K, NW, and the engagement of renowned architect Frank Gehry to design an expansion of the Corcoran Gallery, both of which she discusses below. Her specialty is structuring and negotiating contracts for owners, developers, architects, and contractors. She grew up in Cranford New Jersey, and is a graduate of Duke and University of Maryland law school.

Bisnow on Business: Who hired you for the Trade Center proceedings and why?
I was hired to be an expert witness in the property insurance claim for the collapse of the towers, and spent the last four months writing an expert report, being deposed, testifying at the hearings, and being cross-examined. I was hired by the insurance companies because of my expertise in drafting and negotiating construction contracts, and that was the subject of my testimony, but I can’t go much further than that because the entire hearings are confidential.

What was the experience like?
For someone who doesn’t litigate for a living, it was both exhilarating and scary. It was one of the biggest challenges of my career. When 9/11 happened I not only was affected by it as everybody else was, but because of my role in the construction industry, when the Towers came down I was very much interested in the technical aspects of how and why it happened. So I read the 9/11 Commission Report and watched documentaries on the History Channel and the Learning Channel about how the Trade Centers were built and why they came down. And then when I got the call in October to participate in the property damage claim, for me it was an opportunity to do something totally different from anything I’d ever done, but still use my 22 years experience in the construction industry.

Based on this experience you’ve had in the World Trade Center case, do you think the Washington real estate industry is as prepared as it should be for any terrorist incident here?
Well, when you’re buying replacement cost insurance for a completed building or when you’re buying builder’s risk insurance, which covers the building during construction, one of the things you have to look at is whether terrorism is excluded, in which case you have to buy terrorism coverage as a separate item. Then you have to make sure that your limits are sufficient, not just replacement cost for the entire facility, but that the insurance includes the right sublimits for certain types of damages or costs.

You’ve done a lot of work on the Wax Museum site, also known as CityVista. What’s it all about?
It’s a development consisting of two condominium buildings, a rental apartment building, a new Safeway, garage spaces and common areas. It’s a mixed-use development in an area of the city that is experiencing rebirth. The developer is an LLC led by Lowe Enterprises out of California, and they’ve already broken ground. The architect contract is signed, the construction contract is signed and construction is ongoing. The project is subject to a land disposition and development agreement between the developer and the District of Columbia. The District owned the land, and the development is subject to a 200 page document between the District and the developer.

What was the most interesting legal aspect of this project for you?
The condominium aspect. Because the condominium statute in D.C. contains certain protections for unit owners, as a developer you want to make sure that to the extent you owe protection to unit owners, you receive similar coverage from your designers and builders. So we had to first identify what the obligations were to the unit owners, and then, to the extent they were related to design and construction, to pass those obligations through to the appropriate party.

When you say “obligations,” what’s an example?
Well, under a normal construction contract the contractor gives a one-year warranty to the owner. But under the D.C. Condominium Act developers owe a warranty obligation to unit owners regarding structural defects, which is longer than a year. Also, the commencement date of the warranty under a normal construction contract is different than under the Condominium Act. What I’ve been seeing in condo developments in D.C. is that there’s a tension between what the developers want from the contractors and what the contractors are willing to give to the developers. The contractors don’t want to be involved in claims of unit owners. Their preference would be to sign up to a series of standard responsibilities and liabilities to a developer and then once those responsibilities are fulfilled then they’re gone. The developers on the other hand want to bring in everybody they can if there is a problem. They don’t want to litigate with the contractor in a separate proceeding from the unit owner because every time you have separate proceedings you have the possibility of different results.

So what do you do about this situation?
Let me just give you an anecdote. When I first started at Clark back in the late ‘80’s Clark was building condominium projects in South Florida. And what would happen is when the project got turned over to the condominium association, lawyers would go to the first condo association meeting. They would say, “For two or three hundred dollars per unit contributed into a pot, we will hire an expert to go through the building with a fine tooth comb and come up with a list of defects.” Then they would make a claim against the developer who would then make a claim against the contractor. But this wasn’t something that got settled very easily because a lot of the unit owners were retirees and they really had nothing else to do all day but think about the claim. In fact, the condo associations used to rent buses to bring the condo owners to the hearings, and you can just imagine what that looked like. And so construction contractors got worried because this was a huge expense and didn’t have a lot to do with their normal course of business where all the parties are sophisticated - business people around the table fixing a problem. And I think this is still the case. If people spend hundreds of thousands of dollars buying a condo, they want it to be perfect. So there’s tension between the unit owners, the developers, the contractors, and the designers. You need to be creative to figure it all out, and that was for me the most interesting part of the CityVista project.

You were involved in the Corcoran expansion and negotiations with Frank Gehry’s team, even though that project is no longer active. What was unusual about that?
You know, in most contract negotiations, the owner or developer has a significant amount of leverage because it is building the new project and the architects are very interested in getting the commission. But when you are negotiating with a world-renowned architect who you need more than he needs you, it’s a very different dynamic.

So, you were representing the Corcoran, and it was a little lopsided in favor of Gehry.
Yes, it was lopsided, and when we would talk about what the open issues were, the people that I was dealing with (who were real estate executives) had never heard of certain things that Frank Gehry was asking for. We had to keep reminding ourselves that this wasn’t the normal situation and that it was extremely important to the Corcoran to have Frank Gehry as the designer. It was important for the Corcoran itself. It was important in terms of fundraising. But it was fun because I had to be more creative to protect my client, having a lot less leverage than normal.

What did you do?
I developed a good relationship with Gehry’s lawyer, and, as a function of that relationship, I said, “Look, I know why you’re asking for this, but you’ve got to help me out here.” And then through conversations I tried to glean what the limits were and then went back to my client and said, “Okay, here’s how far I think they will go. What do you think?” One reason I think I’ve been successful is because a lot of people who do what I do come from the litigation end of the business, and I come from the transactional side. And on the transactional side your goal is to make a deal. On the litigation side your goal is to win, and when you win the other side loses. So it’s a different perspective. You learn over the years to understand in negotiations where the limits are and where there’s some room to move. And your ability to get that information has to do with the relationship you develop with people you’re negotiating with.

How’d you get into construction?
I went to the University of Maryland Law School in Baltimore and I worked at a firm in Baltimore right out of school called Shapiro, Vettori & Olander. I was the ninth lawyer at the firm. I was the youngest at 25. The oldest was 34. One of the clients of our firm was the Manekin Corporation, a Baltimore real estate developer, and Manekin had done deals with Jim Clark. Jim Clark’s daughter, Courtney Pastrick, and I went to Duke together, but lost touch in law school. She clerked for Judge Ritchie for a year, and I went to my firm. One day I was sitting in a meeting, and one of the partners said that this woman, Courtney Clark, was coming in for an interview, and I said, “Oh my God, we went to college together.” She joined the firm, and we immediately renewed our friendship. Then, in 1984, Joe McManus, the general counsel of George Hyman Construction, decided to set up his own firm, and called Courtney to see if she was interested. And she said, “No, that’s not my interest, but one of my very good friends and associates at this firm would be really interested.” I was 29 years old, and I had not spent much time in Washington. I had no idea how big George Hyman was. I interviewed with Larry Nussdorf, one of Clark’s top executives, and we discussed the need for someone in-house to help with real estate investments. And I said, “Well, you know, I don’t know anything about construction.” And Larry said, “Well, that’s not a problem. You’ll pick it up.” And at 29 years old I believed him, and took the job. He was right. :)