April 6, 2009
BY TIM NOVAK Sun-Times Columnist

A court battle involving a City of Chicago contractor that has been paid $140 million over the last decade to build police stations, schools and other public facilities is

raising questions about how the city ensures that the businesses it hires keep their promises to subcontract work to companies owned by women and minorities.

By law, the city requires contractors to do so. It's a way to make sure women and minorities get their share of city business.

But it didn't work that way on the construction of a $10 million fire station in Rogers Park, a lawsuit claims -- an allegation that a city official says is being looked into.A city contractor -- Castle Construction Corp. of Markham -- pulled a bait-and-switch on the construction of the firehouse, according to the lawsuit and other records.

Castle promised city officials it would subcontract all of the masonry work on the job to a minority-owned company, for $1.5 million.

Instead, records show Castle hired a white-owned masonry company -- for $550,000 less.

Then, after most of the work was finished, Castle fired the white-owned subcontractor, LCS Construction of Downers Grove.

LCS president Kenneth Littwin Sr. is now suing Castle, saying the company has refused to pay more than $775,000 it owes for labor and materials.

Beside raising questions about city monitoring of contractors, the suit could also lead Mayor Daley's Public Building Commission to seek monetary damages from

Castle for failing to live up to its commitment to give minority-owned companies 23 percent of the work on the Rogers Park fire station.

"We're troubled by the circumstances that appear before us right now,'' said Kevin Smith, spokesman for the building commission. "There are sufficient irregularities

[that] we intend to look closely at the measures we have in place to make sure that the expectations we have of the general contractor and the use of minority

subcontractors are met.''

Castle faces similar allegations involving work for the CTA, which fired the company last October, according to a CTA spokeswoman. Castle owes money to

subcontractors it used to build two CTA equipment-washing facilities, including $216,000 to Littwin's company, according to its lawsuit filed by the Roth Law Group.

John Eannace, an attorney representing Castle president Robert Blum of New Lenox, declined to comment.

Castle and Blum could also be facing other legal problems. A federal grand jury recently subpoenaed three Illinois state agencies, seeking records on any contracts

Castle and Blum got under ousted former Gov. Rod Blagojevich. Blum is a friend and business associate of former top Blagojevich adviser and campaign fund-raiser

Christopher Kelly.

The firehouse deal dates to March 13, 2007. That's when the Chicago Public Building Commission awarded Castle two contracts -- $10 million to build the fire station

and another $21 million to build a new 7th District police station in Englewood.

Castle committed to hiring George Anthony Garth Masonry, a minority-owned company, to work on both projects. Castle said it would pay Garth $1.5 million for the

fire station and $3.8 million for the police station.

But Garth Masonry, faced with "financial difficulties,'' couldn't handle both projects, according to court records in the Littwin case. So Castle hired Littwin's company to

do masonry work on the fire station that began in September 2007, records show.

Castle should have first gotten permission from the Public Building Commission before replacing Garth's company, according to a report last August by Trinal Inc., a

minority-owned company the commission uses to monitor minority- and woman-owned business enterprise participation on city jobs.

"Castle never notified the PBC of any difficulties meeting its M/WBE commitments,'' the Trinal report says.

"There was no documentation provided to explain or support Castle's contention that it was impossible for G.A.G. Masonry to perform on the project. Additionally,

there was no documentation provided to explain or support the 'numerous deficiencies' that led to terminating LCS Construction and the supposed re-engagement of

G.A.G. Masonry as a replacement'' on the fire station project.

Castle maintains that Garth's company was always involved in the firehouse project, providing "quality control services and other construction management services''

while Littwin's workers laid the bricks, according to a letter Blum's son Anthony sent Littwin after Littwin's company was fired in November 2007 -- after nearly all of the

masonry work was done.

Garth's attorney Jeff Corso said Garth was surprised to learn that Castle had hired someone else to do the masonry work on the fire station. "Castle had LCS do

some of the work, and we complained about that,'' Corso said. "We went in and said, 'We're supposed to be on the job.'"

Littwin sees himself as having been "caught in the middle."

"And I'm still trying to collect my money,'' he said.

Most small business owners understand the importance of shielding themselves against personal liability arising from their corporate activities.  At The Roth Law

Group, we counsel our corporate clients to observe recognized corporate formalities to avoid "piercing of the corporate veil" which could leave business owners

personally liable for the liabilities of their businesses.

For example, many new business owners are not aware that comingling of personal and business funds can have dire consequences.  In order to avoid this, we

suggest that our clients establish and fund business bank accounts before they conduct their first corporate transaction.  Case law has established that business

owners who use their business accounts for personal expenses might be liable for comingling.   

Next, it is important that accounting records be well maintained and kept up to date and that the company be adequately capitalized so that it is able to cover its

liabilities.  For instance, if a company is ordering on credit without the means of paying its suppliers, the owners might be later found personally liable if the business

later defaults.  Also, this helps avoid comingling of accounts between business and personal.  

Insurance is also important and we recommend that our clients obtain a Commercial General Liability Policy as well as Director and Officer insurance prior to

beginning operations.  Again, if your business is not adequately insured, the possibility of personal liability is very real. 

Finally, good record keeping and staying up to date with the Secretary of State is an ongoing obligation.  If a business fails to file its annual report, they may lose their

"good standing" status, which essentially wipes away thier corporate shield. 

These examples are not intended to provide an exhaustive list of corporate formalities and business owners are encouraged to consult with a corporate attorney to

make sure they are in compliance with all formalities recognized by law.