Case Profile: Contracts Silverstein Properties v. Port Authority of NY and NJ
The Case
Silverstein Properties had the misfortune of buying the 5 buildings comprising the World Trade Center in New York, two months before the September 11, 2001 terrorist attacks. The land is leased from the Port Authority of New York and New Jersey. This case concerned the redevelopment of the World Trade Center site under an approved Redevelopment Agreement.
The Port Authority is responsible for rebuilding the infrastructure at the site. But the Port Authority was behind schedule in this development. Silverstein claimed that the Port Authority’s mismanagement and purposeful withholding of schedule information from Silverstein, amounting to “bad faith” and “fraud,” caused Silverstein enormous delays and costs. Silverstein demanded in arbitration that they be granted 10 years of free rent on the site, that the Port Authority be found in material breach of the redevelopment agreement, and that the Port Authority be required to back Silverstein’s loans to complete its building of 3 new office towers – an exposure of over $2 billion.
The Challenge
Silverstein presented a laundry list of errors, mismanagement, and miscommunication on the part of the Port Authority in alleging a breach of the redevelopment agreement. The Port Authority’s response was that none of this really mattered because both the Port Authority and Silverstein were unavoidably delayed by other factors. Silverstein also did not have the financial strength, despite his insurance recoveries, to complete the 3 office towers he had contracted to build. Fulcrum helped the Port Authority to present their side of the case.
The Approach
After listening to Silverstein’s long, exhaustive description of all of the Port Authority’s problems, the Port Authority needed a way to diffuse all of this. Fulcrum developed an animation in which the most damaging quotes from Silverstein’s briefs flew on screen, one at a time, highlighting Silverstein’s allegations of concealment, suppression, lack of candor, bad faith, and fraud. Then the Port Authority posited: Why say this in a breach of contract case? The answer: To deflect attention from the real issue. To illustrate the real issue, Fulcrum suggested using the old analogy of the elephant in the room – in this case three elephants – that represented the fundamental truths of the situation. These formed the basic outline of the rest of the Port Authority’s presentation.
The Result
After a 3 week arbitration, the arbitrators denied Silverstein’s request for free ground rent, denied to find the Port Authority in material breach of the redevelopment agreement, and denied to require the Port Authority to back Silverstein’s loans.
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