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Bankruptcy filing will impact payments to building collapse victims

(KSFY)
Published: Jul. 19, 2018 at 7:19 PM CDT
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One of the key defendants in the mountain of lawsuits following the Copper Lounge building collapse has filed for bankruptcy.

Hultgren Construction, LLC filed for chapter 11 proceedings Thursday, bringing some major implications for the many families and businesses suing the construction company.

The families of the two victims trapped inside the rubble may be top of mind for those who would have a strong claim against Hultgren construction, but there is a long and growing list of lawsuits claiming the construction company is responsible for damages related to the collapse.

“This is a little bit of an unusual case in that there are so many actions pending against the party that has filed bankruptcy,” attorney Michael Henderson with the Swier Law Firm said.

The Swier Law Firm is not involved in any of the building collapse lawsuits, but explained some of the common legal implications in bankruptcy proceedings. Henderson said a number of the lawsuits against Hultgren Construction are from insurance companies.

“If there is damage to property, the insurance company has an obligation to pay for that damage under their policy with the property owner, so they will pay that as they are required to do under their insurance contract,” Henderson said. “But if they determine that there is a third party that is responsible for the damages, then they can basically step into the shoes of the insured, the property owner, and go after that third party.”

The bankruptcy attorney for Hultgren construction says that’s exactly the case in many of the lawsuits against the Sioux Falls Company.

“One insurance company insured a car that was destroyed in the collapse, so they had to pay a claim to the owner of the car, then they are subrogated it’s called, to the rights of the owner; then they can turn around and try to collect money back against Hultgren for what they paid out,” Hultgren Construction’s attorney Rob Kugler said.

Kugler says the goal of filing Chapter 11 bankruptcy is to give all of those claimants a fair share of Hultgren’s assets, which are largely insurance proceeds.

“What we're hoping to do is maximize the assets by obtaining recoveries and contributions from all the implicated insurance, bring that into bankruptcy estate, then determine the claims and everyone will have percentage of the total claims,” Kugler said.

However, just one of the claims comes with a near $5 million price tag. Cincinnati Insurance Company claims Hultgren Construction is responsible for the $4.8 million the property owners were paid for damages caused in the collapse.

Many of the other pending cases, including the personal injury claims by the Fodness and McMahon families, do not include a dollar amount at this time.

“Certainly no one will get paid in full, that's just the nature of the reality, there's not enough assets there to pay everyone's claim in full,” Kugler said.

This bankruptcy filing immediately freezes all pending cases against Hultgren Construction and lumps them into bankruptcy court proceedings, where Kugler said the court will likely determine payments for everyone involved.

Kugler hopes Hultgren Construction’s Chapter 11 bankruptcy restructuring plan will be finalized in the next six to nine months.

“The focus in a Chapter 11 is basically on reorganization so the business will continue as an ongoing company; Chapter 7 is basically a liquidation in that the business is ending and being distributed to creditors,” Henderson said.

While Henderson said Chapter 11 bankruptcy is generally done for companies hoping to reorganize and continue their business, Kugler said that's not the case for Hultgren construction.

“They are out of business and they have been out of business for some time,” Kugler said.

Kugler said Hultgren Construction, LLC chose to file Chapter 11 bankruptcy because they believe it will help get a payment to the claimants faster than Chapter 7 bankruptcy proceedings.