Judge Denies Developers' Claim Against Armstro

Lancaster, PA, Sept. 8--The effort by Fairsted's jilted developers to collect $49 million from Armstrong World Industries has come up more than $48 million short, as reported in the Lancaster New Era. A federal bankruptcy judge has ruled that the developers are not entitled to recoup projected profits that evaporated when Armstrong scuttled its plans to sell them land for a large-scale "livable community." Nor is the real estate broker that was to handle the transaction entitled to the $1.5 million commission it would have earned, had the deal been consummated, the judge decided. The dispute is rooted in Armstrong's 1999 agreement to sell 442 acres for the project to co-developers Carlino Arcadia Associates of Wyomissing, PA and Wagman Construction of York, PA. The land, next to Armstrong headquarters, was to ultimately feature 1,250 homes and a Main Street-style retail district of 200,000 square feet. Then, after Armstrong got new management and filed for bankruptcy in 2000, it canceled the sale in 2001, saying it needed to focus on its core businesses of making floors, ceilings and cabinets. Companies in bankruptcy are allowed by law to break contracts if, by using sound business judgment, they determine the deals are unwise. The developers first tried to get the bankruptcy court to force Armstrong to complete the $20.1 million sale, but failed, with Judge Randall J. Newsome deciding in 2002 that Armstrong acted within its rights. Then the developers pursued financial claims against Armstrong, alleging that Armstrong acted in bad faith, so they deserved the profits they would have made, had the project been built. Armstrong objected, saying the claims were unfounded. And Newsome again sided with the company, rejecting the developers' argument that Armstrong, merely by breaking the contract, displayed bad faith. "Nothing cited by the (developers) would support the proposition...that bad faith is demonstrated solely by the exercise of a legal right," said the judge during a court hearing last week. A transcript of the Wilmington, DE, proceeding was made public Thursday. Friday, the developers appealed the judge's decision. Wagman had sought $15 million in lost profits and lost business opportunities, plus $29,000 in expenses. Carlino Arcadia had sought $33 million in lost profits and lost business opportunities, plus $358,000 in legal expenses and $897,000 in various other "pre-development" costs. Newsome said he would allow claims for expenses if they were incurred after the bankruptcy filing and if the expenses were for work that enhanced the value of the Armstrong acreage. Newsome similarly downsized a $1.5 million claim by Lancaster-based real estate broker Hamilton Properties for commissions it would have earned had the Armstrong land sale gone through. The judge ordered that Hamilton Properties be allowed a $5,000 claim against Armstrong.