In a lawsuit filed July 17 in Baltimore City Circuit Court, Hale, CEO of First Mariner Bancorp, alleges Constellation officials knowingly entered into an unlawful deal in 2005 that would allow Hale to sell and distribute electricity supplied by a Constellation affiliate to any other nearby development in which he was at least part owner or tenant. Hale claims in his lawsuit that this arrangement as it was revised in 2007 to make Constellation the owner of the plants equipment should be voided because it violates state laws on distribution of electricity.
Hale is seeking $60 million in damages related to the cost of building the power plant and $4.
5 million in energy consumption charges incurred after Constellations affiliate took ownership of the facilitys equipment in 2007.
Hale also is asking the court to prevent Constellation, the parent company of Baltimore Gas and Electric Co., from turning the lights out at the 17-story First Mariner Tower along Boston Street in Canton, where First Mariner Bank, CareFirst BlueCross BlueShield, Prometric and 12 other businesses have offices. Hale claims in his lawsuit that as part of a July 13 default letter sent from Constellation to Hale, the utility says it has the right to cut off power and water to the mixed-use Canton Crossing project if Hale does not pay $493,407 in overdue bills.
An interruption in electric power would cause irreparable harm to those tenants and the members of the public they serve, according to Hales lawsuit.
Hale could not be reached for comment.
Robert L. Gould, the spokesman for Constellation, said: Constellation Energy strongly disputes and denies the allegations made in the complaint and looks forward to the opportunity to address the allegations in detail in its upcoming court filings. As of August 6, Constellation had not filed a response to Hales lawsuit.
The lawsuit stems from an agreement the two sides struck in April 2005. At that time, Constellation Energy Projects and Services Group LLC, an affiliate of Constellation Energy Group, signed an $18.8 million contract to design and operate the utility plant at Canton Crossing, which is projected to include as much as 2.5 million square feet of office, retail and residential space. The deal was altered in 2007 to make Constellation owner of the plants equipment.
The lawsuit also offers an insiders view of the development of the massive Canton Crossing project during the past five years. It provides clues as to why Hale has been unable to move the project forward, perhaps irrespective of the ongoing recession that has slowed many other commercial projects in the area.
Questions about the cost, ownership structure and viability of the distribution plant caused at least one developer to pull out of its plans to build condominiums at Canton Crossing and prompted many lenders to decline financing the project, according to Hales lawsuit.
And while the suit is not related to business at First Mariner Bank other than a possible disruption in electric power it does reveal one more financial obstacle Hale is trying to overcome in this recession. Hales First Mariner Bancorp recently reported a second-quarter loss of $2.4 million much wider than the $469,000 the bank lost during second quarter 2008.
At the core of Hales complaint against Constellation, which itself reported an 84 percent drop in second-quarter earnings, is the utility distribution facility on Clinton Street near Canton Crossings 22-acre campus.
Hale says in the lawsuit that initial plans for Canton Crossing as designed by Baltimore architecture firm Whitney Bailey Cox & Magnani in 2002 and 2003 included a 5,000-square-foot power plant either in or adjacent to First Mariner Tower that would power the 475,000-square-foot office building and cost $7.5 million to build and equip. But after consulting in 2003 with officials of Constellation Energy Products and Services, Hale says in the lawsuit he opted to build a larger power distribution plant on a different parcel of land already set aside for another office building.
From this larger power plant, Constellation told Hale he would be able to distribute electricity and hot and cold water to other nearby facilities he at least partially owned, leased or occupied, including those at Canton Crossing, at rates in excess of actual cost, Hale claims in the lawsuit. Constellation told Hale, according to the lawsuit, that he also could charge other developers hook-up fees of between $10 million and $20 million, which would help offset the cost of building the larger power distribution plant.
Such a deal never happened, and consequently Hale was unable to consummate any transactions for further development at Canton Crossing, according to the lawsuit.
One of those transactions was supposed to be KSI Services Inc.s development of 500 condos at Canton Crossing. In April 2005, KSI, referred to in the lawsuit as Bayview LLC and now known as Kettler, bought land for its condos and parking garage at Canton Crossing for $15 million.
But the Virginia-based contractor pulled out of the project in April 2006 after determining that the cost, quality and reliability of the power plant at Canton Crossing was not equal to or better than comparable services from public utilities, according to the lawsuit. Hale was forced to repay $15 million to reacquire the land from KSI.
Christopher LoPiano, former senior project executive for KSI, said the power issue had nothing to do with his firms decision not to build condos at Canton Crossing. It was more a business decision, in part driven by the slumping real estate market, he said.
But LoPiano, now with Washington, D.C., developer City Interests LLC, said KSIs legal department determined it would not have been able to connect to the Canton Crossing power source. He said thats because it would have bound the condominium owners to a private utility contract in violation of state laws. He said if KSI were going to move forward with the project, it would have needed to build its own power supply into the condo buildings.
Another developer, Bush Cos. of Virginia, backed out of a 500-unit condo project at Canton Crossing in May 2008 for similar reasons, said Kenneth B. Frank, one of Hales attorneys.