Legal showdown looms over Hilton mold tab

By Andrew Gomes
Advertiser Staff Writer

Mold is ugly, damaging and hard to clean. But the fungus that invaded Hilton's Kalia Tower may not be as messy as the fight over who's to blame for its growth in the new Waikiki hotel high-rise.

With the Kalia Tower scheduled to reopen by September, the mold will be long gone — but the legal battle will be just heating up. Advertiser library photo

The lawsuit, like the shocking discovery of mold in guest rooms last year, has put Hawai'i on the map for mold liability litigation, according to experts in the field.

With damages certain to exceed Hilton's projected $55 million cost of cleanup, the case is among the biggest and most complex in the country.

"The damages in particular are huge even in terms of high-rise construction repair," said Kurt Campbell, an attorney in California who has defended contractors and developers in similar cases. "It's a remarkably big case."

Kalia Tower has heightened awareness of indoor mold issues in Hawai'i. Such awareness has led to more proactive construction industry practices, according to Randy Herold, president of MoldPro International, a Kailua-based indoor air quality investigation firm.

The awareness has also led to the discovery of mold contamination in other Hawai'i hotels, commercial buildings and residences — some that also could result in litigation.

The Kalia case, industry observers said, will almost certainly be settled before trial — as are more than 90 percent of similar cases — but still could take two or three years of legal wrangling to reach a settlement nobody particularly likes.

With the hotel tower scheduled to reopen sometime between July and September, the mold will long be gone, but the battle will be just heating up over who will pay for damage that could include lost hotel revenue and a mold stigma associated with the building.

Lying ahead, construction defect attorneys say, is a "hornet's nest" that in all likelihood will be shaken by defendants attacking other defendants as well as countersuing Hilton and the hotel company's construction manager Construction Management & Development Inc.

Still waiting to see lawsuit

For now though, it's early. As of Friday, some defendants still had not seen or been served with a copy of the lawsuit. But those alleged to have been negligent in their work are learning how expensive mold-related construction litigation can be.

Mold growing indoors was less of a problem before the early 1980s when buildings weren't as airtight. But modern air-conditioned buildings operated for energy efficiency, combined with media interest and personal injury attorneys trying to link mold and health problems, have created a cottage industry of litigation that has spread in the past decade.

According to the Insurance Information Institute and government data, 70 percent of all new mold claims in 2001 involved residential homes in Texas, where there were about 37,000 claims, up from about 7,000 in 2000.

Total losses over those two years in Texas are estimated at $1 billion, according to the institute and the Texas Department of Insurance.

One Texas case alone, where an insurance company was found to have ignored a contractor's recommendation to replace flooring damaged by a water leak, a family seeking $100 million was awarded $32 million, including $9 million in legal fees.

In another case, about 10 Manhattan apartment residents filed a suit seeking $8 billion in mold-related damages for about 500 residents of two high-rise condominiums. A judge denied the suit class-action status, and plaintiffs settled for $1.2 million.

Judgments and settlements in indoor mold cases without personal injury claims are often smaller, though property damage in large buildings has resulted in expensive awards.

Hale Koa settlement

The only other widely known mold-related construction defect case at a Hawai'i hotel is the Army's Hale Koa Hotel next to Hilton Hawaiian Village.

Investigators determined that underpowered room dehumidifiers and misplaced vapor retarders in a 12-story addition built in 1995 trapped moisture behind walls. The Army, without filing a lawsuit, negotiated a settlement in which the project's designer and contractor paid for most of a $5.5 million fix.

On the Mainland, a jury awarded $18 million, including $3.5 million in attorney's fees, to Martin County, Fla., for a courthouse damaged by mold. A second mold-afflicted Florida government building, a high-rise in Polk County, cost contractors $40 million.

Spending $55 million to fix Kalia Tower may seem like a lot — nearly 60 percent of the building's original cost — but it's not shocking to those in the business.

"It's often more expensive than original construction, because before you can begin repairs ... you've got to do mold abatement work," said Alex Robertson IV, a mold and construction defect attorney with Robertson & Vick in California.

"It has to be done in containment with negative air pressurization, you have to bag up all the contaminated building materials inside of this containment and remove them so you don't spread any (microscopic) mold spores," he said. "It's extremely time-consuming and it just adds to the cost exponentially."

Bryan Garrie, an attorney with California-based McGregor & Garrie who is representing plaintiffs in mold-related construction litigation, said that because the Kalia case involves a hotel, Hilton will likely seek business interruption damages.

Herold of MoldPro suspects that Hilton may also seek damages to repair any negative image of Kalia. "They are going to have to do a campaign to get people back in that tower," he said.

Hilton has kept the situation inside Kalia largely to itself, insisting that mold investigation and correction experts sign confidentiality agreements. Hilton said it will not comment on its lawsuit or on work inside the tower.

Hilton even won't say what species of mold was found. The company's consultant last July identified the grayish mildew in Kalia guest rooms only down to the genus classification, which is Eurotium or Aspergillus.

Identifying the species would tell more about potential health concerns, as some species of Aspergillus are used to make the popular Japanese food paste miso, while others can kill livestock.

A doctor hired by Hilton to survey employees concluded it was doubtful that mold caused any long-term health or allergic respiratory problems in workers or guests.

'Stonewalled,' says union

Leaders of the Hotel Employees & Restaurant Employees union, which represents many Hilton workers, claim that the doctor never made a written report, disclosed methodology or identified survey participants.

"They basically stonewalled us all the way," said union spokesman Jason Ward.

"Our issues were never adequately addressed."

Hilton's tight control of information has also frustrated defendants, some of whom say their professional reputations have been damaged by the $4 billion Beverly Hills, Calif.-based hotel company accusing them of negligence.

Allegations in Hilton's lawsuit are particularly vague, often citing "improper design, construction, supervision, installation, and/or selection of (various items)."

Generally, Hilton said in its suit that there were defects in roughly 35 elements of construction, including the building's exterior finish, air intake and exhaust systems, door framing, fireproofing, linen chutes, drywall joints, insulation, lanai doors — even the orientation of the building toward prevailing winds.

Several defendants in the case said that before Hilton sued, they were not informed their work or materials were suspected of contributing to mold problems or asked to discuss a settlement.

Engineers and attorneys not involved in the case said it's likely that Hilton's investigator, Colorado-based CH2M Hill, doesn't know exactly what contributed or did not contribute to mold-fostering moist, humid air entering the building.

Observers also said it is common in construction defect cases for an owner to sue anyone even remotely affiliated with a particular piece of construction.

Hilton also included many nonmold-related alleged defects in its complaint — another common practice in construction cases, according to Campbell of Klinedinst Attorneys at Law.

Looking for unified defense

Sorting out who's responsible for what is where the great difficulty comes in. Attorneys said all defendants share an interest to minimize damages and fault, and will try to present a unified defense and may form alliance groups that Hilton will try to divide and conquer.

But attorneys said defendants also will make cross claims against each other. For example, a contractor may claim a manufacturer's product or engineer's instructions are at fault. Or a supplier or designer may claim their instructions weren't properly followed by a contractor.

Defendants also are likely to make claims against others not named in the suit. Certainly they will countersue Hilton and construction manager CM&D, attorneys said.

Campbell also said it's common for defendants to make "contributory negligence" allegations against an owner and its construction manager.

Hilton contracted Kalia design drawings from defendant Wimberly Allison Tong & Goo, the architect that assembled engineers to draft construction plans. But every significant element in the plan had to be approved by Hilton Hotels. Hilton also hired CM&D to assure quality control.

Production and examination of documents and depositions of people involved is expected to take a couple of years as an army of lawyers argue over the relevance of documents and witness testimony.

At some point, perhaps through forced mediation, a settlement is likely. Major construction defect lawsuits are settled more than 90 percent of the time. And it's possible that as part of a confidential resolution, responsibility and damages for one of the greatest cases of mold liability may never be fully known.

Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.

Correction: The filaments produced when a spore germinates are called hyphae. The word was misspelled in a previous version of the graphic with this story.