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How will indictment affect LPCiminelli?

The federal indictment of Louis P. Ciminelli and two of his top deputies is sure to affect the 56-year-old construction company he leads. The question is how much.

Supporters say LPCiminelli is much bigger than three executives, with a deep cadre of leaders to carry on. State, county and city officials say it’s not barred from seeking government work, and the company has built up a reputation for getting the job done, as well as goodwill in the community.

Still, skeptics say it’s under a dark cloud of scrutiny and controversy that could distract top leaders, hurt their ability to attract more clients and make it difficult to win public contracts. It may also curb the company’s efforts to expand beyond the region and speed up succession plans.

“The original hit is damaging,” said Richard Sullivan, an attorney at Harris Beach. “But if it’s handled properly, on a corporate and legal level, they will continue to operate and be successful.”

Federal agents in September arrested Ciminelli, Senior Vice President Kevin C. Schuler and LPCiminelli Solutions President Michael W. Laipple, after U.S. Attorney Preet Bharara of Manhattan filed criminal bid-rigging and bribery charges in a broad statewide corruption scandal surrounding contracts for Buffalo Billion and other development projects. One individual already pleaded guilty, and the formal indictment was unsealed last month.

The trial itself has not begun, and nothing has been proved. And while the executives were arraigned in federal court and released on bail, they’ve hired a high-powered set of experienced attorneys – including one of the nation’s leading white-collar defense firms – to argue their case, which they insist is strong.

The company stresses that its employees remain committed and focused on the job.

Louis P. Ciminelli, left, leaves federal court with his attorney Daniel C. Oliverio, right. (Robert Kirkham/Buffalo News file photo)

Louis P. Ciminelli, left, leaves federal court with his attorney Daniel C. Oliverio, right. (Robert Kirkham/Buffalo News file photo)

“There’s been absolutely no interruption in the day-to-day operations of the company,” said Daniel Oliverio, the Hodgson Russ attorney who represents Louis Ciminelli. “Our employees are firmly behind our executives who have been charged by the United States Attorney and understand that their job is to continue to do what they’ve been doing every day for a long, long time.”

Potential distraction

The biggest and most imminent challenge concerns the company’s image and potential distractions.

Experts say the legal battle itself will inevitably affect the company’s leadership and focus. The three executives and other top officials will be answering questions, pulling documents, providing information, and reassuring clients, employees and family members. That could take them away from their core work.

“It’s time-consuming and distracting,” said Christine Sgarlata Chung, a corporate and securities law professor at Albany Law School. “It’s stressful to have to respond to a criminal complaint.”
Then there are the reputational costs.

“This is not happening in a quiet place,” Chung said. “This is a very public case, involving very public people, so every move is going to be front-page news in the papers,” she said.

Indeed, that fear and uncertainty is exactly what prosecutors are counting on as they take on the Ciminelli executives, said Steve Cohen, a criminal and civil rights litigator at Hogan Willig.

“It is used as an incentive to get them to flip on people or to give helpful evidence against potential defendants,” Cohen said. “The media coverage that surrounds allegations like this necessarily puts pressure on people.”

Larry Chumsky knows how that feels. The owner of Collingwood Construction had a successful contracting business until his company did work in the immediate aftermath of the October 2006 snowstorm. That’s when state Attorney General Eric Schneiderman publicly accused him of price-gouging and sought $25,000 in fines, as well as costs.

Chumsky ultimately settled and repaid $6,750 to 17 customers. In the meantime, his business lost much of his work, and he’s still struggling to recover today.

Now, he sees that same black mark hovering over LPCiminelli.

“They’re already presumed guilty before you even walk into court,” Chumsky said. “It’s a stigma. They’ll survive, but it’ll definitely hurt financially.”

‘Serious concerns’

On paper, the charges shouldn’t affect LPCiminelli’s ability to win public-sector jobs, which are governed by strict policies and procedures. In practice, of course, it won’t be that simple.

The company itself was not charged, so it is not prohibited from bidding on new work, even from the state, said Jennifer Freeman, spokeswoman for state Comptroller Thomas DiNapoli, who reviews state construction projects.

That’s a major distinction, since a corporate indictment could directly jeopardize the company’s existence and the jobs of its 250 employees.

In many cases, the lowest-cost “responsible” bidder would get the award, as long as they meet certain specific criteria, such as adequate bonding or participation by women- and minority-owned subcontractors. As a result, “simply denying them the public contract because of the criminal complaint or indictment would be unlawful,” Sullivan said.

But such straightforward contracting is less common today, especially with the kind of large public jobs that LPCiminelli does, said Chris Belter, an attorney with Goldberg Segalla LLP and head of that firm’s construction practice group.

For example, under the state’s “responsible bidder” provision, a contractor seeking government work must disclose if the company or its ownership has ever been convicted of a crime or faces pending litigation. That’s been a problem in the past for contractors with labor or workplace safety violations, and it would appear to apply to LPCiminelli, said Brian Sampson, president of the Empire State Chapter of Associated Builders & Contractors.

“I would think there would be a number of public agencies that would be hesitant to release work to Ciminelli,” he said.

Additionally, Freeman said DiNapoli urges agencies hiring firms on behalf of the state to routinely examine a contractor’s “integrity, financial and organizational capability, legal authority” and past record. When criminal charges are alleged, she said, DiNapoli might require a state agency to “fully address” that issue in its decision. Otherwise, he can reject a contract. “These charges raise serious concerns,” she said.

Aside from such mandated considerations, politicians might think about whether their decision or any campaign contributions they’ve received would be scrutinized if they select a firm that is under a cloud.

“Those are real considerations that go on in this world,” Belter said. “Nobody would ever admit they took this into consideration, but it’s possible.”

Different focus for private jobs

Private-sector clients are not under the same scrutiny or regulation, so they have flexibility to focus only on ensuring that the job can get done, on time and on budget. Their projects also tend to be smaller and shorter. That could protect LPCimineli, which is still highly regarded by local developers and contractors.

Originally founded in 1960 as the Frank L. Ciminelli Construction Co. and later acquired and rebranded by Louis, LPCiminelli is one of the region’s largest construction management and contracting firms, with a significant portfolio of completed projects and a large book of ongoing jobs.

That work includes the $1.3 billion reconstruction and renovation of 48 Buffalo public schools over a decade, which spurred controversy because of the potential profit margin for the firm. It also includes the $750 million state contract to build the SolarCity manufacturing plant at RiverBend in South Buffalo, which is at the heart of the probe.

A state contract for construction at the SolarCity manufacturing plant at RiverBend in South Buffalo, shown here in 2015, is at the heart of the probe. (John Hickey/Buffalo News file photo)

A state contract for construction at the SolarCity manufacturing plant at RiverBend in South Buffalo, shown here in 2015, is at the heart of the probe. (John Hickey/Buffalo News file photo)

Company officials say both projects were completed according to contract specifications – in the case of SolarCity, even during a tough winter and while coping with subpoenas. “The charges have nothing to do with the quality of their work,” Sullivan said.

“Ciminelli has built his company with people who are all highly respected, educated, talented, motivated and the most competent people that you could ask for,” said Shane Parker, president of operations for Federowicz Concrete LLC, a local contractor who has worked with the firm. “Their name and also their finished product speaks for itself.”

That’s not necessarily the case outside of Western New York, where the developer may care about image and may not know the firm as well. The company has been working to grow its business outside of the region, building medical facilities, college dorms, casinos and resorts in other parts of the state or neighboring states. Days after the criminal charges were announced, a New York City developer fired LPCiminelli from a project in Staten Island.

But the bulk of its business is still local, including in partnership with Ciminelli Real Estate Corp., which is run by Louis’ brother, Paul. That means it’s mostly working with familiar faces.

Oliverio said the firm is working to reassure clients that “the people they’ve been dealing with are still in place and the reasons they hired Ciminelli are the same today.”

Son steps up role

LPCiminelli has already sought to demonstrate not only its bench strength, but also its potential succession.

The firm has three shareholders – Ciminelli, Frank L. Ciminelli II and a family trust, according to paperwork it submitted when it bid on the Buffalo Billion project.

Frank L. Ciminelli II, Louis’ son, had already been rising through the company ranks after more than two decades in the construction industry. He was named president in April, with responsibility for day-to-day operations in Buffalo, while his father focused on the downstate market around New York City.

He quickly stepped in to fill the void as the public face of the company after his father’s arrest.

“Our business will continue,” Oliverio said.

In a publicly traded or national company, a change in top leadership could help insulate a firm from legal challenges facing a CEO. But with a family-owned firm like LPCiminelli, experts say, it may not be enough.

“If we’re talking about a very large public company, it may be possible to separate an individual alleged to have done something wrong from the operation of the larger enterprise,” said Chung, a former branch chief in the enforcement division of the Securities and Exchange Commission. “It’s harder for a private company to separate the individuals from the success of the business overall.”

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