Arts foundation says DLA Piper cost it $6.9M in botched real estate deal

A Chicago-based foundation dedicated to preserving and displaying historical American art has filed suit against its attorneys, alleging that their mistakes during a real estate deal involving its Magnificent Mile property ultimately cost it $6.9 million.

Late last month in the Cook County Circuit Court, the Terra Foundation for American Art sued DLA Piper LLP in an attempt to recoup the money it asserts was lost as a result of legal malpractice, plus more.

The suit centers on the actions of DLA Piper and two of its Chicago-based lawyers, John Heuberger and Elizabeth Belkin, while representing the foundation during the sale and subsequent development of its River North property at Michigan Avenue and Erie Street.

In 2005, the Terra Foundation struck a deal with a company identified in its complaint as NM Project Company LLC, a business entity associated with Prism Development Co., to construct a 40-story tower on the site.

Now known as the Ritz-Carlton Residences on North Michigan Avenue, the mixed-use tower with condominiums, parking, retail and office space, including the Terra Foundation, covers three lots formerly owned by the foundation at the intersection.

After reaching a purchase agreement and approving a series of amendments to the deal, Prism’s NM Project Co. agreed to pay the foundation an initial sum of $17.5 million for the land.

However, under the agreement, the suit notes the parties would adjust the final purchase price based on just how large the retail portion of the building– which Terra Foundation would continue to own and lease to tenants– would be.

Essentially, if the retail space was worth more than the initial estimate, the Terra Foundation would pay NM Project Co., and vice versa if it were less.

Based on its calculations of the space, the foundation believed NM Project would pay it more than $2 million.

In its complaint, however, the Terra Foundation asserts its attorneys at DLA Piper failed to include language in the contract it wanted to restrict how the retail space’s size would be measured, and failed to educate it on language in the purchase deal which would result in the retail space being calculated in a manner detrimental to the art foundation.

When representatives of the foundation expressed their concerns over the lack of the language they sought in the agreement, the suit says the attorneys at DLA Piper “assured Terra that it was unnecessary … because words equivalent to the exclusionary language were already in the purchase agreement.”

When the project was substantially completed in 2012, Prism presented the foundation with a bill for $4.26 million, based on its calculations of the retail space, in which the suit alleges the developer included square footage of “common areas” adjoining the retail space to boost its purported value.

The dispute went to arbitration, and Terra was ordered to pay NM Project more than $3.8 million.

When combined with $500,000 in legal fees the foundation asserts it paid disputing the matter with Prism, and adding in the amount it expected to receive, Terra calculates its total loss in the dispute at $6.9 million.

“If DLA had properly advised Terra, Terra would have insisted on the inclusion in the documents of language similar to the exclusionary language, or at a minimum would have required the square foot baseline figures … to be ‘grossed up,’” the foundation wrote in its complaint.

The Terra Foundation is represented in the matter by Chicago attorneys Robert A. Chapman, Peter M. Spingola and Sara L. Siegall of Chapman Spingola LLP.