Baltimore law firm fights back against security, insurance and

Daily Record, The (Baltimore), Apr 6, 2007 by Jen Degregorio

As the law firm Gebhardt & Smith LLP tells it, the trouble began with the "egoistical, delusional paranoia" that gripped the operators of Baltimore's World Trade Center after terrorists attacked the tower's New York namesake on Sept. 11, 2001.

Soon, SWAT teams with attack dogs and automatic weapons took up position in the lobby, which was "festooned - with razor wire." The WTC subsequently billed the law firm - the building's largest tenant, occupying three of its 28 floors - for a share of whopping security-cost increases, along with hikes in management, insurance and maintenance charges. Over a five-year period, these increases added $260,000 to the law firm's rent.

Now the firm is fighting back in Baltimore City Circuit Court, in a case set for trial in the spring of 2008. Balking at the added costs, Gebhardt & Smith alleges that the center's State of Maryland overseers fraudulently inflated the building's operating costs - both to cover a state revenue shortfall and make the building appear more profitable.

The scheme, they charge, was orchestrated by the administration of former Gov. Robert L. Ehrlich Jr. and abetted by accounting firm Ernst & Young. The state has filed a counterclaim denying the law firm's allegations and demanding that Gebhardt & Smith be forced to pay up.

Besides opening a bitter new chapter in the annals of landlord- tenant disputes, the case sheds new light on the World Trade Center's troubled history and a state agency's floundering efforts to manage it.

Thirty years after the office tower opened to praise that it would lure new business to Baltimore's port, the I.M. Pei-designed building is in disrepair, half empty and a drain on state finances. The property does not earn enough to sustain itself and needs millions of dollars in repairs.

The Maryland Department of Transportation, which owns the building, must cope with those problems - and the Gebhardt & Smith lawsuit - in the face of a more than $1 billion state budget shortfall projected for next fiscal year.

Startling invoice

The invoice from the Maryland Port Administration arrived in the fall of 2003 - at a time when Gebhardt & Smith was not even occupying the World Trade Center, having been forced out temporarily by damage from Hurricane Isabel.

It said Gebhardt & Smith owed the MPA $22,854.38 for operating expenses in the World Trade Center for fiscal 2002, and an estimated $33,512.28 for 2004.

The figures shocked Lawrence J. Gebhardt, a senior partner. A clause in his firm's lease allowed the MPA, which manages the World Trade Center, to charge it at the end of the year for extra building expenses. Such fees, known as "pass-throughs," are common in commercial leases. But since Gebhardt & Smith opened in the building in 1977, the most expensive pass-through to date had been $5,000, according to Gebhardt.

"And a decision was made [by the firm] at that point to require some justification for why we now had this huge amount," he said during a January deposition.

The law firm filed suit a year ago, challenging the 2003 invoice and subsequent bills and asking the circuit court to determine what it owed.

The suit also accused the MPA of fraudulently boosting building costs to pad state budget shortfalls and advance Ehrlich's plan to sell the World Trade Center, an initiative the former governor announced in 2005.

"By inflating the operating expenses passed on to the tenants, MPA could increase its profit from the leasing activity," said an amended version of the lawsuit, filed in July. "Increasing the revenues by inflating operating expenses also would - enable the building to command a higher price upon its sale."

In a counterclaim, filed last June, the state denied Gebhardt & Smith's allegations and said the firm is in breach of its lease, which requires it to pay a portion of operating expenses incurred at the World Trade Center.

The counterclaim seeks to collect about $303,000 from the firm, including $259,000 in operating expenses and $44,000 in interest for fiscal years 2002 through 2006. The total could be amended, since the charges for 2006 were based on estimates. If the state prevails, it could also force Gebhardt & Smith to pay a 20 percent collection fee.

The MPA filed its counterclaim after failing to persuade the court to dismiss Gebhardt & Smith's lawsuit or to prevent the firm from obtaining documents that could be used as evidence.

The law firm opted to drop its own case and proceed to trial on the state's counterclaim, since this will place the burden of proof on the MPA. Nevertheless, Gebhardt & Smith plans to raise the same issues that it cited in its complaint, according to court documents. It will try to prove that the added charges imposed by the World Trade Center are "fraudulent, improper and wrongful."

Numbers 'massaged'

In a case file fat with motions and arguments, Gebhardt & Smith alleges an elaborate intrigue, in which the Ehrlich administration colluded with accountants to create "knowingly false invoices" to "mulct tenants of additional rent not due from them."