September 11, 2013, 3:46 PM ET
By Jacqueline Palank
City Homes Inc., which rents more than 300 Baltimore apartment units to low-income tenants and faces a wave of lead paint lawsuits, filed for Chapter 11 protection.
Facing legal judgments worth several million dollars in prior lead paint lawsuits and more litigation on the horizon, the Baltimore company is hoping to take advantage of the breathing room offered in Chapter 11. Bankruptcy not only prevents creditors from collecting unpaid bills, including legal judgments, but also shields companies from ongoing and future litigation.
“As a result of the 70 pending lead paint lawsuits and the many more anticipated, the companies must stabilize their affairs and consider all options going forward,” City Homes President Barry Mankowitz said in court papers filed Tuesday.
Past legal judgments against City Homes include $2.5 million awarded to two siblings in November 2009. Their mother moved to a City Homes rowhouse after finding out one of the children was exposed to lead in a previous rental unit; she said City Homes assured her the home was safe. Another case resulted in a $5.1 million judgment against City Homes that was later reduced to $1.25 million.
Exposure to lead paint, of special concern in homes built before 1978, can cause permanent damage to the brain and nervous system, including behavior and learning problems. Young children are most susceptible.
In conjunction with increasing operating costs and an inability to acquire additional rental units, the “substantial” expense of lead paint litigation has contributed to the company’s recent losses, Mr. Mankowitz said. Another challenge: In 2011, the Maryland Court of Appeals came down with a decision that eliminated a cap to landlords’ liabilityin lead-exposure litigation.
In court papers, Mr. Mankowitz said City Homes has “diligently strived to provide affordable and safe homes for their residents.”
Founded in 1986, City Homes owns and operates one- to five-bedroom apartments and single-family row homes in Baltimore that it rents to low-income tenants. About 18 percent of City Homes tenants participate in the federal government’s Section 8 housing voucher program, while the rest pay below-market rent rates.
The company reported assets of less than $1 million and debts of $1 million to $10 million in its bankruptcy petition, filed Tuesday in the U.S. Bankruptcy Court in Baltimore.