SAN JOSE — Modesto contractor Applegate Johnston Inc. has filed for bankruptcy and walked off the job on an $11 million San Jose construction project.
The unfinished environmental center building is more than six months overdue and $1.6 million over budget.
Applegate Johnston owes dozens of Northern San Joaquin Valley businesses money from various construction projects, including at least one vendor in Merced, according to filed bankruptcy documents. The company is millions of dollars in debt.
Four Modesto couples own stock in the firm: Jim and Heather Applegate, Richard and Shannon Applegate, Timothy and Rebecca Johnston, and John and Monica Bergman.
Jim Applegate started as a one-man Ceres electrical contractor in the mid-'90s. He eventually teamed up with his brother Richard Applegate and Timothy Johnston, and the firm grew from there.
The company filed for bankruptcy last month, but details about its debts are just starting to emerge as more public documents are filed.
Already, more than $7 million in liabilities have been identified, but creditors have until Nov. 22 to file proof of their claims.
Among the debts listed are $400,000 in unpaid pension obligations.
Applegate Johnston's team failed to show up at the San Jose job site last month and filed bankruptcy papers two weeks later. That has jeopardized the project's completion and its complex financing, forcing San Jose to delay occupancy of a key tenant until next year.
San Jose officials said the deadlines to qualify for financing under a federal stimulus program, as well as the strict rules governing public project bidding, steered them into a deal with a builder they've come to regret. "Everybody had concerns about Applegate," City Attorney Rick Doyle said.
City officials overseeing the project "thought they could manage it" by closely monitoring the construction, Doyle said, "but that turned out not to be the case."
No one answered Applegate Johnston's company phone in Modesto, and it no longer accepts messages. The firm's bankruptcy lawyer, George Hollister, did not answer repeated requests by the Mercury News for comment.
Many red flags apparent
San Jose's Environmental Innovation Center is supposed to include a household hazardous waste drop-off center, a Habitat for Humanity ReStore selling discounted new and surplus construction material and a "cleantech demonstration center" where "innovators will test clean and renewable energy projects."
An initial phase of the project was completed in 2010, and San Jose officials had hoped to complete the second phase by last December.
With Applegate Johnston in bankruptcy court, city officials are working with the contractor's insurer in hopes of getting the center completed by the end of this year to meet lender and tenant demands.
The city had estimated the second-phase construction would cost $12.5 million to $13.1 million. Applegate Johnston's offer was the lowest among the nine contractors that bid on the project in April 2011.
Under the city charter, San Jose officials either had to grant the contract to the lowest bidder or rebid the project.
Although Applegate Johnston pitched itself as "quality to the core," there were many red flags.
San Jose already was having trouble with Applegate Johnston, which the city had earlier hired to build two fire stations. One was completed nearly four months late, and the other was seven months behind schedule when the company bid on the environmental center.
Applegate Johnston was among low bidders whose proposals drew objections. A rival bidder claimed Applegate Johnston's proposal was incomplete because it failed to list a subcontractor to perform acoustical gypsum plastering.
And a nonprofit group that monitors regulatory compliance on public works projects said Applegate Johnston and other low bidders had listed subcontractors with licensing issues.
San Jose officials, however, deemed the objections meritless and decided that neither issue disqualified Applegate Johnston from bidding on other San Jose projects.
"We were aware they weren't performing that well," said Harry Freitas, the city's deputy director of public works.
"But they were the lowest bidder on the job, and the city charter requires us to award to the lowest responsible bidder."
In 2009, Applegate Johnston's low bid to rebuild Turlock's fire-damaged Carnegie Arts Center was rejected after its competitors questioned aspects of the bid process. Because they threatened litigation, the project was rebid and a different firm won the Turlock contract.
Applegate Johnston, however, completed several projects in Stanislaus County in 2009, including a 10-bay hangar at the Modesto Airport and 10 homes for Habitat for Humanity in Modesto's Hope Village.
Some of the Northern San Joaquin Valley companies to whom Applegate Johnston owes money, according to bankruptcy records:
Merced Protech Security & Electronics
Modesto Aggressive Welding Services, Air Squared Mechanical, Griffin Winter Properties, DataPath, DeHart Plumbing Heating and Air, Choice Lighting Supply, Alpha Engravers, American Lumber, California High Reach, Boyett Petroleum, Bertolotti/Modesto Disposal, Bill's Safe & Lock, Golden State Auto Sprinklers, Golden State Construction & Framing, I C Electronics, Pacific Design Associates, Pacific Bolt, Mello Truck Repair, Modesto Welding Products, Nor Cal Concrete Specialties, Northern Steel, Pro Clean Supply, Ramont's Tow Service and Rays Carpets
Salida AAI Ceramic Tile
Oakdale Advanced Roofing and Gilton Solid Waste Management
Ceres Country Ford Trucks, Chateaux Framing, Sciarini Steel Co., K&D Enterprises, McBay Tile and Pams Mobile Ag Welding
La Grange Cooksey Roofing