THE WATCHDOGS: Clout builder settles whistleblower suit for $6.4 million

Walsh Construction – a behemoth builder of roads, bridges and buildings with long ties to the Daley family – has paid $6.4 million to settle a whistleblower lawsuit that accused the contractor of overcharging taxpayers on 11 federally subsidized housing projects, records show.

The projects, all in Chicago, involved some of the city’s most prominent developers of affordable housing. Among them: Leon D. Finney Jr., Allison Davis and Tony Rezko, the now-imprisoned political fixer.

President Barack Obama, while an Illinois state senator in 1998, even wrote a letter to city and state officials asking them to help finance one of the developments: the Cottage View Terrace apartments, built for low-income seniors by Rezko, who was an early Obama supporter and onetime campaign fund-raiser, and Davis, who was once Obama’s boss at a small Chicago law firm.

Construction manager Gregory Hudalla filed the whistleblower suit under the federal False Claims Act nearly seven years ago. He accused Walsh in the lawsuit of overbilling $1.3 million while serving as the general contractor on South Park Plaza, an apartment and townhouse development that Hudalla had supervised for Finney’s Woodlawn Community Development Corp.

Under its $1.5 billion “Plan for Transformation,” the Chicago Housing Authority chose Finney’s not-for-profit to redevelop the housing complex just south of McCormick Place. Finney, in turn, hired Walsh as the general contractor.

“We had, in my judgment, a Cadillac kind of contractor in Walsh,” Finney said in a deposition last year in the Hudalla case. “Walsh has always been kind of – I mean, in this area, this is a general contractor that – they’re not cheap, you know.”

Finney said he hired Hudalla to “make sure that the project came in on budget.”

Hudalla says: “I worked for Doc Finney. I was his policeman to police Walsh.”

In his lawsuit, Hudalla, 64, of Downers Grove, said Walsh submitted inflated bills from subcontractors and kept the difference for itself. In one instance, he accused Walsh of adding $257,210 to its bills from its plumbing subcontractor on South Park Plaza. He said inflated bills also were submitted for roofing, electrical and excavation work.

Of the projects he cited in his lawsuit, Hudalla worked only on South Park Plaza, but he claimed in the suit to have evidence that Walsh overcharged another $5 million on 10 other federally funded projects.

Three days before the case was set to go to trial in late January, Hudalla and Walsh agreed to settle – a deal finalized on Feb. 24 before U.S. District Judge Matthew Kennelly, court records show.

Walsh attorney Matthew P. Walsh II declined to comment on the lawsuit or the settlement agreement, which the Chicago Sun-Times obtained from the Justice Department under the federal Freedom of Information Act.

“Walsh denies the allegations” in Hudalla’s lawsuit “and denies that it is liable to Hudalla or the United States government,” the agreement states.

Walsh agreed to pay $6.4 million to “avoid the costs and risks of further litigation,” according to the settlement.

Walsh was founded in 1898. Company chairman Matthew Walsh’s father grew up with late Mayor Richard J. Daley.

The company has gotten a wide range of government work over the years, including the reconstruction of the Dan Ryan Expy. and major runway work at O’Hare Airport.

Under the settlement, Walsh agreed to pay $3.4 million to the U.S. government and $3 million to Hudalla’s attorneys. Of that, Hudalla says he got about $1 million.

It’s not the first time Hudalla has taken on a clout-heavy developer. Ten years ago, he filed a defamation lawsuit against a former employer, Hunter Alliance, owned by the politically connected Cacciatore family. In 2007, a jury awarded Hudalla $3 million, but the judgment was later set aside, and the case was settled out of court for an undisclosed amount.

In 2005, Hudalla and his wife, Karen, also filed a “premises liability” case against the Public Building Commission of Chicago following a slip-and-fall at the Daley Center. That case was settled in August 2009, with the commission paying the couple more than $1.1 million.

Hudalla and his wife also are suing the developers of a Bridgeport condo project that he was managing when he says he fell and suffered a variety of injuries.