Founded in 1964, Coco Paving expanded as a family business predominately in Ontario, where GFL Environmental is also based.J.P. MOCZULSKI/The Globe and Mail
Jenny and Rock-Anthony Coco, the siblings who ran Ontario-based Coco Paving Inc., are suing GFL Environmental Inc. and a sister company for refusing to pay $40-million they allege is owed after they sold their family paving business to the waste management giant.
The $40-million in question is sitting in a legal liability fund. Under the deal terms, GFL was supposed to release the money in April, but did not. GFL told the Cocos it would not pay because Ms. Coco pledged the paving company as collateral to secure a large construction loan for her luxury condo project with developer Sam Mizrahi.
GFL also told the Cocos that it would not release the $40-million because of “an inquiry by a government agency into alleged actions of Coco Paving,” according to the lawsuit. No details of the alleged inquiry were provided.
Founded in 1964, Coco Paving expanded as a family business predominately in Ontario, where GFL is also based. In April, 2022, GFL teamed up with New York-based HPS Investment Partners Inc. to purchase the paving company for an undisclosed sum – but rather than own Coco Paving directly, GFL created a new entity called Green Infrastructure Partners (GIP) to house it.
GIP is controlled by multiple partners and when it was created HPS owned 47 per cent, while GFL owned 45 per cent. GFL chief executive Patrick Dovigi owned the remaining 8-per-cent stake, and was also named executive chair of GIP’s board. The Cocos are now suing GFL and GIP.
Legal liability holdbacks, formally known as indemnity escrows, are a common feature of mergers and acquisitions that serve as a form of insurance to protect purchasers from unforeseen lawsuits and other issues. In total, $80-million of the Coco Paving purchase price was held back and the money was set to be released in two stages: $40-million, plus accumulated interest, after the purchase’s first anniversary, and the remaining $40-million, plus accumulated interest, after the second anniversary.
The first anniversary was April 28 but GFL and GIP did not pay, prompting the Cocos to sue.
The Coco family is already involved in multiple interconnected lawsuits and the GFL case expands the web. A common feature in each of the lawsuits is their joint-ownership of private debt manager Bridging Finance Inc. At its peak, Bridging managed $2.09-billion on behalf of 26,000 investors, but it collapsed in 2021 and is now under the control of a court-appointed receiver. In May, the receiver and a senior creditor sued the Cocos for their alleged roles in Bridging’s demise.
Ms. Coco is also involved in multiple lawsuits tied to an ambitious condo development in Toronto’s upscale Yorkville neighbourhood known as The One. Ms. Coco is a co-owner of the project with Mr. Mizrahi and around 2016 the partners looked for funding to get the project up and running. Ultimately, they turned to China-East Resources Import & Export Co., or CERIECO, a state-owned Chinese enterprise.
CERIECO agreed to advance a $213-million loan, but only after Ms. Coco arranged for Bridging Finance’s flagship investor fund, the Bridging Income Fund, to act as one of several guarantors, CERIECO alleged in a 2022 lawsuit against her and several others. CERIECO also alleged that Coco Paving Group was named as a guarantor.
The loan is now in default, CERIECO alleges.
CERIECO’s allegations have not been proven in court, but weeks before the Coco Paving sale closed, GFL and GIP inserted an indemnity provision into the purchase agreement that addresses them. Under the deal’s final terms, GFL can claim protection against the guarantee that Coco Paving provided so long as it complies with specific rules. These include providing written notice of any indemnity claim in a timely fashion if CERIECO sued.
The Cocos acknowledged that CERIECO’s lawsuit is still before the court, but they allege that GFL and GIP did not abide by the terms of the purchase agreement when making their indemnity claim.
As for the alleged inquiry into Coco Paving by a government agency, which GFL and GIP provided as another reason not to release the $40-million, the Cocos allege that Mr. Dovigi advised Ms. Coco in March that there was no merit to the inquiry and that the matter was “over.”
GFL and GIP, through their lawyers, declined to comment on this story. The Cocos did not respond to a request for comment.
Under the Coco Paving purchase agreement, if the legal liability fund is depleted, any additional damages must be paid by the Coco family.