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United States v. Berkley Regional Insurance Co.

United States District Court, Fourth Circuit

December 5, 2013

UNITED STATES OF AMERICA F/B/O EASTERN WATERPROOFING & RESTORATION CO., INC., Plaintiff,
v.
BERKLEY REGIONAL INSURANCE CO., Defendant.

MEMORANDUM OPINION

ELLEN LIPTON HOLLANDER, District Judge.

G-W Management Services, LLC ("G-W"), as prime contractor, entered into a contract ("Prime Contract") with the United States of America (the "Government") for a renovation project at the Walter Reed National Military Medical Center in Bethesda (the "Project").[1] Use Plaintiff Eastern Waterproofing & Restoration Company, Inc. ("EWR") served as a subcontractor on the Project. See Subcontract, Compl. Ex. 1 (ECF 1-2). In accordance with the Miller Act, 40 U.S.C. § 3131 et seq., G-W secured a payment bond, identified as OMB No. 9000-0045, from Defendant Berkley Regional Insurance Company ("Berkley"). See Bond, Compl. Ex. 6 (ECF 1-7).

The Government subsequently cancelled a portion of the Project and G-W agreed to reduce the price of the Prime Contract. However, G-W and EWR were unable to agree upon the amount by which to reduce the price of the Subcontract. After G-W and Berkley refused to pay EWR the amount of money EWR sought, EWR filed suit under the Miller Act against Berkley for the amount it claimed it was owed by G-W. Complaint, ECF 1.[2] G-W is not a party to this action.

On March 21, 2013, Berkley filed a Motion for Summary Judgment ("Motion, " ECF 16), supported by a Memorandum ("Memo, " ECF 16-1) and exhibits. EWR filed an Opposition ("Opp., " ECF 17), and Berkley filed a Reply (ECF 19). No hearing is necessary to resolve the Motion. See Local Rule 105.6. For the reasons that follow, I will deny the Motion.

Factual Summary

G-W, the prime contractor, entered into Contract no. N40080-10-D0498-0009 with the Government for the Project.[3] As noted, pursuant to the Miller Act, 40 U.S.C. § 3131 et seq., G-W secured a payment bond from Berkley. The bond provides protection to subcontractors who provide labor and material in connection with the Project.

EWR was a subcontractor to G-W on the Project under Subcontract XX-XXX-XX, which was executed on February 2, 2011. EWR was initially tasked with the renovation and reconstruction of two parking garages, referred to as Building 54 and Building 55 ("Garage Renovation"). See Subcontract at 1. The Subcontract was a fixed price contract; G-W agreed to pay EWR $1, 394, 843.00 for its work. Id. According to EWR, G-W later issued change orders that increased the price of the Subcontract to $3, 008, 074.75. See Demand Letter, Compl. Ex. 5 (ECF 1-6) at 2; but see Reply at 5 n.3 (stating that G-W disputes that the total price of the Subcontract was $3, 008, 074.75).

On September 30, 2011, the Government and G-W executed a modification of the Prime Contract, which reduced the scope of the Garage Renovation by deleting portions of the planned work on Building 54 and all of the planned work on Building 55 (the "Modification Agreement"). See Compl. Ex. 4 (ECF 1-5) at 2. For the reductions in work on Building 54, G-W and the Government agreed to reduce the Prime Contract price by $133, 429. Id. For the deletion of work on Building 55, G-W and the Government agreed to reduce the Prime Contract price by $1, 126, 325. Id. The Modification Agreement also established an "accelerated construction schedule" for the remaining work on Building 54, and the Government agreed to pay G-W an extra $316, 810 for compliance with that schedule. In all, the Modification Agreement reduced the price of the Prime Contract by $942, 944.

EWR was not involved in the negotiations between G-W and the Government regarding these price modifications, nor was it given the opportunity to consent or object to the Modification Agreement. See Demand Letter at 1. Nevertheless, G-W sought to adjust the Subcontract to account for the change in scope of the work.

The Subcontract contained three provisions that allowed G-W either to modify or to terminate the Subcontract if the Government changed the scope of the Project. See Subcontract ¶¶ 14, 15, 25. The first, titled "Extra Work, " provides, id. ¶ 14:

The Contractor may at any time direct the Subcontractor to perform extra work or changes under this Subcontract. Only extra work authorized by the Contactor as an extra or change in writing shall be paid for by the Contractor. If the extra work direction does not originate from Owner's direction and there is no prior agreement on price, then Subcontractor shall be paid for the actual direct costs of said work plus fifteen percent....
The second, titled "Owner Changes, " provides, id. ¶ 15:
Changes ordered by the [Government] shall be performed and paid for in accordance with the terms of the Prime Contract.... [P]ayment for Owner changes shall not be due the Subcontractor as a specific condition precedent until the Contractor [receives payment from the Government].
The third, titled "Termination for Convenience, " provides, id. ¶ 27:
Contractor shall have the right to terminate this Agreement for its own convenience for any reason by giving notice of termination effective upon receipt thereof by Subcontractor.... Settlement with the Subcontractor shall be accomplished in accordance with the provisions of the Termination for Convenience clause in the Prime Contract. If the Termination for Convenience clause in the Prime Contract is not applicable, the Subcontractor shall only be paid either the actual cost for work and labor in place, plus fifteen percent (15%), or a pro rata percentage of the Subcontract amount equal to the percentage of completion for the ...

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