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Howard Robson Inc. v. Town of Rising Sun

United States District Court, D. Maryland

January 30, 2015

HOWARD ROBSON INC., and LIBERTY MUTUAL INSURANCE CO., Plaintiffs,
v.
THE TOWN OF RISING SUN, Defendant.

MEMORANDUM OPINION

ELLEN LIPTON HOLLANDER, District Judge.

This case arises out of a contractual dispute related to the renovation of a wastewater[1] treatment facility commissioned by The Town of Rising Sun, a municipal corporation located in Cecil County, Maryland ("Rising Sun" or the "Town").

On or about March 20, 2012, Rising Sun entered into an agreement (the "Contract") with Howard Robson Inc. ("HRI") for the construction of specific, significant improvements to a wastewater treatment facility in the Town, for the sum of $7, 754, 240 ("Project"). ECF 1 ¶¶ 11-12. The Project was to be substantially completed in 639 days. Id. ¶ 13. To ensure satisfactory completion of the Project, the agreement mandated that HRI secure payment and performance bonds.[2] ECF 8 at 18 ¶ 10. Accordingly, HRI, as principal, secured payment and performance bonds from Liberty Mutual Insurance Company ("Liberty") as Surety. Id. On April 5, 2014, HRI terminated the Contract. ECF 1 ¶ 63.

Plaintiffs HRI and Liberty filed suit against Rising Sun, defendant, (ECF 1, "Complaint"), alleging that the Town inhibited successful completion of the Project. The Complaint contains three claims: Breach of Contract (Count I); Quantum Meruit and Quantum Valebant (Count II); and Unjust Enrichment (Count III).[3] The Complaint alleges, inter alia, that plaintiffs are entitled to payment for delays and disruption in the progress of the Project caused by defendant, costs and expenses incurred by HRI, and for defendant's retention of benefits provided by HRI without payment.[4] Id. ¶¶ 26-52. As to Count I, HRI seeks $1, 714, 204.20 as a result of defendant's alleged breach of contract; $284, 523.82 for unpaid change orders; $260, 388, 32 in retention withheld by defendant for completed work; and demobilization costs of about $60, 000. Id. ¶¶ 87, 91, 94, 96. Moreover, HRI anticipates additional expenses from vendors that fabricated material and equipment for the Project. Id. ¶ 95.

Rising Sun filed an Answer (ECF 8 at 1-16, "Answer") and Counterclaim (ECF 8 at 16-32, "Counterclaim").[5] Count I of the Counterclaim alleges breach of contract against HRI for failure to complete the Project. Count II alleges breach of contract against Liberty for failure to perform its obligations under the Performance Bond.

Currently pending before the Court is Liberty's Motion to Dismiss the Counterclaim for failure to state a claim (ECF 14), and a memorandum in support thereof (ECF 14-2)" (collectively, the "Motion").[6] According to Liberty, Rising Sun failed to comply with the "clear and unambiguous conditions precedent" necessary to trigger relief under the Performance Bond. ECF 14-2 at 1-2. Defendant opposes the Motion (ECF 17, "Opposition"), and Liberty has submitted a Reply (ECF 27, "Reply").

The Motion has been fully briefed, and no hearing is necessary to resolve it. See Local Rule 105.6. For reasons that follow, I will deny the Motion.

I. FACTUAL BACKGROUND[7]

On or about March 20, 2012, Rising Sun entered into a Contract with HRI for construction of certain improvements to an existing wastewater treatment facility located in Rising Sun, Maryland for the fixed amount of $7, 752, 240. ECF 8 at 17 ¶ 5. These funds were to be provided for in part by the American Recovery and Reinvestment Act of 2009 ("ARRA"), administered by the United States Department of Agriculture ("USDA"). Id. The ARRA program is set to expire on September 30, 2015, at which time program funds not approved and released would no longer be available. ECF 8 at 18 ¶ 9.

The Contract provided for construction of multiple structures and systems, including, id. at 17 ¶ 6, the following:

Headworks equipment and structure, influent pump station, valve vault, selector reactor, oxidation ditch, post anoxic tanks/re-areation reactor, secondary clarifiers and pump station, compressor building, filters, ultraviolet disinfection system, effluent metering tank, plant operations building, water well, electrical service and emergency generator, instrumentation and control system and related appurtenant work.

The Project plans and specifications, which form the basis of the Contract, were originally designed by RK&K Engineers ("RK&K"). ECF 1 ¶ 15. However, "[s]ometime before HRI's commencement of physical construction" for the Project, Rising Sun terminated its engagement with RK&K and retained CDM Smith, Inc. ("CDM") as a replacement. Id. ¶ 16. As a result, throughout the Project, CDM "administer[ed] the construction based upon a set of plans and specifications which CDM did not prepare." Id. ¶ 17.

According to Rising Sun, "Work" is broadly defined in the Contract as "[t]he entire construction or the various separately identifiable parts thereof required to be provided under the Contract Documents."' ECF 8 at 24 ¶ 33 (quoting Art. 1.01(A)50 of the Standard General Terms and Conditions of the Contract). The Contract provided that "time is of the essence" and the Project was to be "substantially completed within 639 days and ready for final payment within 669 days...." ECF 8 at 17 ¶ 8.

Under the Contract, HRI was to secure payment and performance bonds for the Project. ECF 8 at 18 ¶ 10. On or about March 21, 2012, Liberty, as Surety, and HRI, as principal, provided a "Performance Bond", Bond Number. XXXXXXXXX, to Rising Sun, as obligee, in connection with HRI's performance of the Contract (the "Bond"), in the amount of $7, 752, 240. See Bond, ECF 17-1 at 2. The Bond designated HRI as the Contractor, Rising Sun as the Owner, and Liberty as the Surety. Id.

The Bond also provided that, in the event of termination of the Contract for a reason other than a breach by Rising Sun, Liberty, as the Surety, must perform one of the following actions, ECF 8 at 30-31 ¶ 61:

a. Arrange for HRI, with the consent of Rising Sun, to perform and complete the Contract;
b. Undertake to perform and complete the Contract itself, through its agents or through independent contractors;
c. Obtain bids or negotiated proposals from qualified contractors acceptable to Rising Sun for a contract for performance and completion of the Contract, arrange for a contract to be prepared for execution by Rising Sun and contractor selected with Rising Sun's concurrence, to be secured with performance and payment bonds executed by a qualified surety equivalent to the bonds issued on the Contract, and pay to Rising Sun the amount of damages in excess of the balance of the Contract Price incurred by Rising Sun resulting from HRI's default.

On or about June 28, 2012, after acquiring the permits and approvals necessary to commence construction, Rising Sun issued a Notice to Proceed to HRI. Id. at 18 ¶ 11. HRI began construction on or about July 12, 2012, and was scheduled to reach "substantial completion" of the Project by April 12, 2014.[8] Id.

Rising Sun alleges that "[w]ork on the Project progressed at a reasonable pace for approximately the first seven months, without any significant delays or disruptions." Id. at 18 ¶ 12. By March 2013, according to HRI's applications for payment, HRI had completed approximately 70% of the Project and received $5, 728, 122.26, "less retainage." Id. As a result, Rising Sun was "taken by surprise" when HRI sent correspondence dated April 16, 2013, "irrevocably'" demanding that "all payments due or to become due" for services under the Contract were to be made payable to HRI, but "sent to Liberty on the Performance and Payment Bonds for the Project." Id. at 18 ¶ 13. Rising Sun received no further information as to why it was directed to make Contract payments to Liberty. Id.

In correspondence dated May 1, 2013, Liberty informed Rising Sun that, to facilitate the completion of the Project, Liberty would "financially assist'" HRI. Id. at 18 ¶ 14. The letter also stated that Liberty retained the "unilateral right to cease such assistance in the future.'" Id. But, Liberty indicated that, prior to making such a decision, it would address the situation with Rising Sun. Id. at 18-19 ¶ 14. As a result of the correspondence, "Rising Sun became very concerned about HRI's financial solvency and its ability to complete the Project on time and within budget." ECF 8 at 19 ¶ 15.

In correspondence from HRI to the engineer, CDM, dated May 15, 2013, HRI confirmed Liberty's plan to assist HRI financially. Id. at 19 ¶ 16. According to Rising Sun, HRI stated, id.:

"Please accept this letter... as HRI's confirmation of its commitment to complete the project on time.... Cash flow has been a concern and all of our projects have been lumped together by the bonding company in order to ensure a successful completion on all of the projects. There should be no concerns given our commitment to this project through all the issues that we continue to work through with both you and the owner."

Rising Sun asserts that, despite "assurances from HRI and Liberty, " after disclosure of these "financial difficulties, " HRI's "performance became very erratic." Id. at 19 ¶ 17. Rising Sun explains, id. at 19-20 ¶ 17:

There were multiple changes of HRI project managers and other personnel on the Project, which lead to confusion and poor coordination of submittals. HRI also became aggressive about pursuing change orders for Work included in their Contract scope, or reasonably inferable therefrom. When part of a particular structure or area of work was undergoing design modification, HRI refused to undertake other portions of the work not affected by the modifications on the grounds that it was inefficient to do so. At Project progress and coordination meetings, HRI personnel would collaborate on proposed design modifications, then return to their office to fire off letters complaining about delays, submittals, etc. Rising Sun did not realize it at the time, but under the yoke of Liberty, HRI was not going to receive the financial assistance it required to complete the Project if completion extended beyond April, 2014.

In its Counterclaim, Rising Sun provided an example of HRI's "erratic" behavior due to a Project design modification. ECF 8 at 20 ¶ 18. It involved a disagreement between the parties concerning alteration of the design for the Headworks and Plant Operations structures, so as to comply with applicable fire codes. Id. These buildings were originally designed to be built with wood surrounded by metal siding. Id. CDM considered a proposed design modification involving replacement of the wood and metal siding with certain non-combustable materials, such as concrete plank or block. Id. In response, "HRI raised no objection to the proposed modifications to the structures, participated in the discussions, and collaborated in efforts to determine costs" and effect on the schedule. Id at 20 ¶ 19. However, in the meantime, "HRI removed the bulk of its workforce from the Project site beginning May 27, 2013 while the design issues were reviewed and discussed, despite Rising Sun's request that HRI continue to work on areas not impacted by the design modifications." Id.

HRI returned to the Project shortly after execution of a design amendment to the Contract. Id. at 20 ¶ 20. CDM was given the authority to "proceed with certain design modifications" with respect to the Headworks and Plant Operations buildings. Id. The Town asserts that HRI resumed work on other tasks, attended progress meetings, and submitted work change orders and applications for payments to Rising Sun. Id. at 20-21 ¶ 20. In particular, between July and October 2013, HRI submitted applications for payment in excess of $1, 000, 000, which increased percentage of Project completion to 85%. Id. at 21 ¶ 21.

In "October and November, 2013, CDM Smith submitted the design revisions involving the Headworks and Plant Operations buildings to HRI for pricing." Id. at 21 ¶ 22. In January 2014, HRI informed Rising Sun that these modifications would cost in excess of $1, 000, 000. Id. at 21 ¶ 23. Rising Sun was "shocked to learn" of the immense cost of the modification, "a figure not remotely close to the previous estimates with which HRI had concurred." Id. Accordingly, "[f]or budgetary reasons, " Rising Sun rejected HRI's price and directed CDM to utilize the original design, which, as indicated, called for wood and metal siding. Id. at 21 ¶ 24.

On February 20, 2014, at a progress meeting, CDM committed to completing the design revisions by the end of March 2014. Id. at 21 ¶ 25. Therefore, it "caught Rising Sun completely by surprise when, in correspondence dated March 21, 2014, HRI provided notification of its intent to terminate the Contract" due to Rising Sun's alleged "suspension' of the Work by Rising Sun." Id. at 21 ¶ 26.

In seeking termination, HRI relied, inter alia, on the Standard General Terms and Conditions of the Contract ("General Conditions"). Id. at 22 ¶ 28. Article 15.04(A) provides that HRI may terminate the Contract and recover payment from Rising Sun if work is suspended by Rising Sun for more than 90 consecutive days, through no fault of HRI. Id. at 22 ¶ 29. Article 15.03 provides that, upon seven days written notice to Owner, i.e., Rising Sun, and Engineer, within that time, the Contractor has the right to terminate the ...


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