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Young Electrical Contractors Inc. v. Dustin Construction Inc.

Court of Special Appeals of Maryland

December 28, 2016


          Eyler, Deborah S., Reed, Salmon, James P., (Senior Judge, Specially Assigned), JJ.


          Reed, J.

         Appellant, Young Electrical Contractors, Inc. ("Young"), entered into a subcontractor agreement with appellee, Dustin Construction, Inc. ("Dustin") to perform all required electrical work for a prime contract Dustin entered into with George Mason University in Virginia. Due to a number of delays in the project, Young was unable to meet the agreed-upon date for substantial completion of the work. As a result, Young experienced a number of cost overruns and sought payment for those overages via a number of change requests. When Young did not receive those payments from the university via Dustin, Young sued Dustin in the Circuit Court for Montgomery County for breach of the subcontract.

         Dustin's defense of the suit centered on the subcontract's "pay-when-paid" clauses, a set of clauses that provided Young would be paid when Dustin received payment from the university. The circuit court agreed with Dustin and granted summary judgment on Young's breach of contract claim, explaining that, under the pay-when-paid clauses, Dustin was not liable to Young for the change requests because George Mason had not yet paid Dustin for those amounts.

         We are asked to review the trial court's grant of summary judgment to Dustin. Appellant poses four questions for our consideration, which we have consolidated and rephrased in three questions below:[1]

I. Whether the circuit court erred in its determination of the validity of the "pay-when-paid" clauses of the parties' agreement;
II. Whether the circuit court erred where it determined the "pay-when-paid" clauses applied to the present dispute;
III. Whether the circuit court erred where it did not find a genuine dispute of material fact that the changes to the project were owner-initiated.

         We hold the circuit court committed no error in finding the pay-when-paid clauses applied to the present dispute, which allowed for the entry of summary judgment on the breach of contract claim in favor of Dustin. Accordingly, we affirm the judgment of the circuit court and shall explain.[2]

         Factual and Procedural Background

         Appellant, Young Electrical Contractors, Inc., is an electrical contracting firm based in Laurel, Maryland, which specializes in the installation of electrical equipment for construction projects. Appellee, Dustin Construction, Inc., is a construction firm based in Ijamsville, Maryland, and is primarily engaged in the construction industry as a general contractor.

         George Mason University ("George Mason" or "Owner"), is a public university located in Fairfax County, Virginia. George Mason sought to renovate and construct an addition to Building Two of its Student Union (the "Project"). Dustin bid on and was awarded the contract for the Project as general contractor. Dustin and George Mason executed this contract (the "Prime Contract") on or about July 20, 2010. Needing a subcontractor for the electrical work required under the Prime Contract, Dustin entered into a subcontract with Young on or about October 15, 2010 (the "Subcontract") for this work.

         Per George Mason's Notice to Proceed, work on the Project commenced on July 30, 2010. Although the Prime Contract set November 15, 2010, as the date for substantial completion of the Project, the Notice to Proceed extended the substantial completion date to November 30, 2010. Young, however, achieved substantial completion on March 8, 2011-more than three months after the date set by George Mason.

         The delays in completion of the work prompted Young to submit three Change Requests; two of those three requests-Nos. 1066 and 1067-are at issue in this appeal.[3]Young submitted Change Request No. 1066 to Dustin on September 14, 2011, which sought $259, 034.99 for "extended overhead costs associated with [George Mason]'s extension of the contract." Dustin then submitted Change Request No. 1066 along with its own delay claim to George Mason on November 16, 2012. Per George Mason's request, Dustin separated Change Request No. 1066 from its own claim, and also reduced the amount requested in No. 1066 to $180, 010.21. That amount reflected the removal of costs that were not covered under the Subcontract. No. 1066 was then resubmitted to George Mason on March 4, 2013.

         About a year-and-a-half later, on February 15, 2013, Young submitted Change Request No. 1067, which sought $274, 812.33 because of "owner initiated . . . design changes, design errors, unforeseen conditions and additions/deletions of the work originally required." Young explained that it experienced an "overrun of hours" because it was "forced to accelerate the electrical activities by adding additional manpower, supervision, tools, equipment, overtime and shift work."

         Young filed its Complaint in the Circuit Court for Montgomery County on September 3, 2013, alleging a single count of breach of contract against Dustin.[4] The complaint alleged that Young was not responsible for the three month delay in achieving substantial completion of its work. It further alleged that, because of the delays to the Project, it had to work overtime and, as a result, incurred additional costs. Young contended that it submitted its claims arising from the additional work, but that Dustin failed to provide Young with any information or documentation demonstrating that Young's claims were submitted to George Mason. Young further contended that Dustin failed to process its claims, and that Dustin had not paid and pursued Young's claims against George Mason. Young alleged that Dustin committed a breach of contract where it directed Young to perform the additional overtime work, but failed and refused to pay for that work and its associated costs.

         George Mason denied both Change Request No. 1066 and Change Request No. 1067 on September 17, 2013. These requests implicated the "pay-when-paid" provisions of the Subcontract, which explained that Young's payment was contingent upon, as a condition precedent, Dustin's receipt of payment from George Mason. Because George Mason denied both Change Requests, Dustin was not paid the requested amounts and, in turn, pursuant to the pay-when-paid provisions, Dustin did not pay Young its requested amounts.

         Dustin filed its Answer to the Complaint, along with a motion for summary judgment (the "Motion"), on October 21, 2013. The Motion argued, among other things, that Dustin was not liable to Young for the requested amounts because of the pay-when-paid provisions of the Subcontract.

         The circuit court heard the parties on the Motion on January 22, 2014, and delivered its oral opinion on February 11, 2014. The court explained that its review of the record demonstrated that Dustin had, in fact, submitted both Change Requests to George Mason. In addition, the court held that summary judgment was appropriate because George Mason refused both of the requests and did not pay Dustin, making the pay-when-paid provision of the Subcontract applicable to the present dispute.

         The circuit court entered summary judgment by Order dated February 18, 2014. Young moved the court for reconsideration on February 21, 2014, but the court denied the motion on April 7, 2014.

         Young timely noted its appeal on April 11, 2014.


         (i) Validity of Pay-When-Paid Clauses

         A. Parties' Contentions

         Young argues that the circuit court misinterpreted the Subcontract to grant summary judgment in favor of Dustin. It explains that the court cabined its analysis solely within Section 2(c) of the Subcontract, which, it claims, applies only to amounts found due and owing and not to disputed claims as in the present case. The circuit court's interpretation of the contract, Young contends, ignores other applicable paragraphs, including but not limited to Sections 13(d), 27, 28, and 39, in contravention of principles of contract interpretation.

         Dustin responds that there are several provisions within the Subcontract that would act to bar Young's claim. Specifically, Sections 2(c), 13(c), and 27(f) each contain a condition precedent that requires payment from George Mason before Young is paid. Therefore, according to Dustin, because each of these three potentially applicable Sections contains the same condition precedent, Young's claim under the Subcontract is barred.

         B. Standard of Review

         The interpretation of written contractual terms is a question of law we review de novo. Nova Research, Inc. v. Penske Truck Leasing Co., 405 Md. 435, 448 (2008). Unlike the factual determinations of a circuit court, its legal determinations are not afforded deference on appeal. Thomas v. Capital Med. Mgmt. Assocs., LLC, 189 Md.App. 439, 453 (2009). Such legal determinations, i.e., ...

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