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Star Development Group, LLC v. Constructure Management, Inc.

United States District Court, D. Maryland

March 28, 2018

STAR DEVELOPMENT GROUP, LLC and HOPKINS INVESTORS, LLC
v.
CONSTRUCTURE MANAGEMENT, INC. and ALLIED WORLD SPECIALITY INSURANCE COMPANY

          MEMORANDUM

          RICHARD D. BENNETT, UNITED STATES DISTRICT JUDGE.

         Plaintiffs Star Development Group, LLC ("Star") and Hopkins Investors, LLC ("Hopkins") bring this lawsuit against defendants Constructure Management, Inc. ("CMI") and Allied World Specialty Insurance Company ("Allied") (f/k/a "Darwin National Assurance Company") seeking damages for breach of contract. The parties voluntarily participated in arbitration, which resulted in a Final Award ("Award") in favor of CMI. Now pending are plaintiffs' petition to vacate the Award (Civil No. 17-1956, ECF No. 1 (hereinafter "ECF No. 1")) and defendants' motion to confirm the Award and award attorneys' fees (ECF No. 28).[1] The parties have fully briefed the motions, and no oral argument is necessary. See Local R. 105.6. For the reasons set forth below, plaintiffs' petition is denied, defendants' motion is granted and the Award is confirmed and attorneys' fees shall be awarded to CMI.

         BACKGROUND

         This dispute concerns many claims relating to a construction contract between Star and CMI. On April 8, 2013, Star and CMI entered into a Guaranteed Maximum Price ("GMP") Contract (the "Contract") for the construction of a hotel in Laurel, Maryland (the "Project"). (ECF No. 9, ¶ 9). Plaintiff Hopkins, a Maryland limited liability company, is the property owner, and plaintiff Star, also a Maryland limited liability company, served as Hopkins' construction and development manager. (ECF No. 1, p. 2-4, ¶¶ 1-3, 8). Under the Contract, defendant CMI, a Pennsylvania corporation, was the general contractor for the construction of the hotel. Id. at p. 3, ¶¶ 4, 8. CMI obtained payment and performance bonds from Allied, formerly known as "Darwin National Assurance Company, " naming Star and Hopkins as multiple obligees. Id. at p. 4, ¶ 8. The parties allege numerous claims against each other. Star claims various damages, including delay-related damages incurred due to the Project's late completion. CMI claims the contract balance and various change order payments. Additionally, Star and Hopkins allege payment bond claims against Allied.

         Star and Hopkins filed a complaint in the Circuit Court for Howard County in March of 2016, alleging breach of contract against CMI and breach of contract/action on performance bond against CMI and Allied. (ECF No. 2). CMI and Allied removed the case to the District of Maryland on April 27, 2016.[2] (Civil No. 16-1246, ECF No. 1). The case, Civil No. RDB-16-1246, was stayed while the parties voluntarily participated in arbitration pursuant to the arbitration clause in their contract.[3] (ECF No. 12).

         A. Arbitration Proceeding

         The arbitration panel ("Panel") was composed of three American Arbitration Association ("AAA") construction arbitrators. (ECF No. 26, Ex. A (hereinafter "Final Award"), p. 17). Each party presented multiple claims for decision by the Panel. (Final Award, ¶ 7). CMI claimed from Star the unpaid GMP contract balance, including amounts for eight disputed change order or added work claims, plus interest. Id. CMI's claim totaled $1, 797, 008.00 before interest. Id. Star claimed against CMI various types of delay damages, a list of punchlist/warranty/defective work items, consequential damages, attorneys' fees, costs, and interest. Id. Star's claim totaled $4, 112, 611.00, excluding interest and attorneys' fees. Id. Star and Hopkins also claimed that full amount against Allied as third-party claimants.

         Hearings were conducted over the course of eight days: April 4-7, 2017 and April 11-14, 2017. (Final Award, ¶ 6). Fifteen witnesses testified, and several hundred exhibits were admitted into evidence. Id. The testimony generated a transcript of 2, 414 pages. (ECF No. 26, Exs. B, C, D, E, F, G, H, I). After testimony concluded, the parties submitted proposed awards and final Statements of Claims. (Final Award, ¶ 6).

         On June 14, 2017, the arbitrators issued a Final Award. (Final Award). The Panel summarized its legal and factual findings in 50 numbered paragraphs spanning 16 single-spaced pages. Id. The Panel's Award provides:

1. Claimant CMI is hereby AWARDED against Respondent Star the net amount of One Million Seven Hundred and Sixty-Six Thousand, Thirty-Three Dollars ($1, 766, 033.00). This amount is due and payable by Star within thirty (30) calendar days of the date of this Award. Interest shall accrue at the applicable Maryland statutory judgment rate after that date.
2. The administrative fees of the AAA totaling $29, 400.00 and the compensation and expenses of the Panel totaling $150, 928.23 shall be borne by Star. Therefore, Star shall reimburse CMI the sum of $90, 164.12 representing the portion of said fees and expenses in excess of the apportioned costs previously incurred by CMI.
3. This Award is in complete resolution of all claims, counterclaims and third-party claims submitted for resolution, as set forth in the Introduction.
4. All claims submitted by any party that are not expressly granted herein are hereby DENIED.

Id. at ¶ 1-4. Two of the Panel's specific decisions are at issue in the motions at hand: (1) the Panel's denial of Star's delay damages and (2) the Panel's award of $368, 504.18 to CMI for added steel. (ECF No. 1, p. 8).

         B. Panel's Denial of Star's Delay Damages

         The Project consisted of two parts: (1) a six-floor tower portion containing the hotel rooms and (2) a one-story area containing the lobby and other common areas. (Final Award, ¶ 12). The original GMP for the Project was $11, 541, 000, and the original Substantial Completion Date under the Contract was July 26, 2014. Id. at ¶¶ 8, 38. The Project was not completed until August 6, 2015, about 376 days late. Id. at ¶ 8. Star claimed CMI was solely responsible for this delay, and, as such, claimed liquidated damages and other delay-related damages. Id. at ¶ 9. CMI did not claim delay damages, but claimed the delay was excusable and therefore Star was not entitled to delay-related damages. Id. at ¶ 10.

         After hearing expert testimony, the Panel found CMI and Star were concurrently responsible for the entire project delay, holding CMI responsible for the tower delay and Star responsible for the one-story delay. Id. at ¶¶ 11, 16. Thus, the Panel concluded the delay was non-apportionable. Id. at ¶ 16. This, conclusion implicated General Conditions § 8.3.1.2 of the parties' Contract, which provides,

Notwithstanding Section 8.3.1.1, or anything to the contrary set forth in the Contract, in no event shall Contractor be entitled to an extension of the Contract Time, nor to recover Extended General Conditions nor to recover any other damages, costs or expenses of any kind as a result of a delay or suspension, if such delay or suspension for which Contractor claims entitlement: (a) was caused in whole or in part, directly or indirectly, by the wrongful acts or omissions or other default of Contractor or any other Contractor Party; and/or (b) is concurrent with a delay caused in whole or in part, directly or indirectly, by the wrongful acts or omissions or other default of Contractor or any other Contractor Party.

(ECF No. 1, Ex. A, Contract A-201-2007, § 8.3.1.1). This provision of the parties' contract would allow Star to recover delay damages even though the delay was concurrent and could not be apportioned, overriding a widely recognized contractual rule. (Final Award, ¶ 18). The Panel, however, found § 8.3.1.2 did not apply to the circumstances at hand because CMI was not required to seek time extensions to avoid delay damages liability. Id. at ¶ 19. The Panel concluded Star had waived and abandoned the contractual completion date, meaning CMI's obligation was simply to complete the work within a reasonable time. Id. at ¶¶ 20-21. The Panel found CMI had completed its work in such fashion, and accordingly, denied Star's claim for delay damages.[4] Id. at ¶ 21. Star and Hopkins now argue the Panel's decision regarding § 8.3.1.2 should be vacated because it constitutes "manifest disregard of the law" and is based on "completely irrational" factual findings.

         C. Panel's Award to CMI for Added Steel

         One change order at issue in the arbitration was CMI's extra work claim totaling $368, 504.18 for extra costs to construct the structure and exterior of the one-story area. (Final Award, ¶ 30). This claim stemmed from additional structural elements, namely structural steel, added by Star's structural engineer in May and July 2014. Id. at ¶ 30. Substantial evidence was submitted relating to this claim. From that evidence, the Panel found the original construction drawings were inadequate for CMI to build the one-story structure because the drawings failed to identify key structural elements and necessary performance requirements. Id. at ¶ 32. The Panel also found CMI made several attempts to bring this issue to the attention of Star's structural engineer, who was non-responsive or otherwise did not clarify the design intent. Id. at ¶ 33.

         The sketches in May and July 2014 therefore added significant structural elements that CMI could not have anticipated from the original sketches, which changed the scope of the GMP contract and entitled CMI to the resulting added costs. Id. CMI made its claim for the added steel against Star on March 29, 2017. Star contended this claim was waived by CMI because it was untimely and subject to a June 2015 release. The Panel rejected both of Star's arguments.

         Concerning Star's timeliness argument, the parties' contract provides with regard to claims by the contractor, "Unless the Contract Documents provide a shorter period, Claims by the Contractor must be initiated within seven (7) days after the occurrence of the event giving rise to such Claim or the Claim is waived." (ECF No. 1, Ex. A, Contract A201-2007, § 15.1.2). The Panel found Star waived the requirements of § 15.1.2, stating, "Given Star's general pattern of failing to follow the contract's administrative processes.. .we do not find the contractual time limits for change order submissions to be a bar to recovery." (Final Award, ¶ 29).

         Concerning Star's release argument, CMI submitted a signed and notarized Release and Waiver of Claims and Mechanic's Liens on June 17, 2015. (ECF No. 1, Ex. S, p. 7). According to Star, CMI waived the added steel claim by signing this release. The Panel rejected this argument as well, although it did not explain its precise reasoning for doing so. Thus, the Panel awarded CMI its claimed damages of $368, 504.18, consisting of the actual net costs to complete the structure and exterior of the one-story area, less the remaining balance within the budget for this work. (Final Award, ¶ 35). Star and Hopkins now argue the Panel's decision on the added steel must be vacated because it constitutes "manifest disregard of the law." (ECF No. 1, p. 30).

         After arbitration had concluded and the Panel had issued its Award, plaintiffs Star and Hopkins filed another case on July 14, 2017, Civil No. RDB-17-1956, to petition this court to vacate the Award. This subsequent case, 17-1956 was consolidated with the lead case, 16-1246, on August 16, 2017. (Civil No. 17-1956, ECF No. 9). Defendants CMI and Allied then filed a cross-motion to confirm the Award and award attorneys' fees on October 2, 2017. (ECF No. 28). ...


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