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IES Commercial, Inc. v. Manhattan Torcon

United States District Court, D. Maryland

September 26, 2018

IES COMMERCIAL, INC., et al., Plaintiffs,
v.
MANHATTAN TORCON A JOINT VENTURE, et al., Defendants.

          MEMORANDUM OPINION

          RICHARD D. BENNETT UNITED STATES DISTRICT JUDGE

         Plaintiffs IES Commercial, Inc. and United States f/b/o IES Commercial, Inc. (collectively, “IES” or “Plaintiffs”) bring this action against Manhattan Torcon A Joint Venture (“MTJV”), its general partners Manhattan Construction Company and Torcon, Inc. (all three collectively the “MTJV Defendants”), and four insurance companies Federal Insurance Company, Fidelity and Deposit Company of Maryland, Zurich American Insurance Company, and Travelers Casualty and Surety Company (collectively, the “Surety Defendants”), stemming from the construction of a biological research facility for the United States Army Medical Research Institute of Infectious Diseases at Fort Detrick, Maryland. (Am. Compl., ECF No. 19.) IES, alleging that it is owed over $20 million for its work on the facility, brings claims for cardinal change/quantum meruit[1] against the MTJV Defendants (Count I) and breach of contract against all of the Defendants (Counts II, III).

         The Defendants have moved to dismiss the Amended Complaint.[2] (ECF No. 22.) The submissions have been reviewed and no hearing is necessary. See Local Rule 105.6 (D. Md. 2016). For the following reasons, Defendants' Motion to Dismiss the Amended Complaint (ECF No. 22) is GRANTED IN PART and DENIED IN PART. Specifically, Defendants' Motion is GRANTED as to Count I, and Plaintiffs' cardinal change/quantum meruit claim is DISMISSED. Defendants' Motion is DENIED, however, as to Counts II and III and Plaintiffs proceed with their breach of contract claims.

         BACKGROUND

         In February of 2011, Defendant Manhattan Torcon A Joint Venture (“MTJV”) subcontracted electrical work to Plaintiff IES Commercial, Inc. (“IES”) for a massive government construction project to build a research facility. On August 14, 2013, after IES had completed and billed for approximately 92.5% of its labor hours, a fire at the project destroyed or damaged more than half of the 950, 000 square foot facility. IES then began performing fire remediation work, and the facility is still not yet complete. The background provided below describes the subcontract between IES and MTJV, the fire, and Plaintiffs' allegations of MTJV's mismanagement of the project prior to and after the fire.

         I. The Subcontract between IES and MTJV

         In 2009, the United States Army Corps of Engineers contracted for the building of a six-story, 950, 000 square foot biological research facility for the United States Army Medical Research Institute of Infectious Diseases at Fort Detrick, Maryland (the “Project”). (Am. Compl., ECF No. 19 at ¶¶ 14-15, 38.) Defendant MTJV became the general contractor for the Project, and on February 2, 2011, MTJV hired IES as an electrical subcontractor to do all of the electrical and underground electrical distribution system work (the “Subcontract”). (Id. at ¶¶ 15-18, 42; ECF No. 1-1.)

         Under the Subcontract, MTJV agreed, among other things, to “not unreasonably delay, interrupt, obstruct, or otherwise hinder IES in the performance of its [w]ork under the Subcontract” and “to coordinate its own work and that of its other subcontractors to allow IES to perform its [w]ork under the Subcontract in a reasonably efficient manner.” (Id. at ¶¶ 46, 51.) IES asserts that in agreeing to a price for the Subcontract, IES relied on MTJV's duties and obligations set forth in the Subcontract. (Id. at ¶ 52.) For example, IES asserts that it priced the Subcontract based on MTJV agreeing to schedule and coordinate the work of all of its subcontractors and to not “unreasonably demand inefficient and unnecessary additional work from IES.” (Id. at ¶ 53.) The fixed price for the Subcontract was $61, 146, 000.[3] (Id. at ¶¶ 54, 55.) As required under the Miller Act, 40 U.S.C. § 3131, et seq., the Surety Defendants issued a payment bond identifying MTJV as the principal (the “Bond”).[4](Id. at ¶ 56; ECF No. 1-2.) The penal sum indicated on the Bond is $333, 000, 000. (Id. at ¶ 59.)

         Article 4 of the Subcontract, titled “Changes in the Work”, provides that “MTJV may, at any time, unilaterally or by agreement with Subcontractor, without notice to any surety, make changes in the Work covered by this Subcontract. Any unilateral order or agreement under this Article 4 shall be in writing. Subcontractor shall perform the Work as changed without delay.” (ECF No. 1-1 at ¶ 4.1.)

         II. IES's work under the Subcontract prior to the fire

         IES asserts that prior to the fire, MTJV “consistently failed to perform” its duties and obligations under the Subcontract. (ECF No. 19 at ¶ 60.) According to IES, this included:

62. MTJV abandoned the Project schedule and ceased providing the schedule updates required by the Subcontract. MTJV ceased providing accurate and complete schedule updates to IES. On information and belief, MTJV also ceased providing such updates to its other subcontractors.
63. MTJV failed to coordinate the work of its other subcontractors on the Project. This led to multiple instances of IES working in the same space at the same time as other subcontractors (“stacking of trades”), and of areas in which IES was scheduled to perform work not being ready to receive IES's work due to precursor activities to be completed by other trades not being done.
64. MTJV failed to coordinate access to the Project site.
65. MTJV directed IES to keep excess manpower on site even though no productive work was available for those employees to perform.

         As a result of these failures, which IES collectively refers to as “MTJV's Mismanagement, ” IES asserts that prior to the fire, it spent 65, 078 additional, unplanned labor hours than those contemplated by the Subcontract and incurred no less than $4, 970, 092 in damages as a result. (Id. at ¶¶ 67-68.) Throughout this time, IES sent MTJV at least 300 notices setting forth and explaining how MTJV's actions were causing the ongoing inefficiencies, labor impacts, and additional costs. (Id. at ¶ 69.)

         III. The fire

         On August 14, 2013, there was a fire at the Project that destroyed or damaged most of the Project's west side, or more than half of the 950, 000 square foot facility.[5] (Id. at ¶¶ 22, 24.) At the time of the fire, IES asserts that it had completed and billed for approximately 92.5% of the labor hours included in its work under the Subcontract, with approximately 7.5% of the labor hours remaining to be performed. (Id. at ¶ 104.) The fire, however, damaged or destroyed significant portions of IES's work. (Id. at ¶ 72.) Plaintiffs assert that the fire “changed the nature of the Project from new construction to a disaster recovery, restoration, and reconstruction Project, ” fundamentally altering the work IES had contracted to perform for MTJV. (Id. at ¶¶ 26-27.)

         IV. IES's work under the Subcontract after the fire

         After the fire, the Plaintiffs assert that “MTJV desired that IES perform work to repair, replace, or otherwise remediate IES's Work in place that had been destroyed and/or damaged by the Fire, ” which the Plaintiffs refer to as “fire remediation work.” (ECF No. 19 at ¶ 73.) Subsequently, in October or November of 2013, [6] MTJV and IES entered into an amendment to the Subcontract related to the fire remediation work (the “Fire Rider”). (Id. at ¶ 74; ECF No. 1-3.) The Fire Rider included a rate schedule that set forth agreed hourly labor rates, general conditions costs, and markups for overhead, profit and bond. (ECF No. 1-3.) Further, the Fire Rider set forth a system whereby IES would perform the fire remediation work as directed by MTJV and submit daily work tickets and monthly invoices. (Id.) Once MTJV received approval and payment by the insurance carrier, MTJV would pay IES within ten days. (Id.)

         Plaintiffs assert that from the Fall of 2013 through August of 2017, it performed fire remediation work pursuant to the Fire Rider. (ECF No. 19 at ¶ 79.) IES asserts, however, that after the fire, “MTJV's Mismanagement, ” or failure to meet its obligations under the Subcontract, continued and led to even more significant labor inefficiencies for IES. (Id. at ¶ 105.) IES alleges that these inefficiencies included:

107. MTJV failed to develop a Project schedule that accounted for all base Project work incomplete as of the time of the Fire (i.e. IES's Post Fire Base Contract Work and similar work remaining to be performed by other subcontractors) and all Fire Remediation Work.
108. Notwithstanding the lack of a schedule accounting for all remaining work, MTJV repeatedly directed IES to increase its manpower to perform the Post-Fire Base Contract Work[.]
109. MTJV forced IES to work out of sequence[.]
110. MTJV's inability to coordinate the work of its other subcontractors was even worse during the Post-Fire Period. MTJV frequently directed IES to perform Work in certain areas of the Project, only for IES to discover that necessary walls, drywall, and ceiling grids - all work to be performed by others as a necessary precursor to IES's work - were incomplete.
111. MTJV's failure to coordinate its subcontractors led to other trades working out of sequence and installing work that was supposed to come after IES's work before IES had worked in a particular area. This forced IES to remove the work of ...

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