VIRGINIA M. HERNANDEZ COVINGTON, District Judge.
This cause came before the Court for a non-jury trial commencing on February 24, 2014, and concluding on March 4, 2014. On April 23, 2014, the parties timely filed their proposed orders, which included the parties' proposed findings of fact and conclusions of law, (Doc. ##161, 162, 163), as ordered by the Court at the conclusion of trial.
Also before the Court is Defendant Peter R. Brown Construction, Inc.'s (PRBC) Motion for Judgment on Partial Findings Pursuant to Fed.R.Civ.P. 52(c) (Doc. #139), filed on March 4, 2014; PRBC's Motion to Conform the Pleadings to the Evidence (Doc. #154), filed on April 3, 2014; and Plaintiff Ragghianti Foundations III, LLC's (Ragghianti) Motion for Judgment on Partial Findings Pursuant to Fed.R.Civ.P. 52(c) (Doc. #155), filed on April 3, 2014.
Having considered the evidence, applicable law, and the parties' submissions, the Court (1) denies PRBC's Motion to Conform the Pleadings to the Evidence; (2) grants the parties' Motions for Judgment on Partial Findings as set forth herein; and (3) grants judgment in favor of PRBC and against Ragghianti.
The Court's findings of fact and conclusions of law are set forth below pursuant to Fed.R.Civ.P. 52(a).
The Court makes the following findings of fact. To the extent that any findings of fact might constitute conclusions of law, they are adopted as such.
PBS & J Constructors, Inc. — registered owner of the fictitious name Peter R. Brown Construction, Inc.
On January 24, 2011, PRBC entered into a Subcontract with Ragghianti to provide the building foundation, slab on grade, miscellaneous concrete and site concrete to the Project for the original lump sum of $506,902. (JX-1). The Subcontract — drafted by PRBC — expressly incorporates all the terms of the Prime Contract. (Id.).
The Subcontract incorporated a schedule for its work that called for Ragghianti to mobilize with labor and supervision beginning on March 5, 2011. (Ragghianti Dep. Doc. #96-10 at 19-21). However, Ragghianti did not provide a bond — issued by American Safety Casualty Insurance Company — until March 23, 2011 (JX-4), and the Subcontract provided that Ragghianti could not begin work on the Project until a bond was provided (JX-1).
As PRBC was behind schedule on the Project, Ragghianti's commencement of performance of the Subcontract was delayed. (Doc. #148 at 42-3; Ragghianti Dep. Doc. #96-10 at 19-21). It was not until the first week in July of 2011, that PRBC was prepared for Ragghianti to begin performance. (Ragghianti Dep. Doc. #96-10 at 20-21; PX-30; PX-33; PX-60).
However, during July and August of 2011, as a result of unforeseen soil conditions, drilling on the Project was delayed. (PX-60; PX-61). In August of 2011, the pier drilling operations got back on schedule, but Ragghianti was unable to provide a sufficient number of local workers. (DX-18; DX-19; DX-20). Ragghianti was informed that failure to provide sufficient workers was causing a delay to the Project. (DX-20). Therefore, Ragghianti entered into a contract with subcontractor Jack Daniels Construction, Inc. to provide the labor to excavate, backfill, form, and pour the grade beams and to pour the slab on grade. (James Barlow Dep. Doc. #98-5 at 24; Ragghianti Dep. Doc. #96-10 at 22; Baron Steve White Dep. Doc. #99-1 at 66).
Jack Daniels worked on the Project from August 21, 2011, through September 21, 2011. (PX-68). However, after an inspection by the Corps discovered that several of the piers were slightly out of tolerance, the grade beam work on the Project was halted. (Id.). Jack Daniels was told to demobilize, and at that time, Jack Daniels advised PRBC and Ragghianti that its crew was being moved to a different project and all of its equipment would be off the Project by September 23, 2011. (DX-21; DX-22).
During the pier shutdown, PRBC changed the sequence such that the assembly of the steel would now come before the concrete slab on grade activity. (Doc. #162 at 6). Furthermore, PRBC developed a grade beam sequence change that would cause grade beams to be poured in quadrants instead of south to north as previously scheduled. (Doc. #149 at 140). This change was made to accommodate PRBC's mechanical contractor who requested access. (Doc. #151 at 23-25). In addition, the schedule was changed to double the duration of the grade beam work. (PX-50). As a result, PRBC provided Ragghianti twenty days to complete the grade beams. (Doc. #151 at 30-31).
The pier tolerance issue was resolved by October 18, 2011, and PRBC directed Ragghianti to remobilize its forces to begin work on October 21, 2011. (DX-24; PX-72). However, because Jack Daniels' forces and equipment were on another project, Ragghianti was unable to return to the Project until October 23, 2011. (PX-70; DX-51; Doc. #151 at 27). In an attempt to recover the schedule, PRBC
After the work recommenced, PRBC was issued an "interim unsatisfactory" from the Corps in draft form, and the record reflects that PRBC's superintendent found that the Corps' comments were accurate. (PX-76; Doc. #151 at 185-86). Accordingly, PRBC was labeled unsatisfactory in every single aspect of its work in compiled ratings of federal government staff, including management of resources, coordination and control of subcontractors, and effectiveness of job site supervision. (JX-15).
In November of 2011, PRBC made a request to have Ragghianti increase its forces, but Jack Daniels informed Ragghianti that it had its workers on other projects and it would be unable to provide the number of workers required. (DX-21). Ragghianti did not seek to find additional workers, and as a consequence, PRBC hired Dalcan — a second subcontractor — to work on the grade beams in order to accelerate the Project schedule. (PX-113; Doc. #147 at 105, 108).
Dalcan worked on the Project from November 17, 2011, to December 14, 2011. (PX-85). According to PRBC's superintendent, Dalcan made the situation worse, impeding Ragghianti's progress. (Dave Barkolz Dep. Doc. #118-4 at 146). Upon review of the negative impact Jack Daniels claimed Dalcan was having on its productivity, PRBC removed Dalcan from the Project. (Doc. #147 at 105, 108). By December 14, 2011, Jack Daniels agreed to provide additional workers, and PRBC terminated Dalcan's contract. (PX-85; PX-86).
Ragghianti, through Jack Daniels, completed the grade beams on or about January 5, 2012, and continued backfilling the interior and exterior of a building on the Project. (PX-31). In mid-January of 2012, however, Jack Daniels presented PRBC with a series of claims totaling roughly $85,000, which represented its alleged losses. (PX-15). By January 24, 2012, Jack Daniels threatened to leave the Project if its claims were not paid. (PX-110). When its claims were not paid, Jack Daniels terminated its contract on January 27, 2012. (PX114). After Jack Daniels left the Project, no further backfilling work was performed by Ragghianti. (Doc. #163 at ¶ 43).
On February 14, 2012, Ragghianti was scheduled to place the first section of a building's 50,000 square foot concrete slab on grade. (Baron Steve White Dep. Doc. #99-1 at 26; PX-31). Due to various changed considerations and other issues that arose on the day of the pour, Ragghianti's sub-subcontractor — at the time Ochoa-experienced difficulty in pouring the slab. (Ragghianti Dep. Doc. #96-10 at 101-07; Joseph Williams Dep. Doc. #99-5 at 23; PX-225). Specifically, on the morning of February 14, 2012, Ragghianti's superintendent changed the location of the pump truck, but because Ragghianti had performed no exterior backfill after Jack Daniels demobilized, the site for the pump truck had to be leveled by hand and the placement on the slab on grade was delayed. (Doc. #150 at 16; PX-22; PX-32; PX-123). Further, only 6 concrete finishers from Ochoa showed up on February 14, 2012, when 13 were expected to be present. (Doc. #150 at 32-33).
Also on the day of the pour, Ragghianti failed to execute the sequence of the concrete trucks in accordance with the workforce it had and to ensure that it was within the contract specifications. (Doc. #162 at 11; Doc. #150 at 33-34). The maximum time the concrete was permitted to turn prior to pour was 90 minutes, as a longer delay permits the concrete to set up
In all, 6,000 square feet of slab was poured on February 14, 2012, which was 13% of the slab concrete and 1-2% of the total concrete called for under the Subcontract. (Samuel Parker Dep. Doc. #118-1 at 52; Ronald Harris Dep. Doc. #118-6 at 18; Charles Diegel Dep. Doc. #118-5 at 34-35). However, it is undisputed that the finish on the 6,000 square feet of slab was of "unacceptable quality." (Ragghianti Dep. Doc. #96-10 at 100-101; Ronald Harris Dep. Doc. #118-6 at 20; Charles Diegel Dep. Doc. #118-5 at 35).
Dissatisfied with the pour, on February 16, 2012, PRBC issued a Failure to Perform Letter — also known as RF001 — to Ragghianti that stated:
(JX-34). Ragghianti responded to the Failure to Perform Letter by providing its action plan, which stated in relevant part that the demolition of the defective concrete slab "will be able to commence no later than Monday, February 20, 2012," and be completed "arguably" by February 27, 2012. (PX-126; Ragghianti Dep. Doc. #96-10 at 124, 127).
Ragghianti's workers were on the Project February 17-18, 20-21, 2012, but according to Ragghianti's daily reports, no action was taken to remove the slab on any of those days. (PX-31). When no action was taken to remove the slab by February 22, 2012, PRBC lost all faith that Ragghianti was going to promptly remove the slab and made the decision to exercise its rights under the Subcontract and terminate Ragghianti for default. (Doc. #150 at 97-98; Doc. #151 at 81-82).
On February 22, 2012, PRBC issued a Notice of Termination Letter — also referred to as RF002 — which stated:
(JX-35). PRBC noted that the deficiencies giving rise to the termination included, but were not limited to, failure to provide sufficient manpower, failure to provide adequate supervision, and work not in compliance with Subcontract requirements. (Id.). PRBC delivered RF002 to Ragghianti on February 23, 2012, via e-mail. (PX-32; Doc. #150 at 19).
Although RF002 indicated that Ragghianti had not begun removing the slab, Ragghianti did have one worker and one piece of equipment that it borrowed from PRBC on the Project on February 22-23, 2012, and there was some work performed in an attempt to break up the slab. (Doc. #147 at 99-100). However, PRBC did not consider this to be a sufficient effort, on behalf of Ragghianti, to begin removal of the slab as it would take at least 10 days at that rate to remove the slab, which would be outside Ragghianti's own deadline of February 27, 2012. (Doc. #162 at 13; Doc. #147 at 98).
Thereafter, PRBC hired subcontractors Sack & Gorman to remove the slab and haul away the debris and to complete the interior and exterior backfilling and grading work that had been abandoned by Jack Daniels at the end of January of 2012. (Doc. #162 at 13; DX-130). PRBC also hired another contractor — Cantera — to complete the remaining work under Ragghianti's Subcontract. (Id.).
The crux of this action involves a dispute amongst the parties as to whether Ragghianti timely started the corrective work. Therefore, there is a dispute as to whether Ragghianti was properly terminated for default or terminated for convenience. Pursuant to the Subcontract, a termination for default requires certain notices and conditions precedent that a termination for convenience does not.
Ragghianti initiated this action against PRBC, Liberty Mutual and Safeco Insurance on April 27, 2012 (Doc. #1), and filed an amended complaint on April 26, 2013 (Doc. #59). In the amended complaint, Ragghianti alleges that although it "has repeatedly demanded payment from [PRBC] for labor, material, and services provided pursuant to the [entities'] Subcontract," PRBC "has failed and refused to make payment in breach of the Subcontract." (Id. at ¶¶ 18-19). Ragghianti filed suit for nonpayment of its contract balance, damages due to its termination — claiming it was wrongful — and for costs of delay and acceleration of its work. (See Doc. #59). Ragghianti also brings an alternative claim for its damages based on the cardinal change doctrine. (Id. at 8). Ragghianti further alleges a Miller Act breach of contract suit against PRBC and against Liberty Mutual and Safeco Insurance as co-sureties on the Miller Act bonds. (Id. at 7).
On May 10, 2013, PRBC filed counterclaims against Ragghianti and American Safety: (1) Contractual Indemnification (against both Ragghianti and American Safety) and (2) Breach of Contract (against Ragghianti). (See Doc. #64). Subsequently, the parties filed cross motions for summary judgment (Doc. ##95, 96), and the Court denied both motions on January 10, 2014 (Doc. #114).
On February 19, 2014, PRBC filed a notice of settlement and joint stipulation of dismissal with prejudice of its claims against American Safety (Doc. #127), and on February 20, 2014, this Court dismissed the claims with prejudice (Doc. #128). This Court held a bench trial in this case commencing on February 24, 2014, and concluding on March 4, 2014.
The Court makes the following conclusions of law. To the extent that any conclusions
"[D]espite PRBC's failure to comply with the technical requirements of Federal Rule of [Civil] Procedure 8(c), which governs the pleading of affirmative defenses, PRBC requests that the Court apply the liberal standards of Rule 15(b) and permit an amendment of the [c] ounterclaim to include the affirmative defense of release." (Doc. #154 at 2-3).
To support this argument, PRBC submits that Ragghianti was on notice that PRBC intended to assert the affirmative defense of release seven months prior to trial, despite PRBC's failure to plead release as an affirmative defense in its answer. (Id. at 2). Specifically, PRBC argues that it raised the defense of release during James Barlow's deposition on July 19, 2013, in its motion for partial summary judgment filed on September 23, 2013, and in the amended joint pretrial statement filed on January 3, 2014.(Id.). Furthermore, PRBC contends that, although arguing in the context of waiver, Ragghianti responded to PRBC's defense of release on the merits in its response in opposition to PRBC's motion for partial summary judgment. (Id.).
According to PRBC, a party has notice of an affirmative defense, and so no prejudice results to that party where, for example, the affirmative defense has been raised during a deposition or in a motion for summary judgment. (Id. at 3) (citing Hassan v. United States Postal Serv., 842 F.2d 260, 263 (11th Cir.1988) (holding government's failure to assert an affirmative defense in its pleadings did not preclude admission of evidence on the issue where government had questioned plaintiff about issues relating to the affirmative defense during a deposition and in an interrogatory); Hartwell v. City of Montgomery, Ala., 487 F.Supp.2d 1313, 1329 (M.D.Ala.2007) (finding that plaintiff was provided with notice of affirmative defense because it was included in a motion for summary judgment, which gave plaintiff an opportunity to rebut the defense in his opposition brief)). As evidenced above, PRBC contends that it has raised the issue of release throughout the course of this litigation, and as a result, argues that it is appropriate for the Court "to utilize Rule 15(b) to ensure that the claims in this matter are decided on their merits rather than procedural niceties by amending the pleadings to conform to the evidence." (Doc. #154 at 5).
Conversely, Ragghianti submits that PRBC never asked Ragghianti's two deposed witnesses a single question related to the issue of release, nor did it inquire into the matter in paper discovery. (Doc. #157 at 1-2, 6). Additionally, Ragghianti points out that its response in opposition to PRBC's motion for partial summary judgment first states that PRBC may not argue the matter of release as PRBC never pled the defense and therefore waived it. (See Doc. #98 at 2-3, 17-18; Doc. #157 at 2). Then, "in an abundance of caution," Ragghianti "briefly challenged the claim's merit and objected to it." (Id.).
Ragghianti also argues that PRBC offers no authority that supports its proposition that this Court should grant leave to amend where the matter at issue was not tried by consent, but instead was subject to continuous objection. (Doc. #157 at 5). Thus, Ragghianti submits that it has adequately demonstrated that it was prejudiced in its ability to show PRBC's defense of release was unsustainable on the facts and law.
Fed.R.Civ.P. 15 states, in relevant part:
Fed.R.Civ.P. 15(b)(1).
As the Eleventh Circuit stated in Hassan:
842 F.2d at 263 (internal citations omitted).
It is undisputed that PRBC did not plead the affirmative defense of release in its responsive pleadings and did not seek to amend its pleadings throughout the duration of this litigation prior to the present Motion to Conform the Pleadings. Instead, PRBC argues that because it raised the defense of release during James Barlow's deposition, in its motion for partial summary judgment, and in the amended joint pretrial statement, filed on January 3, 2014 — roughly two months before commencement of the trial — that this Court should conform the pleadings to the evidence. The Court declines PRBC's request.
In its January 10, 2014, Order, the Court determined that it was too late in the proceedings for PRBC to assert the affirmative defense of release. (See Doc. #114). Further, in its response in opposition to PRBC's summary judgment, Ragghianti made it clear that it was only acknowledging the matter of release in an abundance of caution, and even prefaced its response by challenging whether PRBC had waived the defense of release.
Moreover, the Court notes that the defense of release was not tried by express or implied consent by Ragghianti. In fact, the defense was subject to continuing objection by Ragghianti during the course of the trial. The Court found during trial, as it does today, that Ragghianti has demonstrated sufficient prejudice in its ability to adequately defend against PRBC's affirmative
The Subcontract — by way of Article 22.3-provides for the application of law as follows:
(JX-1). The Project was located in San Angelo, Texas. (Doc. #59 at ¶ 9).
Article 22.3 includes the caveat "Unless otherwise provided in the Contract Documents." The Contract Documents encompass Exhibit K, which expressly incorporates the Federal Acquisition Regulations (FAR). (JX-1; JX-12). According to the Subcontract, in the event of a conflict between the FAR provisions and the Subcontract, or any exhibits thereto, the FAR provisions shall control. (Id.). As a result, this action is governed by the Contract Documents, Texas state law, and the FAR.
Ragghianti contends that the termination for default and convenience provisions in the Subcontract are ambiguous. (Doc. #161 at 73). Therefore, Ragghianti submits that the FAR requirements for termination control. (Id.).
Specifically, Ragghianti provides that Exhibit K of the Subcontract incorporates FAR provisions into the Subcontract, even those not explicitly referenced therein, by providing a website address to the FAR provisions, and stating that in the event of a conflict between the FAR and the Subcontract or any exhibits thereto, the FAR provisions control. (Id.). "Therefore, because the Subcontract's provisions for termination for default and convenience are unclear, the FAR's clear requirements necessarily control...." (Id.).
Exhibit K, section II, paragraph 3 states:
(JX-12).
In essence, Ragghianti is attempting to incorporate all of the FAR provisions listed on the website into the Subcontract; namely 48 C.F.R. § 49.402-3(d):
48 C.F.R. § 49.402-3(d) (emphasis added). Ragghianti's position is that it never received a 10-day notice, as required under the FAR. (Doc. #161 at 74).
However, according to PRBC, when Exhibit K is read pursuant to its plain terms, the only FAR provisions incorporated into the Subcontract are those expressly provided in paragraph 5, which does not include the FAR provision referenced by Ragghianti. (Doc. #162 at 13-14). The Court agrees.
Exhibit K, section II, paragraph 3, does not provide that all FAR provisions are incorporated by reference. Instead, it provides that the FAR provisions listed within Exhibit K are to be given the same effect textually as if the full text — located on the supplied websites — was provided. Therefore, the only incorporated FAR provisions are those explicitly provided for in the Subcontract and corresponding documents, and none of the FAR provisions concern termination. Therefore, no conflict exists, and as a result, the Subcontract terms, specifically Article 10.1, control.
Article 10.1 of the Subcontract states in relevant part:
(JX-1 at 10-11).
After the February 14, 2012, pour, PRBC sent RF001 referencing Article 10 of the Subcontract and demanded the slab be removed "immediately." (JX-34). The evidence at trial demonstrates that Ragghianti understood that RF001 was the "48 hour notice" to remedy the defective condition, as required by Article 10.1 — "Your letter gives [Ragghianti] a 48 hour notice to remedy these issues." (PX-121). In response, Ragghianti presented an action plan on February 17, 2012, which provided for the demolition of the slab to commence on February 20, 2012, and be completed "arguably" by February 27, 2012. (PX-126; Ragghianti Dep. Doc. #96-10 at 124, 127). However, although Ragghianti had workers at the Project on February 17-18, 20-21, 2012 (PX-31), no satisfactory action was taken to remove the slab. Therefore, on February 22, 2012, PRBC sent Ragghianti RF002 outlining several deficiencies giving rise to the termination. (JX-35).
Baron Steve White testified that the decision to terminate Ragghianti was not based solely upon the defective slab pour that occurred on February 14, 2014. (Doc. #151 at 83). In fact, PRBC notified Ragghianti that there were several additional "deficiencies related to the placement and finish of building concrete: (1) failure to provide sufficient manpower; (2) failure to provide adequate supervision; and (3) work not in compliance with contract documents." (See JX-35). Baron Steve White also testified that he did not approve Ragghianti's action plan submitted on February 17, 2012, and thus, Ragghianti did not adequately respond to RF001 even before failing to commence demolition prior to February 20, 2012, in accordance with that plan. (Doc. #151 at 135). Therefore, the evidence demonstrates that PRBC formed the reasonable opinion that Ragghianti failed to comply with the Subcontract requirements. Accordingly, PRBC could invoke Article 10.1's procedures for termination.
As the evidence reveals that PRBC complied with the two-day notice requirement, the question becomes whether Ragghianti demonstrated in good faith that it was attempting to expeditiously resolve the condition — the defective concrete pour. PRBC argues that Ragghianti did not demonstrate in good faith that it was attempting to expeditiously resolve the condition as it made no effort on February 17-18, 20-21, 2012, to remove the slab. In fact, Ragghianti disputed, and continued to do so at trial, that the slab needed to be removed. (Doc. #148 at 68-70).
The evidence reflects that Ragghianti set its own timetable to remove the slab stating that it would begin the work on Monday, February 20, 2012, and have the slab removed by February 27, 2012. (PX-126; Ragghianti Dep. Doc. #96-10 at 124, 127). However, when no action was taken by February 22, 2012, and only one worker and one piece of equipment was on the Project allegedly removing the slab, PRBC decided to invoke its contractual rights and terminate Ragghianti. (Doc. #151 at 81-82). From the evidence presented, the Court determines that Ragghianti was not attempting to expeditiously resolve the deficiencies in good faith, and instead, was
As pointed out by Ragghianti, under Texas law, "notification to terminate the [a]greement is effective only if its initial notification of the alleged breach provided [d]efendant[s] with an opportunity to cure." Hydril Co., L.P. v. Grant Prideco, L.P., No. CIV.A. H-05-0337, 2007 WL 1791663, at *4 (S.D.Tex. June 19, 2007) (Texas requires opportunity to cure) (quoting Am. Seating Co. v. Transp. Seating, Inc., 220 F.Supp.2d 845, 848 (W.D.Mich. 2002)).
Ragghianti's position is that it was never provided the requisite notice required by the FAR or the Subcontract prior to its termination, and as a result, it was afforded no opportunity to cure. (Doc. #161 at 75). Accordingly, Ragghianti contends that PRBC waived its opportunity to terminate Ragghianti as it was presumed to have accepted Ragghianti's action plan. (Id.) (citing Lyon v. Pollard, 87 U.S. 403, 406, 20 Wall. 403, 22 L.Ed. 361 (1874) ("Where by the terms of a contract a party is bound to give thirty days' notice of an intention to terminate it, and having given the notice afterwards waives it, he may in fact renew the notice [and] at the expiration of the required time the second document will operate as a notice.")).
PRBC, however, contends that Article 10.1 of the Subcontract is devoid of any requirement that PRBC notify Ragghianti that if it fails to cure the deficiency it can be terminated for default. This Court adopts PRBC's position.
PRBC sent Ragghianti RF001 (JX-34), which referenced Article 10 of the Subcontract and directed Ragghianti "to proceed immediately with removing the slab in its entirety...." (Doc. #162 at 16-17). As RF001 referenced Article 10, Ragghianti was on notice that it was subject to being terminated for default if it failed to comply with the cure notice directive. (JX-34). To that end, the evidence demonstrates that Ragghianti understood that RF001 was the "48 hour notice" to remedy the issues, as required by Article 10.1. (PX-121).
For the reasons set forth above, the Court finds that PRBC's termination of Ragghianti was a termination for default. PRBC was dissatisfied with the February 14, 2012, pour, and provided Ragghianti with the requisite notice to cure the defective condition. Ragghianti did not comply with PRBC's directive, and as a result, PRBC properly terminated the Subcontract pursuant to Article 10.1.
As the Court finds that the termination was one for default, the Court declines to determine whether the termination was wrongful or improper, as requested by Ragghianti.
At trial, Ragghianti testified that it suffered lost profits on the work it was precluded from performing due to PRBC's termination in the amount of $97,206 (Doc. #148 at 184; PX-6); unabsorbed home office overhead totaling $85,417; and $51,806 in increased costs attributable to delay and interference of PRBC ($43,172.10 plus standard markup of $8,634.42 (20%)) (PX-6; Doc. #148 at 184-85). Ragghianti also testified that the claims of Jack Daniels were $143,761 ($24,979 in lost profit, $12,090 in unabsorbed home office overhead and $106,691 in outstanding claims or change order requests), to which was added to Ragghianti's standard markup for a total of $172,514 (PX-6; V2 at 185). Ragghianti's expert — Jens Baker — testified that the damages suffered by
To the extent Ragghianti seeks to obtain damages on behalf of Jack Daniels, this Court notes that Jack Daniels has an action currently before the Honorable Susan C. Bucklew: Case No. 8:12-cv-2921-T-24TBM. Although Ragghianti seeks to include Jack Daniels' "pass through" claims in its damages claim, which albeit may be standard practice, this Court determines that Jack Daniels can adjudicate its own claims, and seek its individual damages, by separate action.
Ragghianti's claim for lost profits rests on two alternative grounds. (Doc. #161 at 80). First, Ragghianti argues that PRBC's termination was wrongful, in bad faith and undertaken in PRBC's own self-interest to the detriment of Ragghianti. (Id.) (citing Cent. Marine Inc. v. United States, 153 F.3d 225, 230 (5th Cir.1998) ("A contractor's right to recover for anticipated profits arises only if the termination of the contract is wrongful and constitutes a breach.")). This Court has previously declined to address whether PRBC's termination was wrongful or improper.
Alternatively, Ragghianti submits that under the express terms of the Subcontract, Ragghianti has the same rights against PRBC as PRBC has against the Owner.
Recovery for lost profits does not require that the loss be susceptible to exact calculation. White v. SW Bell Tel. Co., 651 S.W.2d 260, 262 (Tex.1983). In has been noted that "in virtually all damages calculations, there is some degree of subjectivity involved, especially when forecasting future profits and losses." SJW Prop. Com., Inc. v. SW Pinnacle Props., Inc., 328 S.W.3d 121, 162 (Tex.App.2010). Estimates of lost profits must be based on objective facts, figures, or data from which the amount of lost profits can be ascertained. Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 84 (Tex.1992). Although supporting documentation may affect the weight of the evidence, it is not necessary to produce the documents supporting the opinions or estimates. Id.
Lost profits are recoverable "if the evidence shows that the loss of profits was a material and probable consequence of the breach complained of and the amount due is shown with sufficient certainty." Cmty. Dev. Serv., Inc. v. Replacement Parts Mfg., Inc., 679 S.W.2d 721, 725 (Tex.App.1984). Generally, lost profits are properly calculated by deducting from the actual contract price the costs of the injured party's performance supported by data. Id. "However, a witness may also prove lost profits by testifying as to what his profit would have been, based on his knowledge of the cost of performance of each element of the contract and subtracting the total of such costs from the contract price." B & W Supply, Inc. v. Beckman, 305 S.W.3d 10, 17 (Tex.App.2009).
According to PRBC, Article 33 — Mutual Waiver of Consequential Damages — bars Ragghianti's claimed damages for unearned profits:
(JX-1 at 17-18) (emphasis added).
Exhibit G, Section 2, Liquidated Damages states in relevant part:
(JX-8).
Ragghianti contends that Exhibit G, Section 9 — Limitation of Remedies; No Damages for Delay — modifies Article 33 to permit lost anticipated profit:
(JX-8) (emphasis added).
However, PRBC claims that Exhibit G, Section 9 only applies to pass-through claims to the Owner — the Government — in the event that the Government has done something to delay or hinder performance or otherwise cause damages to PRBC and its subcontractors. (Doc. #162 at 34). Thus, PRBC argues that it has no applicability to the unearned lost profits claimed by Ragghianti. (Id.). Upon review of Exhibit G, Section 9, it is not apparent to this Court that it only applies to pass-through claims. In fact, the provision is devoid of any such language. Therefore, the Court does not join PRBC's interpretation on this provision.
Nonetheless, PRBC argues that even if Exhibit G can be read to give Ragghianti the same rights as PRBC has against the Owner, consequential damages — such as unearned lost profits and unabsorbed home office overhead — are still unrecoverable. (Id.). Under the Prime Contract, if the Government terminated PRBC for convenience,
Additionally, 48 C.F.R. § 52.249-2(g)(2)(iii) provides that the Contractor is entitled to "a sum, as profit on subdivision (g)(2)(i) of this clause, determined by the Contracting Officer under 49.202 of the FAR ... to be fair and reasonable." (Id.). Section 49.202 of the FAR provides, in relevant part, that "the TCO shall allow profit on preparations made and work done by the contractor for the terminated portion of the contract but not on the settlement expenses. Anticipatory profits and consequential damages shall not be allowed." See 48 C.F.R. § 49.202(a) (emphasis added). Thus, according to PRBC, it is clear that a terminated Contractor is only allowed reasonable profit on the work already performed under the Prime Contract and the referenced FAR provisions.
Instead of reasonable profit on the work completed or preparations for that work, however, Ragghianti is seeking anticipatory profits on the work it did not perform as a result of its termination. Ragghianti's request for unearned profits is not the type of profit allowed under the Prime Contract. As Ragghianti is entitled to the same rights and obligations as PRBC under the Prime Contract, unearned profits are not available to Ragghianti, either.
At trial, Ragghianti made a claim for "total unabsorbed home office overhead" of $85,417 (JX-19), which it claims is the "cost of the extended duration of days of the Project," which resulted from the Project lasting "261 more days past the original contract completion date." (Doc. #148 at 184).
PRBC takes issue with Ragghianti's claimed damages as it contends that this is a "total cost claim," which is "universally disfavored." (Doc. #139 at 8) (quoting Integrated Logistics Support Sys. Int'l, Inc. v. United States, 47 Fed.Cl. 248, 260 (Fed.Cl.2000) aff'd, 36 Fed.Appx. 650 (Fed. Cir.2002)). Specifically, PRBC argues that Ragghianti's expert — Jens Baker — calculated claims for Ragghianti by taking its total labor hours and total costs and deducting its estimate, in order to determine Ragghianti's damages, which PRBC posits is a total cost claim. (Id.) ("Under the total cost method, damages are calculated by subtracting the amount the contractor has already been reimbursed from the aggregate amount the contractor spent from the project.").
According to PRBC, a "contractor's obligation of carrying [its] burden of submitting satisfactory proof of damages also includes the burden of submitting fully substantiating supporting evidence that its actual costs are reasonable." (Id.) (citing Cavalier Clothes, Inc. v. United States, 51 Fed.Cl. 399, 418 (Fed.Cl.2001) ("[A]vailability of [the total cost method] hinges on whether: `(1) the nature of the particular losses make it impossible or highly impractical to determine them with a reasonable degree of accuracy; (2) the plaintiff's bid or estimate was realistic; (3) its actual costs are reasonable; and (4) it was not responsible for the added expenses.'")). To that end, PRBC submits that:
(Doc. #139 at 9-10).
PRBC admits that Ragghianti is entitled to recover those expenses occasioned by PRBC's breach. (Id. at 10). However, Ragghianti may not include all costs arising from the performance of the Subcontract as the basis for its recovery. (Id.). Especially, as PRBC suggests, the quantum of delay is not solely attributable to PRBC; instead, there remains serious conflict in the evidence as to exactly what Ragghianti's pre-bid estimate was and its reasonableness. (Id.).
Conversely, Ragghianti contends that Jens Baker did not use a total cost method in his damages calculation. (Doc. #146 at 11). Particularly, Ragghianti submits that Jens Baker did not simply take an aggregate of costs and subtract from it the estimated costs of performing the regular work under the Subcontract, but rather identified each and every increased cost experienced by Ragghianti as a result of PRBC's delay and termination. (Id.; see Doc. #146-1).
A total cost claim is a method whereby damages are measured by the difference between the actual cost of performing the contract and the costs estimated in the contractor's proposal. WRB Corp. v. United States, 183 Ct.Cl. 409, 426 (1968). At trial, the evidence demonstrated that after completion of the schedule review by Jens Baker, he identified the activities — while Ragghianti was on the Project — that resulted in delays to the forecasted completion date. (See Doc. #146 at 12). Once these activities were identified, Jens Baker determined the party responsible for the delay. (Id.). By doing so, Jens Baker opined that PRBC was responsible for 261 days of delay suffered by Ragghianti. (Id.).
The damages determined by Jens Baker consist of "equipment, materials, superintendent, and travel costs which were incorporated as a direct result of the extended duration of the [P]roject time and other requirements and changes made by [PRBC]." (Id.). The damages "do not include any costs for labor increases [or] labor inefficiencies...." (Id.). The Court notes that there is no assertion by PRBC that the amount of Ragghianti's claims are unreasonable, nor was there any evidence presented that Ragghianti was substantially responsible for any of its own added expense. (Id.). Therefore, the Court finds that Ragghianti's claim is not one of a "total cost claim."
Regardless of this Court's determination as to whether Ragghianti's claim is a "total cost claim," PRBC argues that Ragghianti's delay damages are expressly barred by Article 8.4's "no damages for delay" clause, which states in pertinent part:
(JX-1 at 9) (emphasis added). However, Ragghianti contends that once again Exhibit
Ragghianti further cites to Article 9.1 to bolster its argument that an exception to Article 8.4 exists:
(JX-1 at 10).
Article 9.2 states:
(Id.).
However, according to PRBC, even if these provisions can be read to allow Ragghianti damages for delay, Ragghianti's rights and obligations shall be the same as the rights and obligations of PRBC under the Prime Contract. (See Doc. # 162 at 37). This Court agrees. Although Ragghianti is in fact entitled to the same rights and obligations of PRBC under the Prime Contract, as previously discussed, the FAR provisions that govern the Prime Contract do not allow for the delay damages Ragghianti is seeking. (Id.).
Furthermore, as argued by PRBC, irrespective of whether or not Ragghianti was terminated for default or convenience or whether its claimed damages are barred by Article 33, PRBC argues that Ragghianti's pre-termination claims and its post-termination claims for delay-related home office overhead damages and loss of anticipatory profits, are all barred, for its failure to provide the required notice under Article 9.4:
(JX-1 at 10).
There was no evidence presented at trial that Ragghianti gave any notice of its claims for total unearned profit or increased costs of performance at any time before it was terminated and certainly not within 7 days of the action or inaction on the part of PRBC which allegedly caused those damages. There is also no evidence that PRBC waived the notice requirement under the Subcontract. (Doc. # 162 at 38-39) (citing Emerald Forest Util. Dist. v. Simonsen Const. Co., 679 S.W.2d 51, 54 (Tex.App.1984)) ("The requirement that notice of delays in construction must be in writing for the contractor to invoke certain rights under a construction contract [is] valid.").
"The purpose of a Miller Act payment bond is to protect subcontractors and suppliers who provide labor and material for a federal project...." United States for Use & Benefit of Pertun Const. Co. v. Harvesters Grp., Inc., 918 F.2d 915, 917 (11th Cir.1990). "To effectuate this congressional intent, the Miller Act is to be liberally construed and applied." Id. But a liberal construction does not mean that the Miller Act establishes an unlimited basis for recovery; courts have held that the Miller Act surety is not liable for damages caused by the prime contractor's breach of contract. Id.; see, e.g., United States for Use of Edward E. Morgan Co., Inc. v. Md. Cas. Co., 147 F.2d 423 (5th Cir.1945).
The Miller Act requires a general contractor on a federal construction project to furnish a payment bond for the protection of all persons supplying labor and material in the prosecution of the work provided for in the contract. United States ex rel. Capital Computer Grp., LLC v. Gray Ins. Co., 453 Fed.Appx. 905, 906 (11th Cir.2011) (citing 40 U.S.C. § 3131(b)(2)). Under the Miller Act, "`every person who has furnished labor or material' used in a project may recover against a Miller Act surety." Mai Steel Serv. Inc. v. Blake Constr. Co., 981 F.2d 414, 417 (9th Cir.1992) (emphasis added).
A Miller Act plaintiff is entitled to recover under the bond the out-of-pocket labor and expenses attributable to delays. Pertun Constr. Co., 918 F.2d at 918-19. Further, a subcontractor can recover from the Miller Act surety for labor and material furnished despite non-payment by the government to the contractor. United States for Use & Benefit of Lochridge-Priest, Inc. v. Con-Real Support Grp., Inc., 950 F.2d 284, 288 (5th Cir.1992).
Ragghianti submits that it is entitled to damages for delay against PRBC's Sureties as PRBC never afforded Ragghianti an extension of time, and further, the language of the Subcontract otherwise provides for delay claims. (Doc. # 161 at 64).
As previously indicated, Article 8.4 states in pertinent part:
(JX-1 at 9).
However, Ragghianti contends that there is an exception to Article 8.4 — Exhibit G Section 9. According to Ragghianti, this provision does not include a "no damages
(JX-8).
Ragghianti further argues that even if Article 8.4 was construed as a "no damages for delay clause," Texas law includes other exceptions to enforcement of a no damage for delay clause. (Doc. # 161 at 66) (citing Green Int'l, Inc. v. Solis, 951 S.W.2d 384, 387 (Tex.1997)). The exceptions are when the delay:
(See Id.). Ragghianti submits that its evidence presented at trial demonstrates that "delay was caused by PRBC's prodigious mismanagement and related events, material changes to the Subcontract, as well as active interference by PRBC and its privies, thus negating its enforcement of the no damage for delay clause, if any." (Doc. # 161 at 66).
Accordingly, Ragghianti posits that it is entitled to recover unpaid furnished labor and material, for burdens not contemplated by the Subcontract, delay damages, lost profits and unabsorbed home office overhead from Sureties in the amount of $520,735.23. (Id. at 67). However, should the Court find that Ragghianti is not entitled to lost profit in its Miller Act Claim, Ragghianti asserts that the total claim amount is $398,550. (Id.).
PRBC takes issue with Ragghianti's position as (1) Ragghianti's total cost claim is not permitted under either Texas or Federal Law and (2) Ragghianti's "delay damages" are expressly barred by the "no damages for delay" clause in Article 8.4. (See Doc. # 139). This Court has already found that Ragghianti's claim is not a "total cost claim." Therefore, the Court will analyze whether Ragghianti's damages against PRBC's Sureties are barred by the terms of the Subcontract.
As this Court has previously determined, Ragghianti — as the Miller Act Plaintiff — is entitled to recover under the bond the out-of-pocket labor and material costs attributable to delays. See Pertun Constr. Co., 918 F.2d at 918. However, a damage claim against a surety that does not flow directly and immediately from actual performance is barred by the Miller Act. United States for Use & Benefit of T.M.S. Mech. Contractors, Inc. v. Millers Mut. Fire Ins. Co. of Tex., 942 F.2d 946, 952 (5th Cir.1991) ("The subcontractor can only recover from the surety for additional or increased costs actually expended in furnishing the labor or material in the prosecution of the work provided for in the contract and attributable to the delay.") (emphasis in original).
Further, "[A] subcontractor cannot recover on a Miller Act payment bond
Therefore, Ragghianti is not entitled to any anticipated lost profits, and any of Ragghianti's unabsorbed overhead, increased labor, and material costs beyond the scope of its Subcontract with PRBC is unrecoverable against PRBC's Sureties. Thus, Ragghianti's entitlement to damages, if any, is limited to those "sums or sums justly due for labor or materials furnished in the performance of its agreement to work [on the Project]," which includes liability for all out-of-pocket expenditures for that labor or material, including additional or increased expenditures caused by delay. See Pertun Constr. Co., 918 F.2d at 919 (emphasis added).
"A surety's liability under the Miller Act is measured by the general contractor's liability under the construction contract." Consol. Elec. & Mechanicals, Inc. v. Biggs Gen. Contracting, Inc., 167 F.3d 432, 435 (8th Cir.1999). Therefore, in order for this Court to determine PRBC's Sureties' liability, it must look to PRBC's liability. This Court has previously determined that the Subcontract, which affords Ragghianti the same rights as PRBC has against the Owner in the Prime Contract, does not allow for anticipatory profits and consequential damages. Furthermore, the Court found that the evidence presented at trial demonstrates that Ragghianti failed to provide adequate notice to PRBC of its "delay damage" in accordance with Article 9.4. Therefore, this Court finds that PRBC's Sureties are liable to the same extent as PRBC; PRBC's Sureties' liability is limited to Ragghianti's unpaid furnished labor and materials (i.e., Ragghianti's total outstanding balance).
To the extent Ragghianti seeks attorneys' fees against PRBC's Sureties, by way of Fed.R.Civ.P. 54 motion, the Court finds that Ragghianti is barred from doing so. "It is undisputed that attorneys' fees cannot be awarded in Miller Act claims absent an enforceable contract provision or evidence of bad faith." United States for Use of Varco Pruden Bldgs. v. Reid & Gary Strickland Co., 161 F.3d 915, 918 (5th Cir.1998) (citing F.D. Rich Co., Inc. v. United States for the Use of Indus. Lumber Comp., Inc., 417 U.S. 116, 126-31, 94 S.Ct. 2157, 40 L.Ed.2d 703 (1974)); United States for Use of L.K.L. Assocs. v. Crockett & Wells Const., Inc., 730 F.Supp. 1066 (D.Utah 1990) (finding that an attorney's fees provision must be included in either the general contract or the payment bond).
Ragghianti has failed to point to a provision in the Subcontract or payment bond that would entitle Ragghianti to attorneys' fees against the Sureties. Therefore, Ragghianti's clam for attorneys' fees against PRBC's Sureties is barred as a matter of law.
In the alternative, Ragghianti sets forth a cardinal change claim for recovery
(Doc. # 146 at 4-5).
Ragghianti argues that these changes were more than "delays, interruptions and inconveniences," as argued by PRBC (Doc. # 139 at 5), but that when taken as a whole, are more than sufficient to support a cardinal change. (Doc. # 146 at 6). Therefore, Ragghianti submits that it is entitled to recover from PRBC and its Sureties its resulting damages and expenses, and amounts unpaid for work performed, costs of delay, acceleration, interference and changes to its work and in having been prevented from completing its work in quantum meruit, in the amount of $398,550. (Doc. # 161 at 69); see United States, for Use of C.J.C., Inc. v. W. States Mech. Contractors, Inc., 834 F.2d 1533, 1549 (10th Cir.1987) ("[T]he subcontractor may recover in quantum meruit where it has performed work outside the terms of the contract that benefits the prime contractor.").
Conversely, PRBC argues that Ragghianti's cardinal change claim only involves "[a] series of small changes" including delays, interruptions, and inconveniences, none of which establish that PRBC required Ragghianti to perform duties materially different from those it originally bargained for. (Doc. # 139 at 5). Instead, the proof adduced at trial is that all of the changes arise out of the Subcontract and no evidence has been introduced to support a cardinal change claim. (See Doc. # 139 at 4-6).
"The cardinal change doctrine is not a rigid one." Edward R. Marden Corp. v. United States, 194 Ct.Cl. 799, 442 F.2d 364, 369 (1971). "Its purpose is to provide a breach remedy for contractors who are directed by the Government to perform work which is not within the general scope of the contract." Id. "In other words, a cardinal change is one which, because it fundamentally alters the contractual undertaking of the contractor, is not comprehended by a normal [c]hanges
In order to prove a cardinal change claim, the plaintiff must show that it had imposed on it work that "fundamentally alters the contractual undertaking" such that the altered work was not redressable under the "change clause" of the contract. Edward, 442 F.2d at 369. The cardinal change doctrine asks whether the changes were outside the contemplation of the bargained for performance. (See Doc. # 161 at 71). "A modification generally falls within the scope of the original procurement if potential bidders would have expected it to fall within the contract's changes clause." AT & T Commc'ns, Inc. v. Wiltel, Inc., 1 F.3d 1201, 1205 (Fed.Cir. 1993).
As provided for in Wunderlich Contracting Company v. United States, 173 Ct.Cl. 180, 351 F.2d 956 (1965), there is no automatic or easy formula which can be used to determine whether a change (or changes) is beyond the scope of the contract and, therefore, in breach of it. "Each case must be analyzed on its own facts and in light of its own circumstances, giving just consideration to the magnitude and quality of the changes ordered and their cumulative effect upon the project as a whole." Id. A cardinal change, however, does not arise if "[t]he contract itself explicitly provide[s] that discrepancies, omissions, conflicts and design changes would, or likely, would arise, and that the parties would address such issues during contract performance." Metcalf Const. Co., Inc. v. United States, 102 Fed.Cl. 334, 367 (Fed. Cl.2011); Int'l Data Prods. Corp. v. United States, 492 F.3d 1317, 1325 (Fed.Cir.2007) (finding that the change fell under express warranty and upgrade clauses of the contract; thus was not a cardinal change); Gen. Dynamics Corp. v. United States, 218 Ct.Cl. 40, 585 F.2d 457, 466 (1978) (finding that the record did not provide for cardinal change as all changes ordered were within the scope of the contract).
Ragghianti cites Edward R. Marden Corp., to support its position that the present circumstances materially altered the nature of Ragghianti's undertaking and required work which was not essentially the same work as the parties bargained for when the contract was awarded. (Doc. # 146 at 7). In Edward, the plaintiff alleged that the specifications were defective and that the whole project resulted in increased costs of $3,700,000. 442 F.2d at 370. The court found that the claims were not ones encompassed by the changes clause of the contract, but rather involved major reconstruction, and resulted in increased costs of almost double the contract price. Id. The court's decision — the claim was not encompassed by changes clause — was "based on the sheer magnitude of reconstruction work caused by the alleged defective specifications." Id.; see also SW Bell Tel. Co. v. Chrisman Constr. Co., Inc., 529 S.W.2d 586, 587 (Tex.Civ.App.1975) (affirming trial court's finding that change in required backfill material and thickness of manhole walls resulted in extra work under Texas law, which was sufficient to support a claim for quantum meruit, though end product was essentially the same).
Here, the Court finds that the evidence provided at trial fails to establish Ragghianti's entitlement to damages based on a theory of cardinal change. Ragghianti provides a laundry list of items it claims rises to the level of a cardinal change. However, this Court finds that although
Ragghianti provides that "it bid the job to a schedule that showed its performance in an orderly sequence, the piers, followed by grade beams installed across the project, slab on grade (after which the steel subcontractor would arrive), and site concrete and sidewalks. Therefore, the changes and modifications resulted from PRBC's mismanagement and its continually changing contractual requirements." (Doc. # 146 at 6). However, these allegations alone do not persuade the Court to find a cardinal change.
PRBC and Ragghianti entered into a Subcontract with Ragghianti to provide the building foundation, slab on grade, miscellaneous concrete and site concrete to the Project. (Doc. ## 59 at ¶ 9; 59-1; 95 at 1; 96 at 2; Ragghianti Dep. Doc. # 96-10 at 17; JX-1; JX-2 at 1; JX-3 at 1). None of the changes or modifications presented by Ragghianti demonstrate that Ragghianti's undertaking of the Project was materially altered or that PRBC required work from Ragghianti that was not essentially the same work as the parties bargained for when the contract was awarded. The work Ragghianti was required to do as a result of PRBC's changes was necessary for the completion of the Project; thus, the work done was not a cardinal change. See Brown-McKee, Inc. v. W. Beef, Inc., 538 S.W.2d 840, 844 (Tex. Civ.App.1976) ("the work and consequent expense incurred in digging in rock was necessary in the performance of the very thing which [plaintiff] contracted to do.").
Furthermore, Article 9.2 provides:
(JX-1 at 10). The changes and modifications referenced by Ragghianti are covered by Article 9.2, which provides Ragghianti with an adequate procedure to obtain relief for the changes and modifications imposed by PRBC.
For the reasons stated above, the Court finds in favor of PRBC and its Sureties as to Ragghianti's alternative cardinal change claim as Ragghianti has not established that PRBC's actions effected a cardinal change.
Count I of PRBC's Amended Counterclaim is an action for contractual indemnification against Ragghianti and its surety American Safety. (Doc. # 64). Noteworthy, however, on February 20, 2014, PRBC dismissed its claim against American Safety. (Doc. ## 127, 128). Therefore, Count I of the PRBC's Amended Counterclaim remains only as to Ragghianti.
According to PRBC, Ragghianti is liable to PRBC under Article 6.2 for all costs PRBC incurred to correct Ragghianti's "defective work." (Doc. # 162 at 24). Article 6.2 states:
(JX-1 at 7).
Furthermore, PRBC states that pursuant to Article 14.1, Ragghianti was obligated to replace or correct any of its work that PRBC or the Owner rejected as failing to conform to the requirements of the Subcontract within a "reasonable time." (Doc. # 162 at 31). Article 14.1 states in relevant part:
(JX-1 at 12).
Both PRBC and the Corps rejected Ragghianti's defective slab pour on February 14, 2012. (Doc. # 162 at 31; Samuel Parker Dep. Doc. # 118-1 at 142-43). Furthermore, Ragghianti breached its obligation under Article 14.1 to correct this defective work when it failed to have its workers, who were on the Project on February 17-18, 20-21, 2012, begin removing the slab. (PX-31). Therefore, PRBC is entitled to recover its costs to correct the defective work, in the amount of $827,457.
Ragghianti contends that PRBC is precluded from obtaining damages, as it breached the Subcontract. (Doc. # 161 at 82). The established rule of law in Texas is that "a party to a contract who is himself in default cannot maintain a suit for its breach." Dobbins v. Redden, 785 S.W.2d 377, 378 (Tex.1990). Here, Ragghianti argues that PRBC is in prior breach of the Subcontract as it did not make payment of Ragghianti's January of 2012, requisition, despite having received payment from the Corps. (Doc. # 161 at 83). Thus, according to Ragghianti, PRBC did not comport with the FAR's Prompt Payment Act, which is incorporated in the Subcontract, or perform in accordance with its agreement to pay Ragghianti every two weeks. (Id.; JX-13 at 86).
However, PRBC argues that it was not in prior breach by its failure to pay Ragghianti contract sums through the fall of 2011, as evidence showed that the justification for non-payment was PRBC's receipt of several notices from Ragghianti's suppliers that Ragghianti had failed to make payment to them. (Doc. # 162 at 32; Doc. # 151 at 51-60). Namely, starting on
According to PRBC, it had the right to withhold payment if it became aware that Ragghianti had not made payments to its lower-tier subcontractors, pursuant to Article 4.14(1):
(JX-1 at 6) (emphasis added). Indeed, two other vendors, Capital pumping and Labor Ready also supplied notices to PRBC that Ragghianti had not paid them. (Doc. # 151 at 51-60; DX-106).
The language provided in Article 4.14 is clear that PRBC — as the Construction Manager — had the right to withhold any payments until Ragghianti submitted evidence satisfactory to PRBC that all amounts owed in connection with the performance of the Subcontract have been paid. Therefore, as PRBC received notice that Ragghianti had failed to pay several of its lower-tier subcontractors, PRBC was not in breach when it withheld Ragghianti's January of 2012, payment.
Ragghianti further argues that the indemnity provisions PRBC relies upon are unenforceable as they are subject to, and fail to satisfy, Texas's Express Negligence Doctrine. (Doc. # 161 at 37).
The Court notes, however, that in its Order denying the parties' cross-motions for summary judgment, this Court found that the Subcontract's indemnity provisions were not required to conform to the Express Negligence Doctrine. (See Doc. # 114). Ragghianti admits that:
(Doc. # 155 at 12); see Am. Eurocopter Corp. v. CJ Sys. Aviation Grp., 407 S.W.3d 274, 289 (Tex.App.2013) (noting that "The [Express Negligence Doctrine] also applies to situations where the indemnitee's negligence proximately causes injury jointly and concurrently with the indemnitor's negligence."). Therefore, Ragghianti argues that "Because [PRBC] is seeking indemnification from [Ragghianti] for damages that [PRBC] directly and indirectly caused, the claim is subject to Texas's Express Negligence Doctrine, and the
As articulated by PRBC, "This Court has already held that the express negligence doctrine is inapplicable to the [Subcontract's] indemnity provision, and that the provision remains enforceable under Texas law." (Doc. # 159 at 10). Specifically, the Court's previous Order stated:
(Doc. # 114 at 24-25).
This Court stands by its previous decision and holds that the indemnity provisions relied upon by PRBC are not required to conform with Texas's Express Negligence Doctrine. Therefore, this Court declines to allow Ragghianti to relitigate this matter.
Finally, Ragghianti argues that PRBC failed to apportion its damages in regard to its indemnity claim as the indemnity claim relies on the same proof to establish damages that PRBC uses in its termination for convenience or default analysis. (Doc. # 161 at 84). Ragghianti submits that "[t]he measure of damages in contracts of indemnity is not the amount of liability allegedly incurred, but the amount actually paid by the person indemnified that is properly attributable to [Ragghianti's] `actual failure to perform [the] Subcontract in accordance with [its] terms....'" (Id.) (citing In re Lathrop Haskins & Co., 216 F. 102, 106-07 (2d Cir.1914)) ("[T]he measure of damages in contracts of indemnity is not the amount of liability incurred, but the amount actually paid by the person indemnified on account of the loss.").
According to Ragghianti, PRBC seeks indemnity for expenses that are attributable to overcoming the delay PRBC itself created. (Doc. # 155 at 18). However, as PRBC fails to provide any concurrent delay analysis, Ragghianti argues that PRBC is precluded from recovery of claims that include an acceleration component. (Id.). "Just as [Ragghianti] and Jack Daniels presented opinion testimony of [PRBC's] impact in causing delay and calling for acceleration of their work, [PRBC] had to present evidence through an expert witness to apportion delay associated with Ragghianti's work from its own delay and delay caused by its privies." (Id.).
However, PRBC states that it is "simply not seeking any damages that have an acceleration or delay component to them and thus any failure to provide concurrent delay analysis does not preclude PRBC's recovery for its indemnification claims." (Doc. # 159 at 13). Instead, PRBC is requesting "the costs it actually incurred to rip out the defective concrete, to replace the defective concrete and to complete [Ragghianti's] unfinished scope of work. PRBC is not seeking acceleration costs, liquidated damages, extended general conditions or other damages dependent upon a concurrent delay analysis or apportionment of delay." (Doc. # 159 at 13).
PRBC is not seeking delay damages. In fact, the Court notes that in a previous Order, this Court found that PRBC had
For the reasons set forth above, the Court finds in favor of PRBC on its Indemnity claim.
Ragghianti submits that PRBC cannot maintain its breach of contract claim or recover attorneys' fees because, among other reasons, PRBC first breached the Subcontract and its attorneys' fees are an element of damages under the provisions it relies upon. (Doc. # 161 at 85). This Court has previously determined that PRBC did not breach the Subcontract by withholding payment from Ragghianti. Thus, this Court will analyze Ragghianti's additional arguments as to why PRBC is not entitled to its breach of contract claim.
According to Ragghianti, PRBC failed to present evidence of final acceptance of the concrete work, or final billing, and therefore, the contents of PRBC's claims and final invoicing to the Owner are unknown. (Doc. # 161 at 86). As a result, Ragghianti contends that PRBC's default damage claim is premature and speculative. (Id.).
Article 10.1(ii) of the Subcontract states in pertinent part:
(JX-1 at 11) (emphasis added). Ragghianti submits that the amount of any future offset is unknown until the work is accepted by the Owner and PRBC is paid for it, making PRBC's claim impermissibly speculative. (Doc. # 161 at 86) (citing Wis. Elec. Power Co. v. United States, 90 Fed. Cl. 714, 792-93 (Fed.Cl.2009)).
At trial, the following questioning of Charles Ernest Edgar — general counsel for Atkins North America, the parent company for both PBS & J and PRBC — occurred:
(Doc. # 151 at 234, 241). Therefore, as no final billing has been presented, Ragghianti argues that PRBC cannot recover damages under its termination for default theory. This Court disagrees.
The language of Article 10.1 explicitly states that "In case of termination for default, Subcontractor shall not be entitled to receive any further payment until Subcontractor's Work shall be fully completed and accepted in accordance with the provisions of the Prime Contract." (JX-1 at 11) (emphasis added). Nowhere in Article 10.1 does it indicate that PRBC is unable to receive payment from Ragghianti, as a result of Ragghianti's defective performance, prior to final acceptance and payment by the Owner.
Although no final payment has been issued to the Owner, final completion of the Project has occurred and, as a result, PRBC is able to determine its damages to date as a result of Ragghianti's defective performance under the Subcontract. Therefore, the Court does not find PRBC's damages speculative or premature.
According to PRBC, the sum total of the default damages PRBC incurred to remove and replace the defective slab and complete Ragghianti's scope of work was $827,457, and this amount must be offset by Ragghianti's unpaid contract sum of $392,000. (See Doc. # 162 at 23). Therefore, the net total damages resulting from Ragghianti's breach are $435,457. (See Id.; Doc. # 152 at 76).
Ragghianti submits that under Texas law, the measure of damages for defective construction is "the difference in value of the structure in its defective state versus as planned or the cost to repair it if repair does not constitute economic waste." (Doc. # 161 at 86) (citing Jacobini v. Zimmerman, 487 S.W.2d 249, 251 (Tex.App. 1972)); see also Fid. & Deposit Co. of Maryland v. Stool, 607 S.W.2d 17, 20 (Tex. Civ.App.1980) ("Texas courts have long held that where defects in construction of a building may be remedied, the measure of damages for the owner is the cost of such remedy or repair, but where such defects cannot be remedied without injury to the structural efficiency of the building as a whole, the measure of damages is the difference between the value of the building as constructed and its value had it been constructed according to the contract.").
Ragghianti suggest that, "In this case, the cost to repair the defect would be the proper measure of damages, a legal conclusion recognized and concurred with by PRBC's delay claim expert, who notes PRBC seeks damages based on the February 14, 2012, pour but speculates that the repair costs should be similar." (Doc. # 161 at 87). Notwithstanding this baseline proposition in construction law, Ragghianti points out that PRBC has "continuously included costs incurred for the February 14, 2012[,] pour in its damages claim." (Id.). According to Ragghianti, these damages are not the cost of repair, and therefore, not recoverable. (Id.).
PRBC's termination for default damages consist of the costs it actually incurred and paid to remove and replace the defective slab and complete Ragghianti's scope of work. PRBC has provided detailed explanation for each cost incurred. For example, in regards to the damages incurred as to Ingram Concrete, PRBC provides "The invoice used to support the charge of $13,298 was the invoice from the February 14th pour." (See Doc. # 162 at 20). The Court notes that at trial Steve Bennett testified that using the actual February 14, 2012, invoice was the better method to determine how much the concrete that was
Therefore, although this Court agrees with Ragghianti that the proper measure of damages is "the difference in value of the structure in its defective state versus as planned or the cost to repair it if repair does not constitute economic waste," the Court finds that PRBC has provided adequate explanation of its damages, including why it included costs incurred for the February 14, 2012, pour in its damages claim.
Under Texas law, "[t]he party seeking to recover the cost of completion in a breach of contract case has the burden to prove that the damages sought are reasonable." Mustang Pipeline Co., Inc. v. Driver Pipeline Co., Inc., 134 S.W.3d 195, 200 (Tex.2004). To prevail in an action for costs of repair or completion, the damages sought must be both reasonable and necessary. City of Alton v. Sharyland Water Supply Corp., 402 S.W.3d 867, 876-77 (Tex.App.2013). Mere evidence of out-of-pocket costs is insufficient to support a damages award absent competent proof that the expenditures were reasonable and necessary. Mustang Pipeline Co., Inc., 134 S.W.3d at 201 ("it is now well settled that proof of the amounts charged or paid does not raise an issue of reasonableness, and recovery of such expenses will be denied in the absence of evidence showing that the charges are reasonable.").
"In order to establish that repairs are necessary and reasonable, the magic words `reasonable' and `necessary' need not be used; the injured party need only present sufficient competent testimony so that the trier of fact is justified in concluding that the repairs are necessary and that the cost of repair is reasonable." Carrow v. Bayliner Marine Corp., 781 S.W.2d 691, 694 (Tex.App.1989). Although Ragghianti asserts that Texas law requires that testimony about reasonableness must come from the person who actually prepared the estimate of the costs, or an expert in the field, "[t]here is simply no requirement that reasonableness can only be established through the testimony of the preparer of an estimate or an expert." (Doc. # 159 at 3).
Ragghianti relies on the fact that PRBC's expert said he was not qualified to testify in regard to "construction estimating of labor services, equipment, or materials on the ... Project...." (Doc. # 151 at 251-52). However, at trial PRBC presented ample evidence to support a finding that the costs it incurred to complete Ragghianti's work were reasonably and necessarily incurred. Ron Hartshorn and Baron Steve White both have extensive experience in estimating work, obtaining concrete pricing and otherwise were intimately familiar with the market for such work in the area around San Angelo, Texas, where the Project was located. Although, Hartshorn and White agreed that some of the pricing to fix Ragghianti's defective work — namely Cantera's — was much higher than Ragghianti's pricing, each provided a reasonable explanation for having to pay a premium price.
Therefore, for the reasons stated above, this Court finds in favor of PRBC on its breach of contract claim.
Finally, Ragghianti argues that PRBC cannot recover its attorneys' fees even if it prevails on its indemnity or
According to PRBC, it has incurred $630,000 in legal fees and paid $580,000 of that amount at trial. (Doc. # 151 at 244). Ragghianti contends that PRBC failed to prove its reasonable attorneys' fees as an element of damages at trial as it offered no relevant witnesses or exhibits; therefore, PRBC is not entitled to recover attorneys' fees on either claim. (Doc. # 161 at 89-90).
At trial, PRBC offered Charles Ernest Edgar to provide testimony on the amount of fees paid to date, the hourly rate, and the reasonableness of those fees based on his experience in procuring legal services in the Tampa, Florida market. (Doc. # 160 at 15). Ragghianti has provided no justifiable basis to exclude this testimony. (Id. at 10).
At trial, Charles Ernest Edgar provided the following testimony:
(Doc. # 151 at 244-246). This Court finds that PRBC — through Charles Ernest Edgar — provided sufficient testimony establishing its entitlement to attorneys' fees and the reasonableness of such fees under the circumstances of this action. The Court notes that Ragghianti has previously attempted to strike Charles Ernes Edgar's testimony (Doc. # 156), and this Court denied Ragghianti's request (Doc. # 168 at 11-13).
For the reasons stated above, the Court finds that PRBC's termination of Ragghianti was one of default. Although Ragghianti seeks damages for unearned lost profits, unabsorbed home office overhead, and increased costs attributable to delay, the express terms of the Subcontract limit Ragghianti's recovery to those damage
To the extent PRBC, as the prevailing party, seeks attorneys' fees and costs in this matter, it has until October 15, 2014, to file an appropriate motion requesting such relief.
Accordingly, it is
