Tsi Construction, Inc. v. Louisville and Jefferson County Metropolitan Sewer District ( 2020 )

RENDERED: NOVEMBER 6, 2020; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2019-CA-1635-MR
TSI CONSTRUCTION, INC. APPELLANT
APPEAL FROM JEFFERSON CIRCUIT COURT
v. HONORABLE AUDRA J. ECKERLE, JUDGE
ACTION NO. 19-CI-004341
LOUISVILLE AND JEFFERSON
COUNTY METROPOLITAN SEWER
DISTRICT APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE: CLAYTON, CHIEF JUDGE; DIXON AND JONES, JUDGES.
DIXON, JUDGE: TSI Construction, Inc. (“TSI”) appeals from the order
dismissing its claims against Louisville and Jefferson County Metropolitan Sewer
District (“MSD”) entered October 1, 2019, by the Jefferson Circuit Court. After
careful review of the briefs, record, and the law, we affirm.
FACTS AND PROCEDURAL BACKGROUND
On January 27, 2016, TSI, a contractor, and MSD executed a contract
for the construction of a project identified as the Camp Taylor Sanitary Sewer
Replacement 1A (“the Project”). The work performed under this contract required
the excavation and removal of a large amount of rock. Article 2(B) of the contract,
concerning the representations of the contractor, provides:
The CONTRACTOR has visited and become familiar
with the Project site and the local conditions under which
the Project is to be constructed and operated, and the
CONTRACTOR has performed such tests, if any, as are
necessary to determine the conditions under which the
Work will be performed[.]
(ROA1 73.) Regarding the time for contractor’s performance, Article 6(A) states
(in part):
The CONTRACTOR shall commence the performance
of this Contract on February 8, 2016 and shall diligently
continue its performance to and until final completion of
the Project. The CONTRACTOR shall accomplish
Substantial Completion of the Project on or before June
10, 2017.
(ROA 76) (emphasis in original).
The contract provided that certain information and materials would be
supplied to TSI by MSD. The relevant portion of Article 8(A) states:
MSD shall furnish to the CONTRACTOR, prior to the
execution of this Contract, any and all written and
1
Record on Appeal.
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tangible material knowingly in its possession concerning
conditions below ground at the site of the Project. Such
written and tangible material is furnished to the
CONTRACTOR only in order to make complete
disclosure of such material as being in possession of
MSD and for no other purpose. By furnishing such
material, MSD does not represent, warrant, or guarantee
its accuracy either in whole or in part, implicitly or
explicitly, or at all, and shall have no liability therefor.
(ROA 80.) Prior to the execution of this contract, MSD hired Stantec Consulting
Services, Inc. (“Stantec”) to perform a geotechnical investigation to identify
potential construction problems. On January 8, 2013, Stantec issued a report
concerning the area of the Project. This report was identified as a bid document,
but MSD failed to provide a copy to TSI. Notably, the report “did not warn of any
unusual conditions that could cause problems with construction in the underlying
bedrock.” (ROA 3.)
The contract also specifically addressed the procedures for claims by
the contractor and alternative dispute resolution in Article 13. The pertinent
portions of Article 13 provide:
The procedures set forth in this Article are designed to
resolve contractual disputes prior to resorting to litigation
as per KRS[2] 371.405. In the event that a court of law
finds any provision void and unenforceable, the
remaining provisions shall remain in force and in full
effect. Claims by the CONTRACTOR against MSD are
subject to the following terms and conditions:
2
Kentucky Revised Statutes.
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(A) ARTICLE 13 COMPLIANCE: In the event
the CONTRACTOR seeks to make a claim for an
increase in the Contract Price, as a condition
precedent to any liability of MSD therefore, the
CONTRACTOR shall strictly comply with the
requirements of this Article 13 and such claim
shall be made by the CONTRACTOR before
proceeding to execute any additional or changed
Work. Failure of the condition precedent to occur
shall constitute waiver by the CONTRACTOR of
any claim for additional compensation;
(B) NOTICE REQUIREMENT: All
CONTRACTOR claims, disputes and other
matters in question against MSD arising out of or
related to the Contract or the breach thereof,
specifically including without limitation claims in
respect to changes in the Contract Price or
Contract Time, shall be initiated by a written
notice of claim submitted to MSD. Such written
notice of claim shall be received by MSD no later
than ten (10) days after the event, or the first
appearance of the circumstances causing the claim,
and the same shall set forth in detail all known
facts and circumstances supporting the claim
including the specific amount claimed. The
CONTRACTOR agrees and acknowledges that its
failure to provide written notice of a claim as set
forth herein shall constitute waiver of any claim
for additional compensation or time extension
related thereto;
....
(D) UNKNOWN CONDITIONS: A claim for an
increase in the Contract Price shall not be allowed
for concealed or unknown conditions that may be
encountered in the performance of the Work.
Whether the concealed or unknown conditions
exists [sic] (1) below the surface of the ground, or
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(2) the concealed or unknown conditions of an
existing structure are at variance with the
conditions indicated by the Contract, and are not
reasonably discoverable by the CONTRACTOR’s
diligent inspections as required herein, or the
concealed or unknown conditions are of an
unusual nature differing materially from those
ordinarily encountered in the area and generally
recognized as inherent in the CONTRACTOR’s
Work of the character provided for in the Contract,
such conditions shall not serve as the basis for a
claim for an increase in the Contract Price. The
CONTRACTOR has expressly represented that
prior to execution of this Contract, the
CONTRACTOR has visited and become familiar
with the Project site and local conditions under
which the Project is to be constructed and
operated, and the CONTRACTOR has performed
such tests, if any, as are necessary to determine the
conditions under which the Work will be
performed, and the CONTRACTOR accepts the
conditions of the Work site and has taken those
conditions into account in entering into this
Contract. The CONTRACTOR’s failure, whether
or not inadvertent or reasonable, to properly
perform its duties and obligations set forth
hereinabove, shall not serve as the basis for any
change in the Contract Price. The
CONTRACTOR’s sole recourse in the event of
concealed or unknown conditions that may be
encountered in the performance of the Work which
were not reasonably discoverable by the
CONTRACTOR’s diligent inspections as required
herein, or are of an unusual nature differing
materially from those ordinarily encountered in the
area and generally recognized as inherent in the
CONTRACTOR’s Work of the character provided
for in the Contract, shall be appropriate adjustment
of the date for achieving Substantial Completion,
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or, as applicable, Final Completion, pursuant to
Paragraph 13(G);
....
(J) SUBMITTAL OF DOCUMENTATION: No
later than thirty (30) days after the date of the
written notice of claim, the CONTRACTOR shall
submit a formal written claim which shall include
at least the following information: (1) a concise
statement of the occurrence(s) supporting the
claim, dispute or other matter, and the relief
sought; (2) identification of the facts giving rise to
the claim, dispute or other matter; (3) the date the
party discovered the occurrence(s); (4) a detailed
schedule of values identifying all costs resulting
from the claim, dispute or other matter; (5)
documentation supporting the schedule of values;
(6) identification of any impact the claim, dispute
or other matter has on the critical path schedule;
(7) all correspondence, internal memoranda,
progress notes, and other documentation relating to
the events which form the basis of the claim,
dispute or other matter. Additional information or
documents requested by MSD shall be submitted
to MSD within ten (10) days after the written
request. The failure to provide a claim as set forth
herein, or failure to provide such other documents
or information requested by MSD within ten (10)
days after the written request shall constitute a
waiver of any claim for additional compensation or
time extension related thereto[.]
(ROA 84-85, 87) (emphasis in original) (footnote added).
Soon after it began its work in February 2016, TSI discovered that the
depth to the bedrock was considerably less than indicated on MSD’s plans for the
Project. Consequently, TSI was required to remove more of the underlying
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bedrock than had been expected. TSI claims that it gave notice to MSD at the
Project meetings about this issue. Nonetheless, TSI achieved substantial
completion of the Project, recognized by MSD, on October 6, 2017.
On February 8, 2018, TSI advised MSD via letter that it would be
filing a claim for additional and unanticipated costs incurred to excavate rock due
to the unforeseen conditions encountered. Its letter asserted, “TSI has provided
notice to MSD with notices of its intent to file a claim due [to] the irregularities in
the rock excavation versus information provided at bid time, as reflected in the
Project Progress Meetings.” (ROA 98.) TSI hired Hagerty Engineering, Inc.
(“Hagerty”) to investigate the rock conditions it encountered. Hagerty authored a
report dated September 21, 2018, finding, “the mechanical excavation problems
could not have been known by the contractor in advance through methods
reasonable in scope for preparation of a construction bid.” (ROA 6, 108). On
November 26, 2018—more than nine months after it advised MSD it would be
filing a claim—TSI submitted its formal claim document to MSD along with the
Hagerty report and documentation of its additional and unanticipated costs.
By letter dated December 20, 2018, MSD denied TSI’s claim. MSD
asserted that TSI did not preserve its claim because it failed to timely file a formal
claim, resulting in its waiver. TSI disputed MSD’s denial of its claim and
requested executive negotiation under the contract. MSD refused, stating that
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Article 13 of the contract no longer applied since TSI failed to preserve, and
thereby waived, its claim.
On July 18, 2019, TSI filed the instant action, alleging breach of
contract and breach of the implied obligation of good faith and fair dealing. MSD
moved the trial court to dismiss TSI’s complaint for failure to state a claim upon
which relief may be granted. After the matter was fully briefed, the trial court
entered its order dismissing TSI’s claims. This appeal followed.
STANDARD OF REVIEW
A trial court should only grant a motion to dismiss if “it appears the
pleading party would not be entitled to relief under any set of facts which could be
proved in support of his claim.” Benningfield v. Petit Envtl., Inc., 183 S.W.3d 567,
570 (Ky. App. 2005) (citation omitted). In considering the motion to dismiss, the
truth of the allegations in the complaint is assumed and the pleadings are to be
liberally construed in a light most favorable to the plaintiff. Id. This determination
requires no factual findings and is purely a question of law. Id.
ANALYSIS
A fundamental rule of contract law is that a written agreement will be
enforced according to its terms. Conseco Finance Servicing Corp. v. Wilder, 47
S.W.3d 335, 341 (Ky. App. 2001). On appeal, TSI begins its argument by
attacking MSD’s failure to comply with the portion of Article 8 quoted herein, as
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well as asserting that the issues concerning whether TSI’s notice of claims was
timely or sufficient are jury questions. The heart of this matter, however, is
whether the trial court erred in dismissing TSI’s claims against MSD as
unenforceable, having been waived pursuant to the terms of the contract, and more
specifically under Article 13. Taking TSI’s allegations in its complaint as true, it
either provided or attempted to provide notice of its claims to MSD on or before
February 2, 2018. Yet, it is undisputed that TSI failed to make any formal written
claim until November 26, 2018, more than nine months later. Article 13(J)
specifically requires that a formal written claim be submitted within thirty days of
the written notice of claim. TSI’s failure to comply with Article 13(J) of the
parties’ contract, therefore, constitutes waiver of its claims.
In an effort to circumvent the written notice requirement, however,
TSI asserts that it was impossible to comply with the 10-day and 30-day limits in
the contract, citing Louisville and Jefferson County Metropolitan Sewer District v.
T+C Contracting, Inc., 570 S.W.3d 551 (Ky. 2018), for the proposition that
contractual time limits must be reasonable. It further maintains that the
reasonability of such limits is a question of fact for jury determination.
Herein, TSI acknowledged in its complaint that “[a]lmost as soon as it
began its work, [it] discovered that the depth to the bedrock was considerably less
than was indicated on MSD’s plans for the Project, requiring TSI to have to
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remove more of the underlying bedrock than anticipated.” (ROA 4). Yet, TSI did
not comply with the written requirement of notice to MSD that it intended to make
a claim for additional work until February 2018, finally submitting its actual claim
in November 2018, well after TSI’s work on the Project was concluded.
Despite TSI’s reliance on T+C, the Court therein determined similar
contractual provisions to those here were ultimately upheld. Articles 13(A) and (J)
of the T+C contract were similar to Articles 13(B) and (J), respectively, of the
contract herein. In T+C, a contractor sued MSD, claiming MSD’s contractual
provision mandating the chief engineer’s determination to be conclusive of any
dispute—and thereby wholly prohibiting further administrative/judicial review—
violated the KFCA.3 On appeal, this Court agreed and found the provision invalid
and the entirety of Article 13 null and void. The Supreme Court, however, while
agreeing the procedural provision was void, severed that provision from the
remainder of Article 13. The Court further held, “Contractual provisions . . . that
afford the contractor the opportunity to continue asserting a dispute before a
neutral adjudicator, so long as certain preservation requirements are complied with,
do not run afoul of KRS 371.405(2)(a).” Id. at 562. Finally, the Court determined:
Admittedly, there are several issues that could
conceivably be argued as being issues of material fact
that would preclude summary judgment—whether the
3
The Kentucky Fairness in Construction Act, KRS 371.400 et seq.
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correspondence sent by T+C to MSD constitutes a
“notice of claim” sufficient to satisfy Subsection (A) of
Article 13; whether that correspondence complied with
the time requirements set out by Subsection (A); etc.
However, what cannot be argued as being an issue of
material fact, and what resolves all other issues of
material fact that would preclude the granting of
summary judgment in favor of MSD, is the failure of T+C
to file a formal written claim thirty days after filing
anything that could be argued as being written notice of
a claim. The trial court’s ruling was correct in this
regard.
Id. at 569 (emphasis added). Thus, herein, and as in T+C, TSI’s failure to comply
with the contractual provisions necessary for it to preserve its claim is fatal and
was properly disposed of via summary judgment.
CONCLUSION
Therefore, and for the foregoing reasons, the order entered by the
Jefferson Circuit Court is AFFIRMED.
ALL CONCUR.
BRIEFS FOR APPELLANT: BRIEF FOR APPELLEE:
Gerald L. Stovall Adam T. Goebel
Louisville, Kentucky Angela S. Fetcher
Louisville, Kentucky
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