Costello Construction of Maryland, Inc. v. J.D. Long Masonry, Inc.

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 06-1704
COSTELLO CONSTRUCTION OF MARYLAND,
INCORPORATED; LIBERTY MUTUAL INSURANCE
COMPANY,
Plaintiffs - Appellees,
versus
J.D. LONG MASONRY, INCORPORATED,
Defendant - Appellant.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Gerald Bruce Lee, District
Judge. (1:05-cv-00742-GBL)
Argued: March 13, 2007 Decided: June 26, 2007
Before NIEMEYER, MICHAEL, and TRAXLER, Circuit Judges.
Affirmed in part, vacated in part, and remanded with instructions
by unpublished per curiam opinion.
ARGUED: Stephen Murray Seeger, QUAGLIANO & SEEGER, Washington,
D.C., for Appellant. David Hilton Wise, WATERS & WISE, P.L.L.C.,
Fairfax, Virginia, for Appellees. ON BRIEF: Leonard A. Sacks,
Rockville, Maryland, for Appellant. Paul V. Waters, WATERS & WISE,
P.L.L.C., Fairfax, Virginia, for Appellees.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
Costello Construction (Costello) received a substantial
contract to build a new administration building for Loudoun County
Public Schools (Loudoun County or County). Costello subcontracted
the masonry work to J.D. Long Masonry, Inc. (J.D. Long). Four
months after J.D. Long commenced its work on the building, Costello
terminated the subcontract and hired another masonry company to
complete the work. Costello sued J.D. Long in federal district
court, seeking indemnification and damages for breach of contract.
J.D. Long counterclaimed for wrongful termination and damages
caused by Costello’s delays to the construction schedule. The
district court granted summary judgment to Costello on J.D. Long’s
counterclaims. Following a bench trial, the district court awarded
$777,138.41 in damages to Costello. J.D. Long appeals. We affirm
the order of partial summary judgment for Costello but reduce its
damages award to $489,224.69.
I.
On September 15, 2003, Loudoun County awarded Costello a
contract to construct a new administration building for
$21,435,200. The contract provided a substantial completion date
of January 10, 2005, and a final completion date of February 10,
2005. The contract said that “time was of the essence” and
provided that Costello would pay $2,500 per day in liquidated
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damages for delays to substantial completion and $1,000 per day in
delays to final completion. J.A. 1339.
Costello subcontracted with J.D. Long to do the masonry
work for a fixed sum of $1,435,000. The subcontract stated that
J.D. Long had 50 days to complete the exterior masonry work, which
entailed installing “Arriscraft masonry units at the first level,
cast stone above the Arriscraft, and above the cast stone brick
masonry with cast stone bands.” Appellant’s Br. at 4. J.D. Long
was originally scheduled to start work in April 2004, but the start
date was delayed by several months due to problems beyond J.D.
Long’s control. On August 11, 2004, Costello informed J.D. Long
that the new completion date for the exterior masonry work was
September 26, 2004. J.D. Long contested the end date, stating that
it had 50 working days to complete the work. J.D. Long said that
it would be unable to finish the work until the end of October.
Costello expressed concerns about the quality of the
masonry work soon after J.D. Long started. Among other problems,
Costello complained that the brickwork did not comply with the job
specifications, the cast stones were damaged, and the first-floor
Arriscraft wall was improperly installed. (J.D. Long’s on-site
foreman, Michael Boyd, admitted at trial that he was unaware of the
masonry specifications or the 50-day timetable.) On October 29,
2004, Costello told J.D. Long that its “performance on the Project
has been and continues to be seriously deficient.” J.A. 1446.
3
Costello then sent a notice-to-cure letter on November 1, 2004,
stating that Costello would terminate the subcontract if J.D. Long
did not take immediate corrective action. J.D. Long assured
Costello that it would correct the problems, but said that it could
not finish the work until the end of November. Costello decided
not to take any action under the subcontract until that time. J.D.
Long failed, however, to correct the deficiencies or complete the
work by the promised date. On December 9, 2004, Costello hired
another company, Bragunier Masonry, to take over the work on the
building’s exterior. J.D. Long continued to work on the interior
of the building.
In January 2005 Loudoun County threatened to terminate
its contract with Costello, due in part to defects in the masonry
work. Loudoun County then hired a masonry consultant, Wiss Janney,
Elstner Associates, Inc. (Wiss Janney), to review J.D. Long’s work
and identify the corrective action needed. On March 10, 2005,
Costello notified J.D. Long of the County’s concerns with the
masonry work. Costello stated that it would give J.D. Long another
opportunity to cure its breach of the subcontract. J.D. Long
denied that it was the cause of the County’s complaints. On May
20, 2005, after receiving the report prepared by Wiss Janney,
Costello sent another notice-to-cure letter, which instructed J.D.
Long to correct the deficiencies listed in the report. J.D. Long
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failed to remedy Costello’s and Loudoun County’s concerns, and
Costello terminated the subcontract on June 22, 2005.
Costello sued J.D. Long in the district court for breach
of contract, seeking $1,767,702 in damages. J.D. Long
counterclaimed for wrongful termination, requesting $677,832 in
damages for delays caused by Costello and quantum meruit relief for
work already performed. The district court granted partial summary
judgment to Costello on J.D. Long’s counterclaims. After a bench
trial the district court awarded Costello $777,138.41 in damages.
J.D. Long appeals the district court’s order granting
partial summary judgment to Costello and the award for damages. We
review the summary judgment decision de novo, and, with respect to
the bench trial, we review the district court’s factual findings
for clear error and its legal determinations de novo. See Williams
v. Sandman, 187 F.3d 379, 381 (4th Cir. 1999).
II.
A.
J.D. Long contends that the district court erred in
granting summary judgment to Costello on J.D. Long’s counterclaim
for damages caused by Costello’s delays. J.D. Long says that these
delays cost it $370,951 for additional scaffolding and $306,881 for
additional labor. The district court determined that J.D. Long’s
5
counterclaim for damages was precluded by Articles 4.1.1.1 and
4.1.1.3 of the subcontract.
Article 4.1.1.1 (“Time is of the essence”) of the
subcontract states:
The Contractor has the right to direct the manner in
which the Subcontractor performs its work. Subcontractor
shall proceed with the performance of the work at such
time and in such sequence as the Contractor may direct
and/or as required by the Schedule of Progress, which may
be updated and revised from time to time by the
Contractor as working conditions require, including
overtime or shift work performance as necessary.
Subcontractor shall perform overtime work and/or provide
additional shifts and/or increase crews and equipment to
assure timely completion of the project at not [sic] cost
to Contractor, unless and only if the costs therefore are
paid by the Owner for the Subcontractor’s behalf.
J.A. 1391 (emphasis added). Article 4.1.1.3 (“Damages for Delay”)
states that “[a] time extension shall be the sole and exclusive
remedy of the Subcontractor for delays or suspensions caused by
Contractor.” J.A. 1391.
These two provisions unambiguously prevent J.D. Long from
recovering monetary damages from Costello, even for delays that
Costello caused, unless Loudoun County agrees to pay the costs.
Under Maryland law, which governs our interpretation of the
contract, “[w]here a contract is plain and unambiguous, there is no
room for construction, and it must be presumed that the parties
meant what they expressed.” Feick v. Thrutchlev, 586 A.2d 3, 4
(Md. 1991). We therefore affirm the district court’s grant of
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summary judgment to Costello on J.D. Long’s counterclaim for
damages.
B.
J.D. Long also claims that the district court erred in
determining that Costello terminated the subcontract for default.
J.D. Long says that the termination was wrongful, and therefore a
breach, because Costello did not provide it proper notice or
sufficient opportunity to cure the defects in the masonry work. In
addition, J.D. Long argues that it could not cure the defects in
the exterior masonry because Costello had prohibited J.D. Long’s
crew from returning to work on the building’s facade.
J.D. Long’s claims are without merit. Beginning in
August 2004 Costello repeatedly advised J.D. Long, orally and in
writing, that its work was deficient. Costello told J.D. Long on
October 29, 2004, that it was in default of the subcontract, and it
sent J.D. Long a 14-page notice-to-cure letter on November 1, 2004.
The letter informed J.D. Long of the corrective action that it
needed to take and stated that it had three days, pursuant to
Article 6.1 of the subcontract, to cure the default. Although
Costello could have terminated the subcontract on November 4, it
provided J.D. Long over a month to address the deficiencies.
J.D. Long’s claim that it could not cure the default
because it was not permitted on the construction site is also
meritless. Costello did not bar J.D. Long from working on the
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exterior of the building until December 9, 2004. J.D. Long had
substantial opportunity to cure its default by this date, and
Costello reasonably concluded that extending more time to J.D. Long
would result in additional damages. Thus, the district court
correctly determined that Costello was entitled to terminate J.D.
Long’s subcontract on grounds of default.
III.
J.D. Long challenges the $777,138.41 in damages awarded
to Costello at trial. In calculating this award, the district
court first determined that J.D. Long’s breach caused $1,028,151.40
in damages: $210,000 for liquidated damages, $249,084.29 to repair
J.D. Long’s deficient work, $126,396 to complete the exterior
masonry work, $42,151.89 to heat the building until the masonry
work was finished, $37,074 to replace cracked masonry stones,
$147,341.23 for administration and overhead costs, $72,000 for
litigation costs, and $144,104 for attorneys’ fees. The court then
subtracted the unpaid balance on the subcontract, $251,013, which
is the amount that Costello saved by terminating it.
J.D. Long says that the damage award should be vacated
for two reasons. First, it says that it is not liable for
liquidated damages because Loudoun County has not withheld from
Costello any money for the 158-day delay in the building’s
completion. Second, it argues that the court erred in calculating
8
the 20 percent in administration and overhead costs that Costello
could recover under the subcontract.1 We review the factual
underpinnings of the district court’s damages calculations for
clear error, “but to the extent those calculations were influenced
by legal error, review is de novo.” United States ex rel. Maddux
Supply Co. v. St. Paul Fire & Marine Ins. Co., 86 F.3d 332, 334
(4th Cir. 1996).
A.
J.D. Long disputes the award for liquidated damages. The
district court determined that J.D. Long delayed the project’s
completion by 60 days, and was therefore liable for $210,000 in
liquidated damages ($2,500 for each day to substantial completion
and $1,000 for each day to final completion). J.D. Long says that
the district court erred in awarding a sum for liquidated damages
because Loudoun County has not attempted to recover such damages
from Costello.
We agree that J.D. Long is not liable for liquidated
damages. Article 3.3.1 of the subcontract states, “The
1
J.D. Long also claims that Costello owed $339,478 under the
subcontract, not $251,013. J.D. Long says that the two exhibits
that the court used to determine the balance of the subcontract
were unreliable. J.D. Long, however, did not object to the
admission of these exhibits, nor did it cross-examine Costello
about their contents or authenticity. J.D. Long thus waived any
objection to the admission of the two exhibits, see, e.g., Clausen
v. SEA-3, Inc., 21 F.3d 1181, 1190 (1st Cir. 1994), and the
district court did not clearly err in using them to calculate the
balance on the subcontract.
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Subcontractor shall be responsible for its proportionate share of
liquidated damages . . . including all or a portion of any
liquidated damages assessed by the Owner against the Contractor.”
J.A. 1391. The subcontract clearly provides that Costello can
recover liquidated damages from J.D. Long only if it is required to
pay liquidated damages to Loudoun County. The County, however, has
not claimed any liquidated damages against Costello. Indeed, the
district court explicitly found that “Loudoun County did not
withhold [liquidated damages] from the contract balance.” J.A.
2622. Although the County has withheld $750,000 “to insure all the
punch list items are done,” its representative, Tom Sullivan, made
clear at trial that this sum does not include money for liquidated
damages. J.A. 691-92. Sullivan also affirmed that the County does
not intend to assert its right to seek liquidated damages.
The $210,000 award for liquidated damages against J.D.
Long is also improper under contract law principles. The purpose
of breach of contract damages “is to place the non-breaching party
in the same position it would have been in but for the breach.”
Air Caledonie Int’l v. AAR Parts Trading, Inc., 315 F. Supp. 2d
1319, 1337 (S.D. Fla. 2004). In this case, the district court’s
award places Costello in a better position than it would be in but
for the breach because the $210,000 would become a windfall when
the County pays Costello the $750,000 that it withheld to ensure
completion of the punch list items. Of course, Costello could be
10
injured if Loudoun County decides at a later date to seek
liquidated damages, but this injury is speculative. Damages for
breach of contract are inappropriate when the injury is
“speculative, possible, or imaginary.” Schonfeld v. Hillard, 218
F.3d 164, 172 (2d Cir. 2000); see also Willard Packaging Co. v.
Javier, 899 A.2d 940, 945 (Md. App. 2006) (stating that liquidated
damage provision is not enforceable when it is not a reasonable
estimate of the damages suffered). For these reasons, we conclude
that the district court erred as a matter of law in awarding
liquidated damages to Costello.2
B.
The district court also committed clear error in
calculating the damages that Costello could recover for overhead
and administration costs. Article 6.1 of the subcontract provides
that the “contractor may immediately take all steps necessary to
supplement the work activities of Subcontractor and charge all
resulting cost therefrom plus 10% overhead and 10% profit to
Subcontractor.” J.A. 1393. The district court awarded Costello
$147,341.23 under this provision, finding that Costello was
entitled to 20 percent of the following costs: the cost to
complete the exterior masonry work ($126,396); the cost to repair
2
J.D. Long also argues that the district court abused its
discretion in admitting Costello’s expert witness testimony
regarding the delay attributable to J.D. Long. Because we conclude
that the liquidated damages are improper, we do not reach this
evidentiary issue.
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J.D. Long’s deficient work ($249,084.29); the expert consultant
fees ($18,827.39); the cost to enclose and heat the building
($42,151.89); the cost to replace cracked masonry stones ($37,074);
liquidated damages ($210,000); and Costello’s expert witness fees
($53,172.61).
The court committed three errors in calculating the
administration and overhead costs. First, the 20 percent markup on
liquidated damages is error in light of our conclusion that
Costello cannot recover liquidated damages from J.D. Long. See
supra part II.A. Second, the markup on expert witness fees is
inappropriate because the subcontract does not permit Costello to
recover 20 percent of litigation costs as part of overhead and
administration. Third, the court’s figure for the cost to complete
the masonry work ($126,396) already included the 20 percent markup
because Costello paid only $105,830 to finish the exterior masonry
work. These errors require Costello’s recovery under Article 6.1
of the subcontract to be reduced from $147,341.23 to $90,593.513
and its overall damage award to be reduced by an additional $21,166
to account for the cost-to-complete figure that was inflated by 20
percent.
3
The $90,593.51 sum is 20 percent of the following costs: the
cost to complete the masonry work ($105,830), the cost to repair
the deficient work ($249,084.29), expert consultant fees not
related to litigation ($18,827.39), the cost to enclose and heat
the building ($42,151.89), and the cost to replace the cracked
masonry stones ($37,074).
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IV.
In sum, we affirm the district court’s order of partial
summary judgment for Costello. We conclude, however, that the
damage award to Costello must be reduced by $287,913.72 ($210,000
for liquidated damages, $56,747.72 for administration and overhead
costs, and $21,166 for the cost to complete the masonry work). We
therefore vacate the judgment entered in favor of Costello with
respect to damages and instruct the district court on remand to
enter judgment in favor of Costello for $489,224.69.
AFFIRMED IN PART,
VACATED IN PART,
AND REMANDED WITH INSTRUCTIONS
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