Philadelphia Indemnity Insurance Company v. Lend Lease (Us) Construction, Inc.

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
___________________________________
)
PHILADELPHIA INDEMNITY INSURANCE )
COMPANY, A/S/O 1441 RHODE ISLAND )
AVENUE CONDOMINIUM ASSOCIATION, )
) Civil Action
Plaintiff, ) No. 15-765(EGS)
)
v. )
)
LEND LEASE (U.S.) CONSTRUCTION, )
INC., )
)
Defendant. )
___________________________________)
MEMORANDUM OPINION
In January 2014, a water sprinkler burst inside the
condominium property located at 1441 Rhode Island Avenue, NW in
the District of Columbia. The insurer of the 1441 Rhode Island
Avenue Condominium Association ("Association"), plaintiff
Philadelphia Indemnity Insurance Company ("Philadelphia
Indemnity"), compensated the Association for its losses.
Philadelphia Indemnity, as subrogee of the Association, then
filed this action against defendant Lend Lease (U.S.)
Construction, Inc. ("Lend Lease") for negligence due to its
alleged faulty construction of the condominium building.
On March 18, 2016, the Court ordered limited discovery on
the question of whether the Association should be deemed a
successor of the building's original owner, Fairfield D.C.
1
Limited Partnership ("Fairfield"). See Philadelphia Indem. Ins.
Co. v. Lend Lease (U.S.) Constr., Inc., 170 F. Supp. 3d 190, 194
(D.D.C. 2016) ("March 18 Order"). The parties subsequently
engaged in discovery on this limited issue. Lend Lease now moves
for summary judgment on the ground that Philadelphia Indemnity's
insured – the Association – is a successor of Fairfield, and
therefore, Philadelphia Indemnity's action is barred by the
waiver-of-subrogation clause contained in the contract between
Lend Lease and Fairfield. See generally Def.'s Mot. for Summ.
J., ECF No. 22. As set forth below, because a genuine dispute of
material fact remains as to whether the Association is a
successor to Fairfield, Lend Lease's motion for summary judgment
is DENIED.
I. BACKGROUND
The following facts are undisputed unless otherwise noted. 1
1 Lend Lease appended its statement of undisputed material
facts to its memorandum in support of its motion for summary
judgment. Def.'s Mot. for Summ. J., Statement of Material Facts,
ECF No. 22. In opposing Lend Lease's motion, Philadelphia
Indemnity did not file a "separate concise statement" of "all
material facts" that remain in dispute as required by Local
Civil Rule 7(h)(1), but did assert certain facts with citations
to the record in its opposition.
2
A. The Contract
On June 19, 2002, Lend Lease 2 entered into a contract with
Fairfield to construct a nine-story apartment building and
refurbish an adjacent townhouse located at 1441 Rhode Island
Avenue, NW. See Def.'s Mot. for Summ. J. Ex. A, Standard Form
Agreement Between Owner and Contractor ("Standard Form
Agreement") and General Conditions of the Contract for
Construction ("General Conditions Contract") (collectively,
"Contract"), ECF No. 22-3; Def.'s Statement of Material Facts
("Def.'s SMF") ¶ 1, ECF No. 22; Pl.'s Opp. to Def.'s Mot. for
Summ. J. ("Pl.'s Opp.") at 2, ECF No. 23.
The General Conditions Contract contains a waiver of
subrogation clause that provides that the Owner and Lend Lease
"waive all rights" against one another "for damages caused by
fire or other causes of loss to the extent covered by property
insurance." General Conditions Contract ¶ 11.4.7. The General
Conditions Contract also specifies that the waiver-of-
subrogation applies to insurance policies purchased after the
construction period. Id. ¶ 11.4.5. Finally, the General
Conditions Contract includes a clause expressly stating that the
contract "shall not be construed to create a contractual
2 The contract was entered into by Bovis Lend Lease, Inc., a
general contractor whose corporate name has since changed to
Lend Lease (U.S.) Construction, Inc. See Def.'s SMF ¶ 1.
3
relationship of any kind . . . between any persons or entities
other than the Owner and Contractor." Id. § 1.1.2. It creates an
exception to this provision through the "Successors and Assigns"
provision that states:
The Owner and Contractor respectively bind
themselves, their partners, successors,
assigns and legal representatives to the other
party hereto and to partners, successors,
assigns and legal representatives of such
other party in respect to covenants,
agreements and obligations contained in the
Contract Documents.
General Conditions Contract § 13.2.1. The first page of the
Standard Form Agreement identifies Fairfield as the "Owner."
Standard Form Agreement at 1.
B. Sale of Property to 1441 LLC and Completion of
Construction
In 2003, "about three quarters of the way into the
project," Fairfield informed Lend Lease that it intended to sell
the property to 1441 Rhode Island, LLC ("1441 LLC"), a limited
liability company formed by Neil Gehani, Robert Berry, and
Enrico Plati for the purpose of purchasing the property. Def.'s
SMF ¶¶ 5-6, 8; Pl.'s Opp. at 2; Def.'s Mot. for Summ. J. Ex. B,
Deposition of Kenneth O'Grodnick ("O'Grodnick Dep.") 13:15-20,
ECF No. 22-4.
Fairfield and 1441 LLC entered into the initial Purchase
and Sale Agreement on September 12, 2003. See Def.'s SMF ¶ 8;
Pl.'s Opp. at 5. There is no evidence that any of the members of
4
1441 LLC received a copy of the Contract between Fairfield and
Lend Lease either prior to or after the sale. See Pl.'s Opp. Ex.
6, Deposition of Robert Berry ("Pl.'s Berry Dep.") 114:19-22,
ECF No. 23-6; Pl.'s Opp. Ex. 9, Deposition of Neil Gehani 40:22-
41:2, 42:5-6, ECF No. 23-9; Def.'s Mot. for Summ. J. Ex. R,
Deposition of Lawrence Bogard 17:11-17, ECF No. 22-20.
Fairfield and 1441 LLC closed on the property at the end of
February 2004. See Def.'s SMF ¶ 9 (stating that property closing
occurred on February 28, 2004); Pl.'s Opp. at 4 (stating that
1441 LLC became the deeded owner of the property on February 26,
2004). 1441 LLC's involvement with the property began prior to
closing, when construction was "nearly complete." See Def.'s SMF
¶ 10. The parties dispute the level of involvement 1441 LLC had
in the property during this period. According to plaintiff, 1441
LLC's involvement was "limited" to exercising "what ever rights
Fairfield and Defendant saw fit to grant [it]," which only
included participation in the "punch list process" 3 and nothing
more. Pl.'s Opp. at 10-11. Lend Lease, on the other hand,
contends that 1441 LLC took an "active role" in inspecting the
property "in an effort to identify any 'imperfections' it wanted
Lend Lease to fix." Def.'s SMF ¶¶ 9, 12-18. For example,
3 This is the process by which an owner "identifies any
deficiencies" in the construction that the general contractor is
required to fix before receiving final payment. Def.'s SMF ¶¶
10, 19-20.
5
according to Lend Lease, as part of the punch-list process, a
representative from 1441 LLC inspected each of the 157
condominium units in the building and, together with a
representative from Fairfield, signed a "New Construction
Interior Acceptance Letter" to confirm inspection and note any
outstanding deficiencies. Def.'s SMF ¶¶ 12-18.
The Contract included a one-year warranty that was made to
Fairfield. Def.'s SMF ¶ 25. Fairfield subsequently assigned its
warranty rights to 1441 LLC. Id. ¶ 26; Pl.'s Opp. at 11
(agreeing that "1441 LLC acquired Fairfield's one-year warranty
from [Lend Lease] by assignment"). The parties dispute the
mechanism through which that one-year warranty was assigned.
Plaintiff points to a copy of an agreement titled Assignment of
Warranties and Other Contractual Rights ("Assignment
Agreement"). Pl.'s Opp. at 11 (citing Def.'s Mot. for Summ. J.
Ex. E, ECF No. 22-7). Lend Lease asserts that the assignment of
warranty rights was made through a Public Offering Statement
issued in connection with forming the condominium. Def.'s SMF ¶
26.
The one-year warranty provision in the Contract obligated
Lend Lease to "require each Subcontractor to assume the
obligations [of the one-year warranty] at Subcontractor's sole
cost and expense with respect to work performed by each
Subcontractor." General Conditions Contract § 12.2.2.1. Because
6
1441 LLC was in the process of purchasing the building, all of
Lend Lease's subcontractors issued their standard one-year
warranties to 1441 LLC instead of Fairfield. Def.'s SMF ¶ 28;
Pl.'s Opp. at 11 (acknowledging that, "between December 18, 2003
and May 5, 2004, subcontractors issued one-year warranties on
Defendant form warranties listing the Property owner as B&P
Development, LLC" and that "B&P Development, LLC is a place
holder for 1441 LLC"). In addition, 1441 LLC paid Lend Lease
$40,846.71 for an extended warranty from each subcontractor.
Def.'s SMF ¶ 30; Pl.'s Opp. at 5 ("Prior to the expiration of
the one-year warranties under the contract between Fairfield and
Defendant, 1441 LLC purchased an extended warranty on April 14,
2004.").
On April 9, 2004, Fairfield made the final payment for
under the Contract to Lend Lease. Def.'s SMF ¶¶ 32-33; Pl.'s
Opp. at 5.
C. Formation of the Condominium Association and
Dissolution of 1441 LLC
In March 2004, 1441 LLC filed a Condominium Declaration
that ultimately formed the 1441 Rhode Island Avenue Condominium
and the related Condominium Association. Def.'s SMF ¶ 34; Pl.'s
Opp. at 6. The Condominium Bylaws were also filed at this time.
Pl.'s Opp. at 2. The Declaration and Bylaws together "conveyed
all of 1441 LLC's rights and responsibilities to the Unit Owners
7
Association." Id. Subsequently, the Association purchased
property-damage insurance from plaintiff Philadelphia Indemnity.
Id. at 2-3.
Both Mr. Gehani and Mr. Berry purchased condominium units
in the building and, when the Association created a Board in
July 2004, Mr. Gehani was elected as one of its five founding
members. Def.'s SMF ¶¶ 35-36; Pl.'s Opp. at 6. According to the
Association's representative, Mr. Gehani was elected in part
because the Association thought it useful to have someone
associated with 1441 LLC on the Board. Def.'s SMF ¶ 37; Pl.'s
Opp. at 6 (conceding there was managerial overlap between 1441
LLC and the Association, but characterizing that overlap as
"deminimis"). After Mr. Gehani sold his unit and resigned from
the Board in the spring of 2006, he was immediately replaced by
Mr. Berry, who served on the Board until June 2010. Def.'s SMF
¶¶ 36-39.
Because 1441 LLC had been created for the purpose of
marketing, selling, and delivering the condominium units and
then transitioning the property – and because those condominiums
were sold "very, very quickly" – 1441 LLC's business was wrapped
up by 2005. Def.'s SMF ¶¶ 55-56; Def.'s Mot. for Summ. J. Ex. D,
Deposition of Neil Gehani 58:20-59:20, ECF No. 22-6. By January
28, 2006, 1441 LLC had been involuntarily dissolved. Def.'s SMF
¶ 56.
8
D. The Association's Management of the Building
As a member of the Association's Board, Mr. Berry served as
the "middle man or intermediary" between the Board and Lend
Lease when repairs needed to be made in accordance with the
warranties. Def.'s SMF ¶ 40. In so doing, Mr. Berry testified
that he sometimes acted on behalf of 1441 LLC and at other times
acted on behalf of the Board. Id. Indeed, even in 2009 – several
years after 1441 LLC had been dissolved – Mr. Berry continued to
communicate with Lend Lease and its subcontractors on behalf of
both the Board and 1441 LLC. Id. ¶¶ 49-50.
Within one year of completion of construction, three leaks
were found in the building. Id. ¶ 41. In each of those
instances, Mr. Berry requested repairs in accordance with the
warranties assigned to or purchased by 1441 LLC, and Lend Lease
agreed to coordinate and oversee the repair work done by its
subcontractors. Id. ¶ 42. In each instance, neither 1441 LLC nor
the Association paid for any of the repair work. Id. Likewise,
when additional repair work was required in 2005 and 2006 with
respect to water heaters and water pumps, Mr. Berry contacted
Lend Lease and its subcontractors who addressed the problems in
accordance with the extended warranties purchased by 1441 LLC.
Id. ¶¶ 43-46.
In January 2014, a water sprinkler line burst on the
property, allegedly causing water to flow into multiple units
9
and the common area. See Complaint ¶¶ 7-11. According to an
engineer hired by Philadelphia Indemnity to examine the site,
the water intrusion stemmed "from inadequate insulation
surrounding the sprinkler system pipe and/or other protective
devices to maintain the temperature above freezing." Id. ¶ 9. As
a result of the burst pipe, the Association incurred losses in
the amount of $107,552.74, which were paid by Philadelphia
Indemnity. Id. ¶ 11.
E. The Instant Action
Philadelphia Indemnity filed suit for breach of contract
and negligence against Lend Lease in D.C. Superior Court on
April 20, 2015. See Compl., ECF No. 1-2. 4 Lend Lease removed the
action to this Court and moved for judgment on the pleadings,
asserting that Philadelphia Indemnity's negligence claim was
barred by the waiver-of-subrogation clause in the construction
contract entered into by Fairfield and Lend Lease. See Notice of
Removal, ECF No. 1; Philadelphia Indem. Ins. Co. v. Lend Lease
(U.S.) Constr., Inc., 170 F. Supp. 3d 190 (D.D.C. 2016). The
Court denied Lend Lease's motion after finding that the record
was insufficient to determine whether the Association should be
4 Philadelphia Indemnity conceded that its contract claim
failed because it was "not a contracting party in this case."
See Philadelphia Indem. Ins. Co. v. Lend Lease (U.S.) Constr.,
Inc., 170 F. Supp. 3d 190, 191 and n.1 (D.D.C. 2016).
10
deemed a successor of Fairfield and therefore bound by the
construction contract. Philadelphia Indem., 170 F. Supp. at 194.
In particular, the Court noted that the record did not indicate:
(1) when defendant completed construction;
(2) when full payment was received; (3)
whether the Association assumed any
responsibility for payments to defendant;
(4) when the Property passed from Fairfield
to 1441 LLC; (5) when the property was
conveyed to the Association; (6) what, if
any, knowledge the entities who purchased
the property from Fairfield had about the
Contract; and (7) if there was any overlap
in management between Fairfield and the
Association.
Id.
The parties subsequently engaged in discovery limited to
the question of whether the Association could be considered a
successor of Fairfield. Lend Lease now moves for summary
judgment, again arguing that Philadelphia Indemnity's action is
barred by the waiver-of-subrogation clause because Philadelphia
Indemnity's insured – the Association – is a successor of the
first two owners of the building.
II. STANDARD OF REVIEW
Under Rule 56 of the Federal Rules of Civil Procedure,
summary judgment should be granted "if the movant shows that
there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law." Fed. R. Civ.
P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986).
The "mere existence of some alleged factual dispute between the
11
parties will not defeat an otherwise properly supported motion
for summary judgment"; rather, "[o]nly disputes over facts that
might affect the outcome of the suit under the governing law
will properly preclude the entry of summary judgment." Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91
L.Ed.2d 202 (1986).
In order to establish that a fact cannot be genuinely
disputed, the moving party must identify "those portions of the
pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, which
it believes demonstrate the absence of a genuine issue of
material fact." Celotex, 477 U.S. at 323 (internal quotation
marks omitted). Once the moving party meets its burden, the
nonmoving party must come forward with specific facts that would
present a genuine issue for trial. Matsushita Elec. Indus. Co.
v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). A party
asserting that a fact is "genuinely disputed" must support that
assertion by "citing to particular parts of materials in the
record" or "showing that the materials cited [by the opposing
party] do not establish the absence . . . of a genuine dispute."
Fed. R. Civ. P. 56(c)(1). "If a party . . . fails to properly
address another party's assertion of fact," the court may
"consider the fact undisputed for purposes of the motion." Fed.
R. Civ. P. 56(e); see also Local Civ. R. 7(h).
12
When faced with a motion for summary judgment, the district
court may not make credibility determinations or weigh the
evidence; instead, the evidence must be analyzed in the light
most favorable to the non-movant, with all justifiable
inferences drawn in its favor. Anderson, 477 U.S. 255. A genuine
dispute exists if "the evidence is such that a reasonable jury
could return a verdict for the nonmoving party." Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); see also Moore v.
Hartman, 571 F.3d 62, 66 (D.C. Cir. 2009) (a non-moving party
must show that "sufficient evidence supporting the claimed
factual dispute" exists such that a jury or judge must "resolve
the parties' differing versions of the truth at trial"). In the
end, the district court's task is to determine "whether the
evidence presents a sufficient disagreement to require
submission to a jury or whether it is so one-sided that one
party must prevail as a matter of law." Anderson, 477 U.S. 251-
52.
III. ANALYSIS
The Contract's waiver-of-subrogation clause could bar
Philadelphia Indemnity's claims resulting from the Association's
losses only if the Association is deemed a successor of
Fairfield, the original party to the Contract.
Lend Lease now asserts that, based on the discovery
undertaken, there is no genuine dispute of material fact as to
13
whether the Association is a successor to Fairfield.
Specifically, Lend Lease argues that (1) 1441 LLC is a successor
or assignee of Fairfield; and (2) the Association is a successor
of 1441 LLC. Accordingly, Lend Lease claims that the Contract's
waiver-of-subrogation clause applies to the Association and bars
Philadelphia Indemnity's negligence claim. Philadelphia
Indemnity counters that its negligence claim is not governed by
the Contract's provisions and that, in any event, the
Association is not Fairfield's successor and therefore not bound
by the terms of the Contract.
As set forth below, the Court finds that, while the
Contract's broad waiver-of-subrogation clause would encompass
negligence claims, genuine factual disputes preclude a
definitive finding as to whether 1441 LLC is a successor or
assignee of Fairfield based on the record created by the
parties. Moreover, because the Court finds that a genuine
dispute of material fact exists as to whether 1441 LLC is a
successor or assignee of Fairfield, the Court need not reach the
question of whether the Association is a successor of 1441 LLC.
Accordingly, the Court denies Lend Lease's motion for summary
judgment.
14
A. The Waiver-of-Subrogation Clause Applies To
Negligence Claims.
As a threshold matter, the parties dispute whether the
waiver-of-subrogation clause applies to Philadelphia Indemnity's
negligence claim at all.
In interpreting a contract, "Maryland adheres to the
principle of the objective interpretation of contracts." John L.
Mattingly Const. Co. v. Hartford Underwriters Ins. Co., 415 Md.
313, 326 (2010) (citations and internal quotation marks
omitted). 5 A court's task in determining the meaning of a
contract is necessarily "focused on the four corners of the
agreement." Id. (citations and internal quotation marks
omitted). "'When the clear language of a contract is
unambiguous, the court will give effect to its plain, ordinary,
and usual meaning, taking into account the context in which it
is used.'" Id. (quoting Sy-Lene of Washington, Inc. v. Starwood
Urban Retail II, LLC, 376 Md. 157, 167(2003)).
Two clauses in the Contract relate to subrogation actions. 6
First, the Contract contains a clause through which Lend Lease
5 Both parties apply Maryland law to plaintiff's claims, and
defendant expressly acknowledges that Maryland law applies
pursuant to the terms of the Standard Agreement. See Standard
Agreement § 14.6.2 (the Contract "shall be construed under the
laws of the State of Maryland"). Accordingly, the Court shall
apply Maryland contract law in resolving defendant's motion.
6 "'Subrogation' . . . is defined as '[t]he substitution of
one party for another whose debt the party pays, entitling the
15
and the "Owner" of the property agree to "waive all rights" for
losses that are otherwise covered by insurance:
The Owner and Contractor waive all rights
against (1) each other and any of their
subcontractors, sub-subcontractors, agents
and employees, each of the other . . . for
damages caused by fire or other causes of loss
to the extent covered by property insurance .
. . .
General Conditions Contract ¶ 11.4.7. Second, another clause
extends this waiver to losses covered by insurance policies
purchased after the completion of construction:
if after final payment property insurance is
to be provided on the completed Project
through a policy or policies other than those
insuring the Project during the construction
period, the Owner shall waive all rights in
accordance with the terms of Subparagraph
11.4.7 for damages caused by fire or other
causes of loss covered by this separate
property insurance.
General Conditions Contract ¶ 11.4.5.
Lend Lease argues that the subrogation waiver in Article
11.4.5 bars Philadelphia Indemnity's negligence claim because
"(i) at the time of the incident, the property was insured
through a policy obtained by the Association that is separate
paying party to rights, remedies, or securities that would
otherwise belong to the debtor.'" John L. Mattingly Const. Co.
v. Hartford Underwriters Ins. Co., 415 Md. 313, 318 (2010)
(quoting Black's Law Dictionary 1563-64 (9th ed. 2009)). "In the
insurance context, [a]n insurer asserting a subrogation right is
usually viewed as 'standing in the shoes' of the insured so that
the insurer's rights are equal to, but no greater than, those of
the insured." Id. (citation and internal quotation marks
omitted).
16
from the policy obtained by Lend Lease that was in place during
the project from 2002 through 2004 and (ii) the water leak is a
'cause of loss' covered under the Association's policy." Def.'s
Mem. in Supp. of Mot. for Summ. J. ("Def.'s Mem.") at 16-17, ECF
No. 22.
Philadelphia Indemnity responds that "regardless of the
contractual status of the parties," the subrogation waiver here
does not encompass its negligence claim. Pl.s Opp. at 14. In
support of this argument, Philadelphia Indemnity relies on
Community Association Underwriters of America v. Rhodes
Development Group, Inc., 488 Fed. Appx. 547 (3d Cir. 2012), in
which the Court of Appeals for the Third Circuit held that the
waiver-of-subrogation clause did not preclude the insurer's
subrogation claims premised on defendants' alleged negligence.
Philadelphia Indemnity's reliance on Rhodes is misplaced.
There is no indication that the contract at issue in Rhodes
contained a "successors and assigns" clause; rather, the
defendant claimed that the plaintiff insurance company, who was
the subrogee of the condominium association, was an intended
third-party beneficiary of the construction contract and
therefore bound by the waiver-of-subrogation provision. 488 Fed.
Appx. at 549-50. Under established Third Circuit law, the court
found that the waiver-of-subrogation clause could only apply to
the association to the extent the association's claims arose
17
from its third-party status – i.e., to the extent the
association asserted contractual claims. Id.
Here, Lend Lease does not argue that the Association is a
third-party beneficiary, but rather, a contractual party
pursuant to the "successor and assigns" clause. See Def's Reply
at 7, ECF No. 24. Moreover, the plain language of the Contract
makes clear that the waiver-of-subrogation clause extends more
broadly than to just contractual claims: "The Owner and
Contractor waive all rights . . . for damages caused by fire or
other causes of loss to the extent covered by property
insurance[.]" General Conditions Contract § 11.4.7 (emphasis
added). Other courts have found that similar clauses bar all
claims, including negligence claims, made in connection with a
covered loss. See, e.g., S.C. Nestel, Inc. v. Future Const.,
Inc., 836 N.E.2d 445, 448, 451 (Ind. Ct. App. 2005) (contract in
which parties agreed to "waive all rights against each other . .
. for damages caused by fire or other perils to the extent
covered by property insurance" barred recovery regardless of
"whether the theory of recovery [wa]s negligence or breach of
contract"); Town of Silverton v. Phoenix Heat Source Sys., Inc.,
948 P.2d 9, 11, 13 (Colo. App. 1997) (rejecting argument that
subrogation-of-waiver clause that applied to "all rights . . .
for damages caused by fire or other perils to the extent covered
18
by property insurance" did not bar product-liability causes of
action).
Consequently, if the Association is deemed to be a
successor to Fairfield, Philadelphia Indemnity's negligence
claim would be barred because the loss it suffered was covered
by property insurance it provided. See Compl. ¶ 11 (alleging
that Philadelphia Indemnity paid the Association "for the losses
it suffered from the flood").
B. Genuine Disputes Of Material Fact Exists As To
Whether 1441 LLC Is A Successor to or Assignee of
Fairfield.
Given that plaintiff's negligence claim is encompassed by
the waiver-of-subrogation clause, the Court must next decide
whether 1441 LLC is a successor to or assignee of Fairfield and,
if so, whether the Association is a successor to 1441 LLC.
Under Maryland law, a "successor" in the non-labor
contractual context is defined as "one who takes the place that
another has left, and sustains the like part or character."
Safer v. Perper, 569 F.2d 87, 95 (D.C. Cir. 1977) (citation and
internal quotation marks omitted). See also Crown Oil & Wax Co.
of Delaware v. Glen Const. Co. of Virginia, 320 Md. 546, 563-64
(1990) (adopting the formulation of "successor" set forth by the
Safer court). Whether an entity is a successor of another is a
case-by-case fact-oriented determination. Safer, 569 F.2d at
264. As this Court explained in its March 18 Order, the factors
19
to be considered in determining successorship are: (1) the
nature of the relationship between the original contracting
party and the new owner; (2) whether there was any overlap
between the two entities; and (3) whether the original party's
obligations were completely discharged prior to the successor
assuming interest in the property. Philadelphia Indem., 170 F.
Supp. 3d at 193 (citing Safer, 569 F.2d at 95).
Likewise, an "assignee" is defined as an entity to which
"an assignment has been made . . . by the party having the
right." Black's Law Dictionary. An "assignment generally
operates to transfer to the assignee all of the right, title and
interest of the assignor in the subject of the assignment and
does not confer upon the assignee any greater right than the
right possessed by the assignor." James v. Goldberg, 256 Md.
520, 527 (1970). Moreover, "an assignee must expressly assume"
any correlative duties or burdens with the rights assigned in
order to be liable for such duties or burdens. See Pumphrey v.
Kehoe, 261 Md. 496, 506 (1971); P/T Ltd. II v. Friendly Mobile
Manor, Inc., 79 Md. App. 227, 234 (Md. Ct. App. 1989).
To establish that the Association is a successor to
Fairfield, Lend Lease must first show that 1441 LLC – the
developer that purchased the building from Fairfield – is a
successor to or assignee of Fairfield. Lend Lease asserts that
1441 LLC is a successor to or assignee of Fairfield because 1441
20
LLC took a series of actions "that Fairfield would have or could
have taken had it remained the owner." Def.'s Mem. in Supp. of
Mot. for Summ. J. ("Def.'s Mem.") at 10, ECF No. 22. In
particular, Lend Lease points to (1) 1441 LLC's involvement in
the property prior to the completion of construction; and (2)
the assignment of warranties to 1441 LLC, 1441 LLC's purchase of
extended warranties, and 1441 LLC's claims under those
warranties. Id. at 10-12.
Philadelphia Indemnity disputes that 1441 LLC's involvement
with the building prior to the completion of construction has
any "bearing" on the issue of whether 1441 LLC is a successor to
Fairfield. Pl.'s Opp. at 5, 10-12. Plaintiff further adds that
Lend Lease "places far too much emphasis on 1441 LLC and/or the
Association invoking [warranty] rights they were specifically
assigned and/or purchased." Id. at 12. The Court examines each
argument in turn.
(1) A Genuine Dispute Of Material Fact Exists As To
Whether 1441 LLC's Involvement In The Property
Prior To The Completion Of Construction Renders
It A Successor.
The parties agree that 1441 LLC became involved in the
property prior to the completion of construction, see Def.'s SMF
¶¶ 8, 32 and Pl.'s Opp. at 6, but dispute the extent of that
involvement and whether it took Fairfield's place and sustained
its "like part of character." According to Philadelphia
21
Indemnity, even after 1441 LLC executed the Purchase and Sales
Agreement with Fairfield in September 2003, its "rights" were
"limited." Pl.'s Opp. at 10. Mr. Berry explained that 1441 LLC
was only "reluctantly given" permission to participate in the
punch-list process and attend inspections. Pl.'s Berry Dep.
107:3-7. Moreover, 1441 LLC "could not request any structural or
lay out changes in the construction process." Pl.'s Opp. at 10.
Indeed, Mr. Berry testified that, during this period, 1441 LLC
had limited authority to make any significant changes to the
property at all:
Q: [S]o In the time frame between when you
– you and your partners – or members
decide: All right, we're going – we're
looking at this building, to the point
that you actually purchased the building,
did you guys have any ability or
authority to request construction change
orders from Lend Lease?
A: Officially, I – well, here, here's what
we had permission to do: We had
permission to observe the final finishes
and to do punch lists. That, at first,
was reluctantly given, but it was – it
was given. . . . We insisted on things
but it didn't necessarily happen. It was
cleaned up buy it didn't – we had
problems with the countertops and we had
problems with the hardwood flooring. They
did – without changing anything out, they
did the best to clean things up.
Q: So my question though, is: During this
period when, you know, you've decided to
buy the building and before you actually
purchased the building, could – did you
have the authority and the ability to go
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to Lend Lease and say, "Hey, look, you
know, we want to change, you know, the
floor design on Floor 9, and we want to
turn it into eight units as opposed to 12
units?" Did you have the authority and
ability to do that?
A: My partner – one of my partners, Enrico
Plati, who has an architectural degree
from Italy, wanted to do exactly that.
And short of telling us to hand it on our
nose, there was no way that was going to
happen.
Pl.'s Berry Dep. 106:19-108:17.
Philadelphia Indemnity's insistence that this testimony
shows that 1441 LLC had "limited" rights as compared to
Fairfield with respect to the property – and therefore did not
"sustain the like part or character" as Fairfield after its
purchase – is further buttressed by the fact that Fairfield, and
not 1441 LLC, signed the final change order and negotiated the
final contract price. See Def.'s Mot. for Summ. J. Ex. O (change
order reflecting Fairfield as the "owner" of the property that
was signed on May 3, 2004), ECF No. 22-17; O'Grodnick Dep. 22:2-
23:18 (Lend Lease employee explaining that the change order
reflected the "final amount that's due" and "final completion
date" for the project "based on a negotiated settlement of the
owner contract").
On the other hand, evidence also shows that 1441 LLC became
extensively involved in the final stages of construction by
carefully inspecting each unit jointly with Fairfield prior to
23
accepting Lend Lease's work and requesting that "issues with the
garage, HVAC, plumbing, and landscaping" be addressed. Def.'s
SMF ¶¶ 11-22. Mr. Berry testified that 1441 LLC took "a more
active role" in the inspection process than the actual owner
Fairfield, and he suggested that Fairfield representatives only
attended the inspections to "cover themselves." Def.'s Mot. Ex.
F, Deposition of Robert Berry ("Def.'s Berry Dep.") 22:15-21,
23:14-23, ECF No. 22-8. Because the parties have put forward
conflicting evidence as to 1441 LLC's involvement in the
property prior to the discharge of Lend Lease's obligations
under the Contract, the Court finds that genuine disputes of
material fact exist as to the nature of the relationship between
Fairfield and 1441 LLC and the overlap between the two.
(2) A Genuine Dispute Of Material Fact Exists As To
Whether 1441 LLC's Receipt of Warranty Rights
Renders It A Successor or Assignee.
Likewise, whether 1441 LLC's receipt of warranties from
both Lend Lease and its subcontractors – and 1441's subsequent
claims under those warranties – is sufficient to render 1441 LLC
a successor to or assignee of Fairfield is also genuinely
disputed. For example, Philadelphia Indemnity argues that the
warranties were assigned by Fairfield to 1441 LLC through the
Assignment Agreement. Pl.'s Opp. at 11. The Assignment Agreement
– which is not fully executed – purports to limit the rights and
obligations assigned by Fairfield to 1441 LLC under the
24
Contract. See Pl.'s Opp. at 11-12; Def.'s Mot. for Summ. J. Ex.
E, Assignment Agreement, ECF No. 22-7. Specifically, the
Assignment Agreement provides that the assignee – i.e., 1441 LLC
– "shall have no contractual or other obligations or liability
to [Lend Lease] under the Contract or otherwise . . . and
Contractor shall look solely to [Fairfield] for any such
obligations or liabilities." Id. (emphasis added). The parties
dispute the significance of this agreement. Compare Pl.'s Opp.
at 12 (arguing that the language in the assignment agreement
"demonstrates an understanding among the parties that unless
specifically assigned in writing, the terms of the construction
contract remain between Fairfield and Defendant"), with Def.'s
Reply in Supp. of Mot. for Summ. J. at 6 ("Because the
assignment is unexecuted, there thus exists no evidence showing
Fairfield and 1441 LLC intended to move forward with the limited
assignment of contractual rights[.]"), ECF No. 24.
Defendant, on the other hand, argues that the warranty
rights were passed from 1441 LLC to Fairfield through the Public
Offering Statement issued in connection with the formation of
condominiums and signed by Mr. Berry. Def.'s Mem. at 12-13. The
Public Offering Statement includes a provision indicating that
1441 LLC is the "successor" to Fairfield and, "[u]pon its
acquisition of the Property . . . was assigned and assumed all
of the rights and obligations of Fairfield." Def.'s SMF ¶ 26
25
(emphasis added); Def.'s Mot. Ex. K at 1-2, ECF No. 22-13.
Plaintiff suggests that this language should be interpreted to
refer only to 1441 LLC's acquisition of Fairfield's "property
ownership rights" – and not "any rights and obligations
Fairfield ha[d] under any contract in existence." Pl.'s Opp. at
12.
The source of 1441 LLC's warranty rights – and whether 1441
LLC also assumed the obligations set forth in the Contract
creating the warranties – is genuinely disputed. Although the
Assignment Agreement attached to Lend Lease's motion is not
signed by Fairfield or 1441 LLC, the mere fact that the
agreement is unexecuted does not make it invalid per se. See,
e.g., Porter v. Gen. Boiler Casing Co., 284 Md. 402, 410, 396
A.2d 1090, 1095 (1979) (under Maryland law, the mere fact that a
contract is unsigned does not render is unenforceable,
particularly where the parties have demonstrated "mutuality of
assent" through their conduct to be bound by the contract's
terms). Instead, it requires the Court to evaluate the parties'
conduct to determine whether they intended to be bound by the
Contract's terms. Lend Lease argues that the language in the
Assignment Agreement is contradicted by the language in the
signed Public Offering Statement. Def.'s Mem. at 13. But Lend
Lease does not point to any evidence – other than the fact that
one document is signed and the other is not – conclusively
26
establishing that the parties intended for the terms set forth
in the Public Offering Statement to govern. To the contrary, Mr.
Berry testified that it was his understanding that "Fairfield .
. . was selling [1441 LLC] the building and we were assuming any
rights that they had." Def.'s Berry Dep. 34:3-7 (emphasis
added). As such, a factual dispute exists as to whether
Fairfield and 1441 LLC intended to create an assignment of
certain rights without also assigning the burdens associated
with the Contract. The answer to this factual question is
necessary to resolve whether 1441 LLC was Fairfield's successor.
See Am. Prop. Const. Co. v. Sprenger Lang Found., 768 F. Supp.
2d 198, 203 (D.D.C. 2011) (declining to grant summary judgment
where genuine dispute of material fact remained as to whether
the parties intended to be bound by the agreement at issue). 7
7 Philadelphia Indemnity also asserts that the Association
cannot be bound by the Contract because the Contract is not "a
restrictive covenant that runs with the Property binding all
subsequent owners of the Property." Pl.'s Opp. at 15. Because
Lend Lease nowhere suggests that the Association is bound by a
restrictive covenant, the Court does not address this argument.
27
IV. CONCLUSION
For the reasons stated above, and as set forth in the
previously filed Order, Lend Lease's motion for summary judgment
is DENIED. The parties are directed to submit a joint status
report including, inter alia, a recommendation for further
proceedings by no later than November 17, 2017.
SO ORDERED.
Signed: Emmet G. Sullivan
United States District Judge
October 11, 2017
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