Hensel Phelps Construction Co. v. Cooper Carry, Inc.

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
HENSEL PHELPS CONSTRUCTION CO., )
)
Plaintiff, )
)
v. ) Civil ease No. 15-1961 (RJL)
)
COOPER CARRY, INC., )
) FILED
Defendant. )
SEP 28 2016
cm, u.s. nismct & man
MEMORANDUM OPINION courts for the msth ot Co\umb\a
(september'ZT, 2016) [Dkt. #10]
Defendant Cooper Carry, Inc. (“defendant” or “Cooper Carry”) helped design the
Marriott Marquis Hotel, near the Washington Convention Center, pursuant to a design
services contract With Marriott lnternational, Inc. Compl. 11 6. Marriott eventually
assigned that design services contract to plaintiff Hensel Phelps Construction Co.
(“plaintift” or “Hensel Phelps”) pursuant to an agreement with Hensel Phelps that it
would build the hotel for a guaranteed maximum price. Compl. Exh. 2, Art. 12.1. In
budgeting for this guaranteed maximum price, Hensel Phelps relied on Cooper Carry’s
preliminary designs. See Hensel Phelps’s Claim Against Cooper Carry 4, 7 [hereinafter
“Claim Narrative”] [Dkt. #10-2]. Once Hensel Phelps took over management of the
project, it relied on Cooper Carry to prepare construction documents that it used to begin
the building phase of the project. Claim Narrative 5. Unfortunately, problems vvith
Cooper Carry’s design documents came to light after Hensel Phelps had already relied on
them in pricing the project and in breaking ground on construction. Ia'. After the hotel
project was substantially complete, Hensel Phelps initiated this lawsuit against Cooper
Carry to recover its costs from the modifications it was required to make in order to
rectify those problems Compl. W 15-16. Hensel Phelps first claims that Cooper Carry
breached its design services contract by failing to design the hotel to the proper standards
Compl. W 20-25. lts second claim is that Cooper Carry breached the indemnification
provision of the contract by failing to indemnify Hensel Phelps for its increased expenses
attributable to fixing the design mistakes Compl. ‘H‘ll 26-29.
The case is now before the Court on Cooper Carry’s Motion to Dismiss Or,
Alternatively, Motion For Summary Judgment [hereinafter “Def.’s Mot.”] [Dkt. # lO]. In
support of its motion, Cooper Carry argues, inter alia, that Hensel Phelps’s claims are
time-barred by the three-year statute of limitations that applies to breach of contract
claims. Mem. ISO Def.’s l\/Iot. 8-14 [hereinafter “Def.’s Mem.”] [Dkt. #lO-l]. Hensel
Phelps concedes that a three-year statute of limitations applies, but disputes that the time
has run, arguing instead that its claims did not accrue until Cooper Carry’s role in the
design of the hotel was substantially complete. Pl.’s Opp’n 4 [Dkt. #13]. As to the claim
based on the indemnification clause, Cooper Carry moves to dismiss for the additional
reason that the agreement plainly does not apply to this factual situation. Def.’s Mem.
18-22. Upon consideration of the undisputed chronology of events outlined in the Claim
Narrative prepared by Hensel Phelps, as well as the plain text of the relevant contracts, I
have concluded that Hensel Phelps’s claims based on design errors are time-barred and
the indemnification clause refers only to Hensel Phelps’s prospective liabilities in third-
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party litigation. AS such, Cooper Carry’s Motion for Summary Judgment must be, and is,
GRANTED.1
FACTUAL BACKGROUND
In October 2010, Hensel Phelps entered into a contract to build the Marriott
Marquis Hotel in Washington, DC for a guaranteed maximum price of approximately
$3 50 million. Compl. il 7. lncluded in the contract is a listing of the “Preliminary Design
Documents” on which Hensel Phelps relied to calculate that price. Compl., Ex. 2, Art.
5.6(e). The parties referred to these as the GMP (guaranteed maximum price) documents
Claim Narrative 4. Cooper Carry had created the GMP documents pursuant to a design
services contract with Marriott, which contract Marriott assigned to Hensel Phelps as part
of the contract to build the hotel. Compl. il 9.
Cooper Carry entered into the design services contract in March 2008.
Compl. 1l 6. The contract calls for five phases of design services: (l) the Conceptual
Design Phase, (2) the Schematic Design Phase, (3) the Design Development Phase, (4)
the Construction Document Phase, and (5) the Construction Contract Administration
Phase. Claim Narrative 3. Cooper Carry completed the Design Development Phase
(Phase 3) in 2008. Ia’. at 4. According to Hensel Phelps, it was entitled under Cooper
Carry’s design services contract to rely on those documents created in the first three
phases to calculate its guaranteed maximum price. Ia'. When Hensel Phelps assumed
‘ The Court need not reach the defendant’s argument that these claims cannot lie because Hensel Phelps
has already been compensated for its losses either through the contingency budget or the change order
process See Def.’s Mem. l4-18.
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responsibility for building the hotel, Cooper Carry was in the midst of the Construction
Document Phase (Phase 4). Id. The construction documents were due August 1, 2011,
with due dates along the way for partially complete drafts (e.g., the “60% construction
documents” were due January 15, 2011). Ia’. at 4-5. Hensel Phelps relied on the design
documents and the partially complete construction documents to break ground on
construction of the hotel. Ia’. at ll. Only after completing certain construction phases did
Hensel Phelps discover that the corresponding designs it was using were flawed. Id. F or
instance, in May 2011, the D.C. Department of Consumer and Regulatory Affairs made a
final determination that the designs did not comply with the local building code’s fire
containment requirements Compl. 11 24(b); Claim Narrative 8-13. But Hensel Phelps
had already directed the excavation of the site in conformity with the flawed designs
Therefore, in modifying its designs to comply with the code, Cooper Carry had to use
less-than-ideal workarounds to accommodate the already completed excavation work.
Claim Narrative 8-13. In total, Hensel Phelps alleges 18 problems with the Cooper Carry
designs that it was required to fix midstream in order to comply with either local code or
its obligations to Marriott. Compl. 11 24. Because these problems were only discovered
after the execution of the design plans was already underway, the result was a series of
after-the-fact changes to work already done, which created unexpected costs for Hensel
Phelps. Claim Narrative 11, 13.
After Cooper Carry substantially completed its design services for the hotel in
April 2014, Compl. 11 15, Hensel Phelps initiated a private claims process in January
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2015, as required by an exhaustion clause in the contract with Cooper Carry. Compl.
11 16. In support of that claims process, Hensel Phelps filed an extremely detailed report
of the problems that arose throughout the course of the working relationship with Cooper
Carry (the “Claim Narrative”). The Claim Narrative includes a chronology of events that
the parties agree is factually accurate for the purposes of this motion. See Def.’s
Statement of Material F acts As To Which There Is No Genuine Dispute [hereinafter
“Def.’s Material Facts”] [Dkt. #10-13]. In November 2015, Hensel Phelps brought this
lawsuit against Cooper Carry, asserting two theories of liability: that Cooper Carry
breached its design services obligations by making errors in its designs and that it
breached its obligation to indemnify Hensel Phelps for those errors
ANALYSIS
I. The Court Applies the Summary Judgment Standard to Decide This
Matter.
Because Cooper Carry referenced materials outside the four corners of the
Complaint to support its Motion to Dismiss arguments the Court will analyze those
arguments by applying the summary judgment standard. See Fed. R. Civ. P. 12(d).
Hensel Phelps argues that, as a general matter, summary judgment motions are disfavored
prior to the close of discovery, see Fed. R. Civ. P. 56(b), but it fails to articulate any
issues of fact for which it would need discovery. Accordingly, Hensel Phelps has not put
into dispute whether it had “a reasonable opportunity to present all the material that is
pertinent to the motion,” as is the requirement under F ederal Rule of Civil Procedure
12(d) for converting a motion based on the pleadings to a motion for summary judgment.
The only document on which Cooper Carry relies is a summary of the facts
authored by Hensel Phelps itself. See generally Claim Narrative [Dkt. #10-2]. When
Cooper Carry submitted it as the basis for its motion for summary judgment, Hensel
Phelps did not file any response challenging it as an inaccurate reflection of its
understanding of the material facts See Def.’s Material Facts Hensel Phelps has
therefore conceded that the Claim Narrative presents the undisputed material facts for
purposes of deciding summary judgment. Considering those facts and making all
reasonable inferences in favor of Hensel Phelps, its claims are legally foreclosed for the
reasons explained below.
II. The Statute of Limitations Has Run on Hensel Phelps’s Claim That
Cooper Carry Breached Its Design Obligations. '
The parties agree that District of Columbia law applies and that there is a three-
year statute of limitations on Hensel Phelps’s breach of contract claims See Def.’s Mem.
8; Pl.’s Opp’n 4 (citing D.C. Code Ann. § 12-301(7) (2009)). The question the Court
must answer, therefore, is when that three years began to run for the claim that Cooper
Carry’s designs breached its obligations under the design services contract_when
Cooper Carry delivered those design documents that Hensel Phelps relied upon, as
Cooper Carry argues or when Cooper Carry’s design services for the hotel project were
“substantially complete,” as Hensel Phelps argues If the former, then the claim is time-
barred; if the latter, then it is not.
“Actions usually accrue when they come into existence.” Felter v. Kempthorne,
473 F.3d 1255, 1259 (D.C. Cir. 2007) (citing Um'tea’ States v. Lindsay, 346 U.S. 568, 569
(1954)). Accordingly, a breach of contract action usually accrues at the time when a
party to the contract does not perform its duty under the contract. Indeed, District of
Columbia law is clear: “accrual for contract cases occurs when the contract is first
breached.” Capitol Place 1 Assocs. L.P. v. George Hyman Constr. Co., 673 A.2d 194,
198-99 (D.C. 1996) (abrogated on other grounds). Once the breach is committed, the
statute of limitations begins to run even if the breaching party still has additional contract
duties to perforrn, even if the full scope the consequences from the breach are not yet
apparent, and even if there is still an opportunity to remedy the consequences of the
breach to minimize or eliminate damages See Wright v. Howard Um'v., 60 A.3d 749,
752-54 (D.C. 2013) (a university’s first breach of an employment contract, by not
performing an employee’s performance review, started the clock running even though it
had additional contract duties to perform and even though it had not yet denied the
employee tenure, which was the injury at issue). However, courts do sometimes toll the
statute of limitations if there is a lag between the moment of breach and the time when
the plaintiff discovers the breach. See Ehrenhaft v. Malcom Price, lnc., 483 A.2d 1192,
1203 (D.C. 1984). But the exception for undiscovered breaches, as with many
exceptions tends to prove the general rule: once the plaintiff can bring a breach of
contract claim, the clock starts running against it.
In this case, there can be no dispute that Hensel Phelps could have brought a claim
for breach of contract when it recognized that it would need to change construction plans
to accommodate for the errors in Cooper Carry’s design documents The costs Hensel
Phelps claims as damages in this suit arose from those particular changes Hensel Phelps
must admit, therefore, that it had accepted Cooper Carry’s non-conforming designs at the
time it began to construct the hotel in accordance with those designs See, e.g., Claim
Narrative 9-11 (describing the fallout from Cooper Carry’s February 27, 2009 GMP
drawings that were incorporated into Hensel Phelps’s construction contract as well as
from Cooper Carry’s “60% Construction Documents” issued March 16, 2011). Even if
Cooper Carry still had other duties to perform that were not yet due under the contract,
Hensel Phelps cannot credibly argue that Cooper Carry still had time to perform its
contract duties with respect to the initial phase of design that preceded Hensel Phelps’s
construction Once the time for compliant performance had passed and Hensel Phelps
had accepted the initial design documents on which its claim for damages is based, the
clock began to run against Hensel Phelps
Hensel Phelps tries to avoid this result by arguing that a “unitary construction
contract” is governed not by the first-breach rule, but by a more lenient requirement
under which the statute of limitations does not begin to run until the construction project
is “substantially complete.” Pl.’s Opp’n 5 (citing Constr. Interz'or Sys., Inc. v. Donohoe
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Compam``es, Inc., 813 F. Supp. 29 (D.D.C. 1992)). Hensel Phelps contends that Cooper
Carry’s outstanding duties under the design services contract prove that it had a unitary
construction contract that was not substantially complete when Hensel Phelps began
relying on the designs Id. at 8-10. 1 disagree Hensel Phelps is pointing out a distinction
without a difference How so?
Hensel Phelps cites several cases in which the statute of limitations did not begin
to run until a construction project was “substantially complete.” But those cases follow
the general rule explained above, even if they do not use the phrase “first breach,” which
was only articulated later in Capitol Place. In those cases, the breach that triggered the
clock occurred at the time for delivery of the construction project. See Constr. Interz'or
Sys., 813 F. Supp. at 33-34 (contract to refurbish hotel rooms is not breached until all
rooms finished); Pz``oneer Roojing C0. v. Mardz'an Constr. Co., 733 P.2d 652, 660 (Ariz.
Ct. App. 1986) (contract to install a roofing application is not breached until roofing
application complete, regardless when construction defects were corrected); President &
Directors of Georgelown Coll. v. Madden, 505 F. Supp. 557, 567 (D. Md. 1980), aj"d in
part, appeal dismissed in part, 660 F.2d 91 (4th Cir. 1981) (“The breach of the
construction contract therefore occurred only upon final acceptance of the building under
the contract.”). Because the sole obligation of a unitary construction contract is to deliver
the entire construction project in conformity with the contract, “first breach” does not
occur until the project is substantially complete. Said another way, a contract for a
unitary construction project cannot be breached part way through the construction
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process, even where there are errors that will undoubtedly result in non-conformity,
because the time for delivery and acceptance has not yet arrived.
Unfortunately for Hensel Phelps, this is not a unitary construction contract case.
Here, Cooper Carry had delivered and Hensel Phelps had accepted the designs about
which Hensel Phelps complains; indeed it had begun to act on them. By Hensel Phelps’s
own allegations it was this acceptance of these non-conforming designs that caused
damages to begin racking up long before substantial completion of the hotel project as a
whole. Accordingly, it was when Cooper Carry delivered those designs, not when it
substantially completed all its design duties, that the clock began to run. Accordingly,
Hensel Phelps is time-barred from bringing its claim that Cooper Carry breached its
design obligations
III. The Parties’ Contract Cannot Be Fairly Read to Create the
Indemnification Claim that Hensel Phelps Pleads.
Undaunted, Hensel Phelps pleads an alternate theory of liability: that the
indemnification clause of Cooper Carry’s design services contract makes it liable for
costs that Hensel Phelps incurred in rectifying Cooper Carry’s design errors But that, of
course, is not the natural way to read an indemnification clause. Indeed, indemnification
clauses are generally interpreted narrowly against the party seeking indemnification
American Bldg. Maintenance Co. v. L ’Enfant Plaza Propertz'es, 655 A.2d 858, 861-62
(D.C. 1995). As such, Hensel Phelps’s indemnification argument, for the following
reasons, is of no avail here.
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Under the indemnification clause in the design services contract, Cooper Carry is
required to “indemnify, defend and hold . . . harrnless” Hensel Phelps “from and against
any claim judgment, lawsuit, damage, liability, and costs and expenses including
reasonable attorneys’ fees as a result of, in connection with, or as a consequence of
[Cooper Carry’s] performance of the Services under this Agreement . . . .” Compl. Ex. 1,
§ 6.01. Cooper Carry, naturally, argues that this clause refers only to liabilities that
Hensel Phelps would face from third parties, not to Hensel Phelps’s own “damage” and
“costs and expenses” from contract breaches Def.’s Mem. 18-22. 1 agree.
The words “damage” and “costs and expenses” in the indemnification clause are
listed along with other words that clearly anticipate the problem of third-party litigation
against Hensel Phelps for problems that Cooper Carry created. Moreover, if the Court
were to read the indemnification clause in the way Hensel Phelps urges-to cover Hensel
Phelps’s own liabilities for the costs it incurred in fixing Cooper Carry’s mistakes-then
it would be redundant. The principle obligation of the contract requires Cooper Carry, if
it breaches by making design errors to cover Hensel Phelps’s damages including Hensel
Phelps’s “liabilities” to third parties lt is unlikely the parties intended the
indemnification clause to create an additional opportunity for breach, arising from the
same design errors on the imagined possibility that Hensel Phelps could face litigation
from third parties if it did not pay its own obligations That litigation would involve an
intervening decision by Hensel Phelps to breach its own agreements a decision for which
Cooper Carry would not be at fault. Rather, reading the indemnification clause in the
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most obvious way, it requires Cooper Carry to cover Hensel Phelps’s liabilities when and
if a third party sues over problems caused by Cooper Carry’s fault. See Landmark Health
Solulions, LLC v. Notfor Profil Hosp. Corp., 950 F. Supp. 2d 130, 139 (D.D.C. 2013).
Because Hensel Phelps’S claim for indemnification cannot survive the narrow
construction that the Court must give the indemnification clause, judgment for Cooper
Carry on that claim must be GRANTED as well.
CONCLUSION
F or the foregoing reasons plaintiff Hensel Phelps cannot prevail on either of its
two claims against defendant Cooper Carry, Accordingly, Cooper Carry’s Motion for
Summary Judgment is GRANTED. An order consistent with this decision accompanies
this Memorandum Opinion.
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