Young Electrical Contractors, Inc. v. Dustin Construction, Inc.

REPORTED
IN THE COURT OF SPECIAL APPEALS
OF MARYLAND
No. 226
September Term, 2014
______________________________________
YOUNG ELECTRICAL CONTRACTORS,
INC.,
v.
DUSTIN CONSTRUCTION, INC.
______________________________________
Eyler, Deborah S.,
Reed,
Salmon, James P.,
(Senior Judge, Specially Assigned),
JJ.
______________________________________
Opinion by Reed, J.
______________________________________
Filed: December 28, 2016
Appellant, Young Electrical Contractors, Inc. (“Young”), entered into a
subcontractor agreement with appellee, Dustin Construction, Inc. (“Dustin”) to perform all
required electrical work for a prime contract Dustin entered into with George Mason
University in Virginia. Due to a number of delays in the project, Young was unable to meet
the agreed-upon date for substantial completion of the work. As a result, Young
experienced a number of cost overruns and sought payment for those overages via a
number of change requests. When Young did not receive those payments from the
university via Dustin, Young sued Dustin in the Circuit Court for Montgomery County for
breach of the subcontract.
Dustin’s defense of the suit centered on the subcontract’s “pay-when-paid” clauses,
a set of clauses that provided Young would be paid when Dustin received payment from
the university. The circuit court agreed with Dustin and granted summary judgment on
Young’s breach of contract claim, explaining that, under the pay-when-paid clauses, Dustin
was not liable to Young for the change requests because George Mason had not yet paid
Dustin for those amounts.
We are asked to review the trial court’s grant of summary judgment to Dustin.
Appellant poses four questions for our consideration, which we have consolidated and
rephrased in three questions below:1
1
Appellant originally presented the following two questions in its brief:
1
I. Whether the circuit court erred in its determination of the
validity of the “pay-when-paid” clauses of the parties’
agreement;
II. Whether the circuit court erred where it determined the
“pay-when-paid” clauses applied to the present dispute;
III. Whether the circuit court erred where it did not find a
genuine dispute of material fact that the changes to the
project were owner-initiated.
We hold the circuit court committed no error in finding the pay-when-paid clauses
applied to the present dispute, which allowed for the entry of summary judgment on the
I. Did the lower court err when it entered its summary judgment
in favor of a defendant general contractor pursuant to a “pay-
when-paid” clause, prior to any discovery in the case, in
reliance on the wrong “pay-when-paid” language of the
subcontract?
II. If appellate review were not limited to the reasons relied upon
in the lower court, and the lower court had applied the
potentially applicable “pay-when-paid” language advanced by
the defendant general contractor in its Motion for Summary
Judgment, was summary judgment precluded by material
factual disputes over whether all of the claims underlying
Plaintiff’s breach of contract action were limited to owner-
initiated changes?
III. If appellate review were not limited to the reasons relied upon
by the lower court, did the prevention doctrine preclude the
entry of summary judgment prior to the opportunity for
discovery in the case on the basis that the general contractor
did not make the administrative procedure for disputes
available to the subcontractor?
IV. Did the lower court err when it interpreted the “pay-when-
paid” clause as equivalent to a “paid-if-paid” clause?
2
breach of contract claim in favor of Dustin. Accordingly, we affirm the judgment of the
circuit court and shall explain.2
FACTUAL AND PROCEDURAL BACKGROUND
Appellant, Young Electrical Contractors, Inc., is an electrical contracting firm based
in Laurel, Maryland, which specializes in the installation of electrical equipment for
construction projects. Appellee, Dustin Construction, Inc., is a construction firm based in
Ijamsville, Maryland, and is primarily engaged in the construction industry as a general
contractor.
George Mason University (“George Mason” or “Owner”), is a public university
located in Fairfax County, Virginia. George Mason sought to renovate and construct an
addition to Building Two of its Student Union (the “Project”). Dustin bid on and was
2
On August 11, 2016, the appellee (Dustin Construction) filed a Suggestion of
Bankruptcy with this Court, arguing that the present appeal should be stayed pursuant to
11 U.S.C. § 362 based on a pending involuntary bankruptcy case against the appellant
(Young Electrical) that was filed in the United States Bankruptcy Court for the District of
Maryland on October 23, 2014, by certain alleged, non-party creditors.
On August 19, 2016, the appellant filed a Motion to Strike and/or Disregard the
Suggestion of Bankruptcy filed by the Appellee. Among other things, the appellant asserts
that “the statute providing for an automatic stay following the filing of a bankruptcy
petition [(11 U.S.C. § 362)] applies only to actions ‘against the debtor.’” Because the
present case involves an action brought by the bankruptcy debtor, not against it, the
appellant contends that an automatic stay would be improper.
Upon consideration of 11 U.S.C. § 362 and the relevant case law, we agree with the
appellant’s argument that the automatic stay does not apply because this case does not
involve an action against the bankruptcy debtor. Moreover, Dustin did not argue that
because of the bankruptcy filing, the right to assert Young’s claims belongs to a bankruptcy
trustee rather than to Young itself. See Morton v. Schlotzhauer, 449 Md. 217, 224 (2016).
Therefore, we hereby grant the appellant’s Motion to Strike the Suggestion of Bankruptcy
filed by the Appellee.
3
awarded the contract for the Project as general contractor. Dustin and George Mason
executed this contract (the “Prime Contract”) on or about July 20, 2010. Needing a
subcontractor for the electrical work required under the Prime Contract, Dustin entered into
a subcontract with Young on or about October 15, 2010 (the “Subcontract”) for this work.
Per George Mason’s Notice to Proceed, work on the Project commenced on July 30,
2010. Although the Prime Contract set November 15, 2010, as the date for substantial
completion of the Project, the Notice to Proceed extended the substantial completion date
to November 30, 2010. Young, however, achieved substantial completion on March 8,
2011—more than three months after the date set by George Mason.
The delays in completion of the work prompted Young to submit three Change
Requests; two of those three requests—Nos. 1066 and 1067—are at issue in this appeal.3
Young submitted Change Request No. 1066 to Dustin on September 14, 2011, which
sought $259,034.99 for “extended overhead costs associated with [George Mason]’s
extension of the contract.” Dustin then submitted Change Request No. 1066 along with its
own delay claim to George Mason on November 16, 2012. Per George Mason’s request,
Dustin separated Change Request No. 1066 from its own claim, and also reduced the
amount requested in No. 1066 to $180,010.21. That amount reflected the removal of costs
that were not covered under the Subcontract. No. 1066 was then resubmitted to George
Mason on March 4, 2013.
3
The first of the three change requests, No. 1046, was resolved on February 5,
2014, when Dustin paid Young the requested amount of $23,843.00.
4
About a year-and-a-half later, on February 15, 2013, Young submitted Change
Request No. 1067, which sought $274,812.33 because of “owner initiated . . . design
changes, design errors, unforeseen conditions and additions/deletions of the work
originally required.” Young explained that it experienced an “overrun of hours” because it
was “forced to accelerate the electrical activities by adding additional manpower,
supervision, tools, equipment, overtime and shift work.”
Young filed its Complaint in the Circuit Court for Montgomery County on
September 3, 2013, alleging a single count of breach of contract against Dustin. 4 The
complaint alleged that Young was not responsible for the three month delay in achieving
substantial completion of its work. It further alleged that, because of the delays to the
Project, it had to work overtime and, as a result, incurred additional costs. Young contended
that it submitted its claims arising from the additional work, but that Dustin failed to
provide Young with any information or documentation demonstrating that Young’s claims
4
The subcontract provides a mechanism by which Young could have gone after the
Owner for the additional payment. That mechanism, which is delineated in Section 27 of
the subcontract and, by incorporation, Section 47 of the general contract, is to first have
the general contractor submit a claim to the Owner for the Owner’s approval. Then, if the
Owner has denied the subcontractor’s claim (which the general contractor would have
brought on its behalf), the subcontractor can take legal action against the Owner as
permitted under Section 47 of the general contract. Unfortunately for Young, the first
sentence of the third paragraph of Section 47 reads: “The decision of the agency head or
other signatory on the Contract shall be final and conclusive unless the Contractor within
six (6) months of the date of the final decision on a claim, initiates legal action as provided
in § 2.2-4364 of the Code of Virginia.” (Emphasis added). Thus, Young could have gone
after the Owner within six months of the final decision on its claim, but instead chose to
pursue an action against the general contractor.
5
were submitted to George Mason. Young further contended that Dustin failed to process
its claims, and that Dustin had not paid and pursued Young’s claims against George Mason.
Young alleged that Dustin committed a breach of contract where it directed Young to
perform the additional overtime work, but failed and refused to pay for that work and its
associated costs.
George Mason denied both Change Request No. 1066 and Change Request No.
1067 on September 17, 2013. These requests implicated the “pay-when-paid” provisions
of the Subcontract, which explained that Young’s payment was contingent upon, as a
condition precedent, Dustin’s receipt of payment from George Mason. Because George
Mason denied both Change Requests, Dustin was not paid the requested amounts and, in
turn, pursuant to the pay-when-paid provisions, Dustin did not pay Young its requested
amounts.
Dustin filed its Answer to the Complaint, along with a motion for summary
judgment (the “Motion”), on October 21, 2013. The Motion argued, among other things,
that Dustin was not liable to Young for the requested amounts because of the pay-when-
paid provisions of the Subcontract.
The circuit court heard the parties on the Motion on January 22, 2014, and delivered
its oral opinion on February 11, 2014. The court explained that its review of the record
demonstrated that Dustin had, in fact, submitted both Change Requests to George Mason.
In addition, the court held that summary judgment was appropriate because George Mason
refused both of the requests and did not pay Dustin, making the pay-when-paid provision
of the Subcontract applicable to the present dispute.
6
The circuit court entered summary judgment by Order dated February 18, 2014.
Young moved the court for reconsideration on February 21, 2014, but the court denied the
motion on April 7, 2014.
Young timely noted its appeal on April 11, 2014.
DISCUSSION
(i) Validity of Pay-When-Paid Clauses
A. Parties’ Contentions
Young argues that the circuit court misinterpreted the Subcontract to grant summary
judgment in favor of Dustin. It explains that the court cabined its analysis solely within
Section 2(c) of the Subcontract, which, it claims, applies only to amounts found due and
owing and not to disputed claims as in the present case. The circuit court’s interpretation
of the contract, Young contends, ignores other applicable paragraphs, including but not
limited to Sections 13(d), 27, 28, and 39, in contravention of principles of contract
interpretation.
Dustin responds that there are several provisions within the Subcontract that would
act to bar Young’s claim. Specifically, Sections 2(c), 13(c), and 27(f) each contain a
condition precedent that requires payment from George Mason before Young is paid.
Therefore, according to Dustin, because each of these three potentially applicable Sections
contains the same condition precedent, Young’s claim under the Subcontract is barred.
B. Standard of Review
The interpretation of written contractual terms is a question of law we review de
novo. Nova Research, Inc. v. Penske Truck Leasing Co., 405 Md. 435, 448 (2008). Unlike
7
the factual determinations of a circuit court, its legal determinations are not afforded
deference on appeal. Thomas v. Capital Med. Mgmt. Assocs., LLC, 189 Md. App. 439, 453
(2009). Such legal determinations, i.e., determination based on Maryland statutory or case
law, are reviewed de novo for legal correctness. See id. at 454.
Maryland courts apply an objective interpretation of contracts. Id. If the terms of a
contract are unambiguous, the plain meaning of the agreement will prevail and the court
will not consider the parties’ subjective intent at the time of formation. Id. If a reasonably
prudent person finds that the contract is susceptible of more than one meaning, the court
will determine the contract is ambiguous. Id. The terms of the contract are interpreted in
context, each of them interpreted together with contract’s other provisions. Atlantic
Contracting & Material Co., Inc. v. Ulico Cas. Co., 380 Md. 285, 301 (2004) (Ulico);
Jones v. Hubbard, 356 Md. 513, 534–35 (1999). We give the terms of the contract their
customary, ordinary, and accepted meaning. See Ulico, 380 Md. at 301.
C. Analysis
The pay-when-paid clauses in the Subcontract are valid contractual provisions, and
we will consider their applicability in turn. We note initially that the present dispute is
governed by Virginia law per the choice of law provision in Section 31 of the Subcontract.
In Virginia, as in Maryland, issues of contract interpretation are reviewed de novo.
Bailey v. Loudoun Cnty. Sheriff’s Office, 762 S.E.2d 763, 766 (Va. 2014); accord Ocean
Petroleum, Co., Inc. v. Yanek, 416 Md. 74, 86 (2010).
The seminal case on pay-when-paid clauses is a 1962 opinion of the U.S. Court of
Appeals for the Sixth Circuit. In Thos. J. Dyer Co. v. Bishop International Engineering
8
Co., 303 F.2d 655 (6th Cir. 1962), the Sixth Circuit considered the enforceability of a pay-
when-paid clause in a subcontracting agreement. In the ordinary course, a general
contractor assumes a degree of credit risk related to the owner’s solvency, and there exist
protections against this risk that a general contractor may employ, e.g., mechanic’s liens or
installment payments. See id. at 660. The subcontractor need not incur that credit risk
unless the parties agree to it. See id. at 660–61. The Sixth Circuit explained that, in order
for that risk to be shifted from the general contractor to the subcontractor, the parties must
agree to an express condition in their subcontract that demonstrates their intent. Id. at 661.
That Court ultimately held that the pay-when-paid provision at issue did not shift the credit
risk to the subcontractor, and that the language of the provision afforded the general
contractor a period of time to receive payment from the owner in order to pay the
subcontractor. See id.The Supreme Court of Virginia first considered pay-when-paid clauses and the
associated defense in Galloway Corp. v. S.B. Ballard Construction Co., 464 S.E.2d 349(Va. 1995). The Court held that pay-when-paid clauses will be upheld as valid if the
contract “on its face reasonably contemplates eventual payment by the general contractor
to the subcontractor” or the parties clearly intended that a condition precedent be fulfilled
before the general contractor pays the subcontractor. Id. at 501.
To reach its holding on conditions precedent, the Galloway Court relied on our
opinion in Gilbane Building Co. v. Brisk Waterproofing Co., Inc., 86 Md. App. 21 (1991).
There, we held that for a valid condition precedent to exist within a pay-when-paid clause,
courts will look to the unambiguous language of the contract to see whether such a
9
condition is established. See id. at 27–28. We explained that the inclusion of conditions
precedent in a subcontracting agreement involves a shift in the credit risk from the general
contractor to subcontractor:
A provision that makes receipt of payment by the general
contractor a condition precedent to its obligation to pay the
subcontractor transfers from the general contractor to the
subcontractor the credit risk of non-payment by the owner
for any reason (at least for any reason other than the general
contractor's own fault), including insolvency of the owner.
Id. at 28–29 (emphasis in original). This shift in risk accordingly demands an express
reference in the subcontract to a condition precedent. See id. (explaining that Atlantic States
Constr. Co. v. Drummond & Co., Inc., 251 Md. 77, 81–84 (1968) (Drummond) and its
consideration of the Dyer opinion is construed to require a subcontract to make an express
reference to a condition precedent, regardless of reason for the condition, as long as
subcontractor understands there is a shift in credit risk). We determined the condition
precedent in the parties’ contract was unambiguous and allowed for the objective
interpretation that the subcontractor would not receive payment from the general contractor
“unless and until” the owner paid the general contractor. Id. at 28.
Section 2(c) is a valid pay-when-paid clause under Virginia law, as it comports with
the Galloway Court’s acceptance of our holding in Gilbane. Section 2(c) is the subsection
of the “Payments to Subcontractor” section that is relevant to this dispute. Section 2 sets
forth the understandings between the parties and the procedures for Dustin’s payments to
Young for the electrical work under the Subcontract. The clause in Section 2(c) states, in
relevant part:
10
It is specifically understood and agreed that the Contractor’s
obligation to pay all or any portion of the Subcontract Sum to
Subcontractor, whether as a progress payment, retainage, or a
final payment, is contingent, as a condition precedent, upon
the contractor’s receipt of payment from the Owner of all
amounts due Contractor on account of the portion of the Work
for which the Subcontractor is seeking payment.
(Emphasis added).
The Subcontract explicitly establishes that George Mason’s payment to Dustin is
the condition precedent to Dustin’s payment of Young. This contract language is virtually
the same as the language in Gilbane that we found to constitute a valid condition precedent
within a pay-when-paid clause. Id. at 25, 28. (holding that the following language
established a condition precedent to the subcontractor’s payment: “It is specifically
understood and agreed that the payment to the trade contractor is dependent, as a condition
precedent, upon the construction manager receiving contract payments, including retainer
from the owner.” (emphasis added)). The Galloway Court accepted our reasoning on
conditions precedent, which permits us to determine that Section 2(c) is a valid pay-when-
paid clause under Virginia law. See Galloway, 464 S.E.2d at 354 (“If . . . as in Gilbane, the
parties clearly intend there to be a condition precedent fulfilled before payment comes due,
the contract will be construed as written . . . .”).
Section 13(c) is most relevant to the present dispute, as it addresses payments arising
from owner-initiated changes. That subsection provides, in relevant part:
In the event a change is made to this Contract as a result of the
Owner’s change to the Prime Contract and such change causes
an increase or decrease in the cost of and/or the time required
for performance under this Subcontract, Subcontractor may
submit to Contractor in writing in accordance with the
11
requirements of the Changes Clause of the General Contract a
request for an equitable adjustment in the Subcontract Sum
and/or the Subcontract Time, or both . . . . Contractor shall pay
to Subcontractor that amount paid by the Owner to Contractor
on account of any such change to this Subcontract, less any
markup and other amounts due Contractor on account of such
change. Contractor shall have no liability to Subcontractor on
account of any such Owner initiated change except for such
amount, if any.
(Emphasis added).
Section 13(c) is similar to the pay-when-paid provision in Dyer in that it does not
contain an express condition precedent, but rather simply explains that Dustin “shall pay”
to Young the amount Young incurred because of an Owner-initiated change. Dustin is
made liable to Young only for the change amounts that Young requested from George
Mason and that George Mason paid. There is no timeframe, however, attached to Dustin’s
payment of Young under this clause. See Gilbane, 86 Md. App. at 25 (explaining that,
without an express condition, a pay-when-paid clause “postpones the time for payment
until the happening of a certain event or for a reasonable period of time if such event does
not occur.”). Also, there is no apparent shift in the credit risk arising from this Section
because of the lack of express conditional language. Accordingly, Section 13(c) by itself
operates as a standard pay-when-paid clause because of the lack of conditional language.
See id. at 25–26 (citing Drummond, 251 Md. at 79, 82–83 for proposition that for standard
pay-when-paid clause to shift normal credit risk and provide for payment at specific time
or occurrence, there must be an express condition in the clause).
We cannot, however, review Section 13(c) in isolation. See Ulico, 380 Md. at 301(explaining that the terms of the contract are interpreted in context, with each of them
12
interpreted together with contract’s other provisions). To do so would ignore the effect of
Section 2(c), which is a payments clause of general applicability. Although Section 13(c)
does not contain an express condition precedent, it does contemplate payments to Young
where George Mason has initiated a change in the Project. As Section 2(c) sets forth the
procedure for payments to Young, its applicability to 13(c) should not be ignored.
Accordingly, when both sections are read together, Dustin’s receipt of a change payment
from George Mason is the condition precedent that must be met if Young is to receive that
payment. By consenting to Section 2(c), Young has accepted the credit risk and cannot
hold Dustin liable for non-payment if it does not receive its change payment. See Gilbane,
86 Md. App. at 28–29.
Because the Galloway Court adopted the reasoning of the Dyer court, we think that
Dyer’s reasoning is applicable to the present case. See Galloway, 464 S.E.2d at 353–54.
Section 13(c) is enforceable as a pay-when-paid clause subject to a condition precedent in
Section 2(c) because Young agreed, by operation of Section 2(c), that all payments were
subject to the condition of George Mason’s payment of Dustin. Read together, Young
agrees to the shift in credit risk when it seeks payment arising from change orders.
Section 27(f) is similar to Section 13(c) insofar as it contemplates payments arising
from certain scenarios. Section 27 applies to the resolution of disputes involving George
Mason, and subsection (f) places limits on Dustin’s liability to Young for Owner-involved
disputes. Section 27(f) provides:
Contractor shall have no liability to Subcontractor on account
of any claim, suit or appeal arising under or relating to the
Prime Contract, or the Owner’s conduct thereunder except that
13
recovered by Contractor from the Owner on Subcontractor’s
behalf, if any, less any markups and other amounts due
Contractor on account of such claim, suit or appeal.
(Emphasis added).
This clause makes clear that Young cannot sue Dustin directly for any issues related
to the Prime Contract or George Mason’s conduct under that agreement. Under this
provision, Dustin is liable to Young only where Dustin has recovered an amount under this
Section of the Subcontract on Young’s behalf. Section 27(f) operates like Section 13(c) in
that it limits Dustin’s exposure to Young to only certain amounts and claims. Without such
an Owner-involved claim for which Dustin has already recovered from George Mason,
Young cannot lodge a separate claim against Dustin. Section 27(f) is, therefore, a pay-
when-paid clause in that it contemplates a valid claim against Dustin only where Dustin
has received payment from George Mason. There is no conditional language here, but like
Section 13(c), it must be read in tandem with Section 2(c). Because 2(c) does contain an
express condition on payments to Young, it will apply to those claims Young makes against
George Mason via Section 27(f). Where Section 27(f) creates a “remedy” for Young
against George Mason, Section 2(c) provides the procedure for Young’s payment for a
valid claim under 27(f).
(ii) Applicability of Pay-When-Paid Clauses
A. Parties’ Contentions
Young further argues that the circuit court erred in applying Section 2(c) of the
Subcontract to dismiss its claim. It explains that Section 2(c) was not relied on by either of
the parties and that Dustin chose to rely on Section 13(c) in support of its Motion. Young
14
further explains that the differences between the Sections are critical because they each
apply to distinct sections. It contends that Section 13(c)—rather than Section 2(c)—is the
provision appropriate to the present scenario because it concerns changes to the
Subcontract.
Dustin contends that Sections 2(c), 13(c), and 27(f) are each applicable to the
present case and each serve to bar Young’s claim. Dustin argues that Section 2(c)’s pay-
when-paid provision applies because 2(c) governs the payment of “all or any portion of the
Subcontract Sum,” which is what Young’s Change Requests sought. It further argues that
Section 13(c) applies because that section of the Subcontract governs owner-initiated
changes, which were at issue here. Last, Dustin argues that Section 27(f) is potentially
applicable because that provision governs claims arising from a dispute. If Young’s claims
are characterized as arising from a dispute, Dustin explains, then the pay-when-paid
provision of Section 27(f) should apply.
B. Standard of Review
A party may seek summary judgment on all or part of an action, provided there is
no genuine dispute as to any material fact and that party is entitled to judgment as a matter
of law. Md. Rule 2-501(a). Whether the trial court properly granted summary judgment is
a question of law. Boland v. Boland, 423 Md. 296, 366 (2011) (internal quotation marks
and citations omitted). Accordingly, we conduct a de novo review of the trial court’s grant
of summary judgment. Id. We engage in an independent review of the record to determine
whether there existed a genuine dispute of material fact and, if not, whether judgment as a
matter of law was appropriate. Id. The record is reviewed in the light most favorable to the
15
non-moving party, and any reasonable inferences drawn from the facts are construed
against the moving party. Id.C. Analysis
The circuit court properly granted summary judgment on Young’s claims to the
amounts owed for the Change Requests. Sections 2(c), 13(c), and 27(f) of the Subcontract
are each applicable to the instant dispute. Because Dustin received no payments from
George Mason for the Change Requests, Dustin was unable to pay Young under any
applicable Section of the Subcontract.
Section 37 of the Prime Contract provides the requirements and procedures for
payments made by Dustin to subcontractors or suppliers. In relevant part, Section 37(a)
provides:
[T]he Contractor is obligated to:
(a) Within seven (7) days after receipt of amounts paid to the
Contractor by the Owner for Work performed by the
Subcontractor or Supplier under this Contract,
(1) Pay the Subcontractor or Supplier for the
proportionate share of the total payment received
from the Owner attributable to the Work performed
by the Subcontractor or the materials furnished by
the Supplier under this contract . . . .
(Emphasis added).
This section of the Prime Contract clearly envisions a conditional pay-when-paid
scheme for all subcontractor or supplier payments by George Mason. Although we do not
require certain language to create a condition precedent in a contract, “words and phrases
such as ‘if,’ ‘provided that,’ ‘when,’ ‘after,’ ‘as soon as’ and ‘subject to’” are often
16
associated with the establishment of conditions. Richard F. Kline, Inc. v. Shook Excavating
& Hauling, Inc., 165 Md. App. 262, 274 (2005). Section 37(a) sets forth a discrete time
period in which payments must be made to the subcontractor or supplier, and the condition
is denoted by the word “after,” indicating that Dustin’s receipt of payment is the applicable
condition. Furthermore, Section 37(b) contemplates an incentive scheme to encourage
prompt payments to a subcontractor when the Owner has paid Dustin. That section requires
Dustin to pay interest to a subcontractor for any payment made more than seven days after
receipt of payment from George Mason. These provisions demonstrate a clear intent of the
parties to the Prime Contract to pay subcontractors upon Dustin’s receipt of payment from
George Mason. See Kline, 165 Md. App. at 273 (“[W]hen the language is clear and
unambiguous we must presume that the parties meant what they expressed, leaving no
room for construction.” (internal quotation marks omitted)); see also Gilbane, 86 Md. App.
at 25 (pay-when-paid clauses postpone time for payment “until the happening of a certain
event or for a reasonable period of time.”). This intent is underscored by the fact that there
is no language in Section 37 that Dustin may pay a subcontractor at any point, regardless
of whether it receives payment from George Mason or not.
Section 2(c) establishes a pay-when-paid clause with a condition precedent that is
applicable to all subcontractor payments. Nevertheless, we need not conduct an
examination of the relevant clause within Section 2(c) for conditional language because,
as explained in section (i).C of our discussion supra, that part of the Subcontract expressly
mentioned payment by George Mason to Dustin as a condition precedent to Dustin’s
payment of Young. This makes clear Section 2(c)’s objective meaning—that Dustin is
17
under no obligation to pay Young until Dustin receives payment from George Mason. See
Gilbane, 86 Md. App. at 28 (holding that unambiguous language in subcontractor
agreement established condition precedent indicating general contractor was not obligated
to pay subcontractor until general contractor received payment from owner).
The placement of this language near the beginning of the agreement is additionally
persuasive. Section 2 immediately follows the description of the scope of the agreement
and the work to be performed, and the Section’s title is general in nature. Section 2 does
not provide payment instructions for any specific factual scenarios. Rather, by virtue of its
placement in the agreement and non-specific language, we think that Section 2
contemplates general applicability to performance of the Subcontract. Accordingly,
because George Mason did not pay Dustin for the Change Requests, it is impossible for
Dustin to follow the letter of the agreement. It did not receive the money from George
Mason, which is the necessary condition precedent in Section 2(c). Therefore, the circuit
court’s grant of summary judgment was entirely appropriate.
The general applicability of Section 2(c) to the agreement means that it applies to
the scenarios encompassed by Sections 13 and 27. Section 13 sets forth the parties’
understanding regarding changes to the scope and progress of the work. Specifically,
Section 13(c) discusses Owner-initiated changes and explains that, as long as Young
follows the procedure for seeking an equitable adjustment for Owner-initiated changes,
George Mason will pay Dustin that adjusted sum and Dustin will, in turn, pay Young the
requested amount. Although Section 13(c) does not possess an explicit reference to
conditions precedent, the subsection’s language makes clear the procedure envisioned for
18
the payment of change requests. Dustin and Young agreed that “[Dustin] shall pay to
[Young] that amount paid by [George Mason] to [Dustin] on account of any such change
to this Subcontract[.]” (emphasis added). Reading just that clause in isolation, we think it
difficult to envision a payment scheme under this subsection where Young would receive
payment from Dustin regardless of whether Dustin received payment from George Mason.
The clause’s language conveys a temporal sequence where Dustin will pay Young once it
receives payment from George Mason.
Nevertheless, the general payment procedure in Section 2(c) applies to the change
payment procedure in Section 13(c) because we must construe contractual provisions in
such a way that no part of the agreement is rendered meaningless. Ulico, 380 Md. at 301;
see also DIRECTV, Inc. v. Mattingly, 376 Md. 302, 320 (2003). The temporal sequence for
payments arising from Owner-initiated changes in Section 13(c) mirrors the general
payment procedure in Section 2(c)—change payments must be made to Dustin by George
Mason before the former can pay Young for that same amount. Without any change
payments received from George Mason, Dustin could not pay Young per their agreed-upon
payment arrangement. To hold Dustin liable to Young for the Change Requests absent any
payment from George Mason would contravene the parties’ contractual intent and render
the pay-when-paid clauses meaningless.
Section 27(f) of the Subcontract operates as a pay-when-paid clause only to the
extent that Young has a claim against George Mason arising from the latter’s conduct under
the Prime Contract. Section 47 of the Prime Contract, entitled “Contractual Disputes,”
explains that claims under that agreement include either money or other relief. Per Section
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27(b), Young’s claims against George Mason entail monetary claims. Therefore, whether
Section 27(f) operates as a pay-when-paid clause depends on whether Young’s claims are
considered Owner-involved disputes.
We think the claims to Change Requests 1066 and 1067 are indeed Owner-involved
disputes. Both of the Change Requests cite George Mason’s changes as the cause for
submission of the requests. It is George Mason’s denial of the Change Requests, however,
that is at the heart of the present dispute. Young’s claims are ultimately against George
Mason. As stated supra, Section 27(f) limits Dustin’s exposure to those amounts it recovers
on behalf of Young for Owner-involved claims. The circuit court made findings that Dustin
had indeed submitted the Change Requests to George Mason. Dustin followed the requisite
procedures and is not liable for George Mason’s declination of the Change Requests.
Section 27(f) states that Dustin will only be liable to Young for amounts recovered from
George Mason in any Owner-involved dispute. Without that recovery, however, Young
cannot seek payment from Dustin in those amounts.
We hold that summary judgment was appropriate in this case. Sections 2(c), 13(c),
and 27(f) operate to preclude Young’s recovery of the Change Request amounts from
Dustin because they are pay-when-paid clauses subject to an enforceable condition
precedent of payment from George Mason to Dustin. Without satisfaction of this condition,
Young is unable to hold Dustin liable for those amounts.
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(iii) Existence of Factual Dispute Regarding Owner-Initiated Changes
A. Parties’ Contentions
Young contends that there were several factual disputes preventing the entry of
summary judgment. It argues that there was a genuine dispute as to whether the Change
Requests were the product of Owner-initiated changes. Young considers the
characterization of the changes as an attempt to rely on the pay-when-paid language in
Section 13(c). It contends that it disputed this characterization of the changes and,
accordingly, summary judgment was not appropriate.
Dustin argues that Young attempts to construct an alternate theory of events from
allegations in the Complaint and statements made by its counsel. Dustin contends that in
so doing, however, Young has not met its burden of production to demonstrate that there
was a dispute of fact, necessitating our reversal of the grant of summary judgment. Dustin
argues the evidence and affidavits it submitted supported the grant of summary judgment
and, furthermore, the Change Requests themselves demonstrate Young stated that the
claims were the result of owner-initiated actions.
B. Standard of Review
As discussed in section (ii).B supra, we review the trial court’s record to discern
whether there was a genuine dispute of material fact that would preclude the entry of
summary judgment. We shall review the record in a light most favorable to the non-moving
party and shall construe any reasonable inferences from the facts against the moving party.
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C. Analysis
Young’s contention that the Change Requests were not the product of Owner-
initiated changes does not comport with the record in this case. The body of evidence
presented to the circuit court cannot support a factual dispute that would preclude the
operation of the pay-when-paid clauses.
The Change Requests were the result of Owner-initiated changes, which Young
fully recognized. Young explains in Change Request 1066 that its request for additional
payment was for “extended overhead costs associated with the owner’s extension of the
contract.” In Change Request 1067, Young provides an extended narrative regarding its
request for additional payment. Young attributed the overrun in hours to “unforeseen
problems and design related issues” as well as “numerous owner initiated changes which
were issued that redesigned the work as the project proceeded.” (emphasis added).
Nowhere else in the record is it demonstrated with any degree of persuasion that
Dustin was responsible for the overages. Young’s Change Requests remain the best
explanation of the change orders. Young, therefore, is unable to demonstrate that there
exists a genuine factual dispute as to whether the change orders were not owner-initiated.
It was undisputed that the Change Requests were the result of Owner-initiated
changes. As a result, Sections 2(c), 13(c), and 27(f) operate to bar Young’s claims against
Dustin. All costs Young incurred were the result of Owner-initiated changes, and the
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Subcontract requires Young to seek payment for these claims from George Mason via
Dustin. Dustin is not liable to Young for the Change Requests.
APPELLANT’S MOTION TO STRIKE
SUGGESTION OF BANKRUPTCY GRANTED.
JUDGMENT OF THE CIRCUIT COURT FOR
MONTGOMERY COUNTY AFFIRMED. COSTS
TO BE PAID BY APPELLANT.
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