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United States v. David Boland, Inc.

United States District Court, D. Hawaii

August 30, 2017

UNITED STATES for the use and benefit of KINGSTON ENVIRONMENTAL SERVICES, INC., a Missouri corporation, Plaintiff,
v.
DAVID BOLAND, INC., WESTERN SURETY COMPANY, GRANITE PRECASTING & CONCRETE, INC., and HAWAII GEOPHYSICAL SERVICES, LLC, Defendants, and UNITED STATES for the use and Benefit of DAVID BOLAND, INC. Counterclaim Plaintiff,
v.
KINGSTON ENVIRONMENTAL SERVICES, INC. and BERKELY REGIONAL INSURANCE COMPANY, Counterclaim Defendants.

          ORDER GRANTING IN PART DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT AND STAYING CASE

          DERRICK K. WATSON, DISTRICT JUDGE.

         INTRODUCTION

         Defendants David Boland, Inc. (“Boland”) and Western Surety Company (“Western Surety”) seek partial summary judgment on Plaintiff Kingston Environmental Services, Inc.'s (“Kingston”) claims under the Miller Act, 40 U.S.C. § 3133 et seq., and for breach of contract. The present dispute turns on whether Kingston, the subcontractor on a government construction project, must comply with a contractual administrative procedure before pursuing its claims in a civil action against the general contractor, Boland. Because the subcontract between the parties requires Kingston to first exhaust the “contractual remedial procedure” applicable to claims for which the government is or may be responsible, the Court GRANTS IN PART Defendants' Motion for Partial Summary Judgment (“Motion”) and STAYS this action pending resolution of those proceedings.

         BACKGROUND

         I. The Project And Subcontract

         Boland is the prime contractor (Contract No. W9128A-12-C-0009 or “Prime Contract”) on an infrastructure construction project for the United States Army Corps of Engineers (“USACE”) that is nearing completion at Wheeler Army Airfield, Oahu, Hawaii (the “Project”). Western Surety issued performance and payment bonds on behalf of Boland for the Project. Complaint ¶¶ 10-11. Boland subcontracted with Kingston to provide labor, materials, equipment, and services (“Subcontract”).[1]

         Kingston contends that Boland mismanaged the Project, which had an original completion date of approximately May 2015. It argues that Boland willfully and repeatedly interfered with Kingston's work by generally failing to facilitate a productive relationship with the USACE and by failing to resolve issues as they arose. Kingston alleges that Boland: prevented Kingston from accessing construction areas as planned; added unexpected restrictions to the work; failed to identify no-work areas prior to contracting with Kingston; failed and disregarded coordination of the work of the trades; failed to complete other activities on site that disrupted and negatively impacted Kingston; unreasonably revised safety requirements in a manner that added great expense to the work; exhibited constant indecision; changed site access points due to incomplete Boland work; failed to have areas ready for Kingston to perform its work; redirected Kingston's planned work causing disruption; failed to develop a coherent schedule and failed to update the schedule in a timely and organized manner; failed to let subcontractors have access to and review the schedule; failed to work with the subcontractors to timely achieve resolution of issues as they came up on the Project; artificially manipulated schedules; suffered excessive turnover and lack of continuity by Boland Project personnel; and generally failed to communicate and timely react when presented with information at meetings with the USACE. See Kingston Ex. B, Decl. of Bob Wysocki ¶¶ 4-5; Dkt. No 134-2.

         According to Boland, however, shortly after arriving on site in November 2012, Kingston encountered difficulty maintaining the Project schedule because of problems finding labor and equipment to perform the work. Boland Ex. A, Decl. of Craig Hildebrandt ¶ 22; Dkt. No. 116-1. It acknowledges that the Project is behind schedule, and that its management of the Project may have been “below average” due to its “strained relationship” with the government, but asserts that the majority of the issues forming the basis for Kingston's claims against Boland are issues for which the USACE is or may be responsible. Kingston Ex. A, 7/19/17 Hildebrandt Dep. at 83-85; Dkt. No. 134-1.

         In March 2014, with approximately 46% of its work completed, Kingston negotiated Change Order No. 10 with Boland, which removed the final $8.4 million of work from Kingston's Subcontract. See Wysocki Decl. ¶ 8; Boland Ex. C (3/6/14 Change Order No. 10); Dkt. No 116-3. According to Kingston, this “descoping” resulted from its “recogni[tion] that Boland's mismanagement would continue through completion of the Project, [and desire] to avoid similar cost overruns on the second half of its scope.” Wysocki Decl. ¶ 8. Change Order No. 10 preserved Kingston's right to bring cost-overrun claims against Boland for which prior written notice had been given.[2]

         Kingston filed this action on April 29, 2016, seeking payment from Western Surety under its Miller Act bonds (Count I) and alleging that Boland breached the Subcontract (Count II). Complaint ¶¶ 38-50. From the execution of Change Order No. 10 on March 6, 2014, until the filing of its Complaint, Kingston did not submit any requests to Boland to sponsor or submit to the government any claims for which the USACE might be responsible for Kingston's losses, except with regard to (1) differing topographical conditions and (2) nonconforming manholes supplied by a third-party.[3] The parties dispute whether Kingston may pursue the claims asserted here prior to exhausting the contractual remedial procedure specified in the Subcontract, as Kingston had done with the aforementioned topographical and manhole issues.

         II. Motions To Stay And For Partial Summary Judgment

         Prior to filing the present Motion, Boland and Western Surety filed a Motion to Stay Proceedings in Accordance with Terms of Subcontract Agreement Between Parties to Exhaust the Administrative Remedies, on June 12, 2017 (“Motion to Stay”). Dkt. No. 113. Boland and Western Surety moved to stay this action and enforce the administrative remedies outlined in Subcontract Paragraph 13A, which provides that any claims by Kingston against Boland for which the USACE “may be responsible” must be pursued first by Boland on behalf of Kingston through the remedial procedures set forth in the Prime Contract between Boland and the USACE. Paragraph 23 of the Subcontract, entitled “Waivers and Stays, ” provides that Kingston agrees to stay any action pending the complete and final resolution of the Prime Contract's contractual remedial procedure as required by Paragraph 13. On July 11, 2017, the magistrate judge denied the Motion to Stay. Order Denying Defs.' Mot. to Stay, Dkt. No. 121. On July 21, 2017, Defendants filed a Motion for Reconsideration of that denial. Dkt. No. 127.

         On June 16, 2017, Boland and Western Surety filed the present Motion, which contends that: (1) Kingston has failed to comply with the contractually mandated remedial procedure in Subcontract Paragraph 13A, which is a condition precedent to the present civil action, and which requires dismissal of Kingston's claims; (2) Kingston's claims are barred by Subcontract Paragraph 12B's “no damage for delay” clause; and (3) Kingston's modified total cost claim theory on damages fails in the absence of evidence to support such a theory.[4] See Mot., Dkt. No. 115. Kingston maintains that because it seeks remedies solely based upon Boland's mismanagement of the Project-not relating to any conduct attributable to the USACE-the contractual remedial procedure upon which Boland relies is not applicable.

         STANDARD OF REVIEW

         Pursuant to Federal Rule of Civil Procedure 56(a), a party is entitled to summary judgment “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.”

         DISCUSSION

         The Court concludes that Boland and Western Surety are entitled to partial summary judgment because, under the terms of the Subcontract, Kingston expressly agreed to stay any civil action against Boland and Western pending resolution of the contractual remedial procedure relating to claims for which the USACE may be responsible. Although Kingston vigorously disputes the applicability of the pass-through provisions, given the underlying nature of its claims and current theory of damages, it is enough that the government may be responsible for Kingston's losses. As detailed below, notwithstanding its focus on Boland's alleged mismanagement, Kingston previously pointed to the USACE's role in certain delays and errors. Because the government may be responsible for the claims asserted here, the determination of whether or to what degree the USACE is responsible for Kingston's losses is to be made in the first instance by the appropriate agency Contracting Officer or board designated to hear such claims according to the unambiguous terms of the Subcontract.[5]

         Because the Court grants in part Defendants' Motion with respect to the application of Subcontract Paragraphs 13A and 23, it does not reach movants' additional arguments as to Subcontract Paragraph 12B, the “no damage for delay” clause, or whether an exception to that provision applies under the circumstances. The Court reserves ruling on those issues-and others raised by the parties in their briefing-pending the resolution of the contractual remedial procedure outlined in Paragraph 13A and stays this action as contemplated by Paragraph 23.

         I. The Subcontract Requires A Stay Of This Action Pending Resolution Of the Prime Contract's ...


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