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Gramercy Group, Inc. v. D.A. Builders, LLC

United States District Court, D. Hawaii

March 9, 2018

D.A. BUILDERS, LLC a/k/a D.A. BUILDERS, et al. Defendants.


          J. Michael Seabright, Chief United States District Judge


         This case arises from a construction project (the “Project”) at Honolulu's International Market Place (the “Property”). Gramercy Group, Inc. (“Gramercy”) was the prime contractor on the Project. It entered into an agreement (the “Subcontract”) with D.A. Builders, LLC (“DAB”) to perform a portion of the Project work, but it terminated the Subcontract before the work was completed. In this action it seeks, among other things, a determination that the termination was proper. DAB disagrees and has filed a multi-count counterclaim.

         Currently before the court are Gramercy's Motions for Summary Judgment on Count Eight of its First Amended Complaint (“FAC”) and on all counts of DAB's Second Amended Counterclaim (“SACC”).


         A. Factual Background

         Sometime after Gramercy had been engaged to do demolition and environmental work on the Project, it became interested in bidding for the drywall work as well, and it sought bids from local contractors to perform the work. Vincent Parziale (“Parziale”) Dep. 28:22-29:1, 36:11-37:7, ECF No. 210-4. Acting as Gramercy's broker, Gene Kung Ho Lum (“Lum”) met with DAB's owner David Alcos (“Alcos”). Lum Decl. ¶¶ 9, 18, ECF No. 210-1. Initially, Alcos told Lum that the job was too big for DAB to handle. Alcos Dep. 36:2-5, ECF No. 210-16. And Lum states in his declaration that he “could tell right away that [Alcos and DAB] were not prepared to handle a project of this size. DAB was small and [Alcos] did not have the experience. [Alcos] also could not get bonding.” Lum Decl. ¶ 19. It was not until Lum proposed that Gramercy would make necessary cash advancements to fund DAB's work on the Project that DAB considered bidding for the job. Alcos Dep. 36:5-8, 39:4-21.

         According to Lum, Parziale and John Giarrusso (“Giarrusso”) of Gramercy “recognized that if they contracted with DAB, Gramercy would have to finance the Project because DAB did not have the capital to support the labor force, vendors, and materials.” Lum Decl. ¶ 21. And Alcos asserts that Gramercy promised to provide such funding:

[Giarrusso] repeatedly assured me that Gramercy “had my back”, would “work the project together” and ensured that DAB “would not get hurt.” [He] told me that Gramercy would pay DAB or the money would come from the owner of the Project . . . . And more specifically, [Parziale] told me that Gramercy would advance and furnish the capital to allow DAB to properly pay my employees and trade creditors . . . . There weren't any conditions attached to these promises.

Alcos Decl. ¶ 8, ECF No. 210-2.

         DAB eventually bid for the work with the understanding that “Gramercy would be acting as a partner, ” with a “shared . . . goal of completing the project together.” Id. ¶ 11. The alleged funding promises, however, were never reduced to writing and are not included in the Subcontract. See id. ¶ 15.

         Likewise, DAB's final bid did not cover all of the expenses for which DAB contends it was promised payment. Specifically, it did not include costs associated with meeting “FM Global standards because the plans and specifications provided did not include that information.” Id. at ¶ 12. According to Alcos, however, Gramercy instructed DAB to tell general contractor dck/FWF (“DCK”) that FM Global was included in the bid. Id. ¶¶ 3, 14. Alcos contends that Gramercy assured him that DAB would be paid for these costs (as well as others, including those associated with change orders, increases in DAB's scope of work, and overtime). Id. ¶¶ 17, 30-31. And he states that “Gramercy did not accept any of my requests to amend the [S]ubcontract, but they still promised me that they would advance me the necessarily (sic) capital to carry the job and cover the added FM Global costs.” Id. ¶ 15.

         Gramercy admits that it promised to provide some funding to DAB, but it disputes DAB's allegations about the scope of that promise. Gramercy's Vice President of Operations, Gregg Jenkinson (“Jenkinson”), testified that his “only understanding was that we were going to support [DAB] with payroll and we were going to advance [it] money for long lead or large procurement items. But I never understood that as a . . . permanent function.” Jenkinson Dep. 10:20, 27:10-14, ECF No. 210-10. And at least initially, he did not understand the agreement to have been for the “full payroll.” Id. at 28:7-8.

         According to Alcos, “[o]ther than paying for FM Global, Gramercy was good about advancing the costs as promised up until November, 2015.” Alcos Decl. ¶ 18. Beginning in November, however, Gramercy began funding only a portion of DAB's gross payroll, yet it “ordered [DAB] to work overtime and . . . to submit change orders for work [it was] performing outside of [its] scope.” Id. ¶¶ 20, 22. Alcos also contends that DAB was “getting pressured to make up for other trades' delays and to meet the February 25 back-of-the-house-milestone, so [he] was increasing [his] work force and asking them to work overtime.” Id. ¶ 22.

         Alcos “texted, emailed, and talked to [Jenkinson] about this shortfall a bunch of times.” Id. ¶ 23. And “[i]n December, [Alcos] told [Jenkinson] that DAB would not be able to pay [its] state and federal taxes, and also wouldn't be able to cover all of the unions' requirements without Gramercy funding the gross payroll.” Id. His repeated requests in January and February for full funding went unmet. See id. ¶¶ 24-32. And in February, Gramercy canceled the Subcontract. Notice of Termination (“Notice”), ECF No. 210-12.

         The Notice, dated February 23, 2016, invokes the Termination Provision in paragraph twenty of the Subcontract, and terminates the Subcontract effective February 26, 2016. Id. As grounds for termination, the Notice states that DAB materially breached the Subcontract by failing to “properly prosecute and perform its work” and by failing to meet financial obligations to pay taxes, appropriate wages, union dues and fringe benefits, and amounts owed to vendors and subcontractors. Id.

         In relevant part, the Subcontract's Termination Provision states:

Should the Subcontractor become insolvent, the Subcontractor may be deemed to be in material breach of this Agreement. For the purpose of this paragraph . . . any failure to pay financial obligations as they become due including tax liability and union agreement fringe benefits, shall be deemed an act of insolvency. Further, the Contractor may deem this contract materially breached if the Subcontractor fails to properly prosecute and perform any part of its work, fails to exert its best performance efforts, becomes the subject of any claim ...

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