Architectural Systems, Inc. v. Gilbane Bldg. Co.

• Decision Date: 03 June 1992
• Docket Number: No. 92-1107,92-1107
• Citation: 974 F.2d 1330
• Parties: NOTICE: Fourth Circuit I.O.P. 36.6 states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Fourth Circuit. ARCHITECHURAL SYSTEMS, INCORPORATED, a Maryland corporation, Plaintiff-Appellant v. GILBANE BUILDING COMPANY, a Rhode Island corporation, Defendant-Appellee. . Argued:
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1330

974 F.2d 1330

NOTICE: Fourth Circuit I.O.P. 36.6 states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Fourth Circuit.

ARCHITECHURAL SYSTEMS, INCORPORATED, a Maryland corporation Plaintiff-Appellant v. GILBANE BUILDING COMPANY, a Rhode Island corporation Defendant-Appellee.

No. 92-1107.

United States Court of Appeals Fourth Circuit.

Argued: June 3, 1992

Decided: September 8, 1992

Peter Wilson Taliaferro, THOMAS & LIBOWITZ, Baltimore, Maryland, for Appellant.

John Francis Morkan, III, OBER, KALER, GRIMES & SHRIVER, Baltimore, Maryland for Appellee.

Michael S. Libowitz, THOMAS & LIBOWITZ, Baltimore, Maryland, for Appellant.

John Anthony Wolfe, OBER, KALER, GRIMES & SHRIVER, Baltimore, Maryland, for Appellee.

Before WIDENER and HAMILTON, Circuit Judges, and STAMP, United States District Judge for the Northern District of West Virginia, sitting by designation.

PER CURIAM:

OPINION

Architectural Systems, Inc. ("ASI") contracted with Gilbane Building Company ("Gilbane") on March 25, 1987, to perform drywall and acoustical tile work on a Baltimore development project for which Gilbane served as the general contractor. During the course of construction, Carley Capital Group ("Carley"), the project owner, experienced financial difficulties, which resulted in delays in payments to Gilbane and its subcontractors, including ASI. In late 1988, Carley became insolvent and ceased payments to Gilbane. Gilbane then halted payments to ASI, relying on a condition precedent in its contract with ASI. Following Gilbane's failure in its efforts to recover the monies owed by Carley, ASI filed suit against Gilbane in the United States District Court for the District of Maryland on September 12, 1990, alleging breach of contract, negligence, negligent misrepresentation, and intentional misrepresentation. The district court granted Gilbane's motion for partial summary judgment as to ASI's breach of contract claim on March 21, 1991, which ruling ASI has not challenged in this appeal. Following discovery, the district court entered summary judgment in favor of Gilbane on ASI's negligence, negligent misrepresentation, and intentional misrepresentation allegations on December 16, 1991. Architectural Sys., Inc. v. Gilbane Bldg. Co., 779 F. Supp. 820 (D. Md. 1991). ASI timely noted this appeal from the district court's December 16, 1991, memorandum opinion. Following a de novo review of the materials before the court, see Felty v. Graves-Humphreys Co., 818 F.2d 1126, 1127 (4th Cir. 1987), viewing all inferences from the underlying facts in the light most favorable to ASI, Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986), we affirm.

I.

In early 1985, Gilbane entered into a cost-reimbursable general contract with Carley to serve as the construction manager and general contractor for the Henderson's Wharf project located in Baltimore City, Maryland. On March 25, 1987, ASI contracted with Gilbane to perform drywall and acoustical work on the project for a total cost of $2,624,000. ASI's payments were subject to a ten percent retainage from the amounts of its monthly requisitions to Gilbane. The trade contract into which Gilbane and ASI entered provided that Gilbane's receipt of payments from Carley was a condition precedent to Gilbane's obligation to pay ASI. ASI commenced work on the project in April 1987.

On September 4, 1987, several months after entering into the trade contract with ASI, Gilbane entered into a lump-sum general contract with Carley that replaced the cost-reimbursable contract. Under the lump-sum contract, valued at $19,188,414, Gilbane was not required to incur any cost prior to being paid by Carley but rather was to be paid in installments consistent with the percentage completion of the project. Gilbane and ASI executed an amendment to the trade contract on November 18, 1987, incorporating the September 4, 1987, agreement between Carley and Gilbane as a contract document to which the trade agreement applied. The contract between ASI and Gilbane remained a retainage contract.

Under the conduit clause of the trade contract, ASI was entitled to the benefit of all rights against Gilbane that Gilbane had against Carley. Gilbane had the right to obtain financial assurances of Carley's ability to fund the project at the time of the execution of the general contracts, and under the conduit clause, ASI was entitled to request assurances from Gilbane at the time of the execution of the trade contract. Prior to entering the lump-sum general contract, Gilbane sought financial assurances from Carley as to its ability to complete the project. Carley provided Gilbane with a letter from its lender on October 14, 1987, stating that the lender's "total commitment is now in excess of Twenty-Nine Million, One Hundred Fifty Thousand Dollars ($29,150,000)"; that "[f]unds will be available based upon approved requisitions to pay contractors and agents in a timely manner"; and that "the additional funds will assure the entire program's completion". Following receipt of the letter, Gilbane executed the lump-sum contract and proceeded with its work.

By the autumn of 1987, ASI had experienced slow payment of several of its monthly requisitions. ASI's president contacted Gilbane's project engineer, asking whether Carley's money problems might prevent ASI from being paid. The project engineer responded that the job was going to finish, that it was not in trouble, and that there was no chance of ASI not being paid. In October 1987, Gilbane's project manager concluded that Carley's financial arrangements were not sufficient to cover the full range of costs on the Henderson's Wharf project, which costs included expenses outside the Gilbane contract. The project manager's conclusions were not communicated to ASI. In February 1988, ASI was again concerned with Carley's ability to finance the project, and ASI's owner asked Gilbane's project executive about Carley's financial condition. Gilbane's project executive informed ASI's president that, in Gilbane's opinion, Carley would be able to complete the project as anticipated.

Completion of the Henderson's Wharf project was scheduled for early June 1988, but as work progressed through the spring of 1988, several of Carley's payments were late. As Gilbane received the payments due it from Carley, Gilbane paid its subcontractors, including ASI. When Carley's payment of Gilbane's May 1988 requisition was delayed beyond the mid-June payment date, Gilbane contacted Carley to inquire of the status of the payment and contacted Carley's lender in an attempt to ascertain whether a problem existed. Still not having received the required payment, Gilbane exercised its rights under the lump-sum contract and notified Carley that it would suspend its work as well as that of its subcontractors unless payment was forthcoming. Gilbane also advised its subcontractors of its action. After approximately one month of consultation and activity, Carley obtained additional financing from its lender and paid Gilbane's May 1988 requisition.

Work on the Henderson's Wharf project had nearly been completed by the time Carley paid Gilbane's May 1988 requisition with only final work known as "punch list" work remaining. Shortly after August 1988, Carley encountered severe financial difficulties on several of its other projects around the United States. Concerned that final payment might be in jeopardy, Gilbane filed a mechanic's lien on the project, including in its claim monies owed the subcontractors. A senior lienholder foreclosed on the project, extinguishing Gilbane's lien by operation of law. Gilbane subsequently filed suit and obtained judgments against Carley and its principals and filed claims in the bankruptcy proceeding of Carley and its principals. Gilbane's filings included claims for monies owed the subcontractors, including ASI. Gilbane was unsuccessful in obtaining full recovery of the claims.

ASI subsequently filed the present action in the United States District Court for the District of Maryland, seeking payment of monies it was allegedly owed under its contract with Gilbane and asserting claims for breach of contract, negligence, negligent misrepresentation, and intentional misrepresentation. The district court approved a procedure under which the court would first rule on the contract and condition precedent clause before proceeding to the causes of action sounding in tort.

A second subcontractor on the Henderson's Wharf project, Brisk Waterproofing Company, filed suit in the Circuit Court of Maryland for Prince George's County, alleging the condition precedent payment provision in its trade contract, which was identical to the condition precedent payment provision in the Gilbane-ASI contract, was invalid. The Maryland Court of Special Appeals, reversing the trial court's decision, held that payment provisions contained in the trade contracts were valid under Maryland law and that Gilbane was not contractually obligated to pay its subcontractors unless it had first received payment from Carley. Gilbane Building Co. v. Brisk Waterproofing Co., 86 Md. App. 21, 28-29, 585 A.2d 248, 251-52 (1991).

Relying on Brisk, the district court concluded that Carley's payment of Gilbane was a condition precedent to the requirement that Gilbane pay ASI under the trade agreement and granted Gilbane's motion for partial summary judgment on the breach of contract claim that ASI had asserted. Architectural Sys., Inc. v. Gilbane Bldg. Co., 760 F. Supp. 79, 81 (D. Md. 1991). ASI then reasserted its tort claims against Gilbane, in response to which Gilbane filed a motion to dismiss. The district court denied Gilbane's motion and ordered discovery.

Following discovery, Gilbane moved for summary judgment on the three remaining counts of ASI's complaint....