Erdman Co. v. Phx. Land & Acquisition, LLC
| Decision Date | 18 July 2013 |
| Docket Number | CASE NO. 2:11-CV-2067,CASE NO. 2:10-CV-2045 |
| Court | U.S. District Court — Western District of Arkansas |
| Parties | ERDMAN COMPANY; and ERDMAN ARCHITECTURE & ENGINEERING COMPANY PLAINTIFFS v. PHOENIX LAND & ACQUISITION, LLC; PHOENIX HEALTH, LLC DEFENDANTS ERDMAN COMPANY; and ERDMAN ARCHITECTURE & ENGINEERING COMPANY THIRD PARTY PLAINTIFFS v. DATA TESTING, INC.; OTIS ELEVATOR COMPANY; and THIRD PARTY DEFENDANTS PHOENIX HEALTH, LLC; and IPF, LLC CONSOLIDATED PLAINTIFFS v. ERDMAN ARCHITECTURE & ENGINEERING COMPANY; and OTIS ELEVATOR COMPANY CONSOLIDATED DEFENDANTS |
ERDMAN COMPANY; and ERDMAN
ARCHITECTURE & ENGINEERING COMPANY PLAINTIFFS
v.
PHOENIX LAND & ACQUISITION, LLC; PHOENIX HEALTH, LLC DEFENDANTS
ERDMAN COMPANY; and ERDMAN
ARCHITECTURE & ENGINEERING
COMPANY THIRD PARTY PLAINTIFFS
v.
DATA TESTING, INC.;
OTIS ELEVATOR COMPANY; and THIRD PARTY DEFENDANTS
PHOENIX HEALTH, LLC; and IPF, LLC CONSOLIDATED PLAINTIFFS
v.
ERDMAN ARCHITECTURE & ENGINEERING COMPANY;
and OTIS ELEVATOR COMPANY CONSOLIDATED DEFENDANTS
CASE NO. 2:10-CV-2045
CASE NO. 2:11-CV-2067
UNITED STATES DISTRICT COURT WESTERN DISTRICT OF ARKANSAS FORT SMITH DIVISION
SO ORDERED: July 18, 2013
Before the Court are summary judgment motions filed by Otis Elevator Company ("Otis") (ECF No. 170), Erdman Company, and Erdman Architecture & Engineering Company (together, "Erdman") (ECF Nos. 185 & 234). Both motions concern the Phoenix entities' damages claims. Phoenix has responded (ECF No. 248), and Erdman and Otis have replied.
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(ECF Nos. 255 & 256). The matter is ripe for the Court's consideration. For the following reasons, the motions will be denied.
To understand the pending motions, some fairly extensive background is necessary. This dispute involves a group of doctors—the Phoenix entities—who set out to build and run their own surgery hospital. "Phoenix Land & Acquisition" ("Phoenix Land") contracted with Erdman for the design and construction of the project. Erdman subcontracted the elevator installation work to Otis. Otis then subcontracted the required drilling work to Long's Drilling.1
The project encountered a problem in July 2008. While drilling a hole to install an elevator, Long's Drilling breached an abandoned mine shaft no one knew existed. The mine shaft breach damaged other parts of the project and had to be fixed at great expense to Phoenix. Phoenix argues that Erdman and Otis's negligence caused the breach and resulting damages.
Phoenix Health ("PH"), a group mostly of orthopedic doctors, purchased land in Fort Smith in February 2004. PH planned to build a medical complex on the land, consisting primarily of a specialty hospital and a medical-office building and, later, an urgent-care center. The plan was to build the hospital first, but the last-minute imposition of certain regulations made that impractical. Accordingly, PH decided to build the office building first.
Erdman was hired to design and build the office building. It was hired in November 2005 and finished the building in October 2006. Erdman was also hired in November 2005 to build an ambulatory surgery center ("ASC"). The ASC was finished in December 2006.
Several sub-entities of Phoenix had roles in the above projects. Phoenix Health leased the land in two tracts to Phoenix Land, another legal entity made up of mostly orthopedic surgeons. Phoenix Land was the actual entity that hired Erdman to build the project. One of the tracts was
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used for the office building, and another for the ASC. When the ASC was finished, it was operated by "Phoenix Health Associates of Fort Smith" ("PHA"), which the Court assumes to be another entity of doctors.
In mid-2006, the regulatory impediment to the specialty hospital was removed, and Phoenix Land decided to go ahead with their plan to build it. The specialty hospital was to be built as an addition to the existing ambulatory surgery center. The plans allowed for a future second-floor expansion, to accommodate a possible group of OB/GYN doctors who were thinking of joining the venture. The plan was for Phoenix Land to own and operate the hospital building and for a new entity to own the hospital operations.
The OB/GYN doctors opted to join the venture shortly after Phoenix Land signed the contract with Erdman for the hospital addition. These OB/GYNs, along with the orthopedic doctors making up Phoenix Land, subsequently formed IPF, LLC. IPF was not technically a legal replacement for Phoenix Land, but it was meant to serve the same function and to supplant Phoenix Land as a practical matter. As a replacement for Phoenix Land, IPF became Phoenix Health's lessee on the property.
When the hospital was finished, the group of doctors would practice out of that facility and would offer inpatient services on top of the outpatient services the ASC already offered. The group of doctors did in fact practice out of the ASC for a time, in addition to seeing patients through privileges at area hospitals. Because the hospital project fell apart prior to completion, they never had the opportunity to practice out of the new facility.
Although plan expansions, including the second floor, pushed the contract price from its original $13.25 million dollars to upwards of $30 million, the doctors expected the new venture
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to be profitable. Several studies projected that the annual profits would be between $3.4 million to $9.6 million.
Phoenix Land paid for the hospital addition through financing. The initial financing came from Benefit Bank, but in September 2008, roughly a couple months after the mine shaft incident, Benefit Bank informed Phoenix Land and IPF that it could no longer finance the project. After that, IPF worked out a financing arrangement with Bank of the Ozarks, but that deal was conditioned on IPF finding a suitable corporate partner. The only partner IPF came close to partnering with was Cirrus Health. Cirrus and IPF had a tentative partnership arrangement that involved several ownership transfers between existing and newly created sub-entities. The complex details of that arrangement are not important here. The most important point is that the end result would have been for Cirrus and IPF to essentially split ownership of all aspects of the ASC and hospital addition 50-50.
The Cirrus deal ultimately fell through due to Citrus's concerns about the cost and viability of the project. There is some dispute about whether Cirrus's concerns were directly related to the cost of repairing the mine shaft. In a November 2009 letter to Phoenix, Cirrus stated that "a number of prior expenditures" drove the cost of the project "beyond achievable returns for a successful investment...." The letter went on to say that Cirrus was concerned that the project would not be commercially financeable due to "a lack of physician equity, lack of a tenant for the second floor, and the non-preservation of lender lien rights." The mine shaft repair costs were not specifically cited in Cirrus's letter, but Phoenix representatives have testified that the cost of repairing the mine breach came up in discussions with Cirrus representatives prior to the deal falling through. A Cirrus representative has also testified that the mine breach was a factor in their decision not to partner with Phoenix.
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When a partnership with Cirrus did not come to fruition, Phoenix was left unfinanced. As a result, Phoenix Land stopped paying Erdman to finish the project. Erdman walked off the job and filed liens on the project, and Phoenix Health, the landowner, was forced to sell to St. Edward Mercy Health System, Inc. in 2011. That sale, according to Phoenix, was for much less than the property would have been worth were the project completed.
The Phoenix entities allege that the negligence of Erdman, Otis Elevator (Erdman's subcontractor), and Data Testing (which Erdman hired to do a geological survey) was responsible for the mine collapse and ultimate failure of the project. Phoenix has sued for damages, including lost profits and diminution in land value. Erdman and Otis contend that Phoenix is not entitled to those damages for several reasons. They now ask the Court to grant them summary judgment declaring Phoenix barred from those damages.
The standard of review for summary judgment is well established. The Federal Rules of Civil Procedure provide that when a party moves for summary judgment:
The court shall grant 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.
Fed. R. Civ. P. 56(a); Krenik v. County of LeSueur, 47 F.3d 953 (8th Cir. 1995). The Supreme Court has issued the following guidelines for trial courts to determine whether this standard has been satisfied:
The inquiry performed is the threshold inquiry of determining whether there is a need for trial—whether, in other words, there are genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). See also Agristar Leasing v. Farrow, 826 F.2d 732 (8th Cir. 1987); Niagara of Wisconsin Paper Corp. v. Paper Indus. Union-Mgmt.
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Pension Fund, 800 F.2d 742, 746 (8th Cir. 1986). A fact is material only when its resolution affects the outcome of the case. Anderson, 477 U.S. at 248. A dispute is genuine if the evidence is such that it could cause a reasonable jury to return a verdict for either party. Id. at 252.
The Court must view the evidence and the inferences that may be reasonably drawn from the evidence in the light most favorable to...
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