Gramercy Grp., Inc. v. D.A. Builders, LLC
| Decision Date | 09 March 2018 |
| Docket Number | Civ. No. 16-00114 JMS-KSC |
| Parties | GRAMERCY GROUP, INC., Plaintiff, v. D.A. BUILDERS, LLC a/k/a D.A. BUILDERS, et al. Defendants. |
| Court | U.S. District Court — District of Hawaii |
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").
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 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. Accordingto 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 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 aportion 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 of failure to pay the appropriate wage rates (including fringe benefits), or is terminated under any other contract with the Contractor.
Subcontract ¶ 20, ECF No. 99-6. The Subcontract also allows Gramercy to terminate for convenience:
The Contractor shall have the right, by three (3) days written notice, to terminate and cancel this Agreement, without the Subcontractor being at fault, for its own convenience, and require the Subcontractor to stop work immediately. In such event, the Contractor shall pay the Subcontractor for that work actually performed in an amount proportionate to this Subcontract price. The Contractor shall not be liable to the Subcontractor for any other costs, including prospective profits on unperformed work.
Id. ¶ 32. And it includes a "conversion clause," providing that "[i]f it shall be determined that a termination for cause under this clause was wrongful or unjustified, such termination shall be deemed to be a termination for convenience." Id. ¶ 20.
Following the termination, Alcos came to believe that he had been "set up from the beginning," remembering "how Gramercy wouldn't accept a single one of my requested revisions to the [S]ubcontract" and finding "out later when Gramercy turned over documents that they terminated me to avoid paying me about $4million." Alcos Decl. ¶ 40. One of the "documents" Alcos is apparently referring to is a February 17, 2016 email from Frank Falciani, Managing Director for DCK, to Parziale and others, that states in relevant part:
I think we can nurse [DAB] through the completion of the back-of-house areas. However, their big prize is Global FM and overtime reimbursement which total in excess of $4 million. They will make that claim at some time and try to leverage Gramercy into position to have to pay portions of that money to "keep them afloat". As you know I already own the Global FM and Schedule from Gramercy. Therefore this is a pure claim on behalf of [DAB]. I strongly suggest you start today to build the team with outside resources from the mainland who understand the work and will become acclimated to the project and details. Then if [DAB] threatens to walk off the job unless he gets paid their claim, you have a plan "B" working on the project and the concourse construction can continue. That is why it is essential to get through to April 1 with the turnover of the mall GLA and back-of-house, Saks façade and parking deck.
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Gramercy filed the FAC on May 27, 2016. ECF No. 15. Count I alleges a claim for breach of contract, id. ¶¶ 77-82, and Count VIII seeks declaratory relief as follows: (1) Gramercy properly terminated the Subcontract for cause based on DAB's material breach, (2) DAB may not enforce any provisions of the Subcontract and is liable to Gramercy "for any and all additional costs, expenses, attorneys' fees, and other damages, both liquidated and unliquidated, which directly or indirectly result from [DAB's] breach," and (3) DAB "is...
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