Holber v. Suffolk Constr. Co. (In re Red Rock Servs. Co.)

Citation480 B.R. 576
Decision Date30 August 2012
Docket NumberBankruptcy No. 07–21572REF.,Adversary No. 09–2112.
PartiesIn re RED ROCK SERVICES CO., LLC, Debtor. Robert H. Holber, Esquire, Chapter 7 Trustee, Plaintiff v. Suffolk Construction Company, Inc., Defendant.
CourtUnited States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania

OPINION TEXT STARTS HERE

MEMORANDUM OPINION

RICHARD E. FEHLING, Bankruptcy Judge.

I. INTRODUCTION

The Chapter 7 Trustee (Trustee) of the bankruptcy estate of Debtor, Red Rock Services Co., LLC (“Red Rock”), initiated this construction litigation seeking to collect $1,667,945, plus attorneys' fees, costs and interest, from Suffolk Construction Company, Inc. (Suffolk). Trustee alleges that Suffolk refused or failed to pay Red Rock for certain demolition services provided to Suffolk in a construction project, known as the Silo Point project, near Baltimore, Maryland. The second amended complaint filed by Trustee alleges causes of action against Suffolk for breach of contract, or alternatively, breach of implied covenant of good faith and fair dealing, breach of fiduciary duty, breach of constructive trust, unjust enrichment and quantum meruit. 1

Suffolk's answer to the second amended complaint sets forth several affirmative defenses,including a setoff defense, and also requests attorneys' fees, costs and interest arising from Red Rock's failure to perform its obligations in a second construction project, known as the McCormack project, in Boston, Massachusetts.

I find and conclude that Suffolk owes Trustee $1,156,909.46 for the Maryland project and Red Rock owes Suffolk $852,201.83 for the Massachusetts project. I also find that Suffolk may offset the amounts and reduce its obligation to Trustee to $304,707.63.

II. JURISDICTION

The parties stipulated in their Joint Pre–Trial Statement that I have jurisdiction to hear this case under 28 U.S.C. § 1334 and that the matter is a core proceeding under 28 U.S.C. § 157(b)(2)(B). See Joint Pre–Trial Statement filed on July 15, 2010 (docket entry 105), ¶ 1. See also Joint Stipulation on the Court's Jurisdiction filed on August 29, 2011 (docket entry 203), ¶ 2. The parties also stipulated and consented to my entry of a final judgment in this adversary proceeding. See Joint Stipulation on the Court's Jurisdiction at ¶ 4. I therefore find that this matter is a core proceeding over which I have jurisdiction and the power to issue a final decision pursuant to 28 U.S.C. § 157(b)(2)(B). This Memorandum Opinion constitutes my findings of fact and conclusions of law in this proceeding.

III. PROCEDURAL HISTORY

Trustee initiated this suit by filing a Complaint against Suffolk on May 18, 2009. On June 15, 2009, the parties filed a Stipulation extending the deadline for Suffolk to respond to the Complaint to July 1, 2009. I approved this Stipulation in an Order entered on June 17, 2009. On June 29, 2009, Suffolk filed its Answer to the Complaint.

On September 22, 2009, I signed a Consent Order permitting Trustee to file a First Amended Complaint, which Trustee filed later that day. Suffolk filed an Answer to the First Amended Complaint on October 1, 2009. On March 5, 2010, Suffolk filed a Motion for Summary Judgment on Counts V, VI, VII and VIII of the First Amended Complaint (“Partial Summary Judgment Motion.”) 2 On April 2, 2010, Suffolk filed a Motion in Limine, and on this same day, Trustee filed a Motion for Leave to File a Second Amended Complaint.

On April 21, 2010, argument was heard on Trustee's Motion for Leave to File a Second Amended Complaint and on Suffolk's Motion in Limine and Partial Summary Judgment Motion. On April 22, 2010, I entered an Order granting Trustee's Motion for Leave to File a Second Amended Complaint. I also entered an Order on that same day deferring my consideration of Suffolk's Motion in Limine until the time of trial.3

On April 23, 2010, Trustee filed his Second Amended Complaint and on April 27, 2010, I entered an Order denying Suffolk's Partial Summary Judgment Motion. Suffolk then filed an Answer to the Second Amended Complaint on April 27, 2010. I conducted a Pre–Trial Settlement Conference on July 21, 2010 and scheduled a twelve-day trial to commence on December 6, 2010.

On September 16, 2010, Suffolk filed a Praecipe to Relist its Motion in Limine and on September 30, 2010, Suffolk filed a Motion in Limine to Exclude Trustee's Expert from Testifying as to June 2007 Report. The parties filed their briefs and I heard argument on Suffolk's Motions in Limine on October 25, 2010. At the conclusion of the argument, I entered a bench Order denying Suffolk's first Motion in Limine without prejudice and on October 26, 2010, I entered a written Order denying Suffolk's Motion in Limine to Exclude Trustee's Expert from Testifying as to June 2007 Report.

On November 24, 2010, Trustee filed a Motion in Limine to Preclude Defendant from Supplementing its Purported Claim for Setoff and/or Recoupment by $1,089,745.61 (“Claim Limine Motion”),4 to which Suffolk filed a brief in opposition on December 1, 2010. On December 2, 2010, I denied Trustee's Claim Limine Motion on the condition that: (1) Suffolk: (a) Pay for the pre-trial discovery and preparation expenses Trustee incurred relating to the $1,089,745.61 claim (not including attorneys' fees), and (b) immediately pay Trustee $50,000 as a retainer towards Trustee's pre-trial discovery and preparation expenses; and (2) the parties agree to continue the trial to dates mutually agreeable to them and the court. I held a status conference on December 3, 2010, after which I entered a bench Order directing the parties to file any summary judgment motions on or before February 15, 2011, with responses to the motions due by March 12, 2011. On December 9, 2010, I entered an Order canceling the trial dates previously scheduled and setting new trial dates.

On December 15, 2010, Trustee filed a Motion for Partial Summary Judgment, to which Suffolk filed an opposing brief and a Cross Motion for Summary Judgment on March 2, 2011. I held a conference call later that day to discuss Suffolk's untimely filing of its Cross Motion for Summary Judgment. On March 3, 2011, I entered an Order striking Suffolk's Cross Motion as tardily filed. This Order made clear that Suffolk's Opposition to Trustee's Partial Summary Judgment Motion remained pending. On March 8, 2011, Suffolk filed a Motion for Leave to File a Sur–Reply Brief In Opposition to Trustee's Motion for Partial Summary Judgment, which I granted by Order entered that same day. On March 14, 2011, Suffolk filed its sur-reply brief. On March 21, 2011, I entered an Order denying Trustee's Motion for Partial Summary Judgment and directing that trial commence on April 4, 2011. On March 28, 2011, Trustee and Suffolk filed a Stipulation in which they agreed to dismiss Counts 7, 8, 9 and 10 of the Second Amended Complaint.5

Eight days of trial ensued, with the trial ending on May 17, 2011. After the parties submitted proposed findings of fact, conclusions of law, and proposed rebuttal and reply findings of fact and conclusions of law, I heard argument on December 13, 2011. I then took the matter under advisement. After reviewing the parties' submissions, I concluded that additional argument on certain issues was necessary and I entered an Order on March 26, 2012 scheduling further argument on May 9, 2012.6 Following this final argument, the parties submitted final post argument submissions. The matter is now ready for my disposition.

IV. FACTUAL BACKGROUND

Prior to filing this Chapter 7 bankruptcy petition, Red Rock was a construction subcontractor involved primarily in demolition work. Suffolk is a construction general contractor. In the summer of 2006, Suffolk was the general contractor on two projects, the Silo Point project located near Baltimore, Maryland, and the McCormack project located in Boston, Massachusetts. Suffolk engaged Red Rock to serve as the demolition subcontractor on both projects. This action arises from those two subcontracts and the work performed pursuant to them.

A. SILO POINT PROJECT

On April 20, 2006, Suffolk entered into a construction contract with the owner of the Silo Point grain bin, Silo Point II, LLC (“Silo Point”). Under this contract, Suffolk served as the general contractor on the Silo Point project, which involved converting an 83–year–old grain silo into high-end condominiums. The contract between Silo Point and Suffolk was a Guaranteed Maximum Price contract (“GMP contract”), through which Suffolk guaranteed that the cost of the work plus its fee would not exceed $92,690,000, subject to additions and deductions authorized by change orders.

Suffolk engaged Red Rock to serve as the demolition subcontractor on the Silo Point project and the parties executed a subcontract for demolition services. This subcontract was dated as of July 24, 2006 (“Silo Point subcontract”). The Silo Point subcontract provided for Red Rock to be paid $2,060,000 to complete its work. Red Rock began demolition work on the Silo Point project in July 2006. During Red Rock's performance, Suffolk repeatedly complained to Red Rock about delays and various breaches by Red Rock. Furthermore, Suffolk was more or less forced to advance funds to pay Red Rock's employees, subcontractors, suppliers, and vendors. In fact, Red Rock accepted two deductive change orders—Deductive Change Order No. 00001 and Deductive Change Order No. 00002—which reduced the original subcontract price to $2,054,483.7

On or about November 6, 2006, Red Rock was performing demolition work on several vertical storage bins that extended from below the 16th floor to the 18th floor. A portion of one of the bins detached from the structure and fell to the 15th floor, causing damage to portions of the existing concrete floor slab and walls. Red Rock immediately ceased work after the bin collapse until the extent of the damage could be assessed by the engineer of record and the project site was declared safe for work to continue.

When Red Rock...

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