Progressive Plumbing, Inc. v. Kast Constr. Iii, LLC (In re Progressive Plumbing, Inc.), Case No.: 6:15-bk-07275-KSJ
| Decision Date | 21 December 2018 |
| Docket Number | Adversary Proceeding No. No. 6:16-ap-00078-KSJ,Case No.: 6:15-bk-07275-KSJ |
| Parties | In re: PROGRESSIVE PLUMBING, INC. PROGRESSIVE SERVICES, LLC and GRACIOUS LIVING DESIGN CENTER, INC., Debtors. PROGRESSIVE PLUMBING, INC., Plaintiff, v. KAST CONSTRUCTION III, LLC, a Florida limited liability company, and MICHAEL MACDONALD, an individual, Defendants. |
| Court | U.S. Bankruptcy Court — Middle District of Florida |
Jointly Administered with Case No. 6:15-bk-07276-KSJ Case No. 6:15-bk-07277-KSJ
Debtor, Progressive Plumbing ("Progressive"), specializes in complicated commercial plumbing installations required by high rise hotels, offices, and residential buildings. Defendant, Kast Construction III ("Kast"), is a large general contractor who builds high-rise structures. Kast hired Progressive as its plumbing sub-contractor on at least two projects—one in St. Petersburg and the other in North Palm Beach ("NPB"). Defendant Michael MacDonald was Kast's Senior Project Manager on the NPB project.
Debtor brought this adversary proceeding against Kast claiming it is owed for work completed on these two projects and that Kast failed to return a "Booster Pump" used to maintain water pressure on the NPB project.1 After considering the evidence introduced at a two day trial2 and the parties' legal arguments, I will enter a Partial Judgment in favor of Progressive and against Kast for $240,124 and conclude Mr. MacDonald has no personal liability to Progressive. The Court will allow the parties to submit additional briefing and affidavits on Progressive's entitlement to attorneys' fees and costs before a Final Judgment can issue.
Here are the parties' agreed facts in their own words:3
1. Progressive is a commercial plumbing contractor.
2. Kast is a general contractor.
3. MacDonald is an employee and senior project manager of Kast.
4. Domani Development, LLC ("Domani"), is the owner of the NPB Project.
5. Robert "Bob" Vail ("Vail") is a member of Blue-Sky Family Investments, LLC, which is a member of Kast and Domani.
6. Domani is the owner and developer of the real estate and improvements known as The Water Club - North Palm Beach, Florida (the "NPB Project").
7. Domani hired Kast as the general contractor of the NPB Project.
8. MacDonald served as Kast's project manager for the NPB Project.
9. Progressive and Kast entered into a subcontract agreement for plumbing subcontractor services at the NPB Project (the "NPB Contract").
10. The NPB Contract was executed by both parties by January 14, 2015, for a total contract value of $4,684,257.
11. Kast approved Progressive's schedule of values at the time of signing the NPB Contract.
12. Progressive began performing plumbing subcontractor services at the NPB Project on October 19, 2014.
13. The NPB Contract required Progressive to procure a bond.
14. Progressive requested its surety to furnish a letter of bondability. Progressive provided a letter of bondability to Kast dated October 29, 2014.
15. On January 28, 2015, Progressive notified Kast and MacDonald it could not obtain a bond for the NPB Project.
16. On January 30, 2015, MacDonald, on behalf of Kast, sent a letter to Progressive stating that the failure of Progressive to secure bonding in 48 hours "shall constitute a default" under the NPB Contract (the "Default Letter").
17. On March 5, 2015, Bill Lawson, Sr., with Progressive attended a job coordination meeting on site at the NPB Project. MacDonald and other subcontractors also attended the meeting.
18. MacDonald requested updates and information on vendor orders on February 20, 2015.
19. MacDonald discussed with Progressive changes in Progressive's payment applications.
20. The changes in the payment applications would result in a smaller amount due to Progressive than under the terms of the NPB Contract.
21. The payment applications submitted by Progressive were amended to be equal to actual labor and materials in place or stored on site plus 20%.
22. On February 26, 2015, MacDonald approved Progressive's pay applications.
23. On March 9, 2015, Kim Sapp emailed MacDonald inquiring when payment would be made by Kast to Progressive.
24. Progressive continued to perform plumbing subcontractor services for the NPB Project through March 10, 2015.
25. Progressive submitted $239,550.30 in pay applications to Kast prior to Kast's termination of the NPB Contract.
26. MacDonald approved Progressive's pay applications.
27. Kast verbally terminated the NPB Contract on or about March 10, 2015, and sent a letter of termination dated March 13, 2015 (the "Termination Letter").
28. Kast replaced Progressive with Pinnacle Plumbing, Inc. ("Pinnacle") as the subcontractor to complete the plumbing services for the NPB Project.
29. Kast requested Pinnacle submit a bid via email on February 11, 2015.
30. MacDonald intended the scope of the subcontract with Pinnacle to be identical to Progressive's scope of work in the NPB Contract.
31. Pinnacle and Kast entered into a contract for plumbing services on the NPB Project with the total contract price of $4,822,399.00 (the "Pinnacle Contract").
32. Progressive submitted change orders in at least $121,964.95.
33. The guaranteed maximum price for the NPB Project was raised by $230,388.00 pursuant to authorized Owner Change Order #6 ("Change Order Amount") submitted by Kast.
34. Domani approved Change Order #6 and the Change Order Amount was added to the value of the contract between Domani and Kast.
35. Pinnacle was paid a total of $4,960,237.80 for its work on the NPB Project.
36. Kast received from Domani at least $4,960,237.80 with which to pay Pinnacle for its work on the NPB Project.
37. Kast did not pay to Progressive under the NPB Contract on the NPB Project.
38. Progressive owned and utilized a custom-built temporary booster hydraulic pump based off of a 2008 Vickery Model 1VC-G-TH(X) (the "Booster Pump") during its work on the NPB Project.
39. Progressive filed for Chapter 11 bankruptcy relief August 28, 2015.
40. Progressive did not retrieve its Booster Pump from the NPB Project site.
41. Prior to the NPB Contract, the parties entered into a subcontract agreement dated May 20, 2013, for plumbing subcontractor services at The Water Club in St. Petersburg, Florida (the "STP Contract") the STP Contract.
42. Prior to the commencement of the NPB Project, there were payments due to Progressive pursuant to the STP Contract.
43. Progressive never obtained a bond.
44. Progressive never applied for a letter of credit to serve in lieu of a bond.
45. At the time of its presence on the NPB Project, Progressive was in financial distress.
Now, I will try to put the parties' dispute into simpler language and analyze the evidence as it relates to the legal claims and defenses. The Water Club is a luxury condominium project on the Intracoastal Waterway in North Palm Beach primarily consisting of 19-story buildings each containing condominium units plus other villas, smaller buildings, pools, and opulent amenities. Kast, the NPB Project's general contractor, hired Progressive as the plumbing sub-contractor in the NPB Contract for a total contract value of $4,684,257.4 Progressive was expecting periodic payments under the parties' agreed Schedule of Values.5
Progressive started working on the NPB Project on October 19, 2014, and gave Kast a letter of bondability on October 29, 2014.6 Progressive, however, had trouble securing a payment and performance bond as required by Article 10 of the NPB Contract.7 After Progressive had exhausted its bonding options, on January 28, 2015, Progressive notified Kast it could not get a bond.8 Two days later, on January 30, 2015, Kast sent Progressive a default letter giving Progressive 48 hours to get a bond and cure the default (the "Default Letter").9 Kast took no immediate action to terminate Progressive's work on the NPB Project but, instead, encouraged Progressive to keep working on the NPB Project through March 10, 2015.10
After learning Progressive would never get a bond, Kast, through its project manager, MacDonald, closely monitored Progressive's work and convinced Progressive they would bepaid if they continued to work on the NPB Project.11 MacDonald, through his subordinate Krista Phillips, for example, requested additional information from Progressive about its pending pay requests more than two weeks after the Default Letter was sent.12 Kast intentionally conveyed the impression that, if Kast received this additional information supporting Progressive's pay requests, Kast would pay Progressive for work already and to be performed.13 Kast never intended to pay Progressive, however, and was just stringing Progressive along to get more free work out of them on the NPB Project with the over-arching goal of keeping plumbing work continuing on this complicated project at a critical time.14
While Kast kept asking Progressive for more information to justify Progressive's pending pay requests, Kast simultaneously agreed with Progressive to vary the NPB Contract to structure a different pay arrangement at a substantial disadvantage to Progressive.15 Kast and Progressive agreed that, instead of using the Standard of Values attached to the NPB Contract, Progressive's payment would equal Progressive's cost plus a 20% markup (or "Cost+20%").16 I specifically find that Kast modified the contract to delete the provision in the NPB Contract that Progressive first had to get a bond as a condition precedent for receiving payment.17 Why would Progressive agree to take a substantially lesser payment amount if it was not with the understanding they were to be paid for their completed work albeit at a lower rate?
Based on this new understanding, Progressive billed Kast $239,550.30 prior to Progressive's termination.18 MacDonald, again buttressing the false facade that Kast...
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