Robert H. Holber, Chapter 7 Tr., of Red Rock Servs. Co. v. Suffolk Constr. Co. (In re Red Rock Servs. Co.)

• Decision Date: 08 December 2014
• Docket Number: Civil Action No. 13–784.
• Parties: In re RED ROCK SERVICES CO., LLC, Debtor. Robert H. Holber, Chapter 7 Trustee, of Red Rock Services Co., Inc., Plaintiff–Appellee, v. Suffolk Construction Company, Inc., Defendant–Appellant.
• Court: U.S. District Court — Eastern District of Pennsylvania

522 B.R. 551

In re RED ROCK SERVICES CO., LLC, Debtor.
Robert H. Holber, Chapter 7 Trustee, of Red Rock Services Co., Inc., Plaintiff–Appellee,
v.
Suffolk Construction Company, Inc., Defendant–Appellant.

Civil Action No. 13–784.

United States District Court, E.D. Pennsylvania.

Signed Dec. 8, 2014

Affirmed.

[522 B.R. 556]

David R. King, Herrick Feinstein LLP, Princeton, NJ, Howard Gershman, Gershman Law Offices PC, Jenkintown, PA, for Plaintiff–Appellee.

John W. Dinicola, II, Dinicola Seligson & Upton LLP, Boston, MA, Scott Aaron Levin, McElroy Deutsch Mulvaney & Carpenter LLP, Morristown, NJ, for Defendant–Appellant.

MEMORANDUM
EDUARDO C. ROBRENO, District Judge.

Table of Contents

I.	INTRODUCTION	557
II.	BACKGROUND	557

A.
Facts
557

1.	Silo Point Project	557
2.	McCormack Project	558

B.
Procedural History
558

III.	STANDARDS OF REVIEW	559
IV.	DISCUSSION	560

A.	Bankruptcy Court's Authority To Issue Final Judgment	560
B.	Silo Point Subcontract	563

1.
Silo Point Subcontract Balance
564

a.	Denial of General's Motion for Directed Verdict for Lack of Evidence of Damages	564
b.	Award to Subcontractor Based on Its Substantial Completion of the Silo Point Subcontract	564

2.
Change Order No. 3
565

a.
The Bankruptcy Court's Holding of Equitable Estoppel
565

(1)	Voluntary Conduct or Representation	566
(2)	Reliance and Detriment	567
(3)	Equitable Considerations	568

b.
General's Additional Challenges to the Silo Point Award
570

(1)	Waiver of Notice Defense	570
(2)	Proof of Differing Site Condition	570
(3)	Change Order No. 3 Damages Calculation	570

c.
Award of Insurance Proceeds
570

C.
McCormack Subcontract
571

1.
James McKay Expert Testimony
571

a.	Admissibility of Expert Testimony on Rebuttal	571
b.	Daubert Challenge to Expert Testimony	574

(1)	McKay's Expert Qualification	574
(2)	Reliability of McKay's Testimony	575

2.
Factual Finding Regarding Reasonable Cost of Completion
576

D.	Attorneys' Fees	576
E.	Additional Procedural Challenges	577

1.	Limitation on Use of Exhibits During Cross–Examination	577
2.	Grant of Motion for Protective Order	578
3.	Additional Damages Conditioned on $50,000 Payment	578

V. CONCLUSION
579

[522 B.R. 557]

I. INTRODUCTION

This is a dispute between a general contractor and a subcontractor concerning the subcontractor's performance at two separate construction projects. Because during the course of the dispute—which has generated myriad factual and legal issues—the subcontractor filed for bankruptcy, the matter was tried before the Bankruptcy Court.

Before the Court is the general contractor's appeal from the final judgment of the Bankruptcy Court. For the reasons set forth below, the Court will affirm the Bankruptcy Court's decision in favor of the subcontractor.

II. BACKGROUND A. Facts ¹

Prior to its bankruptcy filing in September 2007, Red Rock Services Co., LLC (“Red Rock” or “Subcontractor”) was a demolitions subcontractor. Suffolk Construction Co., Inc. (“Suffolk” or “General”) is a construction general contractor. In 2006, Red Rock entered into two subcontracts with Suffolk; these related to two separate projects for which Suffolk was the general contractor. Holber v. Suffolk Constr. Co. (In re Red Rock Servs. Co.), 480 B.R. 576, 585 (Bankr.E.D.Pa.2012).

1. Silo Point Project

On July 24, 2006, Subcontractor and General entered into a subcontract (“Silo Point subcontract”) under which Subcontractor would perform demolition work on a construction project located in Baltimore, Maryland (“Silo Point project”). The project entailed converting an old grain silo into condominiums Id. Suffolk, as general contractor, was under contract with the site's owner, Silo Point II, LLC (“Silo Point” or “Owner”).

On or about November 6, 2006, while Subcontractor was engaged in demolishing certain of the silo's vertical storage bins, one bin detached and fell to a floor below, damaging a portion of the building. Subcontractor stopped work to take stock of the damage and assess how it would proceed. It ultimately modified the demolition method it was using, resulting in significantly increased costs. Id. at 586. Subcontractor initially told General that it would submit a claim to its own insurance carrier to cover these additional costs. Id. However, on December 14, 2006, Subcontractor notified General of its intention to submit a change order related to the unforeseen condition (also called a differing site condition). Id. The Silo Point subcontract required notice of intent to submit a change order within ten business days of the event triggering the claim. Silo Point Subcontract, Ex. J–2, art. 812. Under the Silo Point general contract, Owner would be responsible for any increased costs due to a valid differing site condition claim. Gen. Conditions of Silo Point Contract, Ex. J–1, art. 4.3.4.

On December 20, 2006, Subcontractor submitted to General its formal notification of a pending change order based on the differing site condition. On January 10, 2007, Subcontractor submitted an invoice related to the pending change order, on which General requested additional documentation and support. On February 15, 2007, Subcontractor submitted Change Order No. 1, which more thoroughly documented its request. General denied it as insufficiently supported.

[522 B.R. 558]

In re Red Rock, 480 B.R. at 586. On April 16, 2007, Subcontractor submitted Change Order No. 2, which supplemented the first change order and related to additional work performed. Id. General did not acknowledge this submission. Id. In April 2007, the parties executed a Memorandum of Understanding, wherein Subcontractor agreed to accept new staffing requirements, completion dates, and delayed payment, and to retain a consultant to report on the differing site condition. Mem. Understanding, Ex. J–30, ¶¶ 4–11. General agreed to provide reasonable cooperation with Subcontractor's differing site condition claim and to make several advance payments on behalf of Subcontractor, which Subcontractor was obliged to make to its own subcontractors, vendors, and suppliers. Id. ¶¶ 6, 11.

On July 27, 2007, Subcontractor submitted Change Order No. 3, encompassing and superseding the previous two change orders and requesting a contract price increase. In re Red Rock, 480 B.R. at 587. Change Order No. 3 was supported by a report from Subcontractor's consultant Hill International, which concluded that the bin collapse had been caused by an unforeseeable differing site condition and calculated the resulting cost increases borne by Subcontractor. Id. General forwarded Change Order No. 3 on to Owner, who rejected it for its untimeliness and for other reasons. Id.

On September 6, 2007, General notified Subcontractor that it was in default under the subcontract. Id. When Subcontractor failed to remedy the default within the required time, General hired Terra Drilling to complete Subcontractor's work. Id. at 588. On September 13, 2007, Subcontractor filed for bankruptcy in the Eastern District of Pennsylvania.

On October 15, 2007, General responded to Owner's denial of Subcontractor's differing site condition claim ( i.e., Change Order No. 3) by challenging Owner's decision and requesting a claims meeting on behalf of itself and Subcontractor. Id. at 587. On March 21, 2008, General sent Owner a Request for Equitable Adjustment (“REA”), which asserted a number of claims and specifically included Subcontractor's differing site condition claim. Id. at 588. Owner rejected the REA and, on April 25, 2008, General filed a mechanic's lien against Owner, again including Subcontractor's differing site condition claim as support. Id. In February 2009, General and Owner settled the mechanic's lien action for $9,991,231, which represented a little under half of the total amount sought. Id.

2. McCormack Project

On August 30, 2006, Subcontractor and General entered into a subcontract (“McCormack subcontract”) under which Subcontractor would perform demolition work on a construction project located in Boston, Massachusetts (“McCormack project”). The project involved rehabilitating a federal office building. Id. at 588. During the project, Subcontractor fell behind schedule and failed to fulfill various contractual duties. Id. at 589. On April 9, 2007, General notified Subcontractor that it was in default; on April 11, 2007, General terminated the McCormack subcontract. General subsequently hired its affiliate Liberty Construction (“Liberty”) to complete Subcontractor's work, although Liberty's lack of competence and General's failure to adequately supervise significantly increased costs. Id. at 609. In October 2007, after Liberty had completed a portion of the work, General hired NASDI Construction (“NASDI”) to complete the remaining demolition work for a fixed fee. Id.

B. Procedural History

As noted, Subcontractor filed for bankruptcy on September 13, 2007. On March

[522 B.R. 559]

18, 2008, General a filed a proof of claim, alleging it was owed substantial damages arising from alleged breach of the two subcontracts discussed above. Proof of Claim, Ex. J–57. On May 18, 2009, Subcontractor then initiated an adversary proceeding against General, alleging it was owed money by General for work performed in the two subcontracts. In Re Red Rock, 480 B.R. at 583.²

The Bankruptcy Court held an eight-day bench trial ending on May 17, 2011. Id. at 584. On August 30, 2012, the Bankruptcy Court issued an opinion (1) awarding damages to Subcontractor for General's breach of the Silo Point subcontract, (2) awarding damages to General for Subcontractor's breach of the McCormack subcontract, and (3) allowing General to offset its award against Subcontractor's, which resulted in a net recovery to Subcontractor. Id. at 617. The Bankruptcy Court deferred final judgment to resolve attorneys' fees and...