Court: United States Bankruptcy Court, E.D. Michigan; April 7, 2008; Us Bankruptcy; United States Bankruptcy Court
R. D Contracting, L.L.C. is pursuing $157,408.87 from Jenkins Construction, Inc. for work, materials, and equipment rental linked to two construction projects, under the authority of a confirmed Chapter 11 bankruptcy plan. Following a five-and-a-half-day bench trial, the court ruled partially in favor of R. D, awarding $92,264.37 plus interest.
The court confirmed its jurisdiction based on 28 U.S.C. 1334(b) and 28 U.S.C. 157(a), noting that the case is related to R. D's Chapter 11 bankruptcy. Venue was deemed proper under 28 U.S.C. 1409(a).
The claims involve two projects, specifically the MDOT project, which entailed constructing buildings for the Michigan Department of Transportation in Port Huron Township. Jenkins acted as the general contractor and subcontracted R. D for specific sitework under a written Subcontract Agreement dated September 19, 2000, for a total of $85,000. The scope included earthwork, grading, erosion control, and site cleanup, with additional work requested by Jenkins resulting in a change order of $26,541.42, raising the total contract amount to $111,541.42. Jenkins paid R. D $98,839.85, leaving an outstanding balance of $12,701.57 for the MDOT project, for which R. D has made multiple claims.
R. D is claiming a total of $100,425.07 from Jenkins, which includes: (1) an unpaid contract balance of $12,701.57, (2) $29,760.00 for equipment stand down time, (3) $17,463.50 for extra work outside the Subcontract for moving topsoil and grading, and (4) $40,500.00 for excess topsoil removal.
The unpaid balance claim arises from a change order dated June 18, 2001, which increased the Subcontract price from $85,000.00 to $111,541.42 for additional work that was actually performed before the change order's issuance. Jenkins has paid R. D a total of $98,839.85, leaving the disputed balance of $12,701.57.
Jenkins contends R. D did not fulfill all contractual obligations, citing testimony from project superintendent Michael Sko-mial. He claimed R. D improperly removed too much topsoil and failed to compact fill material, leading to additional costs for hiring Raymond Excavating to replace the unsuitable fill. However, Jenkins provided no documentation to substantiate these claims, including any change orders or evidence of payments to Raymond Excavating. Sko-mial speculated about the costs incurred, suggesting they could be between $18,000 and $20,000 for one instance and $7,500.00 for drainage swales, but again, there was no proof of payment or back-charges against R. D's Subcontract. Overall, Jenkins lacks sufficient evidence to support its defenses against R. D's claims.
Jenkins failed to produce any change order or documentation indicating a change order was issued to Raymond Excavating, nor did Jenkins provide evidence of any payments made to Raymond Excavating for the work in question. In contrast, R. D demonstrated it completely fulfilled its obligations under the Subcontract, a finding the Court supports. Consequently, Jenkins did not succeed in proving its defense, which was based on recoupment under Michigan law, claiming it incurred additional costs due to R. D's alleged failure to complete its work. The Court determined that Jenkins had the burden to prove this defense but did not meet it.
Additionally, R. D claimed $29,760.00 for equipment stand-down time incurred between October 23, 2000, and November 1, 2000, as R. D was unable to perform its work due to delays caused by another of Jenkins’s subcontractors. R. D had invoiced Jenkins for this amount on November 1, 2000, but Jenkins did not pay the invoice. During the stand-down, there was a discussion among R. D’s representatives about whether to keep the equipment on site or move it to other job opportunities, with a preference expressed for keeping it on site to resume work quickly once delays ended. R. D representatives testified about potential rental opportunities available during this time. Jenkins's project manager, Steve Muhn, had full authority to approve additional work and costs, and was kept informed about these decisions. The Court ruled in favor of R. D for the claim against Jenkins for $12,701.57 and addressed the equipment stand-down claim.
Muhn delegated authority to Bryan Ritter to address the equipment stand-down issue, leading Ritter to orally agree with R. D, via Robert DeGeorge, for R. D to leave equipment on the MDOT project site during the stand-down period. In return, Ritter, on Jenkins' behalf, agreed to pay R. D for eight hours per day for each equipment item, totaling $29,760. The stand-down occurred from October 23-27, 2000, and on October 30-31 and November 1, 2000. The agreement included that R. D would invoice Jenkins, who would seek reimbursement from MDOT, but Jenkins would pay R. D regardless of MDOT's payment status. Jenkins disputes Ritter's authority to bind Jenkins to this agreement, but the Court found that Muhn had indeed authorized Ritter to make the oral agreement.
Jenkins argues that R. D's claim is invalid under several written Subcontract provisions: (1) no written change order was issued for the additional charge, (2) R. D did not use proper A.I.A. forms for invoicing, (3) R. D failed to provide written notice of the charge within fourteen days, and (4) Jenkins was not reimbursed by MDOT for the charge. Specifically, Jenkins cites Article VII of the Subcontract, which requires claims to be made in writing within fourteen days of the event or recognition of the claim, stating that failure to do so waives the claim. Additionally, Jenkins highlights that the Subcontract prohibits invoicing without a signed Purchase Order or Change Order and requires Project Coordinator approval for any changes.
Jenkins contends that R. D’s request for payment is invalid due to failure to adhere to the Subcontract's requirements, specifically the necessity for using standard A.I.A. forms (G702 and G703), which were to be submitted by the 20th of the month following the provision of materials or services. Jenkins claims R. D submitted an invoice well after the charges were incurred, thus barring the claim.
Moreover, Jenkins asserts that it is not obligated to pay R. D until seven days after receiving payment from MDOT, the project owner. Since Jenkins was not paid by MDOT for the disputed charge, the obligation to pay R. D under the Subcontract never arose.
Under Michigan law, a written contract's non-modification clause can be altered through subsequent oral agreements or waivers, a principle supported by case law including Cloverdale Equipment Co. v. Simon Aerials, Inc. and Morley Bros. Inc. v. F.R. Patterson Construction Co. The latter case illustrates that a contract can be amended by oral agreement despite a written clause requiring written modifications. Additionally, the Michigan courts have recognized that requirements for written authorizations for changes can be waived, as seen in cases like Klas v. Pearce Hardware and The Hayman Co. v. Brady Mechanical, Inc., where oral approval for extra work was deemed sufficient under certain circumstances.
Jenkins waived the written Subcontract provisions and orally modified the contract to include an additional charge for equipment stand-down time, making the oral agreement enforceable. Consequently, the Court ruled in favor of R. D for $29,760.00 related to this claim.
Regarding R. D's claim for $17,463.50 for extra work performed from March 23 to May 11, 2001, the Court found that R. D did not provide sufficient evidence to prove that the work was outside the scope of the Subcontract. Testimonies from both R. D and Jenkins indicated conflicting views about whether the work was extra or part of the original agreement. R. D's failure to document the claim or request a change order led the Court to rule in favor of Jenkins on this matter.
For the claim of $40,500.00 for the removal of excess topsoil, R. D asserted that it excavated 18,000 cubic yards more than anticipated based on Subcontract data. However, R. D did not invoice Jenkins for this amount, citing oversight, and the claim was not included in its original or amended complaints. The Court concluded that R. D's failure to properly document and plead this claim resulted in a judgment for Jenkins on this issue as well.
R. D's attorney affirmed in an affidavit that the statement of account presented in the complaint, excluding a disputed $40,500.00 item, was accurate. R. D alleged that extra topsoil excavation was necessary, a claim discussed in eight meetings with Jenkins and HRC from October 2000 to April 2001. Bryan Ritter, Jenkins' project superintendent, supported R. D's assertion during these meetings and at trial, claiming more topsoil was excavated than indicated in the project drawings. However, no evidence was provided at trial regarding the depth measurements of the topsoil before excavation. R. D deposited the topsoil in a designated berm, and both Ritter and HRC's Larry Ancypa testified about the soil's volume in the berm. Ritter claimed certified engineers measured 28,000 cubic yards, but did not present documentation or identify these engineers at trial. He also noted that Dan’s Excavating contributed soil to the berm, complicating the volume assessment. Ancypa measured the berm's soil and estimated it at 20,000-21,000 cubic yards, attributing approximately 9,000 cubic yards to Dan’s Excavating and about 12,000 cubic yards to R. D. This evidence suggested R. D had not excavated excess topsoil beyond what was expected. HRC requested further calculations to substantiate R. D's claims during multiple meetings, but none were provided. Consequently, the Court determined R. D did not meet the burden of proof for the excess topsoil claim, resulting in the dismissal of the $40,500.00 request. However, the Court awarded R. D a total of $42,461.57 for claims on which it prevailed regarding the MDOT project.
B. R. D's claims regarding the Greater Grace project center on the construction of the Greater Grace Temple Church in Detroit, where Jenkins acted as the Construction Manager. Jenkins entered into a "Subcontract Agreement" with R. D on March 17, 2000, detailing R. D’s responsibilities to install drain tile and perform related work for a contract price of $43,500.00. Subsequent change orders requested by Jenkins added $13,652.00, raising the total payment to R. D to $57,152.00, which Jenkins confirmed was fully paid.
R. D additionally claims $56,983.80 for extra labor, materials, and equipment, arguing these were based on separate oral agreements. These claims are detailed in twelve invoices, although Jenkins contends that most are barred by specific Subcontract provisions. However, the Court found that these provisions do not prevent R. D's claims.
Particularly, invoices nos. 1074 and 1075, dated February 22, 2000, totaling $7,181.00 for work done and equipment rented, were contested by R. D as unpaid. The Court determined that these charges were included in two written change orders issued by Jenkins, thus affirming that R. D was compensated for these amounts as part of the total payment of $57,152.00, leading to the dismissal of R. D's claims for these specific invoices.
R. D asserts it had an oral agreement with Jenkins to rent a 245 Excavator backhoe for $16,500 per month for October and November 2000, as detailed in invoices 1903 and 1974. Testimony from Carl Donato, Jenkins’s project superintendent, confirmed this agreement, stating it was separate from the written Subcontract and authorized by Jenkins’s project manager, Daryl Greer, and President, James Jenkins. Conversely, Jenkins’s leadership denied agreeing to pay for the equipment, claiming a verbal arrangement with Robert DeGeorge of R. D for no charge due to prior issues with the equipment's condition. The Court ruled in favor of R. D, affirming the existence of the rental agreement and awarding $33,000 for the two invoices.
Regarding additional claims, R. D presented three more invoices (1251, 1289, and 1341) related to labor and equipment used for dirt removal on specific dates. The Court found this work was not part of the original Subcontract but was additional work requested by Donato, who had the authority to bind Jenkins to payment. Jenkins had agreed to the amounts on these invoices, totaling $10,800, which remain unpaid. The Court ruled in favor of R. D for these invoices as well.
R. D invoice no. 1149, dated March 28, 2000, charges Jenkins $425.00 for a 544 John Deere Loader rental for five hours. Invoices nos. 1138 and 1288, dated March 27 and April 28, 2000, total $3,417.80 for labor, equipment, and materials to install and compact stone for a mud mat at the Greater Grace project. Invoice no. 1157, dated February 22, 2000, is for $160.00 for the removal of an underground fuel tank found on-site. Invoice no. 99-1363, dated December 6, 1999, before the written Subcontract date of March 17, 2000, charges $2,000.00 for pre-contract work installing drain tile under the sanctuary's stage area.
The Court, based on testimonies from Carl Donato and Robert Pasek, found that the work covered by these invoices was not part of R. D's contractual obligations but rather additional work requested by Donato, who had authority to bind Jenkins to pay for these requests. Jenkins agreed to pay the invoice amounts totaling $16,802.80, but failed to do so.
Jenkins contended that R. D waived all claims for extras related to the project via a "Full Unconditional Waiver" signed by Robert DeGeorge on May 8, 2001. However, the waiver only referenced the written Subcontract, which was fully paid, and did not encompass any oral agreements for additional work. The Court concluded that the waiver did not negate R. D's claims for the additional work, materials, or equipment.
Robert DeGeorge's signature on the waiver document does not indicate that any oral agreements were fully paid or satisfied. The waiver stating that "all my/our construction lien rights against such property are hereby waived and released" only pertains to any lien R. D might have against the Greater Grace project property and does not release R. D's claims against Jenkins under their oral agreements. The Court rules in favor of R. D concerning claims related to the Greater Grace project for $49,802.80, but denies the remainder of R. D's claims. R. D's request for attorney fees is denied due to insufficient justification and authority. For prejudgment interest, R. D claims it based on Michigan law but fails to specify the legal rate or when the amounts owed by Jenkins became due. The Court determines that prejudgment interest will be awarded only from the date R. D filed its complaint, calculated according to Michigan law, compounded annually. Post-judgment interest will accrue from the judgment date per 28 U.S.C. § 1961. The Court will award costs to R. D under Fed.R.Bankr.P. 7054(b). Ultimately, judgment will be entered against Jenkins Construction, Inc. in favor of R. D Contracting, L.L.C. for a total of $92,264.37 plus interest, with other claims in R. D's complaint being dismissed as moot or with prejudice based on prevailing claims.
Trial exhibits are designated as "PX(5)6D" for Plaintiff's exhibits and "DX(5)6D" for Defendant’s exhibits. Specific citations include PX-2, which references pages and articles within, and the Joint Final Pretrial Order (Docket 120), citing stipulations of fact. Testimony from Michael Skomial regarding a problem he communicated to R.D.'s Robert DeGeorge in a letter dated February 19, 2001, is noted, with an unsigned copy of the letter admitted as DX-21. The term "swale," defined by R.D.’s Robert Pasek, refers to a small depression in the ground used for drainage. The American Institute of Architects (AIA) is abbreviated as A.I.A., with references to various articles within the documents. Additional documentation includes change orders DX-3, DX-17, and DX-19, and various stipulations of fact. A summary of interest calculation for civil money judgments filed after January 1, 1987, is provided, specifying a formula based on U.S. Treasury auction rates and compounding annually, applicable to the entirety of the judgment amount, including attorney fees and costs.
