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Eastern Electric Corp. of New Jersey v. Shoemaker Construction Co.

August 21, 2009

EASTERN ELECTRIC CORP. OF NEW JERSEY, PLAINTIFF
v.
SHOEMAKER CONSTRUCTION CO., ET AL., DEFENDANTS



The opinion of the court was delivered by: Pratter, J.

MEMORANDUM

The complications attendant to the procedural history of this litigation among the contractors, subcontractors, and owners of a multimillion dollar condominium project in Philadelphia rival the intricacies of the project itself. However, because much of the procedure is irrelevant to the pending motion for entry of default judgment, the Court will discuss here only history relevant to this particular motion.

On August 12, 2008, Eastern Electric Corp. of New Jersey ("Eastern"), a subcontractor on the condominium project, filed suit against the general contractor (Shoemaker Construction Co.) and the project owners (1419 Tower L.P., Urban Residential, LLC, and Metropolitan Housing Partners, LLC) alleging breaches of the construction contracts. On January 15, 2009, Shoemaker filed cross claims against 1419 Tower and Urban Residential.*fn1

Upon request from Shoemaker, the Clerk of Court entered default on April 7, 2009 against 1419 Tower and Urban Residential for failure to appear, plead or defend. Shoemaker moved for entry of default judgment on May 8, 2009. The Court ordered 1419 Tower and Urban Residential to respond to Shoemaker's motion on or before June 12, 2009. Neither third-party Defendant responded to the motion.

For the reasons set forth below, the Court will grant Shoemaker's Motion for Entry of Default Judgment.

I. Background

Shoemaker and 1419 Tower, an affiliate of Urban Residential, entered into a written contract (the "Contract") in January 2006 for the rehabilitation and conversion of an office building into a residential building (the "Project"). The office building, which is located at 1419 Locust Street in Philadelphia, was to be converted into a condominium containing 114 residential units. Cross-claim ¶ 6; Ball Aff., Exhibit B. According to the terms of the contract, Shoemaker was to perform construction work*fn2 for the Project as dictated by the plans and specifications provided by 1419 Tower. Shoemaker submitted to 1419 Tower ("Owner") its final guaranteed maximum price ("GMP") for the Project on or about March 6, 2006, and 1419 Tower accepted.

This GMP was incorporated into the Contract by written Amendment No. 1. Cross-claim ¶ 7; Ball Aff., Exhibit C. Both parties agreed that Amendment No. 1 would reflect that the original GMP for the Project was $34,989,000, and the date of Substantial Completion of the Project was scheduled for July 31, 2007. Cross-claim ¶ 8; Ball Aff. ¶ 6, Exhibit C.

Before entering into the contract with Shoemaker, 1419 Tower also entered into contracts with a number of design professionals. 1419 Tower named Handle Architects, LP ("Handel" or "Architect") the project architect, and 1419 Tower also contracted with Paul H. Yoemans, Inc. ("PHY"), Schirmer Engineering ("Schirmer"), The Kachele Group ("TKG"), and VDA Associates ("VDA"). Collectively, these companies are known as the "Owner's Design Team." The Owner's Design Team then created detailed drawings and specifications for the Project, which were presented to Shoemaker to facilitate construction of the Project.*fn3 Cross-claim ¶¶ 9-13; Ball Aff. ¶ 7.

Next, Shoemaker, in accordance with the Contract and upon review and approval by the Owner, entered into a number of contracts with subcontractors. These subcontractors included Eastern, A.T. Chadwick Service Co., Inc. ("Chadwick"), James J. Gory Mechanical Contracting, Inc. ("Gory"), and Wyatt, Inc. ("Wyatt"). Cross-claim ¶ 16; Ball Aff. ¶ 9, Exhibits D, E, F, and G. In accordance with the terms of the subcontracts, each of the subcontractors agreed (1) to cooperate with Shoemaker regarding claims involving the Owner, (2) to be bound to Shoemaker in the same manner in which Shoemaker was bound to 1419 Tower pursuant to the Contract, and (3) to be ruled by the decisions of a court of competent jurisdiction with respect to related pass-through claims. See e.g., Ball Aff., Exhibit D ¶ 20.

In the months between February 2006 and October 2006, the Project was delayed by a number of problems, including issues with mechanical, electrical, plumbing, and sprinkler rise coordination; a loss of temporary power to the high rise portion of the building; unforeseen site conditions discovered in the clay tile lining of shaft walls; and mud slab removal. Cross-claim ¶¶ 17-24.

In the months between October 2006 and August 2007, the Project was again delayed by a lengthy list of problems, including shaft in fill work, shaft remediation work for damaged clay tile, 1419 Tower's inability to process change orders in a timely fashion, design changes to the MEP work and pressure reducing valves ("PRV's"), design changes in the scope of the work for the elevator buffers, design changes to add a dual gas main, delays to the hoist removal, and allegedly Owner-initiated changes to customize and combine condominium units. Cross-claim ¶¶ 25-32.

In early 2007, as the Project progressed, 1419 Tower was unable to process change orders. Shoemaker worked with Owner to resolve the problem. At Owner's request, on or about April 4, 2007, Shoemaker and Urban Residential entered into a new written agreement (the "Construction Agreement" or "Sub-Job Agreement") for the performance of the then-identified additional work and the changed work. Cross-claim ¶ 28; Ball Aff. ¶ 12, Exhibit I.

In accordance with the Sub-Job Agreement, Urban Residential acknowledged Shoemaker's claim and the reservation of the right to an extension of time to complete the additional and changed work. Also, the parties agreed that the schedule of requirements of the Project would be relaxed. Lastly, it was agreed that Shoemaker would use its best efforts to complete the low-rise portion of the building on or before July 31, 2007, and that Shoemaker would use its reasonable best efforts to complete the high rise portion prior to October 31, 2007. Cross-claim ¶ 28; Ball Aff. ¶ 13. All change orders with respect to the Project issued on or before January 1, 2007 were issued under the Sub-Job Agreement. Cross claim ¶ 28(e).

By September 2007, the July 2007 Substantial Completion date of the Project had come and gone and was pushed back to December 18, 2007. This was as a result of multiple prior delays that Shoemaker claims occurred through no fault of its own or any of the subcontractors it hired. The December deadline was predicated on accelerating the remaining work in the hopes of achieving the Temporary Certificate of Occupancy by October 12 and conveying units for occupancy before the end of 2007. In order to meet these deadlines, parallel work had to be performed on multiple floors at once. In the months from September to December, the subcontractors' available manpower and the rate of material deliveries could not support the accelerated schedule. Due to additional delays that occurred between September and December, the projected Substantial Completion date again was pushed back to March 28, 2008. Cross-claim ¶ 34; Ball Aff. ¶¶ 15-16.

In the months between December 2007 and March 2008, the Project was delayed again by a city mandated design change requiring the addition of a second Siamese Fire Department connection (the Owner's drawings and specifications showed only one such connection), and by delayed cabinet deliveries. Cross-claim ¶ 36.

Notwithstanding the numerous delays, Shoemaker was able to obtain individual Certificates of Occupancy ("COs") for 33 units in the low rise portion of the building on January 17, 2008, and the final CO for the last unit in the high rise portion of the building on May 3, 2008. Cross-claim ¶ 37; Ball Aff. ¶ 17.

The drawings and specifications prepared by, or on behalf of, 1419 Tower allegedly contained material deficiencies which have caused substantial delays to the Project and disruptions to the work of Shoemaker and its subcontractors. Cross-claim ¶ 3b; Ball Aff. ¶ 18. Reportedly, there were numerous site conditions discovered during construction, which were not shown on the drawings and specifications prepared by the Owner, and which were unforeseeable to Shoemaker at the time the Contract was signed. Cross-claim ¶ 38. As a result, Shoemaker claims that its work was significantly disrupted and delayed under both the Contract and the SubJob Agreement. Shoemaker's cost of performance also was greatly increased by the delays. Ball Aff. ¶ 19. In addition, subcontractors have submitted delay and disruption claims to Shoemaker, which subsequently submitted such claims to the Owner pursuant to the terms of the respective contracts. Cross-claim ¶ 39; Ball Aff. 20.

The unpaid balance of the contract price is $591,136, exclusive of interest. Cross-claim ¶ 40; Ball Aff. ¶ 24. The remaining unpaid sums include Invoice No. 28 (dated August 15, 2008) in the amount of $358,426 and Invoice No. 29 (dated December 23, 2008) in the amount of $232,710. Cross-claim ¶ 40; Ball Aff. ¶ 24. 1419 Tower has not objected to either of these invoices.

The unpaid balance of the contract price on the Sub-Job Agreement is $625,396, exclusive of interest. Cross-claim ¶ 41; Ball Aff. ¶ 26. This is comprised of Invoice No. 6 (dated May 29, 2008) in the amount of $198,544, Invoice No. 7 (dated July 14, 2008) in the amount of $145,301, and Invoice No. 8 (dated December 23, 2008) in the amount of $281,551, all of which remain unpaid. Cross-claim ¶ 41; Ball Aff. ¶ 26. As a result of the delays to the Project, Shoemaker has incurred additional subcontract change order costs in the amount of $260,117. Ball Aff. ¶ 20. Urban Residential has not objected to any of these invoices.

Additionally, Shoemaker and the subcontractors (Wyatt, Eastern, Chadwick, and Gory) submitted delay claims for $4,316,138. These claims have been submitted by Shoemaker to 1419 Tower and Urban Residential, but none has yet been paid. Shoemaker is seeking $1,066,845 for general conditions and $260,177 for time-related subcontract change orders. Eastern, Chadwick, Gory, and Wyatt have presented delay claims for, respectively, $1,872,280; $235, 999; $431, 703; and $449,134. Ball Aff. ¶ 22; Chadwick Aff. ¶ 6; Episcopo Aff. ¶ 6; Gory Aff. ¶ 7; Ostapowicz Aff. ¶ 7.

II. Legal Standard

A. Standard for Entry of Default Judgment Under Rule 55(b)(2)

Pursuant to the Federal Rules of Civil Procedure, once the clerk of court has entered a default, the party seeking the default then must apply to the court for entry of a default judgment. See Fed. R. Civ. 55(b)(2); Fehlhaber v. Indian Trials, Inc., 425 F.2d 715, 716 (3d Cir. 1970) (granting default judgment against a third-party defendant who did not file answers). Generally, the entry of a default judgment is disfavored because it has the effect of preventing a case from being decided on the merits. Thus, because a party is "not entitled to a default judgment as of right," the court must use "sound judicial discretion" in weighing whether or not to enter a default judgment. Prudential-LMI Commercial Ins. Co. v. Windmere Corp., 1995 U.S. Dist. LEXIS 9948 (E.D. Pa. July 14, 1995) (quoting 10 Wright, Miller & Kane, Federal Practice and Procedure § 2685 (1983).

Before entering a default judgment, a court must consider a number of factors. The Third Circuit Court of Appeals has condensed these factors into three main issues: "(i) whether the plaintiff will be prejudiced if the default is denied, (ii) whether the defendant has a meritorious defense; and (iii) whether the default was the product of defendant's culpable conduct." Spurio v. Choice Security Systems, Inc., 880 F. Supp. 402 (E. D. Pa. 1995) (citing United States v. $55,518.05 in U.S. Currency, 728 F.2d 192, 195 (3d Cir. 1995)); Chamberlain v. Giampapa, 210 F.3d 154 (3d Cir. 2000).*fn4 A defendant's culpable conduct weighs heavily in the evaluation of whether to grant or set aside a default judgment. Farnese v. Bagnasoco, 687 F.2d 761 (3d Cir. 1982). Because the courts do not favor defaults, a party's culpable conduct can "not be inferred from the default but must appear independently" from the default. Maaco Enters., Inc. ...


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