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Quinn Construction, Inc. v. Skanska USA Building

August 3, 2010


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


This is a dispute over the construction of Skirkanich Hall, a bioengineering building owned by the University of Pennsylvania ("Penn"). Quinn Construction, Inc. ("Quinn") has sued the architect Tod Williams Billie Tsien Architects ("TWBTA") and the general contractor Skanska USA Building, Inc. ("Skanska"). Against TWBTA, Quinn claims damages resulting from allegedly incomplete plans and specifications. Against Skanska, Quinn claims unpaid contract balance, unpaid change orders, and damages resulting from delays and disruptions to its work. Skanska has cross-claimed against Quinn for damages resulting from delay to the completion of the project. Skanska has also filed a third-party complaint against Harleysville Mutual Insurance Company ("Harleysville"), seeking payment of two surety bonds that Harleysville issued for Quinn's performance.

Each of these four parties has now filed a motion for summary judgment. The Court herein addresses Harleysville's motion, Quinn's motion, and Skanska's motion.

Harleysville moves for summary judgment on Skanska's claims for payment of the surety bonds. Quinn moves for partial summary judgment, on Skanska's claims for damages related to delays that occurred after October 25, 2005. Skanska also moves for partial summary judgment, on Quinn's delay and disruption damages claims and 25 of Quinn's change order claims.

The Court will deny Harleysville's motion for summary judgment, deny Quinn's motion for partial summary judgment, and grant in part Skanska's motion for partial summary judgment.

I. Factual Background

This action concerns the construction of Skirkanich Hall, a bioengineering research building at Penn. Penn, the owner, hired TWBTA as architect for the project. In a separate agreement, Penn hired Skanska as construction manager for the project. Skanska in turn hired Quinn to perform concrete work on the project, under two separate contracts ("the subcontracts"). Harleysville issued two surety bonds for Quinn's performance under the subcontracts.

Construction of Skirkanich Hall began in August 2004 and was substantially complete by June 2006. Facts surrounding the construction process are complex and disputed. The Court will address these facts as part of its summary judgment analysis.

A. The Terms of the Subcontracts

The parties do not dispute the terms of the two agreements between Skanska and Quinn. Under the first agreement (the "Foundation Subcontract"), Quinn agreed to perform concrete work on Skirkanich Hall's foundation for $913,920 payment from Skanska. Under the second agreement (the "Building Subcontract"), Quinn agreed to perform concrete work on the building's superstructure for $5,903,760 payment from Skanska. The Foundation Subcontract and the Building Subcontract were both drafted by Skanska, and are substantially similar. The subcontracts cover (among other matters) the scope of the work, scheduling and acceleration, liability for delays and disruptions to the project, and payment for change orders.

Both of the subcontracts are in 31 articles, each article divided into several sections. The subcontracts' first article is a brief "Description of Work." Section 1.2 provides that Quinn, in exchange for payment from Skanska, "shall perform the Work in strict compliance with the drawings, specifications, addenda and bulletins thereto" prepared by TWBTA. Section 1.4 provides that the drawings "may not be fully developed," and that Quinn nevertheless "agrees to perform all work not specifically mentioned in the aforementioned documents but which is required to make the Work complete" according to Skanska, TWBTA, and Penn.

Article 3 of the subcontracts gives Skanska absolute and exclusive control over the project's schedule. Under section 3.4, "[t]he scheduling of all construction operations at the Project, including the Schedule, shall be at the option of Skanska," and under section 3.2 "[t]he Schedule may only be modified by Skanska, at its sole discretion, and [Quinn] agrees to comply with such modification.

Article 3 also covers overtime work. Section 3.7 provides that "should Skanska judge that [Quinn] is delaying the process of the Work or not complying with the Schedule," Quinn must "employ additional workmen, equipment and supplies, as required, so as to bring the Work into conformity with the Schedule or as required by Skanska." Section 3.7 gives Skanska the right to accelerate Quinn's work, at Quinn's "sole expense," if Skanska determines that such acceleration "is necessary to comply with the Schedule" given delays caused by Quinn or simply Quinn's failure "to be in conformity with the Schedule." Section 3.9 states that "[i]f the progress of the Work or of the Project is delayed not because of any fault or neglect" of Quinn, or "for any other reason Skanska deems appropriate," Skanska "may direct [Quinn] to work overtime and if so directed [Quinn] shall work said overtime and Skanska will pay [Quinn] for such overtime in an amount equal to the actual additional wages paid, if any, at rates which have been approved in writing by Skanska."

Article 4 covers "Price and Payments" and, in relevant part, entitles Skanska to withhold payment from Quinn for departing from the contract terms. Section 4.6 states that if Quinn "fails to perform," Skanska has the right to "retain from any payment" an amount it deems sufficient to compensate itself and Penn for "any and all losses, liability, damages, costs and expenses" sustained "in connection therewith."

The subcontracts go on to provide that Skanska is not liable to Quinn for damages caused by delays or disruptions to Quinn's work on the project. Under section 5.2, Quinn agrees not to "seek compensation or damages from Skanska" for delay to or interference with its work "by any other subcontractor or material supplier on the Project." Under section 5.5, Quinn accepts "any and all risks of increase in the price of labor and materials," and agrees not to claim any such price increases against Skanska. Finally under section 5.4, Quinn agrees that Skanska and Penn are "not liable, absent actual fraud, for any damages or costs due to delays, accelerations, impact, non-performance, interferences with performance, suspension or changes in the performance or sequence of" Quinn's work. Section 5.4 also provides that Skanska "shall have the right, at any time, to delay, accelerate, or suspend the commencement or execution of the whole or any part of the Work, or vary the sequence or performance thereof, without compensation to [Quinn]" other than a time extension "for a period equal to such delay or suspension."

Article 9 of the subcontracts is devoted to "Change in the Work," and covers Quinn's right to payment for extra work items, or change orders. Section 9.5 provides that Skanska may submit disputed change orders to Penn for payment, and Quinn is then bound both "by the determination of [Penn]" and to "accept such payment, if any, as specified by [Penn] as full and final payment for all claims submitted." Section 9.5 specifies that if Penn determines "the work is not an extra, or awards no payment for such," Quinn must "accept said determination and payment as payment in full." Section 4.8 states generally that "Skanska shall be under no obligation to pay [Quinn] for any work done on this Project, until and unless Skanska has been paid therefor by [Penn]," and that Quinn "expressly accepts the risk that it will not be paid for work performed by it in the event that Skanska, for whatever reason, is not paid by [Penn] for such Work."

B. The Terms of the Surety Bonds

The Foundation Subcontract and the Building Subcontract are each the subject of a performance bond issued by Harleysville Mutual Insurance Company. These two performance bonds were also drafted by Skanska and are, like the subcontracts, substantially similar. Each bond incorporates the terms of the subcontract it insures.

The bonds first create an obligation owed by Quinn and Harleysville to Skanska and Penn. Each bond states that Quinn, as principal, and Harleysville, as surety, are "jointly and severally bound" unto Skanska and Penn in a sum equal to the value of the underlying subcontract ($913,920 for the bond insuring the Foundation Subcontract, and $5,903,760 for the bond insuring the Building Subcontract).

The bonds then set out conditions relieving Quinn and Harleysville of their obligation to Skanska and Penn. Each bond states that if Quinn (1) performs "every and all of the provisions of the Contract" with Skanska "in the manner and within the time therein set forth," (2) holds Skanska and Penn harmless from "any loss or damage occasioned to any person or property" in the course of performance, and (3) indemnifies Skanska and Penn against "any loss, liability, cost, damage or expense, including attorney's fees, by reason of the failure of performance," then Quinn and Harleysville's obligation "shall be void." Otherwise, their obligation "shall be and remain in full force and effect."

The last provision of the bonds is that "[i]t is understood and agreed that a Dual Obligee Rider is attached." Each Dual Obligee Rider conditions Harleysville and Quinn's indemnity obligations on Penn and Skanska's adherence to the terms of the subcontracts. The Riders provide "there shall be no liability under this bond" to Penn or Skanska unless Penn and Skanska "make payments to [Quinn] strictly in accordance with the terms of the said contract as to payments," and "perform all of the other obligations to be performed under said contract at the time and the manner therein set forth."

II. Standard of Review

A party moving for summary judgment must show that there are no issues of material fact and that judgment is appropriate as a matter of law. Fed. R. Civ. P. 56(c). The moving party bears the initial burden of showing that there are no issues of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once a properly supported motion for summary judgment is made the burden shifts to the non-moving party, who must set forth specific facts showing that there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986).

III. Analysis

A. Harleysville's Motion for Summary Judgment

The Court first addresses Harleysville's motion for summary judgment on Skanska's claims for payment of the surety bonds. This is Harleysville's second motion for summary judgment on these claims. In support of its first motion, Harleysville argued that the plain language of the bonds did not obligate it to indemnify Skanska under any circumstance. The Court rejected Harleysville's position and denied its motion, finding that the bonds "expressly impose an obligation on Harleysville (and Quinn)." Memorandum and Order of Dec. 8, 2008 at 4.

Harleysville now claims that it is entitled to summary judgment on two grounds. First, it again contends that "the Bonds do not state that Harleysville owes Skanska an indemnity obligation." Harleysville Mem. at 6. As discussed, the Court has already rejected this position. Harleysville lends it no new support. Neither of the cases that Harleysville cites for the principle that indemnity agreements should be strictly construed against the party that drafts them, Lackie v. Niagara Machine and Tool Works, 559 F. Supp. 377 (E.D. Pa. 1983), and Ratti v. Wheeling Pittsburgh Steel Corp., 2000 Pa. Super. 239, 758 A.2d 695 (2000), is on point. Both Lackie and Ratti construe indemnity obligations narrowly against the drafting party, but only in scope. Lackie, 559 F. Supp. at 380; Ratti, 758 A.2d at 705. In neither case does the drafting party dispute the existence of any indemnity obligation, as Harleysville does here. Furthermore neither Lackie nor Ratti involves interpretation of a surety bond, or of language resembling the terms at issue here.

Neither case, therefore, undermines the on point authority the Court relied on in its earlier decision. See Memorandum and Order of Dec. 8, 2008 at 5--6 (citing Tudor Dev. Group., Inc. v. U.S. Fid. & Guar. Co., 692 F. Supp. 461, 465 (M.D. Pa. 1988); Pa. Supply Co. v. Nat. Cas. Co., 152 Pa. Super. 217, 31 A.2d 453 (1943)).

Second, Harleysville contends that even if the bonds do obligate it to indemnify Skanska, the terms of the Dual Obligee Riders condition its obligation on Skanska's "full payment" to Quinn. Harleysville Mem. at 4. Harleysville is incorrect. The language of the Dual Obligee Riders is clear that Harleysville's indemnity obligation is not conditional on Skanska's full payment to Quinn, as Harleysville claims, but rather on Skanska's payment to Quinn in accordance with the terms of the subcontracts. Noting this, Skanska concedes that it did not pay Quinn in full but raises facts to show that its payment to Quinn was nonetheless in accordance with the terms of the subcontracts. Relying on its expert report, Skanska claims $1,860,304 in damages due to Quinn's deficient performance. Skanska Opp'n to Harleysville at 11 (citing Quinn Mot. to Preclude Testimony of Kost and Farooqi, Ex. C at 110). Section 4.6 of the subcontracts entitles Skanska to withhold payment for such damages, and Quinn claims far less than $1,860,304 in unpaid contract balance. It follows that Skanska has met its burden of production to show it paid Quinn in accordance with the terms of the subcontracts, and the terms of the Dual Obligee Riders do not entitle Harleysville to summary judgment.

This analysis is not upset by any of the three cases Harleysville cites on the issue. Enterprise Capital, Inc. v. San-Gra Corp., 284 F. Supp. 2d 166 (D. Mass. 2003), and Roel Partnership v. Amwest Surety Insurance Co., 258 A.D.2d 780, 685 N.Y.S.2d 832, (N.Y. App. Div. 1999), and North American Specialty Insurance Co. v. Chichester School District, 2000 WL 1052055 (E.D. Pa. 2000), are merely instances of a court excusing a surety of its liability under a performance bond where a condition precedent to the surety's liability was not satisfied. These cases do ...

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