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Kirchhoff-Consigli Construction Management, LLC v. Deluxe Building Systems, Inc.

United States District Court, M.D. Pennsylvania

August 22, 2017

KIRCHHOFF-CONSIGLI CONSTRUCTION MANAGEMENT, LLC, Plaintiff,
v.
DELUXE BUILDING SYSTEMS, INC., Defendant.

          MEMORANDUM OPINION

          MATTHEW W. BRANN UNITED STATES DISTRICT JUDGE

         I. BACKGROUND

         Plaintiff, Kirchhoff-Consigli Construction Management, LLC, (hereinafter “KCCM”) filed this action against Defendant, Deluxe Building Systems, Inc., a subcontractor, (hereinafter “Deluxe”); KCCM is the general contractor for Pace University's expansion of its Pleasantville, New York campus. KCCM subcontracted with Deluxe to build modular dormitories at its Berwick, Pennsylvania facility and deliver those units to the Pace campus.

         KCCM filed a five count complaint against Deluxe.[1] Count I alleges breach of contract, Count II is for replevin, Counts III and IV are for injunctive relief, [2] and Count V is for conversion. Deluxe, in turn, filed two counterclaims against KCCM, alleging breach of contract in Count I and unjust enrichment in Count II.[3]

         Exactly one year after the complaint was filed, on August 26, 2016, Deluxe filed a Motion to Amend its counterclaim.[4] The Court delayed ruling on the motion because the parties requested referral to mediation.[5] The case trial track in effect at that time was set aside, and after some delays, the matter proceeded to an unsuccessful mediation.

         I now take up the motion, which was fully briefed last year and is overripe for disposition. For the following reasons I will grant the motion in part and deny it in part.

         II. DISCUSSION

         As part of the subcontract between the parties (hereinafter “the contract” or “the subcontract”), Deluxe was required to secure an Irrevocable Standby Letter of Credit[6] in the amount of one-million dollars, naming KCCM as beneficiary. On July 28, 2016, KCCM sent the bank a drawing certificate requesting a withdrawal of the entire one-million dollars. The bank duly authorized the withdrawal of one-million dollars to KCCM (hereinafter “the draw”).

         Deluxe now moves to amend Counts I and II of its counterclaims to include the draw in its breach of contract and unjust enrichment claims, respectively. Deluxe also seeks to add a third counterclaim to allege breach of warranty under the Uniform Commercial Code.

         A. Amending a Pleading

         Amendment prior to trial is governed by Federal Rule of Civil Procedure 15(a). More than 21 days after filing a pleading, “a party may amend its pleading only with the opposing party's written consent or the court's leave.”[7] The rule continues, “the court should freely give leave when justice so requires.”[8]

         Sixty years ago, the United States Supreme Court admonished the bench and bar that “the federal rules reject the approach that pleading is a game of skill in which one misstep by counsel may be decisive to the outcome and accept the principle that the purpose of pleading is to facilitate a proper decision on the merits.”[9] Expounding further on Rule 15 the Supreme Court later explained that “if the underlying facts or circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be afforded an opportunity to test his claim on the merits.”[10] “In the absence of any apparent or declared reason-such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc.-the leave sought should, as the rules require, be ‘freely given.'”[11]

         A District Court has the discretion to grant or deny the opportunity to amend.[12] However, that discretion is tempered by guidance from the United States Court of Appeals for the Third Circuit which has stated that “in evaluating challenges to the denial of opportunity to amend we have held consistently that leave to amend should be granted freely.”[13]

         Wright & Miller's Federal Practice and Procedure explains that “perhaps the most important factor listed by the Court for denying leave to amend is that the opposing party will be prejudiced if the movant is permitted to alter a pleading.”[14]“Conversely, if the court is persuaded that no prejudice will accrue, the amendment should be allowed.”[15] “Thus, the facts of each case must be examined to determine if the threat of prejudice is sufficient to justify denying leave to amend.”[16]

         Our Court of Appeals agrees. “The trial court's discretion under Rule 15, however, must be tempered by considerations of prejudice to the non-moving party, for undue prejudice is the touchstone for the denial of leave to amend.”[17]“But the non-moving party must do more than merely claim prejudice; it must show that it was unfairly disadvantaged or deprived of the opportunity to present facts or evidence which it would have offered had the ... amendments been timely.”[18]

         “[I]f the amendment substantially changes the theory on which the case has been proceeding and is proposed late enough so that the opponent would be required to engage in significant new preparation, the court may deem it prejudicial.”[19] “Likewise, if the proposed change clearly is frivolous or advances a claim or defense that is legally insufficient on its face, the court may deny leave to amend.”[20]

         Here, KCCM argues that amendment is futile.

         B. Motion to Dismiss Standard of Review

         “Where a defendant raises futility of amendment as a defense, the Court must apply the standard of a motion to dismiss, pursuant to Fed.R.Civ.P. 12(b)(6).”[21] “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'”[22] “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”[23] “Although the plausibility standard does not impose a probability requirement, it does require a pleading to show more than a sheer possibility that a defendant has acted unlawfully.”[24] Moreover, “[a]sking for plausible grounds . . . calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of [wrongdoing].”[25] The plausibility determination is “a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.”[26] No matter the context, however, “[w]here a complaint pleads facts that are ‘merely consistent with' a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.'”[27]

         When disposing of a motion to dismiss, a court must “accept as true all factual allegations in the complaint and draw all inferences from the facts alleged in the light most favorable to [the plaintiff].”[28] However, “the tenet that a court must accept as true all of the allegations contained in the complaint is inapplicable to legal conclusions.”[29]

         In this matter, KCCM argues that amendment is futile because Deluxe materially breached the subcontract. Thus, Deluxe is estopped from claiming KCCM defaulted as Deluxe is the party responsible for the initial breach.

         C. Terms of the Subcontract Relevant to the Irrevocable Standby Letter of Credit

         Attachment E to the subcontract between KCCM and Deluxe required that Deluxe obtain the irrevocable standby letter of credit. I set it forth in its entirety below:

Attachment E
To the Subcontract between Kirchhoff-Consigli Construction Management (KCCM) and DeLuxe Building Systems (DBS), for KCCM Project # 421, Pace University Master Plan Phase 1A
1. As security for its faithful performance of all of its obligations under the Subcontract, DBS shall furnish an irrevocable standby letter of credit in the amount of One Million Dollars ($1, 000, 000), in the form attached hereto, within ten (10) days of the execution by both parties of this Subcontract. The failure to furnish this letter of credit shall be deemed a material breach of this Subcontract, and grounds for immediate termination after ten (10) days' notice to DBS and the failure of DBS to so furnish the letter of credit within that ten (10) day period. Upon such termination, KCCM shall be entitled to all remedies provided for in the Subcontract, as well as any other remedies available at law or in equity.
2. DBS's principal Donald E. Meske shall execute a Personal Guaranty of the form attached hereto, simultaneously with DBS's execution of this Subcontract.
3. DBS shall execute the FIRST AMENDMENT TO SUBCONTRACT attached hereto simultaneously with its execution of this Subcontract.
4. Should DBS fail to meet any of the scheduled milestones identified in Exhibit E, Project Schedule Requirements, of this Subcontract, provided KCCM is current in its payments to DBS pursuant to the terms of the Subcontract, KCCM may assess liquidated damages against DBS as follows:
a. Five Thousand Dollars ($5, 000) per day for each of the first thirty (30) days past the schedule milestone that DBS has failed to complete the task associated with the scheduled milestone.
b. Ten Thousand ($10, 000) per day starting on the thirty-first (31st) day and for every day thereafter that DBS has failed to complete the task associated with the scheduled milestone.

         KCCM shall be entitled to withhold such liquidated damages from amounts otherwise due to DBS under the Subcontract. In the event that DBS shall recover the Subcontract schedule and ultimately meet the completion date, the amount of liquidated damages withheld shall be restored to the Subcontract price, less the sum of any and all costs incurred by KCCM in connection with maintaining and/or recovering the Subcontract schedule by reason of the failure of DBS to meet milestones, and paid to Subcontractor with its payment for its next regularly scheduled requisition; it is expressly agreed and acknowledged that in its sole discretion KCCM may expend any and all amounts reasonably necessary to mitigate the impacts of any DBS delay to the Project.

         The amounts set forth above are fixed and agreed on by and between the KCCM and DBS because of the impracticability and difficulty fixing and ascertaining the true value of the damages KCCM will sustain by failure of the DBS to complete its Work in accordance with the scheduled milestones, such as loss of revenue, interest charges, liquidated damages assessed by the project Owner against KCCM, delays caused to other contractors, and other damages. Said amounts are agreed to be a reasonable estimate of the amount of damages which KCCM will sustain and said amount shall be deducted or withheld from any monies due or that may become due to DBS, and if said monies are insufficient to cover said damages, then DBS shall pay the amount of the difference.

         The right of KCCM to assess liquidated damages as provided for herein is independent of KCCM's right to backcharge DBS for liquidated damages assessed against KCCM by the Owner that result from delay or other actions or inactions on the part of DBS.

         5. In addition to the rights and remedies afforded it under applicable law and under other provisions of this Subcontract, should DBS fail to meet any of the scheduled milestones identified in Exhibit E associated with its modular manufacturing, or should DBS otherwise breach a material condition of this Subcontract while it is engaged in the modular manufacturing for this Project, then KCCM or its designee shall be entitled to enter into DBS's facilities to inspect he work and the manufacturing process, and shall be afforded direct access to any/all DBS executive leadership, management, and production supervisory personnel for the purpose of communicating about the status and completion of the work. During the course of such communication, DBS personnel shall truthfully and accurately answer all questions by KCCM or its designee about the status of and plans for completion of its work, DBS's financials for the project, and other topics relevant to DBS's successful completion of its work, and shall receive any suggestions or guidance that KCCM or its designee may offer.[30]

         D. Terms of the Irrevocable Standby Letter of Credit

         The text of the revised irrevocable standby letter of credit at issue, dated October 2, 2014 is also set forth, in full.

         Ladies & Gentlemen:

We, First Keystone Community Bank (the “Bank”), hereby establish and issue in favor of Beneficiary, Kirchhoff-Consigli Construction Management, LLC (“Beneficiary”) this Amended Irrevocable Standby Letter of Credit No. 224 (the “Letter of Credit”) in the aggregate amount not exceeding One Million Dollars and No Cents ($1, 000, 000.00) in support of the liabilities and obligations of the Account Party, DeLuxe Building Systems, Inc. and Donald E. Meske to the Beneficiary, which will be available upon presentment of the Beneficiary's draft effective immediately and expiring on the Expiration Date (as hereinafter defined), providing Kirchhoff-Consigli has no default toward DeLuxe Building Systems or Donald E. Meske. This Amended Irrevocable Letter of Credit replaces and supersedes the original version dated September 29, 2014.
Each draft drawn by the Beneficiary must be marked “Drawn under First Keystone Community Bank Irrevocable Standby letter of Credit No. 224” and be accompanied by the original of this letter, or if the original has been returned to the Bank, a certified copy thereof, and a statements signed by an authorized representative of the Beneficiary that the amount of the draft does not exceed the amount due and owing to the Beneficiary from the Account Party, and there has been a default by Account Party under the terms of a Subcontract between Deluxe Building Systems, Inc. (“Subcontractor” and the Beneficiary dated June 10, 2014, together with any amendments thereto or personal guarantees thereof (“Subcontract”) beyond any applicable cure period or failure by Subcontractor to perform or pay for any of the obligations required by the Subcontract or to pay to the Beneficiary any damages or other amounts which the Subcontractor or Account Party is required to pay to the Beneficiary under the terms of the Subcontract provided therewith. This Letter of Credit shall be released and the original returned to the Bank by the Beneficiary within 10 days of the date that het final payment of retainage under the Subcontract becomes due to the Subcontractor.
Beneficiary under the terms of the Subcontract provided therewith. This Letter of Credit shall be released and the original returned to the Bank by the Beneficiary within 10 days of the date that the final payment of retainage under the Subcontract becomes due to the Subcontractor.
The Bank is not to be called upon to resolve issues of law or fact between the Beneficiary and Account Party. Any draft(s) drawn hereunder and in compliance with the terms of this Letter of Credit will be duly honored if drawn and presented to our office at the above address prior to the expiration of this Letter of Credit. Partial drawings are permitted. The Beneficiary hereby agrees to endorse of the reverse side of the original Letter of Credit the amount(s) of any such partial draft(s) which Beneficiary is paid, and to surrender the original Letter of Credit to the Bank together with any draft which exhaust the amount available under this Letter of Credit.[31]

         E. Text of the Drawing Certificate and Accompanying Certification

         Anthony M. Consigli, the Chief Executive Officer of KCCM signed and issued a drawing certificate to the bank. That drawing certificate is also set forth in pertinent part:

The undersigned, Kirchhoff-Consigli Construction Management, LLC, now known as Consigli Construction NY, LLC (the “Beneficiary”), hereby certifies to First Keystone Community Bank as follows:
The Beneficiary is entitled to draw upon the Letter of Credit in the amount of $1, 000, 000.00, pursuant to that certain Subcontract between DeLuxe Building Systems, Inc. (the “Account Party”) and the Beneficiary dated June 10, 2014, together with any amendments thereto or personal guarantees thereof (the “Subcontract”).
Pursuant to the Letter of Credit, this Drawing Certificate is accompanied by the following documents:
1. An original of the Letter of Credit; and
2. A statement signed by an authorized representative of the Beneficiary.[32]

         The attached certification signed by Mr. Consigli is additionally noted as follows:

The undersigned Anthony M. Consigli, Chief Executive Officer of Kirchhoff-Consigli Construction Management, LLC, now known as Consigli Construction NY, LLC, does hereby certify to First Keystone Community Bank, as follows:
1. I am the duly elected Chief Executive Officer of Kirchhoff-Consigli Construction Management, LLC, now known as Consigli Construction NY, LLC, the beneficiary (“Beneficiary”) under that certain Irrevocable Standby Letter of Credit Number 224, as amended by Amendment to Irrevocable Standby Letter of Credit Number 224 (the “Letter of Credit”), and I am authorized to submit this certification on behalf of the Beneficiary.
2. The Beneficiary is now known as Consigli Construction NY, LLC, as evidenced by the certificate issued by the Secretary of State of the State of New York on July 26, 2016, a copy of which is attached as Exhibit A.
3. I am making this certification pursuant to the terms of the Letter of Credit and that certain Drawing Certificate dated July 28, 2016 (the “Drawing Certificate”), pursuant to which the Beneficiary is drawing on the Letter of Credit in the amount of ...

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