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Gray Construction, Inc. v. Envirotech Construction Corp.

United States District Court, E.D. Kentucky, Central Division, Lexington

April 19, 2019

GRAY CONSTRUCTION, INC., Plaintiff,
v.
ENVIROTECH CONSTRUCTION CORP., Defendant.

          MEMORANDUM OPINION AND ORDER

          DANNY C. REEVES, UNITED STATES DISTRICT JUDGE

         Gray Construction, Inc., (“Gray”) is seeking damages for Envirotech Construction Corporation's (“Envirotech”) breach of contract arising from the construction of “More Than A Bakery” in Versailles, Kentucky (hereafter referred to as “the Project”). Gray seeks to recover the amount it had to pay to avoid mechanic's liens by Envirotech's subcontractors, the amount it paid for supplemental contractors to finish Envirotech's Scope of Work, costs associated with project delays, attorney's fees, and interest. After considering all relevant evidence presented by the parties, the Court concludes that Gray is entitled to damages in the amount of $656, 335.58. Further, Gray will be awarded $12, 073.00 in prejudgment interest.

         I.

         The Court has summarized many of the relevant facts in prior opinions. Those that apply to the remaining question of damages are outlined below.

         Gray and Envirotech entered into a Subcontract under which Envirotech was to provide all labor and materials necessary for the installation of insulated metal panels for the Project. [Record No. 66-1] Envirotech defaulted on the Subcontract and subsequently abandoned the it. [Record No. 1] Gray terminated the Subcontract on August 1, 2017, and filed suit in this Court on December 7, 2017. [Record No. 1] The Court previously granted Gray's motion for summary judgment, in part, concluding that Envirotech breached the Subcontract. [Record No. 77] All that remains to be resolved is the amount of damages, interest, and attorney's fees to which Gray is entitled under the Subcontract.

         The Court held a damage hearing on March 18 and 19, 2019. Gray presented testimony, invoices, lien releases, internal e-mails, and checks to support its damage calculations. Envirotech objected that Gray's evidence was not timely disclosed and that Gray was requesting damages for payments and labor that were not within Envirotech's Scope of Work. It further asserted that there should be an inefficiency deduction for each of the four supplemental contractors hired to complete Envirotech's Scope of Work.

         II.

         A. Motion to Exclude

         Envirotech filed a motion on April 15, 2019, to exclude evidence Gray planned to present at the hearing on April 18, 2019. [Record No. 86] It contended that certain copies of checks and internal e-mails were not disclosed during the discovery period. [Id.] The Court provisionally allowed the exhibits to be entered, pending briefing on the motion. Gray filed a response to the motion and argued that many of the documents were produced in discovery and, for the ones that were not disclosed, the omission was harmless. [Record No. 90');">90]

         Federal Rule of Civil Procedure 26(a)(1)(A)(iii) requires a party to provide its opposition with “a computation of each category of damages claimed by the disclosing party- who must also make available for inspection and copying as under Rule 34 the documents or other evidentiary material, unless privileged or protected from disclosure, on which each computation is based, including materials bearing on the nature and extent of injuries suffered.” The parties must supplement disclosures under Rule 26(a) if they are incomplete or incorrect. See Fed. R. Civ. p. 26(e). A party who fails to provide the information required by Rule 26(a), “is not allowed to use that information . . . to supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless.” Fed.R.Civ.P. 37(c)(1).

         The test for exclusion under Rule 37(c) is “very simple: the sanction is mandatory unless there is a reasonable explanation of why Rule 26 was not complied with or the mistake was harmless.” Bessemer & Lake Erie R.R. Co. v. Seaway Marine Transp., 596 F.3d 357, 370 (6th Cir. 2010) (internal quotations omitted). An omission is “harmless” if it involves “an honest mistake on the part of a party coupled with sufficient knowledge on the part of the other party.” Vance ex rel. Hammons v. United States, No. 98-5488, 1999 U.S. App. LEXIS 14943 *1, *17 (6th Cir. June 25, 1999) (emphasis omitted).

         Gray asserted that any delay in producing the overlooked exhibits was harmless and Envirotech has been aware of the itemized damages Gray is seeking since last summer. [Record No. 90');">90, p. 2] Gray also argues that Envirotech is objecting to exhibits supporting damages that Envirotech already agreed Gray paid to third-parties. [Record No. 90');">90, p. 4] Gray also noted that Envirotech was required to object by February 27, 2019, or risk waiving any objections. [See Record No. 90');">90, p. 3 (citing Record No. 17, ¶ 14).] Envirotech argues in its reply that Gray tacitly admitted it did not disclose 100 documents substantiating its damages and its motion was timely. [Record No. 94] Further, it repeated that Gray cannot recover damages based on documents that were not disclosed.

         Envirotech's motion to exclude will be denied because the omission of the challenged documents (certain checks and internal e-mails) was harmless. First, testimony from both Brad Piatt and Sarah Rowe during the damage hearing confirmed that payments were made by Gray regardless of the canceled checks.[1" name="FN1" id="FN1">1] Their testimony was supported by the invoices and lien waivers provided by Gray during the discovery process that indicated the amounts of the canceled checks.

         As noted, Envirotech also claims that Gray cannot recover damages for amounts based on undisclosed documents, even though it agreed previously that Gray had paid certain contractors and suppliers. For example, Envirotech claims now that it has no proof of payment for Hayden by Gray, but had previously agreed that Gray paid $84.012.85 to Hayden. Similarly, Envirotech reduced the amount of “Gray proof of payments, ” even though it had previously agreed that Gray had paid greater amounts to Gott Caulking, Sunbelt, and AFAB. Lastly, Envirotech had the chance to depose Brad Piatt and discussed Gray's damage calculations during the discovery period. Therefore, the failure to disclose certain documents was harmless and the motion to exclude will be denied.

         B. Measure of Damages

          “[T]he measure of damages for breach of contract is that sum which will put the injured party into the same position he would have been in had the contract been performed.” Hogan v. Long, 922 S.W.2d 368, 371 (Ky. 2009) (internal citations and quotations omitted). “Contract damages must always be proven with reasonable certainty. Thus, uncertain, contingent, and speculative damages are generally not recoverable.” Ford Constr., Inc. v. Ky. Transp. Cabinet, 429 S.W.3d 397, 407 (Ky. Ct. App. 2014) (internal citations and quotations omitted).

         The Court for a sister district in United States ex rel. CKF Excavating, LLC v. ACC Constr., Inc., explained that the proper measure of damages would be the sum the defendant paid above the contract amount to complete performance, if it was reasonable and necessary. 2012 U.S. Dist. LEXIS 1090');">9070 *1, *14 (W.D. Ky. Aug. 3, 2012). Next, that amount would be reduced by the unpaid amount for work actually performed by the plaintiff under the contract. Id. (referencing Campbell v. Snyder, 154 S.W.2d 724');">154 S.W.2d 724, 726 (Ky. 1941) (“the measure of damages for breach of contract is the reasonable and necessary cost of complete the work according to the terms of the contract”); Carl Const. Co. v. Miller, 29 S.W.2d 545, 547 (Ky. 1930)).

         Here, multiple provisions of the Subcontract contemplate the types of damages Gray can recover based on Envirotech's breach.

         11.1 DEFAULT: NOTICE TO CURE. If the Subcontractor refuses or fails to supply enough properly skilled workers, proper materials, or maintain the Schedule of Work, or fails to achieve Substantial or Final Completion, . . . or fails to correct defective work as determined by Gray, or threatens to or refuses to perform, . . . then Gray, without prejudice to any other rights or remedies, shall have the right to any or all of the following remedies:

(a) supply such number of workers and quantity of materials, equipment and other facilities as Gray deems necessary for the completion of the Subcontractor's Work, or any part thereof which the Subcontractor has failed to complete or perform after the aforesaid notice, and charge the cost thereof to the Subcontractor, who shall be liable for the payment of such costs, including reasonable overhead, profit, as well as for other damages, and attorney's fees and dispute resolution costs;
(b) contract with one or more additional contractors to perform such part of the Subcontractor's Work as Gray shall determine will provide the most expeditious completion of the total Work and charge the cost thereof to the Subcontractor;
(c) withhold payment of any monies due the Subcontractor pending corrective action or completion of the Subcontractor's Work to the extent required by and to the satisfaction of Gray;
(d) set-off Gray's damages attributable to Subcontractor's default against any monies due Subcontractor under this Agreement or under any other contract between Gray and the Subcontractor; and/or
(e) terminate the Subcontract Agreement as set forth below.

         11.2 TERMINATION BY GRAY. If the Subcontractor fails to commence and satisfactorily continue correction of a default within three (3) working days after receipt by the Subcontractor of the notice issued under Section 11.1, then Gray may terminate this Agreement by written notice to the Subcontractor and its surety, if any, and use any materials, equipment and/or employ such workers or Subcontractors as Gray deems necessary to complete the Work.

         All of the costs incurred by Gray in so performing the Subcontractor's Work, including reasonable overhead, profit and attorney's fees shall be deducted from any monies due or to become due the Subcontractor. The Subcontractor shall be liable for the payment of any amount by which such expense may exceed the unpaid balance of the subcontract price.

         a. Payments that Envirotech Agreed Gray Paid

         Envirotech agreed that Gray spent $180, 389.00 for equipment, labor, doors, fasteners, and miscellaneous materials from Chase, Trillum, Art's, Pro Fastening, Snodgrass, a-1 portable, Fastener Systems, Art's Rentals, Labor Works, and Parker. Originally, Envirotech agreed Gray paid Met-l Span $62, 000. However, during the damages hearing, Envirotech took the position that this amount included payment for panels beyond the scope of Envirotech's work. Gray confirmed that a direct payment to Met-l Span for $62, 000 was substantiated and not in dispute based on e-mails exchanged by counsel. Thus, Gray incurred costs of $242, 389.00 for payments that Envirotech previously agreed that Gray had paid.

         b. Supplemental Labor

         Gray is entitled to damages for paying for Envirotech's unpaid invoices to supplemental contractors and for the work done after Envirotech abandoned the Project to finish Envirotech's Scope of Work.

         Envirotech CEO Janet Charles objected to Gray's damage calculations due to inefficiency of the four supplemental contractors. Charles testified during the damage hearing that she developed a 50% inefficiency factor based on past projects about a week before the hearing. Charles explained that she created the inefficiency factor by looking at her estimated man hours and bid, and then compared it to the actual hours worked on the Project. She noted that by performing this calculation she arrived at ¶ 61% inefficiency rate; however, she then reduced the number to 50% because of the narrowness of the building. Charles was never qualified as an expert and her testimony as a fact witness stating that she never previously complained about any inefficiencies undercut her testimony developing the inefficiency factor.

         And Charles never complained about the supplemental contractors' alleged inefficiencies to any of the contractors themselves or to Gray, she never asked for contractors to be moved around or kicked off the Project. Further, she never asked that the supplemental contractors not be paid due to their inefficiency. Additionally, Charles hired two of the four contractors and oversaw their work until Envirotech abandoned the Project. The only mention Charles made of potential inefficiency was in an e-mail to Piatt regarding American Igloo. [DX-006.001]

         Envirotech also mentioned during the damage hearing that “trade stacking” (multiple contractors in the same space doing the same work) contributed to the inefficiency of the contractors. But Piatt explained that the Project involved a 200, 000 square foot warehouse and the supplemental contractors could be (and were) working in different areas. Piatt further testified that American Igloo was working a night shift and Delta-T was working on smaller walls and the ceiling. Also, Envirotech never complained about trade stacking until the time of the damage hearing. Based on the foregoing, the Court declines to apply the 50% inefficiency factor. As outlined above, the issue was not raised prior to the hearing, Charles was never qualified as an ...


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