Petition for Writ of Certiorari — HSU Contracting, LLC, Petitioner v. Holton-Arms School, Inc.
Supreme Court briefMar 19, 2024
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No. 23In the
Supreme Court of the United States
HSU CONTRACTING, LLC,
Petitioner,
v.
HOLTON-ARMS SCHOOL, INC.,
Respondent.
On Petition for a Writ of Certiorari
to the M aryland Supreme Court
PETITION FOR A WRIT OF CERTIORARI
A mber Wong Hsu
Counsel of Record
HSU Contracting, LLC
6100 Executive Blvd., Suite 450
N. Bethesda, MD 20852
(301) 437-1000
amber@hsubuilders.com
Counsel for Petitioner
328270
i
QUESTIONS PRESENTED
In 2018, the Petitioner and Respondent entered into an
AIA (American Institute of Architects) contract, a widely
utilized construction industry standardized contract,
for construction services. The plain language of the
agreement would have barred damages where no remedial
costs had actually been incurred by Respondent. Instead,
the Maryland courts discarded the unambiguous plain
language of the contract and allowed “any other rights
or remedies” to support a multi-million-dollar judgment
against Petitioner, in Respondent’s favor.
In doing so, did the Maryland court:
1.
Violate the Commerce Clause of the U.S.
Constitution in its interpretation of the AIA
contract, which serves to establish a common
framework for construction project participants,
using consistent terminology and legal principles,
by directly contradicting interpretation of the
same AIA contract by other states and federal
courts?
2.
Violate the Equal Protection Clause of the U.S.
Constitution in its interpretation of the AIA
contract, which serves to “level the playing field,”
by disproportionately impacting disadvantaged
small businesses w ith limited access and
opportunity to discern the universe of available
rights and remedies outside the standard contract
language?
ii
THE PARTIES
Petitioner is HSU Contracting, LLC, a construction
general contractor founded in 2009. It is located at
6100 Executive Blvd., Suite 450, North Bethesda, MD
20852. Respondent is the Holton-Arms School, Inc., an
independent school for girls grades 3-12 located at 7303
River Road, Bethesda, MD 20817.
iii
CORPORATE DISCLOSURE STATEMENT
Petitioner is a privately owned Maryland Limited
Liability Company. It is 50% owned by Direct Management,
Inc., a Maryland corporation owned by Amber Wong Hsu,
and 50% owned by Amber Wong Hsu, individually.
iv
RELATED PROCEEDINGS
HSU Contracting, LLC v. Holton-Arms School, et al.,
Case No. 472329-V, Montgomery County Circuit Court,
Maryland. Judgment entered October 12, 2022.
HSU Contracting, LLC v. Holton-Arms School, et
al., Case No. CSA-REG-1707-2022, Appellate Court of
Maryland. Judgment entered September 28, 2023.
HSU Contracting, LLC v. Holton-Arms School et
al., Case No. SCM-PET-0421, Maryland Supreme Court.
Cert. Denied December 20, 2023.
v
TABLE OF CONTENTS
Page
QUESTIONS PRESENTED . . . . . . . . . . . . . . . . . . . . . . . i
THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
CORPORATE DISCLOSURE STATEMENT . . . . . . iii
RELATED PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . iv
TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . v
TABLE OF APPENDICES . . . . . . . . . . . . . . . . . . . . . . vii
TABLE OF CITED AUTHORITIES . . . . . . . . . . . . . viii
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
OPINIONS BELOW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
CONSTITUTIONAL PROVISIONS
AND STATUTES INVOLVED . . . . . . . . . . . . . . . . . 4
STATEMENT OF THE CASE . . . . . . . . . . . . . . . . . . . . 5
BACKGROUND OF THE AIA CONTRACTS . . . . . . 11
REASONS FOR GRANTING THE PETITION . . . . 14
I.
Undue Burden on Interstate Commerce . . . . . . 14
vi
Table of Contents
Page
II. Denial of Equal Treatment . . . . . . . . . . . . . . . . . 19
CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
vii
TABLE OF APPENDICES
Page
APPENDIX A — ORDER OF THE SUPREME
COU RT OF M A RY L A N D, FILED
DECEMBER 20, 2023 . . . . . . . . . . . . . . . . . . . . . . . . 1a
A P P E N DI X B — O P I N ION O F T H E
APPELLATE COURT OF MARYLAND,
FILED SEPTEMBER 28, 2023 . . . . . . . . . . . . . . . . 3a
APPENDIX C — TRIAL COURT OPINION
OF T HE CIRCU I T COU RT FOR
MONTGOMERY COUNTY, MARYLAND
FILED OCTOBER 12, 2022 . . . . . . . . . . . . . . . . . . 51a
viii
TABLE OF CITED AUTHORITIES
Page
Cases:
Adarand Constructors v. Pena,
515 U.S. 200 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Armco Inc. v. Hardesty,
467 U. S. 638 (1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Beaver Construction Co. v. Lakehouse, LLC,
742 So. 2d 159 (Ala. 1999) . . . . . . . . . . . . . . . . . . . . . . 16
Boston Stock Exchange v. State Tax Comm’n,
429 U.S. 318 (1977) . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
C&L Enters., Inc. v. Citizen Band Potawatomi
Indian Tribe of Oklahoma,
532 U.S. 411 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Comptroller of Treasury of Md. v. Wynne,
575 U.S. 542 (2015) . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
M&R Contractors & Builders, Inc. v. Michael,
215 Md. 340 (1958) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Mercantile Trust Co. v. Hensey,
205 U.S. 298 (1907) . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Metro. Life Ins. Co. v. Ward,
470 U.S. 869 (1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ix
Cited Authorities
Page
Moses H. Cone Memorial Hospital v.
Mercury Constr.,
460 U.S. 1 (1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Northwestern States Portland Cement Co. v.
Minnesota,
358 U. S. 450 (1959) . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Portuguese-American Bank v. Welles,
242 U.S. 7 (1916) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Ray v. William G. Eurice & Brothers,
201 Md. 115 (1952) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Stiglich Construction, Inc. v. Larson,
621 N.W. 2d. 801, 803 (Minn. Ct. Appl.
2001), review denied, 2001 Minn. LEXIS
192 (Minn. Mar. 27, 2001) . . . . . . . . . . . . . . . . . . . . . . 16
Stonehill-PRM WC LLP v.
Chasco Constructors, Ltd., LLP,
2009 Tex. Appl. LEXIS 1019
(Tex. App. Feb. 11, 2009) . . . . . . . . . . . . . . . . . . . 17, 18
United States v.
Utah Construction & Mining Co.,
384 U.S. 394 (1966) . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Volt Information Sciences, Inc. v.
Board of Trustees,
489 U.S. 468 (1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
x
Cited Authorities
Page
Wartzman v. Hightower Prods., Ltd.,
53 Md. App. 656 (1983) . . . . . . . . . . . . . . . . . . . . . . . . . 2
Constitutional Provisions and Statutes:
Commerce Clause: U.S. Constitution, Article I,
Section 8, Clause 3 . . . . . . . . . . . . . . . . . . . . . . . . . 4, 14
Equal Protection Clause: U.S. Constitution,
Article XIV, Section 1 . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Small Business Act: 15 U.S.C. 631(a) . . . . . . . . . . . . . . . . 4
Miscellaneous:
15 U.S.C. 631(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
28 U.S.C. 1257(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Stein, Steven G.M., Stein Ray, LLP, Editori n - C h i e f , T h e Am e r i c a n In s ti t u t e of
Ar chi t ec t s Le ga l Ci t a t o r, L e x i sNe x i s
Matthew Bender & Company, Inc., 2023 . . . . . . . . . 13
T h e A m e r i c a n I n s t it ut e of A r c h it e c t s ,
Official Guide to the 2007 AIA Contract
Documents, John Wiley & Sons, Inc., 2009 . . . . 11, 12,
13, 19, 20
1
INTRODUCTION
This contractual dispute arises out of an interpretation
of the American Institute of Architects (AIA) standard
form agreements that were executed for the performance
on a construction project in the State of Maryland. In
the normal course of business, Respondent Holton-Arms
School, Inc. presented Petitioner HSU Contracting LLC,
a woman-owned, minority-owned small business, with an
AIA 101-2007 (Standard Form of Agreement Between
Owner and Contractor) and AIA 201-2007 (General
Conditions of the Contract for Construction).1 AIA form
agreements, which were used between Petitioner and
Respondent on a previous project in 2012, 2 reflect industry
best practices and are commonly used by parties to
construction transactions in all fifty states.
The $6.6M contract was executed on June 5, 2018. 3
Less than one year later, Respondent terminated its
contract with Petitioner “for cause,” pursuant to AIA
201-2007 §14.2, claiming breach of performance.4 While
there are innumerable disagreements regarding the
Work performed, the following facts are undisputed:
1) Respondent resumed school operations in its fully
renovated 40,000 square foot Lower School Building on
September 6, 2018, 5 two days after the first day of school,
1. Appendix C, Page 63a.
2. Appendix C, Page 58a.
3. Appendix C, Page 62a
4. Appendix C, Pages 96a, 97a, 105a.
5. Appendix B, Page 30a.
2
and only ninety-three days after contract execution; and
2) Respondent undertook no further work, by the time of
trial in 2022, thereby incurring no actual costs,6 to remedy
its so-claimed damages that were the basis of the alleged
breach.7
The plain language of the form contract AIA 2012007 §14.2 provided an express remedy for the calculation
of damages in the event of a “Termination for Cause,”
permitting Owner [Respondent] to “complete and
correct the Work in an expedient manner and then claim
6. Respondent claimed a singular untimely expense of
$36,299 incurred on March 29, 2021 for the installation of a thermal
barrier paint, however, it played no part in the Respondent’s
termination of Petitioner in 2019. (Defendant’s Trial Ex. #1222,
E355)
7. Appendix B, Page 49a. In acknowledging that Respondent
expended no amounts to remedy the alleged breach (and declining
the obligation to mitigate), the Appellate Court offered the following:
‘Holton, being a non-profit, had limited funding. “The party who is
in default may not mitigate his damages by showing that the other
party could have reduced those damages by expending large amounts
of money or incurring substantial obligations. Since such risks arose
because of the breach, they are to be borne by the defaulting party.”
Wartzman v. Hightower Prods., Ltd., 53 Md. App. 656, 667, 456 A.2d
82 (1983) (citation omitted). In light of HSU’s estimate that the cost to
complete the work in 2019 would have been over $800,000, it would be
unreasonable to require Holton to immediately expend such a large
amount of money to mitigate its damages, especially once it became
clear that funds would be needed for litigation.’ (Emphasis added.)
The Appellate Court failed to acknowledge that Respondent Holton
had withheld approximately $1.5M (amounts earned and retained
from Petitioner HSU, as well as the remaining contract balance),
yielding a net judgment of $2.6M from the $4.1M award, and had
sufficient funds to perform the remedial work.
3
any such amounts from the Contractor [Petitioner]. 8
Despite not having performed any such remedial Work,
Respondent was awarded a judgment of $4.1M based on
the presentation of its 250-page expert witness report.9
On appeal, the Appellate Court affirmed the award, and
in its “Limitation of Damages” analysis, found authority
in a separate “reservation of rights” provision, §13.4.1,
and “cumulative rights” provision §2.6, to affirm the lower
court’s damages award based on Maryland case law.10
The Maryland court held that the presence of these two
provisions permitted Respondent to opt out of the plain
and unambiguous contractual obligations and pursue any
other remedies outside of the contract. Petitioner filed a
Petition for Writ of Certiorari to the Maryland Supreme
Court, which was denied.
OPINIONS BELOW
The Order of the Maryland Supreme Court Denying
Certiorari (Appendix A, Pages 1a-2a) is reported at 486
Md. 245. The Opinion of the Appellate Court of Maryland
(Appendix B, Pages 3a-50a) is reported at 23 WL 6304935.
The Memorandum and Order of the Circuit Court for
Montgomery County, Maryland (Appendix C, Pages
51a-141a) is unreported.
8. Appendix B, Page 40a.
9. Appendix C, Page 125a.
10. Appendix B, Page 40a.
4
JURISDICTION
The Order of the Maryland Supreme Court denying
Petitioner’s Petition for Writ of Certiorari was entered
on December 20, 2023. The jurisdiction of this Court is
invoked under 28 U.S.C. 1257(a).
CONSTITUTIONAL PROVISIONS AND
STATUTES INVOLVED
Commerce Clause: U.S. Constitution, Article I,
Section 8, Clause 3
[The Congress shall have the Power…] To
regulate commerce with foreign nations, and
among the several states …
Equal Protection Clause: U.S. Constitution, Article
XIV, Section 1
“No State shall make or enforce any law which
shall abridge the privileges or immunities of
citizens of the United States; nor shall any
State deprive any person of life, liberty or
property, without due process of law; nor deny
to any person within its jurisdiction the equal
protection of the laws.”
Small Business Act: 15 U.S.C. 631(a): “Declaration of
Policy” - Aid, counsel, assistance, etc. to small business
concerns:
“The essence of the American economic system
of private enterprise is free competition.
5
Only through full and free competition can
free markets, free entry into business, and
opportunities for the expression and growth
of personal initiative and individual judgment
be assured. The preservation and expansion
of such competition is basic not only to the
economic well-being but to the security of this
Nation. Such security and well-being cannot
be realized unless the actual and potential
capacity of small business is encouraged and
developed. ….”
STATEMENT OF THE CASE
Petitioner and Respondent executed the standardized
AIA contract (AIA 101-2007 and AIA 201-2007) for a twophased construction project: to renovate the Respondent’s
Lower School Building and to simultaneously upgrade
its central plant HVAC system.11 Once the project was
underway, multiple design changes were initiated and
the cost for the construction rose from $6.6M to more
than $8M.12 Petitioner completed the first phase in only
93 days, renovating the entirety of the 40,000 square foot
Lower School building so that Respondent could resume
its operations by September 6, 2018.13 The balance of the
contract was carried out progressively during the school
year and final completion was slated for the summer of
2019.14
11. Appendix C, Page 55a.
12. Appendix C, Page 125a.
13. Appendix B, Page 6a.
14. Appendix B, Page 93a, 96a, 138a.
6
On May 24, 2019, prior to completing the final 10%
of the work, Respondent terminated Petitioner “for
cause,” pursuant to AIA 201-2007 §14.2, claiming breach
of performance on the contract.15 Petitioner’s tenth and
final invoice was unpaid. According to the formal and
contemporaneous certifications by Respondent’s own
architect, 89% of the total contract had already been
completed in accordance with the contract documents by
early spring.16
Petitioner contested the characterization that it
had breached performance on the contract, and filed
a mechanics lien action on September 11, 2019 for
$2,046,902, the amount of the unpaid final invoice, against
Respondent. 17 Respondent initially counterclaimed
unspecified damages “in an amount to be determined
at trial.”18 Then, over the course of the next two years,
Respondent developed a 250-page expert witness report
utilizing contractor estimates as the basis to claim gross
damages in excess of $4M.19 Respondent’s Director of
Facilities testified at trial that it had not undertaken
any effort to remedy the so-claimed defective work.
Respondent has fully and continuously operated its
activities without interruption since 2018. 20
15. Appendix C, Page 105a.
16. Appendix C, Page 121a.
17. Appendix B, Page 6a.
18. “Holton-Arms’ Counterclaims Against HSU Contracting,”
Case No. 472329-V, p. 15, filed November 27, 2019, Record Extract
E109.
19. Appendix C, Page 127a.
20. Deferred Record Extract, Page E811, Lines 23-25. Trial
7
Six months after the conclusion of a fifteen-day
trial, Montgomery County Circuit Court Judge Steven
Salant issued a Memorandum Opinion on October 12,
2022 adopting Respondent’s factual and legal claims in
toto. 21 Despite having had full use of its school facilities22
without paying the tenth and final invoice, Respondent was
awarded a $4.1M judgment, netting the amounts unpaid to
Petitioner, yielding a judgment of approximately $2.6M. 23
The damages awarded to Respondent were primarily: 1)
costs to complete and correct the work in breach, and 2)
liquidated damages. 24 Respondent then garnished and
Transcript, Testimony of Michael Joyce, March 14, 2022.
21. On January 22, 2024, Petitioner filed a Motion to Vacate
the October 12, 2022 judgment based on newly-discovered evidence
that Trial Court Judge Steven Salant, and his wife Sandra GordonSalant, had a personal kinship or affinity with the Respondent as
donors and “Grandparents, Relatives or Friends.” The relationship,
spanning more than ten years, was revealed on pages 35, 39 and
42 of Respondent’s fundraising brochure coincidentally published
online (https://issuu.com/peapoddesign/docs/holton-arms_school_
annual_report), which has now been removed from public access.
At no time during the trial court proceedings was this relationship
ever disclosed to Petitioner. The Motion to Vacate, based on the
irregularity of process in failing to disclose this information or
otherwise conduct a disqualification hearing pursuant to Md. Rule.
18-102.11(c), was summarily denied without hearing on March 5,
2024 and is subject to appeal. While this issue was brought before
the Maryland Supreme Court, it is not addressed here and has no
bearing on the instant Petition for Writ of Certiorari.
22. Deferred Record Extract, Page E808, Lines 21-25. Trial
Transcript, Testimony of Michael Joyce, March 14, 2022.
23. Appendix C, Page 127a.
24. While Petitioner disagrees with the Appellate Court’s
8
seized the entire balance of Petitioner’s remaining assets,
a commercial checking account, rendering the Petitioner
unable to conduct any business except the continued
litigation, including defense of the judgment collection 25
by Respondent and unpaid subcontractors.
On October 24, 2022, Petitioner then filed a Motion to
Alter and Amend the Judgment, pursuant to Md. Rule.
2-534, on the basis that the plain language of the executed
AIA contracts did not support an award where no remedial
or completion work had ever been undertaken. 26 Because
Respondent had terminated Petitioner’s contract “for
cause,” pursuant to AIA 201-2007 §14.2, Respondent was
permitted to: “Finish the Work by whatever reasonable
method the Owner may deem expedient,” AIA 201-2007
§14.2.2.3, which it did not. 27
The AIA contract offered further detailed instruction
that, upon Contractor’s [Petitioner’s] request, Owner
[Respondent] was to provide a “detailed accounting of the
costs incurred by the Owner in finishing the Work.” In the
event that such costs incurred by the Owner [Respondent]
interpretation of the liquidated damages provision, review of that
decision does not per se implicate the Constitutional provisions at
issue.
25. Upon Respondent’s seizure of Petitioner’s remaining
assets, Petitioner’s owner, a 1994 graduate of Georgetown
University Law Center and former tax practitioner, has, where
possible, represented the Petitioner without the assistance of
outside legal representation.
26. Appendix B, Page 9a.
27. Appendix B, Page 40a.
9
exceed the unpaid balance, the Contractor [Petitioner]
would have been responsible for paying the difference to
Respondent. AIA 201-2007 §14.2.4. 28
Petitioner’s Motion to Alter and Amend the Judgment
was denied and the appeal ensued. 29 This Petition seeks
only a limited review of the Appellate Court’s opinion with
regard to “Limitation of Damages,”30, affirming the lower
court’s damage award. The Appellate Court held that the
existence of AIA 201-2007 §13.4.1, a “reservation of rights”
provision, and AIA 201-2007 §2.6, a “cumulative rights”
provision, rendered the plain language of A201 §14.2.2.3
a non-exclusive remedy that could simply be discarded.
(Emphasis added.)
AIA 201-2007 §13.4.1:
“Except as expressly provided in the Contract
Documents, duties and obligations imposed
by the Contract Documents and rights and
remedies available thereunder shall be in
addition to and not a limitation of duties,
obligations, rights and remedies otherwise
imposed or available by law.” 31
28. Appendix B, Page 40a.
29. Appendix B, Page 9a.
30. Appendix B, Pages 40a-42a.
31. Appendix B, Page 41a.
10
AIA 201-2007 §2.6:
“The rights stated in this Article and elsewhere
in the Contract Documents are cumulative and
not in limitation of any rights of the Owner (1)
granted in the Contract Documents, (2) at law,
or (3) in equity.” 32
The Appellate Court specifically held that the above
provisions allowed for multiple remedies, not only those
expressly stated in the plain language of the contract, but
allowed common law remedies33 that, in this case, were
not made known to the parties at the time of contract
execution.
Petitioner filed its Petition for Writ of Certiorari to
the Maryland Supreme Court, requesting review that
the court’s interpretation, based on the background of
the AIA documents, would lead to inconsistency across
jurisdictions in the interpretation of industry and legal
standards, terminology and practices. The petition for
writ of certiorari was denied on December 20, 2023. 34
32. Appendix B, Page 41a.
33. Appendix B, Page 41a-42a.
34. Appendix B, Page 1a-2a.
11
BACKGROUND OF THE AIA CONTRACTS35
Since 1888, the American Institute of Architects (AIA)
standard Contract Documents have been used to unify,
shape and regulate the construction industry. AIA forms
are revised nearly every decade to create uniformity in the
law of construction contracts and address the diversity and
disparity of size, economic power, and legal sophistication
of the parties to a construction project. They are “carefully
drafted to avoid inconsistencies that create ambiguities
or call their meaning into question.” 36
“If anything can be considered a unifying
force in the construction industry, it is the
standard contract forms and documents issued
by the American Institute of A rchitects.
They establish a common framework of roles
and responsibilities for many of the project
participants, using consistent terminology and
legal principles. They tend to level the playing
field between the large and the small, the rich
and the poor, those who can afford lawyers to
scrutinize every transaction and those who
cannot. By reducing transaction costs, they
promote transactional economy. They also save
time, permitting projects to move forward much
more quickly than they would otherwise could
35. The background of the AIA Contracts was presented to
the Maryland Supreme Court in the Petition for Writ of Certiorari,
which was denied.
36. The A mer ican Institute of A rchitects, Of ficial
Guide to the 2007 AIA Contract Documents, 2009, Chapter 1.
Standardization of Construction Contracts, p. 7.
12
if each participant had to come to agreement
on new, unfamiliar terms with every project.
The AIA documents make it possible for
construction industry participants to engage
in private law-making as a practical reality. 37
These form documents reflect industry standards and
best practices:
‘The influence of the AIA documents extends
well beyond the particular contracts in which
they are used. While the documents reflect
standard industry practices, they also embody
“best practices” of the industry, and through
their use, help to bring those practices into
the mainstream. Because of the widespread
acceptance of the AIA documents, their terms
soon come to represent the standards of the
industry. When a contract is silent on an issue
that is before a court, the court will often look
at normal trade practices.’38
… Moreover, they “set legal standards that are
reflected in thousands of cases.” 39
“The widespread use of the AIA documents
has resulted in a large body of law construing
almost every one of their provisions.”40
37. Id. at 3-4.
38. Id. at 9-10.
39. Id. at 10.
40. Id. at 11.
13
“In order to assist the legal community in
construction law cases, the AIA developed The
American Institute of Architects Legal Citator,
which has cataloged and digested thousands of
legal decisions construing all of the principal
AIA contract forms since it was introduced
in the mid-1960s. (Since the mid-1980s, The
American Institute of Architects Legal Citator
has been published by Matthew Bender &
Company, a member of the Lexis-Nexis Group,
as part of its multi-volume Construction Law
treatise.)41
According to the AIA’s website,42 the AIA documents are
routinely used in all aspects of construction nationwide.
When the first AIA contract document was
created in 1888, there were only 38 states.
Today, AIA users create more than 960 AIA
documents per hour, and, at any point during
the workday, an average of 500 contractors,
architects, engineers and owners are using the
AIA platform. AIA payment applications have
been used in $1 trillion worth in construction
projects. Notable projects constructed with the
AIA contract include: Dallas Cowboys Stadium,
New Orleans Louis Armstrong Airport, Los
Angeles Dodger Stadium, and Seattle’s Space
Needle. Today, there are more than 100,000
AIA users in all fifty states.
41. Id. See also, footnote 4.
42. See, https://learn.aiacontracts.com/company-facts/
14
The sig nif icant and w idespread use of these
standardized documents has contributed to the growth
and development of the construction industry nationwide.
REASONS FOR GRANTING THE PETITION
I.
Undue Burden on Interstate Commerce
T he M a r yl a nd St at e cou r t ’s f l awed a d hoc
interpretation of the industry standard contract places
an undue burden on interstate commerce. For more than
130 years, the AIA contracts, by establishing a common
framework for construction project participants, using
consistent terminology and legal principles, and reducing
transaction costs, have promoted transactional economy
in the construction industry.
The Commerce Clause grants Congress the power to
“regulate Commerce . . . among the several States.” Art.
I, § 8, Cl. 3. This authority gives rise to the “Dormant
Commerce Clause,” a further negative command
that prohibits discriminatory state action based on
transactions or incidents that cross state lines and
results in an advantage or burden based on commerce.
Under the Dormant Commerce Clause, states may not
discriminate “between transactions on the basis of some
interstate element.” Boston Stock Exchange v. State
Tax Comm’n, 429 U.S. 318, n. 12 (1977). A state “may
not tax a transaction or incident more heavily when it
crosses state lines than when it occurs entirely within
the State.” Armco Inc. v. Hardesty, 467 U. S. 638, 642
(1984). “Nor may a State impose a tax which discriminates
against interstate commerce either by providing a direct
commercial advantage to local business, or by subjecting
15
interstate commerce to the burden of ‘multiple taxation.’ ”
Northwestern States Portland Cement Co. v. Minnesota,
358 U. S. 450, 458 (1959) (citations omitted). See also,
Comptroller of Treasury of Md. v. Wynne, 575 U.S. 542
(2015).
Under the Maryland court’s interpretation of the
AIA Contract, the parties may simply discard or opt out
of the unambiguous plain language of the AIA contract
that they have agreed upon and look to any and all rights
and remedies that may exist. This interpretation imposes
an undue and impermissible burden disadvantageous
to parties to construction projects within the state
of Maryland.43 They may not simply rely on the plain
language of their AIA contract, but must now anticipate
any and all other rights and remedies available at law.
The AIA 101 and 201 Standard Contracts have been
the subject of thousands of cases and have been litigated
in state and federal courts in all fifty states. According to
the Legal Citator, they have made their way to the U.S.
Supreme Court on nine separate occasions, Mercantile
Trust Co. v. Hensey, 205 U.S. 298 (1907), PortugueseAmerican Bank v. Welles, 242 U.S. 7 (1916), United States
v. Utah Construction & Mining Co., 384 U.S. 394 (1966),
Moses H. Cone Memorial Hospital v. Mercury Constr.,
460 U.S. 1 (1983), Volt Information Sciences, Inc. v. Board
of Trustees, 489 U.S. 468 (1989) recognizing that the AIA
Contract is interstate commerce), C&L Enters., Inc. v.
Citizen Band Potawatomi Indian Tribe of Oklahoma,
532 U.S. 411 (2001).
43. Jurisdiction and choice of law is usually determined by
the site of the project, or otherwise agreed upon by the parties,
as offered in AIA 201-2007 §15.4.
16
The Maryland court’s interpretation of the “reservation
of rights provision,” §13.4.1, is contrary to courts of other
jurisdictions. The Maryland court is the only jurisdiction
that allows unstated rights and remedies to supplant the
plain language of the AIA contract if a party chooses to
pursue an alternative remedy.
The Minnesota Court of Appeals held that AIA 2012007 §13.4.1 permitted a separate claim for attorneys fees,
even though it was not specifically indicated in the contract,
after the parties resolved a mechanics lien through
arbitration. The Court reviewed both the arbitration
provision and the reservation of rights provision and
concluded that the law required it to construe the contract
as a whole, to harmonize all provisions, if possible, and
avoid a construction that would render one or more
provisions meaningless. Stiglich Construction, Inc. v.
Larson, 621 N.W. 2d. 801, 803 (Minn. Ct. Appl. 2001),
review denied, 2001 Minn. LEXIS 192 (Minn. Mar. 27,
2001). The court opined that it was improper to construe
the contract in a way that would render one or more
provisions meaningless.
In Beaver Construction Co. v. Lakehouse, LLC,
742 So. 2d 159 (Ala. 1999), the Owner’s claim that
§13.4.1 permitted non-exclusive remedies, i.e., in lieu of
contractual remedies, was flatly rejected. The Owner
had argued that the arbitration clause contract was not
intended to be the exclusive means of redress because
§13.4.1 provided that “duties and obligations imposed by
the Contract Documents and rights and remedies available
thereunder shall be in addition to and not a limitation of
duties, obligations rights and remedies otherwise imposed
or available by law.” The Owner contended that this
17
“reservation of rights” provision allowed the Owner to
pursue a jury trial through litigation. The Court held that
if this were the case, the provision relating to arbitration
setting in detail specific procedures to be followed in
arbitration would have been negated by § 13.4.1. Because
a construction contract cannot be construed in a manner
such that one clause would nullify another, the Owner’s
claim was rejected.
Lastly, in Stonehill-PRM WC LLP v. Chasco
Constructors, Ltd., LLP, 2009 Tex. Appl. LEXIS 1019
(Tex. App. Feb. 11, 2009), the court reviewed the “limitation
of damages” clause in conjunction with the “reservation of
rights” clause, with an outcome contrary to that offered by
the Maryland Appellate Court. The limitation on damages
clause, § 14.2.4 offered the following:
“To the extent the costs of completing Work,
including, without limitation, compensation for
additional professional services and expenses,
exceed those costs which would have been
payable to Contractor to complete the Work
except for Contractor’s default, Contractor shall
pay the difference to Owner, and this obligation
for payment shall survive termination of the
Contract. Such costs incurred by Owner will
be determined by the Owner and confirmed by
the Architect.”
The reservation of rights provision, §13.4.1, provided that:
“Duties and obligations imposed by the
Contract Documents and rights and remedies
available thereunder shall be in addition to and
18
not a limitation of duties, obligations, rights
and remedies otherwise imposed or available
by law or in equity or by any other agreement,
and any such rights and remedies shall survive
the acceptance of the Work and/or termination
of the Contract Documents.” §13.4.1.
The Owner Stonehill argued on appeal that the
above limitation on damages clause applied only if it had
chosen to complete the project, i.e., that there would be
another remedy available for the calculation of damages
if it chose not to complete the project. The court held that
this interpretation contradicted the plain language of the
provision. Similar to the case at hand, the contractual
provision entitled, “Termination by the Owner for Cause,”
was deemed to be the sole remedy in addressing the
owner’s claim for damages in a termination for cause. The
Texas court further held that the owner’s position was
inconsistent with the presence of a waiver of consequential
damages in another paragraph. “Binding the parties to
the contractually agreed measure of damages in the event
the contractor was terminated for cause was consistent
with its waiver of the types of damages expressed in
the consequential damages clause.” Id. The waiver of
consequential damages further supported its finding
that 14.2.4 was the “sole remedy” that had been agreed
upon in claiming damages in a termination for cause. The
decision in Stonehill is entirely at odds with the Maryland
Appellate Court’s interpretation.44
44. Also concerning was the Maryland court’s decision to
disregard the existence of waiver of consequential damages as
support for the limitation on remedies in a termination for cause
claiming that its argument was insufficiently preserved for review,
See, Appendix B, P. 41a, Footnote 10.
19
The Maryland court’s decision places an undue
burden on interstate commerce by offering inconsistent
interpretations of identical provisions of the AIA
Contracts. Although unreported, there is no reported
Maryland precedent interpreting the effect of §13.4.1,
and the decision may therefore be cited for its “persuasive
value,” see Appendix B, P. 3a. By its reading that AIA
§13.4.1 renders the plain and unambiguous of the contract
as “non-exclusive,” it is the only jurisdiction to interpret
the contract this way. Parties transacting business with
the AIA contract within the state of Maryland will now be
held to a completely different standard than those outside
of Maryland. The result is a reverse effect on transactional
economy in the construction industry and, instead of
being able to rely on the plain language of the contract
that reflects industry standards and the normal course of
business, parties to an AIA contract may not ever be able
to fully comprehend the magnitude of its transaction. The
possibilities are endless and unduly burdensome.
II. Denial of Equal Treatment
The AIA standardized agreements not only establish
a common framework of consistency and legal principles
for its participants, but they also operate to:
“level the playing field between the large and
the small, the rich and the poor, those who can
afford lawyers to scrutinize every transaction
and those who cannot.”45
45. The American Institute of Architects, Official Guide to the
2007 AIA Contract Documents, 2009, Chapter 1. Standardization
of Construction Contracts, p. 3-4.
20
The AIA standardized forms are intended to promote
freedom of contract. They recognize that “not everyone
involved in the construction industry has the same ability
to promote or protect his or her legal interests.”46 In
doing so, they address “the diversity and disparity of size,
economic power, and legal sophistication of the parties to
a construction project.”47
The Maryland court’s interpretation, however,
obliterates this concept of leveling the playing field. It
makes optional the unambiguous plain language of the
AIA contract agreed upon by the parties, and places a
distinct disadvantage on the small, the poor and those
who cannot afford lawyers to scrutinize every transaction.
By its interpretation of this standardized contract, the
Maryland court’s decision imposes a barrier that denies
equal treatment provided by the Equal Protection Clause
of the Fourteenth Amendment of the U.S. Constitution.
“All persons born or naturalized in the United
States, and subject to the jurisdiction thereof,
after citizens of the United States and the
State wherein they side. No state shall make
or enforce any law which shall abridge the
privileges or immunities of citizens of the
United States; nor shall any State deprive any
person of life, life or property, without due
process of law; nor deny to any person within
its jurisdiction the equal protection of the laws.”
46. Id. at 3
47. Id.
21
The courts have interpreted this Constitutional
provision to apply to corporations. Metro. Life Ins. Co. v.
Ward, 470 U.S. 869, 881 n.9 (1985). Petitioner, a womanowned and minority-owned small business, is entitled to
the same protections under the Nonetheless, the Maryland
court’s opinion disproportionately discriminates against
all small businesses. It favors the party that has the
greater capacity to engage the more capable legal team
to scrutinize every aspect of a transaction to avoid its
agreed upon obligations or pursue its claims wherever it
may find support. The Maryland court’s reading that AIA
§13.4.1 renders the plain and unambiguous of the contract
as “non-exclusive,” and the party with greater resources
may create whatever narrative it desires to suit any action
at law that its team of legal experts is able to craft outside
of the contract language.48
It is plainly evident in the case at hand, where the
Respondent took occupancy of its renovated school
facilities on September 6, 2018, then terminated Petitioner
“for cause” several months later to avoid making
payment on its tenth and final invoice. When Petitioner
brought a mechanics lien action in 2019, Respondent’s
initial counterclaim offered unspecified damages “to be
determined at trial.”49 By convincing the court to ignore
48. According to its own Internal Revenue Service records
(IRS Form 990), Respondent reported expenditures of $1,927,489
(in 2021) and $881,140 (in 2020) for legal fees paid to Arent Fox, as
well as an additional $200,021 paid to HKA Global, its expert witness
firm in this litigation. See, https://apps.irs.gov/pub/epostcard/cor/53
0196507_202206_990_2023061221438830.pdf
49. Holton-Arms’ Counterclaims Against HSU Contracting,”
Case No. 472329-V, p. 15, filed November 27, 2019, Record Extract
E109.
22
the unambiguous plain language of the contract, it then,
after two years, crafted a $4.1M damages claim in 2021,
which was presented by its expert witness at trial, and
only nominally supported only by 1950s case law. M&R
Contractors & Builders, Inc. v. Michael, 215 Md. 340
(1958) and Ray v. William G. Eurice & Brothers, 201 Md.
115 (1952). 50 This was not the plain language remedy that
was agreed upon by the parties, or even known to the
parties, at the time of contracting, but a remedy artfully
developed by the legal team of the party with the deeper
pockets over the course of several years. Parties to the
AIA Contract, or any contract, should be able to rely on
the plain language of the contract, as executed, and not
have to litigate or “determine at trial” the extent of their
obligations.
While this Court has acknowledged, in the realm
of government contracting, a right to compete on equal
footing, Adarand Constructors v. Pena, 515 U.S. 200
(1995), Congress has also expressly mandated the need
to protect small businesses through the Small Business
Act, 15 U.S. C 631(a), which sets forth:
“The essence of the American economic system
of private enterprise is free competition.
Only through full and free competition can
free markets, free entry into business, and
opportunities for the express and growth of
personal initiative and individual judgment
be assured. The preservation and expansion
of such competition is basic not only to the
50. These cases, when read in their entirety, offer no support
for Holton’s damages claim.
23
economic well-being but to the security of this
Nation. Such security and well-being cannot be
realized unless the actual and potential capacity
of small business is encouraged and developed.
It is the declared policy of the Congress
that the Government should aid, counsel,
assist, and protect, insofar as is possible, the
interests of small business concerns in order to
preserve free competitive enterprise, to insure
that a fair proportion of the total purchases
and contracts or subcontractors for property
and services for the Government (including
but not limited to contracts or subcontractors
for maintenance, repair, and construction) to
be placed with small-business enterprises…”
(Emphasis added.)
The federal government has recognized the importance
of promoting small business participation in the American
economic system of private enterprise, and mandated
their assistance and protection, while the Maryland
court’s interpretation serves as the antithesis. It denies
Maryland small businesses equal protection of the laws
by favoring those with greater resources and access, such
as the Respondent.
24
CONCLUSION
Review should be granted because of the strong
federal interest in promoting interstate commerce served
by the standardized AIA agreements in that they create
a reliable, common, and consistent framework that serves
to level the playing field for small businesses. If left to
stand, the Maryland court’s decision will unreasonably
burden interstate commerce by depriving contracting
parties and others in the interstate construction industry,
who have historically relied upon these forms as industry
standard, of the confidence and certainty they require
in their interstate business arrangements. Review is
appropriate because the Maryland court departed from
well-recognized principles of regularity and construction
of the industry standard plain language, instead relying on
Maryland common law to fashion a freewheeling post-hoc
remedy resulting in a disproportionate impact on small,
disadvantaged businesses that cannot afford the legal
costs associated with negotiating or defending the plain
language of the terms that were agreed upon.
Respectfully submitted,
A mber Wong Hsu
Counsel of Record
HSU Contracting, LLC
6100 Executive Blvd., Suite 450
N. Bethesda, MD 20852
(301) 437-1000
amber@hsubuilders.com
Counsel for Petitioner
APPENDIX
i
TABLE OF APPENDICES
Page
APPENDIX A — ORDER OF THE SUPREME
COU RT OF M A RY L A N D, FILED
DECEMBER 20, 2023 . . . . . . . . . . . . . . . . . . . . . . . . 1a
A P P E N DI X B — O P I N ION O F T H E
APPELLATE COURT OF MARYLAND,
FILED SEPTEMBER 28, 2023 . . . . . . . . . . . . . . . . 3a
APPENDIX C — TRIAL COURT OPINION
OF T HE CIRCU I T COU RT FOR
MONTGOMERY COUNTY, MARYLAND
FILED OCTOBER 12, 2022 . . . . . . . . . . . . . . . . . . 51a
1a
AppendixOF
A THE SUPREME
APPENDIX A — ORDER
COURT OF MARYLAND, FILED
DECEMBER 20, 2023
IN THE SUPREME COURT OF MARYLAND
HSU CONTRACTING LLC,
V.
HOLTON-ARMS SCHOOL, INC.
Petition No. 241
September Term, 2023
(No. 1707, Sept. Term, 2022
Appellate Court of Maryland)
(Cir. Ct. No. 472329V)
ORDER
Upon consideration of the petition for a writ of
certiorari to the Appellate Court of Maryland, the briefs
of amicus curiae Associated General Contractors of
Metropolitan Washington, DC and Associated General
Contractors of Maryland, respondent’s answer to the
petition, petitioner’s motion for leave to reply to the
respondent’s answer, and petitioner’s reply to the answer,
it is this 20th day of December 2023, by the Supreme
Court of Maryland,
2a
Appendix A
ORDERED that petitioner’s motion for leave to file
a reply to the answer to the petition is granted; and it is
further
ORDERED that the petition for writ of certiorari
is denied as there has been no showing that review by
certiorari is desirable and in the public interest.
/s/ Matthew J. Fader
Chief Justice
3a
Appendix
B
APPENDIX B
— OPINION
OF THE
APPELLATE COURT OF MARYLAND,
FILED SEPTEMBER 28, 2023
UNREPORTED*
IN THE APPELLATE COURT OF MARYLAND
No. 1707
September Term, 2022
Filed September 28, 2023
HSU CONTRACTING, LLC
v.
HOLTON-ARMS SCHOOL, INC., et al.
Berger,
Beachley,
Moylan, Charles E., Jr.
(Senior Judge, Specially Assigned), JJ.
Opinion by Beachley, J.
HSU Contracting, LLC (“HSU”) filed a complaint in
the Circuit Court for Montgomery County against the
Holton-Arms School, Inc. (“Holton”) alleging breach of
contract, conversion, and other related claims. Holton
* This is an unreported opinion. This opinion may not be cited
as precedent within the rule of stare decisis. It may be cited for its
persuasive value only if the citation conforms to Rule 1-104(a)(2)(B).
4a
Appendix B
filed a counter-complaint, also alleging breach of contract.
After a fifteen-day bench trial, the circuit court awarded
$2,579,366 to Holton on its breach of contract claim and
$9,550 to HSU on its conversion claim.
HSU noted this timely appeal and presents the
following questions for our review, which we have slightly
rephrased and renumbered to set forth the questions as
we shall address them:
I.
Did the circuit court err in permitting the
testimony of Holton’s experts, whose reports
were disclosed after the close of discovery?
II. Did the testimony of expert Lawrence
Smith satisfy the requirements of Daubert
v. Merrell Dow Pharm., Inc.?
III. Did the circuit court err in awarding liquidated
damages in addition to actual damages and
despite the contract provision that barred
liquidated damages once the project had
reached “Substantial Completion”?
IV. Did the circuit court err in awarding Holton’s
damages based on estimates of costs despite
a contractual provision limiting damages to
costs incurred?
V.
Did the circuit court err in failing to require
Holton to mitigate its damages?
5a
Appendix B
As to the third question, we agree that a portion of the
damages must be remitted. We answer the remaining four
questions in the negative. Accordingly, we shall modify
the damages award and affirm the judgment as modified.
FACTUAL AND PROCEDURAL BACKGROUND
On June 5, 2018, the parties entered into a contract for
HSU to renovate one of Holton’s classroom buildings (the
“Lower School”) and to upgrade Holton’s HVAC system
in all of its buildings. The contract required that HSU
substantially complete the Lower School renovation by
August 24, 2018, and substantially complete the HVAC
work by January 18, 2019.1 If substantial completion was
not timely achieved, the contract provided for liquidated
damages of $500 per day for the Lower School renovation,
and a lump sum of $5,000 for the HVAC work.
Holton alleged that HSU did not substantially
complete either the Lower School renovation or the
HVAC work on time. Classes for the 2018/2019 school year
began on September 4, 2018. Because the Lower School
renovation was not completed by that time, Holton had
to temporarily hold classes in “the library, the theater,
a dance studio, and a couple of other classrooms and
common spaces.” On September 5, 2018, HSU notified
Holton that it could begin holding classes in the Lower
School. Holton hired movers to set up the classrooms for
1. The substantial completion deadline for the HVAC work was
originally August 25, 2018, but the parties later agreed to change
the deadline to January 18, 2019.
6a
Appendix B
immediate use and began holding classes in the Lower
School on September 6, 2018.
In September of 2018, Holton noticed warping and
buckling in the newly installed bamboo flooring in the
Lower School. Neither HSU nor its subcontractor, Capital
City Flooring, attempted to repair the bamboo flooring
during the winter or spring break, when the Lower School
was not being used.
On May 31, 2019, Holton sent HSU a letter notifying
HSU that Holton was terminating the contract for cause.
The letter noted several material breaches of the contract,
including failure to achieve substantial completion, failure
to submit certain schedules as required by the contract,
and defects in the work performed.
HSU filed a complaint on September 11, 2019, against
Holton and Capital Projects Management, a company
hired by Holton to act as its project manager. 2 HSU
alleged, inter alia, that Holton breached the contract
by failing to pay HSU for work it had performed, and
alleged that Holton converted certain materials and
tools belonging to HSU by not allowing HSU to enter the
school grounds to retrieve the items after terminating the
contract. Holton filed a counter-complaint alleging breach
of contract against HSU for failing to complete the project
and providing defective work.
2. The trial court entered judgment in favor of Capital Projects
Management at the close of HSU’s case-in-chief. HSU has not
appealed that ruling.
7a
Appendix B
The circuit court originally set the discovery deadline
for May 21, 2020. After several agreements between the
parties to extend the scheduling order, the final discovery
deadline was set for February 28, 2021. However, the
parties continued to conduct discovery after this date,
including the taking of several depositions.
In April 2020, Holton requested that HSU produce
the Daily Reports that were generated by HSU while the
construction project was ongoing. HSU failed to provide
the Daily Reports, despite its employees’ deposition
testimony that the Daily Reports existed. After further
requests for the Daily Reports were unsuccessful, Holton
filed a motion to compel HSU to produce the Daily
Reports, or to explain why they could not be produced. In
its motion, Holton alleged that HSU’s failure to produce
the reports “made it impossible for Holton’s experts to
complete their work.” As a result of the circuit court’s
March 22, 2021 order granting the motion to compel,
HSU produced “several hundred pages of Daily Reports.”
Holton provided HSU with expert reports on May 5, 2021,
slightly more than a month before trial was scheduled to
begin on June 14, 2021.
On May 25, 2021, HSU filed a motion seeking to
continue the trial. Trial was originally scheduled for five
days, but it had become apparent to both parties that it
would require at least ten days to try the case. In addition
to representing that trial “will require ten (10) days, if
not more,” HSU also sought a continuance based on the
late disclosure of Holton’s expert reports. HSU stated:
“Because of [Holton’s] production of expert reports
8a
Appendix B
only weeks before the trial date, [HSU] has not had an
opportunity to depose [Holton’s] expert[s] regarding
the substance of their reports, nor the opportunity to
adequately review the report[s] and consult with [HSU’s]
expert.” HSU further noted that “a postponement of the
trial date in this matter will prevent further prejudice to
[HSU] as a result of [Holton’s] belated production of expert
reports.” The court granted the continuance, rescheduling
the trial for ten days beginning December 6, 2021. After
the continuance was granted, HSU never attempted to
depose Holton’s expert witnesses.
On October 13, 2021, Holton served deposition notices
for two of HSU’s witnesses. In an email exchange, HSU
explained that it would not produce any witnesses for
deposition, reasoning: “As the discovery deadline has long
since passed and no party has moved for leave to reopen
discovery, no further depositions are permitted.” Holton
filed an Emergency Motion to Compel HSU’s Cooperation
in Scheduling Depositions, which noted that Holton “also
offered to produce their own experts for deposition.” HSU
filed an opposition to Holton’s motion, in which it stated
that Holton “had the option of requesting the scheduling
of depositions at any time from late-May 2021 through the
entire summer of 2021, or alternatively moving to reopen
discovery during that period, but [Holton] elected not to
do so.” HSU additionally requested the court to “issue a
protective order stating that no further discovery be had
prior to the commencement of trial.” On November 9,
2021, the court denied Holton’s motion and granted HSU’s
motion, barring any further discovery.
9a
Appendix B
A fter a second postponement, the trial began
on February 28, 2022, and lasted fifteen days. HSU
produced nine witnesses, including one expert witness
and HSU’s Director of Operations for this project, Steven
Smith. Holton produced seven witnesses, including its
two experts, the lead architect, and Holton’s Director
of Facilities. We shall recount relevant portions of the
testimony of these witnesses as necessary to our analysis.
After closing arguments, the court requested that the
parties file post-trial memoranda. On October 12, 2022, the
court issued a written opinion, finding that HSU breached
the contract, and awarding $2,579,366 in damages to
Holton. The court also found that Holton converted certain
property belonging to HSU and awarded $9,550 to HSU.
Holton has not appealed the court’s conversion award.
On October 24, 2022, HSU filed a motion to alter or
amend, presenting many of the same arguments that it
raises on appeal. The court denied the motion.
We shall provide additional facts as necessary to
resolve the issues raised on appeal.
DISCUSSION
The issues HSU raises in this appeal can be grouped
into two categories: 1) those concerning Holton’s expert
witnesses; and 2) those concerning the trial court’s
calculation of damages. Because the court relied heavily
on expert testimony for its damages calculation, we shall
first consider HSU’s arguments concerning the expert
witnesses.
10a
Appendix B
Issues Related To Expert Witnesses
HSU raises two challenges related to Holton’s expert
witnesses. First, HSU argues that the trial court erred
by denying its motion to preclude the testimony of both
experts due to Holton’s late disclosure of the expert
reports. Second, HSU argues that the court erred by
admitting the testimony of Lawrence Smith, 3 Holton’s
damages expert, because his methodology did not meet
the Daubert/Rochkind standard. See Daubert v. Merrell
Dow Pharm., Inc., 509 U.S. 579, 113 S. Ct. 2786, 125 L.
Ed. 2d 469 (1993); Rochkind v. Stevenson, 471 Md. 1, 236
A.3d 630 (2020). We shall discuss each argument in turn.
I.
The Alleged Discovery Violation
Holton disclosed its two experts, Wayne Deflaminis
and Expert Smith, on February 6, 2020, more than a
year before the close of discovery on February 28, 2021.
However, it did not provide HSU with copies of the
experts’ reports until May 5, 2021, after the discovery
deadline. HSU argues that this late disclosure of the
reports made it impossible for HSU to depose the experts,
causing it prejudice that required preclusion of the
experts’ testimony.
Holton responds, first, that the reason for the late
disclosure of the reports was HSU’s own late disclosure
of the Daily Reports needed by the experts to develop
3. To avoid confusion between witnesses Lawrence Smith and
Steven Smith, we shall refer to Lawrence Smith as “Expert Smith.”
11a
Appendix B
their opinions. Second, Holton asserts that HSU was not
prejudiced by the late disclosure because the experts’
reports were disclosed nearly ten months before trial
began, and HSU never attempted to depose the experts
in that time. We agree with Holton that the court did not
abuse its discretion in admitting the expert testimony
because HSU was not prejudiced by the late disclosure
of the expert reports.
The trial was originally scheduled for five days,
starting on June 14, 2021. On May 25, 2021, HSU moved
to continue the June 14 trial. In its motion, HSU stated
that “[b]ecause of [Holton’s] production of expert reports
only weeks before the trial date, [HSU] has not had an
opportunity to depose [Holton’s] expert[.]” HSU further
asserted that the parties needed at least ten days for
trial. The court granted the motion and set the trial for
December 2021. After a second postponement, the case
was tried over fifteen days in late-February and earlyMarch 2022.
A fair reading of HSU’s motion for continuance reveals
that HSU sought a postponement, in part, because it
intended to depose Holton’s experts. Nevertheless, at
no point did HSU attempt to depose Holton’s expert
witnesses. HSU argues that it was unable to depose the
experts because the discovery deadline had passed. HSU’s
argument is disingenuous for several reasons. First,
HSU deposed several other witnesses after the discovery
deadline without any resistance from Holton. Thus, there
is nothing in the record to suggest that Holton would
have objected to HSU deposing their experts even in the
12a
Appendix B
absence of a formal extension of the discovery deadline.
Second, to the extent that HSU believed the formal
discovery deadline presented an impediment, HSU never
requested the court to extend the discovery deadline.
Third, in October 2021 Holton proposed deposition dates
for several witnesses, but HSU refused to agree to the
witness depositions, asserting that Holton “had the option
of requesting the scheduling of depositions at any time
from late-May 2021 through the entire summer of 2021,”
but elected not to do so. Indeed, HSU sought and was
granted an order barring further discovery. Aside from
the continuance, which was granted, the only cure HSU
requested for Holton’s discovery violation was preclusion
of the expert testimony.
A trial court’s decision on discovery sanctions is
reviewed for abuse of discretion. In deciding whether to
impose sanctions, the court should consider the Taliaferro
factors: “(1) whether the disclosure violation was technical
or substantial; (2) the timing of the ultimate disclosure;
(3) the reason, if any, for the violation; (4) the degree of
prejudice to the parties respectively offering and opposing
the evidence; (5) whether any resulting prejudice might
be cured by a postponement; (6) and, if so, the overall
desirability of a continuance.” Watson v. Timberlake, 251
Md. App. 420, 434, 253 A.3d 1094 (2021) (citing Taliaferro
v. State, 295 Md. 376, 390-91, 456 A.2d 29 (1983)). Courts
may also consider “any other relevant circumstances.”
Thomas v. State, 397 Md. 557, 571, 919 A.2d 49 (2007).
“[I]n fashioning a sanction, the court should impose the
least severe sanction that is consistent with the purpose
of the discovery rules.” Id. “[T]he more draconian
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sanctions, of dismissing a claim or precluding the evidence
necessary to support a claim, are normally reserved for
persistent and deliberate violations that actually cause
some prejudice[.]” Admiral Mortg., Inc. v. Cooper, 357
Md. 533, 545, 745 A.2d 1026 (2000).
Applying these factors to the present case, nearly
every factor weighs heavily in Holton’s favor. Although
the disclosure was made only slightly more than a month
before trial was originally scheduled to begin, the delay
in disclosure was at least partially caused by HSU’s
refusal to provide the Daily Reports needed by Holton’s
experts. Any prejudice that may have existed when the
reports were first produced was cured when the June
2021 trial was ultimately postponed to late February
2022, giving HSU ample time to conduct depositions.
Indeed, in its motion to continue, HSU stated that “a
postponement of the trial date in this matter will prevent
further prejudice to [HSU] as a result of [Holton’s]
belated production of expert reports.” (emphasis added).
“Other relevant circumstances” include HSU’s strong
resistance to discovery after the trial was rescheduled,
contrary to HSU’s suggestion in its motion to continue
that a continuance would afford HSU the opportunity to
depose Holton’s experts.
In two cases, Giant Food Inc. v. Satterfield, 90 Md.
App. 660, 669-71, 603 A.2d 877 (1992), and Thomas, 397
Md. at 572-75, parties disclosed witnesses one week before
trial and the opposing parties sought exclusion of those
witnesses. In both cases, the opposing parties did not
seek either to depose the witnesses or to continue the
14a
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trial. This Court and the Supreme Court of Maryland
held that the trial courts did not abuse their discretion by
allowing the witnesses to testify. In Thomas, the Supreme
Court of Maryland noted that opposing counsel had “an
opportunity to interview the witness and to prepare for
crossexamination. Significantly, petitioner requested
only that the trial court exclude the evidence. He was not
interested in a continuance nor an opportunity to talk to”
the witness. Thomas, 397 Md. at 572. Instead, he sought
only the “windfall” of excluding the witness. Id. at 573,
75. The same is true in the present case.
It is apparent that in the nearly ten months between
the May 2021 disclosure of the expert reports and the
start of trial, HSU never showed an interest in deposing
Holton’s experts. Although the discovery deadline had
passed, it is not true, as HSU seems to claim, that the
deadline made deposition of the experts impossible. HSU
acknowledged that expert depositions could be taken when
it requested a postponement of the trial based in part on
its need to depose the experts. Indeed, HSU deposed other
witnesses after the discovery deadline. HSU’s recognition
that Holton “had the option” to take depositions between
“late-May 2021 through the entire summer for 2021”
applied equally to HSU. HSU simply chose not to depose
Holton’s experts. Moreover, Holton provided no resistance
to any potential deposition, instead attempting to work
with HSU to complete the outstanding depositions.
We reject HSU’s argument that the court should
have precluded Holton’s experts where HSU was at least
partially responsible for the delay and the record amply
demonstrates that the experts could have been deposed
15a
Appendix B
had HSU made a reasonable effort to do so. Under these
circumstances, the trial court did not abuse its discretion
in allowing Holton’s experts to testify.
II. Challenges To Expert Smith’s Testimony
HSU makes three discrete arguments concerning
Expert Smith’s testimony: 1) “Experts Cannot Merely
Parrot the Statements of Others”; 2) “Experts Cannot
Ambush Parties with New Opinions at Trial”; and 3)
“Experts Cannot Provide ‘Expert’ Testimony on Subjects
They Know Nothing About.” We shall address each
argument in turn.
A.
“Parroting” opinions of others
Expert Smith was accepted by the court as an expert
in “construction, construction bidding, construction cost
management and construction cost estimating.” HSU did
not challenge Expert Smith’s qualifications or the court’s
acceptance of him as an expert in the designated fields.
Although we shall discuss Expert Smith’s opinions in more
detail below, he stated that he substantially formed his
opinion concerning the “base damages” resulting from
HSU’s breach of contract by relying on 1) the architect’s
assessment of the scope of work necessary to complete
the project, and 2) competitive bids Holton received from
two contractors to complete the project in accordance
with the architect’s “scope of work” assessment. Expert
Smith confirmed that the documents he relied on were
“definitely” the type of data that an expert in his field
would rely on to form an opinion as to construction costs.
16a
Appendix B
HSU claims that Expert Smith’s testimony should
have been excluded because he merely “parroted”
statements of others. On the fifth day of trial HSU argued
for the first time that Expert Smith’s opinion should be
excluded because it did not satisfy the Daubert/Rochkind
standard for the admissibility of expert testimony.
Specifically, HSU argued that Expert Smith’s opinion was
“not reasonably limited to the remaining scope of work
on the project,” and “merely adopted the calculations and
bids of the third-parties without any meaningful analysis.”
HSU next raised this issue on the thirteenth day of trial,
shortly before Expert Smith’s testimony began. HSU did
not move to exclude Expert Smith’s testimony at that time,
but expressed its belief that “all we’re basically having this
expert do is parrot whatever it is that was contained” in
bids Holton received to complete the work. HSU raised
the issue again on the last day of trial, just before closing
arguments. The entirety of HSU’s argument at that time
was that “the predicate for the opinion [was] based on work
that was done apparently by somebody else.”
On appeal, HSU reiterates that Expert Smith
improperly “parroted” the opinions of others by
unquestioningly relying on the architect’s assessment of
the work that needed to be done to complete the project
and the two responsive competitive bids. In HSU’s view,
the trial court improperly admitted Expert Smith’s
testimony because his testimony did not satisfy the
Daubert/Rochkind standard for admissibility.
In Rochkind, the Supreme Court of Maryland adopted
the Daubert analysis for determining admissibility
17a
Appendix B
of expert testimony, and added several factors from
other cases. 471 Md. 1, 35-36, 236 A.3d 630 (2020). The
factors for determining reliability of an expert witness’s
methodology are:
(1)
whether a theory or technique can be (and
has been) tested;
(2)
whether a theory or technique has been
subjected to peer review and publication;
(3)
whether a particular scientific technique has
a known or potential rate of error;
(4)
the existence and maintenance of standards
and controls; . . .
(5)
whether a theory or technique is generally
accepted[;]
[. . .]
(6)
whether experts are proposing to testify
about matters grow ing naturally and
directly out of research they have conducted
independent of the litigation, or whether
they have developed their opinions expressly
for purposes of testifying;
(7)
whether the expert has unjustif iably
extrapolated from an accepted premise to
an unfounded conclusion;
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Appendix B
(8)
whether the expert has adequately accounted
for obvious alternative explanations;
(9)
whether the expert is being as careful as
he [or she] would be in his [or her] regular
professional work outside his [or her] paid
litigation consulting; and
(10) whether the field of expertise claimed by the
expert is known to reach reliable results for
the type of opinion the expert would give.
Katz, Abosch, Windesheim, Gershman & Freedman, P.A.
v. Parkway Neuroscience & Spine Inst., LLC, 485 Md. 335,
301 A.3d 42, 2023 Md. LEXIS 382, *36-*37, No. 30, Sept.
Term 2022 (filed August 30, 2023) [hereinafter Parkway
Neuroscience] (alterations in original) (quoting State
v. Matthews, 479 Md. 278, 310-11, 277 A.3d 991 (2022)).
“[T]he admissibility of expert testimony is a matter
largely within the discretion of the trial court, and its
action in admitting or excluding such testimony will
seldom constitute ground for reversal.” Rochkind, 471 Md.
at 10 (alteration in original) (quoting Roy v. Dackman, 445
Md. 23, 38-39, 124 A.3d 169 (2015)).
In denying HSU’s request to preclude Expert Smith’s
testimony, the court noted that “we didn’t hear anything
about” many of the Daubert/Rochkind factors, and that
if the motion had been raised prior to trial, there would
have been a full hearing on the issue.4 As to the factors
4. Although we have not found any decisional law that mandates
a pre-trial Daubert hearing, we agree with the trial court’s
observation that raising a Daubert issue “for the first time during
19a
Appendix B
concerning testing of the methodology, peer review, and
rate of error, the court noted that “neither side really
question[ed] that witness about these matters.” Instead,
the only factor that HSU focused on was “whether
there’s an unjustifiable extrapolation,” also known as an
“analytical gap.” The court concluded:
In this case, we do have [Expert] Smith,
who told us exactly what he did. He told us what
he thought was reliable. He told us about the
two bids that he reviewed, that two competitive
bids, in his view, were a better standard of
market value for costs than him just going out
and doing it.
Now [HSU], as they are able to and can,
can attack some of the data that he received.
In fact, that is a very viable challenge to an
expert’s opinion is to claim the data that you’re
relying on is faulty; but that does not mean
that the analysis is the gap there; that means
that you might have been operating from a bad
premise initially.
So, in this particular case, that goes more
to the weight than whether it goes to the
admissibility of the expert’s opinion. So, for that
reason, I am going to deny the motion of counsel
to exclude the testimony of [Expert] Smith.
trial” is “generally not . . . the best practice.” That HSU first raised
Daubert/Rochkind on the fifth day of trial and substantively argued
only one of the ten relevant factors evinces its feeble (and ultimately
unpersuasive) attempt to preclude Expert Smith’s testimony.
20a
Appendix B
We begin our analysis with State v. Matthews, 479
Md. 278, 277 A.3d 991 (2022), our Supreme Court’s first
post-Rochkind decision applying the new standard. In
Matthews, the State requested the FBI’s assistance to
determine the height of a suspect captured in a video
carrying a shotgun. Id. at 288. An FBI scientist, using
“reverse projection photogrammetry,” determined that
the suspect in the video was approximately 5’8” tall,
plus or minus two-thirds of an inch. Id. That opinion was
significant because Matthews was approximately 5’9”
tall. Id. at 300. However, the forensic scientist’s report
noted that several variables could cause “the degree of
uncertainty in this measurement” to be “significantly
greater.” Id. at 288-89. At a pre-trial hearing, the FBI
scientist “acknowledged that she could not quantify the
overall margin of error based on the variables that were
not calculable.” Id. at 295. The trial court admitted the
scientist’s testimony, and the jury convicted Matthews of
murder. Id. at 297, 303-04.
This Court reversed Matthews’s conviction, concluding
that there was an “analytical gap” between the underlying
data and the expert scientist’s conclusion. Id. at 304. On
certiorari, the Supreme Court reinstated Matthews’s
conviction, holding that the expert’s methodology was
reliable and that no analytical gap existed in the expert’s
opinion. Id. at 313. The Court concluded: “The unknown
degree of uncertainty concerning the accuracy of [the
FBI scientist’s] height estimate went to the weight
the jury should give to the expert testimony, not to its
admissibility.” Id. The Court held that the trial court
acted within its discretion in determining that the expert
21a
Appendix B
testimony would be helpful to the trier of fact under Rule
5-702. The Court reasoned:
First, [the FBI scientist] explained in detail
how she conducted her analysis, which allowed
the trial court to assess the rigor and care with
which [she] approached her work. . . .
Second, [the FBI scientist] explained
. . . why, despite the unknown degree of
uncertainty attributable to certain variables,
she nevertheless was comfortable with her
height estimate of 5’8” plus or minus two-thirds
of an inch. . . .
Third, given [the FBI scientist’s] known
height of between 5’9” and a half and 5’10”, and
the fact that she ensured that she stood in the
same spot and position as the subject in the
questioned image, [the FBI scientist] was able
to opine that the subject appeared to be slightly
shorter than [the FBI scientist] herself.
Id. at 319-320. These factors allowed the trial court to
reasonably conclude that the expert’s opinion would assist
the jury despite the expert’s acknowledged uncertainty.
Id. at 320.
The Supreme Court reaffirmed these principles
recently in Parkway Neuroscience, Md. , 2023 Md.
LEXIS 382, No. 30, Sept. Term 2022. That case involved
an expert accountant’s opinion as to a medical practice’s
22a
Appendix B
lost profits. In light of the trial court’s specific, articulated
concerns about the expert’s “speculative, insufficiently
substantiated judgment calls that were central” to the
expert’s methodology, the Court held that “it was within
the trial court’s discretion to admit or exclude” the expert’s
testimony. 5 2023 Md. LEXIS 382 at *63. The Court made
clear that the admissibility of expert testimony in the
vast majority of cases will be left to the discretion of the
trial court, stating that “[d]etermining whether a dispute
concerning expert testimony implicates the soundness of
data or soundness of methodology is precisely the type
of matter that calls for the exercise of a trial court’s
discretion.” 2023 Md. LEXIS 382 at *55.
Applying these principles to the case at bar, we
conclude that the trial court here likewise did not abuse
its discretion in admitting Expert Smith’s testimony.
Although Expert Smith’s report was not entered into
evidence, his testimony and an accompanying PowerPoint
presentation indicated the methodology Expert Smith
used to develop his opinion. Expert Smith testified that
he reviewed all of the relevant contract documents and
change orders, visited the site, and viewed photographs
of the work. In addition, he reviewed two responsive bids
Holton received in 2020 to complete the work, and a report
from the architect as to the scope of the remaining work.
As previously noted, he testified that these documents
were “definitely” the type of data relied on by experts in
his field to form an opinion.
5. The Court did send the case back to the circuit court for a
limited remand involving a matter not relevant to the instant case.
23a
Appendix B
Expert Smith testified that his calculations began
with the 2020 competitive bids to complete the work. He
focused almost exclusively on the lower of the two bids.
He then “did a reconciliation” of the bid by comparing
it to the higher bid and to the remaining scope of the
work. He determined the scope of the remaining work
by reviewing reports from the architect and Holton’s
Director of Facilities, as well as doing his own analysis.
This reconciliation was done “for the comparison purpose
of coming up with what [he] thought would be the best
reasonable cost for the owner that would be a true
reflection of the market cost at the time the proposal was
tendered.” Because his report was done a year after the
bid was submitted, he adjusted the bid upward by 5% to
account for inflation. He concluded that the fair market
value of the portion of the work HSU failed to complete
that was covered by the 2020 bid was $3,121,446.
Next, Expert Smith added the cost to complete the
smaller tasks that were not included in the 2020 bids.
These costs were based on quotes Holton received for
the work. He then increased the cost by 5% to account
for inflation. He also added to his damages calculation
liquidated damages and money that Holton had already
expended for services HSU should have rendered under
the contract. The total cost to correct and complete the
work, by Expert Smith’s calculation, was $4,103,509. He
then subtracted from these “gross damages” the amount
HSU was owed for work it had completed, $1,524,142, to
reach a “net damages” conclusion of $2,579,366.
In its cross-examination of Expert Smith, HSU tried
to elicit testimony that Expert Smith’s opinion merely
24a
Appendix B
amounted to him accepting the costs reflected in the 2020
bid and adding 5% for inflation, but his testimony belies
that assertion. Expert Smith testified:
I took the two proposals, looked at the scope
that they were quoted on, that they gave a
guaranteed quote for, looked at the adjustments
that needed to be made in order for them to
conform to my interpretation of what remained
to be done to correct and complete the work
that was left by HSU, and I selected the low
number of the two responsive bidders that have
essentially at that time committed to entering
into a contract to perform that work.
HSU’s counsel questioned Expert Smith about why he
did not calculate damages by assigning his own estimate of
the fair market value of completing each item of remaining
work. Expert Smith responded that HSU’s suggested
method could be valid, but countered, “I don’t consider
that to be the best way.” Concerning his use of the lower
of the two 2020 bids, Expert Smith testified, “[W]hen two
contractors, two reputable contractors tender a proposal
. . . and guarantee to stand behind that proposal to enter
into a contract to perform the work, I consider that to be
a true and clear indication of what the present market
value is for that scope of work.” He opined that using the
2020 bids, with adjustments, would be “the most accurate
way of determining a fair market value to estimate the
damages.” He explained,
if I sit down and come up with the cost, unless
I’m going to do the work, it really has no value
25a
Appendix B
to compare with someone who has given a
proposal to do the work and will stand behind
the proposal and do it. That is . . . how you
determine fair market value.
In Rochkind, the Supreme Court of Maryland noted
that “[t]rained experts commonly extrapolate from
existing data.” 471 Md. at 36 (alteration in original)
(quoting Gen. Elec. Co. v. Joiner, 522 U.S. 136, 146, 118
S. Ct. 512, 139 L. Ed. 2d 508 (1997)). Moreover, the law
is clear that experts “may give an opinion based on facts
contained in reports, studies or statements from third
parties if the underlying material is shown to be of a type
reasonably relied upon by experts in the field.” Milton
Co. v. Council of Unit Owners of Bentley Place Condo.,
121 Md. App. 100, 120, 708 A.2d 1047 (1998) (quoting
U.S. Gypsum v. Baltimore, 336 Md. 145, 176, 647 A.2d
405 (1994)), aff’d, 354 Md. 264, 729 A.2d 981 (1999). Here,
Expert Smith prepared his own report and described the
methodology he used to determine the fair market value
of the remaining work. In admitting the testimony, the
circuit court noted that Expert Smith “told us exactly
what he did” and “what he thought was reliable.” The court
recognized that there was an alternative methodology,
but credited Expert Smith’s testimony that using “two
competitive bids, in [Expert Smith’s] view, were a better
standard of market value for costs than him just going
out and doing it.” The trial court obviously found Expert
Smith’s opinion persuasive and helpful in its role as the
trier of fact, and we discern no abuse of discretion in
admitting the testimony.
26a
Appendix B
B. “Ambushing” HSU with new opinion
HSU next argues that Expert Smith improperly
“ambushed” HSU with a new opinion by adding $141,688
to his damages calculation. Expert Smith testified that
he altered his calculations during the course of the trial
by adding a $141,688 expense that he had mistakenly
omitted from his report. Because HSU never objected
to the admission of this evidence, it has waived this
argument. See Patriot Constr., LLC v. VK Elec. Servs.,
LLC, 257 Md. App. 245, 268, 290 A.3d 1108 (2023) (“The
failure to object as soon as the . . . evidence was admitted,
and on each and every occasion at which the evidence was
elicited, constitutes a waiver of the grounds for objection.”
(alteration in original) (quoting Berry v. State, 155 Md.
App. 144, 172, 843 A.2d 93 (2004))).
C.
Providing expert testimony on unfamiliar
subject
Third, HSU argues that Expert Smith improperly
provided expert testimony on a subject with which he
was unfamiliar. Specifically, HSU argues that Expert
Smith was unable to explain a $37,420 line item in his
damages calculation for “Engenium expenses for HSU
Failures.” During cross examination, HSU asked Expert
Smith “what components went into” that expense, and
Expert Smith responded that he could not provide
further information about that expense “without looking
back further at backup documentation.” We do not
interpret Expert Smith’s response as meaning that he
was “unfamiliar” with that component of damages. In
27a
Appendix B
any event, we note that HSU did not pursue this issue
further during this lengthy trial. See Concerned Citizens
of Cloverly v. Montgomery Cnty. Plan. Bd., 254 Md. App.
575, 603, 274 A.3d 1144 (2022) (“[A] passing reference to
an issue, without making clear the substance of the claim,
is insufficient to preserve an issue for appeal, particularly
in a case with a voluminous record.”).
Issues Related To Damages
III. Liquidated Damages
HSU makes two separate arguments concerning
the liquidated damages award. First, HSU argues that
the court “failed to apply the contractual limitation on
liquidated damages, which bars liquidated damages after
the project reaches ‘Substantial Completion.’” Second,
HSU argues that “the court impermissibly awarded
Holton redundant liquidated and actual damages” for the
same loss. We shall address each argument in turn.
A.
The contract provided for liquidated damages of
“Five Hundred Dollars ($500.00) for each calendar day
that expires after the time specified for Substantial
Completion until the Work is substantially complete
for the Lower School Renovation Project.” The “time
specified for Substantial Completion” of the Lower School
project was August 24, 2018. The court found that HSU
never substantially completed the work, and calculated
liquidated damages from August 24, 2018, to May 31, 2019,
28a
Appendix B
the date Holton terminated the contract.6 This 280-day
delay resulted in a liquidated damages award of $140,000.
HSU argues that it achieved substantial completion of
the Lower School project on September 6, 2018, thereby
limiting a liquidated damages award to 13 days, totaling
$6,500.
There are several contract provisions relating to
substantial completion:
• § 8.1.3: “The date of Substantial Completion
is the date certified by the Architect in
accordance with Section 9.8.”
• § 9.8.1: “Substantial Completion is the
stage in the progress of the Work when
the Work or designated portion thereof
is sufficiently complete in accordance
with the Contract Documents so that the
Owner can occupy or utilize the Work for
its intended use. As a condition precedent
to Substantial Completion, the Owner shall
receive all unconditional permits, approvals,
licenses, and other documents from any
governmental authority having jurisdiction
over the Project. Under no circumstances
shall the Work or any portion thereof be
6. The contract also provided for a lump sum of $5,000 in
liquidated damages for delayed substantial completion of the HVAC
project. HSU does not challenge the court’s decision to award this
amount to Holton.
29a
Appendix B
deemed to be Substantially Complete
unless and until unconditional certificates
of occupancy and completion governing that
portion of the Project have been issued by
all appropriate governmental authorities
having jurisdiction over the Project thereby
allowing the intended use of the portion of
the Work.”
• § 9.8.1.1: “The Work will not be considered
suitable for Substantial Completion review
until all Project systems included in area
of the Work are operational as designed
and scheduled, all designated or required
governmental inspections and certifications,
including certificates of occupancy, have been
made and posted, designated instruction of
the Owner’s personnel and the operation
of systems and equipment completed,
and all final finishes within the Contract
Documents are in place. In general, the only
remaining Work shall be minor in nature, so
that the Owner can occupy the portion of the
building on that date for its intended use and
the completion of the Work the Contractor
would not materially affect, or hamper the
normal business operations or intended use
of Owner.”
• § 9.8.4: “When the Work or designated
portion thereof is substantially complete,
the Architect will prepare a Certificate
30a
Appendix B
of Substantial Completion that shall
establish the date of Substantial Completion
. . . . Warranties required by the Contract
Documents shall commence on the date of
Substantial Completion . . . .”
HSU avers that the only section of the contract
relevant to a determination of whether substantial
completion has been achieved is § 9.8.1. According to HSU,
substantial completion is achieved under the contract
when Holton is able to “occupy or utilize the Work for its
intended use,” with a singular precondition that Holton
receive the necessary documents for occupancy from
governmental authorities. Because Holton received a
certificate of occupancy and began holding classes in the
Lower School on September 6, 2018, HSU argues that
it achieved substantial completion of the project on that
date. HSU argues that the court improperly focused on the
lack of an architect’s certificate of substantial completion
and failed to consider “the contract’s actual definition of
Substantial Completion,” i.e. the first sentence of § 9.8.1.
The trial court found that HSU had not achieved
substantial completion, stating in its written opinion:
The Contract stated that the work would
not be considered suitable for Substantial
Completion review until “all Project systems
included in area of the Work are operational
as designed and scheduled.” [§ 9.8.1.1]. The
lighting control system is still not operational
as designed. Further, [Holton’s] personnel
were not instructed on operating the system
31a
Appendix B
and the final finishes specified in the Contract
documents were not in place. There is a
substantial amount of work on the Project still
outstanding.
[HSU] completely ignored the Substantial
Completion provisions of the Contract. The
evidence established [HSU’s] failure to achieve
Substantial Completion. [HSU] never submitted
a request to the architect for certification of
Substantial Completion. It is a reasonable
inference therefrom that [HSU] was aware
that it had not achieved Substantial Completion.
The court made detailed findings of fact concerning HSU’s
defective performance and concluded that HSU “made
little or no effort to cure the defects, complete the work
or respond to the demands in the Second Cure Notice”
dated May 1, 2019.
In support of its argument that the architect’s
certificate does not determine the date of substantial
completion, HSU cites an Illinois case applying New Jersey
law, In re Liquidation of Lumbermens Mutual Cas. Co.,
2018 IL App (1st) 171613, 431 Ill. Dec. 186, 127 N.E.3d
719 (Ill. App. Ct. 2018). Lumbermens Mutual involved
three contracts between D&D Associates, Inc. and the
North Plainfield Board of Education (the “Board”) for the
renovation of five schools.7 Id. at 724. These projects were
7. Notably, the parties in Lumbermens Mutual used form
contracts developed by the American Institute of Architects
similar to the contracts in the present case. See id. at 730. In both
32a
Appendix B
separated into three contracts: Contract 1A, Contract
1B, and Contract 1C. Id. The substantial completion
issue only involved Contracts 1A and 1B. The architect
issued a certificate of substantial completion for Contract
1A on December 8, 2004, and a certificate of substantial
completion for Contract 1B on November 17, 2004. Id. at
730. The Board argued that these dates should be used
to calculate liquidated damages for delayed completion of
the project. Id. at 727. However, in April 2003, the Board
applied for a state grant related to Contract 1A from the
New Jersey Economic Development Authority (“EDA”),
and submitted architect’s certifications as part of that
application that stated:
A. The essential requirements of the Contracts
have been fully performed so that the
purpose of the Contracts is accomplished.
B. The Punchlist has been created.
C. There a re no impor tant or mater ial
omissions or technical defects or deficiencies
regarding the School Facilities Project.
D. The temporary certificate of occupancy,
continued use or completion has been issued.
E. The School Facilities Project is ready for
occupancy in accordance with its intended
purpose.
cases, § 9.8.1 is substantively identical. See id. However, there is no
indication in Lumbermens Mutual that the contracts at issue there
contained a provision similar to § 9.8.1.1.
33a
Appendix B
Id. at 730-31. The Appellate Court of Illinois noted
that “[t]he language of the EDA certification tracks
the language of substantial completion in the contracts.
Thus, the architect . . . at one point declared Contract
1A substantially complete well before the dates” in the
2004 certificates of substantial completion. Id. at 731.
The court further held that “the architect’s arbitrary
conduct as to Contract 1A undermines the integrity of
the architect’s date of substantial completion for Contract
1B.” Id. The Appellate Court of Illinois therefore agreed
with the trial court’s finding that the 2004 certificates of
substantial completion were not a reliable measure of the
date of substantial completion. Id. The trial court referred
to the certificates of occupancy issued in September
2002 to determine the substantial completion date as
defined in the contract, which the Appellate Court of
Illinois noted “can be an appropriate benchmark for
substantial completion.” Id. “Because the Board could
use the buildings for teaching children, it was not an
abuse of discretion for the court to find that the buildings
were substantially complete in September 2002.” Id. The
Board argued that use of the buildings in September 2002
“should be classified as ‘partial occupancy,’ which per the
General Conditions ‘may commence whether or not the
portion [is] substantially complete.’” Id. The Appellate
Court of Illinois rejected this argument:
[T]he circuit court’s written order indicates
that the court considered the evidence of
allegedly incomplete work that the Board points
to on appeal. We see no error in the court’s
thorough analysis and its finding that there was
no delay. The circuit court’s conclusion was not
34a
Appendix B
unreasonable, and so the court did not abuse its
discretion in denying liquidated damages for
contracts 1A and 1B.
Id. at 731-32.
HSU’s reliance on Lumbermens Mutual is unavailing.
The trial court in Lumbermens Mutual, faced with a
situation where there was no reliable architect’s certificate
to determine the date of substantial completion, instead
looked to other relevant evidence to determine substantial
completion. The Appellate Court of Illinois held that the
trial court did not abuse its discretion in doing so and
affirmed the trial court’s “thorough analysis.”
We likewise see no clear error in the trial court’s
detailed findings of fact in this case. Contrary to the
argument HSU advances, the court did not focus solely
on the lack of a certificate of substantial completion from
the architect. The court noted that HSU “never submitted
a request to the architect for a certificate of Substantial
Completion,” but also considered other contract language
to conclude that HSU never achieved substantial
completion. The court properly applied the restriction
in § 9.8.1.1, which provides that “The Work will not be
considered suitable for Substantial Completion review
until all Project systems included in area of the Work are
operational as designed and scheduled, . . . designated
instruction of the Owner’s personnel and the operation of
systems and equipment completed, and all final finishes
within the Contract Documents are in place.” (Emphasis
added). Relevant to this provision, the court found that
35a
Appendix B
HSU did not ensure that the lighting control system was
operational, did not instruct Holton’s personnel on how to
operate the system, and did not complete final finishes.
The court also found that HSU “made little or no effort to
cure the defects” or “complete the work,” and “completely
ignored the Substantial Completion provisions of the
Contract.” HSU does not challenge these findings of fact,
and our independent review of the record confirms that
the court’s findings were not clearly erroneous. Thus,
pursuant to § 9.8.1.1, HSU did not attain “substantial
completion” of the Lower School, regardless of Holton’s
use of the building. 8
We hold that the trial court did not err in its
determination that HSU never achieved substantial
completion. Accordingly, except for the $23,812.15
duplication of damages that we discuss in the next
section, we conclude that the court did not err in assessing
liquidated damages from August 24, 2018, to May 31, 2019.
8. HSU attempts to bolster its position by noting that § 9.8.4
provides that “[w]arranties required by the Contract Documents
shall commence on the date of Substantial Completion.” HSU points
to several letters from subcontractors to Holton representing that
warranties on their work began on September 6, 2018. Although
HSU attached these letters to its motion to alter or amend, none of
the letters were entered into evidence at trial. The only evidence
produced at trial concerning when the warranties began was
testimony from Steven Smith that the warranty from Capital City
Flooring began on September 6, 2018. The circuit court found that
Steven Smith “was not a credible witness.” Even if further evidence
about the warranties had been admitted at trial, the existence
of warranties beginning on September 6, 2018, does not render
meaningless the requirements of § 9.8.1.1.
36a
Appendix B
B.
The liquidated damages clause of the contract
provides: “Contractor and Owner recognize that time is
of the essence and that Owner will suffer financial loss
if the Work is not completed within the times specified
for completion of the Work.” The contract states that the
liquidated damages are “for delay.”
HSU argues that the court improperly awarded
both liquidated damages for delay and also actual
damages incurred because of delay. Specifically, HSU
argues that the liquidated damages provision acted as
an “impermissible penalty” because it overlapped with
actual damages. HSU provides two examples of actual
damages that the court improperly awarded because
they are duplicative of liquidated damages for delayed
performance: $63,687 listed in “Bulletin 26,” and $168,473
in “escalation fees.”
Generally speaking, “if a plaintiff receives liquidated
damages, then a claim may not be made for actual
damages.” Gonsalves v. Bingel, 194 Md. App. 695,
714, 5 A.3d 768 (2010) (quoting Ecology Servs., Inc. v.
GranTurk Equip. Inc., 443 F. Supp. 2d 756, 773 (D. Md.
2006)). “Where the parties to a contract have included a
reasonable sum that stipulates damages in the event of
breach, that sum replaces any determination of actual
loss.” Barrie Sch. v. Patch, 401 Md. 497, 513, 933 A.2d 382
(2007). Because Holton’s school year begins in September,
the parties ostensibly included the liquidated damages
provision to cover all costs the school might incur due to
a delay in reopening the school.
37a
Appendix B
First, we reject HSU’s argument as to the escalation
costs because these are not expenses related to Holton’s
inability to use the school as a result of HSU’s failure to
accomplish substantial completion on time. Rather, the
escalation costs were adjustments made by Expert Smith
to account for inflation in determining the fair market cost
of the work necessary to complete the project as a result
of HSU’s breach.
This leaves us with HSU’s argument concerning
Bulletin 26, a document created by the architect that
modified the contract by reducing the amount paid to
HSU because of additional expenses incurred by Holton.
The trial court included the entire amount reflected in
Bulletin 26 in its damages calculation, in addition to
awarding liquidated damages. Bulletin 26 lists $63,687.54
in expenses Holton incurred either because of HSU’s delay
in completing the project, or to prevent further delay. A
large portion, $23,812.15, of Bulletin 26 is for “Moving
Services,” which is described:
Moving services were to be provided
by Owner and were arranged based on the
contractor schedule for August 25, 28, and 29.
Due to work not being completed additional
moving time was required as work could not
be completed in all areas. Owner contracted
to have work done directly as base contract
was with owner. i. Initial plan was for teachers
to perform unpacking, but due to schedule
teachers were teaching and could not perform
unpacking concurrently, requiring additional
assistance. . . .
38a
Appendix B
Michael Joyce, the Director of Facilities at Holton,
testified that the “Moving Services” charge came about
“because we were late moving into the lower school and
really didn’t have a lot of time” to set up the classrooms.
“[W]e expected to have time that the teachers could put
things back where they wanted to . . . in their classrooms.
And that didn’t happen.”
Julianna von Zumbusch, the principal architect for
the project, testified about Bulletin 26: “So some of these
had to do with costs that were not directly related to the
repair of defective work, but due to schedule delays from
the work. So the moving services would be one of those,
where movers had to deploy for multiple days and the
school wasn’t able to get a refund due to short notice for
their original scheduled move date.”
The “Moving Services” described in Bulletin 26
are clearly expenses resulting directly from the delay.
Ms. von Zumbusch’s testimony conceded as much. The
court’s award should not have included the $23,812.15
for the moving services because that sum represents
actual damages contemplated by the liquidated damages
provision of the contract. We shall therefore reduce the
court’s award by that amount.
The remaining expenses listed in Bulletin 26 were not
expenses that arose solely because of the delay. Rather,
they primarily represent the cost for Holton to hire
another company to expeditiously complete work that
39a
Appendix B
HSU was obligated to perform.9 Additionally, prior to its
motion to alter or amend, HSU did not argue before the
trial court that the remaining expenses listed in Bulletin
26 were duplicative of the liquidated damages; HSU’s
only argument concerned duplication of the moving
services expense. HSU accordingly waived any argument
concerning the expenses listed in Bulletin 26 other than
for moving services. See Morton v. Schlotzhauer, 449 Md.
217, 232 n.10, 144 A.3d 592 (2016) (“A circuit court does
not abuse its discretion when it declines to entertain a
legal argument made for the first time in a motion for
reconsideration that could have, and should have, been
made earlier, and consequently was waived.”).
While we other w ise affirm the circuit court’s
judgment, we shall modify the judgment to remove the
$23,812.15 cost of moving services, thereby reducing the
award from $2,579,366.00 to $2,555,553.85.
9. For example, the second-largest expense in Bulletin 26
is “Johnson Controls costs” totaling $11,626.38. This expense is
described as: “HSU agreed for the Owner to have work performed
directly due to the Electricians inability to perform work and in
effort to maintain schedule and campus-wide fire alarm functioning.”
Unlike the moving services, an expense Holton would not have had if
HSU had performed in a timely manner, the electrical work described
as “Johnson Controls costs” is work that HSU was contractually
obligated to perform and therefore had no relationship to the
liquidated damages clause related to the delay in having the school
ready for occupancy.
40a
Appendix B
IV. Limitation of Damages
HSU next argues that the contract limited Holton’s
damages to costs Holton actually incurred to complete
the work. HSU bases its argument on the following
contractual provisions:
• §14.2.2, providing that, if there is cause to
terminate the contract, Holton “may without
prejudice to any other rights or remedies of
the Owner . . . terminate employment of the
Contractor and may, subject to any prior
rights of the surety: . . . Finish the Work
by whatever reasonable method the Owner
may deem expedient. Upon written request
of the Contractor, the Owner shall furnish
to the Contractor a detailed accounting of
the costs incurred by the Owner in finishing
the Work.”
• § 14.2.4, providing: “If such costs and
damages incurred by the Owner exceed the
unpaid balance, the Contractor shall pay the
difference to the Owner. This obligation for
payment shall survive termination of the
Contract.”
HSU first raised this “limitation of damages”
argument in its Motion to Alter or Amend. “A circuit court
does not abuse its discretion when it declines to entertain
a legal argument made for the first time in a motion for
reconsideration that could have, and should have, been
made earlier, and consequently was waived.” Morton, 449
41a
Appendix B
Md. at 232 n.10. This well-established principle forecloses
HSU’s limitation of damages argument on appeal.10
Even if this argument were preserved, we fail to see
how §§ 14.2.2 and 14.2.4 operate to limit Holton’s damages.
Another section of the contract, § 13.4.1, provides that,
“[e]xcept as expressly provided in the Contract Documents,
duties and obligations imposed by the Contract Documents
and rights and remedies available thereunder shall be in
addition to and not a limitation of duties, obligations,
rights and remedies otherwise imposed or available
by law.” (Emphasis added). Furthermore, § 2.6 states,
“[t]he rights stated in this Article and elsewhere in the
Contract Documents are cumulative and not in limitation
of any rights of the Owner (1) granted in the Contract
Documents, (2) at law, or (3) in equity.” We see nothing
in §§ 14.2.2 and 14.2.4 that creates an express limitation
on the remedies available to Holton. Indeed, consistent
with §§ 2.6 and 13.4.1, § 14.2.2 gives Holton the right
to terminate the contract and finish the work “without
prejudice to any other rights or remedies.” “[A] contract
will not be construed as taking away a common-law
remedy unless that result is imperatively required.”
O’Brien & Gere Eng’rs, Inc. v. City of Salisbury, 447
Md. 394, 408, 135 A.3d 473 (2016) (quoting Mass. Indem.
& Life Ins. Co. v. Dresser, 269 Md. 364, 369-70, 306 A.2d
213 (1973)). The O’Brien & Gere Court further stated:
“Reviewing our case law, we discern that the parties must
10. HSU also briefly argues that the court improperly awarded
consequential damages, despite a provision in the contract expressly
waiving consequential damages. Because HSU never made this
argument before the circuit court, it has not been preserved for our
review.
42a
Appendix B
at least use clear language to show their agreement to
limit available remedies.” Id. at 407. Here, the express
contractual provisions create a remedy that is “in addition
to” the remedies available by law for breach of contract.
Under the common law, a party prevailing on a breach
of contract claim “may recover the amount of damages
‘which will place the injured party in the monetary
position he would have occupied if the contract had been
properly performed.’” Yaffe v. Scarlett Place Residential
Condo., Inc., 205 Md. App. 429, 445 n. 5, 45 A.3d 844 (2012)
(quoting Hall v. Lovell Regency Homes Ltd. P’ship, 121
Md. App. 1, 12, 708 A.2d 344 (1998)). In this case, damages
would include not only the amount that Holton has already
spent as a result of HSU’s breach, but also any additional
funds reasonably necessary to complete the work required
by the contract. See Andrulis v. Levin Constr. Corp.,
331 Md. 354, 371, 628 A.2d 197 (1993) (In cases involving
breach of a construction contract, the proper measure of
damages is the “reasonable cost of reconstruction and
completion in accordance with the contract[.]” (quoting
A. Corbin, Corbin on Contracts § 1089, at 485-87 (1964))).
In conclusion, we reject HSU’s argument that Holton’s
contractual damages were limited to amounts Holton had
“actually incurred.”
V. Mitigation of Damages
Finally, HSU argues that Holton “failed to present
any evidence of properly mitigated damages.” Holton
initially responds that this argument was not raised below
and is therefore waived. However, HSU briefly raised its
43a
Appendix B
mitigation argument in the following two sentences in
HSU’s 45-page post-trial memorandum:
One purpose of a liquidated damages provision
is to obviate the need for the nonbreaching
party to prove actual damages but was required
[sic] to mitigate any damages resulting from
the breach and minimize its losses prior to
seeking any monetary relief in contract. Holton
advanced no proof that it sought to mitigate
its alleged damages, and because it failed to
accept any of the proposals or perform any
alleged remedial work since HSU’s termination,
it is limited at best to the liquidated damages
provision.
(Citation omitted). Because HSU has minimally preserved
this argument for our review, we shall address it.11
11. We note that the court did not explicitly discuss the
mitigation issue in its written opinion. However, during closing
arguments, the court questioned Holton’s counsel about its obligation
to mitigate. We can unequivocally state that mitigation was not at
the forefront of HSU’s defense—it never mentioned it at trial and
raised the issue only in its post-trial memorandum. As mentioned
above, HSU’s entire mitigation argument consisted of two sentences
in its 45-page memorandum. In light of (1) the minimal attention
HSU gave to its mitigation argument, (2) the court’s questioning
during closing arguments concerning mitigation, and (3) the principle
that judges are presumed “to know the law and apply it, even in the
absence of a verbal indication of having considered it[,]” Sinclair v.
State, 214 Md. App. 309, 325, 76 A.3d 442 (2013) (quoting Wagner
v. Wagner, 109 Md. App. 1, 50, 674 A.2d 1 (1996)), we infer that the
court was convinced that HSU fell far short of meeting its burden
of proof on this issue.
44a
Appendix B
To the extent that the mitigation of damages doctrine
applies in this case, we note that HSU had the burden
of proof on this issue. “When it is determined that the
[mitigation of damages] doctrine applies, the burden is
necessarily on the defendant to prove that the plaintiff
failed to use ‘all reasonable efforts to minimize the loss he
or she sustained.’” Cave v. Elliott, 190 Md. App. 65, 96, 988
A.2d 1 (2010) (quoting Schlossberg v. Epstein, 73 Md. App.
415, 422, 534 A.2d 1003 (1988)). The burden is on the party
alleging failure to mitigate “[b]ecause it is aimed primarily
at benefitting” that party, and the damages were caused by
that party’s breach of contract. Id. (quoting Schlossberg, 73
Md. App. at 422). “Thus, it is clear that the doctrine does
not place any duty on a plaintiff or create an affirmative
right in anyone.” Id. (quoting Schlossberg, 73 Md. App. at
422). HSU’s argument that “Holton failed to present any
evidence” on this issue is therefore misplaced, as Holton
had no burden to produce such evidence.
On appeal, HSU specifically argues that Holton failed
to mitigate its damages by either (1) making use of the
warranties of the subcontractors, or (2) completing the
work earlier, before the cost of construction significantly
increased due to the Covid-19 pandemic. We shall discuss
each of these arguments in turn.
A.
Warranties
HSU argues that “nearly all the allegedly defective
work was under warranty and could have been repaired
or replaced at no expense to Holton.” By failing to use the
warranties, HSU argues that Holton “artificially inflat[ed]
45a
Appendix B
the damage assessment.” HSU first specifically discusses
the warranty on the bamboo flooring, which it argues
would have allowed Holton to have the flooring repaired
at no cost. HSU then states: “The same is true of most
of the remainder of Holton’s alleged damages for ‘cost to
correct’ work, all of which was covered by warranty[.]”
The only evidence produced at trial concerning
subcontractor warranties was testimony from three
witnesses about Capital City Flooring’s one-year warranty
on the bamboo flooring. Steven Smith, HSU’s Director of
Operations, who the circuit court found was not a credible
witness, testified that the flooring warranty began on
September 6, 2018. Ms. von Zumbusch testified that she
could not recall any agreement that the warped flooring
would be covered by the warranty. Holton’s Director
of Facilities testified that the subcontractor had taken
the position that the warping of the flooring was not a
warranty issue and would not be covered by the warranty,
although he admitted that Holton never made a warranty
claim for the flooring. On this record, we have no hesitation
in concluding that HSU failed to demonstrate that the
flooring warranty would have fully (or even partially)
covered the damaged bamboo floors.
There was no evidence produced at trial concerning
the other warranties that HSU mentions in passing in its
brief. The letters that HSU references were not admitted
into evidence, but were attached as exhibits to HSU’s
motion to alter or amend. The trial court did not abuse
its discretion by refusing to consider these letters. See
Steinhoff v. Sommerfelt, 144 Md. App. 463, 484, 798 A.2d
46a
Appendix B
1195 (2002) (“With respect to the denial of a Motion to
Alter or Amend, . . . the discretion of the trial judge is more
than broad; it is virtually without limit. What is, in effect,
a post-trial motion to reconsider is not a time machine in
which to travel back to a recently concluded trial in order
to try the case better with hindsight. The trial judge has
boundless discretion not to indulge this all-too-natural
desire to raise issues after the fact that could have been
raised earlier but were not or to make objections after the
fact that could have been earlier but were not.”).
Furthermore, there was affirmative evidence that
Holton attempted to mitigate its damages. The court
found that Holton attempted to take an assignment of one
of the subcontracts, a mechanism that should have been
available under the contract, but that HSU’s subcontractor
agreement provided for assignment to Holton only upon
termination for convenience. The contract between Holton
and HSU provides that, when the Owner terminates for
cause, the Owner has the option to “[a]ccept assignment
of subcontracts.” However, HSU’s subcontract agreement
with Kent Island Mechanical—the only subcontractor
discussed at trial with relation to assignment—provides:
“The Constructor’s [sic] contingent assignment of this
Agreement to the Owner, as provided in the Prime
Contract, is effective when the Owner has terminated
the Prime Contract for its convenience.” Three witnesses
testified that Holton sought an assignment of the Kent
Island Mechanical contract after termination of its
contract with HSU. Steven Smith, HSU’s Director of
Operations for the Holton project, testified that HSU’s
subcontract agreement with Kent Island Mechanical
47a
Appendix B
did not match the assignment requirement in its prime
contract with Holton. He further testified that Holton
attempted to obtain an assignment of the Kent Island
Mechanical subcontract. Kent Island Mechanical’s
president confirmed that Holton discussed the possibility
of an assignment of the subcontract. Additionally,
William Koch, a senior project manager for Kent Island
Mechanical, testified that he received a letter from Holton
attempting to accept assignment of the subcontract.
The evidence supports the trial court’s finding that
HSU’s actions prevented Holton from exercising its right
to assignment of the subcontracts, which may have allowed
it to mitigate its damages. In short, the record is clear
that HSU failed to satisfy its burden of proof on this issue.
B. Completing the Work in 2019
HSU argues that Holton should have mitigated its
damages by having the remaining work completed before
the Covid-19 pandemic caused construction prices to
significantly increase.
Part of this argument involves issues related to HSU’s
“limitation of damages” argument, discussed above. HSU
avers that “[u]nder Maryland law, ‘contract damages are
measured at the time of breach.’” (Quoting CR-RSC Tower
I, LLC v. RSC Tower I, LLC, 429 Md. 387, 405, 56 A.3d
170 (2012)). This statement is not accurate in this context,
as the Supreme Court of Maryland made clear in the very
case HSU cites:
48a
Appendix B
Tenants would have us apply this “time of
breach” rule across the board, to every kind of
damages claim. Yet as Corbin explains, there
cannot be one rule for every kind of breach,
because different kinds of damages require
different kinds of calculations. See [11 Corbin
on Contracts] § 55.11 [(Rev. ed. 2005)] (“There
are many rules of damages for particular kinds
of contracts, such as contracts for the sale of
goods, construction contracts, employment
contracts, etc.” (footnotes omitted)); see also
Great Atlantic & Pacific Tea Co. v. Atchison,
T. & S. F. R. Co., 333 F.2d 705, 708 (7th Cir.
1964) (“Since the market value rule is merely
a method, it is not applied in cases where it is
demonstrated that another rule will better
compute actual damages.”).
CR-RSC Tower I, LLC, 429 Md. at 410. HSU has not cited
a case for the proposition that damages are measured
at the time of breach for construction contracts. In
Andrulis v. Levin Constr. Corp., the Supreme Court of
Maryland stated that the proper measure of damages
for breach of a construction contract is the “reasonable
cost of reconstruction and completion in accordance
with the contract, if this is possible and does not involve
unreasonable economic waste.” 331 Md. 354, 371, 628 A.2d
197 (1993).12
Concerning HSU’s argument that Holton should have
hired a new contractor to complete the work in 2019 before
prices substantially increased, there was testimony that
12. HSU has not made an economic waste argument.
49a
Appendix B
Holton, being a non-profit, had limited funding. “The party
who is in default may not mitigate his damages by showing
that the other party could have reduced those damages
by expending large amounts of money or incurring
substantial obligations. Since such risks arose because
of the breach, they are to be borne by the defaulting
party.” Wartzman v. Hightower Prods., Ltd., 53 Md. App.
656, 667, 456 A.2d 82 (1983) (citation omitted). In light of
HSU’s estimate that the cost to complete the work in 2019
would have been over $800,000, it would be unreasonable
to require Holton to immediately expend such a large
amount of money to mitigate its damages, especially once
it became clear that funds would be needed for litigation.
Additionally, HSU did not present evidence indicating
that Holton could have predicted the steep rise in the cost
of construction a year before the Covid-19 pandemic. In
Blumenthal Kahn Elec. Ltd. P’ship. v. Bethlehem Steel
Corp. , this Court stated:
It is axiomatic that, before the doctrine of
mitigation of damages or avoidable consequences
will operate to impose a duty upon a plaintiff to
minimize a loss that he has incurred by virtue of
the defendant’s breach of contract, the plaintiff
must be aware that he has sustained a loss; to
require a plaintiff to mitigate damages that he
does not know he has suffered would be patently
unreasonable.
120 Md. App. 630, 644, 708 A.2d 1 (1998). We see nothing
in the record to support any argument that Holton could
have reasonably predicted that deferring corrective
50a
Appendix B
work until the following summer would have resulted in
a substantial increase in costs. Holton’s delay in hiring
another contractor to complete the work does not amount
to a failure to mitigate.
CONCLUSION
For the reasons stated, we shall modify the judgment
in favor of Holton by removing the cost of the moving
services, thereby reducing the award to $2,555,553.85,
and affirm the judgment as modified.
JUDGMENT OF THE CIRCUIT COURT FOR
MONTGOMERY COUNTY MODIFIED IN
ACCORDANCE WITH THIS OPINION AND
AFFIRMED AS MODIFIED. CLERK OF
THE CIRCUIT COURT FOR MONTGOMERY
COU N T Y TO EN TER A REVISED
JUDGMENT IN FAVOR OF APPELLEE
IN THE AMOUNT OF $2,555,553.85. IN
LIGHT OF THE RELATIVELY MINIMAL
REDUCTION IN THE DAMAGES AWARD,
COSTS ARE TO BE PAID BY APPELLANT.
51a
Appendix
C OPINION OF THE
APPENDIX C — TRIAL
COURT
CIRCUIT COURT FOR MONTGOMERY COUNTY,
MARYLAND FILED OCTOBER 12, 2022
CIRCUIT COURT FOR
MONTGOMERY COUNTY, MARYLAND
50 Maryland Avenue
Rockville, Maryland 20850
Main: 240-777-9400
Case Number: 472329V
HSU CONTRACTING LLC VS. HOLTON-ARMS
SCHOOL INC, ET AL.
MEMORANDUM AND ORDER
This construction contract matter was tried between
February 28, 2022 and March 18, 2022 before the
undersigned member of the bench. At the conclusion
of Plaintiff’s case, and upon the Defendants’ motions,
the Court entered judgment against Plaintiff on its
claims for fraud, intentional misrepresentation, tortious
interference with contract, tortious interference with
prospective advantage, negligent misrepresentation,
and unjust enrichment, which also discharged Capital
Projects Management Firm, LLC as a defendant. At
the conclusion of trial, three counts remained in dispute:
(1) Plaintiff’s claim for breach of contract; (2) Plaintiff’s
conversion claim; and (3) the Defendant Holton-Arms
School’s claim for breach of contract. At the conclusion
of trial, the Court requested that counsel for each party
52a
Appendix C
submit “Proposed Findings of Fact and Conclusions of
Law” based upon the evidence presented. After review
of the extensive testimony, admitted exhibits, credibility
of the witnesses, arguments of counsel, and post-trial
submissions, the court has chosen to adopt, in full or in
part, with additions as necessary, many of the proposals
submitted by counsel.
INTRODUCTION
A major construction project is a difficult and
complex task that requires large amounts of manpower,
equipment, supervision, coordination, and communication.
To successfully complete the project in a timely manner,
a general contractor is necessar y to coordinate,
supervise, evaluate, adapt to changes, and ensure quality
performance. A good relationship between the owners of
the property upon which the project is to be completed
and the general contractor is crucial. That relationship
is governed by a contract. The standard contract 1
incorporates many provisions used by the construction
industry and familiar to experienced construction firms.
The parties may negotiate or modify those terms as
they reach the agreement that is ultimately executed by
the parties. The contract may incorporate many other
documents including but not limited to accepted bid
proposals, specifications, and drawings to be used and
relied upon by both parties. Recognizing the need for
flexibility and modification, construction contracts provide
1. American Institute of Architects A101-2007 (Standard Form
of Agreement Between Owner and Contractor).
53a
Appendix C
a process by which the parties can communicate, consult,
make changes to the scope of work and product selections,
and deal with unforeseen circumstances. Communication
under a contract or agreed protocol may occur through
requests for information (RFI), submittals for equipment,
submitted change orders, or bulletins issued by the
architect, engineers or other agents engaged by the
owners. Construction contracts may include “time is of
the essence” provisions, set strict timelines for tasks to be
completed and specify penalties for non-timely completion.
However, as the result of communications between the
parties or other circumstances during the construction
process, there may be a delay that compromises the
contractor’s ability to meet the time requirements of
the project. In that event, a contract may provide for
the contractor to submit a “change order” as to the time
requirements. Then a dialogue may ensue between the
parties for the owner to approve or deny the requested
change. Without such an opportunity for resolution
initiated by an aggrieved party, frustrations fester and
the relationship critical to success in a construction
project sours. Once there is a loss of faith in either party’s
performance, conflict arises that may end the contractual
relationship.
FINDINGS OF FACT
Project Background and Key People
1.
The Holton-Arms School (Defendant) is an
independent college-preparatory school which
educates girls and young women in grades 3
54a
Appendix C
through 12. It is located at 7303 River Road in
Bethesda, Maryland.
2.
Susanna Jones (“Jones”) serves as the Head of
School, Tracey Fudge (“Fudge”) as the Director
of Finance and Operations, Michael Joyce
(“Joyce”) as the Director of Facilities, Steve
Bilyeu (“Bilyeu”) as the Facilities Manager of
Engineering, and Carlee Dietterick (“Dietterick”)
as the Assistant Director of Facilities.
3.
In 2017, Defendant identified the need for capital
improvements to its existing school buildings
(the “Project”). The single Project had several
components, including the “Lower School
Renovation” and the “Middle and Upper School,
Central Plant & HVAC Replacement.”
4.
Defendant engaged Capital Project Management
Firm (“CPMF”) as its project manager/owner’s
representative. CPMF was led by Robert “Bob”
Waechter (“Waechter”). Cox Graae + Spack
(“CGS”) was engaged as the Architect (with
the team of William Spack, Tom Wheeler, and
Julianna von Zumbusch – “von Zumbusch”),
and Engenium Group LLC as the mechanical,
electrical, and plumbing (“MEP”) Engineer
(Architect and MEP, collectively, the “Design
Team”).
55a
Appendix C
5.
A general contracting company, HSU Contracting,
LLC (“Plaintiff’)2, subsequently received a formal
“Invitation to Bid” dated December 22, 2017, on
Defendant’s Request for Proposal “RFP”. The
RFP was for two (2) standalone projects: 1) a
Lower School renovation; and 2) a modernization
of the H VAC system and replacement of
mechanical equipment. According to the RFP,
Defendant was to obtain the construction building
permit from Montgomery County Department
of Permitting Services after a 70-day review
process and would have the permit issued on or
before March 30, 2018. The RFP construction
documents/drawings dated December 12, 2017,
and the Invitation to Bid (collectively the “RFP
documentation”), called for two separate projects
to be performed as “design-bid-build” during the
summer of 2018. However, further discussion
led to the understanding that it would be more
efficient to have the two standalone projects
be treated and worked as one project. Plaintiff
was not to do any design work on either of these
projects.
Pre-Contract Conduct of the Parties
6.
In late 2017 and early 2018, the Defendant issued
an RFP and obtained proposals from general
contractors. Defendant sent the RFP to Plaintiff
2. HSU Development, HSU Contracting, LLC and DMI all
exist under the umbrella of “HSU Builders”.
56a
Appendix C
based upon its extensive history with Plaintiff’s
principals. Also, members of Plaintiff’s staff had
children who attended Holton, were donors and
legacies of Holton, and Plaintiff’s principals had
been instrumental on various Holton boards and
committees. In 2012, Plaintiff had completed
a similar summer work project for Defendant
exceeding $4,000,000.
7.
This RFP included bid documents such as
detailed drawings and specifications prepared by
the Design Team. Design development drawings
were also provided to Plaintiff and other potential
bidders in November of 2017. The RFP also
included a preliminary milestone schedule.
8.
Prior to submitting a proposal, Plaintiff requested,
and was granted, access to the Lower and
Middle/Upper School buildings to survey existing
conditions and gather information to factor into
its bid, and to evaluate the dates proposed in
the RFP for Substantial Completion. Plaintiff
and its Project Manager, Terry Edmondson
(“Edmondson”), began inspecting the school in
late 2017 and early 2018. This included inspecting
concealed work and providing feedback to the
Defendant for use in preparing drawings and
specifications. The Design Team also responded
to requests for information (“RFIs”) from
Plaintiff to address outstanding questions about
the Project.
57a
Appendix C
9.
Plaintiff submitted a proposal dated January
22, 2018, signed by Sean Frazier (“Frazier”),
Plaintiff ’s SV P of Commercial Inter iors.
Plaintiff’s proposal included an organizational
chart identifying Walter Hsu as the President of
HSU Builders. The proposal also indicated that
Plaintiff’s executive team for the Project would
include Frazier and Edmondson, and that the
project team would include Scott Clegg (Senior
Project Manager), Connor Sullivan (“Sullivan”)
(Assistant Project Manager), and Mark Johnson
(Senior Superintendent). 3
10. Plaintiff’s proposal stated that it “provides the
project and subcontractors with CPM scheduling
(which becomes part of their contract)” and that
Plaintiff would use both updated CPM schedules
and 3-week lookahead schedules to manage
the project. The proposal included a proposed
construction schedule developed by Edmondson.
11. CPM refers to critical path method scheduling,
which involves a mathematical representation of
a construction project. The tasks in the schedule
are linked together with logic and calculate the
latest dates or time that an activity can finish
based on all the subsequent activities. Expert
testimony established that only construction
work on the critical path has an impact upon the
3. Frazier and Edmondson both left HSU at the end of 2018,
and neither Scott Clegg nor Mark Johnson worked on the Project.
58a
Appendix C
time in which the project is completed. If work
on the critical path is delayed, then the eventual
completion date of the project is delayed. Delay
involving work not on the critical path generally
has no impact on the eventual completion date of
the project.
12. CPM scheduling is in fact “critical” because
it is the best way to determine the effects of
delayed tasks upon the whole project. The
process of determining such effects is “critical” to
calculating damage to the project, both temporal
and monetary. The CPM Schedule is “critical”
in that it provides a clear view of the level of
coordination required by the general contractor
for all trades and sub-contractors to get the tasks
completed timely.
13. Plaintiff represented in its bid proposal that
because of its previous experience with Holton,
Plaintiff was familiar with restrictions on when
construction could be performed at the school due
to the school schedule or students and teachers
in the buildings.
14. Plaintiff represented that it would use Procore,
“a cloud-based construction project management
software” and provide its field teams with tablets
“to access information when needed in real time.”
Much of the work for submittals, RFI (Requests
for Information) and other communication during
the Letter of Intent (“LOI”) period (infra.) was
59a
Appendix C
accomplished utilizing Plaintiff’s subscription
to Procore Project Management Software
(“Procore”), with access provided to Plaintiff’s
subcontracting team, CPM (Defendant’s agent),
Defendant’s employees, Defendant’s AE Team,
and Defendant’s commissioning agent. This
software provides real time project status and
allows for facilitation of communication and
access to information.
15. While negotiating the Contract, the parties
executed a LOI on February 27, 2018, authorizing
the release of up to $2 million to ensure that
Plaintiff could start work on the project. The LOI
authorized Plaintiff to proceed with the buyout
of subcontractors, processing of submittals,
preparing the contract schedule and establishing
project logistical planning, and purchasing long
lead equipment. Plaintiff agreed in the LOI that
the work on the Lower School Renovation would
be completed by August 24, 2018, before the start
of the 2018-2019 school year.
16. On Febr uar y 2 8, 2018, Plaintiff issued a
Notice to Proceed (“NTP”) to Kent Island
Mechanical (“KIM”), its mechanical and plumbing
subcontractor on the Project. The President
of KIM is Mark Bowen (“Bowen”). Will Koch
(“Koch”) was assigned as KIM’s project manager.
The NTP provided for a limited release amount of
$1. 1 million so that KIM could begin to furnish
submittals and procure equipment. Shortly
60a
Appendix C
thereafter, KIM began working onsite to survey
the mechanical scope. KIM had unfettered access
to the school over spring break, starting March
12, 2018, when students were not on campus.
Despite the February NTP, KIM did not sign a
contract with Plaintiff ($4,223,000) until August
2, 2018, almost two months after the parties’
contract was signed.
17. In the spring of 2018, Plaintiff issued additional
RFIs seek ing cla r i f ication or additiona l
information from the Design Team. The Design
Team also issued pre-contract bulletins with
revisions to the drawings based on comments
from the County during the permitting process.
These bulletins were incorporated into the
Contract that was later signed.
18. Plaintiff hired Russell Fitzgerald (“Fitzgerald”)
to start May 1, 2018, as superintendent for
the Project. Fitzgerald was not named in the
organizational chart provided by Plaintiff in its
bid proposal. Defendant was not consulted about
this change in personnel and expressed concerns
about having a superintendent without prior HSU
experience.
19. In May 2018, Sullivan received a call from the
project engineer informing him “that the first
four submittals [from NOVA, Plaintiff’s electrical
contractor] he had reviewed were all rejected,
one of which had already been rejected once
61a
Appendix C
prior” and that the project engineer wanted
to have a call with NOVA, to discuss submittal
expectations.
20. The building permit for the Project was issued on
June 4, 2018, prior to the Contract being signed.
Defendant was supposed to have obtained the
building permit by March 30, 2018. However,
Montgomery County “denied” approval of
the permit on 10 separate occasions. Denial
of a permit is not unusual as many times the
multiple levels of review request modifications
to the original application. Therefore, the permit
application is returned/denied for there to be
modifications made to the application. Contrary
to Plaintiff’s argument that the delay by the
Defendant in obtaining the building permit
caused a significant delay in Plaintiff’s going
forward, Stephen Smith, Plaintiff’s Director
of Operations, admitted that the failure by the
owner obtaining a building permit until June
5, 2018 did not delay their performance. Even
though some trade permits were not obtained per
the Plaintiff’s schedule by June 8, 2018, Smith
noted that trades can commence work without
trade permits, even on HVAC.
21. Beginning in March 2018, after bid submission
and prior to execution of the Contract, there were
30 RFIs submitted by Plaintiff and CGS issued
11 bulletins. These communications and the
responses had some impact on scheduling, work
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Appendix C
sequencing, and costs. According to Plaintiff,
Defendant’s bulletins and responses to RFIs
resulted in major redesigns and represented
significant construction changes. According to
Plaintiff, Defendant’s bulletins and responses
to RFIs impacted project cost, permitting, and
construction schedules to an extent that was
beyond the ordinary course of a construction
project and that indicates a deficiently designed
and under-developed project. However, Plaintiff
executed the Contract with full knowledge of
Defendant’s bulletins and responses to RFIs.
Plaintiff, with the full ability to negotiate the
yet unexecuted contract, did not seek to extend
deadlines or Substantial Completion dates or alter
the previously submitted schedules. Even after
executing the Contract, which provides a formal
procedure for requesting schedule adjustments,
Plaintiff did not utilize that procedure to seek
extensions of time from the Defendant.
Negotiation and Execution of the Contract4
22. Following months of negotiations and almost
immediately after the building permit issued,
the parties executed the Contract on June
5, 2018. The Contract defined the singular
Project as the “Central Plant Equipment &
4. This opinion references 4 documents containing relevant
provisions of the parties’ agreement: Project Specifications
(Appendix A), Modified A101-2007 (Appendix B), Modified A201-2007
(Appendix C), and Additional Provisions (Appendix C).
63a
Appendix C
HVAC Systems Replacement and Renovation
of the Lower School,” with interim Substantial
Completion Dates of August 24, 2018 for the
Lower School Renovation and August 25, 2018
for the Middle and Upper School Central Plant
& HVAC Replacement. The Overall Substantial
Completion date for the Project was March 1,
2019.
23. The Contract was executed by the parties for
the total stipulated sum of $6,522,722 (“Contract
Sum”) subject to adjustments for Alternates. With
those approved adjustments, the Contract Sum
increased to $6,928,309 subject to subsequent
increases for approved change orders.
24. The Contract is a heavily modified form of
American Institute of Architects A101-2007
(Standard Form of Agreement Between Owner
and Contractor), together with a heavily modified
form of A201-2007 (General Conditions). The
Contract incorporated Plaintiff’s RFP Revised
Response dated January 30, 2018, Conditions
of the Contract (General, Supplementary, and
other Conditions), Drawings, Specifications,
Addenda issued prior to execution of the
Contract, and detailed schedules setting forth
dates for Substantial Completion as defined by
the Contract.
25. The Contract required Plaintiff, as the Contractor,
to “furnish only skilled and properly trained
64a
Appendix C
staff,” and identified key personnel for the
Project, which could not be changed without the
written agreement of the Defendant. Appendix
B §2.2. These personnel included Frazier (SVP/
Project Executive), Edmondson (SVP/Sr. Project
Manager), Sullivan (Assistant Project Manager),
Fitzgerald (Senior Superintendent), and a to-bedetermined assistant project manager and area
superintendent.
26. Fudge, Holton’s Director of Finance and
Operations, was designated as the Defendant’s
representative for purposes of legally binding
the Defendant (Appendix B § 8.3) and CPMF was
designated as the Defendant’s representative for
administering the Contract. Id. § 8.3.1.
27. Plaintiff was afforded early access to the school
in connection with the RFP process and the
LOI. Plaintiff signed the Contract with the
representation that “Execution of the Contract
by the Contractor is a representation that the
Contractor has visited the site, become generally
familiar with local conditions under which the
Work is to be performed and correlated personal
observations with requirements of the Contract
Documents.” APPENDIX C § 3.2.1.
28. Plaintiff, through Frazier, acknowledged it was
already three months behind when it signed the
Contract on June 5, 2018, because it had not been
able to mobilize on site in March based on the
preliminary schedule. Frazier testified that he
65a
Appendix C
was aware that the contract schedule referenced
in the LOI might vary from the preliminary
schedule, and that he agreed to the Substantial
Completion deadlines when he signed the
Contract on June 5, 2018. Also, Frazier agreed
that the Contract time from June to August 24,
2018 was reasonable.
Contract Provisions Relevant to Dispute5
Substantial Completion and Time of the Essence
Schedule
29. The date of commencement was June 8, 2018 for
the Lower School Renovation and August 4, 2018,
for the Middle and Upper School, Central Plant
& HVAC Replacement. APPENDIX B § 3. 1.
Consistent with the LOI, Plaintiff agreed in the
Contract that (1) the Lower School Renovation
would need to reach Substantial Completion
by August 24, 2018, (2) the Middle and Upper
School, Central Plant & HVAC Replacement
would need to reach Substantial Completion
by August 25, 2018, (3) the overall Project
would need to reach Substantial Completion by
March 1, 2019, and (4) time was of the essence in
meeting these dates.6 By executing the Contract,
5. Complete language of the provisions appears in the
Appendices attached hereto.
6. Because there were limited times during which work could
be performed so as to not interfere with the operations of the school,
the parties included a liquidated damages provision for failure to
achieve Substantial Completion by the stated dates.
66a
Appendix C
Plaintiff also confirmed that the Contract Time
was “a reasonable period for performing the
Work,” (APPENDIX C § 8.2.1) and that it would
“proceed expeditiously with adequate forces and
shall achieve Substantial Completion within the
Contract Time.” APPENDIX C §8.2.3. Plaintiff
warranted that it was “able to furnish the plant,
tools, materials, supplies, equipment and labor
required to complete the Work and perform
its obligations hereunder and has sufficient
experience and competence to do so.”
30. “The Work w[ould] not be considered suitable
for Substantial Completion review until all
Project systems included in area of the Work
are operational as designed and scheduled,
all designated or required gover nmental
inspections and cer tifications, including
certificates of occupancy, have been made and
posted, designated instruction of the [School’s]
personnel and the operation of systems and
equipment completed, and all final finishes
within the Contract Documents are in place.
In general, the only remaining Work shall be
minor in nature, so that the [School] can occupy
the portion of the building on that date for its
intended use and the completion of the Work
would not materially affect, or hamper the
normal business operations or intended use of
[the School].” APPENDIX C § 9.8.1.1.
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Appendix C
31. The date of Substantial Completion would be the
date certified by the Architect in accordance with
Section 9.8. APPENDIX C § 8.1.3.
32. At the time of Substantial Completion, Plaintiff
was to assign all manufacturer’s warranties
related to materials and labor. APPENDIX C
§ 3.5.2.
33. Plaintiff was obligated to prepare and submit a
construction schedule for the work to “be revised
at appropriate intervals as required by the
conditions of the Work and Project.” APPENDIX
C § 3.10.1.
34. Plaintiff was obligated to use a detailed CPM
schedule showing the requisite interdependence
of activities and sequence of work, with any “float”
accruing to Defendant’s benefit.7 APPENDIX A
Section 013216 - 4.04. Plaintiff was also obligated
to submit an updated CPM schedule with each
application for payment. APPENDIX D § B.2.10.
35. Plaintiff was required to prepare a submittal
schedule 8 promptly after being awarded the
7. “Float” is the amount of days an activity may be delayed
before the overall project is delayed. Usually activities on the critical
path have zero float. Put another way, any delay to a critical activity
will cause a delay to the project’s end date.
8. A submittal schedule contains dates on which the submittals
for the project will be issued and allows the architect to effectively
68a
Appendix C
Contract and submit the schedule for the
Architect’s approval. “If [HSU] fails to submit a
submittal schedule, [HSU] shall not be entitled
to any increase in Contract Sum or extension of
Contract Time based on the time required for
review of submittals.” APPENDIX C § 3.10.2.
36. Plaintiff’s sole and exclusive remedy for any delay
was an extension of time in which to complete
the work. Direct out-of-pocket costs associated
with the delay were only permissible when the
delay was caused solely by Defendant, with no
other “remedy or compensation or recovery of
any damages” permitted. APPENDIX C § 8.3.3.
Claims relating to time were to be made in
accordance with Article 15, with any extension of
the contract time memorialized by change order.
APPENDIX C § 8.3.2.
Change Orders and Claims Provisions Expressly Bar
Alleged Course of Conduct Arguments
37. A change order required agreement among the
Defendant, Plaintiff and the Architect. “[A]
change in the Contract Sum or Contract Time
shall only be accomplished by Change Order.
Accordingly, no course of conduct or dealings
between the parties, nor express or implied
acceptance of alterations or additions to the
manage its work so it can handle and address the submittals and
return those in accordance with the contractor’s submittal schedule.
69a
Appendix C
Work, and no claim that the [School] has been
unjustly enriched by any alteration or addition
to the Work, whether or not there is, in fact,
any unjust enrichment, shall be the basis of any
claim to an increase in any amounts due under
the Contract Documents or a change in any time
period provided for in the Contract Documents.”
APPENDIX C § 7.1.2.
38. The Change Order amounts were to be “inclusive
of any and all General Conditions costs.”
APPENDIX C § 7.2.3.
39. A claim for additional money or an extension of
time had to be made in writing within 21 days
of the occurrence of the event giving rise to the
claim. APPENDIX C § 15.1.2.
40. A claim for an increase in the contract sum
required written notice before proceeding with
the Work. APPENDIX C § 15.1.4.
Waiver Arguments Barred Under the Contract
41. The Contract contained multiple provisions
addressing waiver, including the no waiver
provision discussed above with regard to change
orders. APPENDIX C § 7.1.2.
42. The Contract also stated that “[t]he failure
of the either party to insist upon the strict
performance of any provision of this Agreement,
70a
Appendix C
or the failure of either party to exercise any
right, option or remedy hereby reserved, shall
not be construed as a waiver in the future of
any such provision, right, option or remedy or
as a waiver of a subsequent breach thereof. The
consent or approval by the Owner of any act by
the Contractor requiring the Owner’s consent or
approval shall not be construed to waive or render
unnecessary the requirement for the Owner’s
consent or approval of any subsequent similar act
by the Contractor. The payment by the Owner of
any amount due hereunder with the knowledge
of a breach of any provision of this Agreement
shall not be deemed a waiver of such breach. No
provision of this Agreement shall be deemed to
have been waived unless such waiver is in writing
signed by the party to be charged.” APPENDIX
B § 8.6.1.0.
43. “No action or failure to act by the Owner,
Architect or Contractor shall constitute a waiver
of a right or duty afforded them under the
Contract, nor shall such action or failure to act
constitute approval of or acquiescence in a breach
there under, except as may be specifically agreed
in writing.” APPENDIX C § 13.4.2.
Plaintiff’s Sole Responsibility for Means and Methods
and Coordination
44. Plaintiff had sole responsibility for “construction
means, methods, techniques, sequences and
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Appendix C
procedures and for coordinating all portions
of the Work under the Contract” and was
responsible for supervising and directing the
Work. APPENDIX C §§ 2.5, 3.3.1, 4.2.2.
45. Plaintiff was required “to provide professional
ser v ices t hat const it ut e t he pra c t ice of
architecture or engineering” if “such services are
specifically required by the Contract Documents
for a portion of the Work or unless [HSU] needs
to provide such services in order to carry out
[HSU’s] responsibilities for construction means,
methods, techniques, sequences and procedures.”
APPENDIX C § 3.12.10.
46. Pla i nt i f f wa s responsible for p repar in g
coordination drawings prior to the preparation of
shop drawings.9 The failure to submit coordination
drawings waived “claims for additional costs
associated with relocation of fixtures, equipment,
and appurtenances.” APPENDIX A Section
013100 - 1.02.B.1.
47. “By submitting Shop Draw ings, Product
Data, Samples and similar submittals, [HSU]
represent[ed] to the [School] and Architect that
[HSU] ha[d] (1) reviewed and approved them,
(2) determined and verified materials, field
9. Koch testified that coordination drawings are used to
uncover “potential conflicts between trades of installation and it’s
an effort to avoid conflicts.”
72a
Appendix C
measurements and field construction criteria
related thereto, or will do so and (3) checked
and coordinated the information contained
within such submittals with the requirements
of the Work and of the Contract Documents.”
APPENDIX C § 3.12.6.
Plaintiff Substitutions
48. In making a request for a substitution, Plaintiff
represented that it had investigated the proposed
product and that it was equal or superior to that
which was specified. APPENDIX C § 3.4.2.
49. A request for a substitution also constituted a
representation that Plaintiff would “coordinate
installation of the substitute” and “mak[e] such
changes as may be needed for Work to be complete
in all respects.” It included a waiver of “claims
for additional costs which subsequently become
apparent.” APPENDIX A Section 016300.
Quality of Work
50. Plaintiff was required to perform the work
in accordance with the contract documents.
APPENDIX C § 3.1.2.
51. Plaintiff warranted that the materials and
equipment would be of good quality and that the
work would conform to the contract documents
and be free from defects. APPENDIX C § 3.5.
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Appendix C
52. Plaintiff was responsible for all cutting, fitting,
and patching and was obligated to restore all
areas to the condition existing prior to the
cutting, fitting, and patching. APPENDIX C
§ 3.14.1.
Site Maintenance
53. Plaintiff was obligated to keep the site in an
orderly and clean state (APPENDIX C § 3.15.1,
APPENDIX D §§ B.2.21, B.3.15) and protect the
work and adjacent structures from damage until
acceptance by Defendant. APPENDIX D § B.2.8.
54. All personnel working on site were required to
undergo a background check. Extensions would
not be granted for Plaintiff’s failure to obtain
background checks for any worker, which were
estimated to take two weeks. APPENDIX D
§ B.3.2.
55. Plaintiff was required to maintain daily reports
at the site that included specific information on
manpower, weather, and work performed each
day. APPENDIX D § B.3.7.
Payment Applications and Retainage
56. The issuance of a certificate for payment did not
constitute “a representation that the Architect
ha[d] ... made exhaustive or continuous on-site
inspections to check the quality or quantity of
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Appendix C
the Work.” APPENDIX C § 9.4.2. A certificate
for payment or partial or entire use or occupancy
of the Project also did “not constitute acceptance
of Work not in accordance with the Contract
Documents.” APPENDIX C § 9.6.6.
57. The payment applications contained language
indicating that payment was made without
prejudice to any rights of Defendant under the
Contract.
58. Defendant had the right to withhold retainage
of “ten percent (10%) of the Contract Sum as is
necessary to protect [the School] against claims
or if the Work is unsatisfactory or not progressing
properly.” APPENDIX B § 5.1.8.
Termination for Cause
59. Defendant could terminate the Contract for
cause if Plaintiff (1) repeatedly refused or failed
to supply enough properly skilled workers or
proper materials; (2) failed to make payment
to Subcontractors for materials or labor in
accordance with the respective agreements
between Plaintiff and the Subcontractors; (3)
repeatedly disregarded applicable laws, statutes,
ordinances, codes, rules and regulations, or lawful
orders of a public authority; or (4) otherwise was
guilty of substantial breach of a provision of the
contract documents. APPENDIX C § 14.2.1.
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Appendix C
60. After receiving certification from the Architect
that sufficient cause existed to justify termination,
Defendant could, upon seven days’ written notice,
terminate Plaintiff’s employment and (1) exclude
Plaintiff from the site and take possession of all
materials, equipment, tools, and construction
equipment and machinery thereon owned by
Plaintiff; (2) accept assignment of subcontracts
pursuant to Section 5.4 (APPENDIX C); and (3)
finish the Work by whatever reasonable method
the school may deem expedient. APPENDIX C
§ 14.2.2.
61. Upon a termination for cause, Plaintiff was not
entitled to receive further payment until the work
was finished. APPENDIX C § 14.2.3. If the costs
and damages incurred by Defendant exceed the
unpaid balance, Plaintiff must pay the difference
to Defendant. APPENDIX C § 14.2.4.
Plaintiff’s Performance During Summer 2018
62. From the start of demolition in June 2018, just
days after the parties signed the Contract,
Defendant encountered problems with Plaintiff’s
performance. At this time, Frazier was also
overseeing multiple other projects for Plaintiff.
63. During this time, the issue of inadequate
manpower to complete tasks was identified.
Pla i nt i f f ’s Sen ior Vice P resident (S V P),
Edmondson, wrote to subcontractor Tammal
76a
Appendix C
“Your trades need more manpower so we can
try to stay on schedule.” The SVP wrote to
subcontractor Nova “As you know we failed the
electrical ceiling inspection today because of
lights not being tied up and open junction boxes.
I asked Will about additional manpower after
looking at our sign-in sheet and noticed 2 men less
today....... We need more manpower. I was over
at Holy Child and saw 6 of your men on that site
working for Boland. Can you please get us a few
men as Will [KIM] is saying unless he has more
manpower, he won’t be ready by this weekend.”
64. Plaintiff’s proposal represented that all of the
workers on the project would be fingerprinted
and have been background checked. Joyce
testified that on the first day of demolition, many
of the people who showed up to work had not
gone through background checks or had to be
turned away because their background checks
were not approved. As a result, Plaintiff had less
manpower than needed to meet the schedule,
leading to delays which were a persistent issue
throughout the summer.
65. Koch testified that Plaintiff did not submit
coordination drawings for the DOAS10 units, and
that he did not know what Plaintiff did with the
10. DOAS stands for “dedicated outdoor air system.” It is a
type of heating, ventilation and air-conditioning system that consists
of two parallel systems: a dedicated system for delivering outdoor
air ventilation and a parallel system to provide heating and cooling.
77a
Appendix C
shop drawings KIM prepared. He acknowledged
that coordination drawings were required by
the Contract, and that it was “concerning” that
Plaintiff, as the general contractor, was not
following the Contract procedures.
66. Plaintiff failed to coordinate installation of the
fan coil units (FCUs), leading to conditions where
“right-handed” units were connected on the left
side (wrong side) and vice versa, requiring extra
piping along the exterior wall. As with DOAS
units 6 and 7, Plaintiff and KIM substituted
Trane for the Daikin basis of design. No one
informed Defendant that the units were smaller.
These coordination issues were not isolated and
continued throughout construction.
67. Both Joyce and Fudge testified about a significant
lack of protection on the Project, which resulted
in damage to the existing facilities. At one point,
for example, a worker had placed a fan coil panel
against the drinking fountain, causing water to
run and flood into the library, where it caused
mold in the carpet and wood panels. Furniture
and books in the library were not adequately
protected from dust and debris of construction
as required by the Contract.
68. On July 3, 2018, Edmondson told Defendant that,
in response to Defendant’s concerns, they had
“since put a full court press on protection and
understand the importance of this activity as
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Appendix C
well as staying on schedule.” However, one month
later, on August 7, 2018, Plaintiff’s employee,
Erich Millar (Millar), acknowledging manpower
issues wrote: “I agree protection is needed
but who, what army can we get to lay all this
protection?????”
69. Plaintiff had significant performance problems
over the summer of 2018 with its electrical
subcontractor, NOVA, related to “Nova’s inability
to provide approved electrical submittals and
failure to order the lighting package per the
contract which will delay the schedule.” As
a result, Plaintiff sent a “Notice to Cure” to
NOVA. The work performed by NOVA was
non-conforming to the contract, defective and
incomplete such that Plaintiff subsequently
terminated its sub-contract with NOVA for cause.
70. These coordination issues impacted Plaintiff’s
ability to maintain the schedule. SVP Edmondson
told KIM “We have zero chance of making this
happen [re: the equipment pads needed to place
the boilers and domestic hot water heaters]”
because of late notice by Plaintiff. Koch told
Plaintiff in an email that KIM could not complete
its scope of work because Plaintiff had not yet
completed necessary predecessor activities.
71. During this time, Waechter told Plaintiff to “do
what they needed to do” to get the girls in school
on time as required by the Contract schedule.
79a
Appendix C
72. As the result of Plaintiff being three months
behind at the execution of the Contract, Plaintiff
stated there was a need to “compress time
schedules and accelerate” the construction work
to meet the August 24, 2018, Opening Day for
Holton. However, compression and acceleration
does not mean toleration or acceptance of poor
workmanship and failure to meet contract
specifications. Plaintiff did not maintain daily
logs and manpower reports, nor did it maintain
consistent records of the subcontractors on site.
73. KIM, Plaintiff’s main sub-contractor, provided
Defendant with a list documenting the deficiencies
in Plaintiff’s performance. Those deficiencies,
which include lack of coordination, supervision,
support staff, and protection for the job site,
delayed KIM’s work 3 weeks during the summer.
74. The “time crunch” to get the scheduled work
done by Opening Day resulted in a suspension
of the formal change order process, which was
replaced by a temporary agreement between
the parties. They agreed that if change requests
were approved, then issues of “Extended General
Conditions” (profit margin per contract allowed
to Plaintiff) or credits would be worked out by the
parties later. The 21-day deadline for submitting
change orders/claims per the Contract was not
enforced by Defendant until a series of disputes
occurred in late 2018 into 2019.
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Appendix C
75. Plaintiff contends that one of several long lead
items (for example, door and door frames) caused
delay during the summer due to Defendant’s
changing the doors from metal to wood as late as
June 11, 2018. It could take as long as 15 weeks
to fabricate the doors for use in the project.
Defendant’s architect admitted that a drawing
error showed the doors as metal instead of wood.
However, Plaintiff’s submittals for such long lead
items were supposed to be provided at least two
months prior to the time Plaintiff submitted the
item for approval in May 2018. Plaintiff paid
to expedite the fabrication of the doors and
Defendant accepted those costs.
76. To save time during this period, Plaintiff
suggested using spray foam insulation in the attic
area instead of batten insulation that required
more time and manpower. Defendant approved
the change. However, the submission included
that a fire-retardant sealant be applied to the
foam as a safety measure. Plaintiff never applied
the sealant.
Opening of Holton-Arms School
77. Plaintiff failed to achieve Substantial Completion
of the Lower School Renovation by August 24,
2018 and tum that portion of the school over to
Defendant in time for the students’ return from
the 2018 summer recess. This forced Defendant
to temporarily place the students in “the library,
81a
Appendix C
the theater, a dance studio, and a couple of other
classrooms and common spaces to house classes
for the first three days” until Plaintiff made the
Lower School provisionally accessible to students
and faculty. Even in areas made provisionally
accessible, Plaintiff’s work remained defective
and far from Substantially Complete as defined
by the Contract.
78. In September 2018, a Certificate of Occupancy
was issued to Defendant. The issuance of the
Certif icate of Occupancy to Holton-A rms
School does not establish and is not a substitute
for Substantial Completion as defined in the
Contract.
79. On September 4, 2018 (the date classes began),
Waechter contacted Edmondson and Fitzgerald
to express concerns about the cleanliness of the
Project site, the fact that classrooms were not
ready for move-in, and a list of defective and
incomplete work. He stated that “it is imperative
that HSU to [sic] provide the coordination,
management and sufficient manpower to complete
the work in accordance with the schedule.”
80. On September 5, 2018, Waechter contacted Walter
Hsu telling him that “We need to talk as soon as
possible, you have two cleaners, one electrician
and seven mechanical contractors on site today.
This is completely unacceptable. The classrooms
have construction materials and dirt in them, the
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Appendix C
school still cannot move in fully and the areas
that were supposed to be turned over for move
in today have not changed since Saturday. We
need HSU to step up or step aside, the school
can no longer continue with a consistent lack of
performance.” Walter forwarded this message to
Edmondson, Frazier, and Smith.
81. Later that day, Waechter sent to Walter Hsu and
the Plaintiff’s team another email listing numerous
issues related to the status of construction,
including the incomplete storefront, the fact that
construction materials and tools had been left in
the courtyard, the wires hanging from the ceiling
in the maintenance area, the incomplete offices.
There were also electrical issues throughout the
school. The incomplete storefront presented a
“critical safety and security issue” because the
front doors to the Lower School did not close
properly, could not be locked, and could not be
chained shut due to fire code.
82. Fudge testified about her concerns with the
volume of work remaining by the end of summer.
Her concerns included 1) the volume of work that
was still to be completed and 2) the conditions of
the project over the summer. She believed that
a punch list would deal with minor issues but
that there were major tasks that Plaintiff had
to accomplish. The FCUs all had to be raised in
the hallways to allow them to sit on the flooring
per design. The lighting system didn’t work. The
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Appendix C
floor was cupping. There were other defects that
needed to be addressed. Electrical breakers were
tripping through the whole month of September,
and Defendant had to replace breakers multiple
times in September and October.
83. Plaintiff’s lack of diligence and supervision over
the project was called to Plaintiff’s attention from
its own employees. On September 13, 2018, Sarah
Moore Herbst (Plaintiff’s comptroller- “Moore
Herbst”) emailed Plaintiff’s team with concerns.
She stated that the “[o]riginal substantial
completion date was 8/20” and that “[n]o updates
have been made to schedule.” She also stated that
[m]anpower is also not being fully completed”
and that Punch Plus had been “on site working
for quite some time” but weren’t listed in the
manpower log “one time.” She further indicated
that American Cleaning “[n]ever returned a
signed contract for $13,700 and have now billed
over $30,000” and that Alonzo Ours had been
on site working with “[n]o signed contract, no
COI (Certificate of Insurance). This must stop
happening.”11
11. At trial, Moore Herbst was questioned about this email in
which she indicated that Punch Plus had been on site according to
invoices but did not appear on the manpower log once. She was then
shown multiple manpower entries for August and early September
2018 made by Smith reflecting up to ten workers on site for Punch
Plus and acknowledged that these entries would have been made
after September 13, 2018.
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Appendix C
84. Based upon Defendant’s numerous concerns
with the quality and timeliness of Plaintiff’s
work, Defendant began looking into potential
replacement contractors because Defendant
“needed to have a back-up if HSU wasn’t able to
get things together to address the deficient work,
to complete the work that had been left undone,
to fix things that weren’t going well, and in case
we decided we had to terminate.” Defendant did
not hide its concerns. Defenda
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