84 Lumber Co. v. Builders

84 LUMBER COMPANY, L.P. Plaintiff/Counter-Defendant v. GREGORY MORTIMER BUILDERS, et al. Defendants/Counter-Plaintiffs

Civil Action No. 11-548

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA

October 11, 2016

Magistrate Judge Lisa Pupo Lenihan

MEMORANDUM OPINION ON CONTRACTUAL DAMAGE LIMITATIONS

I. SUMMATION

The Court acknowledges the contributions of counsel on their bench trial briefing of the issues identified during the July 28, 2016 Status Conference. See July 29, 2016 Order, ECF No. 200. By the Court's April 20, 2016 Pretrial Order, ECF No. 171, a Bench Trial is scheduled for October 31, 2016. For the instruction of the parties to aid in preparation for the trial, the Court issues the following Opinion.

For the reasons set forth more fully below, the Court predicts and concludes that, under Maryland law reflecting accord with the general law merchant, the parties' contractual language precluding "any consequential, indirect, exemplary or punitive damages of any type" is an independent provision. And thus under Maryland law, absent unconscionability, a contractual prohibition against consequential damages remains in effect even where the parties' "repair or replacement" provision may fail of its essential purpose. See Patapsco Designs, Inc. v. Dominion Wireless, Inc., 276 F.Supp.2d 472 (D. Md. 2003) (predicting that under Maryland law, as reflected in adoption of UCC, limitation on damages did not fail even if repair and replacement provision failed of essential purpose; rather, damage limitation was freely contracted independent allocation of risk between business parties and remained subject to unconscionability standard). Cf. Waters v. Massey-Ferguson, Inc., 775 F.2d 587 (4^th Cir. 1985) (predicting that under South Carolina law and particular circumstances of contract on case-by-case basis, consequential damage limitation did not extend to long-term damages where reasonable repair and replacement was not made by manufacturer and provision failed of essential purpose). Because the contractual damage limitation provisions at issue were not unconscionable under Maryland law, and because they are not forfeited under any of Defendants' alternative rationales, the limitation provisions remain enforceable as to those contract claims encompassed by the parties' clear language, i.e., they limit damages related to/flowing from "defects in workmanship or materials." See discussion, infra (addressing claims of fraudulent inducement, ratification, and damages proximately caused by specific misrepresentation(s)).

The Court further concludes that, under Maryland law, recovery for lost profits is unambiguously precluded by the parties' contractual limitation of damage provisions.

II. RELEVANT FACTUAL AND PROCEDURAL HISTORY

The extensively documented factual and legal history in this case arising from disputes between the parties with regard to (a) construction material purchases and (b) sub-contracted construction of housing in Defendants' multi-duplex residential developments - Timberlake Village (hereafter "Timberlake") and Cedar Creek - located near Deep Creek Lake, in GarrettCounty, Maryland was explicated by this Court in its Summary Judgment Opinion, ECF No. 166. In relevant part: the parties executed contract documents including an 84 Lumber Commercial Credit Application form dated May 9, 1997 (the "1997 CCA"), signed by Gregory Mortimer ("Mortimer"). See, e.g., ECF No. 12, Ex. 1. In October, 2007, the parties entered into a settlement agreement that included compensation for improper CCA billing activity relating to a residential project (the "2007 Settlement"). See, e.g., Memorandum of Law in Support of Defendants' Opposition to Plaintiff's Motion for Partial Summary Judgment (Defendants' Memo of Law in Opposition to PSJ") at 4, ECF No. 156. In addition, Mortimer and 84 Lumber were the signatories to 84 Lumber "Subcontractor Agreement/Scope of Work" forms (the "Subcontractor Agreements") for the installation of purchased materials at five (5) development projects - three (3) at Timberlake (buildings 8, 11 and 12) and (2) at Cedar Creek (buildings 1 and 2). See, e.g., ECF No. 12, Ex. 1.¹ More particularly, Timberlake contract #8 was signed in April, 2008; Timberlake contract #12 was signed in late August, 2008; and Timberlake contract #11 and the two Cedar Creek contracts were signed by Mortimer at the end of October, 2008 and by 84 Lumber in December, 2008. See Defendants' Combined Statement of Material Facts at 6-7, ECF No. 153.

Each of these essentially identical Subcontractor Agreements provided that the work would be properly performed "per print and manufacturer specifications", with "competent supervision", and would "meet or exceed local building codes" and "pass all requiredinspections". See, e.g., ECF No. 15, Ex. A. Paragraph 14 provided that the terms and conditions of "84 Lumber Company's Contractor-Commercial Credit Agreement", "a copy of which [Mortimer] hereby acknowledges receiving" were "incorporated herein by reference". Id.

Subcontractor Agreement paragraph 15 contained, among other things, 84 Lumber's "guarantee" that the work would conform to specifications, comply with laws, and be free from defects in workmanship and materials. Paragraph 15 limited 84 Lumber's "liability hereunder" to the "extent of 84's negligence" and its obligations to "repair or replacement of any defective or nonconforming [w]ork." Mortimer agreed that 84 Lumber was "in no event" liable "for any consequential, indirect, exemplary or punitive damages of any type in connection with any claim under this paragraph." And the paragraph closed with a form language disclaimer of any further express or implied warranty, including warranty of merchantability or fitness for a particular purpose. Id.

Defendants assert that Plaintiff materially breached each Subcontract Agreement by, e.g., failing to install materials according to manufacturer's instructions and failing to conform to local building code; that Defendants received Correction Notices from the County Office of Buildings and Permits; and that Plaintiff made misrepresentations as to its work performance and failed/refused to make and made further misrepresentations regarding the requisite repairs to its work. Defendants also assert that their harm from Plaintiff's actionable conduct includes not only diminution in value of the subject properties, but other development properties as well, and more generally, e.g., their business reputations and related income, and financing positions and costs. See, e.g., Second Amended Counterclaim, ECF No. 44.

For a full discussion of the prior procedural history, see ECF No. 166. The relevant claims documents are:

The Complaint against Gregory Mortimer Builders ("GMB"), as Defendant, and Mortimer, as guarantor, removed to this Court on April 28, 2011 (ECF No. 1) and asserting counts for (1) breach of contract against Gregory Mortimer Builders (under the CCA) owing to GMB's purchase, receipt and nonpayment "on [GMB's] account", of approximately $579,000 in goods/supplies delivered, together with ongoing fees/penalties and attorney's fees; (2) breach of contract against Mortimer as personal guarantor "of [GMB]'s obligations" under the CCA; and (3) separate counts against each Defendant for unjust enrichment in the alternative. See ECF No. 1, Ex. A. The count for unjust enrichment against Mortimer was dismissed by this Court. See ECF No. 166. Plaintiff's entitlement to attorney's fees was assessed in the Summary Judgment Opinion. See id. at 4 n. 4, and 6, ECF No. 166.

The Defendants' Second Amended Counterclaim (ECF No. 44) setting forth claims:

(a) by each of the Defendants for (i) unspecified negligent misrepresentations (implicitly and by incorporation those misrepresentations made to Mortimer and underlying Count I), and (ii) fraud/intentional misrepresentation/concealment expressly with regard to Summer, 2009 representations to Mortimer regarding faulty construction issues and Plaintiff's intent to correct/purported correction of them (Counts II and III, respectively);² and (b) by Mortimer for breach of contract as to each of five (5) separately subcontracted Timberlake (8, 11, 12) and Cedar Creek (1, 2) units (Counts IV-VIII); breach of contract more clearly delineated as to the Commercial Credit Agreement (Count IX), specifically by false and/or excessive charges and concealment;³ and fraud in the inducement (Count I) by both (i) misrepresenting that improper CCA charges made in 2007 by a subsequently-fired Maryland manager would not recur⁴ and that a Fall 2008 internal audit was conducted and showed no improper CCA charges,⁵ and (ii) misrepresenting that subcontracted work would be performedby 84 Lumber's national "install program" construction experts/specialists.⁶ The following counts were dismissed by this Court: (a) Count II, negligent misrepresentation as brought by Defendant M&M Development, LLC a non-party to the 1997 CCA and Count III, fraudulent/intentional misrepresentation related to Plaintiff's defective/negligent construction and/or failure to repair/replace under the Subcontractor Agreements, as brought by the non-individual Defendants. See ECF No. 166.

III. ANALYSIS

A. Independence of Limitation Excluding Consequential Damages

As noted supra, untitled paragraph 15 of the Subcontract Agreements contains 84 Lumber's guarantee against "defects in workmanship and materials" and limits 84 Lumber'sobligations thereunder "at [its] sole election, to the repair or replacement of any defective or nonconforming Work." Additional provisions of paragraph 15 include those specifying that "in no event" would 84 Lumber be liable for "any consequential, indirect, exemplary or punitive damages of any type in connection with any claim under this paragraph."

Defendants assert that 84 Lumber's delays, failures, misrepresentations and/or effective refusals to repair or replace defective workmanship rendered the...