Board of Education of Worcester County v. BEKA Industries, Inc., No. 1924, September Term, 2008 (Md. App. 2/26/2010)

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BOARD OF EDUCATION OF WORCESTER COUNTY, v. BEKA INDUSTRIES, INC.

No. 1924, September Term, 2008.

Court of Special Appeals of Maryland.

Filed: February 26, 2010.

Meredith, Wright, Graeff, JJ.

Opinion by GRAEFF, J.

This case arises from a dispute relating to the construction of Ocean City Elementary School ("OCES"), located in Worcester County, Maryland. Appellant, the Board of Education of Worcester County (the "Board"), and appellee, BEKA Industries, Inc. ("BEKA"), entered into a written contract for BEKA to perform the sitework portion of the construction. Disputes arose regarding payment pursuant to the original contract and for additional work that BEKA performed. Following a four-day bench trial in the Circuit Court for Worcester County, the court ruled in favor of BEKA, entering a "compromise" judgment against the Board in the amount of $1,100,000.

On appeal, the Board raises four questions for our review, which we have rephrased as follows:

1. Are BEKA's claims against the Board barred by the doctrine of sovereign immunity?

2. Did the trial court err in prohibiting the Board from submitting evidence regarding its recoupment claim?

3. Is BEKA entitled to damages for delay?

4. Did the trial court's failure to decide legal and factual issues in rendering a compromise verdict constitute reversible error?

For the reasons set forth below, we shall reverse the judgment of the circuit court and remand for further proceedings.

FACTUAL AND PROCEDURAL BACKGROUND

In 2003, the Board received final approval to go forward with the OCES project, and it received funding of approximately $17.8 million. Dr. Jon Andes, Superintendent of Schools for Worcester County, explained that $4.8 million was contributed by the State which included contributions from the Board of Public Works and the Interagency Committee on School Construction, and the rest of the money came from the county government.

OCES was to be completed in two phases, with the construction of the new elementary school in Phase One, and the demolition of the existing elementary school in Phase Two. It was to be a multi-contractor project, with contractors contracting directly with the Board. The Board hired a construction management company, SPN, Inc., to be the school's representative on-site to manage the contractors, and it retained an architectural firm, Cochran, Stephenson & Donkervoet, which was responsible for the overall design of OCES.

In May 2004, BEKA submitted a lump sum bid of $1,856,000 to perform the sitework for the OCES project.¹ James H. Reinhardt, Sr., President of BEKA, testified that "lump sum means that you get your lump sum bid price if you successfully complete the project pursuant to the contract documents." BEKA's bid was accepted by the Board that same month.

On June 8, 2004, BEKA and the Board executed a contract memorializing their agreement.² The parties subsequently agreed to three approved change orders, in the amount of $105,913, which increased the total contract price to $1,961,913.48.

BEKA began work in June 2004. The project was scheduled to be completed by December 5, 2005, but there were delays, and BEKA did not complete the work until May 2006.

Disputes arose regarding payment on the project. On October 12, 2007, BEKA filed a Complaint for Money Damages and Other Relief in the Circuit Court for Worcester County. The Complaint included 49 counts against the Board, including 46 counts asserting breach of contract, and three counts alleging negligent misrepresentation, unjust enrichment and quantum meruit. BEKA sought damages in the amount of $1,157,053.75, in addition to pre-judgment interest, post-judgment interest, costs and attorneys' fees. BEKA alleged that the Board owed $361,991.47 under the initial contract and more than $795,000 for proposed change orders ("PCOs").

On December 7, 2007, the Board filed an Answer. The Answer generally denied liability, stating that the Complaint failed to state a claim upon which relief could be granted. It raised 12 affirmative defenses, including accord and satisfaction, collateral estoppel estoppel, fraud, illegality, laches, payment, release, res judicata, statute of frauds, statute of limitations, and waiver. The Board subsequently filed a second and third amended answer asserting additional defenses, including recoupment and governmental immunity.

Numerous pre-trial pleadings and motions were filed by the parties that relate to the arguments raised on appeal. These will be discussed in more detail, infra.

On October 6, 2008, the trial began. BEKA called James Reinhardt, President of BEKA Industries, as its first witness. Mr. Reinhardt explained that BEKA is considered a "heavy civil contractor," and it performs "infrastructure work associated with clearing, excavation and grading, utilities, parking lot construction, [and] things that are not included with the actual construction of a building." Mr. Reinhardt was qualified as an expert in the areas of construction management, sitework and heavy construction, sequence of construction, lost production, defective and incomplete work, and additional costs associated with contract changes. According to Mr. Reinhardt, the Board owed BEKA money on the initial contract, as well as payment for additional work that BEKA was asked to do. Proposed Change Orders ("PCOs") were the method by which BEKA notified the Board of its increased costs for additional work. Mr. Reinhardt described three categories of PCOs involved in this lawsuit: those which the Board agreed to pay; those partially disputed; and those fully disputed. He stated that BEKA fully complied with the contractual provisions of notice and substantiation when preparing its PCOs.

Lydia Hoover, BEKA's Vice President of Contract Administration, testified that she was directly involved with the PCOs. She sent various correspondence to the Board's construction manager, the project architect, and the Board itself regarding the status of the PCOs and the unpaid balance on the base contract. Despite responses indicating that the construction management company needed more time to review the claims for PCOs, the Board, the construction management company and the project architect were largely unresponsive to BEKA's requests. On July 11, 2007, BEKA wrote a letter to the Board's Superintendent requesting permission to address the issue at a school board meeting.³ The Board denied this request.

Paul Till, a project manager and consulting engineer with the firm of Hardin Kight Associates ("Hardin"), was BEKA's final witness. Mr. Till testified that BEKA employed Hardin for the OCES project "to provide quality control testing and inspection services during construction." The company performed its work, which consisted of monitoring BEKA's earthwork grading operations to determine its compliance with the contract specifications, from June 23, 2004 to May 5, 2006.

At the conclusion of BEKA's case, the Board moved for judgment in its favor on various grounds. As relevant to this appeal, the Board argued: (1) the defense of sovereign immunity provided a partial waiver for BEKA's negligent misrepresentation claim, capping any recovery at $100,000; (2) it had "only waived [its immunity] for written contracts, not quasi contracts," and therefore, the Board was entitled to sovereign immunity on BEKA's claims for unjust enrichment and quantum meruit; and (3) the claim for damages for delay was prohibited by the parties' contract, and, in any event, they were not timely submitted in accordance with the contract.

BEKA opposed the motion for judgment. It alleged that the defense of sovereign immunity was not applicable to a county entity in contract actions. BEKA argued that it had proven that it was entitled to the damages sought, and that the changes to the contract, submitted through PCOs, were "necessitated by the actions of the board including intentional interference and gross negligence, but primarily by changes to the contract." With respect to the no-damages-for-delay clause in the modified AIA form contract, BEKA argued that it had no force or effect. Alternatively, BEKA argued that the Board's actions had been "so outrageous" that, even if the no-damages-for-delay clause was effective, there was a recognized exception allowing the court "to require the board to reimburse BEKA for its cost incurred." The court denied the Board's motion "in its entirety."

The Board then presented its case. Dr. Jon Andes, the Worcester County Superintendent of Schools, testified that he was responsible for the operation of the entire county school system. He explained that the Board receives funding from the Worcester County government, the State of Maryland, and the federal government, with approximately 75% of the Board's operating budget provided by the county government. He testified that "[s]chool boards in Maryland are fiscally dependent upon county government."

With respect to OCES, Dr. Andes testified that it originally was built in the 1960s, and "at the time that this construction project was envisioned," it was outdated and in need of a renovation. A study revealed that it was more beneficial to build a brand-new school next to the existing school than to renovate the current building. The plan was for the students to move into the new school after it was constructed, and then the old school would be torn down. Dr. Andes hoped that the students could occupy the new school building in September 2005, but they were not able to move in until the third week of November 2005.

With regard to BEKA's demands for payment, Dr. Andes was aware that BEKA had not been paid for the amounts it demanded, but he explained that payment did not occur because BEKA "was not recognizing [the Board's] back charges." Dr. Andes did not know how much money was left in the construction budget for the project, but he testified that some of the $1,856,000 that was originally set aside to pay...