United States. v. Leebcor Servs.

1

UNITED STATES OF AMERICA, FOR THE USE AND BENEFIT OF MCKENNEY'S, INC., Plaintiff, v. LEEBCOR SERVICES, LLC and THE CINCINNATI INSURANCE COMPANY, Defendants.

Civil Action No. 4:20-cv-179

United States District Court, E.D. Virginia, Newport News Division

September 20, 2021

REPORT AND RECOMMENDATION

DOUGLAS E. MILLER, UNITED STATES MAGISTRATE JUDGE.

This Report considers three partially dispositive motions seeking summary judgment on portions of this construction dispute related to subcontract work to renovate an Army barracks in Georgia. (ECF Nos. 108, 116, 118). Disputes of material fact preclude summary judgment on the grounds variously alleged by the parties. Accordingly, the Report recommends the court deny all three motions.

The claim was originally brought by subcontractor McKenney's Inc. ("McKenney's") against the general contractor, Leebcor Services, LLC ("Leebcor"), and Leebcor's payment bond surety, The Cincinnati Insurance Company ("Cincinnati"). McKenney's alleged that Leebcor breached its subcontract, and that Cincinnati is liable under the Miller Act, 40 U.S.C. § 3131, for Leebcor's failure to pay McKenney's outstanding contract balance. See Compl. (ECF No. 1). Leebcor counterclaimed, alleging McKenney's caused substantial delay and seeking resulting damages. Counterci. (ECF No. 51) . Following discovery, Cincinnati moved for summary judgment (ECF No. 118), arguing that the Miller Act's one-year statute of limitations barred all of McKenney's claims against it. Leebcor and McKenney's both moved for partial summary judgment, alleging portions of their respective claims for damages could be resolved as a matter of law under the subcontract language. See McKenney's Mem. Summ. J. (ECF No. 119); Leebcor's Mem. Supp. Summ. J. (ECF No. 117) . All three motions were referred to the undersigned United States Magistrate Judge for a report and recommendation pursuant to 28 U.S.C. § 636 (b) (1) (B) and Rule 72(b) of the Federal Rules of Civil Procedure, and the court convened by remote means for oral argument on August 31, 2021.

After reviewing the summary judgment record, I conclude disputes of material fact preclude judgment as a matter of law on any of the claims, and accordingly, recommend the district court DENY all three Motions for Summary Judgment.

I. RECOMMENDED FINDINGS OF MATERIAL FACT

As relevant to the foregoing motions, the following facts find support in the summary judgment record.^[1] In 2016, Leebcor and the United States Army Corps of Engineers ("USACE") entered into a contract to renovate and upgrade Army barracks at Fort Benning, Georgia ("the Project"). On June 22, 2017, McKenney's entered into a subcontract with Leebcor for plumbing, HVAC, and direct digital controls ("DDC") systems on the Project. Compl. Ex. B (ECF No. 1-2). The original subcontract price for McKenney's work was $10, 163, 170. Id. at 1. To conform with the Miller Act, Leebcor obtained a payment bond from Cincinnati for the Project. See Compl. Ex. A (ECF No. 1-1) .

The Project was delayed for various reasons that the parties dispute but was eventually completed in 2019. Answer, Ex. A (ECF No. 50-1). The Government paid Leebcor, but McKenney's claims it is due $253, 787 on the original subcontract and approved change orders. Compl. ¶ 52. McKenney's also seeks additional compensation for work it was required to perform outside the specifications and for damages caused by some of the delay. In total, McKenney's filed suit for $562, 884. Compl. ¶ 1. Leebcor's counterclaim alleged that McKenney's deficient and untimely performance resulted in damages "including general conditions damage, home office overhead loss, and subcontractor back charges/damages" totaling $1, 661, 380.10. Counterci. ¶ 29

1. Initial Delay

At the outset, the Project was delayed by 152 days (the "Initial Delay") .^[2] See Pl.'s Opp'n (ECF No. 123, at 7) . On September 29, 2017, the USACE issued a modification proposal for Initial Delay costs. Defs.' Mem. Ex. 3 (ECF No. 117-4, at 3-4). McKenney's provided Leebcor with requested documentation to support McKenney's claims for delay damages related to the Initial Delay. See Defs.' Mem. Ex. 1 (ECF No. 117-2, at 2, 8); Defs.' Mem. Ex. 5 (ECF No. 117-6). As of July 13, 2018, McKenney's claimed $102, 779 in costs. Defs.' Mem. Ex. 6 (ECF No. 117-7). McKenney's expert report in this action asserts current Initial Delay costs of $367, 005. Pl.'s Opp'n (ECF No. 123, at 8).

On May 26, 2020, the Government issued a Unilateral Contract Modification ("Modification"), which increased the contract duration by 152 days and the contract price by $635, 149.50. See Defs.' Mem. Ex. 7 (ECF No. 117-8, at 5). Leebcor asserts that this amount represents 32.68% of its total request for compensation on the Initial Delay, a characterization McKenney's disputes. See Pl.'s Opp'n (ECF No. 123, at 8) . As reflected in the record and acknowledged during the hearing on this motion, Leebcor still intends to request a Contracting Officer's Final Decision ("COFD") for these delay costs. See Pl.'s Opp'n Ex. 4 (ECF No. 123-4). Leebcor has not paid McKenney's either its total alleged Initial Delay costs of $102, 779 or its total additional delay costs of $367, 005. See Pl.'s Opp'n (ECF No. 123).

2. Ductwork Change Order

Under the subcontract, McKenney's was responsible for "[p]rovid[ing] all labor, materials, equipment and supervision" for contract performance. Compl. Ex. B (ECF No. 1-2, at 1). The contract included requirements such as "[p]rotect[ing] stored equipment at the jobsite," "prevent[ing] the accumulation of dust, debris and foreign material," and "[p]rotect[ing] open ducting from construction dust and debris in a manner approved by the Contracting Officer." Defs.' Mem. (ECF No. 117, at 11-13) (citing subcontract provisions). Plastic sheeting was not specified. See id.

On October 24, 2017, a USACE representative raised concerns about accumulated dust and debris in the ductwork awaiting installation. See Defs.' Mem. Ex. 10 (ECF No. 117-11 at 7) . Leebcor later informed McKenney's that" [t] he approved manner for protecting open ducting . . . is to cap both ends of ductwork with plastic sheeting from the time it leaves the fabrication shop to the time of installation." Id. at 2. Leebcor's Indoor Air Quality Management Plan ("IAQ") also requires that "[a]11 ductwork arriving on site be sealed with plastic sheeting." Defs.' Mem. Ex. 10 (ECF No. 117-11, at 4). McKenney's disputes whether this provision of the IAQ was included in its subcontract. See Pl.'s Opp'n (ECF No. 123, at 11). McKenney's began applying the requested plastic sheeting and requested payment for the additional work through a Change Order Proposal. See Defs.' Mem. Ex. 14 (ECF No. 117-15) . The Change Order was not approved. See Compl. ¶ 56.

3. Completion of the Work

McKenney's completed its last daily construction report in January 2019. Def.'s Mem. Ex. 3 (ECF No. 119-4, at 2). In April 2019, the USACE completed a "past performance questionnaire" identifying Leebcor as having "completed this project on time." Def.'s Answer Ex. A (ECF 50-1, at 1).

On May 28 and 29, 2019, McKenney's completed owner training. Pl.'s Opp'n Ex. 2 (ECF No. 124-2, at 3). McKenney's trained on subjects such as the operation and proper use of the mechanical, plumbing, and DDC systems. Id. This training appeared on the project schedules. Pl.'s Opp'n Ex. 1 (ECF No. 124-1). It was also listed in an email from Leebcor's Samantha Mallory to McKenney's project manager with the subject line "3105 Starship Barracks - Closeout." Pl.'s Opp'n Ex. 2A (ECF No. 124-2, at 56) •

In addition to training, McKenney's also performed water quality work up until October 2019. Pl.'s Opp'n (ECF No. 124, at 14). In particular, Leebcor directed McKenney's to "re-test, clean, and repair" the shower valves. Pl.'s Opp'n Def.'s Mot. J. Pleadings Ex. 2 (ECF No. 70-2, at 8); see also Def.'s Mem. (ECF No. 119, at 10). McKenney's completed this work in the fall of 2019, prior to the end users entering the building. Pl.'s Opp'n Def.'s Mot. J. Pleadings Ex. 2 (ECF No. 70-2, at 9). McKenney's submitted two change order proposals for this work, but they were not approved. See Def.'s Mem. Ex. 8 (ECF No. 119-9); Def.'s Mem. Ex. 9 (ECF No. 119-10); Pl.'s Opp'n (ECF No. 124, at 14).

4. Subcontract Offset Dispute

Among the terms negotiated by the parties, Article 5 of the subcontract ("Article 5") addressed terms of payment and provided, in part, as follows:

Payment on Seller's [McKenney's] invoices will be made within 10 days of Buyer's [Leebcor's] receipt of payment from Buyer's client when such payment includes payment for amounts properly invoiced by Seller. Buyer's receipt of payment from Buyer's client is a condition precedent to payment from Buyer to Seller. Seller's right to payment is contingent upon Buyer's approval and acceptance of the work, but payment shall not be evidence of Buyer's final acceptance of the Seller's work. Payment shall be subject to subsequent adjustment for shortage and allowance for articles or services rejected. If payment to Buyer from Buyer's client is delayed for reason(s) not attributable to Seller, then the Seller will be paid within 3 0 days of the date of the approved invoice from Seller.

Seller agrees that payments owed by Buyer for performance hereunder may be offset by amounts equal to what Seller owes Buyer under this Agreement. This provision does not apply (i) where there are contractual and/or regulatory restrictions on offsets or (ii) where payment on amounts owed Buyer is due to a reasonable dispute.

Subcontract Art. 5 (ECF No. 1-2, at 2) (emphasis in original).

This language was modified from a Leebcor form subcontract that originally referred to offset of amounts...