Swanda Brothers Inc v. Chasco Constructors Ltd LLP
Filing
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ORDER denying 169 Motion for Summary Judgment. Signed by Honorable Timothy D. DeGiusti on 9/26/2012. (mb)
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF OKLAHOMA
SWANDA BROTHERS, INC., an Oklahoma
Corporation,
Plaintiff,
vs.
CHASCO CONSTRUCTORS, LTD., L.L.P.,
a Texas limited partnership,
Defendant and Third-Party Plaintiff,
v. LUNA GAMING RANDLETT, LLC,
Third-Party Defendant,
and
F. G. HAGGERTY COMPANY, INC.,
Intervener.
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Case No. CIV-08-199-D
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ORDER
Before the Court is the summary judgment motion [Doc. No. 169] of Intervener F.G.
Haggerty Company, Inc. (“Haggerty”). Pursuant to Fed. R. Civ. P. 56, Haggerty seeks judgment
on its claim for payment due and owing from Plaintiff Swanda Brothers, Inc. (“Swanda”) for work
performed on a subcontract for certain construction on a casino owned and operated by the Kiowa
Casino Operating Authority (“KCOA”). Swanda timely responded to the motion, and Haggerty filed
a reply.
I. Background
Swanda brought this action to recover amounts allegedly due from Chasco Constructors,
Ltd., LLP, (“Chasco”) pursuant to the terms of a subcontract (the “Subcontract”) whereby Swanda
performed construction work on the Kiowa Casino in Cotton County, Oklahoma (the “Casino”), for
which Chasco was the general contractor. Chasco contracted with KCOA to build the Casino, and
it engaged Swanda and others as subcontractors. In its claims, Swanda alleges that, although it was
paid a portion of the amount owed on the Subcontract, Chasco had not paid all amounts due. Chasco
agrees that Swanda has not been paid in full for all work it performed. However, Chasco contends
that payment is not due until KCOA makes final payment to Chasco, and it has not done so. Chasco
also argues that KCOA has not accepted all work performed by Swanda and Swanda’s
subcontractors.
To perform its Subcontract, Swanda engaged other subcontractors, including Haggerty.
Haggerty intervened in the lawsuit to assert its contention that it is also due payment for work it
performed on the Casino construction. Haggerty contends that, although it has received partial
payment from Swanda, it is owed approximately $189,917.55. In its summary judgment motion,
Haggerty argues the undisputed material facts establish that Swanda has breached its subcontract
with Haggerty and is obligated to pay this amount.
Swanda does not dispute that Haggerty submitted to it additional requests for payment, and
Swanda has not paid the full amount sought by Haggerty. However, Swanda argues that, under this
Court’s previous ruling on Swanda’s motion for summary judgment, the amount is not due until
KCOA satisfies the amount owed on the contract with Chasco, and Chasco pays Swanda the amount
due on their Subcontract. Swanda further argues that the amount claimed by Haggerty is subject
to dispute because KCOA did not accept all work performed by Haggerty, and whether full payment
is owed must be determined by a jury.
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II. Summary judgment standard
Summary judgment is proper where the undisputed material facts establish that one party is
entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317,
323 (1986). A material fact is one which may affect the outcome of the suit under the governing
law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). To avoid summary judgment,
a plaintiff must present more than a “mere scintilla” of evidence; the evidence must be such that “a
reasonable jury could return a verdict for the non-moving party.” Id. The facts in the record and
reasonable inferences therefrom must be viewed in the light most favorable to the nonmoving party.
Swackhammer v. Sprint/United Mgmt. Co., 493 F.3d 1160, 1167 (10th Cir. 2007); MacKenzie v. City
& County of Denver, 414 F.3d 1266, 1273 (10th Cir. 2005). However, to establish the existence of
a “genuine” material factual dispute, the nonmoving party must present evidence to show more than
“some metaphysical doubt as to the material facts.” Matsushita Electric Industrial Co. v. Zenith
Radio Corp., 45 U.S. 574, 588 (1986).
III. The record in this case
The lengthy history of this litigation need not be repeated here, as the numerous
developments and delays in the litigation process do not impact Haggerty’s motion for summary
judgment. In brief, it is not disputed that KCOA has withheld payment on its contract with Chasco,
citing certain deficiencies in the work performed. It is also not disputed that Chasco has not paid
Swanda, and Chasco takes the position that it is not required to do so until Chasco receives final
payment from KCOA.
In its Order [Doc. No. 96] ruling on the cross-motions for summary judgment of Swanda and
Chasco, the Court held that the Subcontract they executed contains an unambiguous and valid “pay
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if paid” clause. See Swanda Brothers, Inc. v. Chasco Constructors, Ltd., L.L.P., 2010 WL 476639,
at * 3 (W.D. Okla. Feb. 4, 2010) (unpublished opinion). Accordingly, payment by KCOA is a
condition precedent to Chasco’s obligation to pay Swanda. Id.
The record reflects that, on March 8, 2007, Swanda notified Chasco that Swanda’s work
pursuant to the Subcontract was completed. Exs. 3 and 4. Thereafter, Swanda began its efforts to
collect the amount due on the Subcontract by submitting letters and email communications. Exs.
3, 5, 6, and 7. These efforts were unsuccessful and, on February 26, 2008, Swanda filed this lawsuit.
Notwithstanding the passage of time since the lawsuit was filed, KCOA has not paid Chasco, and
Chasco has not paid Swanda.
The record also reflects that Chasco has withheld payment to Swanda in part because of
claimed deficiencies in the work performed by Swanda or its subcontractors, including Haggerty.
The record shows that some of the deficiencies cited by Chasco were based on work performed by
Haggerty. According to Chasco, some of the work performed by Haggerty is the subject of a “back
charge,” or deduction, claimed by Chasco. Deposition of Jeff Sasser, Swanda Ex. 1, p. 12, lines 121. In his deposition, Mr. Sasser testified that Chasco raised several issues concerning the quality
of the work performed by Haggerty, and concerns regarding Haggerty’s work were part of the reason
Chasco denied Swanda the full overhead charge it sought. Id., p. 33, lines 14-19; p. 34, lines 1-8.
Curtis Cline, another representative of Chasco, executed an affidavit in this case in which he
criticized Haggerty’s work. Affidavit of Curtis Cline [Doc. No. 43-2] at ¶ 7. Chasco has cited
deficiencies including Haggerty’s delayed installation of refrigeration units, Haggerty’s failure to
install the units in a workmanlike manner, and its failure to install piping per the manufacturer’s
requirements, resulting in the need to replace the piping. See Chasco answers to interrogatories,
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quoted at page 5 of the response brief; Ex. 2 to Swanda’s response brief.
Chasco stated that
Haggerty committed two errors which resulted in a delay of the project’s completion. These include
the allegation that Haggerty provided the wrong sink template for sinks to be installed in the Casino
restrooms, and the template was used to cut the granite countertops; as a result of Haggerty’s error,
Chasco contends that it was necessary to redo this part of the project, resulting in delay and
additional expense. Id.
Chasco also contends that Haggerty’s failure to properly install the
refrigerant piping delayed the start up of the air conditioning system for the Casino, thereby delaying
completion of the entire project. Chasco also claims that further delay was caused by the need to
determine how to correct Haggerty’s alleged mistakes. Id. The record reflects Chasco took the
position that it would claim offsets against Swanda as a result of the foregoing and, as a result, it
delayed payment to Swanda. Ex. 2 to response brief.
The record also reflects that KCOA informed Chasco of certain deficiencies in the Casino
construction, including but not limited to those resulting from work performed by Haggerty. See
affidavit of Lee Rhoades of KCOA [Doc. No. 43-3]. KCOA disputed that the work performed by
Swanda or Haggerty, for which funds were being withheld, “meets the contract requirements,” and
KCOA had “expended approximately $99,700.00 to repair problems relating to the ducts installed
by Swanda and/or Haggerty.” Rhoades affidavit at ¶¶ 6-8. Mr. Rhoades also conveyed KCOA’s
belief that there “may be additional problems with work performed by Swanda and/or Haggerty.”
Id.
The record further reflects that Swanda took issue with some of the deficiencies noted by
Chasco and KCOA, and continued its efforts to collect payment. Exs. 5, 6, and 7 to response brief.
More than six months prior to filing this lawsuit, Swanda responded to Chasco’s claimed credits
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on the Subcontract. September 25, 2007 letter from Swanda to Chasco, Ex. 7 to response brief. A
copy of this correspondence was provided to Haggerty. Id.
IV. Application
Haggerty argues in its motion that its subcontract with Swanda is a “pay-when-paid”
contract, in contrast to the Swanda subcontract with Chasco. Swanda agrees that Haggerty’s
interpretation is correct according to the Tenth Circuit Court of Appeals. See, e.g., MidAmerica
Construction Management, Inc. v. Mastec North America, Inc., 436 F.3d 1257 (10th Cir. 2006).
Because the parties agree to this interpretation of the Haggerty/Swanda subcontract, the Court need
not analyze the terms of their agreement.
Swanda and Haggerty further agree that, under a “pay-when-paid” contractual agreement,
“a contractor’s obligation to pay the subcontract is triggered upon receipt of payment from the
owner.” MidAmerica, 436 F. 3d at 1261. As both point out, however, “the obligation to make
payment is suspended for a reasonable amount of time for the contractor to receive payment from
the owner.” Id. The parties’ disagreement hinges upon this point, as Haggerty argues that the time
period since completion exceeds a reasonable time, while Swanda argues that the time period is
reasonable under the unique circumstances of this case. Swanda further argues that its efforts to
collect the amount claimed as owed, including its filing of this lawsuit, are reasonable actions which
justify the delay.
As Swanda argues, courts interpreting “pay-when-paid” clauses have held the purpose of the
clause is to “postpone payment for a reasonable period of time...during which the general contractor
will be afforded the opportunity of procuring payment from the owner” of the funds needed to pay
the subcontractor. See, e.g., Thomas J. Dyer Co. v. Bishop International Engineering Co., 303 F.2d
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655, 661 (6th Cir. 1962); R&L Acoustics v. Liberty Mut. Insurance Co., 2001 WL 1249658, at *7
(Conn. Super. Sept. 27, 2001) (unpublished opinion); Seal Tite Corp. v. Ehret, Inc., 589 F. Supp.
701, 703-05 (D. N.J. 1984). Courts considering whether a reasonable time has expired have held
that the issue may present a question of law in some circumstances, while it creates a factual
question in others. R&L Acoustics, 2001 WL 1249658, at *7. According to the general rule
discussed in these decisions, where the parties do not dispute the facts and the non-movant does not
claim its delay was reasonable, a court may treat the question of what constitutes a reasonable time
as a question of law. Id. If the non-movant contends the delay is reasonable, however, the court
should analyze the issue as a factual question. Id.
When assessing the reasonableness of the delay, the Court should also take into consideration
whether the non-movant has attempted to collect the full amount owed by the contractor. Avon
Brothers, Inc. v. Tom Martin Construction Co., Inc., 2000 WL 34241102, at * 8 (N.J. Super. Aug.
30, 2000) (unpublished opinion). Thus, “the ‘reasonable time’ for postponing payment has been
held to include the time within which the general contractor is actively pursuing collection and while
there remains a reasonable likelihood that the general contractor will actually collect the final
payment due from the owner.” Id. While the Avon court also found that, under the facts of that
case, a three-year delay was not reasonable, it did so in part because there were no allegations that
payment was being withheld because of deficiencies in the subcontractor’s work.
As Swanda points out, the record in this case establishes that claimed deficiencies in
Haggerty’s work are at least in part the reason payment has not been made by KCOA to Chasco and,
in turn, by Chasco to Swanda. While it may ultimately be determined in this case that these
allegations of deficient performance are unwarranted, that is an issue to be determined by a jury.
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Similarly, whether the delay in obtaining payment was reasonable in this case presents a fact
question to be resolved by the jury, and summary judgment is precluded.
V. Conclusion
For the foregoing reasons, the Court concludes that Haggerty’s motion for summary
judgment [Doc. No. 169] must be DENIED because material factual disputes preclude judgment as
a matter of law.
IT IS SO ORDERED this 26th day of September, 2012.
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