Federal District Court for DC Rejects Subcontractor’s Pass-Through of General Contractor’s Claim to Sub-Subcontractor

Window Specialists, Inc. v. Forney Enterprises, Inc.,
2014 U.S. Dist. LEXIS 2014 U.S. Dist. LEXIS 34702 (D.D.C. March 18, 2014)

This dispute arises out of a construction contract to repair property at Fort McNair in Washington, D.C.  The Army contracted with a general contractor, IIU Consulting Institute, who in turn contracted with defendant subcontractor, Forney Enterprises.  Forney entered into a sub-subcontract with plaintiff Window Specialists, Inc. for the labor and materials to supply and install over 680 windows and over 60 doors on the project.  During the course of the project, the Army issued a 10-day cure notice identifying numerous issues with the general contractor’s demolition of existing windows and Window Specialists’ installation of new windows.  Ultimately, Forney terminated the contract with Window Specialists and the general contractor had to demolish, re-order, and re-install all of Window Specialists’ work on the project.

Window Specialists filed suit against Forney, the general contractor, the general contractor’s payment bond surety, and the Secretary of the Army, bringing claims for breach of contract, unjust enrichment, a payment bond claim, and for injunctive relief.  Forney filed two counterclaims against Window Specialists, one for breach of contract and one seeking indemnification related to the costs the general contractor incurred replacing Window Specialists’ work.

The court dismissed the unjust enrichment claim and the claim for injunctive relief, and Window Specialist voluntarily dismissed the claims against the general contractor and the Secretary of the Army.  On the remaining claims, Window Specialists filed a motion seeking, among other things, to dismiss Forney’s indemnification claim as unripe, and to limit Forney’s breach of contract damages to its lost profits.

Forney’s based its indemnification claim on the terms of a “Settlement Agreement” between it and the general contractor.  The agreement addressed that Forney was responsible for Window Specialist’s work on the project and that Forney would pay the general contractor any amount, minus lost profits, that Forney may recover from Window Specialists in the litigation.  The terms of the agreement provided that Forney “acknowledged liability” to the general contractor for “reprocurement, completion and correction of” Window Specialists’ work on the project and that the general contractor and Forney “agreed to liquidate [Forney’s] liability in such amount at Forney may recover from [Window Specialists] in the Litigation . . . less [Forney’s] lost profits.”

Forney contended that its right to seek indemnity had accrued, and thus was ripe, because it reached a settlement with the general contractor.  The court disagreed and concluded that the Settlement Agreement “did not actually fix liability and did not cause Forney to suffer any actual loss.”  The court described the agreement as a “ploy to give the illusion that [the general contractor] and Forney ha[d] reached a fixed settlement.”  The agreement did not specify any “particular sum” that Forney had to pay the general contractor and, as such, Forney did not suffer any “actual loss.”  Because Forney’s liability for the damages it sought had not been “fixed by judgment or settlement,” the court dismissed Forney’s claim for indemnification as unripe.

With respect to the issue of Forney’s breach of contract damages, Window Specialist argued the Forney should be limited to recovering only lost profits because it lacks standing to recover damages that the general contractor allegedly suffered.  Forney contended that it could recover as damages the amount the general contractor incurred replacing Window Specialists work.  Forney reasoned that it was entitled to these damages because the general contractor held it responsible for these costs, as evidenced by the Settlement Agreement.

The court disagreed, stating that the general contractor has (i) not demanded payment of any particular sum to correct Window Specialists’ work, (ii) Forney has not paid the general contractor for these costs, and (iii) the general contractor settled its claims against Forney by agreeing to limits its recovery to the amount Forney recovers from Window Specialists, minus Forney’s lost profit.  The court concluded that the portion of Forney’s damages that it did not actually suffer – the cost of curing Window Specialist’s work – was not an injury in fact and, therefore, Forney lacked standing to bring that portion of its claim.  The court entered an order limiting Forney’s maximum recovery on its breach of contract counterclaim to its lost profits.

To view full text of decision, courtesy of Lexis ®, click here.

Jason C. Spang

This entry was posted in Breach of Contract, General Contractor, Payment bond, Subcontract and tagged , , , . Bookmark the permalink.