Federal Court in Maryland Holds Subcontractor Waived Right to Bring Labor Inefficiency Claim Despite Voicing ‘Expression[s] of Frustration’ and ‘General Complaints’ of Mismanagement Throughout Project

Hagen Constr. Inc. v. Whiting-Turner Contracting Co., No. JKB-18-1201, 2019 BL 36862 (D. Md. Feb. 04, 2019)

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John J. Gazzola

This case arises out of the construction of a pediatric outpatient center in southern New Jersey.  Plaintiff subcontractor Hagen Construction, Inc. (“Hagen”) filed suit in New Jersey state Court against defendant general contractor Whiting-Turner Construction Co. (“W-T”), seeking reimbursement for labor inefficiency costs incurred as a result of W-T’s alleged project mismanagement.  Hagen claimed it incurred additional costs to repeat work and remobilize to multiple areas because it was not afforded unimpeded access or timely supply of necessary materials and information.  Once the case was removed and transferred to Maryland federal Court, W-T moved for partial summary judgment on the portion of Hagen’s breach of contract claim reflecting labor inefficiency costs.

W-T asserted that Hagen’s claim was barred because: (i) it failed to provide timely notice and substantiation for the claim in accordance with the Subcontract; (ii) Hagen executed releases with its payment applications in which it represented it was not aware of any claims or occurrences giving rise to claims through a period beyond the dates of events giving rise to the labor inefficiency claim; and (iii) the claim was a delay claim barred by the Subcontract’s “no damages for delay” clause.  While the Court rejected W-T’s third argument, it granted the motion, concluding that Hagen had waived its right to assert the claim because (i) it failed to provide notice of the claim in the form required by the Subcontract, and (ii) it executed unqualified Partial Releases with its payment applications .

The Court first explained that the Subcontract was “unequivocal” that W-T would not be liable to Hagen for payment for additional work unless the work was first expressly authorized in writing by W-T, and W-T received payment for it from the owner. These were, according to the Court, conditions precedent to W-T’s obligation to pay Hagen for additional work. The Court concluded that while Hagen had proffered evidence that it “frequently, and apparently justifiably, complained to W-T about problems preventing Hagen from executing its work in an efficient manner,” including through conversations, letters and emails, it found no writing in the record that could constitute an actual written claim by Hagen for compensation that provided the detailed information and substantiation required by the Subcontract.  Hagen’s “expressions of frustration” and “[g]eneral complaints” of mismanagement did not constitute claims.

The Court also concluded that Hagen’s claim was barred by the Partial Releases it executed throughout the project.  Hagen argued that its claim was for work which it was authorized to do, but for which payment had not yet been approved, and therefore, was excepted by the text of the Release.  The Court, however, concluded that this exception applied only to extra work which was authorized by W-T and because Hagen’s additional work was not so authorized, it was not excepted from the release.  The Court also rejected Hagen’s argument that the release applied only to liens and not claims as “disingenuous,” noting that the text of the release unambiguously included “all claims and demands against Contractor.”  By failing to list any exceptions to the Partial Releases, Hagen released its claim for labor inefficiency.

Accordingly, the Court granted W-T’s motion for partial summary judgment, holding that Hagen’s labor inefficiency claim was barred by its failure to give proper and timely notice thereof and by is execution of unqualified Partial Releases.

To view the full text of the court’s decision, courtesy of Bloomberg, click here.