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United States v. Bilbro Construction Co., Inc.

United States District Court, S.D. California

September 12, 2019

UNITED STATES OF AMERICA for the Use and Benefit of PENN AIR CONTROL INC., a California corporation,
v.
BILBRO CONSTRUCTION COMPANY, INC., a California corporation; and INTERNATIONAL FIDELITY INSURANCE COMPANY, a New Jersey corporation, Defendants. And Related Counterclaims.

          ORDER

          HON. WILLIAM Q. HAYES UNITED STATES DISTRICT COURT

         The matter before the Court is the Motion for New Trial or, in the Alternative, Remittitur of the Verdict. (ECF No. 295).

         I. Background

         In 2012, the Department of the Navy awarded a prime contract to Bilbro Construction Company (Bilbro) to renovate the heating, ventilating, and air conditioning (HVAC) system in Watkins Hall, a building located on the Naval base in Monterey, California.[1] Bilbro, a general contractor, hired Ferguson Pape Baldwin Architects, Inc. (FPBA) to be the designer of record for the project and to provide architectural designs. FPBA in turn hired Sparling, Inc. (Sparling), an acoustical expert. Bilbro hired Alpha Mechanical (Alpha) as the mechanical contractor, and Alpha subcontracted with Shadpour Consulting Engineers, Inc. (SCE) to design the HVAC system, which Alpha installed.

         The Navy imposed strict noise requirements on the project because Watkins Hall contained classrooms. When the new HVAC system was first turned on, 23 of the rooms in Watkins Hall exceeded the Navy's noise limits and the Navy refused to accept the work. Bilbro then hired Sparling directly to assess the noise issue and provide recommendations to bring the HVAC system into compliance with the Navy's noise requirements. Sparling provided a series of recommendations, which Alpha implemented. Sparling's recommendations brought some, but not all of the rooms into compliance. Alpha incurred costs implementing Sparling's recommendations. Alpha deemed the costs incurred implementing Sparling's recommendations “extra, ” and outside the scope of the original contract between Bilbro and Alpha. Alpha implemented Sparling's recommendations for approximately ten months before formally requesting Bilbro approve a change order that would provide Alpha with additional compensation for the costs associated with implementing Sparling's noise mitigation recommendations. Bilbro declined to approve the change order and on June 3, 2015, Bilbro terminated its contract with Alpha. This litigation followed.

         On July 17, 2015, Penn Air Control Inc. (Penn Air), a Bilbro subcontractor, filed a Complaint against Bilbro, alleging breach of contract and seeking payment for work it had done balancing the Watkins Hall HVAC system. (ECF No. 1). On October 19, 2015, Bilbro filed a Counterclaim against Penn Air and Alpha, bringing claims against Alpha for indemnity against Penn Air, declaratory relief, unjust enrichment, and breach of contract. (ECF No. 17). Among other things, Bilbro sought damages from Alpha for extra work it performed mitigating the sound issues on the project, including extra field and office overhead and payments made to a contractor hired after Alpha was terminated.

         On November 11, 2016, Alpha filed an Amended Counterclaim against Bilbro, FPBA, Sparling, and SCE alleging claims for breach of contract, breach of fiduciary duty, and negligence. (ECF No. 108). Alpha alleged damages of $323, 352.00 against Bilbro for failure to pay Alpha “for work performed on the [p]roject.” (ECF No. 108 ¶ 50). Alpha alleged damages of $1, 121, 564.57 against Bilbro, FPBA, and Sparling for “damages, including, but not limited to the cost of having to purchase new equipment, remove prior installations, install new materials, purchase additional supplies and to remobilize its crew at least on four separate occasions during the period of August 2014 through May 2015 . . . .” Id. ¶ 65. Alpha also filed a claim for indemnity against SCE pursuant to Alpha's contract with SCE. Alpha sought indemnity from SCE for any liability and expenses incurred defending against Bilbro's counterclaim to the extent the liability was a direct and proximate result of SCE's actions or omissions.

         In November 2017, Alpha settled its claim with Sparling and FPBA. Sparling and FPBA did not admit fault but agreed to pay Alpha $385, 000. (ECF Nos. 146, 152). Sparling and FPBA were dismissed. (ECF No. 167). In November 2018, Penn Air settled with Bilbro and Alpha and was dismissed. (ECF No. 221).

         On February 5, 2019, Bilbro, Alpha, and SCE proceeded to a jury trial. At trial, Alpha voluntarily dismissed its negligence claim and the Court dismissed Alpha's breach of fiduciary duty claim. At trial, Alpha defined the work it performed installing the HVAC system under the original plans provided to it by Sparling, FPBA, and SCE and approved by Bilbro as work performed under the “original” contract. Alpha defined the subsequent work it did implementing Sparling's noise mitigation suggestions as “extra” or “additional work” because it required Alpha to make changes to the HVAC system that were not included in the original plans. Both Alpha and Bilbro sought to recover their contribution to the Penn Air settlement under their respective breach of contract claims, however, the Court excluded both sides from doing so before submission to the jury.

         At trial, Bilbro argued that the noise was caused by SCE's selection of improper HVAC equipment or Alpha's deficient installation of that HVAC equipment. Bilbro argued that under the Subcontract it was Alpha's responsibility to bring the HVAC system into compliance with the project's noise requirements. Bilbro argued that any costs incurred were the responsibility of Alpha, and that Alpha failed to obtain change orders for the additional work it performed implementing Sparling's noise mitigation suggestions.

         Alpha and SCE argued that noise compliance was the responsibility of Sparling and FPBA under the Subcontract and not Alpha or SCE. Alpha asserted that it properly installed the HVAC equipment, and that it did not cause the noise issues on the project since it did not design the HVAC system-it merely followed the plans given to it by SCE, Sparling and FPBA, which had been approved by Bilbro. Alpha argued that it should not have to bear the costs of the subsequent changes to the HVAC system recommended by Sparling, which it deemed to be “extra work, ” since it properly installed the HVAC equipment specified in the original plans.

         Evidence at trial showed that the Subcontract provided Alpha would “Design/Build Mechanical, Plumbing, Electrical plus Overall Project Superintendence from plans and specifications by FPBA [SCE].” (Ex. 4, ECF No. 267 at 1; ECF No. 313-5). The Subcontract incorporated attachments containing more specific details. Alpha relied upon the description of the section of the RFP that defined the HVAC system's static pressure and temperature levels and argued that it did not include the project's noise requirements. Bilbro's project manager, Sandra Greene, testified that the mechanical systems selected by SCE would be based upon the recommendations of the project sound consultant. The project sound consultant was Sparling, an acoustics expert, hired by FPBA during the design phase of the project. Sparling was not hired to consult during the building phase of the project. The jury saw internal Sparling emails detailing mechanical equipment submissions from SCE that went unread after the design phase because Sparling's contract with FPBA had expired. Bilbro subsequently re-hired Sparling directly after the noise issues became apparent. The jury heard evidence that the government criticized Bilbro for not involving an acoustician throughout the entirety of the project. The jury also heard testimony from Bilbro's President, Maryory Contreras, stating that FPBA, a Bilbro subcontractor, was the designer of record on the project, whose responsibility it was “to coordinate the design effort of the entire project . . . to assure consistency of design between design disciplines” and to “coordinate acoustics requirements.” (ECF No. 278 at 21, 30). With respect to change orders, the Subcontract between Bilbro and Alpha provided:

ARTICLE X CHANGES: Changes will be binding on the Contractor only if such changes are in writing issued from Bilbro Construction Company, Inc. and signed by a Corporate Officer of Bilbro Construction Company, Inc. Contractor may, by written change order, make any change including additions or deletions in quantities or changes to the Specifications or drawings. If any change otherwise reasonably affects the amount due the Subcontractor or the time of performance hereunder, an equitable adjustment shall be made. Upon reasonable notice to the Subcontractor, the Contractor may, by written change order, cancel any Work not then performed without any liability to the Contractor, except that there shall be an equitable adjustment between the parties as to any work or materials then in progress. No such cancellation shall relieve either party of their continuing obligations to any work performed hereunder, Subcontractor must assert any claim for monetary adjustment for said changes or cancellation of work under this Agreement in writing within five (5) days from the date the change or cancellation is ordered.

(Ex. 4, ECF No. 267 at 1; ECF No. 313-5 at 16).

         The jury was asked to resolve the following three claims: Bilbro's breach of contract claim against Alpha; Alpha's breach of contract claim against Bilbro; and, if Alpha was found liable to Bilbro, Alpha's claim for indemnity from SCE. The jury was provided instructions, agreed upon by all parties. The relevant instructions for Alpha's breach of contract claim, extra work, and corresponding damages provided:

         INSTRUCTION NO. 28

         BREACH OF CONTRACT (ALPHA against BILBRO)

         Alpha Mechanical brings a claim for breach of contract against Bilbro Construction. To recover damages from Bilbro Construction for breach of contract, Alpha Mechanical must prove by a preponderance of the evidence all of the following:

1. That Alpha Mechanical and Bilbro Construction entered into a contract;
2. That Alpha Mechanical did all, or substantially all, of the significant things that the contract required it to do;
3. That Bilbro Construction did not pay Alpha Mechanical the money owed by Bilbro Construction to Alpha under the contract and/or for additional work required by Bilbro Construction and performed by Alpha Mechanical to address the noise issues on the project;
4. That Alpha Mechanical was harmed; and
5. That Bilbro Construction's breach of contract was a substantial factor in causing Alpha Mechanical's harm.
INSTRUCTION NO. 29
Bilbro Construction contends that Alpha Mechanical did not perform all of the things that it was required to do under the contract, and therefore Bilbro Construction did not have to perform its obligations under the contract. To overcome this ...

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