United States District Court, District of Columbia
ROSEMARY M. COLLYER, District Judge.
This case involves claims between Window Specialists, Inc. (WSI) and Forney Enterprises, Inc. (FEI). FEI, a subcontractor on an Army project at Fort McNair in Washington, D.C., contracted with WSI for the installation of windows and doors on the project. The Army found deficiencies and when the deficiencies remained uncured, FEI and WSI were terminated. WSI sues for breach of contract and unjust enrichment, claiming that it was wrongfully terminated because the deficiencies were caused by the prime contractor, not WSI. FEI countersues for breach of contract, seeking lost profits.
The parties agree that the Army identified deficiencies with regard to the window installation on the Project; that the deficiencies were not corrected; that the prime contractor terminated FEI; and that FEI terminated WSI. The question of whether FEI or WSI is liable to the other is a matter of dispute. A bench trial was held from July 14 through 21, 2014, and the parties submitted post-trial briefs. Based on the entire record, the Court determines that WSI breached the WSI/FEI Subcontract and thus FEI is excused from payment. Even though WSI breached, FEI will be awarded only nominal damages because it failed to prove lost profits.
I. FINDINGS OF FACT
Based on the entire record, including the credibility of the witnesses, the Court makes the following findings of fact:
A. Contracts for Work on the Project
1. The U.S. Army decided to improve historic homes for officers at Fort McNair in Washington, D.C., namely Quarters 1, 3 through 13, and 15 (the Project). Pl. Ex. 1 (Prime Contract) at 4.
2. On September 22, 2010, the Army hired IIU Consulting Institute, Inc. (IIU) as its general contractor on the Project. Pl. Ex. 1 (Prime Contract). The Army and IIU executed the Prime Contract, which required IIU to provide labor and materials for the installation of windows and doors, for the cost of $1, 678, 889. Id. at 1-2. The Prime Contract noted that the Quarters are "Historic Category III Facilities and exterior repairs must comply with the National Capital Planning Commission requirements." Id. at 4.
3. The Prime Contract required the installation of "window sash units" that "shall be vinyl (PVC) or aluminum wrapped wood" and "jambliner in heavy duty white vinyl." Prime Contract at 4. The Prime Contract required the "installation of new window sashes plumb and square." Id. at 5.
4. The Miller Act, 40 U.S.C. §§ 3131-3134, requires a payment and performance bond on all federal government construction projects costing over $100, 000. IIU applied for a bond with Hanover Insurance Company (Hanover). Pl. Ex. 5 (Application for Bond).
5. IIU asked FEI to assist in obtaining the bond, and FEI agreed to do so for a fee. See Pl. Ex. 2 (Forney Email 10/18/10); Pl. Ex. 16 (Carlson Email 1/10/11) ("FEI provided the bonding... the third week of December.").
6. IIU, as principal, and Hanover, as surety, entered into a bond agreement. See, e.g., Compl. [Dkt. 1], Ex. 1 (Performance Bond 12/17/10). Under the standard terms of such a bond, the principal and the surety agree to be bound jointly and severally. Id.
7. FEI and its President, Keith Forney, were indemnitors on the bond. Tr. 7/21/14 at 49 (Forney).
8. In October 2010, IIU proposed that WSI subcontract for the installation of the windows and doors on the Project for the price of $961, 482. Pl. Ex. 3 (Letter of Intent). A subcontract on these terms was drafted but never executed. Pl. Ex. 4 (Unexecuted Subcontract). The Unexecuted Subcontract parroted the language of the Prime Contract and called for the installation of "window sash units" that "shall be vinyl (PVC) or aluminum wrapped wood" and "jambliner in heavy duty white vinyl." Id. at 2.
9. IIU's President is Frank Ukoh. IIU has been in the construction business since 2001, but it is not a window contractor and most of IIU's past contracts were for lead and asbestos abatement at schools. Tr. 7/17/14 at 4 (Ukoh).
10. WSI is a window installation contractor; it has installed hundreds of thousands of windows in every condition from new construction to retrofitting occupied buildings. Pl. Ex. 27 (Carlson Letter to Ukoh 6/5/11).
11. Robert Carlson, President of WSI, has been in the construction business for 40 years, and has concentrated on the installation of doors and windows for 20 years. Tr. 7/14/14 at 37 (Carlson).
12. WSI's initial bid was for the installation of all vinyl "pocket windows, " also known as "pocket fit" or "double hung" windows. A pocket/double hung window is one that has two sashes that slide up and down in a frame. Tr. 7/14/14 at 38, 39 (Carlson).
13. After WSI's initial bid, the Government Contracting Officer's Technical Representative (COTR) Kevin Fleming, changed the Project requirements from vinyl pocket windows to vinyl-clad wood sash pack windows. Tr. 7/14/14 at 38-40 (Carlson); Tr. 7/16/14 PM at 65, 71 (Fleming).
14. A sash pack window kit usually includes: (1) upper and lower sashes, i.e., the glass that slides up and down; (2) two jambliners, i.e., the track system that mounts to the sides of the existing window frame; (3) a head stop; and (4) a sill dam. Tr. 7/14/14 at 38 (Carlson); Def. Ex. 52 (Donnelly Letter 9/2011) at 4. A sash pack window is a window without a frame. Tr. 7/14/14 at 38 (Carlson).
15. The installation of a sash pack window allows sash replacement while keeping the window framing and exterior casing in place. See New Window Replacement, http://homerenovations.about.com/od/windowtips/qt/sash.replacement kit.htm (last visited Apr. 28, 2015).
16. Mr. Fleming testified he had observed the successful installation of sash pack windows at Ft. Myer, Tr. 7/16/14 at 63 (Fleming), and he wanted to install sash pack windows because it would better preserve the historic look of the Officer Quarters, Tr. 7/16/14 PM at 71 (Fleming).
17. Sash pack windows are more expensive and difficult to install than vinyl pocket windows. Tr. 7/14/14 at 40 (Carlson).
18. Mr. Carlson personally has installed many thousands of windows; hundreds, or even thousands, of the windows were sash packs. Tr. 7/14/14 at 45, 47, 78 (Carlson).
19. However, WSI had never before performed any contract for the installation of sash pack windows at an historic site. Tr. 7/14/14 at 165 (Carlson).
20. On December 21, 2010, WSI increased its price on the contract due to the change in Project requirements, and sent a revised schedule of values to IIU in the amount of $1, 091, 462, which included the purchase of sash pack windows instead of double-hung windows, see Pl. Ex. 11 (Schedule of Values).
21. Mr. Carlson knew that the Quarters where "rather old" and that "an existing perfect [window] opening [was] just not reality." Pl. Ex. 27 (Carlson Letter 6/5/11).
22. There is no evidence that WSI objected to the substitution of sash pack windows or informed the Army, IIU, or FEI that sash pack windows would be problematic or unsuitable for the Project.
23. Before work on the Project could begin, the windows had to be measured and ordered. WSI took field measurements over several days starting November 1, 2010. Tr. 7/14/14 at 37 (Carlson).
24. On November 1, 2010, Mr. Carlson himself visited the Project and instructed his crew on how to measure the windows. Tr. 7/14/14 at 37, 177 (Carlson).
25. Mr. Carlson told WSI Assistant Project Manager Aurelis Garcia to review and confirm the measurements, warning that "[i]f we go to sash pack units, the measurements need to be perfect as there is very little room for error... I'm uncomfortable that there are so many different sizes (well over 200 different sizes)...." Def. Ex. 8 (Carlson Email 12/3/10 and Field Measurements).
26. The windows were not a uniform size. All of the windows had to be "custom made, " and Mr. Carlson fronted money for supplies. Pl. Ex. 21 (Carlson Email 4/20/11).
27. WSI sent the data to a window manufacturer, ABC Manufacturing, Inc. d/b/a Malta Windows & Doors (Malta), for the manufacture of sash pack replacement windows. Tr. 7/14/14 at 44 (Carlson); Pl. Ex. 50 (Malta Invoice).
28. WSI "intentionally order[ed] the windows to the smallest (level) square opening." Def. Ex. 34 (Carlson Email 6/2/11); see also Pl. Ex. 27 (Carlson Letter 6/5/11).
29. Malta's President, Wade Benjamin, testified that the Quarters were so old that no two frames were the same and all of the sash packs had to be ordered undersized. Tr. 7/15/14 PM at 43 (Benjamin).
30. Mr. Carlson believed that he would be able to install windows that would look and function as intended despite the condition of the old window openings. Pl. Ex. 27 (Carlson Letter 6/5/11).
31. On December 14, 2010, IIU subcontracted a portion of its work on the Project to FEI. Pl. Ex. 9 (IIU/FEI Contract). The IIU/FEI Contract required FEI to supply labor, materials, and equipment for the installation of 684 windows and 66 doors on the Project for the price of $1, 225, 542. Id. at 1.
32. On January 12, 2011, FEI entered into a subcontract with WSI whereby WSI agreed to install 684 sash pack windows and 66 doors at Fort McNair for the price of $1, 091, 462. Pl. Ex. 17 (WSI/FEI Subcontract). The WSI/FEI Subcontract provides that "Subcontractor [WSI] shall perform all work and furnish and pay for all supervision, labor, materials, ... tools, equipment, supplies, and anything necessary for the construction and completion of all work described in Exhibit A" and "Forney Enterprises, Inc. (FEI) shall pay Subcontractor for the performance of the Work...." Id.
33. Exhibit A to the WSI/FEI Subcontract defines the Work as replacement of windows and doors on Quarters 1, 3 through 13, and 15 at Ft. McNair, and expressly excludes from the Scope of Work: demolition, cleaning, insulation, patching, painting, repair of existing materials that remain, interior caulking, interior trim, weather stripping on doors, and thresholds for doors. Pl. Ex. 17 (WSI/FEI Subcontract), Ex. A.
34. The WSI/FEI Subcontract includes the following General Provisions pertinent to this case:
Article 2.1 Subcontractor's Investigations and Representations
Subcontractor [WSI] represents that it is fully qualified to perform this Subcontract, and acknowledges that prior to the execution of this Subcontract it has (a) by its own investigation ascertained and fully evaluated (i) the Work required by this Subcontract, (ii) the conditions and difficulties involved in performing the Work, (iii) the obligations of this Subcontract... and (iv) the nature, locality and site of the Work; and (b) verified all information furnished by FEI or others, satisfying itself as to the correctness and accuracy of that information. Any failure by Subcontractor to investigate independently and become full[y] informed will not relieve Subcontractor from its responsibilities hereunder.
Article 2.3 Warranty
2.3.1 Subcontractor warrants to FEI [and] the Owner... that all Work will be of the quality required by the drawings and specifications, free from faults and defects.... Subcontractor warrants that it... will perform [its] work and will... furnish material and equipment in a good and workmanlike matter.
Article 2.4 Subcontractor Liability
2.4.1 Subcontractor hereby assumes the entire responsibility and liability for all Work, supervision, labor and materials provided hereunder... until final acceptance of the Work by the Owner, and shall at all times prosecute the Work in a good and workmanlike manner, with diligence and continuity....
2.13 Inspection and Acceptance
2.13.1 Subcontractor shall provide appropriate facilities at all reasonable times for inspection, by FEI or the Owner, of the Work and materials.... Subcontractor shall promptly replace or correct any Work or materials which FEI or the Owner shall reject as failing to conform with the requirements of this Subcontract.
5.1 Schedule of Values
5.1.1 Before the first application for payment, Subcontractor must submit to FEI for its approval an itemized schedule of values... 5.2.1 This schedule... will be used only as a basis of Subcontractor's applications for payment.
5.2 Application for Payment
5.2.4 No partial payment shall be due Subcontractor unless and until FEI receives payment from Owner and provided that the Work has been approved by FEI and the Owner and provided that the Subcontractor is in compliance with the terms of its Subcontract.
5.3 Payments Withheld
FEI is not obligated to make any payment to Subcontractor under the Subcontract if... (a) Subcontractor has failed to perform its obligations under the Subcontract or otherwise is in default....
Article 9.1 Subcontractor's Failure to Perform; Termination for Default
9.1.1 If, in the opinion of FEI, Subcontractor shall at any time (a) refuse or fail to provide sufficient properly skilled workers, adequate supervision or materials of the proper quality, (b) fail in any material respect to prosecute the Work according to FEI's current schedule, (c) cause, by any action or omission, the stoppage or delay of or interference with the Work of FEI or of any other contractor or subcontractor, (d) fail to comply with any provision of this Subcontract or the Contract Documents, ... then, after serving three (3) days' written notice, unless the condition specified in such notice shall have been eliminated within such three (3) days, FEI, at its option, without voiding the other provisions of this Subcontract and without notice to the sureties and without prejudice to any other rights of FEI under the law, may (i) take such steps as are necessary to overcome the condition, in which case the Subcontractor shall be liable to FEI for the cost thereof, (ii) terminate for default Subcontractor's performance of all or a part of the Subcontract Work, or (iii) obtain specific performance or interlocutory mandatory injunctive relief requiring performance of Subcontractor's obligations hereunder (it being agreed by Subcontractor that such relief may be necessary to avoid irreparable harm to FEI and/or the Owner).
9.1.2 In the event of termination for default, FEI may, at its option, (a) enter on the premises and take possession, for the purpose of completing the Work, of all materials and jobsite equipment of Subcontractor, (b) take assignment of any or all of Subcontractor's subcontracts, and/or (c) either itself or through others complete the Work by whatever method FEI may deem expedient. In case of termination for default, Subcontractor shall not be entitled to receive any further payment until the Work shall be fully completed and accepted by the Owner and payment in full made by the Owner. At such time, if the unpaid balance of the price to be paid shall exceed the expense incurred by FEI, including overhead and profit, such excess shall be paid by FEI to Subcontractor. If such amount shall exceed such unpaid balance, the Subcontractor shall pay FEI the difference on demand.
Article 13.3 Interface and Coordination
13.3.1 Subcontractor, as well as its sub-subcontractors and trades, shall cooperate and fully coordinate their Work with one another and all other subcontractors for the purpose of securing a complete Project as required by the project schedule.
13.3.2 Subcontractor shall review the critical dimensions and elevations of its Work, and verify the previous Work as to its relationship to the Subcontractor's Work. The Subcontractor shall promptly submit a written statement to FEI noting any discrepancies or unacceptable conditions prior to commencing with the Work of this Subcontract. Do not attach to or cover over any material which is not properly installed.
35. FEI's role on the Project was to process payments. FEI did not supply labor or materials. It did not provide an on-site supervisor or otherwise oversee the Project. This was clear from the beginning. FEI President Keith Forney stated in an email to IIU President Frank Ukoh, "Please understand that we are not really managing the comings and goings of this deal, if you need something from Bob [Carlson] I suggest you call him and tell and vice versa... All we need [is] to be [copied] on all transmissions, thanks." Def. Ex. 10 (Forney Email 12/20/10).
36. Similarly, Mr. Forney emailed Messrs. Carlson and Ukoh:
So we are crystal clear, the only thing FEI is doing on this deal after creating the subcontracts is processing payments so for all practical purposes you should consider FEI as an invisible member of this team and as such we are not responsible for the resolution of any issue, either you or Frank is responsible for this entire contract.
Pl. Ex. 14 (Forney Email 12/23/10).
37. Mr. Ukoh understood that FEI's role was to process payments, and he told Mr. Carlson that all invoices should be sent to FEI. Pl. Ex. 16 (Ukoh Email 1/10/11).
B. Work on the Project and Deficiencies
38. IIU was responsible for the preparation of the window openings. It was required to do the "demolition, " i.e., removal of the old windows, as well as trim, caulking and painting. Tr. 7/17/14 at 125 (Ukoh); Pl. Ex. 23 (Purvis Email 4/25/11); Pl. Ex. 25 (Ukoh Email 5/20/11).
39. Greg Purvis was the Project Manager for IIU when the work started in April 2011; by June 21, 2011, he had been replaced. Tr. 7/14/14 PM at 102 (Witthoff).
40. WSI was responsible for the installation of new sash pack windows after the old windows were removed. Pl. Ex. 17 (WSI/FEI Subcontract).
41. WSI's Field Operations Manager Greg Jones managed WSI's work on the Project, and WSI's Site Superintendent Mark Witthoff was on the Project every day. Tr. 7/14/14 at 14 (Carlson).
42. Prior to starting work on the Project, on February 1, 2011 WSI prepared a mock up window installation at Ft. McNair. There were some concerns with the first mockup, see Def. Ex. 16 (Purvis Email 2/2/11), but WSI addressed the issues and, on March 9, 2011, Mr. Fleming approved the second mock up. Pl. Ex. 19 (Cheairs Email 3/8/11); Pl. Ex. 20 (Purvis Email 3/9/11)
43. On April 25, 2011, work began on the Project; IIU began removing the old windows from Quarters 4. Pl. 23 (Purvis Email 4/25/11). The next day, WSI began to install the window sash packs. Id.
44. Officers and some of their families continued to live in the Quarters while the windows were replaced. As a result, Mr. Fleming required that some of the old windows be demolished from the outside causing the removal of exterior stops which had to be reinstalled prior to the installation of the new windows. Pl. Ex. 25 (Carlson Email 5/20/15).
45. IIU was slow to trim the newly installed windows. On May 5, 2011, after WSI had installed about 100 windows, IIU had not yet trimmed any of them. Pl. Ex. 24 (Carlson Email 5/5/11).
46. After WSI had installed 100 sash kit windows in Quarters 1 and 4, the Army informed its prime contractor, IIU, that there were deficiencies in the work. Mr. Ukoh relayed the message to Mr. Carlson:
I just spoke to Kevin Fleming. He is not happy at all and he made it known. First he said that the quality of window material is inferior. He said that the windows are not able to open and close freely. That there are gaps everywhere (Greg's Problem with Trimming). That he had ordered the work stopped and the two quarters finished. The windows have to be able to open and close freely. He said that he had similar windows installed at Ft. Myer and there were no problems. He said that he want[s] to have a walk-through the two quarters when they are finished before he can approve payment for invoice submitted or else we have to start from the beginning. The walk-through ...