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Philadelphia Indemnity Insurance Co. v. Lend Lease U.S. Construction, Inc.

United States District Court, District of Columbia

October 11, 2017

PHILADELPHIA INDEMNITY INSURANCE COMPANY, A/S/O 1441 RHODE ISLAND AVENUE CONDOMINIUM ASSOCIATION, Plaintiff,
v.
LEND LEASE U.S. CONSTRUCTION, INC., Defendant.

          MEMORANDUM OPINION

          Emmet G. Sullivan, United States District Judge.

         In January 2014, a water sprinkler burst inside the condominium property located at 1441 Rhode Island Avenue, N.W. in the District of Columbia. The insurer of the 1441 Rhode Island Avenue Condominium Association ("Association"), plaintiff Philadelphia Indemnity Insurance Company ("Philadelphia Indemnity"), compensated the Association for its losses. Philadelphia Indemnity, as subrogee of the Association, then filed this action against defendant Lend Lease (U.S.) Construction, Inc. ("Lend Lease") for negligence due to its alleged faulty construction of the condominium building.

         On March 18, 2016, the Court ordered limited discovery on the question of whether the Association should be deemed a successor of the building's original owner, Fairfield D.C. Limited Partnership ("Fairfield"). See Philadelphia Indem. Ins. Co. v. Lend Lease (U.S.) Constr., Inc., 170 F.Supp.3d 190, 194 (D.D.C. 2016) ("March 18 Order"). The parties subsequently engaged in discovery on this limited issue. Lend Lease now moves for summary judgment on the ground that Philadelphia Indemnity's insured - the Association - is a successor of Fairfield, and therefore, Philadelphia Indemnity's action is barred by the waiver-of-subrogation clause contained in the contract between Lend Lease and Fairfield. See generally Def.'s Mot. for Summ. J., ECF No. 22. As set forth below, because a genuine dispute of material fact remains as to whether the Association is a successor to Fairfield, Lend Lease's motion for summary judgment is DENIED. I. BACKGROUND The following facts are undisputed unless otherwise noted.[1]

         A. The Contract

         On June 19, 2002, Lend Lease[2] entered into a contract with Fairfield to construct a nine-story apartment building and refurbish an adjacent townhouse located at 1441 Rhode Island Avenue, NW. See Def.'s Mot. for Summ. J. Ex. A, Standard Form Agreement Between Owner and Contractor ("Standard Form Agreement") and General Conditions of the Contract for Construction ("General Conditions Contract") (collectively, "Contract"), ECF No. 22-3; Def.'s Statement of Material Facts ("Def.'s SMF") ¶ 1, ECF No. 22; Pl.'s Opp. to Def.'s Mot. for Summ. J. ("Pl.'s Opp.") at 2, ECF No. 23.

         The General Conditions Contract contains a waiver of subrogation clause that provides that the Owner and Lend Lease "waive all rights" against one another "for damages caused by fire or other causes of loss to the extent covered by property insurance." General Conditions Contract ¶ 11.4.7. The General Conditions Contract also specifies that the waiver-of-subrogation applies to insurance policies purchased after the construction period. Id. ¶ 11.4.5. Finally, the General Conditions Contract includes a clause expressly stating that the contract "shall not be construed to create a contractual relationship of any kind . . . between any persons or entities other than the Owner and Contractor." Id. § 1.1.2. It creates an exception to this provision through the "Successors and Assigns" provision that states:

The Owner and Contractor respectively bind themselves, their partners, successors, assigns and legal representatives to the other party hereto and to partners, successors, assigns and legal representatives of such other party in respect to covenants, agreements and obligations contained in the Contract Documents.

         General Conditions Contract § 13.2.1. The first page of the Standard Form Agreement identifies Fairfield as the "Owner." Standard Form Agreement at 1.

         B. Sale of Property to 1441 LLC and Completion of Construction

         In 2003, "about three quarters of the way into the project, " Fairfield informed Lend Lease that it intended to sell the property to 1441 Rhode Island, LLC ("1441 LLC"), a limited liability company formed by Neil Gehani, Robert Berry, and Enrico Plati for the purpose of purchasing the property. Def.'s SMF ¶¶ 5-6, 8; Pl.'s Opp. at 2; Def.'s Mot. for Summ. J. Ex. B, Deposition of Kenneth O'Grodnick ("O'Grodnick Dep.") 13:15-20, ECF No. 22-4.

         Fairfield and 1441 LLC entered into the initial Purchase and Sale Agreement on September 12, 2003. See Def.'s SMF ¶ 8; Pl.'s Opp. at 5. There is no evidence that any of the members of 1441 LLC received a copy of the Contract between Fairfield and Lend Lease either prior to or after the sale. See Pl.'s Opp. Ex. 6, Deposition of Robert Berry ("Pl.'s Berry Dep.") 114:19-22, ECF No. 23-6; Pl.'s Opp. Ex. 9, Deposition of Neil Gehani 40:22-41:2, 42:5-6, ECF No. 23-9; Def.'s Mot. for Summ. J. Ex. R, Deposition of Lawrence Bogard 17:11-17, ECF No. 22-20.

         Fairfield and 1441 LLC closed on the property at the end of February 2004. See Def.'s SMF ¶ 9 (stating that property closing occurred on February 28, 2004); Pl.'s Opp. at 4 (stating that 1441 LLC became the deeded owner of the property on February 26, 2004). 1441 LLC's involvement with the property began prior to closing, when construction was "nearly complete." See Def.'s SMF ¶ 10. The parties dispute the level of involvement 1441 LLC had in the property during this period. According to plaintiff, 1441 LLC's involvement was "limited" to exercising "what ever rights Fairfield and Defendant saw fit to grant [it], " which only included participation in the "punch list process"[3] and nothing more. Pl.'s Opp. at 10-11. Lend Lease, on the other hand, contends that 1441 LLC took an "active role" in inspecting the property "in an effort to identify any 'imperfections' it wanted Lend Lease to fix." Def.'s SMF ¶¶ 9, 12-18. For example, according to Lend Lease, as part of the punch-list process, a representative from 1441 LLC inspected each of the 157 condominium units in the building and, together with a representative from Fairfield, signed a "New Construction Interior Acceptance Letter" to confirm inspection and note any outstanding deficiencies. Def.'s SMF ¶¶ 12-18.

         The Contract included a one-year warranty that was made to Fairfield. Def.'s SMF ¶ 25. Fairfield subsequently assigned its warranty rights to 1441 LLC. Id. ¶ 26; Pl.'s Opp. at 11 (agreeing that "1441 LLC acquired Fairfield's one-year warranty from [Lend Lease] by assignment"). The parties dispute the mechanism through which that one-year warranty was assigned. Plaintiff points to a copy of an agreement titled Assignment of Warranties and Other Contractual Rights ("Assignment Agreement"). Pl.'s Opp. at 11 (citing Def.'s Mot. for Summ. J. Ex. E, ECF No. 22-7). Lend Lease asserts that the assignment of warranty rights was made through a Public Offering Statement issued in connection with forming the condominium. Def.'s SMF ¶ 26.

         The one-year warranty provision in the Contract obligated Lend Lease to "require each Subcontractor to assume the obligations [of the one-year warranty] at Subcontractor's sole cost and expense with respect to work performed by each Subcontractor." General Conditions Contract § 12.2.2.1. Because 1441 LLC was in the process of purchasing the building, all of Lend Lease's subcontractors issued their standard one-year warranties to 1441 LLC instead of Fairfield. Def.'s SMF ¶ 28; Pl.'s Opp. at 11 (acknowledging that, "between December 18, 2003 and May 5, 2004, subcontractors issued one-year warranties on Defendant form warranties listing the Property owner as B&P Development, LLC" and that "B&P Development, LLC is a place holder for 1441 LLC"). In addition, 1441 LLC paid Lend Lease $40, 846.71 for an extended warranty from each subcontractor. Def.'s SMF ¶ 30; Pl.'s Opp. at 5 ("Prior to the expiration of the one-year warranties under the contract between Fairfield and Defendant, 1441 LLC purchased an extended warranty on April 14, 2004.").

         On April 9, 2004, Fairfield made the final payment for under the Contract to Lend Lease. Def.'s SMF ¶¶ 32-33; Pl.'s Opp. at 5.

         C. Formation of the Condominium Association and Dissolution of 1441 LLC

         In March 2004, 1441 LLC filed a Condominium Declaration that ultimately formed the 1441 Rhode Island Avenue Condominium and the related Condominium Association. Def.'s SMF ¶ 34; Pl.'s Opp. at 6. The Condominium Bylaws were also filed at this time. Pl.'s Opp. at 2. The Declaration and Bylaws together "conveyed all of 1441 LLC's rights and responsibilities to the Unit Owners Association." Id. Subsequently, the Association purchased property-damage insurance from plaintiff Philadelphia Indemnity. Id. at 2-3.

         Both Mr. Gehani and Mr. Berry purchased condominium units in the building and, when the Association created a Board in July 2004, Mr. Gehani was elected as one of its five founding members. Def.'s SMF ¶¶ 35-36; Pl.'s Opp. at 6. According to the Association's representative, Mr. Gehani was elected in part because the Association thought it useful to have someone associated with 1441 LLC on the Board. Def.'s SMF ¶ 37; Pl.'s Opp. at 6 (conceding there was managerial overlap between 1441 LLC and the Association, but characterizing that overlap as "deminimis"). After Mr. Gehani sold his unit and resigned from the Board in the spring of 2006, he was immediately replaced by Mr. Berry, who served on the Board until June 2010. Def.'s SMF ¶¶ 36-39.

         Because 1441 LLC had been created for the purpose of marketing, selling, and delivering the condominium units and then transitioning the property - and because those condominiums were sold "very, very quickly" - 1441 LLC's business was wrapped up by 2005. Def.'s SMF ¶¶ 55-56; Def.'s Mot. for Summ. J. Ex. D, Deposition of Neil Gehani 58:20-59:20, ECF No. 22-6. By January 28, 2006, 1441 LLC had been involuntarily dissolved. Def.'s SMF ¶ 56.

         D. The Association's Management of the Building

         As a member of the Association's Board, Mr. Berry served as the "middle man or intermediary" between the Board and Lend Lease when repairs needed to be made in accordance with the warranties. Def.'s SMF ¶ 40. In so doing, Mr. Berry testified that he sometimes acted on behalf of 1441 LLC and at other times acted on behalf of the Board. Id. Indeed, even in 2009 - several years after 1441 LLC had been dissolved - Mr. Berry continued to communicate with Lend Lease and its subcontractors on behalf of both the Board and 1441 LLC. Id. ¶¶ 49-50.

         Within one year of completion of construction, three leaks were found in the building. Id. ¶ 41. In each of those instances, Mr. Berry requested repairs in accordance with the warranties assigned to or purchased by 1441 LLC, and Lend Lease agreed to coordinate and oversee the repair work done by its subcontractors. Id. ¶ 42. In each instance, neither 1441 LLC nor the Association paid for any of the repair work. Id. Likewise, when additional repair work was required in 2005 and 2006 with respect to water heaters and water pumps, Mr. Berry contacted Lend Lease and its subcontractors who addressed the problems in accordance with the extended warranties purchased by 1441 LLC. Id. ¶¶ 43-46.

         In January 2014, a water sprinkler line burst on the property, allegedly causing water to flow into multiple units and the common area. See Complaint ¶¶ 7-11. According to an engineer hired by Philadelphia Indemnity to examine the site, the water intrusion stemmed "from inadequate insulation surrounding the sprinkler system pipe and/or other protective devices to maintain the temperature above freezing." Id. ¶ 9. As a result of the burst pipe, the Association incurred losses in the amount of $107, 552.74, which were paid by Philadelphia Indemnity. Id. ¶ 11.

         E. The ...


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