February 6, 2020

Contractor’s Claim for Interest on Subcontractor’s Defective Work Claim Gains Mixed Results

By: John J. Gazzola, Associate, Pepper Hamilton LLP

Skanska USA Bldg., Inc. v. J.D. Long Masonry, Inc., No. SAG-16-933, 2019 BL 336852, 2019 US Dist Lexis 152787 (D. Md. Sept. 9, 2019)

This case concerns calculation of a damages award to a general contractor, Skanska USA Building, Inc., on its claim for breach of contract against its masonry subcontractor, J.D. Long Masonry, Inc., arising from Long’s faulty construction of a masonry façade at a medical research facility in Baltimore. When the façade collapsed and Long failed to repair it, Skanska hired a replacement subcontractor, C.A. Lindman, to remediate Long’s defective work and filed suit against Long to recover the resulting damages. After the court granted Skanska’s motion for summary judgment as to liability, Skanska moved for summary judgment on the issue of damages, relying on the indemnification provision of the subcontract to seek compensatory damages, pre- and post-judgment interest, and litigation fees. In the subcontract, Long agreed to indemnify and hold Skanska harmless from all claims, losses, costs and expenses, including attorneys’ fees, arising before or after completion of Long’s work, caused by, arising out of, resulting from, or occurring in connection with Long’s performance of the work or breach of the subcontract.

The court first applied the terms of this provision to award Skanska compensatory damages, holding that Skanska was, as a matter of law, entitled to recover the amount of the Lindman subcontract and general conditions incurred to supervise remediation of Long’s work. The court, however, denied Skanska’s claim for pre-judgment interest on the entirety of these damages. Skanska asserted that it was entitled to pre-judgment interest on the full award, calculated from the date on which it first paid Lindman. The court disagreed, explaining that, under Maryland law, a claimant is entitled to an award of pre-judgment interest as of right only when the amount due is certain, definite and liquidated by a specific date prior to judgment. The court reasoned that, because much of the Lindman subcontract value was composed of later-executed change orders, an award of pre-judgment interest could not be uniformly calculated back to the date of Skanska’s first payment to Lindman. And moreover, because Skanska continued to withhold sums due to Lindman pending resolution of certain issues, awarding Skanska pre-judgment interest on amounts it had not yet paid would result in a “windfall” to Skanska because there was no “use of income” loss to be compensated.

The court also refused to award pre-judgment interest on Skanska’s overhead and supervisory costs, on grounds that there was no fixed, certain date on which Skanska’s claim to them became liquidated and that these damages were actually composed of costs that Skanska would have incurred regardless of Long’s beach. As such, the court awarded Skanska pre-judgment interest only on amounts actually paid to Lindman and on a “check by check” basis, or from the particular date on which each such payment was made.

Next, the court awarded Skanska its attorneys’ fees, concluding that the subcontract’s indemnification provision expressly provided for such an award because it tied payment of such fees to an action for breach and indicated that Long would indemnify Skanska for fees incurred in a suit between them. The court denied Long’s request for a reduction in the award, noting that Long’s complained-of delays arose from Skanska’s need to investigate and repair Long’s defective work in order to quantify its damages, efforts that did not “unreasonably balloon Skanska’s legal fees.”

Finally, applying federal law, the court awarded post-judgment interest on the total judgment entered against Long, calculated from the date the judgment was entered.

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