Redondo Construction Corp. v. Puerto Rico Highway and Transportation Authority (In re Redondo Construction Corp.)
- Summarized by Hale Lake , Hinshaw & Culbertson LLP
- 12 years 8 months ago
- Citation:
- Redondo Constr. Corp. v. Puerto Rico Highway & Transp. Auth. (In re Redondo Constr. Corp.), No. 11-1614 (1st Cir. May 11, 2012)
- Tag(s):
-
- Ruling:
- The First Circuit affirmed in part and remanded in part the decision of the Bankruptcy Court, which was affirmed by the District Court (D. P.R.). On appeal, the Puerto Rico Highway & Transportation Authority (“Authority”) set forth four issues to be resolved by the First Circuit.
On the issue of whether the Debtor lacked standing to assert subcontractor claims, the First Circuit held that this argument was unpreserved as it was raised for the first time before the District Court. The First Circuit concluded that law-based arguments, like fact-based arguments, must first be raised in the trial court (with certain exceptions) and the failure to do so results in a forfeiture.
In response to the Authority’s assertion that the Debtor waived its claims for compensation because it did not provide written notice, the First Circuit affirmed the Bankruptcy Court ruling which found that there was no written notice, but the Authority received actual notice. In upholding the Bankruptcy Court ruling, the First Circuit stated that strict conformity with a contract’s written notice provision is not required as long as the counter-party receives substantially the same information through actual notice and suffers no prejudice.
The Authority also argued that the Bankruptcy Court incorrectly awarded the Debtor extended overhead damages and, in the alternative, miscalculated those damages which compensates a contractor for unabsorbed home office expenses that accrue during a delay caused by the owner. The First Circuit disagreed with the Bankruptcy Court’s employment of the Eichleay formula to calculate damages as it used that formula across the board, even though it found at least some of the project delays were attributable to extra work that the Debtor was already compensated. The First Circuit remanded the issue back to the Bankruptcy Court to permit recalculation of the award and to use a percentage of direct cost approach where applicable and to use the Eichleay formula only in connection with work stoppages and delays (if any).
On the issue of the award of prejudgment interest, the First Circuit found that the argument was preserved as it was raised in the Rule 59(e) motion. However, the First Circuit disagreed with the award of prejudgment interest and the Debtor’s claimed basis for that award. The First Circuit found that where state law claims are adjudicated by federal courts, prejudgment interest is a matter of state law. Under Puerto Rico law, the parties could have adopted any measure of prejudgment interest but did not. The Debtor’s reliance on 41 U.S.C. § 7109(a)(1) was inapplicable as that section only applies when a federal government is a party to a contract (which was not the case here). The First Circuit also found that Puerto Rico Rule of Civil Procedure 44.3(b) was also inapplicable in cases where the Commonwealth of Puerto Rico or one of its agencies was a defendant. The First Circuit remanded the issue to the District Court with instructions to vacate and return the matter to the Bankruptcy Court to determine if prejudgment interest is appropriate, under what rate and for what periods.
- Procedural context:
- The Debtor filed a petition for relief under Chapter 11 and commenced three adversary proceedings against Authority. All three adversary proceedings, which involved discrete claims of the Debtor against the Authority seeking certain amounts allegedly due to the Debtor with respect to particular construction projects, were tried in the Bankruptcy Court. With the consent of the parties, the Bankruptcy Court issued a final judgment awarding the Debtor $12,000,000.00 in damages, plus pre-judgment interest. The District Court affirmed. All three adversary proceedings were consolidated into a single appeal before the First Circuit, who affirmed in part and remanded in part back to the Bankruptcy Court for further determination on the issues of (1) the calculation of extended overhead damages; and (2) the award of prejudgment interest.
- Facts:
- The Debtor, a construction company, entered into contracts with the Authority for certain projects. In the contracts, the Authority retained the right to modify plans and specifications and if that occurred, after providing written notice to the Authority, the Debtor could seek (under certain circumstances) extra compensation in certain respects. Each of the three projects encountered unanticipated problems, substantial delays, the Debtor was required to perform extra work and costs went up. The Debtor completed all three projects and submitted claims for additional amounts allegedly owed under the contracts. Before resolution of its claims, the Debtor filed for bankruptcy.
- Judge(s):
- Selya, Lipez, Lynch, C.J
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