Opinion
NO. 2018-CA-0686
02-27-2019
HAMP'S CONSTRUCTION, L.L.C. v. 1031 CANAL, L.L.C.
Lloyd N. Shields, Jessica R. Derenbecker, Jeffrey K. Prattini, SHIELDS MOTT L.L.P., 650 Poydras Street, Suite 2600, New Orleans, LA 70130, COUNSEL FOR PLAINTIFF/APPELLEE Jay J. Harris, JAY J. HARRIS, LLC, 30615 Cypress Park Drive, Denham Springs, LA 70726, COUNSEL FOR DEFENDANT/APPELLANT
Lloyd N. Shields, Jessica R. Derenbecker, Jeffrey K. Prattini, SHIELDS MOTT L.L.P., 650 Poydras Street, Suite 2600, New Orleans, LA 70130, COUNSEL FOR PLAINTIFF/APPELLEE
Jay J. Harris, JAY J. HARRIS, LLC, 30615 Cypress Park Drive, Denham Springs, LA 70726, COUNSEL FOR DEFENDANT/APPELLANT
(Court composed of Judge Rosemary Ledet, Judge Sandra Cabrina Jenkins, Judge Dale N. Atkins )
Judge Dale N. Atkins
1031 Canal, L.L.C. ("1031 Canal"), appeals the trial court's April 5, 2018 judgment granting summary judgment in favor of Hamp's Construction, L.L.C. ("Hamp's"). Finding that a question of fact exists regarding whether Hamp's defaulted under the contract and whether such default, if it occurred, triggered a setoff under the contract, we reverse the trial court's judgment granting summary judgment and remand for further proceedings.
Background Facts
1031 Canal is the owner of immovable property located at 1031 Canal Street, New Orleans, Louisiana ("Project Site") on which an abandoned building was located. 1031 Canal, as owner and general contractor, entered into a subcontract with Hamp's obligating Hamp's to perform demolition work at the Project Site. When demolition work was being performed on May 28, 2015, a common wall between the Project Site and a neighboring property, Rainbow Clothing located at 1027 Canal Street ("Rainbow Building"), partially collapsed, causing damage to the common wall and to the Rainbow Building. The cause of the wall collapse is in dispute. At the time that the collapse of the common wall occurred, Hamp's had been paid all but $ 117,040.00 of the original contract price. On June 3, 2015, 1031 Canal sent a "Notice of Breach of the Construction Contract and Notice of Claim for Damages" to Hamp's.
The total subcontract value, including one change order, was $ 427,000.
Subsequently, 1031 Canal refused to pay Hamp's the remaining balance due under the contract, claiming that Hamp's was at fault in the wall collapse, that 1031 Canal incurred damages as a result and was thus entitled to setoff the damages by the amount still owed under the contract. In light of 1031 Canal's failure to pay, Hamp's initiated this lawsuit against 1031 Canal for the $ 117,040.00 contract balance by filing a Petition for Breach of Contract and Damages on August 27, 2015. In response, on June 20, 2016, 1031 Canal brought a reconventional demand against Hamp's and its insurer, Gray Insurance, for 1031 Canal's alleged damages associated with the wall collapse. 1031 Canal also filed third-party demands against the project architect and the project engineer that alleged each was also the cause of the wall collapse.
1031 Canal claims the estimated cost of repair due to the partial wall collapse is $ 756,239.87, based upon a repair estimate attached to its opposition to the motion for summary judgment.
Hamp's filed a motion for summary judgment on August 3, 2017, requesting a judgment against 1031 Canal in the amount of $ 117,040.00, the balance due under the contract. In its response, 1031 Canal pled the affirmative defense of "setoff". The trial court granted the motion for summary judgment and ordered judgment in favor of Hamp's in the amount of $ 117,040.00 plus judicial interest from the date of demand but did not provide written reasons for its ruling.
On appeal, 1031 Canal asserts that the trial court erred in finding there was no genuine issue of material fact despite the factual affidavit and exhibits submitted in opposition to the motion for summary judgment and in failing to apply La. C.C. art. 1901 to deny the motion for summary judgment in light of 1031 Canal's reconventional demand based on setoff and contractual default.
Standard of Review
An appellate court's review of a trial court's ruling on summary judgment is de novo , using the same criteria used by the trial court in deciding whether summary judgment should be granted. Lewis v. Jazz Casino Co., L.L.C. , 2017-0935, p. 5 (La. App. 4 Cir. 4/26/18), 245 So.3d 68, 72, writ denied , 2018-0757 (La. 9/21/18), 252 So.3d 877. With limited exceptions not applicable in this case, the summary judgment procedure is designed to secure the just, speedy, and inexpensive determination of every action. La. C.C.P. art. 966 A (2). "The procedure is favored and shall be construed to accomplish these ends." Id. A summary judgment shall be granted if the pleadings, memoranda, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to material fact, and that the mover is entitled to judgment as a matter of law. La. C.C.P. art. 966 A (3) and (4). Factual inferences reasonably drawn from the evidence must be construed in favor of the party opposing the motion, and all doubts must be resolved in the opponent's favor. Fiveash v. Pat O'Brien's Bar, Inc. , 2015-1230, p. 7 (La. App. 4 Cir. 9/14/16), 201 So.3d 912, 917. In determining whether an issue is genuine, courts cannot consider the merits, make credibility determinations, evaluate testimony, or weigh evidence. Id.
The burden of proof on a motion for summary judgment rests with the mover. La. C.C.P. art. 966 D (1). However, if the mover will not bear the burden of proof at trial on the matter that is before the court on the motion for summary judgment, the mover's burden on the motion requires him only to point out to the court that there is an absence of factual support for one or more elements essential to the adverse party's claim, action, or defense. La. C.C.P. art. 966 D (1). Thereafter, if the adverse party fails to produce factual support sufficient to establish that he will be able to satisfy his evidentiary burden of proof at trial, there is no genuine issue of material fact.
Because Hamp's clearly set forth that it was owed a balance under the subcontract, the burden shifts to 1031 Canal at trial and in a summary judgment to prove the affirmative defense of setoff. La. C.C.P. art. 966 D (1). An affirmative defense is a defense that "raises a new matter, which assuming the allegations in the petition are true, constitutes a defense to the action." Bates v. City of New Orleans, 2013-1153, 2013-1587, p. 10 (La. App. 4 Cir. 3/26/14), 137 So.3d 774, 782. See also Buck's Run Enterprises, Inc. v. Mapp Const., Inc. , 1999-3054, p. 4 (La. App. 1 Cir. 2/16/01), 808 So.2d 428, 431 (holding that "[a] party claiming setoff as an affirmative defense has the burden of proving his claim."). Thus, 1031 Canal bears the burden of proof to establish a genuine issue of material fact such that Hamp's is not entitled to judgment as a matter of law.
Hamp's based its entitlement to summary judgment on the fact that 1031 Canal could not establish it was due liquidated damages as a matter of law pursuant to La. C.C. art. 1893. Hamp's also claimed that the parties expressly excluded setoff for any claims the contractor might have against the subcontractor in Section 2.9 of the subcontract.
A claim is liquidated when the debt is for an amount capable of ascertainment by mere calculation in accordance with accepted legal standards. Am. Bank v. Saxena , 553 So.2d 836, 844 (La. 1989) (citing Sims v. Hays , 521 So.2d 730, 733 (La. App. 2d Cir.1988) ). Thus, a determination as to the liquidity of a claim is an essential prerequisite to deciding whether such a claim is a proper basis for a plea of compensation. Lack of sufficient liquidity and demandability will preclude such a plea. Id. (citing Hartley v. Hartley , 349 So.2d 1258 (La. 1977) ).
La. C.C. art. 1893, entitled "Compensation extinguishes obligations", sets forth the requirements of legal compensation. La. C.C. art. 1893 provides, in pertinent part, that "[c]ompensation takes place by operation of law when two person owe to each other sums of money or quantities of fungible things identical in kind, and these sums or quantities are liquidated and presently due. In such a case, compensation extinguishes both obligations to the extent of the lesser amount."
Section 2.9 of the subcontract, entitled "Offset From Other Projects", would have allowed setoff by the contractor against any sums due to the subcontractor under the subcontract or under any other subcontract between the contractor and the sub-contractor. The provision was stricken from the subcontract by the parties.
In opposing Hamp's motion for summary judgment, 1031 Canal first argues that its right to setoff and compensation is not based on legal compensation but rather on compensation by agreement, as set forth in La. C.C. art. 1901. 1031 Canal asserts that its right to damages and setoff is controlled by the provisions which the parties agreed to in the subcontract. Despite the stricken provision of Section 2.9, 1031 Canal specifically emphasizes the following contractual provisions which would allow setoff or the withholding of payment by 1031 Canal:
La. C.C. art. 1901, entitled "Compensation by agreement", provides that "[c]ompensation of obligations may take place also by agreement of the parties even though the requirements for compensation by operation of law are not met."
Article 2.8 of the Subcontract , provides, in pertinent part:
Withholding Payment - Contractor shall be entitled to withhold payments for (a) equitable value of changes made in Subcontractor's Work that reduces the Subcontract price, (b) amounts withheld by Owner or Principal applicable to Subcontractor's Work, (c) damages incurred through delay by Subcontractor, and (d) damages incurred to remedy a default by Subcontractor. If the amounts for such withholding are in excess of the payments due Subcontractor, then Subcontractor shall promptly pay the total amount of any such excess to Contractor. This remedy shall be in addition to any other remedies provided
for elsewhere in this Subcontract or existing at law or in equity (emphasis added).
Article 6 of the Subcontract , provides, in pertinent part:
TERMINATION FOR DEFAULT
In the event Subcontractor should ... refuse or neglect to prosecute the work properly and diligently, or fail to perform any of the provisions of this Subcontract, Contractor shall notify Subcontractor in writing of the default and, after twenty-four (24) hours Contractor may at its option cease making any further payment to Subcontractor, terminate Subcontractor's right to proceed with all or any part of the Work, take possession thereof and of all materials, equipment and supplies, and complete the terminated Work by such means as Contractor sees fit, at the cost and expense of Subcontractor. In any such event, Contractor may recover from Subcontractor the total amount of any loss or damage incurred as a result of such default, including reasonable attorneys' fees, and deduct any of the foregoing amounts from payments otherwise due or to become due to Subcontractor. If the damages incurred as a result of such default are in excess of the payments due Subcontractor, then Subcontractor or its surety shall promptly pay the total amount of any such excess to Contractor. These remedies for default are in addition to any other rights or remedies of Contractor elsewhere in this Subcontract or existing at law or in equity (emphasis added).
1031 Canal thus asserts that "the provisions of the subcontract clearly authorize and empower 1031 Canal to exercise its right of contractual compensation by agreement against Hamp's in accordance with [La. C.C. art.] 1901without any necessity of establishing the requirements for compensation by operation of law such as a liquidated debt."
However, 1031 Canal's argument is premised on an unproven occurrence: Hamp's default relative to the subcontract. 1031 Canal makes several arguments that Hamp's is in default of the subcontract.
1031 Canal argues that Hamp's was responsible for the common wall collapse because Hamp's was "forcefully and violently" attempting to remove a subsurface structure with the use of a heavy equipment excavator. Hamp's disagrees, claiming that the collapse was the result of the poor condition of the common wall and not as a result of actions taken by Hamp's.
In its opposition to summary judgment, 1031 Canal attached an email from Hamp's project manager, Warren A. Schambeau, Jr., wherein Schambeau reported that the wall collapse occurred "while Hamp's was removing, what I believe was, an abandoned grease trap from beneath the slab." 1031 Canal refutes Hamp's characterization of the common wall as being in poor condition and argues Hamp's would be in default regardless. In its notification to Hamp's that the subcontract had been breached by the manner in which the subsurface structure was removed, 1031 Canal cited Article 3 of the subcontract that states:
Subcontractor represents that it has examined the "Contract Documents" ... has investigated the Work and is familiar with all conditions of the Project affecting the Work, has verified all information furnished by Contractor, and is fully qualified to perform the Work.
1031 Canal also cites to Article 13 of the subcontract, which documents Hamp's Guarantee of Workmanship, as well as to Article 10's Indemnification Clause. The Indemnification Clause provides that Hamp's, as the subcontractor, will "indemnify and hold harmless the owner, Principal and Contractor from all claims, loss, damage, liability, costs and expenses of whatsoever kind or nature arising out of this subcontract..." 1031 Canal contends that Hamp's defaulted on the subcontract in other respects as well, specifically noting Hamp's:
Included in Article 13 is the following obligation:
Subcontractor shall also pay all costs necessary to remove, replace and/or repair any other Work or property which may be damaged in removing, replacing or repairing the Work, and shall reimburse Contractor for any loss or damage sustained by Contractor arising out of the non-conforming or defective Work.
1. Failure to remove all elevators, shafts and related equipment;
2. Failure to remove all structural items at the intersection of the shared wall with extreme caution and care along the shared wall using hand tools in lieu of heavy machinery;
3. Failure to import, compact and grade the necessary fill material on the site with river sand;
4. Failure to leave in place all existing foundation items supporting the shared wall;
5. Failure to remove, replace and repair at its own expense all defective work and non- conforming work, including the
damage caused by Hamp's to the common wall, which fails to comply with the Contract Documents; and
6. Failure to reimburse Contractor for any loss or damage sustained by Contractor arising out of the non-conforming or defective Work.
1031 Canal contends that the unresolved issue of whether a contractual default occurred should have prevented the trial court from granting summary judgment. 1031 Canal cites Buck's Run Enterprises, Inc. v. MAPP Construction. Inc. , 1999-3054 (La. App. 1 Cir. 2/16/01), 808 So.2d 428, a case factually similar to the case sub judice, in support of its position.
The issues regarding setoff and compensation in Buck's Run are virtually identical to those in the case sub judice ; the exception being that the First Circuit allowed for contractual compensation to be applied to two separate projects between the parties rather than setoff related to a single project, as in the present case.
In Buck's Run Enterprises. Inc. , Buck's Run was a subcontractor on several construction projects on which MAPP was the general contractor. Buck's Run filed suit against MAPP claiming MAPP owed it $ 9,323.30 for services provided on the University Club subdivision project. Id. at p. 2, 808 So.2d at 430. MAPP answered and asserted an affirmative defense of setoff. MAPP claimed Buck's Run defaulted on another project, the All Star Ford project, and that the damages resulting from its default on that project exceeded the amount MAPP owed Buck's Run on the University Club project. Id. MAPP then claimed it was entitled to a setoff that would defeat the claim of Buck's Run in its lawsuit. The parties filed cross motions for summary judgment and submitted affidavits and other evidence in support of their motions. Id. Buck's Run argued that setoff was not appropriate, because the amounts claimed by MAPP with regard to the All Star Ford project were not liquidated, but were disputed. Id. MAPP also claimed that a provision in its contract with Buck's Run allowed it to withhold payment on any project if Buck's Run was in default on any other project. Id. at pp. 2-3, 808 So.2d at 430. MAPP urged the court to deny the motion for summary judgment filed by Buck's Run and grant its motion for summary judgment or determine at trial whether the setoff claim in its affirmative defense was sufficient to defeat the claim of Buck's Run. Id. at p. 3, 808 So.2d at 430. After a hearing on the motions, the court denied MAPP's motion and granted summary judgment in favor of Buck's Run, ordering MAPP to pay $ 9,323.30, plus fees, and costs. Id.
On appeal, the First Circuit recognized, as a threshold matter, that even though the amounts claimed by MAPP were not liquidated and thus MAPP was not entitled to a legal setoff, compensation of obligations may take place by agreement of the parties (contractual setoff). Id. at p. 5, 808 So.2d at 432. The court stated:
The evidence before the court included copies of the subcontracts between MAPP and Buck's Run on the University Club project and the All Star Ford project. Both of these contracts included the following language:
"Contractor reserves the right to withhold, as an additional reserve and without limiting its other rights and remedies, an amount sufficient... (e) to secure Contractor with respect to any breach or default by Subcontractor or its affiliates, parent company and subsidiaries under any other agreement."
MAPP also submitted the affidavit of its project manager on the All Star Ford project, Drew Scott, who stated that Buck's Run had failed to complete the work it was supposed to perform on the All Star Ford project, resulting in certain costs to complete the work. According to that affidavit, a partial list of those costs, which did not include delay damages, totaled $ 20,316.54.
* * *
The record also contained copies of pleadings in the other lawsuit between the parties concerning the All Star Ford project. This evidence created an issue of material fact concerning the existence of an obligation on the All Star Ford project that might defeat the Buck's Run claim for the amounts MAPP owed it on the University Club project. This evidence also presented the possibility that, even if the setoff amounts MAPP claimed from
the All Star Ford project were not presently liquidated, the contractual agreement between the parties might allow MAPP to withhold payment to Buck's Run for its work on the University Club project. Although that evidence may not have been sufficient for the court to grant MAPP's motion for summary judgment under either Article 1893 or 1901 of the Louisiana Civil Code, or to judicially determine the setoff under Article 1902, it certainly was sufficient to create doubt about whether Buck's Run was entitled to collect on its claim. Based on the evidence before the trial court, it is not possible to determine that Buck's Run is entitled to judgment as a matter of law. Therefore, its motion for summary judgment should have been denied.
Id. at pp. 6-7, 808 So.2d at 433-34.
Pursuant to Buck's Run, supra , the possibility that contractual provisions in the subcontract would allow setoff to occur coupled with an affidavit that supported a claim of default of the parties' contract is enough to defeat summary judgment. Similar evidence has been presented in the case at bar.
Based upon the foregoing claims of contractual default made by 1031 Canal, any one of which could trigger one of the setoff or withholding of payment provisions in the subcontract, we find that it was error for the trial court to grant Hamp's motion for summary judgment. 1031 Canal has offered sufficient evidence that genuine issues of material fact exist relative to whether a default occurred, which, if proven at trial, could entitle 1031 Canal to setoff. Accordingly, we reverse the trial court's granting of summary judgment in favor of Hamp's and remand the case for further proceedings consistent with this opinion.