Opinion ID: 170933
Heading Depth: 1
Heading Rank: 7

Heading: r.n. robinson & son and fireman's fund

Text: MK makes three arguments challenging the judgment against it with respect to Robinson and Fireman's Fund. First, it argues that GIT cannot recover any damages for its settlement with Robinson because it never incurred those costs. Second, it argues even if those damages were incurred, the jury improperly passed through consequential damages to MK, which is prohibited by the FAR. Third, it argues Fireman's Fund is not a subcontractor and thus costs associated with the Fireman's Fund settlement are not recoverable. These arguments fail.
The jury awarded GIT damages for the cost of settling with its subcontractors. It also awarded damages for the accounting, legal, clerical and other expenses associated with these settlements. In 1999, Robinson sued GIT and obtained a judgment in the amount of $4,699,674 (Robinson Judgment). [22] GIT's surety, Fireman's Fund, paid Robinson $3,200,000. Robinson later filed a claim in GIT's bankruptcy case for $3,805,866. GIT asked the jury to award $7,005,886 plus overhead, profit, and bond costs for its settlement with Robinson. MK filed a Rule 50(a) motion requesting judgment as a matter of law as to GIT's claims regarding the Robinson Judgment. The district court denied that motion. The jury awarded $5,831,485 for the settlement with Robinson and $715,451 for accounting, legal, and clerical expenses associated with Robinson's termination and settlement. Following the verdict, MK filed a Rule 50(b) motion, or alternatively, requested a remittitur. The court denied the motion. On appeal, MK claims as a matter of law, judgment should be entered for MK on all claims arising out of the Robinson Judgment. MK argues GIT has no obligation to pay Robinson or Fireman's Fund, and thus, it cannot recover from MK any sums related to the Robinson Judgment. Further, it states GIT has not incurred any costs associated with the Robinson Judgment. This argument mischaracterizes the procedural history of this case and the law. Robinson's and Fireman's Fund's claims against GIT were discharged in GIT's bankruptcy proceedings. A bankruptcy discharge operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover, or offset any such debt as a personal liability of the debtor whether or not discharge of such debt is waived. 11 U.S.C. § 524(a)(2); see also 11 U.S.C. § 1141(d)(1) (providing that a Chapter 11 reorganization discharges debtor from any debt arising before the date reorganization). As part of GIT's reorganization, however, Robinson's claims against GIT were discharged in exchange for a percentage of GIT's claim against MK. Thus, GIT has incurred a cost and obligation to Robinson. See Morrison Knudsen I, 175 F.3d at 1250 (explaining that payment of a settlement is not a prerequisite to incurring a cost). This obligation is still in effect today. Although GIT's obligations to Robinson and Fireman's Fund are contingent on the outcome of this litigation, that contingency has in fact occurred. GIT was awarded $5,831,485 for the costs associated with Robinson. Per the agreement, the proceeds will be distributed to Fireman's Fund to compensate it for the $3.2 million it paid to Robinson to satisfy the Robinson Judgment and to Robinson itself for amounts it has still not been compensated. Thus, the district court did not err in denying MK's motion for judgment as a matter of law.
Next, MK argues the Robinson Judgment should be reduced, as it contains substantial amounts representing consequential damages, which GIT cannot recover from MK. It argues GIT was only entitled to recover from MK the cost of GIT's settlements with construction subcontractors for actual work in place at the job site as of the termination date. This contention is without merit and GIT was entitled to recover its costs of settlement with Robinson. Consequential and anticipatory damages are not recoverable under a termination-for-convenience paradigm. 48 C.F.R. 49.201-202; see also Century Marine Inc. v. United States, 153 F.3d 225, 230 (5th Cir.1998). Where a subcontractor fails to include a termination-for-convenience clause in its contracts with other subcontractors, he may become liable for anticipatory or consequential damages. If a jury awards such damages, they cannot be passed through to the government or, in this case, MK. See 48 C.F.R. § 49.108-2(b)(2) (The failure of a prime contractor to include an appropriate termination clause in any subcontract, or to exercise the clause rights, shall not ... [i]ncrease the obligation of the Government beyond what it would have been if the subcontract had contained an appropriate clause.). Where, however, the contractor (here, GIT) has made a reasonable effort to include in the subcontract a termination clause excluding the payment of anticipatory profits and consequential damages, all reasonable costs of settling with the subcontractor are recoverable. Id. § 49.108-5(a)(1)-(2). In other words, GIT can pass through its costs of settling with Robinson to MK, provided GIT included the appropriate termination clause in its contract with Robinson. The Robinson Judgment included $2,999,862 for Business Impairment Damages, which MK claims constitute consequential damages. The evidence shows, however, that the GIT-Robinson subcontract included a clause, incorporating all of the GIT-MK terms and thereby complying with 48 C.F.R. 49.108-5(a)(1)-(2). [23] GIT, therefore, protected itself against consequential damages. The jury was instructed to evaluate the Robinson Judgment for factual compliance with the limitations of 48 C.F.R. § 49.108-2. Therefore, the jury's award does not violate federal regulations and is supported by the evidence.
The jury awarded GIT $51,719 for its [a]ccounting, legal, clerical costs and other expenses associated with the termination of, and settlement with the following lower-tier subcontractors: ... Fireman's Fund. MK filed a Rule 59 motion to amend the judgment and eliminate the $51,719 award related to GIT's settlement with Fireman's Fund. The district court denied the motion. MK argues that the jury improperly classified Fireman's Fund, GIT's surety, as a subcontractor. Although GIT is entitled to recover its reasonable costs for settling with subcontractors, MK asserts Fireman's Fund was a bonding company, not a subcontractor. MK, however, fundamentally mischaracterizes this award. Fireman's Fund, in acting as a surety, incurred legal costs associated with GIT's settlement with its subcontractors, including Robinson, Keers Environmental, and Bogue Construction. GIT was liable to Fireman's Fund for the cost of these legal fees. Although the jury verdict appears to classify Fireman's Fund as a subcontractor, the jury was in fact awarding GIT damages incurred in settling with its subcontractors. These costs are quintessential damages recoverable under the FAR. 48 C.F.R. § 52.249-2(g)(3)(i)-(ii) (stating under a termination for convenience, contractor is entitled to recover the reasonable costs of settlement, including [a]ccounting, legal, clerical, and other expenses reasonably necessary for the preparation of termination settlement proposals and supporting data and for the termination and settlement of subcontracts). MK also erroneously claims GIT's obligations to Fireman's Fund were discharged in GIT's bankruptcy. Fireman's Fund, like Robinson, entered into an agreement exchanging its claims against GIT for a percentage of the award in this litigation. Thus, for the reasons stated above, MK's challenge is without merit.