Court Opinion

ID: 4666644
Source: CourtListenerOpinion
Date Created: 2021-03-10 21:03:06.898742+00
Date Added: 2024-06-11T08:02:50.888368
License: Public Domain

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE

IRON HILL BREWERY OF REHOBOTH                      )
BEACH, LLC, a Delaware Limited Liability           )
Company,                                           )
                                                   )
                Plaintiff,                         )   C.A. No. N18C-12-100 MMJ
                                                   )
      v.                                           )
                                                   )
COASTAL STATION DEVELOPMENT                        )
CO., LLC, a Delaware Limited Liability             )
Company Assignee of COASTAL                        )
STATION, LLC, a Delaware Limited                   )
Liability Company,                                 )
                                                   )
                 Defendant.                        )
                                                   )
COASTAL STATION DEVELOPMENT                        )
CO., LLC, a Delaware Limited Liability             )
Company,                                           )
                                                   )
                 Third-Party Plaintiff,            )
                                                   )
           v.                                      )
                                                   )
IRON BREWERY, LLC, a Delaware                      )
Limited Liability Company,                         )
                                                   )
                 Third-Party Defendant.            )

                               Submitted: December 23, 2020
                                 Decided: March 10, 2021

                             DECISION FOLLOWING TRIAL
Adam L. Balick, Esq., Melony Anderson, Esq., Balick & Balick, LLC,
Wilmington, Delaware, Attorneys for Plaintiff.

Charles J. Brown, III, Esq., Gellert Scali Busenkell & Brown, LLC, Wilmington,
Delaware, Attorney for Defendant.

JOHNSTON, J.

                                       2
                           FACTUAL BACKGROUND

      This breach of contract case stems from a commercial lease (the “Lease”).

Defendant Coastal Station Development Co. (“Coastal Station”) is the landlord.

Plaintiff Iron Hill Brewery of Rehoboth Beach, LLC (“Iron Hill”) is the tenant.

      The purpose of the Lease was development of a property to house an Iron Hill

Brewery restaurant. Coastal Station agreed to provide Iron Hill with a “vanilla”

shell. Iron Hill agreed to build out the interior space. The Tenant Improvement

Allowance was $1,657,500.

      There were a number of issues with the construction process. Iron Hill elected

to change architects after the Lease was executed. The new architect proposed

certain changes to the construction plan. Construction was delayed so that these

design modifications could be incorporated. The parties incurred extra costs as a

result of the design changes. Iron Hill agreed to cover all increased costs.

                                 Iron Hill’s Claims

      Iron Hill claims entitlement to payment of:

      (1)    The third installment of the Tenant Improvement Allowance

             ($828,750.00);

                                          3
       (2)    Reimbursement for work that was Coastal Station’s obligation under

              the Lease, but that the parties subsequently agreed that Iron Hill would

              perform ($72,191.30); and

       (3)    Credit for work performed by Iron Hill on the concrete slab and

              storefront ($115, 230).

                             Coastal Station’s Setoff Claim

       Coastal Station argues that it is entitled to a setoff claim totaling $351,718.10.

Costal Station’s claim is broken down as follows:

       (1)    Building Permits - $6,054.60;

       (2)    Plan Review Fees - $14,720.00;

       (3)    EDU Fees - $94,128.00;

       (4)    Concept Changes - $199,249.20; and

       (5)    Architecture - Design Changes - $37,566.30.

                                 BURDEN OF PROOF

       The burden of proof in civil cases is a preponderance of the evidence. “[T]he

Court shall find in favor of the party upon whose side the greater weight of the

evidence is found.”1

1
 D.W. Burt Concrete Constr., Inc. v. Dewey Beach Enters., Inc., 2016 WL 639653, at *2 (Del.
Super.).
                                             4
                                     ANALYSIS

                                Non-Disputed Claims

      Coastal Station does not dispute that Iron Hill is entitled to $828,750.00 for

the third installment of the Tenant Improvement Allowance. Coastal Hill also does

not dispute that Iron Hill is entitled to $72,191.30 for work that Coastal Station

was obligated to do under the terms of Lease, but that Iron Hill completed.

      Iron Hill does not dispute that Coastal Station is entitled to a setoff for building

permits in the amount of $6,054.60. Iron Hill also does not dispute that Coastal

Station is entitled to a setoff for Plan Review Fees in the amount of $12,800.

                                   Disputed Claims

                                    Concrete Slab

      Iron Hill asserts that it is entitled to $115,230 for work completed on a

concrete slab and the storefront. Coastal Station does not dispute that Iron Hill is

entitled to a credit for this work. However, Coastal Station disputes the amount

and argues that the credit owed should be $90,320. After consideration of the

briefs submitted by the parties and the testimony presented at trial, the Court finds

that the evidence weighs in Iron Hill’s favor. Iron Hill is entitled to the full

amount.

                                           5
                                         EDU Fees

          Equivalent Dwelling Unit (“EDU”) fees are assessed by counties and

municipalities to account for the impact that new constriction will have on existing

infrastructure. Exhibit H-1 of the Lease requires Coastal Station “to pay all water

and sewer tap fees, utility connection fees, impact or other fees regarding the

building and premises.” The Lease additionally provides:

          Tenant shall apply for and obtain the issuance of the required permits
          for the Tenant Improvements. Landlord and Tenant shall reasonably
          cooperate with one another in the application for and prosecution of all
          such permits and approvals. Tenant shall bear the cost of all required
          permits, together with such other architect fees, engineer fees, interior
          design fees, site supervision fees, utility fees, tapping fees, capacity
          charges, meter fees, inspection fees and dumpster rental and dumpster
          pull charges as may be necessary.2

          Coastal Station argues that the Lease obligates it to pay the EDU fees

associated with the “building,” while Iron Hill must pay the EDU fees associated

with the fit-out of the premises. Iron Hill claims that the Lease requires Coastal

Station to pay all of the EDU fees because Exhibit H-1 specifically refers to the

building “and premises.” Both parties presented testimony as to how these Lease

provisions should be interpreted.

2
    Ex. G-1, ¶ 3.
                                             6
       It is a well settled principle of contract interpretation that the Court must “read

a contract as a whole and . . . give each provision and term effect, so as not to render

any part of the contract mere surplusage.”3 The Court finds as a matter of contract

interpretation that as to responsibility for the disputed fees, Exhibit G-1 is more

specific and Exhibit H-1 is more general. In cases such as this, the more specific

contractual provision controls. 4 Therefore, the reasonable interpretation of the Lease

is that Iron Hill must bear the cost of all EDU fees associated with the “Tenant

Improvements” portion of the structure. Coastal Station’s obligation is limited to

the EDU fees related to the portions of the building and premises that are not part of

Iron Hill’s obligation.

       The Court finds that Coastal Station is entitled to a setoff in the amount of

$94,128.00 for EDU fees associated with Iron Hill’s fit-out.

                                  Fifteen Percent Markup

       Coastal Station’s general contractor applied a 15% markup on invoices for

permit fees and plan review fees. Coastal Station contends that the markup is

3
  MicroStrategy Inc. v. Acacia Research Corp., 2010 WL 5550455, at *6 (Del. Ch.).
4
  See Sunline Commercial Carriers, Inc. v. CITGO Petroleum Corp., 206 A.2d 836, 846 (Del.
2019) (“general terms of the contract must yield to more specific terms”); DCV Holdings, Inc. v.
ConAgra, Inc., 889 A.2d 954, 961 (Del. 2005) (“where specific and general provisions conflict,
the specific provision ordinarily qualifies the meaning of the general one”).

                                               7
appropriate because the contractor’s resources were involved in obtaining the

permits and in connection with reviewing the plan. Iron Hill counters that there is

nothing in the Lease that allows Coastal Station to charge a markup.

      The Court finds that there is no basis for a setoff of the 15% markup. There

is no evidence that the parties agreed to include any overhead percentage in any

invoiced expense.

                           Concept and Design Changes

      Coastal Station claims entitlement to a setoff for architect design changes in

the amount of $37,718.10. Iron Hill concedes a setoff of $34,000. The remaining

expenses associated with the concept changes are disputed:

      (1)    Structural Steel - $98,880;

      (2)    Exterior Finishes - $19,380;

      (3)    Metal Studding - $14,040;

      (4)    Carpentry - $16,680; and

      (5)    Delay Damages - $50,269.20.

      Iron Hill contends that the evidence Coastal Station submitted at trial is

insufficient to support these charges.

       Prior to trial, Iron Hill sought discovery concerning Coastal Station’s alleged

costs for “concept changes.” The Court granted Iron Hill’s Motion to Compel on

                                            8
July 9, 2019. By decision on the record on August 22, 2019, the Court granted in

part Iron Hill’s Motion for Sanctions and required production of the requested

documents by September 5, 2019. On October 22, 2019, the Court ordered that

Coastal Station would not be permitted to produce any additional documents relating

to its counterclaims. By Order dated September 18, 2020, the Court granted Iron

Hill’s Motion in Limine to strike the portions of Coastal Station’s expert report that

relied on unproduced documents, and to preclude the expert’s testimony to the extent

he relied on unproduced documents. In short, Iron Hill repeatedly sought discovery

concerning the basis for Coastal Station’s counterclaims and Coastal Station failed

to provide any supporting documentation beyond a single invoice.

      The invoice became Exhibit 12 at trial. It simply lists the amounts claimed

for each item and the total amount. Exhibit 12 purports to be an invoice from the

general contractor, MBM Construction, LLC (“MBM”). However, there are a

number of discrepancies between Exhibit 12 and other MBM invoices submitted to

the Court, such as those in Exhibit 50. First, Exhibit 12 lacks an MBM logo. Second,

the format and font are completely different from the other MBM invoices. Third,

Exhibit 12 is dated January 31, 2018, and yet includes charges for delays that Coastal

Station’s witness testified occurred between January and March of 2018. Fourth,

                                          9
MBM’s address in Exhibit 12 includes an erroneous zip code. Fifth, “Costal” is a

misspelling in Exhibit 12 that does not occur in any of the other MBM invoices.

      It appears to the Court that Exhibit 12 is not an invoice created by MBM under

its usual business practices. Additionally, Coastal Station did not provide: (1)

change orders for amounts above the original bids; (2) invoices from vendors or

subcontractors; (3) cancelled checks; or (4) other evidence in support of the amounts

claimed in Exhibit 12. It is also curious that Exhibit 12 contains a $37,566.30 charge

for “Architecture – Design Changes (Becker Morgan).” The trial evidence

demonstrated that Becker Morgan contracted directly with Coastal Station. Becker

Morgan would have had no reason to bill Coastal Station through MBM.

      Exhibits 28 and 29 are MBM’s steel invoices totaling $202,000. Iron Hill

adduced trial testimony that the design changes did not justify the $98,128 increase

in steel cost. Other testimony confirmed Iron Hill’s position that such a cost increase

would have required MBM to issue a change order seeking approval of the additional

expense. MBM had utilized change orders at other times during the construction

process.

      The Court finds that, with the exception of the conceded $34,000 in

Architecture Fees, Coastal Station has failed to prove entitlement to any setoffs for

the listed design and concept changes.

                                          10
                                        CONCLUSION

          The Court finds that Iron Hill has proved by a preponderance of the evidence

that it is entitled to payment of:

          (1)    The third installment of the Tenant Improvement Allowance

                 ($828,750.003);

          (2)    Reimbursement for work that was Coastal Station’s obligation under

                 the Lease, but that the parties subsequently agreed that Iron Hill would

                 perform ($72,191.30); and

          (3)    Credit for work performed by Iron Hill on the concrete slab and

                 storefront ($115, 230.00).

          Coastal Station has proved by a preponderance of the evidence that it is

entitled to setoffs for:

          (1)    Building Permit - $6,054.60;

          (2)    Plan Review Fees - $12,800.00;

          (3)    EDU Fees - $94,128.00; and

          (4)    Architecture Fees - $34,000.00.

Coastal Station has failed to prove entitlement to setoffs for:

          (1)    Concept Changes - $199,249.20; and

3
    Less $549,223.20 that was paid by Coastal Station on October 5, 2018.

                                                 11
         (5)     Architecture - Design Changes - $3,566.30.

         Iron Hill is awarded prejudgment interest at the legal rate, accruing from July

15, 2018.5

         The Court finds that there is not a single prevailing party. Therefore, the Court

declines to award attorneys’ fees pursuant to the Lease. However, the Court awards

certain attorneys’ fees to Iron Hill as a sanction against Coastal Station. Coastal

Station must cover the attorneys’ fees that Iron Hill incurred in connection with Iron

Hill’s Motion in Limine to Strike Portions of the Expert Report of Michael Stortini

and to Limit His Testimony at Trial. Iron Hill’s Motion was granted by Order dated

September 18, 2020.

         IT IS SO ORDERED.

                                            /s/ Mary M. Johnston
                                          The Honorable Mary M. Johnston

5
    6 Del. C. § 2301.
                                             12