Court Opinion

ID: 2694727
Source: CourtListenerOpinion
Date Created: 2014-08-02 00:01:45.274098+00
Date Added: 2024-06-11T12:55:40.231833
License: Public Domain

[Cite as N.L. Constr. Corp. v. Ohio Dept. of Adm. Servs., 2012-Ohio-6328.]

                                                         Court of Claims of Ohio
                                                                                     The Ohio Judicial Center
                                                                             65 South Front Street, Third Floor
                                                                                        Columbus, OH 43215
                                                                              614.387.9800 or 1.800.824.8263
                                                                                         www.cco.state.oh.us

N.L. CONSTRUCTION CORPORATION

        Plaintiff/Counter
        Defendant/Third-Party Plaintiff

        v.

OHIO DEPARTMENT OF ADMINISTRATIVE SERVICES, et al.

        Defendants/Counter Plaintiffs

       and

KENDRICK EXCAVATING, INC., et al.

       Third-Party Defendants/Counter Plaintiffs

Case No. 2011-08318

Judge Alan C. Travis

DECISION

        {¶ 1} On July 2, 2012, plaintiff/counter defendant/third-party plaintiff, N.L.
Construction Corporation (NLC), filed a motion for partial summary judgment as to
Count I and II of its complaint and as to the counterclaim of defendants/counter
plaintiffs, Ohio Department of Administrative Services (ODAS) and Ohio Department of
Transportation (ODOT). On July 24, 2012, ODAS and ODOT filed a memorandum in
opposition.
        {¶ 2} Civ.R. 56(C) states, in part, as follows:
        {¶ 3} “Summary judgment shall be rendered forthwith if the pleadings,
depositions, answers to interrogatories, written admissions, affidavits, transcripts of
evidence, and written stipulations of fact, if any, timely filed in the action, show that
Case No. 2011-08318                          -2-                   JUDGMENT ENTRY

there is no genuine issue as to any material fact and that the moving party is entitled to
judgment as a matter of law. No evidence or stipulation may be considered except as
stated in this rule. A summary judgment shall not be rendered unless it appears from
the evidence or stipulation, and only from the evidence or stipulation, that reasonable
minds can come to but one conclusion and that conclusion is adverse to the party
against whom the motion for summary judgment is made, that party being entitled to
have the evidence or stipulation construed most strongly in the party’s favor.” See also
Gilbert v. Summit Cty., 104 Ohio St.3d 660, 2004-Ohio-7108, citing Temple v. Wean
United, Inc., 50 Ohio St.2d 317 (1977).
      {¶ 4} NLC contracted with ODAS for the general trades scope of work at the
ODOT Noble County Maintenance Facility project in Caldwell, Ohio.1 The first phase of
the project, which involved the design, manufacture and delivery of a pre-engineered
metal building (PEMB), was to be completed by May 25, 2011. Phase II, which included
demolition of the old building, was to be completed on or before October 12, 2011. The
contract was executed on June 14, 2010, in the total amount of $2,611,368.
      {¶ 5} According to the affidavit of Bruce Ratekin, an architect employed by the
State Architect’s Office, NLC failed to timely provide a PEMB that met project
specifications and, accordingly, on October 14, 2010, ODOT notified NLC that it
intended to exercise its termination rights pursuant to Article 12.3 (5-day notice). NLC
responded with three correspondence, one each on October 19, 20, and 28, 2010. A
meeting was subsequently held on November 3, 2010, to discuss the issue. As a result
of the meeting, ODOT terminated NLC’s contract for cause on November 5, 2010.
      {¶ 6} NLC subsequently requested an extension of time to respond to the 5-day
notice in a letter dated November 12, 2010. As a result of another meeting between the
parties, which took place on November 17, 2010, ODOT agreed to rescind the

      1
       ODAS and ODOT shall be referred to collectively as ODOT.
Case No. 2011-08318                            -2-                        JUDGMENT ENTRY

termination in return for NLC’s promise to complete Phase I of the project by the end of
July 2011. The agreement was memorialized on December 14, 2010, and therein, each
of the parties reserved their respective claims and defenses.
         {¶ 7} Subsequently, on February 23, 2011, ODOT sent a 5-day notice identifying
four specific items of defective work. The parties met on March 11, 2011, to discuss the
notice, at which time NLC was given a 7-day extension of time to complete the identified
items.       On March 15, 2011, NLC sent a second written response wherein it
memorialized some of the discussions that had occurred and set forth its plan to
address the remaining items identified in the February 23, 2011 notice.                The state
architect on the project reviewed NLC’s March 15, 2011 correspondence and, after
consulting with a scheduling specialist, he determined that NLC had not complied with
the requirements of the 5-day notice and he recommended that ODOT terminate NLC’s
contract.     (Affidavit of Lane Beogher.)      ODOT issued a letter on March 23, 2011,
terminating NLC’s contract.         As of that date, ODOT had paid NLC a total of
$773,662.98.
         {¶ 8} The crux of NLC’s motion is that ODOT failed to follow the contractually
mandated procedures when it terminated NLC’s contract without first providing it with a
72-hour notice and without permitting NLC to cure any deficiencies in its performance.2
In the alternative, NLC argues that even if the notice of termination was procedurally
valid, ODOT has presented no evidence to support a termination “for cause” as that
term is defined in the agreement. NLC seeks both a declaration that ODOT breached
the contract and a judgment as to the issue of ODOT’s liability. NLC further contends
that, in the absence of a valid termination of its contract, ODOT cannot recover upon its

         2
         ODOT did issue a 72-hour notice to NLC on January 24, 2011, which required NLC to “provide
an acceptable schedule that will meet the contractual requirements no later than February 1,
Case No. 2011-08318                              -2-                         JUDGMENT ENTRY

counterclaim, as a matter of law. Accordingly, NLC seeks judgment in its favor on the
counterclaim.
       {¶ 9} Contract interpretation is a matter of law for the court. City of St. Marys v.
Auglaize Cty. Bd. of Commrs., 115 Ohio St.3d 387, 2007-Ohio-5026, ¶ 38. When
interpreting a contract, a court’s principle objective is to ascertain and give effect to the
intent of the parties. Hamilton Ins. Servs., Inc. v. Nationwide Ins. Cos., 86 Ohio St.3d
270, 273 (1999). “The intent of the parties to a contract is presumed to reside in the
language they chose to employ in the agreement.” Kelly v. Med. Life Ins. Co., 31 Ohio
St.3d 130 (1987), paragraph one of the syllabus. In determining the parties’ intent, a
court must read the contract as a whole and give effect, if possible, to every part of the
contract.    Foster Wheeler Enviresponse, Inc. v. Franklin Cty. Convention Facilities
Auth., 78 Ohio St.3d 353, 361-362 (1997).
       {¶ 10} The portion of the contract most relevant to this dispute is Article 5.3 of the
“General Conditions,” which provides in part as follows:
       {¶ 11} “5.3.1 If the Contractor provides Defective Work or fails or neglects to
perform the Work in accordance with the Construction Progress Schedule, the
Contracting Authority may issue a written notice providing 3 days for the Contractor to
begin to correct Defective Work or to recover schedule deficiencies as set forth in
subparagraph 5.3.2 (‘72-Hour Notice’) to the Contractor.
       {¶ 12} “* * *
       {¶ 13} “5.3.2 If the Contractor fails or refuses to commence and continue to
correct the Defective Work or recover the schedule deficiencies with diligence and
promptness within three business days after receiving the 72-Hour Notice, the
Contracting Authority may, without jeopardizing other remedies, take any action the

2011.” (Original emphasis.)     However, in the 5-day notice issued February 23, 2011, ODOT
acknowledged that the revised baseline schedule was “signed by all Primary Contractors on 2-9-11.”
Case No. 2011-08318                               -2-                          JUDGMENT ENTRY

Contracting Authority deems appropriate to correct the Defective Work or to recover the
schedule deficiencies, including but not limited to exercising its termination rights under
paragraph 12.3.”
        {¶ 14} A threshold question the court must answer is whether the contract
required ODOT to issue a 72-hour notice to NLC before proceeding with the termination
process described in Article 12.3. ODOT contends that the use of the permissive “may”
in Article 5.3.1 means that such notice is discretionary. NLC argues that when Article
5.3.1 is read in conjunction with Article 5.3.2, it is clear that a 72-hour notice is a
condition precedent to contract termination.3
        {¶ 15} Article 12.3 of the General Conditions section of the parties’ agreement
provides in relevant part as follows:
        {¶ 16} “12.3.1 The Contracting Authority may terminate all or a portion of the
Contract if the Contractor:
        {¶ 17} “12.3.1.1 Fails to prosecute the Work with the necessary force or in a
timely manner;
        {¶ 18} “12.3.1.2 Refuses to remedy Defective Work;
        {¶ 19} “* * *
        {¶ 20} “12.3.2 If the Contracting Authority intends to exercise its termination rights
under this paragraph 12.3, the Contracting Authority shall issue not less than 5 days’
written notice to the Contractor and the Contractor’s Surety in accordance with O.R.C.
Section 153.17 (‘5-Day Notice’).
        {¶ 21} “12.3.3 If the Contractor fails to satisfy the requirements set forth in the 5-
Day Notice within 15 days of receipt of the 5-Day Notice, the Contracting Authority may

        3
        Although the parties disagree whether ODOT complied with the notice provisions of Article 12.3,
the parties agree that a 5-day notice is mandatory whenever termination is “for cause” pursuant to Article
12.3.
Case No. 2011-08318                               -2-                          JUDGMENT ENTRY

declare the Contractor in default, terminate the Contract, and employ upon the Work the
additional force to supply materials or either as appropriate * * *.”
        {¶ 22} The court agrees that the decision whether to issue a 72-hour notice
pursuant to Article 5.3 and the decision whether to commence termination proceedings
pursuant to Article 12.3 are discretionary with the owner. Indeed, both Article 5.3 and
Article 12.3.1 contain the permissive “may.” Thus, in proper context, the permissive
“may” as used in both Article 5.3 and 12.3.1 means only that the owner may choose not
to take a particular course of action described therein even though justifiable grounds
exist. The specific question for the court in this case, however, is whether the issuance
of a 72-hour notice is required before ODOT may choose to terminate the contract.
Based upon the plain language used in the agreement, the court finds that when Article
5.3.1 is read in conjunction with Article 5.3.2, the issuance of a 72-hour notice is a
condition precedent to termination of the contract.
        {¶ 23} In the opinion of the court, the contract contemplates a three step process
in order for ODOT to perfect a termination “for cause.” The first step is to notify the
contractor of the deficiencies in its performance and its right to cure (72-hour notice).
Next, if the contractor fails or refuses to cure within 72 hours, the owner may either
perform the work itself and back charge the contractor or it may resort to other
contractual remedies including a termination for cause pursuant to Article 12.3. If the
owner chooses termination for cause, the owner must then issue a 5-day notice in
accordance with Article 12.3.2.4 Finally, if the contractor fails to satisfy the requirements

        4
        R.C. 153.17 requires notice to the contractor as follows: “(A) When in the opinion of the owner
referred to section 153.01 of the Revised Code, the work under any contract made under any law of the
state is neglected by the contractor or such work is not prosecuted with the diligence and force specified
or intended in the contract, such owner may make requisition upon the contractor for such additional
specific force or materials to be brought into the work under such contract or to remove improper
materials from the grounds as in their judgment the contract and its faithful fulfillment requires.
Case No. 2011-08318                                  -2-                            JUDGMENT ENTRY

of the 5-day notice within 15 days from receipt thereof, the owner may declare a default
and terminate the contract.
        {¶ 24} ODOT argues that such an interpretation of the contract violates R.C.
153.17 inasmuch as it provides the contractor with greater rights than those guaranteed
by statute. While the court agrees that the contract at issue requires ODOT to provide
greater pre-termination notice to NLC and a greater opportunity to cure than is
mandated by R.C. 153.17, there is no indication from the four corners of the contract
that such greater notice and opportunity was not intended by the parties. The court
notes that R.C. 153.17 does not preclude ODOT from adding a 72-hour notice provision
to a construction contract. Moreover, if ODOT had not intended the 72-hour notice to
be the initial step in the termination process, ODOT could have made that clear in
Article 5.3.1. For example, if ODOT had inserted the phrase “without jeopardizing its
right of termination” either just ahead of or after the word “may” in Article 5.3.1, then the
court would likely adopt ODOT’s interpretation.                  Instead, such language appears in
Article 5.3.2, which is operative only “[i]f the contractor fails or refuses to commence and
continue the correct the Defective Work” within 72 hours. In other words, when Article
5.3 is read as a whole, ODOT’s right to choose other contractual remedies, including
termination under Article 12.3, arises only after the contractor fails to comply with the
72-hour notice.
        {¶ 25} In light of the court’s interpretation of the relevant contract language and
given the undisputed fact that the appropriate 72-hour notice was not issued to NLC in
this case, the only conclusion the court may reach upon the evidence is that ODOT

        “Not less than five days’ notice in writing of such action shall be served upon the contractor or the
contractor’s agent in charge of the work. If the contractor fails to comply with such requisition within fifteen
days, such owner with the written consent of the department of administrative services, may employ upon
the work the additional force, or supply the special materials or such part of either as is considered
proper, and may remove improper materials from the grounds.” (Emphasis added.)
Case No. 2011-08318                       -2-                      JUDGMENT ENTRY

breached Article 5.3.2 of the parties’ agreement by terminating NLC’s contract for
cause. The failure of the mandatory 72-hour notice renders the termination invalid, as a
matter of law.    Accordingly, NLC’s motion for partial summary judgment shall be
GRANTED both as to its claim for breach of contract and declaratory relief.
      {¶ 26} Furthermore, with respect to the counterclaim, NLC argues that ODOT’s
premature termination of its contract bars ODOT from recovery upon its counterclaim.
The court agrees.
      {¶ 27} As a general rule, once there has been a material breach of the contract,
the nonbreaching party is not required to fulfill the remaining terms of the contract, and
the breaching party is not entitled to collect damages from the nonbreaching party. See
Software Clearing House, Inc. v. Intrak, Inc., 66 Ohio App.3d 163 (1st Dist.1990); Kersh
v. Montgomery Dev. Ctr., 35 Ohio App.3d 61, 62 (10th Dist.1987). There can be no
doubt that ODOT’s premature termination of NLC’s contract was a material breach
inasmuch as NLC’s removal from the project prevented it from curing the defective work
and otherwise performing its work under the contract. ODOT should not be permitted to
benefit from its breach by seeking damages from NLC either for the cost of the remedial
work or the completion of the project. Accordingly, NLC is entitled to judgment on the
counterclaim as a matter of law.      The question whether NLC’s performance was
defective will be an issue only as to NLC’s damages.
      {¶ 28} Inasmuch as judgment will be entered in favor of NLC on ODOT’s
counterclaim, the third-party complaint against third-party defendants/counter plaintiffs,
Kendrick Excavating, Inc. and Smith Design & Construction Inc. (Smith), shall be
dismissed. However, Smith’s counterclaim against NLC seeking compensation for work
performed under its subcontract with NLC shall remain pending for adjudication.
Case No. 2011-08318                       -2-                         JUDGMENT ENTRY

                                              Court of Claims of Ohio
                                                                         The Ohio Judicial Center
                                                                 65 South Front Street, Third Floor
                                                                            Columbus, OH 43215
                                                                  614.387.9800 or 1.800.824.8263
                                                                             www.cco.state.oh.us

N.L. CONSTRUCTION CORPORATION

      Plaintiff/Counter
      Defendant/Third-Party Plaintiff

      v.

OHIO DEPARTMENT OF ADMINISTRATIVE SERVICES, et al.

      Defendants/Counter Plaintiffs

      and

KENDRICK EXCAVATING, INC., et al.

      Third-Party Defendants/Counter Plaintiffs

Case No. 2011-08318

Judge Alan C. Travis

JUDGMENT ENTRY

      {¶ 29} In   accordance     with   the   decision   filed    concurrently        herewith,
plaintiff/counter defendant/third-party plaintiff’s motion for partial summary judgment is
GRANTED.      Accordingly,   judgment    is   rendered   in   favor     of    plaintiff/counter
defendant/third-party plaintiff as to both the complaint, in an amount to be determined,
and as to the counterclaim of defendants/counter plaintiffs. The third-party complaint is
Case No. 2011-08318                                 -2-                     JUDGMENT ENTRY

hereby DISMISSED.                   The counterclaim of third-party defendants/counter plaintiffs
remains pending for adjudication.

                                                   _____________________________________
                                                   ALAN C. TRAVIS
                                                   Judge

cc:

Craig D. Barclay                                      Ian H. Frank
William C. Becker                                     Philip J. Truax
Assistant Attorneys General                           2500 Key Center
150 East Gay Street, 18th Floor                       127 Public Square
Columbus, Ohio 43215-3130                             Cleveland, Ohio 44114

James M. McHugh                                       Thomas L. Rosenberg
220 Market Avenue, South, 8th Floor                   155 East Broad Street
Canton, Ohio 44702                                    National City Plaza, 12th Floor
                                                      Columbus, Ohio 43215

006
Filed August 30, 2012
To S.C. Reporter January 17, 2013