Affirmed! The Fourth Circuit Upholds Judge Martin's Ruling in the Granby Tower Litigation

Posted on February 24, 2010 by Heidi Meinzer

The Fourth Circuit has just issued their decision upholding the district court’s ruling in Universal Concrete Products Corporation v. Turner Construction Company, the topic of a December 2009 blog post on the Granby Tower litigation.

The parties agreed that the pay-when-paid clause in the Turner-Universal contract was unambiguous. However, just as it did at the trial court level, Universal argued that the subcontract incorporated the contract between Turner and the owner, creating an ambiguity about whether Turner would pay Universal before being paid by the owner. Universal relied on language that stated the costs the owner would reimburse Turner included “[p]ayments made by the Construction Manager to Subcontractors in accordance with the requirements of the subcontracts.” Just like Judge Martin, the Fourth Circuit concluded that clause related only to the reimbursement amount and not the timing of the payments.

Universal relied on cases from two other jurisdictions – Florida and Missouri – refusing to enforce very similar pay-if-paid clauses. The Fourth Circuit concluded that Virginia would simply not follow those jurisdictions, noting that an October 2009 City of Norfolk Circuit Court decision, W.O. Grubb Steel Erection, Inc. v. 515 Granby, LLC, mentioned the Florida and Missouri cases and opted not to follow their reasoning.

Once again, this case demonstrates that Virginia courts will invariably attempt to enforce the parties’ intent when faced with contractual disputes, even when that may lead to harsh results for one of the parties. Stay tuned on this case – the word is still out on whether the federal government will successfully condemn the site to expand the federal courthouse!
 

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Financial Contingencies, "Pay if Paid" Clauses and Takings, Oh My!: The Fallout from the Granby Towers Litigation

Posted on December 23, 2009 by Heidi Meinzer

In 2004, 515 Granby, LLC proposed a $180.5 million condo development. With 34 stories and 327 units, Granby Towers would be the tallest building in Norfolk and would revitalize the northern part of the city. The following year, the federal government threatened to condemn the property, causing just enough of a delay for the ebbing economic tide to overtake the Granby Tower project and thwart 515 Granby’s ability to secure financing.

Fortunately for 515 Granby, the prime contract with Turner Construction Company had the following language:

This Agreement and any liability and obligations of the Owner…shall be subject to and expressly conditioned upon the closing by the Owner, and the initial funding by its lender, of the construction loan… and Owner shall have no obligation or liability to Construction Manager for any costs for the Construction Phase under this Agreement unless such construction loan closing is completed.

Turner and its subcontractors, who were owed over $13 million for construction on the project, challenged this language in a two-day evidentiary hearing in the Circuit Court for the City of Norfolk. In a letter opinion issued by Judge Martin, Judge Martin rejected this challenge, finding that 515 Granby “made great efforts to secure financing for the project,” but was unable to do so due to the current conditions of the credit market. Judge Martin concluded that 515 Granby would have had to pay Turner only if and when it had received initial funding of the construction loan.  For an in-depth look at the court's reasoning, and what you can do if you face such a contractual provision, go to Yes, Virginia, Contract Terms Do Matter:  Financing Term Offers Owner an Escape Hatch, by my colleague, Tim Hughes, guest blogging on Construction Law Musings. 

Fortunately for Turner, its subcontracts contained the following language:

The obligation of Turner to make a payment under this Agreement, whether a progress or final payment, or for extras or change orders or delays to the Work, is subject to the express condition precedent of payment therefor by the Owner.

One of the subcontractors, Suburban Grading & Utilities, claimed this language was unenforceable. In a second letter opinion, Judge Martin upheld this provision as well, noting that the Supreme Court of Virginia finds “pay if paid” clauses enforceable “where the language of the contract in question is clear on its face.” This language was an unambiguous “pay if paid” clause that Judge Martin had no choice but to uphold, leaving Suburban to eat the costs of $575,928 for labor and materials and another $245,662 for dewatering.  For a great and very timely discussion of this opinion and advice about "pay if paid" clauses, I urge you to read Chris Hill's Construction Law Musings post, Pay if Paid, Pay Attention Subs.

Don’t go away thinking there will be no winners in this debacle! The federal government has since conveniently renewed its desire to condemn the property in order to expand the federal courthouse next door.  It offered a paltry $6.1 million to seize the Granby Tower property, an offer that no one is jumping at yet.  If you’re interested in reading more on this very likely end to the Granby Towers saga, take a look at Harry Minium and Tim McGlone’s recent article in The Virginian-Pilot.  
 

Image by:  Hyunsoo Leo Kim/The Virginian-Pilot 

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