In re Redondo Construction Corporation v. Puerto Rico Highway and Transportation Authority

• Court: United States Bankruptcy Court, D. Puerto Rico
• Decided: January 13, 2014
• Docket: 03-00192
• Status: Unknown

Opinion

IN THE UNITED STATES BANKRUPTCY COURT 1 FOR THE DISTRICT OF PUERTO RICO

2 IN RE: CASE NO. 02-02887(ESL) 3 REDONDO CONSTRUCTION CHAPTER 11 4 CORPORATION Debtor 5 REDONDO CONSTRUCTION ADV. PROC. NO. 03-00192 (ESL) 6 CORPORATION ADV. PROC. NO. 03-00194 (ESL) Plaintiff ADV. PROC. NO. 03-00195 (ESL) 7 vs. 8 PUERTO RICO HIGHWAY AND 9 TRANSPORTATION AUTHORITY 10 Defendant 11 OPINION AND ORDER 12 This case is before the court upon the Judgment & Mandate issued by the United States 13 Court of Appeals for the First Circuit (“First Circuit”) in Redondo Constr. Corp. v. P.R. 14 Highway & Transp. Auth. (In re Redondo), 678 F.3d115 (1st Cir. 2012), remanding the instant 15 casesto the U.S. District Court for the District of Puerto Rico (“District Court”) and the 16 Mandate by the District Court remanding the case to the U.S. Bankruptcy Court for the District 17 of Puerto Rico for further proceedings consistent with the First Circuit’s instructions to: (1) 18 recalculate the award for extended overhead damages; (2) determine whether an award of pre- 19 judgment interest is appropriate; and, if so, (3) the basis for the award, the applicable rate of 20 interest, and the periods of accrual. Both parties filed briefs in support of their respective 21 positions. 22 Procedural Background 23 On December 23, 2003, Redondo Construction Corporation (“Redondo”) filed a 24 Complaint (Docket No. 1)1 seeking collection of monies plus interest and attorneys’ fees against 25 the Puerto Rico Highway and Transportation Authority (“PRHTA”). 26

27 1 All docket references are made to the ones in Adversary Proceeding No. 03-00192 since all entries in the other two adversary proceedings are basically the same documents, if not verbatim the same. Moreover, the captions in 1 On August 31, 2009, Hon. Judge Gerardo A. Carlo entered a Decision and Order 2 (Docket No. 159)2 ruling that PRHTA had explicitly consented to have the bankruptcy court 3 enter a final order and judgment and proceeded to enter a final judgment directing the PRHTA 4 to compensate Redondo in following amounts and interest rates:

6 Adversary Project Amount Pre-judgment Interest Proceeding No. awarded 7 03-0192 Desvío Sur de Patillas $643,545.773 6.5% from February 8 27, 2007

9 03-0194 PR#2 Mayaguez $10,402,009.66 6.5% from June 30, 10 1996

11 03-0195 Dorado-Toa Alta $912,874.23 6.5% from October 26, 1995 12 13 See In re Redondo, 411 B.R. at 90-95. The court also entered final Judgments (Carlo, B.J.)4 in 14 each of the adversary proceedings for each project upon the same Decision and Order (Docket 15 No. 159). 16 On September 1, 2009, Redondo filed a Motion for Amendment of Decision and Order 17 and Judgment Nunc Pro Tunc (Docket No. 161) to correct various typographical mistakes. 18 On September 10, 2009, PRHTA filed a Motion to Amend or Alter Judgment or for New 19 Trial Pursuant to Rule 9023 of Bankruptcy Procedure and Rule 59 (A) and (E) of Civil Federal 20 Procedure (Docket No. 165) contending that the court failed to discuss and apply the legal 21 requirement for each of Redondo’s causes of action, that the evidence presented at trial did not 22

23 the motions filed in the three cases include all adversary proceeding references. The legal issues in all three adversary proceedings are the same. 24 2The Decision and Order was published at Redondo Construction Corporation v. Puerto Rico Highway and Transportation Authority (In re Redondo), 411 B.R. 89 (Bankr. D.P.R. 2009). 25 3 The original amount awarded for this project was $713,338.03. See In re Rodondo, 411 B.R. at 97. The amount was subsequently amended on February 11, 2012 (Docket No. 180). 26 4 The final judgments for each adversary proceedings were entered in the following docket entries: Adversary Proceeding No. 03-0192 (Docket No. 160); Adversary Proceeding No. 03-0194 (Docket No. 130); and Adversary 27 Proceeding No. 03-0195 (Docket No. 129). As confirmed by the First Circuit, “[w]ith the consent of the parties, the [bankruptcy] court issued a final judgment in the matters”. In re Redondo, 678 F.3d at 120. 1 support the judgment, and that pre-judgment interest should not be allowed since it was not part 2 of the contract between the parties. 3 On October 1, 2009, Redondo filed a Reply to [PRHTA’s] Motion to Amend or Alter 4 Judgment or For New Trial (Docket No. 174) rehashing most of the arguments in the court’s 5 Decision and Order and seeking pre-judgment interest under Article 1061 of the Civil Code of 6 Puerto Rico, 31 L.P.R.A. § 3025 (Docket No. 174, p. 64). 7 On February 11, 2010, the court (Lamoutte, B.J.)5 entered a Decision and Order (Docket 8 No. 179)6 denying PRTHA’s Motion to Amend or Alter Judgment or for New Trial Pursuant to 9 Rule 9023 of Bankruptcy Procedure and Rule 59 (A) and (E) of Civil Federal Procedure 10 (Docket No. 165) for failure to show manifest error of law, newly discovered facts, previously 11 unavailable evidence, or an intervening change in controlling law. On that same day, the court 12 (Lamoutte, B.J.) also entered an Amended Judgment in Adversary Proceeding No. 03-0192 13 stating: “IT IS ORDERED that in ADV 03-0192, the PR Highway and Transportation Authority 14 is liable to Redondo Construction in the amount of $643,545.77, with prejudgment interest at 15 6.5% from February 27, 2007” (Docket No. 180). 16 On March 4, 2010, PRTHA filed a Notice of Appeal (Docket No. 186) to the United 17 States District Court for the District of Puerto Rico (the “District Court”). The appeals were 18 originally docketed with the District Court as follows: Adversary Proceeding No. 03-0195, on 19 May 10, 2010, as Civil Case No. 10-01373 (GAG); Adversary Proceeding No. 03-0194, on May 20 11, 2010, as Civil Case No. 10-01372 (SEC); and Adversary Proceeding No. 03-192, on May 21 25, 2010, as Civil Case No. 10-01371 (FAB). At the request of Redondo, Civil Cases Nos. 10- 22 01373 and 10-01372 were consolidated with Civil Case No. 10-01371 (FAB). 23 On March 5, 2010, Redondo filed a Motion for Execution of Judgments (Docket No. 24 190). On March 19, 2010, PRHTA filed a Motion for Stay of Execution of Judgment Pursuant 25 to Federal Rule 8005 of Bankruptcy Procedure and in Opposition to Execution of Judgment 26

27 5 Upon the resignation of the Hon. Gerardo A. Carlo, the case was reassigned to the subscribing bankruptcy judge. 6 The Decision and Order was published at 424 B.R. 29 (Bankr. D.P.R. 2010). 1 (Docket No. 196) claiming that denying the stay would result in the loss of the property/money 2 subject of the appeal. 3 On March 30, 2010, the court (Lamoutte, B.J.) entered a Decision and Order (Docket 4 No. 202) granting PRHTA’s Motion for Stay of Execution of Judgment Pursuant to Federal 5 Rule 8005 of Bankruptcy Procedure and in Opposition to Execution of Judgment (Docket No. 6 196) but did not require PRHTA to post a supersedeas bond. 7 On April 6, 2010, Redondo filed a Motion to Alter or Amend Decision and Order 8 (Docket No. 204) arguing that the court incurred in a manifest error of law by not ordering 9 PRHTA to post a supersedeas bond pursuant to Fed. R. Bankr. P. 7062(a). On April 23, 2010, 10 Redondo filed a Motion for Granting of Unopposed Motions to Alter or Amend Order (Docket 11 No. 205). 12 On April 26, 2010, PRHTA filed a Motion in O[p]position to [Redondo]’s Motion to 13 Alter or Amend Decision and Order (Docket No. 207) averring that ordering to post a bond 14 would cause it irreparable harm and constitute a garnishment of public funds that is not 15 permitted under Puerto Rico case law. 16 On October 25, 2010, the court (Lamoutte, B.J.) entered an Order (Docket No. 211) 17 granting Redondo’s Motion to Alter or Amend Decision and Order (Docket No. 204) and 18 amending its March 31, 2010 Order to state as follows: “as a condition for the stay of execution 19 of the judgments pending the appeals the [PRHTA] will submit a supersedeas bond for the full 20 amount of the judgments including pre-judgment interest, that is, in AP 03-0192 in the amount 21 of $748,408.47; in AP 03-0194 in the amount of $19,306,724.45; and in AP 03-0195 in the 22 amount of $1,734,486.05” (Docket No. 211, p. 6). 23 On April 15, 2011, the District Court entered a Judgment (Docket No. 277) in 24 consolidated Civil Case No. 10-01371 affirming the bankruptcy court’s Decision and Order 25 (Docket Nos. 159 and 160) issued by Hon. Gerardo A. Carlo. 26 On May 31, 2011, the case was appealed to the First Circuit. See Docket No. 278. 27 1 On May 11, 2012, the First Circuit issued an Opinion (Docket No. 279)7 vacating the 2 awards of Eichleay8-based overhead damages and remanding to permit recalculation of those 3 awards using the percentage-of-direct-costs method where applicable and using Eichleay only in 4 connection with work stoppages or delays (if any) of the type described. See In re Redondo, 5 678 F.3d at 124-125. In regards to the pre-judgment interest, the First Circuit “return[ed] the 6 case to the bankruptcy court for a determination of whether pre-judgment interest is appropriate 7 and, if so, at what rate and for what periods”. Id. The First Circuit affirmed the Decision and 8 Order (Carlo, B.J.) in all other matters, vacated the District Court’s judgment to the extent 9 necessary to allow for resolution of these items and remanded the case for further proceedings 10 consistent with its Opinion (Docket No. 279). 11 On June 13, 2012, the District Court issued a Mandate remanding the case back to this 12 court for further proceedings consistent with the First Circuit’s Opinion (the “Remand 13 Mandate”, Docket No. 280). 14 On March 5, 2013, the court (Lamoutte, B.J.) held a hearing on remand and ordered the 15 parties to file joint stipulations of fact and legal memoranda of law in accordance with the First 16 Circuit’s mandate. See Docket Nos. 296 (Audio File), 297 (Audio File), 298 (Minute Entry). 17 On April 17, 2013, the parties filed a Joint Stipulation of Uncontested Facts and 18 Separate Contested Facts (Docket No. 305). 19 On May 20, 2013, Redondo filed a Brief in Support of its Claims Against the Puerto 20 Rico Highway and Transport Authority for Pre-Judgment Interest and Extended Home-Office 21 Overhead Damages (Docket No. 307) arguing that it is entitled to pre-judgment interest under 22 Article 1061 of the Civil Code of Puerto Rico, 31 L.P.R.A. §3025. Redondo also claims to be 23 entitled to extended home-office overhead damages for the three projects under the Eichleay 24 25 26 7 The Opinion was published at 678 F.3d 115. 27 8 The Eichleay formula is the one established in In re Eichleay Corp., 1960 ASBCA Lexis 1207, 1960 WL 538 (Armed Services Board of Contract Appeals 1960). 1 formula since the three contracts under which they were performed do not provide for the 2 application of the percentage-of-direct-cost method9. 3 On May 20, 2013, PRHTA filed a Legal Memorandum Regarding Pre-Judgment 4 Interest (Docket No. 308) sustaining that no pre-prejudgment interest should be awarded against 5 it because Redondo waived them by never having claimed them prior to that juncture. 6 On May 31, 2013, PRHTA filed a Legal Memorandum Regarding Main Office Extended 7 Overhead (Docket No. 309) averring that although Redondo complied with two (2) of the 8 requirements of the Eichleay formula, it failed to establish a third requirement, that is, that it 9 was put on “standby”. See Docket No. 309, p. 28. 10 On June 30, 2013, PRHTA filed a Response to Redondo’s Brief Regarding Pre- 11 Judgment Interest and Extended Home-Office Overhead (Docket No. 318) arguing that 12 Redondo is not entitled to pre-judgment interest award because there was no finding of 13 obstinacy by the bankruptcy court in its Decision and Order (Carlo, B.J., Docket No. 159) and 14 that in any event, Redondo had waived pre-judgment interests under Article 1061 of the Civil 15 Code of Puerto Rico. Alternatively, PRHTA avers that if Article 1061 is applicable, the interest 16 rate should be the one established by the Financial Board of the Office of Financial Institutions 17 at the time the Judgment was entered, not the 6% per annum. Lastly, PRHTA argues that the 18 pre-judgment interest should accrue from the date of the judicial mandate of liquidation. 19 On July 1, 2013, Redondo filed a Reply Brief to the Puerto Rico Highway and 20 Transportation’s Brief (Docket No. 319) reaffirming that it is entitled to pre-judgment interest 21 at 6% per annum from the date of substantial completion of the three projects pursuant to 22 Article 1061 of the Civil Code. Redondo explicitly waived its claim to pre-judgment interest 23 under Rule 44.3 of the Puerto Rico Rules of Civil Procedure by stating that “Rule 44.3 is 24 inapplicable to the award of pre-judgment interest” and that “the applicable state law for the 25 determination of prejudgment interest is Article 1061 of the Civil Code of Puerto Rico” (Docket 26

27 9 The First Circuit’s Opinion in these cases thoroughly distinguished the Eichleay formula from the percentage-of- direct cost method. See In re Redondo, 678 F.3d at 123-125, as subsequently discussed. 1 No 319, p. 7). Redondo also restated that it is entitled to extended home-office overhead 2 damages plus interest thereon at 6% per annum and insists that the use of the Eichleay formula 3 is proper in these adversary proceedings because it meets the pertinent requirements. It sustains 4 that the evidence to support this formula has been accepted by the court and has gone 5 unopposed. 6 District Court’s Remand Mandate 7 The District Court remanded the instant case with the following mandates from the First 8 Circuit: 9 (1) Pre-Judgment Interest: In regards to pre-judgment interests, the First Circuit 10 ruled and instructed as follows:

11 When state-law claims (such as the contract claims at issue here) are adjudicated by a federal court, prejudgment interest is normally a matter of state law. 12 … 13 This brings us back to Puerto Rico pre-judgment interest rules. Before the bankruptcy court, the debtor urged in the alternative that it was entitled to pre- 14 judgment interest under Rule 44.3(b) of the Puerto Rico Rules of Civil Procedure. But this rule could not have provided a basis for the bankruptcy court’s award of 15 pre-judgment interest because the court made no finding regarding the Authority’s 16 temerity or obstinance. See Dopp v. Pritzker, 38 F.3d 1239, 1252 (1st Cir. 1994).

17 At oral argument in this court and in a post-argument letter submitted pursuant to Federal Rule of Appellate Procedure 28(j), the debtor for the first time proposed 18 two other possible bases for pre-judgment interest. See P.R. Laws Ann. tit. 31, §§ 3025, 4591. Neither of these statutes mentions pre-judgment interest as such. 19 Moreover, neither of them was cited to the bankruptcy court, and the debtor has 20 offered no plausible reason to believe that the court awarded pre-judgment interest under their aegis. 21 The upshot is that uncertainty surrounds the debtor’s putative entitlement to pre- 22 judgment interest, the source (if any) of that entitlement, the rate of interest (if any) that should be used, and the proper pre-judgment period. Consequently, we have no 23 principled choice but to remand this case to the district court with instructions to 24 vacate the award of pre-judgment interest and return the case to the bankruptcy court for a determination of whether pre-judgment interest is appropriate and, if so, 25 at what rate and for what periods. We take no view as to the outcome of this further inquiry. 26 In re Redondo, 678 F.3d at 125-126. 27 1 (2) Extended Overhead Damages: As mandated by the First Circuit, the District 2 Court remanded and instructed the Bankruptcy Court as follows:

3 Accordingly, we vacate the awards of Eichleay-based overhead damages and remand to permit recalculation of those awards using the percentage-of-direct-costs 4 method where applicable and using Eichleay only in connection with work 5 stoppages or delays (if any) of the type described above. … 6 We add a caveat. It is unclear from the record whether all of the project delays were the result of paid extra work. On remand, the bankruptcy court is free to 7 determine whether the debtor sustained uncompensated periods of delay and, if so, 8 whether Eichleay damages are appropriate for any such periods. In resolving this issue, the court should address the Authority’s argument that Federal Circuit 9 precedent bars Eichleay damages here because work on the three projects was never fully suspended. 10 In re Redondo, 678 F.3d at 124-125. 11

12 Applicable Law & Analysis 13 (A) Waiver of Claims 14 PRHTA argues that Redondo waived its rights to pre-judgment interest by not claiming 15 them under Article 1061 of the Civil Code of Puerto Rico prior to the oral arguments at the 16 before the First Circuit. See PRHTA’s Legal Memorandum Regarding Pre-Judgment Interest 17 (Docket No. 308, pp. 11-12). A review of the record shows otherwise. Redondo expressly 18 requested pre-judgment interest under Article 1061 in its Reply to Motion to Amend or Alter 19 Judgment or for New Trial Pursuant to Rule 9023 of Bankruptcy Procedure and Rule 59(A) and 20 (E) of Civil Procedure (Docket No. 174, p. 64). 21 The First Circuit has held that pre-judgment interest can be sought in post-trial briefs or 22 motions. See In re Redondo, 678 F.3d at 121-122 (allowing pre-judgment arguments for the 23 first time on post-trial motions reasoning that “elsewise parties would be required to put the cart 24 before the horse and argue about pre-judgment interest before the underlying issues of liability 25 and damages have been resolved”). Thus, the court finds that Redondo preserved the right to 26 claim pre-judgment interest under Article 1061 and did not waive such remedy. 27 1 Notwithstanding, Redondo waived pre-judgment interests under Rule 44.3(b) of the 2 Puerto Rico Rules of Civil Procedure when it stated that “Rule 44.3 is inapplicable to the award 3 of pre-judgment interest” and that “the applicable state law for the determination of 4 prejudgment interest is Article 1061 of the Civil Code of Puerto Rico” (Docket No 319, p. 7). 5 Thus, Redondo expressly waived all pre-judgment remedies under said Rule. Therefore, the 6 court will not consider any award under Rule 44.3(b). 7 (B) Pre-judgment Interests 8 “Neither the Bankruptcy Code nor the United States Code contain a general statute 9 granting pre-judgment interest. Therefore, pre-judgment interest is generally subject to the 10 court’s discretion depending on the equities of the case”. Lassman v. Keefe (In re Keefe), 401 11 B.R. 520, 526 (B.A.P. 1st Cir. 2009). In In re Redondo, 678 F.3d at 125, the First Circuit ruled 12 that:

13 [w]hen state-law claims (such as the contract claims at issue here) are adjudicated by a federal court, pre-judgment interest is normally a matter of state law. This case 14 involves disputes between parties based in Puerto Rico over contracts executed and 15 performed there. Those disputes were litigated in Puerto Rico, and the contracts at issue contain Puerto Rico choice-of-law provisions. We must therefore look to the 16 law of Puerto Rico for the substantive rules of decision anent this contract case (and thus for the rule of decision concerning pre-judgment interest). 17

18 Therefore, the court will analyze the applicability of pre-judgment interests in these cases under 19 Puerto Rico law. 20 In Puerto Rico, pre-judgment interests stem from two separate legal grounds: one is 21 procedural and the other is substantive. Each serves a different purpose and provides different 22 remedies for different conducts. The procedural pre-judgment interest penalty imposed by Rule 23 44.3(b) of the Puerto Rico Rules of Civil Procedure responds to a party’s obstinate conduct 24 during the course of the litigation. See Montañez v. U.P.R., 156 D.P.R. 395, 422-423 (2002) 25 (Rule 44.3(b) of the Puerto Rico Rules of Civil Procedure establishes the pre-judgment interest 26 on the amount of the judgment that shall be imposed on the obstinate party). The substantive 27 pre-judgment interest penalty is governed by Article 1061 of the Civil Code of Puerto Rico and 1 serves as an indemnity for damages. See Rivera v. Crescioni, 77 P.R.R. 43, 51, 77 D.P.R. 47, 2 55-56 (1954) (Article 1061 interest is considered “as an independent indemnity for damages, by 3 way of penalty, for default in payment”). Also see C&A, S.E. v. Rivera González, 2012 PR 4 App. LEXIS 4342 at **31-31, 2012 WL 6692144 at **10-11 (P.R. Ct. of Appeals 2012) (pre- 5 judgment interest under Article 1061 is different from the interest afforded under Rule 44.3(b) 6 of the Puerto Rico Rules of Civil Procedure); Bird v. McCloskey, 2005 WL 808333 at *11, 7 2005 PR App. LEXIS 411 at *31 (P.R. Ct. of Appeals 2005) (distinguishing between pre- 8 judgment interests from Rule 44.3(b) of the Puerto Rico Rules of Civil Procedure and Article 9 1061 of the Civil Code). The application of these two remedies is not mutually exclusive. 10 Redondo is no longer claiming pre-judgment interest on procedural grounds. It only claims pre- 11 judgment interest on substantive grounds, that is, under Article 1061 of the Civil Code. 12 Article 1061 of the Civil Code of Puerto Rico states as follows: 13 Interest as indemnity for nonpayment of money

14 Should the obligation consist in the payment of a sum of money, and the debtor should be in default, the indemnity for losses and damages, should there not be a 15 stipulation to the contrary, shall consist in the payment of the interest agreed upon, 16 and should there be no agreement, in that of the legal interest.

17 Until another rate is fixed by the [Puerto Rico] Government, interest at the rate of six percent (6%) per annum shall be considered as legal. 31 L.P.R.A. § 3025 18 (emphasis added). 19 Although the official translation of the Article 1061 reads “Interest as indemnity for 20 nonpayment of money” and requires a debtor to be in “default”, the original Spanish version of 21 the same Article reads as follows: 22 Intereses como indemnización en caso de mora 23 Si la obligación consistiere en el pago de una cantidad de dinero y el deudor 24 incurriere en mora, la indemnización de daños y perjuicios, no habiendo pacto en contrario, consistirá en el pago de los intereses convenidos, y a falta de convenio, en 25 el interés legal.

26 Mientras que no se fije otro por el Gobierno se considerará como legal el interés del 27 seis por ciento (6%) al año. 31 L.P.R.A. § 3025 (emphasis added). 1 There is a distinction between “default” and “mora”, although in Puerto Rico they are often 2 used interchangeably. The distinction is important because, when interpreting a Puerto Rico 3 statute, Article 13 of the Civil Code mandates that “[i]n case of discrepancy between the 4 English and Spanish texts of a statute passed by the Legislative Assembly of Puerto Rico, the 5 text in which the same originated in either house, shall prevail in the construction of said 6 statute”. 31 L.P.R.A. § 13. Also see Esso Standard Oil v. P.R.P.A., 95 P.R.R. 754, 770, 95 7 D.P.R. 772, 788 (1968) (because the act in controversy was originated in the Puerto Rico 8 Legislature in its Spanish text, interpretation of that text should prevail pursuant to Article 13 of 9 the Puerto Rico Civil Code); In re Pérez Hernández, 487 B.R. 353, 366 fn. 5 (Bankr. D.P.R. 10 2013) (explaining the legal distinction of an inconsistent translation in a Puerto Rico statute). 11 “Mora” in Spanish is defined as a delay in meeting an obligation, generally, the payment of a 12 liquid amount due. Diccionario de la Real Academia Española, vigésima edición, Tomo II 13 (1984). “Mora” in Latin translates into English as “delay”. D.P. Simpson, Cassell’s New Latin 14 Dictionary, Func & Wangalls Co., 1960, p. 379. José Puig Brutau also defines “mora” as a 15 “delay in the compliance of an obligation”. Puig Brutau, Fundamentos de Derecho Civil, Bosch 16 Editorial, Title I, Vol. II, 1985, pp. 412-413 (translation provided). Puig Brutau also 17 distinguishes between a “delay” and a “faulty delay” (“retraso culpable”). Id. at 413. The 18 “faulty delay” can be incurred by the debtor (mora solvendi) or by the creditor (mora 19 accipiendi). Id. There is delay, as opposed to a definite default, when the performance of the 20 obligation is not subject to an absolute essential deadline, that is, when the creditor’s interest is 21 not subjected to the performance of the obligation has an effect only in a determinate moment. 22 Id. When there is an absolute essential deadline to comply with an obligation, the delay is 23 equivalent to a “total default”. Id. Mora solvendi (debtor’s delay), which is subdivided into 24 solvendi ex persona and solvendi ex re, usually requires a demand for compliance 25 (“interpelación”) by the creditor. Id. Also see Gema Diez-Picazo Giménez, La mora y la 26 responsabilidad contractual, Editorial Civitas, 1st ed., 1996, pp. 534-538. In Puerto Rico, a 27 delay (“mora”) becomes a “default”, within its legal context and consequences, pursuant to 1 Article 1053 of the Civil Code, 31 L.P.R.A. § 3017. Thus, the court will analyze the application 2 of Article 1061 of the Civil Code (“mora”/“delay”) under the scope of the “default” 3 requirements of Article 1053. 4 The Supreme Court of Puerto Rico has interpreted Article 1061 to mean that “in the 5 absence of ... an express agreement the only interest which the principal of a loan accrues, after 6 maturity of the obligation, is the legal interest at the rate of six percent per annum from the date 7 on which the debtor is in default”. Piovanetti v. Vivaldi, 80 P.R.R. 108, 113-114, 80 D.P.R. 8 108, 114 (1957). Also see In re Redondo, 700 F.3d at 43, citing Viuda de Vázquez v. Vázquez 9 Cintrón, 85 P.R.R. 266, 268, 85 D.P.R. 279, 283 (1962) (default in payment occurs “as of the 10 date in which judicial or extra-judicial demand was made for payment”); De la Torre v. 11 Navajas, 34 D.P.R. 442, 446 (1925) (upholding a judgment that condemned a party to pay legal 12 interest at 6% in a collection of moneys suit from the date of extra-judicial demand); Reyes v. 13 Banco Santander de P.R., 583 F. Supp. 1444, 1447 (D.P.R. 1984) (“According to the Civil 14 Code, persons obliged to deliver or to do some act, are in default from the moment the creditor 15 demands the fulfillment of the obligations, judicially or extra-judicially ... The non-payment 16 results in the assessment of legal interest, under [31 L.P.R.A. §] 3025, in absence of a 17 stipulation to the contrary, because the obligation was one to pay a sum of money”). 18 Article 1061 is rooted in Civil Law. See Republic Sec. Corp. v. Puerto Rico Aqueduct 19 and Sewer Authority, 674 F.2d 952, 958 (1st Cir. 1982). Its purpose is the following:

20 The creditor of a sum of money who claims an indemnity because of a delay in payment is not required to prove that such delay caused him a detriment; he has the 21 right to receive interest for the delay “without being required to justify any loss.” 22 The reason for this is that he who expects his money on a certain day always suffers a detriment when he must wait for payment. Money being a fruitful thing, easy to 23 place, the creditor is always deprived of the revenue of his capital. Id. at 958, citing Planiol, M., Treatise on the Civil Law, Vol. 2, Part 1265 (Louisiana State Law 24 Institute trans. 11th ed. 1939, at pp. 158-159). 25 An award of pre-judgment interest under Article 1061 of the Civil Code does not require a 26 determination of temerity or obstinacy. See Atlas Roofing Contractors, Inc. v. Sistema 27 Universitario Ana G. Méndez, 2011 WL 2117552 at *15, 2011 PR App. LEXIS 727 at *38 1 (P.R. Ct. of Appeals 2011); Bird v. McCloskey, 2005 WL 808333 at *11, 2005 PR App. LEXIS 2 411 at *31. Moreover, pre-judgment interests under Article 1061 may be awarded even when 3 they have not been claimed in the complaint. See Fuentes v. Hull Dobbs Co., 88 P.R.R. 544, 4 553, 88 D.P.R. 562, 571 (1963); Bird v. McCloskey, 2005 WL 808333 at *11, 2005 PR App. 5 LEXIS 411 at *31. 6 In the instant case, the dates of substantial completion for each project and Redondo’s 7 extra-judicial demands for payment to PRHTA were stipulated as follows:

8 Project Date of substantial Date of extra-judicial 9 completion demand (Date claim was submitted) 10 11 Desvío Sur de Patillas March 18, 1994 February 21, 1995 12 PR#2 Mayaguez November 1, 1993 December 6, 2000 13 Dorado-Toa Alta Project September 5, 1995 N/A10 14 See Docket No. 305, pp. 4-5, ¶¶ 18-20, p. 9, ¶ 32, and p. 18, ¶ 72 (Joint Stipulation of 15 Uncontested Facts). Redondo, however, argues that PRHTA’s default in these projects goes 16 further back than the stipulated dates of extra-judicial demand. It sustains that Article 1061 17 must be read in conjunction with Article 1053 of the Civil Code (Docket No. 307, p. 32), which 18 states as follows: 19 Default; demand of creditor

20 Persons obliged to deliver or to do something are in default from the moment when the creditor demands the fulfilment of their obligation, judicially or extra-judicially. 21

22 However, the demand of the creditor, in order that default may exist, shall not be necessary: 23 (1) If the obligation or law declares it expressly. 24

25 26

27 10The Joint Stipulations of Uncontested Facts does not show a stipulation as to the date that Redondo made an extra-judicial claim in regards to the Dorado-Toa Alta Project. See Docket No. 305, pp. 20-23, ¶¶ 78-93. (2) If by reason of its nature and circumstances it may appear that the fixing of 1 the period within which the thing was to be delivered or the service rendered was a determinate cause to constitute the obligation. 2

3 In mutual obligations none of the persons bound shall incur default if the other does not fulfill or does not submit to properly fulfill what is incumbent upon him. From 4 the time one of the persons obligated fulfills his obligation the default begins for the other party. 31 L.P.R.A. § 3017. 5

6 A mutual obligation, also called bilateral or reciprocal, is one where both parties have 7 interrelated duties. See Municipio v. Vidal, 63 D.P.R. 370, 375 (1945). In other words, both 8 contracting parties are creditors and debtors to one another. See Puig Brutau, Fundamentos de 9 Derecho Civil, Tomo I, Vol. II, Ed. Bosch, Barcelona, 1976, pp. 118-119. Article 1544 of the 10 Civil Code of Puerto Rico defines a contractor agreement as a “lease of works or services” 11 where “one of the parties binds himself to execute a work or to render a service to the other for 12 a specified price.” 31 L.P.R.A. § 4013. A “lease of works or services” constitutes a mutual 13 obligation. See Constructora Bauzá, Inc. v. García López, 129 D.P.R. 579, 592 (1991), citing 14 Albaladejo, M., Comentarios al Código Civil y Compilaciones Forales, Tomo XX, Vol. 1, Jaén, 15 Ed. de Derecho Unidas, 1980, p. 98; Berríos Rojas, C., Apuntes sobre el Contrato de 16 Construcción, 13 Rev. Jur. U. Int. 461, 463 (1978-79). The owner of the project has the 17 obligation to pay as agreed and the contractor has the obligation to perform and deliver the 18 project as agreed. See Manuel Albaladejo, Derecho Civil II, Derecho de Obligaciones Vol. II, 19 Los Contratos en Particular y las Obligaciones no Contractuales, 10th ed., 1997, Bosch, 20 Barcelona, pp. 286 et seq.; Miguel A. Del Arco y Manuel Pons, Derecho de la Construcción, 21 Ed. Hesperia, 1980, pp. 41-43. 22 In Master Concrete Corp. v. Comp. de Fomento Recreativo, 152 D.P.R. 616, 630 (2000), 23 the Supreme Court of Puerto Rico ruled that in lease of works or services like the one in the 24 instant case, when the contractor reaches the “substantial completion” of the project, it is 25 entitled to payment minus the cost of repair of the imperfections. Therefore, when the 26 contractor substantially completes the project, it fulfills its obligation under the contract and has 27 upon that moment the right to be paid. Id. at 628-629. The Supreme Court of Puerto Rico also 1 considered the equitable doctrine of unjust enrichment in reaching its conclusion. It reasoned 2 that the unjust enrichment in favor of the owner to receive a substantially completed 3 construction without paying for it must be prohibited. Id. at 629-630. 4 This court adopts the reasoning in Master Concrete Corp. and applies the same to the 5 instant case, concluding that Redondo’s substantial completion of the projects triggered the 6 exception of the demand for payment provided in Article 1053 of the Civil Code to activate 7 PRHTA’s default. Also see José R. Vélez Torres, Derecho de Obligaciones, San Juan, 8 Interamerican University School of Law, 1997, p. 262. As a result, PRHTA became in default 9 upon the following stipulated dates of substantial completion:

10 Project Date of substantial completion 11 Desvío Sur de Patillas March 18, 1994 12 PR #2 Mayaguez November 1, 1993 13 Dorado-Toa Alta Project September 5, 1995 14

15 16 See Docket No. 305 (Joint Stipulation of Uncontested Facts), pp. 4-5, ¶¶ 18-20. 17 PRTHA tepidly argues that “[t]he only cases Redondo could cite to show that in Puerto 18 Rico there have been awards of interest under [A]rticle 1061, are from 1982 and 1991” and that 19 “[b]oth of those cases were solved before the Government of Puerto Rico bestowed upon the 20 Office of the Commissioner of Financial Institutions the faculty to establish what is the 21 prevalent rate of interest upon judgments, which is also the rate of interest used under Puerto 22 Rico’s only substantive law that expressly regards pre-judgment interest (i.e. Rule 44.3 (b) of 23 Civil Procedure)” (Docket No. 318, p. 12, ¶ 42). In other words, PRHTA seems to suggest that 24 Article 1061 provides that the 6% pre-judgment interest is only applicable “[u]ntil another rate 25 is fixed by the [Puerto Rico] Government” and that on October 25, 1988, the Commissioner of 26 Financial Institutions adopted Regulation No. 78-1 (“Regulation No. 78-1”), which establishes 27 1 interests in final and binding judgments. PRTHA apparently contends that Regulation No. 78-1 2 supersedes the 6% established in Article 1061. The court is not moved by such argument. 3 Puerto Rico’s Act No. 78, enacted on July 11, 1988, amended former Rule 44.3 of the 4 Puerto Rico Rules of Civil Procedure, 32 L.P.R.A. Ap. III R. 44.3 (1979), to delegate onto the 5 Office of the Financial Institutions Commissioner the authority to implement the necessary 6 regulation to establish the pre-judgment and post-judgment interests afforded in Rule 44.3, 7 which had until then provided a fixed interest rate of 12%. See Gutiérrez Calderón v. A.A.A., 8 167 D.P.R. 130, 136-140 (2006) (explaining the purpose of Act No. 78 enacted on July 11, 1988 9 and its effect on Rule 44.3 of the Puerto Rico Rules of Civil Procedure); Section 1 of Regulation 10 78-1; Article 2 of Puerto Rico’s Act No. 78 enacted on July 11, 1988, p. 360. Regulation No. 11 78-1 only governs the pre-judgment interest afforded in Rule 44.3 of the Puerto Rico Rules of 12 Civil Procedure, not the one afforded in Article 1061 of the Civil Code. Therefore, the court 13 concludes that the 6% per annum is the applicable interest rate for pre-judgment interest under 14 Article 1061. Also see C&A, S.E. v. Rivera González, 2012 PR App. LEXIS 4342 at **31-31, 15 2012 WL 6692144 at **10-11 (applying the legal interest afforded in Article 1061 at the rate of 16 6% per annum). 17 Consequently, Redondo is entitled to pre-judgment interest to be calculated at a 6% 18 interest per annum with an accrual period starting from the stipulated dates of substantial 19 completion until PRHTA’s final payment on the principal of the principal amounts for each 20 project. 21 (C) Extended Overhead Damages 22 “[PRHTA] challenge[d on appeal] only the award of home-office overhead, not the 23 award of job-site overhead. Consequently, all references herein to extended overhead damages 24 should be read as referring exclusively to home-office overhead.” In re Redondo, 678 F.3d at 25 123, fn. 4. 26 The First Circuit defined “extended overhead damages” as those that “compensate a 27 contractor for unabsorbed home-office expenses that accrue during a delay caused by the 1 owner.” In re Redondo, 678 F.3d at 123. “Overhead is commonly defined as those costs which 2 are expended for the benefit of the business as a whole and which usually accrue over time … 3 overhead costs are therefore not directly attributable to specific contracts, for if they were, they 4 would constitute direct costs.” Aircraft Gear Corporation v. Kaman Aerospace Corporation, 5 875 F. Supp. 485, 495 (N.D. Ill. 1995). Also see Southwestern Engineering Co. v. Cajun, 915 6 F.2d 972, 978 (5th Cir. 1990) (“extended overhead is a concept unique to construction 7 contracting and is defined as the additional costs incurred when a job’s performance period is 8 prolonged”). Hence, home-office overhead expenses, unlike the direct costs of labor, materials 9 or equipment, are not incurred solely for a particular project. They typically include the cost of 10 accounting and payroll services, general insurance, salaries of upper-level management and 11 marketing costs. Home-office overhead is an actual dollar cost that is an essential part of a 12 contractor’s cost of doing business. See William Schwartzkopf and John J. McNamara, 13 Calculating Construction Damages, Aspen Law & Business, 2nd ed., 2001,§ 602, p. 124. The 14 rationale for compensating a contractor for unabsorbed home-office expenses that accrue during 15 a delay is the following:

16 when completion of a project is delayed, the contractor continues to incur home- office costs during the delay period, and extended overhead damages offset those 17 costs when the delay is caused by the owner. In re Redondo, 678 F.3d at 124 18 (emphasis added). 19 When a project is extended beyond the time originally agreed for its execution by reason of 20 delays due to the action or inaction of the owner, the costs incurred by the contractor after the 21 original date set for the completion of the project are not included as part of the risks assumed 22 by the contractor and the contractor has the right to be compensated for all damages and 23 increased costs incurred. See U.S. Steel Corp. v. Missouri Pacific Railroad, 668 F.2d 435, 441 24 (8th Cir. 1982). 25 To calculate an award for extended overhead damages, the First Circuit distinguished 26 between (a) projects where the delay is due to “necessary but unanticipated work” and (b) 27 projects where the delay does not arise from a need to perform extra work. In re Redondo, 678 1 F.3d at 124. When a project is delayed due to “necessary but unanticipated work” for which the 2 contractor is entitled to compensation, extended overhead is calculated as a percentage of the 3 direct costs of the additional work. “This percentage-of-direct-costs approach comports with 4 standard practice in the construction industry under which a contractor normally charges an 5 owner a percentage of a project’s direct costs to cover its overhead.” Id. at 124. Conversely, 6 when a project’s delay does not arise from a need to perform extra work, for instance, when the 7 owner causes a total work stoppage, the percentage-of-costs approach would deny the contractor 8 any overhead damages for the delay period. Id. In those instances, courts use the Eichleay 9 formula, which “calls for multiplying the average daily overhead costs allocable to a project by 10 the number of days that the project is delayed.” Id. 11 On remand, the First Circuit instructed as follows:

12 In the case at hand, the bankruptcy court employed Eichleay to calculate [Redondo’s] extended overhead damages. See Redondo I, 411 B.R. at 95, 108. But 13 the court mixed apples and oranges; it used Eichleay across the board even though 14 it found that at least some of the project delays were attributable to extra work for which the debtor was compensated. See, e.g., id. at 95, 97, 104-05. For those 15 delays, extended overhead should have been awarded as a percentage of the direct costs associated with the projects’ change orders and extra work orders. See C.B.C. 16 Enters., Inc. v. United States, 978 F.2d 669, 675 (Fed. Cir. 1992) (“[I]t is 17 inappropriate to use the Eichleay formula to calculate home office overhead for contract extensions because adequate compensation for overhead expenses may 18 usually be calculated more precisely using a fixed percentage formula.”).

19 The bankruptcy court gave no reason for eschewing the conventional percentage-of- direct-costs calculation as a measure of overhead damages in those instances, and 20 no compelling reason is apparent on the face of the record. Without more precise 21 findings or a better explanation, this portion of the awarded damages cannot be allowed to stand. Accordingly, we vacate the awards of Eichleay-based overhead 22 damages and remand to permit recalculation of those awards using the percentage- of-direct-costs method where applicable and using Eichleay only in connection with 23 work stoppages or delays (if any) of the type described above.

24 The direct costs, of course, are a matter of proof. The applicable percentage should 25 be that used in connection with the original contracts (presumably specified in the contract documents). 26 We add a caveat. It is unclear from the record whether all of the project delays were 27 the result of paid extra work. On remand, the bankruptcy court is free to determine whether the debtor sustained uncompensated periods of delay and, if so, whether 1 Eichleay damages are appropriate for any such periods. In resolving this issue, the court should address the [PRHTA]’s argument that Federal Circuit precedent bars 2 Eichleay damages here because work on the three projects was never fully 3 suspended. See P.J. Dick Inc. v. Principi, 324 F.3d 1364, 1371 (Fed. Cir. 2003).

4 In re Redondo, 678 F.3d at 124-125 (footnote omitted).

5 The mandated task of this court is to find whether the delays in the three projects were 6 due to “necessary but unanticipated work” (to which the court must apply the percentage-of- 7 direct-costs approach) or whether the delay did not arise from a need to perform extra work (to 8 which the court must apply the Eichleay formula)11. The query further translates into finding if 9 Redondo was compensated for the extra work performed caused by the delay. See In re 10 Redondo, 678 F.3d at 124. If the extra work was compensated, then “the extended overhead 11 should [be] awarded as a percentage of the direct costs associated with the projects’ change 12 orders and extra work orders”. Id. The stipulations filed by the parties are not clear as to 13 whether Redondo was compensated or not for the extra work. PRTHA sustains that “all the 14 extension of times granted … to Redondo in the three projects were the result of ‘such 15 additional work’ (i.e., the additional time is granted in the change order or extra work 16 documents signed by the parties)” which warrants the use of the “percentage-of-direct-costs 17 method”. PRHTA’s Legal Memorandum Regarding Main Office Overhead, Docket No. 309, p. 18 14, ¶¶ 23-24. Redondo does not address the “percentage-of-direct-costs method” and instead 19 focuses its arguments towards the application of the Eichleay formula12. 20 Conversely, if the extra work performed by Redondo in the three projects was not 21 compensated, then the court must apply the Eichleay formula if its basic requirements are met. 22 In re Redondo, 678 F.3d at 124. 23

24 11 The court will only consider the arguments relevant to the First Circuit’s express mandate. 12In its Brief in Support of Its Claims Against [PRHTA] for … Extended Home-Office Overhead Damages, 25 Redondo avers that “[t]he parties have agreed that in the case of damages for delay, the recovery of additional overhead in a public contract setting is governed by the standards adopted in In re Eichleay” (Docket No. 309, p. 26 37). Redondo did not provide any reference whatsoever to that stipulation and the court could not find it in Docket No. 305 (Joint Stipulations). In fact, the only reference to the Eichleay case in the Joint Stipulations by the parties 27 (Docket No. 305) is found in p. 10, ¶ 39, and only to state that “[i]n computing the extended general and homeoffice overhead, Eng. Mercado also used the Eichleay formula”. 1 In P.J. Dick Inc. v. Principi, 324 F.3d at 1370, the Court of Appeals for the Federal 2 Circuit established a three-prong test for the application of the Eichleay formula:

3 First, the contractor must show that the government-caused delay was not only substantial but was of an indefinite duration. 4 … 5 Second, the contractor must show that during that delay it was required to be ready to resume work on the contract, at full speed as well as immediately. 6 … Third, the contractor must show effective suspension of much, if not all, of the work 7 on the contract. 8 Once the contractor has proven these three elements, the “burden of production shifts to the 9 government to show that it was not impractical for the contractor to take on replacement work 10 and thereby mitigate its damages.” Id. at 1370. “If the government meets its burden of 11 production, however, the contractor bears the burden of persuasion that it was impractical for it 12 to obtain sufficient replacement work.” Id. 13 In the instant case, Redondo sustains that it complies with all three requirements. 14 PRHTA acknowledges that the first and third requirements were established during the trial 15 (Carlo, B.J.) and only contests that Redondo remained on standby during the delay. See 16 PRHTA’s Legal Memorandum Regarding Main Office Extended Overhead (Docket No. 309, p. 17 28, ¶ 52: “Redondo’s compliance with … two (2) requirements for the application of the 18 Eichleay formula was established by the … court in its [Decision] and Order [referring to the 19 first and third requirements established in Principi, supra]”). In other words, PRHTA concedes 20 that it caused delay in the projects and that Redondo incurred in additional expenses because of 21 the delay. In fact, Judge Carlo expressly determined that: 22 [Redondo] has proven the disruptions in the work performed and therefore 23 established an entitlement to inefficiency claims against PRHA. There was a reduction in the expected productivity of labor and equipment, which went well 24 beyond the normal range of disruption inherent in the construction process. These delays were caused solely by compensable events within the control of [PRHTA]. 25

26 In re Redondo, 411 B.R. at 105. 27 1 PRTHA asseverates, however, that the Decision and Order (Carlo, B.J.) never determined that 2 Redondo remained on “standby” during that delay and that,by its own admission, Redondo 3 worked continuously throughout the entire duration of the three projects. In other words, 4 PRHTA argues that a determination of “standby” is the sine qua non requirement for an award 5 for overhead damages under the Eichleay formula and that Redondo was never on “standby” 6 because it never stopped working. In its own words, PRHTA contends as follows:

7 In regards to the mandated application of the Eichleay formula, as there was no delay period other than that created by the additional work there is no need to 8 employ[] such method. Furthermore, even if Redondo points out to the record 9 which delay periods were not created by the additional work, then the absence of its standby makes the formula inapplicable and hence no compensation to be granted. 10 (Docket No. 309, p. 15, ¶ 26). 11 PRHTA proposes that for the Eichleay formula to be applied, there must be a “total stoppage of 12 work” and that in the instant case, “Redondo is unable to point out to the record where … 13 ‘partial stoppages’ (much less total stoppages) were evidenced before this … court” (Docket 14 No. 309, p. 12, ¶ 18). Redondo replies that it “continued work on the projects because the 15 PRHTA represented that at their end, [Redondo] would be paid for its extra work.” Redondo’s 16 Brief in Support of its Claims … for Home-Office Extended Overhead (Docket No. 307, p. 39). 17 Redondo also argues that Judge Carlo accepted Redondo’s testimony that the policy of the 18 PRHTA’s executive director, Dr. González, was to deal with the claims for extended overhead 19 at the conclusion of the contracts, that the PRHTA’s officers represented that this would be 20 dealt with at another time, at another level, and that Redondo relied on these representations and 21 continued working under those assumptions. See Redondo’s Brief in Support of its Claims … 22 for Home-Office Extended Overhead (Docket No. 307, p. 39). Redondo also claims that it 23 could not accept any other work or project because it was being strung along by PRHTA. See 24 Redondo’s Brief in Support of its Claims … for Home-Office Extended Overhead (Docket No. 25 307, p. 39). Based on the foregoing, Redondo sustains the Eichleay formula applies to “partial 26 suspensions”, not just “total suspensions”, and hence, “if some components of a contractor’s 27 business are committed to one project and cannot be committed to another project, then the 1 contractor’s business is at a practical standstill” (Redondo’s Brief in Support of its Claims … for 2 Home-Office Extended Overhead, Docket No. 307, p. 40). Redondo further argues that it “was 3 expected to return to work immediately when and as the foregoing conditions were rectified and 4 resolved”, that “PRHTA could have established a schedule for when [Redondo] could leave the 5 sites and found work elsewhere, to return when the PRHTA addressed and solved many 6 problems” and that “PRHTA cannot be heard to complain when it did not do that, but instead 7 insisted that RCC remain on the jobs, ready to resume work at any time” (Redondo’s Brief in 8 Support of its Claims … for Home-Office Extended Overhead, Docket No. 307, p. 41). 9 The “standby” requirement for the application of the Eichleay formula is essential for 10 the disposition in the instant adversary proceedings, especially since one of the main 11 considerations in the First Circuit’s Opinion is that “[d]espite the plethora of problems [in the 12 projects] … the record contains no evidence that the work on any of [them] was ever suspended 13 or that [Redondo] was placed on standby for any period of time.” In re Redondo, 678 F.3d at 14 119-120. 15 Because the parties have stipulated that Puerto Rico law is controlling13, the court must 16 first consider how Puerto Rico courts have interpreted the Eichleay “standby” requirement. 17 This court has not found any case where the Supreme Court of Puerto Rico has interpreted the 18 Eichleay formula. The Court of Appeals of Puerto Rico, however, has been faced with Eichleay 19 controversies and has repeatedly applied the formula and its requirements. See e.g. Las Piedras 20 Constr. Corp. v. Autoridad de Carreteras y Transportación de P.R., 2007 PR App. LEXIS 1922, 21 2007 WL 2381348 (P.R. Ct. of Appeals 2007); Constructora I. Meléndez, S.E. v. Autoridad de 22 Carreteras y Transportación de P.R., 2005 PR App. LEXIS 2705, 2005 WL 2837530 (P.R. Ct. 23 13¶ 22 of the Joint Stipulations of Uncontested Facts reads as follows: 24 The master contract for each of the three (3) projects is contained in a contract book that 25 incorporates as an integral part thereof the award, the bid documents, the plans and specifications and general provisions. It also incorporates the Puerto Rico Department of Transportation and Public 26 Works and Highway Authority’s “Standard Specifications for Road and Bridge Construction of 1989”, known as the “Blue Book”. All three (3) contracts state at page 2 paragraph 4 that “[t]he 27 parties hereto agree that the contract in all things be governed by the laws of Puerto Rico”. (Docket No. 305, p. 5, ¶ 22, emphasis added). 1 of Appeals 2005); Del Valle Group, S.E. v. Municipio de Cataño, 2009 PR App LEXIS 3711, 2 2009 WL 5736731 (P.R. Ct. of Appeals 2009); C&A, S.E. v. Rivera González, supra; Belmec 3 Construction, Inc v. Trujillo Alto Metal Corp., 2010 PR App. LEXIS 2645, 2010 WL 4791504 4 (P.R. Ct. of Appeals 2010). In Del Valle Group, S.E. v. Municipio de Cataño, supra, the Court 5 of Appeals of Puerto Rico faced the particular controversy of whether the “standby” 6 requirement for the application of the Eichleay formula implies “total work stoppage” or 7 whether it also includes “partial work stoppage”. In that case, a special master was appointed 8 by the Puerto Rico Court of First Instance (“PR Court of First Instance”), Superior Court of 9 Bayamón, pursuant to Rule 41 of the Puerto Rico Rules of Civil Procedure, 32 L.P.R.A. Ap. III 10 R. 41 (1979)14. After receiving the evidence submitted by the parties, the special master 11 determined that the “standby” requirement admitted both “partial” and “total” work stoppage. 12 The PR Court of First Instance rejected the report made by the special master and dismissed the 13 case. On appeal, the Puerto Rico Court of Appeals reversed the judgment by the Court of First 14 Instance and remanded it with specific instructions to consider the merits of the report prepared 15 by the special master. 2009 PR App LEXIS 3711 at **31-32, 2009 WL 5736731 at *11-12. No 16 further history as to the ultimate outcome of that case is available. Hence, Del Valle Group, 17 S.E. v. Municipio de Cataño, supra, is not enlightening as to the ultimate outcome of that 18 controversy. Therefore, because reported Puerto Rico case law does not address this particular 19 quandary, the court turns to the Opinion in Reconsideration of the seminal case of Eichleay, 20 1960 ASBCA LEXIS 1001, 1960 WL 684, 61-1 B.C.A. (CCH) P2894 (A.S.B.C.A. 1960), 21 where the Armed Services Board of Contract Appeals clarified the type of suspension that 22 constitutes “standby”:

Performance of the contracts was at no time completely suspended and the delays 24 were not continuous. One item of work would be suspended, then another and so 25 on through an extended series of suspensions. The partial suspensions were lifted at innumerable, varying intervals over a prolonged period of time with the issuance of 26

27 14 Fed. R. Civ. P. 53 is the federal counterpart of Rule 41 of the Puerto Rico Rules of Civil Procedure, supra, and its subsequent amendment 32 L.P.R.A. Ap. V R. 41 (2009). the numerous modifications providing for changes in the contracts. Under these 1 circumstances it would not have been prudent or practical for appellant either to risk the layoff of Home Office personnel or facilities, or, on the other hand, to absorb 2 personnel and facilities so made idle by taking on new commitments. 3 4 Moreover, in Capital Electric Co. v. United States, 83-2 B.C.A. (CCH) P 16,548, at 82,302, 5 1983 GSBCA LEXIS 86, 1983 WL 7572(GSBCA 1983), rev’d on other grounds, 729 F.2d 743 6 (Fed. Cir. 1984), the General Services Administration Board of Contract Appeals applied the 7 Eichleay formula to compensate the uncertainty caused by suspension, disruption or delay of 8 contract performance because, although its work was never completely stopped, the contractor’s 9 work was “unreasonably delayed and disrupted” for 302 days such that it “was never able to 10 man the job as planned.” The key element of uncertainty, engendered by the fact of disruption, 11 suspension or delay of contract performance, has been present whenever courts or the Boards of 12 Contract Appeals have permitted extended home office overhead to be calculated under the 13 Eichleay formula. See e.g. Weaver-Bailey Contractors, Inc. v. United States, 19 Cl. Ct. 474, 477 14 (1990) (government’s inaccurate estimate caused delay that was unforeseeable and beyond 15 control of the contractor); A.A. Beiro Constr. Co., 91-3 B.C.A. (CCH) P 24,149, at 120,844 16 (ENGBCA 1991) (duration of delays uncertain so that contractor could not divert resources to 17 other work); Cieszko Constr. Co., 88-1 B.C.A. (CCH) P 20,223, at 102,417 (ASBCA 1987) 18 (contractor put off-site for six weeks while government procured appropriate doors; government 19 caused further delays due to sludge removal); Shirley Contracting Corp., 85-1 B.C.A. (CCH) P 20 17,858, at 89,399-400 (ASBCA 1984) (lengthy suspension of work because of government 21 inability to authorize changes due to lack of funds meant that contractor was uncertain as to 22 when work might resume); Excavation-Constr., Inc., 82-1 B.C.A. (CCH) P 15,770, at 78,067-68 23 (ENGBCA 1982) (virtually impossible to trace directly the effect of each separate delay that 24 reached a total of 66 days); Savoy Constr. Co., 85-2 B.C.A. (CCH) P 18,073, at 90,723 25 (ASBCA 1985) (changes at the beginning of the project continued sporadically throughout the 26 period of construction causing “unknown length of delays”). Also see Williams Enters., Inc. v. 27 Sherman R. Smoot Co., 938 F.2d 230 (D.C. Cir. 1991) (private contractor allowed to recover 1 overhead expenses from subcontractor due to delay caused by subcontractor’s negligence). In 2 all of these cases, “when disruption, suspension or delay caused by the government has reduced 3 the stream of direct costs in a contract, it [was] appropriate to use the Eichleay formula to 4 calculate extended home office overhead instead of the fixed percentage rate formula because 5 the latter would not adequately compensate the contractor for extended home office overhead.” 6 C.B.C. Enterprises v. United States, 978 F.2d at 674. 7 Thus, the court concludes that contrary to PRHTA’s assertion, the “standby” 8 requirement of the Eichleay formula is met if the evidence shows that the owner submitted the 9 contractor to total or partial suspensions, delays or disruptions that unreasonably delayed and 10 disrupted the contractor such that it was never able to man the job as planned. 11 Because the Joint Stipulations filed by the parties do not address whether the extra work 12 performed by Redondo in the three projects were the result of “necessary but unanticipated 13 work” or whether the delay did not arise from a need to perform extra work as mandated by the 14 First Circuit, the court orders the parties to file additional stipulations to that effect or separate 15 briefs making specific references to the evidence submitted during the trial to that effect and 16 attaching copies of the same. 17 If the extra work performed by Redondo in the three projects was the result of 18 “necessary but unanticipated work” and the percentage-of-direct-costs method is applicable, the 19 parties shall stipulate and/or brief the court on the percentage to be applied to the corresponding 20 costs (via change orders and/or extra work orders15) making specific references to the evidence 21 submitted during the trial to that effect and attaching copies of the same. 22 If the Eichleay formula is to be applied, the court further orders the parties to stipulate 23 the calculation of such damages and/or file separate briefs that include specific references to the 24 evidence submitted during the trial to that effect and attaching copies of the same. 25 26

27 15 See In re Redondo, 678 F.3d at 124. 1 (D) Interest on Damages 2 Redondo also seeks the application of pre-judgment interests for overhead damages. 3 See Docket No. 307, p. 44 (seeking compensation for the “extended home-office overhead 4 damages yet to be paid and their corresponding interest”). Redondo did not state the legal 5 ground to support such request and PRHTA did not address it. 6 As stipulated by the parties, Puerto Rico law is controlling in these three adversary 7 proceedings (Docket No. 305, p. 5, ¶ 22). The only case addressing this issue is C&A, S.E. v. 8 Rivera González, 2012 PR App. LEXIS 4342 at **11-17, 2012 WL 6692144 at **4-6, where 9 the Court of Appeals of Puerto Rico affirmed a judgment from the PR Court of First Instance 10 that awarded pre-judgment interests to overhead damages under Article 1061 of the Civil Code 11 of Puerto Rico. “Where a jurisdiction’s highest court has not spoken on a precise issue of law 12 … [federal courts] look to analogous state court decisions, persuasive adjudications by courts of 13 the states, learned treatises, and public policy considerations ... in order to make an informed 14 prophecy of how the Puerto Rico Supreme Court would rule.” Rodríguez-Surís v. Montesinos, 15 123 F.3d 10, 13 (1st Cir. 1997). Also see Pérez-Trujillo v. Volvo Car Corp., 137 F.3d 50, 55 16 (1stCir. 1998); Isla Nena Air Servs. v. Cessna Aircraft Co., 449 F.3d 85, 88 (1stCir. 2006). 17 The court will follow the Court of Appeals of Puerto Rico in C&A, S.E. v. Rivera 18 González, supra, and will award pre-judgment interest to home-office overhead damages under 19 Article 1061 of the Civil Code of Puerto Rico. 20 Conclusion 21 Upon the District Court’s Remand Mandate (Docket No. 280), and based on the 22 foregoing, the court concludes and orders as follows: 23 (a) Pre-judgment interest: Redondo is entitled to 6% pre-judgment interest under 24 Article 1061 of the Civil Code of Puerto Rico, 31 L.P.R.A. § 3025, with an accrual period 25 starting from the stipulated dates of substantial completion until PRHTA’s final payment on the 26 principal of the principal amounts for each project. Partial judgment will be entered 27 accordingly. 1 (b) Extended Overhead Damages: Because the Joint Stipulations filed by the parties 2 ||do not address whether the extra work performed by Redondo in the three projects were the 3 result of “necessary but unanticipated work” or whether the delay did not arise from a need to 4 perform extra work as mandated by the First Circuit, the court orders the parties to file 5 || additional stipulations to that effect or separate briefs making specific references to the evidence 6 || submitted during the trial to that effect and attaching copies of the same. 7 If the extra work performed by Redondo in the three projects was the result of 8 || “necessary but unanticipated work” and the percentage-of-direct-costs method is applicable, the 9 || parties shall stipulate and/or brief the court on the percentage to be applied to the corresponding 10 || costs (via change orders and/or extra work orders) making specific references to the evidence 11 || submitted during the trial to that effect and attaching copies of the same. 12 If the Eichleay formula is to be applied, the court further orders the parties to stipulate 13 || the calculation of such damages and/or file separate briefs that include specific references to the 14 || evidence submitted during the trial to that effect and attaching copies of the same. 15 Stipulations and/or briefs shall be filed within 30 days. 16 SO ORDERED. 17 In San Juan, Puerto Rico, this 10° day of January, 2014. 18

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