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

• Court: United States Bankruptcy Court, D. Puerto Rico
• Decided: January 21, 2015
• Docket: 03-00195
• Status: Unknown

Opinion

1 IN THE UNITED STATES BANKRUPTCY COURT 2 FOR THE DISTRICT OF PUERTO RICO

3 IN RE: CASE NO. 02-02887 (ESL)

4 REDONDO CONSTRUCTION CHAPTER 11 CORPORATION 5

6 Debtor REDONDO CONSTRUCTION ADV. PROC. NO. 03-00192 (ESL) 7 CORPORATION ADV. PROC. NO. 03-00194 (ESL) ADV. PROC. NO. 03-00195 (ESL) 8 Plaintiff

9 vs. 10 PUERTO RICO HIGHWAY AND 11 TRANSPORTATION AUTHORITY

12 Defendant 13 OPINION AND ORDER 14 15 These adversary proceedings are before the court upon the Motion in Compliance with 16 Opinion and Order (the “Motion in Compliance”) filed by Plaintiff Redondo Construction Corp. 17 (“Redondo”) (Adv. Proc. No. 03-00192 Docket No. 362, Adv. Proc. No. 03-00194 Docket No. 18 340 and Adv. Proc. No. 03-00195 Docket No. 265). The Opinion and Order is published at 513 19 B.R. 772 (Bankr. D.P.R. 2014) and makes reference to a prior Opinion and Order published at 20 505 B.R. 388 (Bankr. D.P.R. 2014)1. Both contain the procedural background of the instant 21 adversary proceedings. Each adversary proceeding corresponds to a different project where 22 Redondo intervened as a contractor: Adv. Proc. No. 03-00192 corresponds to project Desvío 23 Sur de Patillas (“Desvío Sur de Patillas”), Adv. Proc. No. 03-00194 corresponds to PR 2 24 Mayaguez (“PR 2 Mayaguez”), and Adv. Proc. No. 03-00195 corresponds to Dorado-Toa Alta 25 (“Dorado-Toa Alta”). Also before the court is the Motion for Entry of Order Vacating Home- 26 Office Overhead Damages (the “Motion to Vacate Overhead Damages”, Adv. Proc. No. 03-

27 1 The Opinion and Order published at 505 B.R. 388 was affirmed by the U.S. District Court for the District of 1 00192 Docket No. 369, Adv. Proc. No. 03-00194 Docket No. 341 and Adv. Proc. No. 03-00195 2 Docket No. 320) filed by defendant Puerto Rico Highway and Transportation Authority 3 (“PRHTA”). For the reasons stated below, Redondo’s Motion in Compliance is hereby denied. 4 Procedural Background 5 On January 13, 2014, this court entered an Opinion and Order in the instant adversary 6 proceedings granting Redondo pre-judgment interest at six percent (6%) under Article 1061 of 7 the Civil Code of Puerto Rico, 31 L.P.R.A. § 3025, with an accrual period starting from the 8 stipulated dates of substantial completion until PRHTA’s final payment on the principal of the 9 principal amounts for each project. In re Redondo, 505 B.R. at 408-409. In regards to the 10 extended home-office overhead damages, the court ordered as follows:

11 Because the Joint Stipulations filed by the parties do not address whether the extra 12 work performed by Redondo in the three projects were the result of “necessary but unanticipated work” or whether the delay did not arise from a need to perform extra 13 work as mandated by the [Court of Appeals for the] First Circuit [the “First Circuit”2], the court orders the parties to file additional stipulations to that effect or 14 separate briefs making specific references to the evidence submitted during the trial to that effect and attaching copies of the same. 15

16 If the extra work performed by Redondo in the three projects was the result of “necessary but unanticipated work” and the percentage-of-direct-costs method is 17 applicable, the parties shall stipulate and/or brief the court on the percentage to be applied to the corresponding costs (via change orders and/or extra work orders) 18 making specific references to the evidence submitted during the trial to that effect and attaching copies of the same. 19

20 If the Eichleay[3] formula is to be applied, the court further orders the parties to stipulate the calculation of such damages and/or file separate briefs that include 21 specific references to the evidence submitted during the trial to that effect and attaching copies of the same. 22 In re Redondo, 505 B.R. at 409. 23

24 On July 14, 2014, the court entered a further Opinion and Order ruling as follows: 25 26 2 See Redondo Constr. Corp. v. P.R. Highway & Transp. Auth. (In re Redondo), 678 F.3d 115 (1st Cir. 2012). 27 3 The Eichleay formula is the one established in In re Eichleay Corp., 1960 ASBCA Lexis 1207, 1960 WL 538 In view of the foregoing, pursuant to the First Circuit’s rulings and mandate[4], 1 the court concludes the Eichleay formula is inapplicable to the instant adversary 2 proceedings. Redondo’s claims for home-office overhead damages are only allowed under the percentage-of-direct-costs approach. The court orders the 3 parties to file joint or separate motions within 30 days providing evidence of how Redondo has already been compensated for overhead damages, if at all, through 4 the percentage-of-direct-costs approach. If Redondo has not been compensated through the percentage-of-direct-costs approach,the parties are hereby ordered to 5 provide the calculation of such damages using that approach making specific 6 references to the evidence submitted during the trial to that effect and attaching copies of the same. Failure to do so as instructed will result in the court deeming 7 these damages paid and/or forfeited.

8 In re Redondo, 513 B.R. at 778-779. 9 On August 18, 2014, Redondo filed the Motion in Compliance (Adv. Proc. No. 03- 10 00192 Docket No. 362, Adv. Proc. No. 03-00194 Docket No. 340 and Adv. Proc. No. 03-00195 11 Docket No. 265) contending that it is entitled to the extended home-office overhead damages 12 for each of the three projects. For the PR-2 Mayaguez project, Redondo argues it is entitled to 13 damages for extended home-office overhead under the percentage-of-direct-costs approach, 14 whereas for the remaining two projects, to wit, Desvío Sur de Patillas and Dorado-Toa Alta, 15 Redondo contends that PRHTA has conceded the claim for extended home-office overhead 16 damages because it forfeited the opportunity granted by the court to file its brief on Redondo’s 17 overhead damages5 and thus the overhead damages for those two projects are uncontested. 18 On August 20, 2014, PRHTA filed the Motion to Vacate Overhead Damages (Adv. 19 Proc. No. 03-00192 Docket No. 369, Adv. Proc. No. 03-00194 Docket No. 341 and Adv. Proc. 20 No. 03-00195 Docket No. 320) contending that: (a) “Redondo has already received payments 21 for all extended overhead damages for all claims per the Bankruptcy Court Judgment for all 22 adversary proceedings at issue”; (b) Redondo’s “only proof in support of the home office 23 overhead is the application of the Eichleay Formula” because it made “no reference whatsoever 24 to proof regarding the way [its] operational expenses were affected”; and (c) “Redondo is not

25 4 In re Redondo Construction Corp., 678 F.3d 115 (1st Cir. 2012). 26 5 On February 12, 2014, PRHTA filed its Brief in compliance with the Opinion and Order, 513 B.R. at 778-779, only for the PR 2 Mayaguez Project (Adv. Proc. 03-00194 Docket No. 290), not for the other two projects (Adv. Proc. Nos. 03-00192 and 03-00195), informing that it “was [not] able to prepare [them] within the strict time 27 constraints set by the [] court” (Adv. Proc. 03-00194 Docket No. 307, p. 5, ¶ 16). PRHTA did not request an 1 entitled to any extended home office overhead damages, and the profit awards must be 2 proportionately reduced”. Hence, PRTHA “requests that the [] court vacate the awards for the 3 extended home office overhead [referring to the Opinion and Order, 513 B.R. 772], modify the 4 resulting profit awards, and order Redondo to disclose the precise amount paid from the 5 PRHTA funds deposited on Case No. 10-1371, in order to determine whether it has received 6 more than it is due”. 7 On August 29, 2014, Redondo filed a Reply to Motion for Entry of Order Vacating 8 Home-Office Overhead Damages (Adv. Proc. No. 03-00192 Docket No. 371, Adv. Proc. No. 9 03-00194 Docket No. 342 and Adv. Proc. No. 03-00195 Docket No. 321) reiterating that it has 10 not been compensated for its extended home-office overhead damages and that it has 11 established its entitlement thereto. 12 On September 15, 2014, PRHTA filed a Surreply to “Reply to Motion for Entry of 13 Order…” (Adv. Proc. No. 03-00192 Docket No. 374, Adv. Proc. No. 03-00194 Docket No. 345 14 and Adv. Proc. No. 03-00195 Docket No. 324) averring that “[a]ll of the evidence propounded 15 by [Redondo in support of its extended overhead damages] are exactly the same proof and 16 arguments in support of its Eichleay formula application, which th[e] Court already declined”. 17 On September 25, 2014, Redondo filed a Response to Sur-Reply to Reply to Motion for 18 Entry of Order (Adv. Proc. No. 03-00192 Docket No. 377, Adv. Proc. No. 03-00194 Docket 19 No. 348 and Adv. Proc. No. 03-00195 Docket No. 327) reiterating that it has met its burden of 20 establishing its right to be compensated for extended home-office overhead. 21 Applicable Law & Analysis 22 (A) Waiver of Arguments Not Raised on Appeal 23 Redondo had proposed in its Brief [] as to its Extended Home-Office Overhead 24 Damages that all the change orders and extra work orders in the three projects constitute 25 contractual “novations”, that PRHTA is now bound by them and that it must pay Redondo the 26 extended home-office overhead damages under the Eichleay formula. See Adv. Proc. No. 03- 27 00192 Docket No. 333, p. 32, ¶ 115, Adv. Proc. No. 03-00194 Docket No. 293, p. 32, ¶ 115 and 1 Adv. Proc. No. 03-00195 Docket No. 288, p. 32, ¶ 115). The court ruled that because “such 2 argument was made for the first time by Redondo … after the Judgment & Mandate issued by 3 the First Circuit and the Mandate issued by the U.S. District Court for the District of Puerto 4 Rico remanding these cases to this court for further proceedings consistent with the First 5 Circuit’s ruling” and because “the First Circuit’s instructions did not include any parameters on 6 [] ‘novation’ for this court’s consideration[,] … the court deems Redondo’s [] ‘novation’ 7 arguments forfeited”. In re Redondo, 513 B.R. at 776. Redondo claims that “[c]ontrary to this 8 Court’s expression as to [it] having forfeited its [] novation argument, for not raising it prior to 9 the filing of the Brief [] to the effect that the three (3) construction contracts were modified by 10 the PRHTA to provide for the compensation to [Redondo] for extended home-office overhead 11 damages upon completion of the projects”, it did raise it at pages 65-72 of a brief it filed on 12 appeal with the U.S. District Court for the District of Puerto Rico on August 31, 2009 (Adv. 13 Proc. No. 03-00192 Docket No. 362, p. 4, ¶ 10, Adv. Proc. No. 03-00194 Docket No. 340, p. 4, 14 ¶ 10, and Adv. Proc. No. 03-00195 Docket No. 265, p. 4, ¶ 10). 15 Arguments raised for the first time on appeal are waived. See Abdallah v. Bain Capital 16 LLC, 752 F.3d 114 (1st Cir. 2014); Randall v. Laconia, NH, 679 F.3d 1, 5 (1st Cir. 2012); French 17 v. Bank of N.Y. Mellon, 729 F.3d 17, 21 n.2 (1st Cir. 2013) (treating as waived issue raised for 18 the first time on appeal and unsupported by relevant citation); Eastern Sav. Bank, FSB v. LaFata 19 (In re LaFata), 483 F.3d 13, 22 (1st Cir. 2007) (arguments raised for the first time on appeal are 20 deemed waived); Scotiabank de Puerto Rico v. Brito (Plaza Resort at Palmas, Inc.), 469 B.R. 21 398, 408 (B.A.P. 1st Cir. 2012); Khan v. Bankowski (In re Khan), 375 B.R. 5, 13 (B.A.P. 1st Cir. 22 2007) (arguments not raised in the bankruptcy court cannot be raised for the first time on 23 appeal). 24 Because the novation argument was raised by Redondo for the very first time on appeal, 25 it is now waived and the court will not consider it at this juncture. 26 27 1 (B) Extended Home-Office Overhead Damages 2 This court has already ruled that “the Eichleay formula is inapplicable to any of the 3 projects in the three adversary proceedings” and that “Redondo’s claims for [extended] home- 4 office overhead damages are only allowed under the percentage-of-direct-costs approach”. In re 5 Redondo, 513 B.R. at 778. This court will not vary such determination at this stage as no party 6 has requested so. Hence, the mandated task for the parties is to demonstrate if “Redondo has 7 already been compensated for [extended] overhead damages, if at all, through the percentage- 8 of-direct-costs approach”. Id. at 778-779. “If Redondo has not been compensated through the 9 percentage-of-direct-costs approach, the parties [were] ordered to provide the calculation of 10 such damages using that approach making specific references to the evidence submitted during 11 the trial to that effect and attaching copies of the same. Failure to do so as instructed will result 12 in the court deeming these damages paid and/or forfeited.” Id. at 779. 13 Redondo’s position in its Motion of Compliance is two-fold. For the projects of Desvío 14 Sur de Patillas (Adv. Proc. No. 03-0192) and Dorado-Toa Alta (Adv. Proc. No. 03-0195), 15 Redondo contends that PRHTA has conceded the claim for extended home-office overhead 16 damages because it forfeited the opportunity granted by the court to file its brief to oppose 17 Redondo’s overhead damages6 and hence the damages for those two projects are uncontested. 18 In regards to the PR-2 Mayaguez project (Adv. Proc. No. 03-0194), Redondo argues it is 19 entitled to damages for extended home-office overhead under the percentage-of-direct-costs 20 approach. Its factual arguments to demonstrate overhead damages under the percentage-of- 21 direct-costs approach are virtually the same, if not identical ad verbatim, to the ones it had 22 previously made to convince the court that it was entitled to overhead damages under the 23 Eichleay formula. Below is a summary comparison of the paragraphs in the Motion in 24 Compliance with the ones stated by Redondo in its Brief in Support of its Claims Against the 25 PRHTA for Pre-Judgment Interest and Extended Home-Office Overhead Damages (Adv. Proc. 26 27 1 No. 03-00194 Docket No. 268) and/or its Brief as to its Extended Home-Office Overhead 2 Damages (Adv. Proc. No. 03-00194 Docket No. 293): 3 ¶¶ of the Motion in Pages in Redondo’s ¶¶ of Redondo’s 4 Compliance (Adv. Brief in Support of its Brief as to its 5 Proc. No. 03-00194 Claims Against the Extended Home- Docket No. 340) PRHTA for Pre- Office Overhead 6 Judgment Interest and Damages (Adv. Proc. Extended Home-Office No. 03-00194 Docket 7 Overhead Damages No. 293) (Adv. Proc. No. 03- 8 00194 Docket No. 9 268)

10 15 16 (verbatim) 11 16 17 12 17 18 (verbatim) 13 18 19 (verbatim) 14 15 19 20 16 20 21 (verbatim) 17 21 22 (verbatim) 18 22 23 (verbatim) 19 20 23 24 (verbatim) 21 24 25 (verbatim) 22 26 26 (verbatim except 23 for a comma) 27 27 (verbatim except 24 for an added “then”) 25 28 36 26 29 12 (verbatim except for one preposition) 27 30 41 1 2 31 48 (verbatim except for substituting “its 3 work” for “its own”) 32 55 (verbatim except 4 for the defined terms) 5 33 56 6 34 57 (verbatim except for eliminating the last 7 clause) 8 35 15 (verbatim) 9 36 58 (verbatim except for certain 10 abbreviations and the 11 last sentence7) 37 61 12 38 62 (verbatim) 13 14 39 16-17 (verbatim except for a comma) 15 40 17 (verbatim except for the abbreviations 16 and a comma) 17 18 PRHTA replies that “the only proof [provided by Redondo] in support of the home 19 office overhead is the application of the Eichleay Formula” (Adv. Proc. No. 03-00192 Docket 20 No. 369, p. 11, Adv. Proc. No. 03-00194 Docket No. 341, p. 11, and Adv. Proc. No. 03-00195 21 Docket No. 320, p. 11). In addition, PRHTA asserts that “Redondo has already received 22 payment for all extended overhead damages, for all claims per the Bankruptcy Court Judgment 23 for all adversary proceedings at issue”. Adv. Proc. No. 03-00192 Docket No. 369, p. 4, Adv. 24 Proc. No. 03-00194 Docket No. 341, p. 4, and Adv. Proc. No. 03-00195 Docket No. 320, p. 4. 25 Redondo disputes such averment by PRHTA asserting that it “has in fact been compensated, as

26 7 The last sentence of ¶ 58 of Redondo’s Brief as to its Extended Home-Office Overhead Damages (Adv. Proc. No. 03-00194 Docket No. 293, p. 20, ¶ 58) stated as follows: “The same reveals that extended home-office overhead 27 damages was computed based on the Eichleay formula”. Such sentence was eliminated by Redondo in ¶ 36 of its 1 the PRHTA did not appeal this Court’s determination relative thereto, limiting its appeal to the 2 First Circuit to the awards for extended home-office overhead, which is one of the two issues 3 remanded by the First Circuit for determination by this Court, as to which RCC has not been 4 compensated at all” (Adv. Proc. No. 03-00192 Docket No. 371, p. 6, ¶ 18, Adv. Proc. No. 03- 5 00194 Docket No. 342, p. 6, ¶ 18, and Adv. Proc. No. 03-00195 Docket No. 321, p. 6, ¶ 18). 6 PRHTA sur-replies that “[i]n light of the precise disbursement information provided [by 7 Redondo], [PRHTA] clarifies that [Redondo] has not received full compensation for the home 8 office extended overhead awards -- rather, it has already collected a significant amount that 9 exceeds the sum of all awards not currently in dispute” and “reiterates that [Redondo] is not 10 entitled to any extended home office extended overhead awards” because “[a]ll of the evidence 11 propounded by [Redondo] in its [Motion in Compliance] are exactly the same proof and 12 arguments in support of its Eichleay formula application, which this Court already declined” 13 (Adv. Proc. No. 03-00192 Docket No. 374, p. 2, ¶ 4, and p. 6, Adv. Proc. No. 03-00194 Docket 14 No. 345, p. 2, ¶ 4, and p. 6, and Adv. Proc. No. 03-00195 Docket No. 324, p. 2, ¶ 4, and p. 6). 15 Redondo counters the PRHTA’s arguments stating that both parties jointly filed a motion to 16 withdraw the funds from the U.S. District Court for the District of Puerto Rico (Case No. 10- 17 1371) “agreeing on the amount to be withdrawn by [Redondo] … which was in turn granted by 18 the District Court” and therefore PRHTA is now judicially estopped from asserting that the 19 amounts withdrawn were incorrect and/or in excess the sum of all awards not currently in 20 dispute (Adv. Proc. No. 03-00192 Docket No. 377, p. 2, ¶ 6, Adv. Proc. No. 03-00194 Docket 21 No. 348, p. 2, ¶ 6, and Adv. Proc. No. 03-00195 Docket No. 327, p. 2, ¶ 6). The court agrees 22 with Redondo to that extent. 23 Notwithstanding, Redondo also claims at this stage of the proceedings as follows:

24 [i]n deciding [Redondo]’s entitlement to extended home-office overhead damages 25 a distinction must be made between the overhead associated with a change or extra work order as indicated in Sections 104.02, 104.06 and 109.04 of the Blue 26 Book and the home-office overhead associated with the delays in the performance of the contracts resulting from the unexpected circumstances encountered by 27 [Redondo] in their performance. The two (2) concepts are separate and distinct, and any overhead paid as part of change or extra orders is independent of that to 1 which RCC is entitled as a result of the delays, measured in time. 2 … The overhead percentage provided for in the change or work order clauses of the 3 Blue Book, is the direct overhead associated with the actual performance of the changed or added work and is unrelated to any time-impact that the change 4 may have on the overall completion of the project. This interpretation/definition is true, because the overhead percentage provided for in 5 the change order clause applies equally (and evenly) to both types of changes that 6 is; those that do not impact the contract time and those that do.

7 Adv. Proc. No. 03-00192 Docket No. 362, p. 14, ¶¶ 45 and 47, Adv. Proc. No. 03- 00194 Docket No. 340, p. 14, ¶ 45 and 47, and Adv. Proc. No. 03-00195 Docket 8 No. 265, p. 14, ¶ 45 and 47 (emphasis in original). 9 Redondo’s proposed methodology to calculate the extended overhead damages does not 10 comport to the First Circuit’s mandated task to this court in the instant adversary proceedings, 11 which is:

12 to find whether the delays in the three projects were due to “necessary but 13 unanticipated work” (to which the court must apply the percentage-of-direct-costs approach) or whether the delay did not arise from a need to perform extra work 14 (to which the court must apply the Eichleay formula). The query further translates into finding if Redondo was compensated for the extra work performed 15 caused by the delay. See In re Redondo, 678 F.3d at 124. If the extra work was compensated, then “the extended overhead should [be] awarded as a percentage of 16 the direct costs associated with the projects’ change orders and extra work 17 orders”.

18 In re Redondo, 505 B.R at 403. 19 The court finds that instead of demonstrating its entitlement to overhead damages under 20 the percentage-of-direct-costs approach, Redondo insists on reviving its earlier Eichelay 21 arguments, which the court has already denied. See In re Redondo, 513 B.R. at 778. This 22 becomes more evident considering that one of the omitted sentences from Redondo’s statements 23 in its Motion in Compliance was: “The same [referring the same factual arguments it espoused 24 therein] reveals that extended home-office overhead damages was computed based on the 25 Eichleay formula” (Adv. Proc. No. 03-00194 Docket No. 293, p. 20, ¶ 58, deleted from Adv. 26 Proc. No. 03-00194 Docket No. 340, p. 11, ¶ 36). Also see footnote no. 7, supra. Because the 27 court already considered these factual arguments in denying the application of the Eichleay 1 formula, the court finds that Redondo did not comply with the mandated task of the court. 2 ||Hence, as forewarned in the Opinion and Order, “|flailure to [demonstrate if Redondo has 3 || already been compensated for overhead damages, if at all, through the percentage-of-direct- 4 costs approach] as instructed will result in the court deeming these damages paid and/or 5 || forfeited” in regards to the PR 2 Mayaguez project. In re Redondo, 513 B.R. at 779. The fact 6 || that the PRHTA did not file briefs on extended overhead damages at an earlier stage of the 7 || proceedings on the remaining adversary proceedings does not relieve Redondo of its burden of 8 proof. By failing to meet its burden, Redondo has forfeited any claim for extended overhead 9 ||damages in the remaining projects. Id. at 778-779. The foregoing moots all remaining 10 || arguments. 11 Conclusion 12 In view of the foregoing, Redondo’s Motion in Compliance (Adv. Proc. No. 03-00192 13 || Docket No. 362, Adv. Proc. No. 03-00194 Docket No. 340 and Adv. Proc. No. 03-00195 14 || Docket No. 265) is hereby denied. 15 Judgment will be entered accordingly’. 16 SO ORDERED. 17 In San Juan, Puerto Rico, this 21“ day of January, 2015. 18 ° tkarnn0iile cael sokin semapecy Sal 21 22 23 24 25 26 * All other pending matters remanded by the First Circuit and the U.S. District Court for the District of Puerto Rico have already been disposed. See In re Redondo, 678 F.3d 115 C1” Cir. 2012), 513 B.R. 772 (Bankr. D.P.R. 2014), 505 B.R. 388 (Bankr. D.P.R. 2014), and 2014 U.S. Dist. LEXIS 157826 (D.P.R. 2014). 11.