Young Electrical Contractors, Inc. v. Dustin Construction, Inc.

               REPORTED

  IN THE COURT OF SPECIAL APPEALS

            OF MARYLAND

                 No. 226

          September Term, 2014

______________________________________


 YOUNG ELECTRICAL CONTRACTORS,
             INC.,

                    v.

     DUSTIN CONSTRUCTION, INC.

______________________________________


     Eyler, Deborah S.,
     Reed,
     Salmon, James P.,
      (Senior Judge, Specially Assigned),

                    JJ.

______________________________________

           Opinion by Reed, J.
______________________________________

     Filed: December 28, 2016
      Appellant, Young Electrical Contractors, Inc. (“Young”), entered into a

subcontractor agreement with appellee, Dustin Construction, Inc. (“Dustin”) to perform all

required electrical work for a prime contract Dustin entered into with George Mason

University in Virginia. Due to a number of delays in the project, Young was unable to meet

the agreed-upon date for substantial completion of the work. As a result, Young

experienced a number of cost overruns and sought payment for those overages via a

number of change requests. When Young did not receive those payments from the

university via Dustin, Young sued Dustin in the Circuit Court for Montgomery County for

breach of the subcontract.

      Dustin’s defense of the suit centered on the subcontract’s “pay-when-paid” clauses,

a set of clauses that provided Young would be paid when Dustin received payment from

the university. The circuit court agreed with Dustin and granted summary judgment on

Young’s breach of contract claim, explaining that, under the pay-when-paid clauses, Dustin

was not liable to Young for the change requests because George Mason had not yet paid

Dustin for those amounts.

      We are asked to review the trial court’s grant of summary judgment to Dustin.

Appellant poses four questions for our consideration, which we have consolidated and

rephrased in three questions below:1




      1
          Appellant originally presented the following two questions in its brief:

                                              1
               I.      Whether the circuit court erred in its determination of the
                       validity of the “pay-when-paid” clauses of the parties’
                       agreement;

              II.      Whether the circuit court erred where it determined the
                       “pay-when-paid” clauses applied to the present dispute;

             III.      Whether the circuit court erred where it did not find a
                       genuine dispute of material fact that the changes to the
                       project were owner-initiated.

      We hold the circuit court committed no error in finding the pay-when-paid clauses

applied to the present dispute, which allowed for the entry of summary judgment on the




        I.          Did the lower court err when it entered its summary judgment
                    in favor of a defendant general contractor pursuant to a “pay-
                    when-paid” clause, prior to any discovery in the case, in
                    reliance on the wrong “pay-when-paid” language of the
                    subcontract?
       II.          If appellate review were not limited to the reasons relied upon
                    in the lower court, and the lower court had applied the
                    potentially applicable “pay-when-paid” language advanced by
                    the defendant general contractor in its Motion for Summary
                    Judgment, was summary judgment precluded by material
                    factual disputes over whether all of the claims underlying
                    Plaintiff’s breach of contract action were limited to owner-
                    initiated changes?
      III.          If appellate review were not limited to the reasons relied upon
                    by the lower court, did the prevention doctrine preclude the
                    entry of summary judgment prior to the opportunity for
                    discovery in the case on the basis that the general contractor
                    did not make the administrative procedure for disputes
                    available to the subcontractor?
      IV.           Did the lower court err when it interpreted the “pay-when-
                    paid” clause as equivalent to a “paid-if-paid” clause?

                                                  2
breach of contract claim in favor of Dustin. Accordingly, we affirm the judgment of the

circuit court and shall explain.2

                       FACTUAL AND PROCEDURAL BACKGROUND

       Appellant, Young Electrical Contractors, Inc., is an electrical contracting firm based

in Laurel, Maryland, which specializes in the installation of electrical equipment for

construction projects. Appellee, Dustin Construction, Inc., is a construction firm based in

Ijamsville, Maryland, and is primarily engaged in the construction industry as a general

contractor.

       George Mason University (“George Mason” or “Owner”), is a public university

located in Fairfax County, Virginia. George Mason sought to renovate and construct an

addition to Building Two of its Student Union (the “Project”). Dustin bid on and was


       2
        On August 11, 2016, the appellee (Dustin Construction) filed a Suggestion of
Bankruptcy with this Court, arguing that the present appeal should be stayed pursuant to
11 U.S.C. § 362 based on a pending involuntary bankruptcy case against the appellant
(Young Electrical) that was filed in the United States Bankruptcy Court for the District of
Maryland on October 23, 2014, by certain alleged, non-party creditors.

       On August 19, 2016, the appellant filed a Motion to Strike and/or Disregard the
Suggestion of Bankruptcy filed by the Appellee. Among other things, the appellant asserts
that “the statute providing for an automatic stay following the filing of a bankruptcy
petition [(11 U.S.C. § 362)] applies only to actions ‘against the debtor.’” Because the
present case involves an action brought by the bankruptcy debtor, not against it, the
appellant contends that an automatic stay would be improper.

       Upon consideration of 11 U.S.C. § 362 and the relevant case law, we agree with the
appellant’s argument that the automatic stay does not apply because this case does not
involve an action against the bankruptcy debtor. Moreover, Dustin did not argue that
because of the bankruptcy filing, the right to assert Young’s claims belongs to a bankruptcy
trustee rather than to Young itself. See Morton v. Schlotzhauer, 449 Md. 217, 224 (2016).
Therefore, we hereby grant the appellant’s Motion to Strike the Suggestion of Bankruptcy
filed by the Appellee.
                                             3
awarded the contract for the Project as general contractor. Dustin and George Mason

executed this contract (the “Prime Contract”) on or about July 20, 2010. Needing a

subcontractor for the electrical work required under the Prime Contract, Dustin entered into

a subcontract with Young on or about October 15, 2010 (the “Subcontract”) for this work.

       Per George Mason’s Notice to Proceed, work on the Project commenced on July 30,

2010. Although the Prime Contract set November 15, 2010, as the date for substantial

completion of the Project, the Notice to Proceed extended the substantial completion date

to November 30, 2010. Young, however, achieved substantial completion on March 8,

2011—more than three months after the date set by George Mason.

       The delays in completion of the work prompted Young to submit three Change

Requests; two of those three requests—Nos. 1066 and 1067—are at issue in this appeal.3

Young submitted Change Request No. 1066 to Dustin on September 14, 2011, which

sought $259,034.99 for “extended overhead costs associated with [George Mason]’s

extension of the contract.” Dustin then submitted Change Request No. 1066 along with its

own delay claim to George Mason on November 16, 2012. Per George Mason’s request,

Dustin separated Change Request No. 1066 from its own claim, and also reduced the

amount requested in No. 1066 to $180,010.21. That amount reflected the removal of costs

that were not covered under the Subcontract. No. 1066 was then resubmitted to George

Mason on March 4, 2013.




       3
       The first of the three change requests, No. 1046, was resolved on February 5,
2014, when Dustin paid Young the requested amount of $23,843.00.
                                             4
       About a year-and-a-half later, on February 15, 2013, Young submitted Change

Request No. 1067, which sought $274,812.33 because of “owner initiated . . . design

changes, design errors, unforeseen conditions and additions/deletions of the work

originally required.” Young explained that it experienced an “overrun of hours” because it

was “forced to accelerate the electrical activities by adding additional manpower,

supervision, tools, equipment, overtime and shift work.”

       Young filed its Complaint in the Circuit Court for Montgomery County on

September 3, 2013, alleging a single count of breach of contract against Dustin. 4 The

complaint alleged that Young was not responsible for the three month delay in achieving

substantial completion of its work. It further alleged that, because of the delays to the

Project, it had to work overtime and, as a result, incurred additional costs. Young contended

that it submitted its claims arising from the additional work, but that Dustin failed to

provide Young with any information or documentation demonstrating that Young’s claims




       4
         The subcontract provides a mechanism by which Young could have gone after the
Owner for the additional payment. That mechanism, which is delineated in Section 27 of
the subcontract and, by incorporation, Section 47 of the general contract, is to first have
the general contractor submit a claim to the Owner for the Owner’s approval. Then, if the
Owner has denied the subcontractor’s claim (which the general contractor would have
brought on its behalf), the subcontractor can take legal action against the Owner as
permitted under Section 47 of the general contract. Unfortunately for Young, the first
sentence of the third paragraph of Section 47 reads: “The decision of the agency head or
other signatory on the Contract shall be final and conclusive unless the Contractor within
six (6) months of the date of the final decision on a claim, initiates legal action as provided
in § 2.2-4364 of the Code of Virginia.” (Emphasis added). Thus, Young could have gone
after the Owner within six months of the final decision on its claim, but instead chose to
pursue an action against the general contractor.

                                              5
were submitted to George Mason. Young further contended that Dustin failed to process

its claims, and that Dustin had not paid and pursued Young’s claims against George Mason.

Young alleged that Dustin committed a breach of contract where it directed Young to

perform the additional overtime work, but failed and refused to pay for that work and its

associated costs.

       George Mason denied both Change Request No. 1066 and Change Request No.

1067 on September 17, 2013. These requests implicated the “pay-when-paid” provisions

of the Subcontract, which explained that Young’s payment was contingent upon, as a

condition precedent, Dustin’s receipt of payment from George Mason. Because George

Mason denied both Change Requests, Dustin was not paid the requested amounts and, in

turn, pursuant to the pay-when-paid provisions, Dustin did not pay Young its requested

amounts.

       Dustin filed its Answer to the Complaint, along with a motion for summary

judgment (the “Motion”), on October 21, 2013. The Motion argued, among other things,

that Dustin was not liable to Young for the requested amounts because of the pay-when-

paid provisions of the Subcontract.

       The circuit court heard the parties on the Motion on January 22, 2014, and delivered

its oral opinion on February 11, 2014. The court explained that its review of the record

demonstrated that Dustin had, in fact, submitted both Change Requests to George Mason.

In addition, the court held that summary judgment was appropriate because George Mason

refused both of the requests and did not pay Dustin, making the pay-when-paid provision

of the Subcontract applicable to the present dispute.

                                             6
       The circuit court entered summary judgment by Order dated February 18, 2014.

Young moved the court for reconsideration on February 21, 2014, but the court denied the

motion on April 7, 2014.

       Young timely noted its appeal on April 11, 2014.

                                       DISCUSSION

                           (i) Validity of Pay-When-Paid Clauses

                                 A. Parties’ Contentions

       Young argues that the circuit court misinterpreted the Subcontract to grant summary

judgment in favor of Dustin. It explains that the court cabined its analysis solely within

Section 2(c) of the Subcontract, which, it claims, applies only to amounts found due and

owing and not to disputed claims as in the present case. The circuit court’s interpretation

of the contract, Young contends, ignores other applicable paragraphs, including but not

limited to Sections 13(d), 27, 28, and 39, in contravention of principles of contract

interpretation.

       Dustin responds that there are several provisions within the Subcontract that would

act to bar Young’s claim. Specifically, Sections 2(c), 13(c), and 27(f) each contain a

condition precedent that requires payment from George Mason before Young is paid.

Therefore, according to Dustin, because each of these three potentially applicable Sections

contains the same condition precedent, Young’s claim under the Subcontract is barred.

                                 B. Standard of Review

       The interpretation of written contractual terms is a question of law we review de

novo. Nova Research, Inc. v. Penske Truck Leasing Co., 405 Md. 435, 448 (2008). Unlike

                                            7
the factual determinations of a circuit court, its legal determinations are not afforded

deference on appeal. Thomas v. Capital Med. Mgmt. Assocs., LLC, 189 Md. App. 439, 453

(2009). Such legal determinations, i.e., determination based on Maryland statutory or case

law, are reviewed de novo for legal correctness. See id. at 454.

       Maryland courts apply an objective interpretation of contracts. Id. If the terms of a

contract are unambiguous, the plain meaning of the agreement will prevail and the court

will not consider the parties’ subjective intent at the time of formation. Id. If a reasonably

prudent person finds that the contract is susceptible of more than one meaning, the court

will determine the contract is ambiguous. Id. The terms of the contract are interpreted in

context, each of them interpreted together with contract’s other provisions. Atlantic

Contracting & Material Co., Inc. v. Ulico Cas. Co., 380 Md. 285, 301 (2004) (Ulico);

Jones v. Hubbard, 356 Md. 513, 534–35 (1999). We give the terms of the contract their

customary, ordinary, and accepted meaning. See Ulico, 380 Md. at 301.

                                        C. Analysis

       The pay-when-paid clauses in the Subcontract are valid contractual provisions, and

we will consider their applicability in turn. We note initially that the present dispute is

governed by Virginia law per the choice of law provision in Section 31 of the Subcontract.

       In Virginia, as in Maryland, issues of contract interpretation are reviewed de novo.

Bailey v. Loudoun Cnty. Sheriff’s Office, 762 S.E.2d 763, 766 (Va. 2014); accord Ocean

Petroleum, Co., Inc. v. Yanek, 416 Md. 74, 86 (2010).

       The seminal case on pay-when-paid clauses is a 1962 opinion of the U.S. Court of

Appeals for the Sixth Circuit. In Thos. J. Dyer Co. v. Bishop International Engineering

                                              8
Co., 303 F.2d 655 (6th Cir. 1962), the Sixth Circuit considered the enforceability of a pay-

when-paid clause in a subcontracting agreement. In the ordinary course, a general

contractor assumes a degree of credit risk related to the owner’s solvency, and there exist

protections against this risk that a general contractor may employ, e.g., mechanic’s liens or

installment payments. See id. at 660. The subcontractor need not incur that credit risk

unless the parties agree to it. See id. at 660–61. The Sixth Circuit explained that, in order

for that risk to be shifted from the general contractor to the subcontractor, the parties must

agree to an express condition in their subcontract that demonstrates their intent. Id. at 661.

That Court ultimately held that the pay-when-paid provision at issue did not shift the credit

risk to the subcontractor, and that the language of the provision afforded the general

contractor a period of time to receive payment from the owner in order to pay the

subcontractor. See id.

       The Supreme Court of Virginia first considered pay-when-paid clauses and the

associated defense in Galloway Corp. v. S.B. Ballard Construction Co., 464 S.E.2d 349

(Va. 1995). The Court held that pay-when-paid clauses will be upheld as valid if the

contract “on its face reasonably contemplates eventual payment by the general contractor

to the subcontractor” or the parties clearly intended that a condition precedent be fulfilled

before the general contractor pays the subcontractor. Id. at 501.

       To reach its holding on conditions precedent, the Galloway Court relied on our

opinion in Gilbane Building Co. v. Brisk Waterproofing Co., Inc., 86 Md. App. 21 (1991).

There, we held that for a valid condition precedent to exist within a pay-when-paid clause,

courts will look to the unambiguous language of the contract to see whether such a

                                              9
condition is established. See id. at 27–28. We explained that the inclusion of conditions

precedent in a subcontracting agreement involves a shift in the credit risk from the general

contractor to subcontractor:

                 A provision that makes receipt of payment by the general
                 contractor a condition precedent to its obligation to pay the
                 subcontractor transfers from the general contractor to the
                 subcontractor the credit risk of non-payment by the owner
                 for any reason (at least for any reason other than the general
                 contractor's own fault), including insolvency of the owner.

Id. at 28–29 (emphasis in original). This shift in risk accordingly demands an express

reference in the subcontract to a condition precedent. See id. (explaining that Atlantic States

Constr. Co. v. Drummond & Co., Inc., 251 Md. 77, 81–84 (1968) (Drummond) and its

consideration of the Dyer opinion is construed to require a subcontract to make an express

reference to a condition precedent, regardless of reason for the condition, as long as

subcontractor understands there is a shift in credit risk). We determined the condition

precedent in the parties’ contract was unambiguous and allowed for the objective

interpretation that the subcontractor would not receive payment from the general contractor

“unless and until” the owner paid the general contractor. Id. at 28.

       Section 2(c) is a valid pay-when-paid clause under Virginia law, as it comports with

the Galloway Court’s acceptance of our holding in Gilbane. Section 2(c) is the subsection

of the “Payments to Subcontractor” section that is relevant to this dispute. Section 2 sets

forth the understandings between the parties and the procedures for Dustin’s payments to

Young for the electrical work under the Subcontract. The clause in Section 2(c) states, in

relevant part:


                                              10
               It is specifically understood and agreed that the Contractor’s
               obligation to pay all or any portion of the Subcontract Sum to
               Subcontractor, whether as a progress payment, retainage, or a
               final payment, is contingent, as a condition precedent, upon
               the contractor’s receipt of payment from the Owner of all
               amounts due Contractor on account of the portion of the Work
               for which the Subcontractor is seeking payment.

(Emphasis added).

       The Subcontract explicitly establishes that George Mason’s payment to Dustin is

the condition precedent to Dustin’s payment of Young. This contract language is virtually

the same as the language in Gilbane that we found to constitute a valid condition precedent

within a pay-when-paid clause. Id. at 25, 28. (holding that the following language

established a condition precedent to the subcontractor’s payment: “It is specifically

understood and agreed that the payment to the trade contractor is dependent, as a condition

precedent, upon the construction manager receiving contract payments, including retainer

from the owner.” (emphasis added)). The Galloway Court accepted our reasoning on

conditions precedent, which permits us to determine that Section 2(c) is a valid pay-when-

paid clause under Virginia law. See Galloway, 464 S.E.2d at 354 (“If . . . as in Gilbane, the

parties clearly intend there to be a condition precedent fulfilled before payment comes due,

the contract will be construed as written . . . .”).

       Section 13(c) is most relevant to the present dispute, as it addresses payments arising

from owner-initiated changes. That subsection provides, in relevant part:

               In the event a change is made to this Contract as a result of the
               Owner’s change to the Prime Contract and such change causes
               an increase or decrease in the cost of and/or the time required
               for performance under this Subcontract, Subcontractor may
               submit to Contractor in writing in accordance with the

                                               11
              requirements of the Changes Clause of the General Contract a
              request for an equitable adjustment in the Subcontract Sum
              and/or the Subcontract Time, or both . . . . Contractor shall pay
              to Subcontractor that amount paid by the Owner to Contractor
              on account of any such change to this Subcontract, less any
              markup and other amounts due Contractor on account of such
              change. Contractor shall have no liability to Subcontractor on
              account of any such Owner initiated change except for such
              amount, if any.

(Emphasis added).

       Section 13(c) is similar to the pay-when-paid provision in Dyer in that it does not

contain an express condition precedent, but rather simply explains that Dustin “shall pay”

to Young the amount Young incurred because of an Owner-initiated change. Dustin is

made liable to Young only for the change amounts that Young requested from George

Mason and that George Mason paid. There is no timeframe, however, attached to Dustin’s

payment of Young under this clause. See Gilbane, 86 Md. App. at 25 (explaining that,

without an express condition, a pay-when-paid clause “postpones the time for payment

until the happening of a certain event or for a reasonable period of time if such event does

not occur.”). Also, there is no apparent shift in the credit risk arising from this Section

because of the lack of express conditional language. Accordingly, Section 13(c) by itself

operates as a standard pay-when-paid clause because of the lack of conditional language.

See id. at 25–26 (citing Drummond, 251 Md. at 79, 82–83 for proposition that for standard

pay-when-paid clause to shift normal credit risk and provide for payment at specific time

or occurrence, there must be an express condition in the clause).

       We cannot, however, review Section 13(c) in isolation. See Ulico, 380 Md. at 301

(explaining that the terms of the contract are interpreted in context, with each of them

                                             12
interpreted together with contract’s other provisions). To do so would ignore the effect of

Section 2(c), which is a payments clause of general applicability. Although Section 13(c)

does not contain an express condition precedent, it does contemplate payments to Young

where George Mason has initiated a change in the Project. As Section 2(c) sets forth the

procedure for payments to Young, its applicability to 13(c) should not be ignored.

Accordingly, when both sections are read together, Dustin’s receipt of a change payment

from George Mason is the condition precedent that must be met if Young is to receive that

payment. By consenting to Section 2(c), Young has accepted the credit risk and cannot

hold Dustin liable for non-payment if it does not receive its change payment. See Gilbane,

86 Md. App. at 28–29.

       Because the Galloway Court adopted the reasoning of the Dyer court, we think that

Dyer’s reasoning is applicable to the present case. See Galloway, 464 S.E.2d at 353–54.

Section 13(c) is enforceable as a pay-when-paid clause subject to a condition precedent in

Section 2(c) because Young agreed, by operation of Section 2(c), that all payments were

subject to the condition of George Mason’s payment of Dustin. Read together, Young

agrees to the shift in credit risk when it seeks payment arising from change orders.

       Section 27(f) is similar to Section 13(c) insofar as it contemplates payments arising

from certain scenarios. Section 27 applies to the resolution of disputes involving George

Mason, and subsection (f) places limits on Dustin’s liability to Young for Owner-involved

disputes. Section 27(f) provides:

              Contractor shall have no liability to Subcontractor on account
              of any claim, suit or appeal arising under or relating to the
              Prime Contract, or the Owner’s conduct thereunder except that

                                            13
              recovered by Contractor from the Owner on Subcontractor’s
              behalf, if any, less any markups and other amounts due
              Contractor on account of such claim, suit or appeal.

(Emphasis added).

       This clause makes clear that Young cannot sue Dustin directly for any issues related

to the Prime Contract or George Mason’s conduct under that agreement. Under this

provision, Dustin is liable to Young only where Dustin has recovered an amount under this

Section of the Subcontract on Young’s behalf. Section 27(f) operates like Section 13(c) in

that it limits Dustin’s exposure to Young to only certain amounts and claims. Without such

an Owner-involved claim for which Dustin has already recovered from George Mason,

Young cannot lodge a separate claim against Dustin. Section 27(f) is, therefore, a pay-

when-paid clause in that it contemplates a valid claim against Dustin only where Dustin

has received payment from George Mason. There is no conditional language here, but like

Section 13(c), it must be read in tandem with Section 2(c). Because 2(c) does contain an

express condition on payments to Young, it will apply to those claims Young makes against

George Mason via Section 27(f). Where Section 27(f) creates a “remedy” for Young

against George Mason, Section 2(c) provides the procedure for Young’s payment for a

valid claim under 27(f).

                       (ii) Applicability of Pay-When-Paid Clauses

                                 A. Parties’ Contentions

       Young further argues that the circuit court erred in applying Section 2(c) of the

Subcontract to dismiss its claim. It explains that Section 2(c) was not relied on by either of

the parties and that Dustin chose to rely on Section 13(c) in support of its Motion. Young

                                             14
further explains that the differences between the Sections are critical because they each

apply to distinct sections. It contends that Section 13(c)—rather than Section 2(c)—is the

provision appropriate to the present scenario because it concerns changes to the

Subcontract.

       Dustin contends that Sections 2(c), 13(c), and 27(f) are each applicable to the

present case and each serve to bar Young’s claim. Dustin argues that Section 2(c)’s pay-

when-paid provision applies because 2(c) governs the payment of “all or any portion of the

Subcontract Sum,” which is what Young’s Change Requests sought. It further argues that

Section 13(c) applies because that section of the Subcontract governs owner-initiated

changes, which were at issue here. Last, Dustin argues that Section 27(f) is potentially

applicable because that provision governs claims arising from a dispute. If Young’s claims

are characterized as arising from a dispute, Dustin explains, then the pay-when-paid

provision of Section 27(f) should apply.

                                 B. Standard of Review

       A party may seek summary judgment on all or part of an action, provided there is

no genuine dispute as to any material fact and that party is entitled to judgment as a matter

of law. Md. Rule 2-501(a). Whether the trial court properly granted summary judgment is

a question of law. Boland v. Boland, 423 Md. 296, 366 (2011) (internal quotation marks

and citations omitted). Accordingly, we conduct a de novo review of the trial court’s grant

of summary judgment. Id. We engage in an independent review of the record to determine

whether there existed a genuine dispute of material fact and, if not, whether judgment as a

matter of law was appropriate. Id. The record is reviewed in the light most favorable to the

                                             15
non-moving party, and any reasonable inferences drawn from the facts are construed

against the moving party. Id.

                                         C. Analysis

      The circuit court properly granted summary judgment on Young’s claims to the

amounts owed for the Change Requests. Sections 2(c), 13(c), and 27(f) of the Subcontract

are each applicable to the instant dispute. Because Dustin received no payments from

George Mason for the Change Requests, Dustin was unable to pay Young under any

applicable Section of the Subcontract.

      Section 37 of the Prime Contract provides the requirements and procedures for

payments made by Dustin to subcontractors or suppliers. In relevant part, Section 37(a)

provides:

             [T]he Contractor is obligated to:

             (a) Within seven (7) days after receipt of amounts paid to the
                 Contractor by the Owner for Work performed by the
                 Subcontractor or Supplier under this Contract,

                    (1) Pay the Subcontractor or Supplier for the
                        proportionate share of the total payment received
                        from the Owner attributable to the Work performed
                        by the Subcontractor or the materials furnished by
                        the Supplier under this contract . . . .

(Emphasis added).

      This section of the Prime Contract clearly envisions a conditional pay-when-paid

scheme for all subcontractor or supplier payments by George Mason. Although we do not

require certain language to create a condition precedent in a contract, “words and phrases

such as ‘if,’ ‘provided that,’ ‘when,’ ‘after,’ ‘as soon as’ and ‘subject to’” are often

                                             16
associated with the establishment of conditions. Richard F. Kline, Inc. v. Shook Excavating

& Hauling, Inc., 165 Md. App. 262, 274 (2005). Section 37(a) sets forth a discrete time

period in which payments must be made to the subcontractor or supplier, and the condition

is denoted by the word “after,” indicating that Dustin’s receipt of payment is the applicable

condition. Furthermore, Section 37(b) contemplates an incentive scheme to encourage

prompt payments to a subcontractor when the Owner has paid Dustin. That section requires

Dustin to pay interest to a subcontractor for any payment made more than seven days after

receipt of payment from George Mason. These provisions demonstrate a clear intent of the

parties to the Prime Contract to pay subcontractors upon Dustin’s receipt of payment from

George Mason. See Kline, 165 Md. App. at 273 (“[W]hen the language is clear and

unambiguous we must presume that the parties meant what they expressed, leaving no

room for construction.” (internal quotation marks omitted)); see also Gilbane, 86 Md. App.

at 25 (pay-when-paid clauses postpone time for payment “until the happening of a certain

event or for a reasonable period of time.”). This intent is underscored by the fact that there

is no language in Section 37 that Dustin may pay a subcontractor at any point, regardless

of whether it receives payment from George Mason or not.

       Section 2(c) establishes a pay-when-paid clause with a condition precedent that is

applicable to all subcontractor payments. Nevertheless, we need not conduct an

examination of the relevant clause within Section 2(c) for conditional language because,

as explained in section (i).C of our discussion supra, that part of the Subcontract expressly

mentioned payment by George Mason to Dustin as a condition precedent to Dustin’s

payment of Young. This makes clear Section 2(c)’s objective meaning—that Dustin is

                                             17
under no obligation to pay Young until Dustin receives payment from George Mason. See

Gilbane, 86 Md. App. at 28 (holding that unambiguous language in subcontractor

agreement established condition precedent indicating general contractor was not obligated

to pay subcontractor until general contractor received payment from owner).

       The placement of this language near the beginning of the agreement is additionally

persuasive. Section 2 immediately follows the description of the scope of the agreement

and the work to be performed, and the Section’s title is general in nature. Section 2 does

not provide payment instructions for any specific factual scenarios. Rather, by virtue of its

placement in the agreement and non-specific language, we think that Section 2

contemplates general applicability to performance of the Subcontract. Accordingly,

because George Mason did not pay Dustin for the Change Requests, it is impossible for

Dustin to follow the letter of the agreement. It did not receive the money from George

Mason, which is the necessary condition precedent in Section 2(c). Therefore, the circuit

court’s grant of summary judgment was entirely appropriate.

       The general applicability of Section 2(c) to the agreement means that it applies to

the scenarios encompassed by Sections 13 and 27. Section 13 sets forth the parties’

understanding regarding changes to the scope and progress of the work. Specifically,

Section 13(c) discusses Owner-initiated changes and explains that, as long as Young

follows the procedure for seeking an equitable adjustment for Owner-initiated changes,

George Mason will pay Dustin that adjusted sum and Dustin will, in turn, pay Young the

requested amount. Although Section 13(c) does not possess an explicit reference to

conditions precedent, the subsection’s language makes clear the procedure envisioned for

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the payment of change requests. Dustin and Young agreed that “[Dustin] shall pay to

[Young] that amount paid by [George Mason] to [Dustin] on account of any such change

to this Subcontract[.]” (emphasis added). Reading just that clause in isolation, we think it

difficult to envision a payment scheme under this subsection where Young would receive

payment from Dustin regardless of whether Dustin received payment from George Mason.

The clause’s language conveys a temporal sequence where Dustin will pay Young once it

receives payment from George Mason.

       Nevertheless, the general payment procedure in Section 2(c) applies to the change

payment procedure in Section 13(c) because we must construe contractual provisions in

such a way that no part of the agreement is rendered meaningless. Ulico, 380 Md. at 301;

see also DIRECTV, Inc. v. Mattingly, 376 Md. 302, 320 (2003). The temporal sequence for

payments arising from Owner-initiated changes in Section 13(c) mirrors the general

payment procedure in Section 2(c)—change payments must be made to Dustin by George

Mason before the former can pay Young for that same amount. Without any change

payments received from George Mason, Dustin could not pay Young per their agreed-upon

payment arrangement. To hold Dustin liable to Young for the Change Requests absent any

payment from George Mason would contravene the parties’ contractual intent and render

the pay-when-paid clauses meaningless.

       Section 27(f) of the Subcontract operates as a pay-when-paid clause only to the

extent that Young has a claim against George Mason arising from the latter’s conduct under

the Prime Contract. Section 47 of the Prime Contract, entitled “Contractual Disputes,”

explains that claims under that agreement include either money or other relief. Per Section

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27(b), Young’s claims against George Mason entail monetary claims. Therefore, whether

Section 27(f) operates as a pay-when-paid clause depends on whether Young’s claims are

considered Owner-involved disputes.

       We think the claims to Change Requests 1066 and 1067 are indeed Owner-involved

disputes. Both of the Change Requests cite George Mason’s changes as the cause for

submission of the requests. It is George Mason’s denial of the Change Requests, however,

that is at the heart of the present dispute. Young’s claims are ultimately against George

Mason. As stated supra, Section 27(f) limits Dustin’s exposure to those amounts it recovers

on behalf of Young for Owner-involved claims. The circuit court made findings that Dustin

had indeed submitted the Change Requests to George Mason. Dustin followed the requisite

procedures and is not liable for George Mason’s declination of the Change Requests.

Section 27(f) states that Dustin will only be liable to Young for amounts recovered from

George Mason in any Owner-involved dispute. Without that recovery, however, Young

cannot seek payment from Dustin in those amounts.

       We hold that summary judgment was appropriate in this case. Sections 2(c), 13(c),

and 27(f) operate to preclude Young’s recovery of the Change Request amounts from

Dustin because they are pay-when-paid clauses subject to an enforceable condition

precedent of payment from George Mason to Dustin. Without satisfaction of this condition,

Young is unable to hold Dustin liable for those amounts.




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        (iii) Existence of Factual Dispute Regarding Owner-Initiated Changes

                                 A. Parties’ Contentions

       Young contends that there were several factual disputes preventing the entry of

summary judgment. It argues that there was a genuine dispute as to whether the Change

Requests were the product of Owner-initiated changes. Young considers the

characterization of the changes as an attempt to rely on the pay-when-paid language in

Section 13(c). It contends that it disputed this characterization of the changes and,

accordingly, summary judgment was not appropriate.

       Dustin argues that Young attempts to construct an alternate theory of events from

allegations in the Complaint and statements made by its counsel. Dustin contends that in

so doing, however, Young has not met its burden of production to demonstrate that there

was a dispute of fact, necessitating our reversal of the grant of summary judgment. Dustin

argues the evidence and affidavits it submitted supported the grant of summary judgment

and, furthermore, the Change Requests themselves demonstrate Young stated that the

claims were the result of owner-initiated actions.

                                 B. Standard of Review

       As discussed in section (ii).B supra, we review the trial court’s record to discern

whether there was a genuine dispute of material fact that would preclude the entry of

summary judgment. We shall review the record in a light most favorable to the non-moving

party and shall construe any reasonable inferences from the facts against the moving party.



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                                       C. Analysis

       Young’s contention that the Change Requests were not the product of Owner-

initiated changes does not comport with the record in this case. The body of evidence

presented to the circuit court cannot support a factual dispute that would preclude the

operation of the pay-when-paid clauses.

       The Change Requests were the result of Owner-initiated changes, which Young

fully recognized. Young explains in Change Request 1066 that its request for additional

payment was for “extended overhead costs associated with the owner’s extension of the

contract.” In Change Request 1067, Young provides an extended narrative regarding its

request for additional payment. Young attributed the overrun in hours to “unforeseen

problems and design related issues” as well as “numerous owner initiated changes which

were issued that redesigned the work as the project proceeded.” (emphasis added).

       Nowhere else in the record is it demonstrated with any degree of persuasion that

Dustin was responsible for the overages. Young’s Change Requests remain the best

explanation of the change orders. Young, therefore, is unable to demonstrate that there

exists a genuine factual dispute as to whether the change orders were not owner-initiated.

       It was undisputed that the Change Requests were the result of Owner-initiated

changes. As a result, Sections 2(c), 13(c), and 27(f) operate to bar Young’s claims against

Dustin. All costs Young incurred were the result of Owner-initiated changes, and the




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Subcontract requires Young to seek payment for these claims from George Mason via

Dustin. Dustin is not liable to Young for the Change Requests.

                                  APPELLANT’S     MOTION   TO STRIKE
                                  SUGGESTION OF BANKRUPTCY GRANTED.
                                  JUDGMENT OF THE CIRCUIT COURT FOR
                                  MONTGOMERY COUNTY AFFIRMED. COSTS
                                  TO BE PAID BY APPELLANT.




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