Bart Arconti & Sons, Inc. v. Ames-Ennis, Inc.

Levine, J., delivered the opinion of the Court. A contract dispute between a general contractor and subcontractor — exacerbated by a lengthy labor strike — has led to this appeal. Following a non-jury trial consuming 13 days in the Superior Court of Baltimore City (Sklar, J.) — during which almost 1900 pages of testimony were amassed, and countless exhibits were admitted — the trial judge resolved the contest in favor of the general contractor, Ames-Ennis, Inc. (Ames-Ennis). The subcontractor, Bart Arconti & Sons, Inc. (Arconti), its two principals, brothers Bart Arconti, Jr. (Bart) and George Arconti (George), and ²⁹⁷ two other corporations which they also controlled, G & L Construction Company and Atlas Tile & Terrazo, Inc., appeal from a judgment entered against each of them in the sum of $475,902.10.

After it had been awarded three contracts to construct public buildings in the City of Baltimore, the Northern Parkway Junior High School (Northern Parkway), the Women’s Detention Center at the Baltimore City Jail (Women’s Detention Center), and an extension to McCulloh Homes, a housing project for senior citizens, Ames-Ennis entered into subcontracts with Arconti in 1969 for the performance of the masonry and related work on each of those undertakings. The execution of the three subcontracts was preceded by intensive negotiations between the parties. From the myriad changes and interlineations which characterize each of the documents in their final form, emerged the following provisions common to each of them, which are material to the outcome of this case. At the outset, the prime, contract and its accompanying' documents, with respect to which time is expressly made of the essence, are incorporated into the subcontracts.

In relevant part, article 4 of the subcontract provides: “(a) The Subcontractor agrees to proceed with said work, and every part and detail thereof, in a prompt and diligent manner, and to facilitate the performance thereof, and will do the several parts of the work at such times and in such order as the General Contractor may direct, and shall and will proceed with and wholly finish the said work according to the said Drawings and Specifications, and this Contract, in such time as not to delay the other trades and to insure completion of the General Contract within the time fixed therein, the General Contract time being of the essence of this Contract and the date for completion of your phase of work being as shown on attached Schedule. . . . ²⁹⁸ “(c) Should there be a refusal on the part of this Subcontractor to comply with the aforegoing requirements in any respect which shall run more than two days after written notice, the General Contractor shall have the right to take possession of all materials and tools and make independent arrangements for the continuation and/or completion of same, charging such cost, as well as any expense or damages incurred as the result of default, against the unpaid balance. If such costs and expenses exceed the unpaid balance, this Subcontractor agrees to pay the deficit to the General Contractor. In this event, Subcontractor shall not be prevented from continuing or completing the work during or following the supplying of any such materials or installation by the Contractor. “(d) Subcontractor shall reimburse and make good to General Contractor any damage sustained by General Contractor by reason of back charges, of other subcontractors and proportional share of liquidated damages and penalties payable to Owner, and the assent of the General Contractor to the delayed completion of the work shall not be construed as a waiver of Subcontractor’s obligation to make good any such damage caused to the General Contractor by such delay.” Section (g) of article 7 provides in relevant part: “Should there be a work stoppage caused by a strike, picketing, boycott or by any voluntary or involuntary cessation of work by employees of the Subcontractor, which in the judgment of the Contractor will cause; or is likely to cause unreasonable delay in the progress of construction then upon twenty-four (24) hours’ written notice the Contractor shall have the right to prosecute the work as described in Article 4, Paragraph C. In such event the Contractor shall have the right to ²⁹⁹ take possession of and use all of the Subcontractor’s materials (exclusive of tools) intended for use on the work. The cost of completion shall be charged against the Subcontractor’s remaining interest in the contract price.

If the Subcontractor’s remaining interest in the contract price exceeds the cost of completion, the Subcontractor shall be entitled to the difference. If, however, the cost of completion exceeds the Subcontractors’ remaining interest in the contract price, then the Subcontractor agrees to pay the Contractor such excess within thirty (30) days after written demand for such excess has been made upon him by the Contractor.” In addition, article 3(m) of the Northern Parkway subcontract requires that “[a]ll work shall be performed with sufficient manpower, material and equipment such as to adhere strictly and rigidly to the Construction Schedule, time being the essence of this contract.” Subject to a specified sum being retained until completion, esfch of the contracts provided for the subcontract price to be paid for “the value of the work performed during any calendar months” in monthly installments “within five days after payment therefore is received by the Contractor from the Owner.” During a period ranging from August through October 1969, Arconti commenced to work on the three projects, beginning with Northern Parkway. According to the evidence, problems ensued almost immediately at the school and the Women’s Detention Center. This entire period, through March 1970, was punctuated by repeated requests from Ames-Ennis to Arconti — written and verbal — to supply adequate labor and materials for those projects.

For the most part, these complaints went unheeded — to the extent that frequently they were not even relayed by Bart or George to their own supervisory personnel on the jobs. Illustrative of 'this manpower deficiency is the evidence that Arconti never had more than eight workers at Northern ³⁰⁰ Parkway — and usually less — whereas it should have had three or four times that many. Similar problems arose in respect to Arconti’s failure to make timely submissions of material samples for approval by the city’s architects. Although Arconti went through the motions of challenging the Ames-Ennis evidence in this regard, even Bart conceded at the trial that his company may have been somewhat “dilatory.” Because of these delays, performance by Arconti had proceeded so slowly, according to evidence presented by Ames-Ennis, that by late March only two to four percent of the work at Northern Parkway had been completed instead of the expected 65 to 75 percent.

Throughout this period, the monthly payments on the contracts were made in accordance with the requisitions presented by Ames-Ennis. Although the contracts specified that Arconti was to be paid within five days of payment from the owner to Ames-Ennis, this schedule was not strictly maintained in actual practice. Frequently, the payments were received late by Arconti. Early in 1970, the threat of a strike affecting various construction trades arose because a number of labor contracts were scheduled to expire on March 31.

This was of particular concern to Ames-Ennis because time was of the essence in its contracts with the city, and strikes were not recognized as excusable causes of delay in performance. Furthermore, the Northern Parkway and Women’s Detention Center contracts subjected Ames-Ennis to the payment of liquidated damages in the event of such unexcused delays in completion. The lack of progress on the part of Arconti only magnified the problem. With the strike impending against this background, Ames-Ennis advanced two alternative proposals to Arconti.

First, it urged that Arconti enter into a “retroactive” agreement with the labor unions whereby Arconti would pay its employees retroactively for work they performed during the strike at the wage rate ultimately approved at the conclusion. Alternatively, Ames-Ennis proposed to employ ³⁰¹ the required labor force itself to do the masonry work, and that Arconti attend to the supervision of construction and the ordering of materials. Both proposals were rejected by Arconti because it was a member of the management team negotiating with the union; hence, to sign a retroactive agreement or otherwise cooperate during the strike would compromise management’s negotiating position. Ames-Ennis responded to this rejection by declaring that if Arconti “walked off’ the jobs, it would exercise its rights under the contracts by effecting independent arrangements to complete the performance of Arconti’s work during the strike, and would charge the costs thereof against the unpaid balance, if any, due Arconti.

Previously, on February 25, Arconti had presented its regular monthly requisitions for payment in accordance with the Northern Parkway and Women’s Detention Center contracts. Under the normal practice which by then had become established, Ames-Ennis could have expected to receive payment of the requisition it had submitted to the city for the work performed by Arconti approximately a month later. It did receive this payment on March 26 and 31, respectively, and under the literal terms of the contracts, therefore, would have been obliged to pay Arconti on March 31 and April 5. On March 31, the strike was called and Arconti “walked off” the jobs.

The departure of the Arconti personnel and the Ames-Ennis refusal to pay the February 25 requisition not unpredictably triggered the dispute which has culminated in this appeal. Ames-Ennis refused to pay the February invoices in light of Arconti’s rejection of the proposals which it had offered as a solution to the expected work stoppage. Also, Ames-Ennis claimed that it was required to withhold payment in anticipation of the likely need to charge Arconti’s account for costs incurred to obtain performance during the strike. Arconti never offered to work or otherwise cooperate through the strike even if it were to be paid.

After the strike commenced, the parties engaged in a race to declare the other in default. On April 8, Arconti directed letters to Ames-Ennis pertaining to the three projects. Its ³⁰² offer to continue performing at McCulloh Homes with non-union labor was rejected by Ames-Ennis. On the same day, Arconti served notice that the two other contracts were “terminated” because of the “default in making payment as required thereunder.” Prior to the receipt of those letters, Ames-Ennis fired off telegrams to Arconti stating that in accordance with the contracts, it would “make all arrangements required to obtain the necessary labor, material and equipment to continue the work” and that “all costs incurred will be recorded and charged to your account.” A week later, Ames-Ennis engaged another masonry subcontractor, Manna Brothers, to continue the Arconti work during the strike at Northern Parkway and the Women’s Detention Center.

No subcontractor was employed at McCulloh Homes during the strike, and when it ended on May 18, Arconti immediately resumed working there, but not at the other two projects. On May 25, the contestants and their attorneys met with a view toward the resumption of work by Arconti — at least at Northern Parkway. At that meeting, it was agreed that Ames-Ennis would immediately pay to Arconti $20,000 on account of the $38,000 which it owed for work at McCulloh Homes. Arconti agreed to inspect the other two jobs to evaluate the amount of work yet required to be completed, and to assess the value of the work theretofore performed by Manna Brothers.

On June 3, they met again to settle this item. Although Ames-Ennis had paid Manna $65,000, Arconti thought that the work was worth only $34,000. They compromised on $40,000 as the sum which should be charged against Arconti for the work performed by Manna prior to May 25. A further charge for work performed from that date until Arconti would return was to be imposed on the basis of 80% of the amount paid to Manna Brothers.

It was further agreed that Manna Brothers would be discharged at the end of the work day on Friday June 5, 1970, and that Arconti would return to Northern Parkway on June 8. The agreed notice was then given to Manna Brothers. ³⁰³ Late in the afternoon of June 5, a dispute arose between the parties which jettisoned for all time an amicable resolution of their differences. Precisely what transpired on that occasion is the subject of some dispute. After Manna Brothers had been dismissed from the Northern Parkway job in pursuance of the June 3 agreement, it was reported to Ames-Ennis late on the 5th that Arconti personnel were removing its equipment from the McCulloh Homes site.

A telephone call to Arconti proved to be futile. According to the latter, Ames-Ennis demanded that Arconti have more workers report to Northern Parkway on the 8th than was reasonably required. Ames-Ennis disputes this testimony. In any event, Arconti did not return to Northern Parkway on the 8th and withdrew from McCulloh Homes on the same day.

Later that year, Ames-Ennis filed this suit, alleging not only that Arconti had breached each of the three original contracts, with the consequent damages created by the need to engage other subcontractors to complete the work, but also claiming a breach of the June 3 modification, and seeking damages against Bart, George and the two other corporations. By way of a counterclaim, Arconti sued Ames-Ennis for damages caused by the latter’s failure to pay the March requisitions on all three projects plus the February invoices for Northern Parkway and the Women’s Detention Center. As a result of these alleged breaches, Arconti claimed it lost profits on the three contracts. After holding the matter sub curia at the conclusion of the protracted trial, the court rendered a detailed memorandum opinion in which it determined that because of Arconti’s persistent delays in performance, recounted earlier, Ames-Ennis “had a right to withhold payments on requisitions in March, 1970, when it received word that [Arconti] would not prosecute its work during the period of the upcoming strike” since under the contracts, it could charge the costs of completion to the subcontractors’ account.

The court also found as a fact that Arconti had “waived its right to complain about delays in its receipt of ³⁰⁴ payment from [Ames-Ennis] by its course of dealings in which it accepted late payments without protest.” Indeed, Arconti had frequently been late in submitting its own requisitions. For these reasons, the court denied recovery under the counterclaim. In sum, the court found that Arconti was free to return to the jobs when the strike ended, and that its failure to do so could not be justified by the refusal of Ames-Ennis to pay the earlier requisitions, since the latter action was warranted. Additionally, the court found as a fact that the parties modified the Northern Parkway contract “by agreeing to the amount of credit for the work done by Manna [Brothers] to the project in the absence of [Arconti], and to the resumption of the job by [the latter] on June 8.” Thus, both agreements — the original and the modification — had been breached.

The court also entered judgment against Bart, George, G & L Construction Company (G & L) and Atlas Tile & Terrazo, Inc. (Atlas). Whereas Arconti had been engaged in ceramic tile and masonry construction work, G & L specialized in the latter and Atlas in the former. All three corporations operated at the same place of business — owned by Arconti — shared the same equipment and employed the same workmen. Bart and George had owned all of the stock in the three corporations during their entire existence.

By everyone’s admission, Arconti became “dormant” in late 1971. At a meeting on November 26 of that year, the Board of Directors — dominated by Bart and George — resolved that “the Company would now cease to operate and [would] lie dormant until the litigation with Ames-Ennis, Inc. can be completed.” Previously, Arconti had been the more prominent of the three corporations. In its last fiscal year of normally active operations, it had five large construction jobs in progress, including the three in issue here. Conversely, as the trial court found, when Arconti became dormant, the G & L and Atlas fortunes improved markedly.

The trial judge also found that while all this was ³⁰⁵ happening, Arconti assets and equipment were being used, without compensation, by the other two corporations. In addition, he found that loans had been made by Arconti to Bart and George, although the latter claimed that a portion of this indebtedness was subsequently reduced by crediting against it unpaid salaries which were due them. He also found that in 1972, Arconti had transferred to Bart and George its rights to two insurance policies maintained on their lives which, according to the corporation books, then had a net cash surrender value of over $38,000. The court found that the purpose of these activities had been to “evade legal obligations devolving upon [Arconti] during the pendency of the present action.” This resulted in rendering Arconti “all but insolvent.” Thus, it found that Bart and George, as the dominant directors and sole shareholders of all three corporations, had “personally directed their operations with only one purpose in mind, using the corporate entities of [G & L] and [Atlas] to keep the subcontracting business of [Arconti] but without leaving any real asset of [Arconti] remaining in that corporation.” The court found that these actions justified piercing