Construction Law Insights

Robinson v. McMurtrie (In re Peak 3 Constr., LLC), 2020 Bankr. LEXIS 833, 2020 WL 1696102 (Bankr. E.D. Va. Mar. 31, 2020)

In September 2015, Daniel McMurtrie (“McMurtrie”) and Peak 3 Construction, LLC (“Peak”) entered into a contract (the “Contract”) for Peak to renovate McMurtrie’s residence (the “Project”). Initial progress on the Project was delayed by incomplete demolition by a different contractor. Throughout Peak’s performance of the Project, the scope of the Project changed, with various changes and additions requested by McMurtrie, sometimes through Larry Cooper (“Cooper”), whom Peak perceived to be McMurtrie’s liaison, and sometimes through Mary Catlett (“Catlett”), the interior designer on the Project. These changes, in conjunction with the demolition delay, caused Peak to realize in mid-November that the Project could not be completed by Christmas. On February 9, 2016, Peak emailed McMurtrie outlining the job costs, both completed and remaining costs, based on the current scope of work. McMurtrie neither objected nor terminated the Contract. Peak continued work on the Project and, on February 15, 2016, sent McMurtrie a $106,432.45 invoice (the “First Invoice”).

On May 25, 2017, Peak submitted a $93,441.96 invoice to McMurtrie (the “Final Invoice”). The parties stipulated that the total value of the work performed by Peak was $121,921.00 plus a $21,946.00 construction fee. After subtracting the $5,000.00 deposit, the $5,000 credit for work performed by another contractor, the $40,000.00 payment by McMurtrie to Peak, and the $46,652.00 paid directly by McMurtrie to subcontractors and suppliers, the remaining unpaid amount was $47,215.00, of which $25,269.00 represents the actual costs incurred by Peak and $21,946.00 represents Peak’s 18% construction fee.

On August 31, 2017, Peak filed for Chapter 7 bankruptcy. On May 24, 2018, the Trustee filed a complaint seeking to recover the damages under the Contract. Having stipulated to the amount remaining due under the Contract, the parties stated at trial that the only issue before the Court was the Trustee’s entitlement to prejudgment interest and attorney’s fees.

In Virginia, the trial court may provide for interest on any principal sum awarded, or any part thereof, and fix the period at which the interest shall commence. Whether and for what period to grant such an award are decisions committed to the trial court’s discretion. In exercising that discretion, a court should balance the equities of the case, weighing the desire to make the prevailing party whole, including compensation for its lost ability to use the money to which it was rightfully entitled, against the prevailing party’s right to litigate a bona fide legal dispute. The Court was not persuaded by McMurtrie’s argument that there were fluctuations in the amounts sought by Peak because the invoices were clear and the amounts owed was a simple matter of mathematics. On the other hand, the Court took note that Peak waited 4 months to submit the First Invoice, which may have contributed to McMurtrie’s inability to pay the First Invoice within 14 days as required by the Contract, and that Peak took no action to collect the balance due from McMurtrie between September 2016 and May 2017. Therefore, the Court chose to not award prejudgment interest from the date of the First Invoice. Rather, the Court ran prejudgment interest from 15 days after the date of the Final Invoice. As to the attorney’s fee issue, the Court awarded the Trustee attorney’s fees because contractual provisions shifting attorneys’ fees are valid and enforceable in Virginia, Article 5 of the Contract provides that Peak is entitled to attorney’s fees if the Project was stopped because McMurtrie persistently failed to fulfill his obligations under the Contract and Peak gave McMurtrie 7 days’ advance written notice, and the foregoing was satisfied. Therefore, the Court awarded prejudgment interest at 1.5% per month on $47,215.00 from 15 days from the date of the Final Invoice and reasonable attorney’s fees.

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