Constructing a Solid Defense:

BKCG Gets Full Defense Award in $2 Million Claim By Contractor Against Long Time BKCG Client 

Never walk off the job.

That was the message that resonated through the tens of thousands of documents, months of depositions, and a full week of arbitration. Disputes may arise during a complex commercial real estate project, but the general contractor walking off the job is the cardinal sin.

General contractor, KDC Construction, learned that lesson the hard way when it sued BKCG long-time client Red Mountain for $2 million after leaving the shopping center it agreed to build unfinished. In the end, not only was KDC's entire claim denied by the arbitrator, Red Mountain was awarded its full cost to complete the project and deemed the prevailing party for purposes of seeking fees and costs of the litigation.

Red Mountain Retail Group, a Santa Ana based company specializes in revitalizing neglected and challenging properties into attractive, productive parts of the community. Red Mountain took this mission to Oxnard California where an old, dilapidated former K-Mart store had become an eyesore and magnet for vagrants and crime. After conducting its typical due diligence, Red Mountain purchased the property with the plan to remodel the existing structure into several spaces with major tenants as well as smaller shops. Red Mountain had buy-in from the city, and lined up national tenants such as Smart & Final and LA Fitness. In order for the plan to work, Red Mountain needed a reputable general contractor. After a thorough bidding process, Red Mountain chose KDC Construction, a nationally recognized contractor with plenty of experience and resources. After robust negotiations, Red Mountain and KDC agreed to a fixed price contract of $7 million for the remodel. Red Mountain made it clear that the amount was to be an "all in" price. KDC agreed. The agreed project schedule was aggressive but achievable. Soon after the project began, however, delays from the City permitting process created some challenges. Red Mountain's project manager dutifully maneuvered the project through obstacle after obstacle. Ultimately, despite the various hurdles, the parties were able to get the first tenant, Smart & Final, open before Thanksgiving as promised, and it seemed as if the rough waters were behind them. However, as the rainy season approached, and the project was behind schedule, disputes arose. KDC submitted over 100 change order requests to Red Mountain, ballooning the contract price to well over $8 million. While Red Mountain did agree to the vast majority of the requests (and the agreed contract price went up by almost $1 million), Red Mountain did not agree with all of them. Instead of using the robust resolution procedures in the extensive contract, however, KDC walked off the job when Red Mountain refused to capitulate. Left in the lurch, Red Mountain was forced to find other contractors to finish the shopping center, and did so. The cost to complete the project, however, was nearly $2 million.

After leaving the site, KDC retained counsel and demanded over $1.3 million in contract amounts KDC claimed for work done before it left. With BKCG in its corner, Red Mountain rightfully refused-knowing that it would have to spend more than that just to finish KDC's work. KDC sued Red Mountain in Ventura County Superior Court, but the case was quickly sent to arbitration per the terms of the contract.

KDC aggressively litigated the case. Ultimately, KDC asked for nearly $2 million (plus its attorney's fees) after it layered on another $500,000 in claimed penalties under California's Prompt Payment Act. Red Mountain once again looked to their trial counsel, Dan Kessler and BKCG's trial team of Ros Lockwood and Jon Stilz. KDC employed a strategy to obfuscate its clear breach by attempting to focus the case on their numerous disputes that arose during the project. The case swelled to over 25,000 documents, with numerous subpoenas ranging from city officials to subcontractors to architects. BKCG navigated the extensive discovery and marshalled the evidence needed to prove the real case: KDC walked off the job, and Red Mountain had to finish the work.

The case proceeded to arbitration before seasoned retired judge, Stuart Waldrip with Judicate West. Each side had multiple witnesses as well as their experts. Consistent with the massive discovery, there were more than 800 documents marked as exhibits. The parties submitted the case to the arbitrator in early February, and had to wait patiently for an award.

In March, the interim award was issued. The arbitrator found that KDC did, in fact, breach the agreement when it left the project, denied KDC any penalties, awarded Red Mountain the additional amounts spent to complete the project and deemed Red Mountain the prevailing party. Red Mountain has filed its motion for fees, which is pending.

Reflecting on the award, Dan Kessler stated, "In my closing argument, I implored Judge Waldrip to go back to the contract and look at what is a breach-'the contractor must finish the work.' It was very gratifying to see the award come in on those lines, and to see the Red Mountain folks get the justice they deserve."

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