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Harakas Construction, Inc. v. Metropolitan Government of Nashville

Court of Appeals of Tennessee, Nashville

January 29, 2018


          Session August 23, 2017

         Appeal from the Chancery Court for Davidson County No. 13-576-IV Russell T. Perkins, Chancellor

         Harakas Construction, Inc. appeals the judgment of the Chancery Court for Davidson County ("the Trial Court") granting summary judgment to Metropolitan Government of Nashville and Davidson County ("Metro") and Dale and Associates, Inc. ("Dale"). We find and hold that the Trial Court correctly granted summary judgment to Metro based upon sovereign immunity and that the Trial Court correctly granted summary judgment to Dale because Dale had negated essential elements of Harakas's claim.

         Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed Case Remanded

          J. Brad Scarbrough and Chris Holleman, Brentwood, Tennessee, for the appellant, Harakas Construction, Inc.

          Jon Cooper and J. Brooks Fox, Nashville, Tennessee, for the appellee, Metropolitan Government of Nashville and Davidson County.

          David N. Garst, J. Wallace Irvin, and Brian S. Faughnan, Nashville, Tennessee, for the appellee, Dale and Associates, Inc.

          D. MICHAEL SWINEY, C.J., delivered the opinion of the court, in which FRANK G. CLEMENT, JR., P.J., M.S., and JOHN W. MCCLARTY, J., joined.




         In 2007, BK Partners, LLC ("BK Partners") owned undeveloped real property located in Davidson County, Tennessee ("the Property") upon which it planned to construct a high-rise condominium. In order for the Property to be developed, the existing public sewer service had to be upgraded. The sewer system that services the Property also services an area known as the Holiday Travel Park area. In August of 2007, BK Partners submitted an application to upgrade the public sanitary sewer to Metro Water, the department of Metro which manages the water and sewer services in Davidson County, Tennessee. The application was approved.

         BK Partners and Metro entered in to a Participation Agreement wherein Metro agreed to fund $200, 000 toward the cost of the sewer improvement. Pursuant to Metro's policies, BK Partners was responsible for paying capacity fees based upon the anticipated impact that the new development would have on the existing sewer system. The capacity fees for the development of the Property were approximately $275, 000. Subject to the passage of an authorizing ordinance, Metro agreed to waive $200, 000 of the capacity fees since BK Partners was funding a portion of the sewer improvement costs, and BK Partners was to pay the balance. Metro also waived the requirement for BK Partners to post a payment and performance bond as security for the project.

         In December of 2007, a Metro ordinance was approved which authorized Metro to pay an amount not to exceed $200, 000 toward the sewer improvements being made by BK Partners. The ordinance, Ordinance No. BL2007-67, provided, in pertinent part:

An ordinance authorizing the Metropolitan Government to participate with BK Partners to provide public sewer service in Davidson County to Pennington Towers Outfall-Holiday Travel Park Sewage Pumping Station Removal, Project No. 07-SL-113.
WHEREAS, Pursuant to the document attached as Exhibit A and incorporated into this ordinance by reference, BK Partners proposes to provide public sewer service in Davidson County to a development known as Pennington Towers Outfall-Holiday Travel Park Sewage Pumping Station Removal, Project No. 07-SL-113, Map 62.1, Parcels 17 & 22; and
WHEREAS, the Metropolitan Government, Department of Water and Sewerage Services, has built the Mill Creek Trunk Sewer Project No. 98-SG-13 anticipating participation from developers at $2, 000.00 per connection towards the cost of the Project; and
WHEREAS, this Project is deemed to benefit both parties and the general community, and the Metropolitan Government agrees to pay an amount not to exceed $200, 000.00 towards construction of the Project.

         The Participation Agreement For Sewer Services incorporated into Ordinance No. BL2007-67 by reference provided, in pertinent part:

The project consists of removal of the existing pump station and replacement with approximately 5, 100 linear feet of gravity sewer to the existing gravity sewer line Project No. 07-SL-0113, complete with all necessary easements and appurtenances.
* * *
METRO agrees to participate in the construction costs for a portion of this project in the lessor amount of $200, 000 or 50% of the actual construction cost as determined by the contractor's affidavit . . . . Actual payment may be in the form of capacity fee credits or cash. All cash payments will be made upon completion of the work and deeding to METRO.
BK will be responsible for all other costs associated with this project.

         BK Partners hired Dale to prepare plans for the sewer improvements, which consisted of installing approximately 5, 000 linear feet of sewer pipe on adjacent land and removing an existing pump station ("the Project"). The Project was delayed for a time due to economic factors.

         In January of 2012, BK Partners entered into a contract ("the Service Agreement") with Harakas Construction, Inc. ("Harakas") for work on the Project. Metro was not a party to the Service Agreement and had no input into the hiring of Harakas or the terms of the Service Agreement. The Service Agreement called for Harakas to install sewer pipe and remove the pump station. Work on the Project began in March of 2012. During construction, Harakas encountered unforeseen soil conditions, and Harakas and BK Partners agreed to two change orders, which increased the amount of the Service Agreement. Metro was involved in discussions regarding the unforeseen conditions and the change orders.

         Harakas performed the extra work and mostly completed the Project on June 21, 2012, with the exception of reconstruction of a fence. On that date, Harakas tied the new sewer system into the existing sewer system, and Metro began using the new sewer system. Around this same time period it was discovered that the new sewer system was not the proper elevation because it was too high to connect sewer outfall from adjacent property owned by Kampgrounds of America ("KOA"). Due to the elevation, the sewer system required a pump station to connect KOA's outfall and could not be a gravity fed system as originally designed. Because of the issue with the KOA line, Metro refused to fund any more of the Project. Metro, however, continued to use the sewer system.

         BK Partners defaulted on its obligation to pay Harakas both the original balance pursuant to the Service Agreement and the change order balance. Allegedly, BK Partners owed Harakas over $235, 000. BK Partners also defaulted on repayment of its loan to Wilson Bank & Trust, and the Property was sold at foreclosure in 2013. Wilson Bank & Trust purchased the Property at the foreclosure sale. The Property later was dedicated to parks and conveyed to Metro.

         Harakas sued Metro, BK Partners, and Wilson Bank & Trust[1]. Harakas later was granted leave to amend its complaint to add claims for negligence and negligent misrepresentation against Dale. In September of 2014, Dale filed a Suggestion of Bankruptcy alleging that BK Partners had filed a petition for bankruptcy. Dale also filed a motion for stay pending the outcome of the bankruptcy. An order was entered staying the instant case pending the outcome of the bankruptcy. In January of 2015, Harakas filed a notice of filing an order from the bankruptcy court granting relief from the automatic stay. In July of 2016, Harakas filed a Notice of Voluntary Nonsuit taking a nonsuit against BK Partners in the instant case.

         Metro filed a motion for summary judgment alleging sovereign immunity. Dale filed a motion for summary judgment alleging that it did not breach the standard of care required of civil engineers, that it properly performed all services required by its contract with BK Partners, that Harakas had failed to produce any evidence that it justifiably relied upon false or faulty information provided by Dale or that Dale failed to exercise reasonable care in obtaining information provided in the plans, and that Dale did nothing to prevent BK Partners from making payment in full to Harakas.

         Nicholas Curtis Harakas was deposed, and he testified that Harakas entered into the labor-only Service Agreement with BK Partners to "construct underground utility services, " or in other words, to lay pipe. He testified that Harakas was to lay pipe only, not remove the pump station. Mr. Harakas testified that the Project called for the installation of approximately 4, 600 linear feet of sewer pipe. He further testified that the Service Agreement provided no provisions for dealing with stone outcroppings or bedrock, and provided that all instances of rock would be handled on a case-by-case time and materials basis. Mr. Harakas admitted that the majority of the Service Agreement was drafted by Harakas.

         Mr. Harakas testified that Metro was to provide materials for the Project. Albert McKee of Metro was on-site to oversee work on the Project and report back to Metro. Mr. Harakas explained that the Service Agreement was for labor and materials not provided by Metro such as gravel for pipe bedding. Mr. Harakas stated that he was supposed to be paid for labor and materials not provided by Metro. He understood that Metro would not be providing gravel.

         Mr. Harakas testified that he also understood that the cost of the Project was to be split equally between Metro and BK Partners. Mr. Harakas expected to receive a check from BK Partners for its share and a check from Metro made jointly to Harakas and BK Partners for Metro's share. Mr. Harakas testified that BK Partners did not pay Harakas for the work performed under the Service Agreement. He further stated that Harakas never received any checks from Metro.

         The high-rise condo project that BK Partners intended to construct on the Property never was completed. Mr. Harakas testified that Metro now owns the site and is using it to "take soils and concrete and asphalt and things to fill the [excavated] site in."

         Mr. Harakas admitted that the work Harakas performed under the Service Agreement was not completed. He stated that Harakas did not finish "[s]eeding and strawing and placement of fence." Mr. Harakas testified that this work would cost approximately $20, 000. He explained that $10, 000 of this uncompleted work would be covered under the Service Agreement, and $10, 000 would fall under the change orders.

         Mr. Harakas claimed that Metro "committed verbally" to the change orders and that this authorization came from Mike Morris. Mr. Harakas understood that BK Partners did not have any additional financing other than what it had from Wilson Bank & Trust, and that any additional funds would need to come from Metro or another source. Mr. Harakas stated that he wanted a guarantee that Metro was going to cover the additional costs for the change orders.

         Mr. Harakas was asked about the discussions regarding the change orders, and he stated:

Basically, the change orders that Brian agreed to was under the assumption that Metro would be willing to pay for, if not all of it, a large portion of it, because the bank had only allotted X amount of dollars to do that.
And we had a meeting with Metro officials discussing that, and they agreed to go back to council to seek additional funding, but not until after the project was complete, to make sure that all work was completed and no additional monies were needed to complete the project. So they would only have to go back to council one time to seek additional funding.

         When the unforeseen soil conditions were discovered, the Project was stopped "for almost 30 days" and discussions were held about funding. Mr. Harakas was asked who was involved in those discussions, and he stated: "It was Wilson Bank & Trust; Brian Kemp; Metro Water Services, which would be Mike Morris, Cyrus Toosi; Dale & Associates. We all had a meeting discussing that." Mr. Harakas testified that Wilson Bank & Trust indicated that the loan amount was nearly drawn out and Brian Kemp "said that if the bank wasn't willing to fund that additional portion, that Metro would have to fund the additional portion, whatever was left that the bank would not fund." Mr. Harakas stated that the result of the conversations "was that the bank would fund the portion that they had already allotted and that Metro would go back to council and seek additional funding to fund the remaining portion of it." Mr. Harakas testified that to his knowledge Metro has not gone back to council to seek additional funds.

         Mr. Harakas stated that BK Partners responded to the change orders by sending him emails approving the additional work. Mr. Harakas agreed that under the Service Agreement, no one from Metro was required to provide any type of authorization in order for Harakas to proceed with the additional work under the change orders.

         Harakas had completed the work on both change orders before the problem with the KOA line was discovered. Mr. Harakas stated that after the problem with the KOA service line was discovered:

we actually had a meeting with Brian, Mike Morris, Cyrus, and Roy and Michael. And it was discussed that this was a problem and that it needed to be solved. Other than putting a pump in, it needed to be 100 percent gravity in order for Metro to continue participating.

         Michael Morris who works in the Development Services group of Metro Water Services was deposed and testified that his "group reviews and approves construction plans and coordinates development activities on behalf of Metro Water Services." Mr. Morris explained that "[a] gravity sewer is one that transports waste water by gravity by difference in elevation." Mr. Morris explained that Cyrus Toosi is his boss, and that Albert McKee was their construction inspector on the Project. Mr. Morris was asked about decisions on participation agreements, such as what percentage would be assigned to Metro, and he explained that such decisions had to go through his boss, then an asset management committee would need to approve the agreement, then the director would need to sign off, and then the decision would go to Metro council.

         Mr. Morris was asked if he remembered the change orders, and he stated:

I remember requests for a couple, yes. . . . I was asked about them, and I - and I remember reading one of my e-mails in preparation for today where I specifically said, you know, it has to be built to our specs, but we can't approve a change order without going back to council; we cannot do it.

         Mr. Morris was asked if he recalled any statement that Metro would go to the council for additional funding, and he stated:

I remember that we would consider it, but ultimately, you know, there again, it's not - - wasn't our - - wasn't my decision. You know, I would support it. I would, you know - - whatever. If we got what we needed and everything, you know, was built to specs and everything was perfect, if there were, you know, issues that were legitimate, I would ask, but it had to make its way through the food chain for approval.

         Mr. Morris admitted that Metro has not gone back to council to seek additional funding. He was asked if Metro had discussed doing so, and he stated: "No point. It's still a pump station involved. The agreement was based on the removal of the pump station and having a gravity system, and we still don't have a gravity system today." Mr. Morris admitted that with the exception of the KOA tie-in, Metro got what it requested.

         Mr. Morris was asked if Harakas or BK Partners ever approached Metro about providing additional funding, and he stated: "They did. They approached us about it, and we answered in May of 2012 that, you know, any additional work would have to be approved by Metro council, you know, that we could not unilaterally decide to increase that participation amount."

         Mr. Morris testified that Metro never approved or signed off on any change order. He stated:

Curt [Harakas] kept submitting change orders to us wanting us to approve them, and we kept telling him our agreement - - just like my e-mail says - -is with the developer. If he wants to request a change order, he needs to send it to us, you know. And even though he sends it, it still has to go to Metro council for approval. I think we were very clear that we could not agree to any type change order; that our agreement was with BK Partners.

         Mr. Morris agreed that he represented that Metro would seek additional funds "[a]t some level . . . [t]o be identified, " at the end of the job, which has not happened due to the issue with the pump station. He further stated: "[They] [d]id not give us the product for which we had agreed to pay." Mr. Morris was asked if Metro would seek additional funds from council if the situation with the pump station were addressed, and he stated: "I was willing to take it to bat. I have no idea of the outcome, and that's why, you know, I had to be really careful. I couldn't say, you know, 'By gosh and by darn, we're going to do this, ' because I don't have that authority."

         Mr. Morris was shown an as-built, and he stated it was for the Holiday Travel Park pump station and showed an inlet from KOA. He testified that his staff typically would not compare a proposed design with an as-built, but would rely upon the engineer submitting the design to "have done his homework."

         Cyrus Toosi was deposed and was asked if Metro would review a proposed design and compare it to as-builts, and he stated:

I would say there's a cursory - - cursory review of the project. But we don't - - in the engineering field, we don't necessarily always rely on as-builts, as this was done 40 years ago.
So there had to be a survey that was done by the engineer to make sure, No. 1, field conditions haven't changed in 40 years; and No. 2, that things are still accurate out there. I think we rely more on field survey and engineer stamp of - - of a project as ...

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