REDONDO CONSTRUCTION CORPORATION

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF PUERTO RICO
In re: :
:
REDONDO CONSTRUCTION CORPORATION, : Case No. 02-02887 (GAC)
:
Debtor : Chapter 11
___________________________________:
DECISION AND ORDER
On March 20, 2003, Wal-Mart Stores, Inc. and Wal-Mart Puerto
Rico (collectively “Wal-Mart”) filed a motion for leave to file a
late proof of claim (dkt. #408), together with an unsecured proof
of claim in the amount of $4,844,559.83, premised on alleged
construction defects caused by the debtor, Redondo Construction
Corp. (“RCC”), resulting in the collapse of the roof of Wal-Mart’s
store at the Mayaguez Mall in Mayaguez, Puerto Rico, on September
21-22, 1998, during the passage of Hurricane Georges. Over RCC’s
opposition, on October 8, 2003, the Court entered an order granting
Wal-Mart’s motion for the filing of its late proof of claim (dkt.
#580).
On August 26, 2005, RCC filed an objection to Wal-Mart’s claim
on the merits, which was answered by Wal-Mart on September 13, 2005
(dkts. #1119 and #1128, respectively). Thereafter, the parties
engaged in various discovery disputes and sought extensions of
time, until on February 1, 2007, RCC filed a motion for summary
judgment, with a supporting statement of material facts (dkt. #1674
and #1675, respectively). Wal-Mart opposed the motion on February
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13, 2007 (dkt. #1686). Prior to determination of the motion for
summary judgment, RCC filed a motion to stay determination of the
motion for summary judgment, pending discovery (dkt. #1733). This
motion was granted.
The pretrial was rescheduled various times, the last for
November 14, 2008. On September 19, 2008, RCC filed a second
motion for summary judgment (dkt. #1994). In this motion, RCC
seeks summary judgment and dismissal of Wal-Mart’s claim as a
sanction for failure to comply with discovery. RCC claims that
Wal-Mart has never produced a complete copy of the construction
contract and that RCC has been requesting this document since
February 10, 2006.
On September 29, 2008, Wal-Mart filed an opposition to RCC’s
motion for summary judgment (dkt. #1998). Wal-Mart contends that
RCC has not produced a single document nor any of its witnesses in
response to the numerous discovery requests propounded by Wal-Mart.
Wal-Mart indicates that it has never produced a complete copy of
the construction contract because it has been unable to locate a
complete copy of the agreement. Wal-Mart further states that its
counsel has appeared twice in the offices of RCC’s counsel for
inspection and copying of documents and on both occasions, RCC
produced only the documents which Wal-Mart produced pursuant to
RCC’s discovery requests. Finally, Wal-Mart indicates that it has
not conducted a deposition of Eng. Roberto Arrieta and other
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Redondo witnesses, whom Wal-Mart noticed for depositions, because
it cannot conduct meaningful depositions without the documents.
Wal-Mart contends that it is critical to depose a custodian of
records for RCC to determine the whereabouts of RCC’s files and
documents related to the construction of Wal-Mart’s building.
Prior to the pretrial hearing on November 14, 2008, Wal-Mart
sought to convert the hearing to a status conference or continue
the pretrial to December 2, 2008, the date that the trial was to
commence. Wal-Mart also sought until April of 2009 to conclude
discovery. The Court converted the hearing to a status conference
and thereafter, RCC filed a motion for continuance of the hearing
of November 14, 2008, indicating that its counsel would not be
Puerto Rico for the hearing. The hearing was held and both parties
argued that the other had failed to comply with discovery. The
hearing was continued to Monday, November 17, 2008 at 4:00 p.m.
Upon further review of the documents, the Court concluded that a
hearing is unnecessary and cancelled the hearing of November 17,
2008, indicating that an order would be issued.
DISCUSSION
Upon reviewing the transcript of the hearing held on February
8, 2008, it is clear to the Court that in nine months neither side
has made any progress with the discovery and both parties are
admonished for failing to act diligently. At the hearing of
February 8, Wal-Mart indicated that it had various depositions to
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take, but that it could not take meaningful depositions without
construction documents that RCC has not produced. The Court
granted Wal-Mart thirty days to depose Eng. Arrieta, who was a
Chief Engineer of RCC, is the administrator of the litigation trust
and RCC has represented that he is the Custodian of Documents. The
Court indicated that if this deposition was insufficient, Wal-Mart
could depose another Rule 30(b)(6) witness to attempt to locate the
documents. The Court also suggested that there may be other means
of obtaining the documents. Likewise, at the hearing of February
8, RCC could not even state who it intended to depose. RCC
indicated that its depositions would depend upon the depositions
taken by Wal-Mart, the outcome of its motion for summary judgment
and the result of its pending discovery requests, namely production
of the construction agreement, in its entirety.
In RCC’s second motion for summary judgment, it claims
entitlement to judgment based on Wal-Mart’s failure to comply with
its discovery requests. Wal-Mart likewise claims that RCC has
failed to comply with its requests. Like a broken record, over and
over, each side blames the other for their individual failure to
take any action to prosecute their respective positions.
The Court finds it hard to fathom that both Wal-Mart and RCC
are not in possession of the complete construction contract for the
subject building. Likewise, both parties should also be in
possession of the construction documents; Wal-Mart as the owner and
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RCC as the general contractor. The Court concludes that both
parties are to blame for the present state of affairs and thus,
will deny RCC’s second motion for summary judgment.
If the parties are unable to locate the documents requested by
the other, as they have repeatedly represented to the Court, the
parties will have to proceed with the evidence they have available.
Nonetheless, given that the parties have failed to conduct their
respective depositions, they are clearly unable to proceed to trial
on the dates set aside by the Court in December. Accordingly, the
trial dates will be vacated.
As to RCC’s original motion for summary judgment, RCC is
entitled to summary judgment if "the pleadings, depositions,
answers to interrogatories, and admissions on file, together with
the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to a
judgment as a matter of law." See Fed. R. Civ. P. 56(c); Fed. R.
Bankr. P. 7056. See also Celotex Corp. v. Catrett, 477 U.S. 317,
322, (1986). Summary judgment cannot be granted if there are
issues of material fact. A material issue is one that affects the
outcome of the litigation. Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 248 (1986).
The Court should draw all reasonable inferences from the facts
in the manner most favorable to the nonmovant. Desmond v. Varrasso
(In re Varrasso), 37 F.3d 760, 763 (1st Cir. 1994); Piccicuto v.
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Dwyer, 39 F.3d 37, 40 (1st Cir. 1994). Conclusory allegations,
improbable inferences and unsupported speculation do not suffice to
support a motion for summary judgment. Hadfield v. McDonough, 407
F.3d 11, 15 (1st Cir. 2005). Moreover, “summary judgment is
inappropriate if inferences are necessary for the judgment and
those inferences are not mandated by the record.” In re Varrasso,
37 F.3d at 763.
RCC bases its initial claim for summary judgment on its
conclusory allegation that the alleged defects asserted by Wal-
Mart, were obvious and apparent defects. RCC claims that if the
store was built without required roof drainage, causing it to
collapse four years after acceptance of the project, this would
have been easily observable by Wal-Mart, “who provided the plans
and specifications for the construction of the Mayaguez Wal-Mart
Store and inspected the same during its construction and at the
time of the conclusion thereof.” (Dkt. #1674 at p. 2).
RCC cites the Laws of Puerto Rico, which provide that:
The contractor of a building which may have been
destroyed by reason of defects in the construction shall
be liable for the losses and damages if said building
should collapse within ten (10) years, to be counted from
the completion of the construction; and during the same
time the same liability shall be incurred by the
architect who may have directed the work if the collapse
is due to defects in the ground or in the direction. If
the cause should be the noncompliance of the contractor
with the conditions of the contract, the action for
indemnity may be brought within fifteen (15) years.
31 L.P.R.A. § 4124.
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RCC elaborates, citing Richmond Steel, Inc. v. Legal and
General Assur. Soc., Ltd., 825 F.Supp. 443 (D.P.R. 1993), that the
guarantees of 31 L.P.R.A. § 4124 only apply to hidden defects, not
to visible defects. A contractor is not responsible for defects
that are apparent and can be appreciated by simple view or by
inspection. Gonzalez v. Agostini, 79 P.R. 481, 79 P.R. Dec. 510
(P.R. 1956). Likewise, if the contractor fails to comply with some
specifications of the contract and the owner has knowledge of the
failure, either directly, or through his inspector, in the absence
of fraud and after acceptance of the work, there is no right to
claim for construction defects. Id.; Pueblo v. Berrios, 54 P.R.
Dec. 504 (P.R. 1962); Constructora Bauza, Inc. v. Garcia Lopez, 91
JTS 99, 129 P.R. Dec. 579 (P.R. 1991).
RCC substantiates its request with the report of Architect
Richard Stipe, which indicates that the Wal-Mart building was
constructed without the required overflow drains and “scuppers.”
His review of the design drawings reflect that the building was
designed to be constructed with overflow scuppers and drains. He
indicates that they were mandated by generally accepted
engineering, architectural and construction practices. In his
opinion, the collapse occurred because the primary roof drains
became obstructed with debris and the overflow scuppers and
overflow drains were not installed. Architect Stipe further opined
that the failure to install the overflow scuppers and drains
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constituted a failure to construct the building in accordance with
the building plans and in compliance with the building code.
Wal-Mart opposed RCC’s motion for summary judgment, citing
Rosello Cruz v. Garcia, 1985 JTS 54, 116 P.R. Dec. 511 (1985),
contending that the collapse of the roof was due to a hidden
construction defect, which creates a rebuttable presumption of
fault on the part of RCC. Thus, RCC must present incontrovertible
evidence that Wal-Mart cannot prevail under any set of
circumstance. Wal-Mart contends that lack of adequate drainage is
a compensable construction defect under Article 1483, citing Geigel
v. Mariani, 85 P.R 43, 86 P.R. Dec. 46 (P.R. 1962). Wal-Mart
argues that the passage of time made the “undiscoverable hidden
defect” apparent; i.e. four years elapsed from the acceptance of
the building and the lack of adequate drainage became apparent to
Wal-Mart with the collapse of the roof during Hurricane Georges.
While Wal-Mart addresses force majeure, RCC has not argued
that the roof collapsed due to the Hurricane and forces beyond its
control. Wal-Mart further argues that RCC failed to advise it that
the proposed work did not meet the measure of safety required by
the profession, applicable laws and regulations and that if it had,
RCC had the duty to refuse to undertake the work. Gonzalez v.
Agostini, 79 P.R. 481 (P.R. 1956); Geigel v. Mariani, 85 P.R. 46
(P.R. 1962).
The Court concludes that whether the failure to install
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overflow scuppers and drains was an apparent defect or whether it
was a hidden defect, only becoming apparent to Wal-mart after the
collapse of the roof, is an issue of material fact which precludes
the entry of summary judgment. The Court cannot infer that the
failure to install the overflow scuppers and drains was an apparent
defect because that inference is not mandated by the record.
Moreover, RCC has itself argued that the installation of overflow
scuppers and drains was mandated by generally accepted engineering,
architectural and construction practices and that the lack of the
overflow scuppers and drains caused the roof collapse. Neither RCC
nor Wal-Mart has addressed who was responsible for the elimination
of the overflow scuppers and drains from the construction plans,
nor has RCC addressed why it delivered construction work that did
not, by its expert’s own admission, meet the measure of safety
required by the profession, applicable laws and regulations.
Accordingly, RCC’s initial motion for summary judgment will be
denied.
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ORDER
WHEREFORE IT IS ORDERED that RCC’s motions for summary
judgment (dkts. #1674 and dkts. #1994) shall be, and they hereby
are, DENIED.
IT IS FURTHER ORDERED that the trial scheduled to commence on
December 2, 2008, is vacated.
IT IS FURTHER ORDERED that both parties are admonished for
their failure to conclude discovery.
IT IS FURTHER ORDERED that no additional dispositive motions
will be entertained by the Court.
IT IS FURTHER ORDERED that both parties are granted a final
extension of ninety (90) days to depose any and all witnesses that
they intend to depose. The failure to produce cited witnesses for
deposition will result in sanctions, which may include stiff
monetary penalties, in excess of $5,000, and/or determination of
the contested matter against the non-compliant party.
IT IS FURTHER ORDERED that the Court will not consider any
further motions regarding failure to produce documents, as both
parties have stated that they have no further documentation in
their possession. The parties should prepare to proceed to trial
with the evidence in their possession and that obtained through
their depositions. The repercussions of the failure to produce
documentation, if a party was legally obligated to retain it, will
be addressed at that time.
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IT IS FURTHER ORDERED that a final pre-trial is scheduled for
Friday, March 13, 2009 at 9:00 a.m. The trial dates will be
determined at that time. The parties shall file the pre-trial
report by March 16, 2009.
SO ORDERED.
San Juan, Puerto Rico, this 18th day of November, 2008.
BY THE COURT:
s/ Gerardo A. Carlo
_______________________
GERARDO A. CARLO
U.S. Bankruptcy Judge
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