Orlando Health, Inc. v. HKS Architects, Inc.

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF FLORIDA ORLANDO DIVISION ORLANDO HEALTH, INC., Plaintiff, v. Case No. 6:24-cv-693-JA-LHP HKS ARCHITECTS, INC., Defendant.

HKS ARCHITECTS, INC., Third-Party Plaintiff, v. BBM STRUCTURAL ENGINEERS, INC., Third-Party Defendant.

ORDER This breach-of-contract action! arises from the design and construction This Court has subject-matter jurisdiction under 28 U.S.C. § 1332 based | diversity of citizenship. Plaintiff, Orlando Health, Inc. is a citizen of Florida, a Defendant/Third-Party Plaintiff, HKS Architects, Inc., is a citizen of Texas.

HK9’s claims against the Third-Party Defendant, BBM Structural Enginee: Inc., fall within this Court’s supplemental jurisdiction under 28 U.S.C. § 1367(a). □ 28 U.S.C. § 1367(a) (providing that, with certain exceptions, “in any civil action which the district courts have original jurisdiction, the district courts shall ha supplemental jurisdiction over all other claims that are so related to claims in t action within such original jurisdiction that they form part of the same case controversy” and “[s]uch supplemental jurisdiction shall include claims that invol a six-story hospital and supporting departments in Lake Mary, Floride Orlando Health, Inc. contracted HKS Architects, Inc. (HKS) to serve as architec of record and to be responsible for the planning, architectural, and engineerin services—including structural engineering services—for the design an construction of the hospital. HKS then subcontracted BBM Structur: Engineers, Inc. (BBM) to provide the structural engineering services for tk project.

During construction of the hospital, various structural defects becan obvious. These defects—which were determined to be design defects rather thé construction defects—were serious, requiring immediate repairs. Orlan Health eventually filed this lawsuit to recover from HKS the costs of tho repairs. And HKS has filed a third-party complaint against BBM, alleging th BBM is the responsible party because 1t committed the structural design erro HKS and BBM (collectively “Movants”) now jointly move for summa the joinder or intervention of additional parties”).

Orlando Health has not asserted any claims against BBM; if it had, the Co would lack jurisdiction over those claims because BBM is, like Orlando Health citizen of Florida. See 28 U.S.C. § 1367(b) (providing that “[i]n any civil action of wh the district courts have original jurisdiction founded solely on section 1332 of this ti the district courts shall not have supplemental jurisdiction under subsection (a) o claims by plaintiffs against persons made parties under Rule 14... of the Fede Rules of Civil Procedure ...when exercising supplemental jurisdiction over s claims would be inconsistent with the jurisdictional requirements of section 1332”); also Fed. R. Civ. P. 14(a)(1) (allowing a defendant to file a complaint as □□□□□□□□ plaintiff against a nonparty “who is or may be liable to it for all or part of the cl: against it,” as was done in this case by HKS against BBM). judgment, 2 arguing that all of the damages Orlando Health seeks ar consequential damages, recovery of which Orlando Health waived in its contrac with HKS. As explained below, however, because at least some of the damage sought by Orlando Health flowed directly and necessarily from HK&’s breach « contract, they are direct damages rather than consequential damages. Thu the motion for summary judgment must be denied.3 I. Background On December 30, 2019, Orlando Health and HKS signed, with son modifications, an AIA “Standard Form of Agreement Between Owner a1 Architect” (Agreement, Doc. 33-2 at 1-41).4 The Agreement culminated in pla for a 317,185-square-foot hospital tower accommodating 150 beds wi As noted earlier, there are no claims by Orlando Health directly against BB and if there were, the Court would not have jurisdiction to entertain them. See not supra. HKS and BBM have filed the motion jointly because “BBM contractually agre to be bound by HKS to the same extent HKS was contractually bound to [Orlaz Health].” (Doc. 50 at 4). Thus, in the joint motion, HKS seeks summary □□□□□ against Orlando Health and BBM in effect seeks summary judgment against H because if HKS prevails against Orlando Health, “HKS’[s] derivative claims in Third-Party Complaint [against BBM] also would be extinguished.” (Doc. 50 at 20) The Court previously ruled on other aspects of the summary judgment moti concluding that the affirmative defense of waiver had not been forfeited and that “ the extent that what [Orlando Health] seeks are consequential damages, [Orla: Health] has waived them.” (Order, Doc. 112, at 3). That Order in effect granted alternative request for partial summary judgment “as to all consequential dama sought by [Orlando Health] in this action.” (See Doc. 50 at 20). This Order addres the remaining issue raised in the motion—whether all of the repair and remediat costs sought by Orlando Health constitute consequential damages.

4 AIA stands for The American Institute of Architects, and the Agreem between Orlando Health and HKS was AIA Document B101—2017 (as modified by parties). (See Doc. 33-2 at 2). supporting departments—including imaging, infusion, pharmacy, and lab—a well as surface parking, a kitchen, and an energy plant. (Doc. 33-2 at 2). A architect of record, HKS was obligated to sign and seal the final set « architectural and construction plans. (See Walsh Decl., Doc. 60-1, { 5). An HKS and Orlando Health “waive[d] consequential damages for claims, dispute or other matters in question, arising out of or relating to th[e] Agreement (Agreement § 8.1.3).

HKS in turn engaged BBM to provide the structural engineering servic for the project. BBM’s broad responsibilities pursuant to its subcontract wi HKS included “design responsibilities in the (a) schematic design, (b) desi development, (c) construction documents, and (d) construction administrati phases of the” project. (Third-Party Compl., Doc. 18, at 3). In this role, “BB signed and sealed the structural drawings contained within the overall set drawings submitted by HKS for permitting.” (Walsh Decl. q 6). □□□ contractual obligations were only to HKS; Orlando Health had no contracti relationship with BBM. Like the Agreement between HKS and Orlando Heal the contract between HKS and BBM also included a waiver of consequent damages. (See Doc. 40 at 6). And “BBM contractually agreed to be bound HKS to the same extent HKS was contractually bound to” Orlando Healt (Doc. 50 at 4).

Soon after construction began, the construction manager for the pro: discovered multiple structural failures due to design errors and omissions in th structural engineering plans. (Id. { 7). Immediate action was required t correct those failures, including some demolition and rebuilding. That actio was taken, at significant cost.

The first failure appeared on the second floor of the hospital, where tk slab was cracking at each column line. (Id. {| 9). The cracking occurred becaus a full second layer of reinforcing steel—known as “top mat rebar’—was n included in the structural engineering plans. (Id.). HKS admitted that tl reason the second layer of rebar was not installed was that it was not clear called for in the drawings. (Id. § 18). BBM agreed, (id.), and it made revisio! and additions to its drawings so that the problem could be corrected, □□□□ § 1: The remediation of this failure required “coring into the concrete, adding reb through columns, and jacking of the slabs, together with the partial demoliti of the elevated slab... and completely repouring the concrete for that are: (Id. § 12). As damages arising from this defect, Orlando Health see $1,499,193 for the slab repair and $79,000 for expert slab-remediation pe review services. (Id. {| 22).

The second defect involved a cantilevered overhang on levels 3 and 4 the North Tower of the hospital. Ud. J 24). As admitted by BBM, its design v inadequate to support the cantilevered overhang. (Id.). For remediation of t defect, Orlando Health seeks recovery of the $233,153 it spent to □□□□□□□ cantilevered overhang and column. It also claims $37,000 for peer-reviex services. (Id. § 26).

The third and fourth issues requiring remediation were caused b deficiently designed structural beams. The third issue, which stemmed □□□□ these deficient beams, manifested itself in the deflection (bending an deformation) of the slab at Levels 2 and 3 of the hospital’s East Tower. (See 1 q{ { 28 & 29). For this, Orlando Health seeks recovery of $895,845 it expende to repair the unevenness of the floor caused by the beam sinkage and $208,7¢ it paid for peer-review and survey services. (Id. 27).

Remedying what the parties refer to as the fourth issue—the incorre design of the concrete beams, which caused the floor deflection just discussed involved expansion of seventeen beams and, in some cases, addition of carb fiber reinforcement in the beams. This was necessary so that the beams th would “be structurally sound and meet the loading requirements of t building.” (Id. § 29). And by the time this defect was discovered, “framit plumbing, electricall,] and mechanical” work had begun. (Jd. { 38). Much that completed work had to be removed to do the necessary remediation. (I< For this failure, Orlando Health seeks $1,152,641—the amount it paid remediate the beams. (Id. { 39). Additionally, Orlando Health demaz $1,183,090—the cost “to demolish and reinstall previous work-in-pl materials that were in the way of the remediation of the... [bleams.” □□ And Orlando Health also seeks the $20,000 it paid for peer review services t assess this problem, visit the work site, and write a report. (Id.).

In addition to these issue-specific damages, Orlando Health also seek $32,000 for peer-review services “for the entirety of the building necessitate by” the design defects and $23,000 for site visits by the peer-review provide (Id. § 40). Orlando Health also claims that it incurred “added hard cost” | $160,000 for “extended project management cost.” (Id. {| 41).

Orlando Health contends that by committing these errors, HKS failed | meet the required standard of care, constituting a material breach of tl Agreement and “resulting in a structurally unsound, defective, and unsa construction.” (id. § 21). The facts outlined above are not in dispute. B Movants request that the Court grant summary judgment in their fave contending that as a matter of law all the damages Orlando Health seeks a “consequential” and were thus waived under the Agreement. Thus, the moti for summary judgment requires the Court to determine whether all damas sought by Orlando Health are “consequential” and therefore waived.

Il Summary Judgment Standards “The court shall grant summary judgment if the movant shows that th: is no genuine dispute as to any material fact and the movant is entitled judgment as a matter of law.” Fed. R. Civ. P. 56(a). “Where . . . the mate: facts are undisputed, the question reduces to a legal one, and summ judgment is appropriate if the [movant is] entitled to judgment as a matter c law.” Guarino v. Wyeth, LLC, 719 F.3d 1245, 1250-51 (11th Cir. 2018).

Ill. Discussion While HKS and Orlando Health contractually waived “consequent: damages,” they did not define that term in their Agreement. Thus, the parti now look to the Court to fill in this definitional gap for them. Movants that all the damages Orlando Health seeks in this lawsuit are consequenti damages as a matter of Florida law® and that therefore they are entitled summary judgment. Orlando Health, however, maintains that its claim damages are not consequential damages but instead direct damages that a not barred by the Agreement’s waiver of consequential damages. (See Doc. at 11). Because the Court concludes that at least some of Orlando Healt. claimed damages are not consequential damages, Movants are not entitled summary judgment.

Florida courts have defined “consequential damages” as damages that ' not arise within the scope of the immediate buyer-seller transaction, but rat: stem from losses incurred by the non-breaching party in its dealings, often w third parties, which were a proximate result of the breach, and which w

5 There is no dispute that the applicable law in this diversity case is the la Florida. Indeed, Orlando Health and HKS agreed in their contract that Florida governs. (See Agreement § 10.1 (“This Agreement shall be governed by the laws of State of Florida, without respect to its choice of law provisions.” (deletions omittec reasonably foreseeable by the breaching party at the time of contracting.

Keystone Airpark Auth. v. Pipeline Contractors, Inc., 266 So. 3d 1219, 1222-2. (Fla. lst DCA 2019) (emphasis removed) (quoting Hardwick Props., Inc. 1 Newbern, 711 So. 2d 35, 40 (Fla. Ist DCA 1998)); see also Consequentic Damages, Black’s Law Dictionary (12th ed. 2024) (defining the term as □□□□□□□□ that do not flow directly and immediately from an injurious act but that resu indirectly from the act”). “The most common form of consequential damages : lost profits.” Hardwick Props., 711 So. 2d at 40. Other examples of □□□□ typically regarded as falling into this category are reputational damage, see, @.

Schauer v. Morse Operations, Inc., 5 So. 3d 2, 7 (Fla. 4th DCA 2009), rent expenses, Bartram, LLC v. C.B. Contractors, LLC, No. 1:09-cv-00254-SPM/GR 2011 WL 1299856, at *1 (M.D. Fla. Mar. 31, 2011), and loss of use, id. On the other hand, direct damages—sometimes also referred to “seneral damages’®—“are commonly defined as those damages which are t direct, natural, logical and necessary consequences of the injury.” Fila. Pou Corp. v. Zenith Indus. Co., 377 So. 2d 208, 205 (Fla. 2d DCA 1979), quoted Mot. Summ. J., Doc. 50, at 12. They “naturally and necessarily flow or res from the injuries alleged” and “may be described as those damages ‘as may fal As noted during oral argument, “general damages” are sometimes descril more broadly as encompassing consequential damages and other damages that are “special damages.” In the interest of clarity, in this Order the Court, like the part uses the term “direct damages” instead of “general damages.” and reasonably be considered as arising in the usual course of events from th breach of contract itself” Hardwick Props., 711 So. 2d at 39—40 (first quotin Hutchison v. Tompkins, 259 So. 2d 129, 132 (Fla. 1972); and then quoting Pic E. Coast Ry. v. Beaver St. Fisheries, Inc., 537 So. 2d 1065, 1068 (Fla. 1st DC.

1989)); accord Keystone Airpark, 266 So. 3d at 1222.

In arguing that all of the repair and remediation costs that Orlanc Health seeks in this case are consequential damages, Movants rely primarily c the decision of Florida’s First District Court of Appeal in Keystone Airpar Movants describe the Keystone Airpark opinion as one that “sen[t] shock wav around the country,” suggesting that it drastically broadened the convention understanding of what constitutes consequential damages. Buta close □□□□□□ of that case undermines Movants’ position.

In Keystone Airpark, an airpark engaged a contractor to build airpla: hangars and taxiways, and it separately contracted an engineering firm ‘ ‘“nspect,’ ‘observe,’ and ‘monitor’® the construction work. 266 So. 3d at 12% After construction, the concrete hangar slabs and asphalt taxiwa “prematurely deteriorate[d].” Id. The airpark then brought suit against be the contractor and the engineering firm, alleging “that the contractor us substandard material for stabilization underneath the structures, which [1 engineering firm] failed to detect.” Id. Against both defendants, the airpé sought to recover “the cost to remove, repair, and replace the hangars, taxiwa and underlying subgrade.” Id. The contract between the engineering firm and the airpark provided tha the engineering firm would “have no liability for indirect, special, incidenta punitive, or consequential damages of any kind.” Id. Citing this contractue provision, the engineering firm moved for summary judgment in the trial cour arguing that the damages sought by the airpark “were not a direct result of [th engineering firm]’s alleged failure to perform under the contract” but instea “resulted from a combination of [the engineering firm]’s alleged failure 1 perform construction inspection services under the contract and the contract preparing the subgrade improperly.” Id. Thus, argued the engineering firr the repair costs sought by the airpark were consequential damages rather thé direct damages. Id. The trial court agreed and granted the engineering firn summary judgment motion. Id. On appeal, the First District Court of Appeal affirmed. In doing so, t. court concluded that the repair costs “were not the direct or necessa consequence of [the engineering firm]’s alleged failure to properly inspe observe, monitor, and report problems with the construction work” becav “It]he contractor could have completed the job correctly without [the □□□□□□□□□ firm] performing its duties under the contract.” Id. at 1223. Accordingly, s: the court, “the need for repair did not arise within the scope of the immedi: transaction between [the engineering firm] and the [alirpark” but inste “stemmed from loss incurred by the [alirpark in its dealings with a third party— the contractor.” Id. The court thus agreed with the trial court that the repai costs the airpark sought from the engineering firm were “consequentié damages” that the airpark could not recover because in its agreement with th engineering firm it had waived the right to recover those damages. Id. In essence, Movants describe Keystone Airpark as on all fours with th case at bar and argue that the decision compels a ruling in their favor. Bi Keystone Airpark is both factually and legally distinguishable, and this Court not persuaded by Movants’ position.

First of all, Movants characterize Keystone Airpark as involving “tl designer’s negligence.” (Doc. 50 at 10). But it did not. Although an engineeril firm was the relevant defendant in that case, the decision did not involve desis services but only project management and inspection services by tl engineering firm. See, e.g., 266 So. 3d at 1223 (referring to the “alleged failu to properly inspect, observe, monitor, and report problems with the constructi work”).7 Indeed, in its analysis the Keystone Airpark court lamented the lack The engineering firm in Keystone Airpark had also designed the project, bw is apparent from the appellate court’s decision that “design” or “engineering” servi were not at issue—only “inspection” and “monitoring” services were. Any doubt on t. point is put to rest by the trial court’s May 22, 2017 summary judgment order in tl case, which states in part: “The parties agree that [the airpark] makes no claim w respect to the engineering services provided by [the engineering firm]; [the airpar! claim is founded on [the engineering firm]’s contractual duty to manage the proj and to inspect [the contractor]’s work for contract compliance.” Pipeline Contracte Inc. v. Keystone Airpark Auth., Case No. 2010-CA-2457 (Fla. 4th Cir. Ct. May 22, 201 “case law directly on point involving damages stemming from the failure t inspect and monitor construction work” and looked to cases arising in othe contexts for guidance in resolving the question before it.8 Id. (emphasis added Thus, Keystone Airpark did not involve “designer’s negligence” as asserted k Movants.

Movants also attempt to draw a parallel between this case and Keystor Airpark with regard to the non-breaching party’s “dealings with the contractor As noted earlier, the Keystone Airpark court concluded that “the need for repa stemmed from loss incurred by the [a]irpark in its dealings with a third party: the contractor” rather than “aris[ing] within the scope of the immedia transaction between” the airpark and the engineering firm.” 266 So. 3d at 122 From this, Movants extrapolate that the costs Orlando Health incurred to p for repairs stemmed from its dealings with its contractor and consultants a “did not arise within the scope of the immediate transaction between” Orlan Health and HKS. (Doe. 50 at 12). But these factual scenarios are not analogo The fact that Keystone Airpark involved inspecting and monitoring—and □ designing—is also clear from the question the First District Court of Appeal certif to the Supreme Court of Florida: “Where a contract expressly requires a party inspect, monitor, and observe construction work and to determine the □□□□□□□□□□□ materials used in the construction, but the party fails to do so and inferior materi are used, are the costs to repair the damage caused by the use of the impro materials general, special, or consequential damages?” 266 So. 38d at 12 Incidentally, the Supreme Court of Florida denied the petition for review, declinin exercise its jurisdiction to review the decision of the First District Court of App Keystone Airpark Auth. v. Pipeline Contractors, Inc., Case No. SC19-314, 2019 1271949 (Mla. Mar. 27. 2019).

In Keystone Airpark, the contractor caused the damages that needed to b repaired. That is not the situation here, where the damages undisputedly □□□ caused by deficiencies in the structural engineering plans for which HKS we responsible—not by any actions of the contractor or anyone other than HKS « its subcontractors. Movants’ attempt to analogize to the contractor’s role | Keystone Airpark is unavailing.

Movants also argue that the “immediate buyer-seller transaction” here the agreement for Orlando Health to pay HKS a fee for professional services a1 that thus the only direct damages suffered by Orlando Health “would be t. costs incurred by [Orlando Health] if HKS failed to provide those services a: [Orlando Health] incurred losses obtaining those services elsewhere.” (Doc. at 11). But nothing in Keystone Airpark supports this proposition. The Keysto Airpark court concluded that “the need for repair did not arise within the scc of the immediate transaction between” the engineering firm and the □□□□□ because “the contractor could have completed the job correctly” regardless whether the engineering firm performed its inspection and monitoring □□□□□ as it should have. 266 So. 3d at 1223. In other words, the need for repair v outside the immediate transaction between the engineering firm □□□ □ airpark because it was directly caused by someone else—the contracto instead of by the engineering firm.

In the case at bar, however, the need for extensive repairs to the hosp did arise “within the scope of the immediate transaction” between Orland Health and HKS. HKS was not contracted to monitor the drawings or othe activities of someone else who was the direct cause of the damage. Instead, HK was obligated to provide structural engineering plans for the project, and thet is no dispute that the need for repairs was caused solely by deficiencies in thos plans. Keystone Airpark provides no basis for limiting the damages thi Orlando Health suffered to the cost of procuring correct structural □□□□□□□□□□ plans, as argued by Movants.

Beyond Keystone Airpark, both sides rely on Lochrane Engineering, Ir v. Willingham Realgrowth Investment Fund, Ltd., 552 So. 2d 228 (Fla. 5th DC 1989), but that case is not helpful to resolution of the issue now before the Cou Orlando Health touts Lochrane for its statement in dicta that an engineer | liable when damages are legally caused by his professional negligence as wh an insufficiently designed structure fails and the failure causes damages.” 5 So. 2d at 233. And for their part, Movants rely on Lochrane for dicta in wh the court referred to “other consequential damages”; Movants suggest that court was stating that repair costs were also consequential damages. But | facts in Lochrane are dissimilar to the facts here; that case did not involv waiver of consequential damages, and the court was not categorizing differ types of damages.

Movants also rely on various out-of-state federal and state cases, mos which discuss Virginia statutes of limitations. None is availing. The □□□□□□ state cases cited are factually dissimilar and are neither controlling nec persuasive. Nor does the Court find instructive the cases cited by Movants the involve claims under the Florida Deceptive and Unfair Trade Practices Act.

At oral argument, Orlando Health averred that Movants’ contention th: these repair costs are “consequential” rather than direct is a novel one in tl industry. That may well be true; the Court’s research has uncovered no ca: where such an argument was made by an architect or engineer who was suc based on repair costs due to defective plans. However, similarly situat defendants in some cases have conceded that such costs are direct damages th fall outside a consequential-damages waiver. See, e.g., Chinese Hosp. Ass’n Jacobs Eng’g Grp., Inc., Case No. 18-cv-05403-JSC, 2019 WL 6050758, at (N.D. Cal. Nov. 15, 2019) (noting that the architecture firm that designed hospital “concede[d] that any costs [the p]laintiff may have paid to the gene: contractor to demolish and replace construction performed by [the firm allegedly defective design constitute direct damages”); Atl. City Assocs., LLC Carter & Burgess Consultants, Inc., 453 F. App’x 174, 178-80 (3d Cir. 20 (case in which the defendant architect successfully argued on appeal that “ □□□ rental income,” “[a]dditional payments to contractors due to delay,” < “laldditional administrative costs” were barred by contract’s waiver consequential damages but did not challenge the trial court’s conclusion t “laldditional construction costs to fix errors” were not so barred).

Absent Florida case law directly on point, the task of this federal court : to predict how the Supreme Court of Florida would resolve the issue presente here. See, e.g., Turner v. Wells, 879 F.3d 1254, 1262 (11th Cir. 2018). Based o the definitions of the relevant terms and the facts of this case, the Court finc that Orlando Health’s costs of remediation and repair are not consequenti damages that were waived in the Agreement. HKS was contractually obligate to provide plans, including structural engineering plans, for the construction a hospital in a large project coordinated among many sophisticated parties. Tl costs of remediation and repair did not “result indirectly from” HKS’s plan: nor did they arise from “dealings with third parties” in either the mo “traditional” sense (such as lost profits or loss of reputation) or the causatr way described by the Keystone Airpark court. Instead, the costs to repair a1 remediate are the “direct, natural, logical[,] and necessary consequences HKS’s deficient plans.!° Thus, recovery of these damages is not barred □□ consequential-damages waiver in the Agreement.!!

° Consequential Damages, Black’s Law Dictionary (12th ed. 2024).

10 Fla. Power Corp., 377 So. 2d at 205.

11 The issue raised in the motion for summary judgment was the categorizati of Orlando Health’s claimed damages as direct or consequential. The motion □□□□ do not address any issues that might exist regarding the propriety or amounts of t discrete items of damages claimed by Orlando Health. Any such issues are 1 voanlved hy this Order.

IV. Conclusion Accordingly, it is ORDERED that the Motion for Summary Judgmer (Doc. 50) is DENIED.

DONE and ORDERED in Orlando, July 1), 2625.

i) □□ JOHN ANTOON II United States District Judge Copies furnished to: Counsel of Record