Facts

On Feb. 17, 2012, Kaiser Foundation Hospitals served HBE Corp. and its Sureties, The Continental Insurance Co. and Travelers Casualty and Surety Company of America with its demand for arbitration pursuant an arbitration agreement under a design-build contract entered into between Kaiser and HBE for the design and construction of the Kaiser Permanente South Bay Medical Center in Harbor City. HBE and its Sureties denied Kaiser's claims and HBE filed a cross-complaint against Kaiser.

PLAINTIFF'S CONTENTIONS:
Following its termination of HBE's design/build construction contract, Kaiser alleged breach of contract, professional negligence, negligent misrepresentation, and trespass, breach of third party beneficiary contracts, declaratory relief and indemnity.

Kaiser sought to recover approximately $38 million in alleged damages resulting from HBE's purported breach of the contract, including liquidated damages, completion costs, price increases and cost overruns. Kaiser also claimed that HBE's Sureties had failed to satisfy their obligation to complete the project under the terms of their performance bonds.

DEFENDANT'S CONTENTIONS:
HBE contended that Kaiser's termination of the contract was wrongful, pre-textual and in bad faith. HBE affirmatively claimed that Kaiser breached the contract by failing to pay for contract and extra work performed by HBE and wrongfully terminating the contract. HBE further advanced claims against Kaiser for violation of the covenant of good faith and fair dealing, quantum meruit and declaratory relief. HBE alleged damages in excess of $9.6 million.

HBE's Sureties contended that Kaiser breached the performance bonds by wrongfully terminating HBE and then refusing to allow the Sureties to complete the project. Additionally, HBE and the Sureties contended that Kaiser had devised its own post-termination plan for completing the project, which involved entering into a contract with another contractor before the Sureties were given an opportunity to perform. HBE and Sureties alleged that Kaiser's conduct was a breach, which exonerated the Bonds and the Sureties' obligation to Kaiser. The Sureties sought a declaratory judgment releasing and discharging the Sureties from any further obligations with respect to the Performance Bonds.

Result

The arbitrator found the facts did not warrant a termination for default. The arbitrator ordered Kaiser to pay remaining contract amounts, reduced by liquidated damages for delay and certain defective work items, for a total award of $8,878,867, and that the termination would be treated as a termination for convenience and not a termination for default. The arbitrator denied the HBE claims for lost profits and quantum meruit. The arbitrator denied the Kaiser claims against the Sureties on the performance bonds. The arbitrator found that Kaiser had breached the contract by wrongfully terminating HBE and failing to pay for contract and extra work. The arbitrator also found that Kaiser's pre-textual wrongful termination of HBE and refusal to provide the Sureties an opportunity to complete the project exonerated the Sureties and the Bonds.

Other Information

FILING DATE: Feb. 12, 2012.