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SECOND CIRCUIT COURT OF APPEALS reverses multi-million dollar verdict for delay damages on basis of erroneous submission of question of contract interpretation to jury.
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Morse/Diesel, Inc. v. Trinity Industries, Inc.; Mosher Steel Co., and Aetna Insurance Co.,
67 F.3d 435, 1995 U.S. App. LEXIS 27614 (2d Cir. Sept. 26, 1995).
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Contract provision authorizing compensation for delay, "notwithstanding any other provision . . ." held to override "no-damage-for-delay" provisions in other portions of contract as a matter of law. Trial court erred in submitting question of interpretation to jury.
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Morse/Diesel, Inc. ("Morse/Diesel") was the general contractor for the construction of the Marriott Marquis Hotel in Manhattan's Times Square. In August, 1982, Morse/Diesel entered into a subcontract with Mosher Steel Company, a division of Trinity Industries, Inc. ("Trinity") to fabricate and erect the steel members necessary for hotel construction within 13 months, excluding inclement weather. In fact, the job took 20 months, from January, 1983 until September, 1984. Morse/Diesel sued Trinity and Trinity's bonding company, Aetna Insurance Company, for damages in the amount of $37 million arising from the cost of an acceleration program designed to recapture the delay, as well as losses suffered by the hotel's owner, the architect and other subcontractors. Trinity counterclaimed for its own damages arising from additional work and delay in completing the subcontract.
Responsibility for the delay surfaced as the central question in the trial court litigation. Morse/Diesel blamed Trinity, producing evidence of fabrication errors, shipping mishaps, crane failures, and so on. In support of its counterclaim for increased cost and delay, Trinity alleged that the project's architect, John Portman & Associates, and structural engineer, Weidlinger Associates, made unwarranted demands regarding the installation of certain special steel trusses, known as Vierendeel trusses, and the use of additional bracing during erection. Following six and a half weeks of trial, the jury substantially agreed with Morse/Diesel and awarded the company almost $26 million in damages, to which the court added an additional $27 million in prejudgment interest. Trinity appealed.
On appeal, Trinity argued, inter alia, that the trial court's treatment of various clauses regarding delay unfairly precluded Trinity from presenting its counterclaim to the jury. Schedule B, paragraph 53, of Trinity's subcontract provided:
Should the Subcontractor be obstructed or delayed in the commencement, prosecution or completion of the work, without fault on his part, by action or inaction on the part of the Owner, Architect, Engineer or Contract, or by changes in the work, the Subcontractor shall be entitled to include as cost the cost of labor, materials, equipment, supplies and other resultant costs occasioned by such delays and changes notwithstanding any other provision contained in this agreement. (Emphasis added).
However, two other provisions in Trinity's subcontract contained no-damage-for delay clauses.
Should the subcontract be obstructed or delayed in the commencement, prosecution or completion of the work . . . then he shall be entitled to an extension of time . . . the subcontractor expressly agrees not to make, and hereby waives, any claim for damages, including those resulting from increased supervision, labor or material costs, on account of any delay, obstruction or hindrance for any cause whatsoever . . . and agrees that the sole right and remedy therefor shall be an extension of time.
General Conditions, Article 16-G (emphasis added).
And Article 3.4 of the subcontract provides, in part:
All loss or damage arising from any of the Work through unforeseen or unusual obstructions, difficulties or delays which may be encountered in the prosecution of same or through the action of the elements shall be borne by the Subcontractor.
Against this contractual backdrop, Trinity requested a jury instruction that it could recover damages under paragraph 53 for costs associated with delays caused by others. The trial court denied the request and instructed the jury that Trinity's "claim for damages on account of delays allegedly caused by Morse/Diesel and its subcontractors" was an "area of ambiguity" in the subcontract, citing Article 16-G of the General Conditions and Article 3.4 of the subcontract. She then noted Trinity's contention that these two provisions have been negated by paragraph 53. In the face of such apparent ambiguity, Judge Preska instructed that it was the jury's job to interpret the allegedly ambiguous subcontract.
The Court of Appeals for the Second Circuit held the jury instructions to be fatally because the subcontract contained no ambiguity. The Court initially noted that under New York law, a written contract is to be interpreted so as to give effect to the intention of the parties as expressed in the unequivocal language of the subcontract. It then found that the "notwithstanding" clause of paragraph 53 relieved any tension among the three contract provisions addressing delay. More specifically, the court held that paragraph 53 overrode the otherwise inconsistent clauses of Article 3.4 and Article 16-G of the General Conditions.
Accordingly, the Court held that the district court erred when it submitted the contract's meaning on this point to the jury. The district court should have construed the contract according to its unambiguous terms, and clearly instructed the jury that Trinity had the right under paragraph 53 to recover any costs occasioned by delays that were not its own fault.
Moreover, the Court proceeded to hold that the error could not be deemed harmless. The jury returned a general verdict. While the jury apparently concluded that Trinity was at fault for much of the delay and resulting acceleration damages, Morse/Diesel did not recover all that it sought. Thus, the Court found it very possible that the jury believed Morse/Diesel was indeed to blame for some of the delay. Finding it impossible to isolate the counterclaim for retrial, the Court found it necessary to reverse the judgment in total and to remand both the complaint and the counterclaim for retrial. |
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Ohio Appeals Court upholds Owner's refusal to arbitrate.
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Cleveland Jet Center, Inc. v. Structural Sales Corp.,
1995 Ohio App. LEXIS 4113 (Ohio Ct. App., Sept. 22, 1995).
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Utilization of AIA Document A111, Standard Form of Agreement Between Owner & Contractor, 1978 Edition, without express incorporation of AIA Document A201, General Conditions of the Contract for Construction, left owner free to refuse arbitration.
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| Cleveland Jet Center, Inc. ("Jet Center"), a corporation in the business of repairing, refurbishing and modifying jet aircraft, entered into a contract with Structural Sales Corp. ("Structural"), in which Structural agreed to design and build a hangar and office area at the Lost Nation Airport in Willoughby, Ohio. Structural selected the American Institute of Architects ("AIA") Document A111, Standard Form of Agreement Between Owner & Contractor, 1978 Edition" as the contract form and drafted the blank terms.
After a dispute arose regarding the quality of work and final payment, Structural filed a demand for arbitration with the American Arbitration Association (AAA). Jet Center objected, arguing that the contract did not contain an arbitration clause. It filed a petition for preliminary/permanent injunction in the Cuyahoga County Court of Common Pleas, seeking to enjoin AAA from proceeding with the arbitration. The court denied the petition.
Jet Center then filed a complaint against Structural in the Lake County Court of Common Pleas. The complaint sought a declaratory judgment that the contract did not contain an arbitration clause, as well as monetary damages for Structural's alleged breaches of the contract and the implied warranty of workmanlike construction. In response, Structural filed a motion to dismiss the complaint, or, in the alternative, to stay the proceeding pending the outcome of the AAA proceeding. The motion in the alternative was made pursuant to R.C. 2711.01, which provides for the stay of actions involving issues subject to a written arbitration agreement. Both motions were denied, and this appeal of the denial of stay followed.
Noting that under Ohio law "the determination of whether a specific controversy is arbitrable under a contract is a question of law for the court to decide upon examination of the contract," the appellate court proceeded to review the trial court's analysis of the contract. It first found that the 1978 Edition of AIA Document A111 does not contain an express arbitration provision. The court noted that the 1987 Edition of A111 does contain an express arbitration provision, but found this fact to be of little consequence because Structural had chosen to use the 1978 form.
Next, the court noted that Article 16 of Document A111 provides space for a listing of all the documents composing the contract, and that the corresponding instruction sheet indicates the A111 is to be used in conjunction with the 1976 Edition of AIA Document A201, General Conditions of the Contract for Construction. In this case, however, the space was left blank, i.e., Document A201 was not specifically incorporated by reference. In any event, no evidence was presented to indicate that the 1976 Edition of Document A201 contained an arbitration provision.
Having thus determined that the contract contained no arbitration provision, the Court of Appeals of Ohio held that the trial court had properly concluded that the dispute involved was not referable to arbitration. The Court of Appeals reiterated the general principle that although the law favors the resolution of disputes through arbitration, a party cannot be compelled to arbitrate a dispute that it has not agreed to arbitrate. |
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Washington Appeals Court holds contract to furnish and install dehumidification system for pool subject to the Uniform Commercial Code.
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Tacoma Athletic Club, Inc. v. Indoor Comfort Systems, Inc.,
79 Wash. App. 250, 902 P.2d 175, 1995 Wash. App. LEXIS 406 (Sept. 14, 1995).
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In breach of warranty action brought by owner against contractor, contract to furnish and install a "dehumidification system" was considered to be a "sale of goods" governed by Article 2 of the U.C.C. pursuant to "predominant factor test."
Evidence was insufficient to establish that owner was entitled to be reimbursed entire amount of original contract plus cost to insulate walls as a result of contractor's breach of warranty related to dehumidification system.
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| The Tacoma Athletic Club ("Owner") hired Indoor Comfort Systems ("Contractor") to furnish and install a dehumidification system for an indoor pool. The humidity in the pool area was so high that water dripped from the ceilings and down the walls causing damage to the walls. The system provided by the Contractor failed to reduce the humidity in the pool area. After the Contractor attempted unsuccessfully to solve the moisture problem, the Owner eventually hired a new contractor to attempt to fix the problem. The Owner then sued the Contractor for breach of warranty under Article 2 of the Uniform Commercial Code and obtained a favorable judgment.
The appellate court affirmed the trial court's holding that this transaction was a "transaction in goods" subject to the U.C.C. even though it recognized that prior Washington cases held that "construction contracts" were not subject to the U.C.C. The court found that a majority of other jurisdictions follow the "predominant factor test" to analyze contracts which involve both the sale of goods and services. The court ultimately held that the transaction at issue in this case was a sale of goods and noted that: (1) the negotiations leading up to the contract focused on the goods as opposed to the services to be provided; (2) the contract stated that the "system includes labor," indicating to the court that the transaction was the sale of a "system" and that the labor was incidental to that system; and (3) the owner received a one year warranty from the manufacturer of the goods that the Contractor supplied.
The appellate court, however, remanded to the trial court the issue of damages. The trial court ordered to the Owner the total contract price paid by Owner as "replacement costs" plus $4,000.00 to insulate the walls. The appellate court analyzed U.C.C. [[section]] 2- 714 and found that the award of these damages could not be sustained under subsection (1) as a "loss resulting in the ordinary course of events at the Seller's breach" because no evidence suggests that the Owner lost this amount as a result of the breach of warranties. Likewise, the court found that the damages could not be sustained under subsection (3) because there was no evidence of any incidental or consequential damages. The appellate court then analyzed subsection (2) of [[section]] 2- 714, which allows damages which are the difference between the value of the goods as accepted and the value of the goods as warranted. The court noted that the purchase price can, in certain circumstances, be the appropriate measure of damages if the evidence shows that the value of the goods supplied is zero. The court also noted that the cost of replacement or repair is a common measure of the difference between the value as is and the value as warranted. The appellate court however could not affirm the trial court's awarded damages for fear that the damage award might over-compensate the Owner. The court noted that the Owner did not choose to insulate the walls when the job was bid by the Contractor and that the Contractor did not do so. The court therefore remanded to the trial court the issue of damages for replacement costs. The appellate court, however, affirmed the trial court's findings regarding the reasonableness of the repair costs and mitigation of damages. |
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Connecticut Court holds prime contractor not required to utilize subcontractor listed in its bid, where it was unaware of bid exclusions later presented by subcontractor.
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Harvey Robbin Co. v. Cristwood Contracting, Inc.,
1995 Conn. Super. LEXIS 2633 (Conn. Super. Ct., Sept. 13, 1995).
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Statute requiring bidder for public contract to list subcontractors did not require bidder to utilize subcontractor where subcontractors bid exclusions were not communicated until after submission of prime bid.
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| Plaintiff Harvey Robbin Company, a subcontractor for HVAC ("Subcontractor") sued Defendant Cristwood Contracting, a general contractor ("Contractor"), in connection with the construction of a physical plant at the University of Connecticut. The Subcontractor alleged, inter alia, breach of contract and detrimental reliance. In turn, the Contractor denied the Subcontractor's principal allegations, and alleged misrepresentation on the part of the Subcontractor, and that no contract was entered into by the parties.
The Contractor submitted a bid to the Connecticut Department of Public Works for the construction of the physical plant (the "Project"). Section 4b-93 of the Connecticut General Statutes required the Contractor to include the name of its HVAC Subcontractor. On the Project, the Subcontractor intended to submit its bid in the amount of $420,000 to twelve general contractors preparing to submit bids. To this end, forty-five minutes prior to bid opening, commenced faxing its bid of $420,000, together with the listed exclusions to its bid, to the twelve contractors. Because fax lines were tied up, and in light of the looming deadline for bid opening, Plaintiff telephoned the remaining general contractors and orally communicated his bid. Defendant admitted that he received the telephone quotation from plaintiff, but claims that there were no exclusions presented in the telephone conversation. Defendant was the low bidder on the project and listed Plaintiff as the HVAC subcontractor for the price of $420,000. Upon discovery of Plaintiff's listed exclusions to its bid, Defendant notified Plaintiff that it was no longer the low bidder for the HVAC.
The issue before the Court was whether the listing of Plaintiff as the HVAC subcontractor on Defendant's general bid created a contract upon which Plaintiff could maintain its action. The Court noted that for an enforceable contract to exist, the Court must find that the parties' minds had truly met, and that any agreement must be definite and certain as to its terms and requirements. Applying the facts to this standard, the Court found an obvious lack of communication between the parties relating to the listed exclusions in the Plaintiff's bid. Accordingly, the Court held that Plaintiff and Defendant never truly had a meeting of the minds regarding the HVAC portion of the project, and thus, no contract had ever been entered into by the parties. Absent a contract, there could be no breach.
The Court also rejected Plaintiff's argument that Defendant failed to comply with Connecticut's statutory scheme for public contracts. Because under Connecticut law an unsuccessful bidder has no legal or equitable right in the contract, failure to comply strictly with the statutory provisions related to competitive bidding does not give plaintiff any right to maintain an action, absent a finding of favoritism, fraud or corruption. |
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New York District Court upholds termination of subcontractor for Davis-Bacon Act violations; subcontractor's claim for quantum meruit reimbursement rejected.
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United States ex rel. Tower Masonry, Inc. v. J. Kokolakis Contracting, Inc.,
1995 U.S. Dist. LEXIS 13024, 90 Cont. Cas. Fed. [CCH] [[paragraph]] 76,843 (S.D.N.Y., Sept. 8, 1995)
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Prime contractor properly terminated subcontractor for non-compliance with Davis-Bacon Act requirements. Because cost to complete exceeded subcontract balance, terminated contractor not entitled to reimbursement of value of work completed.
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| Defendant J. Kokolakis Contracting, Inc., ("Kokolakis"), a general contractor, entered into a subcontract with plaintiff Tower Masonry, Inc. ("Tower"), for masonry work on a United States Department of Labor project involving the construction of two new dormitory buildings for the Delaware Valley Job Corps Center in Callicoon, New York. The job was subject to the minimum wage levels and record-keeping requirements of the Davis-Bacon Act, 40 U.S.C. [[section]]276(a) et seq., and these requirements were incorporated into the subcontract.
Right from the start, however, Tower failed to comply with the Davis-Bacon requirements by, inter alia, failing to provide appropriate records to Kokolakis, and paying wage rates which were below the minimum set by the Secretary of Labor. When Tower failed to correct these problems despite repeated warnings, Kokolakis terminated its subcontract. Tower then brought this action for damages, claiming that Kokolakis' termination of the subcontract was improper. Kokolakis counterclaimed for the damages it sustained as a result of the termination.
After reviewing the evidence regarding Tower's noncompliance with the Davis-Bacon provisions and apparent unwillingness to rectify the situation, the court found that Kokolakis had sustained its burden of proving that termination of the contract was justified. Accordingly, the court held that Tower was not entitled to recover contract damages.
The court next considered Tower's claim that it was entitled to recover on a quantum meruit basis for the value of the benefit it had conferred upon Kokolakis during its approximately three and a half months of work on the project. This claim was also rejected, as the court found that 1) the work had not been substantially completed, and 2) the cost to Kokolakis of completing the masonry work exceeded any benefit conferred on it by Tower.
In denying Tower's quantum meruit claim, the court rejected Tower's contention that invoices it submitted to Kokolakis and requisitions Kokolakis submitted to the Department of Labor were sufficient proof that 55% of Tower's work had been completed. The court noted that the requisitions did not contain a detailed breakdown and were not susceptible to verification by Kokolakis. It further stated that "periodic payments are not dispositive of the value of the work done at a particular time."
The court also rejected the testimony of Tower's expert regarding the value of the work completed, finding many of his assumptions to be flawed. Instead, it chose to accept Kokolakis' expert's valuation of the work performed.
The court next considered Kokolakis' counterclaim for the difference between the subcontract price and the cost of completing the work left undone by Tower. Kokolakis completed the work under direct contract with various union trade groups.
The court granted Kokolakis' claims for extra costs based primarily on the state in which Tower had left the work, but declined to award amounts attributable to the use of union labor rather than non-union labor as had been used by Tower. The court also awarded pre-judgment interest, but only starting from the date on which Kokolakis' costs exceeded the Tower contract price. The court held that to award interest from the date the cause of action accrued would result in an inequitable windfall to Kokolakis.
Finally, the court addressed Kokolakis' claim that judgment in its favor should be entered not just against Tower (which was feared to be judgment proof) but also against various other entities and individuals, all of which were alleged to be corporate alter-egos of two entities known as Navillus Contracting, Inc. and Navillus Tile, Inc. (collectively, "Navillus").
In considering whether to pierce the corporate veil, the court found that the evidence indicating that Tower lacked any separate status or identity and was totally dependent upon Navillus presented a strong case for treating Tower and Navillus as a single entity. Nevertheless, the court chose to preserve the separate corporate identities, finding that Kokolakis had not met its burden of proving that the equities favored disregard of the corporate status.
In considering the evidence, the court first explained the practice in the construction industry of "double breasting," wherein a single commercial entity functions as if it were two entities, one a "union" entity subject to a collective bargaining agreement, and the other a "non-union" entity. It then noted that although Kokolakis had initially dealt with Navillus, it may well have intended to contract with the separate and distinct corporate entity, Tower. There was little evidence that Kokolakis had been deceived into thinking that Navillus was the truly responsible entity or that Tower was capable of functioning independently when in fact, it was not. In any event, Kokolakis was partially at fault for failing to investigate Tower's past work history, credit standing, or general reputation.
Ultimately, the court declined to pierce the corporate veil, concluding that "Kokolakis made a conscious decision to do the masonry 'on the cheap' with a [non-union] entity distinct from Navillus." The damages judgment in favor of Kokolakis was entered against Tower only. |
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Georgia Appeals Court holds Contractor's delay claim barred by exculpatory clause and failure to provide timely notice.
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Holloway Constr. Co. v. Department of Transportation
218 Ga. App. 243, 461 S.E. 2d 257, 1995 Ga. App. LEXIS 693 (July 13, 1995).
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One of several multiple prime contractors was not entitled to sue owner for delays attributable to other prime contractor -- on theory of breach of implied or express obligation -- in light of clear contractual provision stating that owner would not be liable for delays attributable to contractors.
Contractor barred from pursuing claim for extended overhead and equipment costs allegedly attributable to owner-directed changes in the work and owner's failure to make prompt decisions because contractor did not provide timely request for an extension of time in accordance with contract.
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| A highway contractor ("Contractor") failed to complete its work related to highway grading within the time required by its contract with the Georgia Department of Transportation ("DOT"). DOT withheld liquidated damages from the Contractor pursuant to the contract and the Contractor sued DOT to recoup the liquidated damages and to recover damages for extended overhead and equipment costs caused by DOT's alleged breach of contract. DOT moved for partial summary judgment arguing that the damages the Contractor sought for extended overhead and equipment costs were attributable solely to delays caused by other contractors and were therefore not the responsibility of DOT. In an earlier case involving this same construction project, the court found that the contract contained a "clear and unambiguous expression of the mutual intent that DOT was not to assume vicarious contractual liability for any losses and expenses incurred by [the Contractor] as a result of delay and performance of the grading work which is attributable to [another prime contractor's] bridge construction work." The trial court granted DOT partial summary judgment. Both the Contractor and DOT appealed the trial court's decision.
The Contractor first argued that it was entitled to recover its extended overhead and equipment costs because DOT breached an implied contractual obligation by failing to coordinate the other contractors on the project. The court found that the Contractor was merely attempting to recover damages attributable to the delays of other contractors and, as discussed above, the court had previously held that DOT was not liable for delays of other contractors.
The Contractor also argued that DOT breached an express contractual obligation to coordinate the contractors on the project. The court found, however, that none of the contractual provisions identified by the Contractor impose such a duty to coordinate on DOT. The Contractor relied primarily upon a contract provision discussing the public convenience and minimal interference with traffic during the project's duration. The court found that the last sentence of the provision, which states that the "rights of the [prime contractors] will be established by the [DOT] in order to secure the completion of the various parts of [the project] in general harmony," failed to impose a duty upon the DOT to coordinate the work. The appellate court affirmed the summary judgment in favor of DOT on this claim.
In its cross-appeal, DOT argued that it should be granted summary judgment on the Contractor's claim for damages caused by DOT's alleged design errors and failure to make a timely decision concerning certain pipe relocations. DOT argued that the Contractor's claim was barred because the Contractor failed to submit a written request for an extension of time as required by the contract. The appellate court agreed and reversed the trial court's denial of DOT's summary judgment. The court noted that the Contractor conceded that this claim for overhead and equipment costs represented delay damages attributable to the DOT and found that the Contractor failed to make a request for an extension of time.
Finally, DOT argued that the trial court erred in denying its motion for summary judgment on the Contractor's claim that the DOT breached the contract by failing to review in good faith and grant the Contractor's request to permit certain detours for traffic during the project. The contract provided that the Contractor could submit for DOT approval plans for temporary bypasses or detours. The appellate court affirmed the trial court's decision that issues of material fact existed concerning the DOT's denial of the Contractor's requests for detours.
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