Pennsylvania Electric Coil, Ltd v. City of Danville , 329 F. App'x 399 ( 2009 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 08-1746
PENNSYLVANIA ELECTRIC COIL, LIMITED,
Plaintiff - Appellant,
v.
CITY OF DANVILLE,
Defendant - Appellee.
Appeal from the United States District Court for the Western
District of Virginia, at Danville. Jackson L. Kiser, Senior
District Judge. (4:06-cv-00080-jlk-mfu)
Argued: March 27, 2009 Decided: May 11, 2009
Before NIEMEYER, KING, and DUNCAN, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Chauncey Reynolds Keller, Jr., ULMER & BERNE, Cleveland,
Ohio, for Appellant. Jeremy E. Carroll, GLENN, FELDMANN, DARBY
& GOODLATTE, Roanoke, Virginia, for Appellee. ON BRIEF: Neil W.
Gurney, ULMER & BERNE, Cleveland, Ohio; Glenn W. Pulley, Amanda
M. Morgan, CLEMENT & WHEATLEY, Danville, Virginia, for
Appellant.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
This appeal arises out of a dispute over the responsibility
for costs exceeding the contract price for work done on three
hydroelectric generating units, which supply power to the City
of Danville, Virginia (“the City”). Pennsylvania Electric Coil,
Ltd. (“PEC”) and the City entered into a contract under which
PEC would disassemble, rewind, refurbish, and reassemble the
units. PEC incurred extra costs to complete the work, which the
City ultimately refused to pay. PEC sought recovery, alleging
claims for breach of contract and quantum meruit. The district
court granted summary judgment in favor of the City, and PEC now
appeals on its quantum meruit claim. Because the parties have
an express, valid contract that prescribes a change order
procedure to obtain approval and payment for extra work, PEC’s
quantum meruit claim fails under Virginia law. We therefore
affirm the judgment of the district court.
I.
In March 2003, the City of Danville issued an Invitation
for Bids (“IFB”) on a project to disassemble, rewind, refurbish,
and reassemble three hydroelectric units (“Units 1, 2, and 3”),
which supply power to the City as part of the Pinnacles Hydro
Dam on the Dan River. The City hosted a prebid meeting at the
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dam in April 2003 and allowed six potential bidders to tour and
inspect the facility, ask questions, and seek modifications to
the proposed contract. PEC submitted a bid in May 2003 in which
it affirmed that it had “visited the site and become familiar
with and [was] satisfied as to the general location and site
conditions that may affect cost, progress, and performance or
furnishing of the Work.” J.A. 282.
The City ultimately awarded the contract to PEC for
$882,000 in August 2003. The parties’ fixed-price contract
consisted of, among other things, a four-page agreement
describing the work to be done, the City’s IFB, and the City of
Danville Procurement Code. These documents outlined several
constraints on the contract price and the manner in which the
parties could agree on any increases to that price. Article 7
of the contract stated:
Notwithstanding any other provision of this contract
to the contrary, the total obligation of the City
shall not exceed $882,000.00 and no increase shall be
made to this amount except by a written amendment
executed by officials of the City and [PEC] who are
authorized by law to execute agreements.
J.A. 14. In addition, article 8.e of the contract stated that
PEC “shall bear all losses resulting from the amount or
character of the work being different, or because the nature of
the premises on which the work is done is different from what
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was expected or on account of the weather, or similar causes.”
Id. Further, section 15.1 of the IFB stated:
The City, without invalidating any construction
contract, and without notice to any surety, may order
changes in the work within the general scope of the
contract consisting of additions, deletions, or other
revisions, providing the total amount added or
eliminated does not exceed twenty-five percent (25%)
of the total contract price, or $10,000, whichever is
greater. All such changes in the work shall be
authorized by change order, and shall be executed
under the applicable conditions of the contract
documents.
J.A. 206. This 25% cap on price increases is mandated by
Virginia state law, Va. Code § 2.2-4309, and is restated in
section 30-13 the Danville Procurement Code, J.A. 398.
PEC began working on the project in October 2003.
Significantly for purposes of the issue before us, the project
required cost adjustments for work beyond the scope of the
contract. PEC submitted written requests for and was granted
authorization to conduct such work on several occasions at the
outset of the project. For example, on October 14, 2003, PEC
submitted a written proposal to perform a heat run test on Unit
1, suggesting that “it would be in the best interest of all
concerned if a heat run test was performed on one of the units
at the City of Danville Pinnacles Hydro Station while it was in
service.” J.A. 436. Noting that “[t]his heat run test . . .
was not specified and, if opted for, would be an extra charge,”
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(emphasis added), the proposal included a suggested testing
schedule and stated that the price for such a test would be
$17,500. Id. at 436-37. The City approved the heat run test in
December 2003 and issued a Purchase Order signed by Gary Via,
the City’s Director of Purchasing. Id. at 439–40.
Also, after performing the heat run test and an uprate
study required by the parties’ contract, PEC submitted a written
proposal in March 2004 recommending additional work and design
changes for all three units. J.A. 442–43. The written proposal
noted that these changes “will require additional actions
outside of the existing work scope;” laid out PEC’s “pricing to
complete the [required] actions;” and “request[ed] that the
contract between Pennsylvania Electric Coil and The City of
Danville . . . be revised to include the above workscope and
associated costs.” Id. (emphasis added). The City ultimately
approved two of the recommended changes and issued a Purchase
Order signed by Gary Via in June 2004. J.A. 447.
PEC subsequently began working on the disassembly of Unit 1
and determined that certain parts required repairs that the
parties had not originally anticipated. In August 2004, PEC
submitted a list of prices for these repairs, which totaled
$23,065. J.A. 449–50, 52. The City approved these repairs and
issued a Purchase Order signed by Gary Via in September 2004.
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J.A. 454. Work on Unit 1, including the reassembly and
alignment, proceeded into early 2005. PEC also began work on
Units 2 and 3 in March or April 2005.
This lawsuit primarily arises out of alignment and plumb
work related to all three units, as well as additional repair
work performed on Units 2 and 3 (together, “the disputed work”).
During the course of PEC’s performance, the parties disagreed on
whether PEC’s alignment work fell under the scope of the
contract. Although the contract called for “shaft alignment”
after the units were reassembled, J.A. 236, it also required
each unit to “be assembled to the existing alignment and plumb
condition,” id. at 233 (emphasis added). PEC discovered that
the units were out of alignment at the outset of the project, a
circumstance that the contract did not anticipate. 1 The record
contains correspondence and documentation of conversations
between the parties through the spring of 2005, discussing
alignment problems for all three units as well as PEC’s concern
that the contract failed to address the fact that units were
already out of alignment.
1
PEC also asserts that the contract did not accurately
describe the necessary methods for the disassembly and
reassembly work, and in some cases required “methods and
procedures which were contrary to known industry standards.”
Petr.’s Br. at 12.
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For example, a January 11, 2005 e-mail from Tim Jablonski,
a City engineer, noted that PEC and City employees had
“discussed the alignment and bearings” and that PEC’s field
supervisor had pointed out that “the contract does not have
provisions to correct the plumb if [it is] out of tolerance.”
J.A. 639. The e-mail further stated that “Penn Coil would like
to submit an adder if they have to adjust plumb or make any
alignment moves.” Id. An April 7, 2005 letter from PEC to Phil
Slate, the Pinnacles Hydro Dam supervisor, quotes a $2,000 price
for adjusting the alignment for Unit 3’s sole plate, which “is
out of flat by .033 in[ches].” J.A. 477. The record also
contains a June 24, 2005 e-mail from David Summers, another City
engineer, memorializing a phone conversation between PEC
employees and City engineers. J.A. 522-23. In the e-mail,
Summers noted that PEC’s field supervisor, Mark Wenckus, “felt
there was additional work performed on alignment” for all three
units and that Wenckus had “submitted a spreadsheet on 2/11/05
to Brad Child [PEC’s General Manager] with his estimate” of the
extra cost for this additional alignment work. Id. at 522.
Summers further noted that Brad Child had received Wenckus’s
spreadsheet, “but had never forwarded it to [the Pinnacles Hydro
Dam supervisor] or requested a Change Order” or otherwise
“provided any written notification that a potential Change Order
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issue existed.” Id. Summers indicated that he “encouraged” PEC
to contact the City “immediately in writing if [PEC] intended to
request additional compensation regarding field work they felt
was out of scope.” Id. at 523. Significantly, he noted
stressing to Brad Child “that the City is not obligated to
[make] any additional payment since no change order was
requested or approved in advance of the work being completed.”
Id.
Notwithstanding PEC’s concerns during the spring of 2005
about “field work they felt was out of scope,” J.A. 523, and
reminders from the City about the need for change orders, the
record contains only three written price increase proposals from
PEC in 2005: two submitted in April 2005 for concrete repairs to
Unit 3’s sole plate and for alignment work on Unit 3’s stator
and sole plate; and one submitted in May 2005 for modifications
to the Unit 2 turbine housing. J.A. 475, 477, 485. The City
did not issue a Purchase Order to authorize any of these
proposed changes. The only change that the City did approve in
2005, through a letter written by Gary Via, was a written
request from Mark Wenckus on May 6, 2005 to extend the contract
completion deadline for two weeks because Wenckus had discovered
that Unit 2’s “vertical centerline was out of industry standard
tolerance for a hydraulic turbine and generator of its type.”
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J.A. 641. During the course of the parties’ discussions
concerning the alignment work and additional repairs, work on
all three units steadily progressed. All work on Unit 1 was
completed by February 2005, while work on Units 2 and 3
continued through June 2005.
PEC completed work on Units 2 and 3 in June 2005 and the
units were restarted that month. On July 29, 2005, PEC
presented the City with three final invoices for “additional
work” on the units. J.A. 498–501. PEC billed $60,785 for Unit
1, $110,387 for Unit 2, and $107,875 for Unit 3. 2 Of the
original invoiced amounts, the City ultimately paid PEC a total
of $52,902. 3 The City left unpaid a balance of $226,145, which
included costs relating to the alignment work that totaled at
least $216,785.
PEC filed an action against the City, alleging claims for
breach of contract and quantum meruit. The district court
2
These invoices represent bills for amounts in addition to
the contract price.
3
The parties dispute whether this amount reflects work that
a City official had approved in advance under the terms of the
contract. PEC asserts that $30,620 of this sum reflects work
for which the City had never issued a purchase order. Petr.’s
Br. at 23. However, the City asserts that it “made these
payments because it determined, in good faith, that the amounts
were outside the scope of the Contract, PEC had provided prices
in advance of the work, and the work had been approved in
advance by the proper City official.” Respt.’s Br. at 18.
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granted summary judgment in favor of the City, and this appeal
of the quantum meruit claim followed.
II.
We review de novo the district court’s grant of summary
judgment. Jennings v. Univ. of N.C., 482 F.3d 686, 694 (4th
Cir. 2007) (en banc) (citing Hill v. Lockheed Martin Logistics
Mgmt., Inc., 354 F.3d 277, 283 (4th Cir. 2004) (en banc)).
III.
The district court exercised diversity jurisdiction over
this case under 28 U.S.C. § 1332, and we now have jurisdiction
over PEC’s appeal under 28 U.S.C. § 1291. A federal court
exercising diversity jurisdiction must apply the substantive law
of the state in which it sits. See Erie R.R. Co. v. Tompkins,
204 U.S. 64, 79 (1938); see also Volvo Const. Equip. N. Am.,
Inc. v. CLM Equip. Co., Inc., 386 F.3d 581, 599–600 (4th Cir.
2004). Because this appeal is taken from a federal district
court in Virginia, we apply Virginia state law.
The Virginia Supreme Court has held that “when one
furnishes labor to another under a contract which, for reasons
not prejudicial to the former, is void and of no effect, he may
recover the value of his services on a quantum meruit.” Marine
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Dev’t Corp. v. Rodak, 300 S.E.2d 763, 765 (Va. 1983) (quoting
Hendrickson v. Meredith, 170 S.E. 602, 604 (1933)). “It is a
general rule of law that he who gains the labor of another must
make reasonable compensation for the same.” Id. (punctuation
and citation omitted). However, the Virginia Supreme Court has
also held that “where there is an express and enforceable
contract in existence which governs the rights of the parties,
the law will not imply a contract in contravention thereof.”
Royer v. Bd. of County Supervisors of Albemarle County, 10
S.E.2d 876, 881 (Va. 1940).
PEC bases its quantum meruit claim on the district court’s
holding that the parties’ contract did not cover the disputed
work, such that there was no contract to govern the parties’
rights as to that work. PEC contends that in aligning the units
it rendered a benefit to the City that the City accepted, and
that the City had reasonable notice that PEC expected to be paid
for the alignment work. Relying on Main v. Dep’t of Highways,
142 S.E.2d 524, 531 (Va. 1965), the City responds that the
parties’ contract forecloses any recovery under a quantum meruit
theory because the contract contains a provision requiring
written change orders for price increases.
Main controls the outcome of this case and compels us to
affirm the judgment of the district court. In Main, the
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Virginia Supreme Court noted that change order provisions “are
frequently embodied in building and construction contracts and
are generally upheld.” 142 S.E.2d at 529. Like PEC, the
plaintiff in Main entered into a construction contract,
performed extra work while satisfying its obligations under the
contract, and sought to recover the cost of that extra work
under a quantum meruit theory. The Main court found that “the
written contract which the plaintiffs executed clearly provided
the method by which they could insure the recovery of the cost
of such extra work, and not having followed the prescribed
method, they are not entitled to such recovery.” Id. at 530–31.
Under Main, quantum meruit relief is not available to PEC
because there is a valid, enforceable contract that governs the
parties’ rights and lays out a change order procedure requiring
PEC to obtain approval from a designated person with authority
to execute agreements on behalf of the City. PEC’s own actions
regarding the heat test run on Unit 1 and the ensuing proposed
design changes demonstrate that it knew of and was able to
follow this change order procedure. The record shows that City
employees reminded PEC about the change order procedure, and
that PEC was aware of the change order procedure, while work
continued on Units 2 and 3. See J.A. 522–23, 639. PEC has not
disputed the validity of the change order provision. Nor has it
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supplied a reason for its failure to continue complying with the
provision as work on the units progressed. Like the plaintiffs
in Main, PEC failed to follow the prescribed method outlined in
the parties’ contract to obtain approval and payment for extra
work -- a method with which it was not only familiar, but which
it had in fact utilized.
Although we are not unsympathetic to the fact that our
decision likely allows the City to reap a substantial windfall,
while sitting in diversity we are constrained to apply Virginia
law as articulated by the Virginia Supreme Court. Virginia law
forecloses PEC’s quantum meruit claim.
IV.
For the foregoing reasons, the judgment of the district
court is
AFFIRMED.
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