D2 Excavating, Incorporated v. Thompson Thrift Con ( 2020 )

Case: 19-40745 Document: 00515550522 Page: 1 Date Filed: 09/02/2020
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
FILED
September 2, 2020
No. 19-40745 Lyle W. Cayce
Clerk
D2 Excavating, Incorporated,
Plaintiff—Appellee,
versus
Thompson Thrift Construction, Incorporated; Fidelity
and Deposit Company of Maryland,
Defendants—Appellants.
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 2:16-CV-538
Before Stewart, Clement, and Costa, Circuit Judges.
Gregg Costa, Circuit Judge:
Contracts do not always turn out the way a party expects. Sometimes
it takes less time or money to perform than anticipated; other times it takes
more. This case is of the latter variety. A subcontractor doing excavation
work ended up having to remove a lot more dirt from the construction site
than the parties anticipated. The resulting lawsuit over this “excess dirt” led
to a judgment for the subcontractor exceeding half a million dollars. The
principal issue on appeal is whether the subcontractor was entitled to
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additional money for the “excess dirt” removal or whether it was stuck with
the price the parties agreed to.
I.
Thompson Thrift Construction, Inc. was the general contractor for a
new apartment complex in Corpus Christi. 1 It solicited a bid from D2
Excavating, Inc. for site grading and excavation work. Thompson sent D2
documents which included proposed contract terms, a topographical survey
of the site, and the planned final elevations.
The proposed terms included the following language:
Execution of this Agreement by the Subcontractor is a
representation that the Subcontractor has visited the Project
site, become familiar with local conditions under which the
Work is to be performed and correlated personal observations
with requirements of the Contract Documents. The
Subcontractor shall evaluate and satisfy itself as to the
conditions and limitations under which the Work is to be
performed, including without limitation: (1) the location,
condition, layout, and nature of the Project site and
surrounding areas; (2) generally prevailing climactic
conditions; (3) anticipated labor supply and costs; (4)
availability and cost of materials, tools, and equipment; and (5)
other similar issues. Accordingly, Subcontractor shall not be
entitled to an adjustment in the Contract Price or an extension
of time resulting from Subcontractor’s failure to fully comply
with this paragraph.
1
These facts come from the findings the district court entered after the bench trial.
2
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...
This is a balanced site. It shall be this subcontractor’s
responsibility to balance site. Change orders for import/export
will not be accepted. Consider all spoils from other trades, and
create berms where necessary.
A site is “balanced” if the work will not require importing or exporting dirt
to achieve the planned elevations. In that case, the dirt need only be
transferred within the site.
Despite its representation, Thompson did not actually determine
whether the site was balanced. The proposed terms were its standard
template for all excavation projects. D2 also declined to investigate the site—
two months of heavy rain limited its ability to physically examine the site, and
Thompson was eager to begin construction as soon as the rain ceased.
Instead, D2 used a software program to determine the site was balanced, after
accounting for dirt that other contractors would produce. The inputs for this
analysis came from the topographical survey Thompson provided.
After performing its simulations, D2 agreed to do the excavation.
Under the final contract, Thompson was to pay D2 $630,000. The parties
included the proposed terms that Thompson originally provided to D2 in the
contract as an exhibit with slight modifications. The final agreement also
anticipated the possibility of modifying the scope of the work and included
unit pricing for additional tasks that would be executed as written change
orders.
About one month after D2 began excavating, it became clear that the
site was not balanced. Excavation was producing a lot more dirt than
expected and some would need to be removed from the site. D2 and
Thompson disagreed about whose fault the excess dirt was. Thompson
argued that the imbalance was due to D2’s inaccurate computer analysis,
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D2’s excess import of fill, or D2’s overexcavation of the site; D2 countered
that the topographical survey was flawed. Regardless of who was responsible
for the misestimate, D2 promptly notified Thompson that there was
unanticipated dirt that needed to be removed. The parties negotiated and
decided that Thompson would cover D2’s costs for the additional work.
Thompson told D2 it would issue a written change order for the additional
work once it was finished so that it would be easier to calculate what it owed.
With Thompson’s promise to pay for unanticipated exporting work in
hand, D2 continued excavating. In addition to the unexpected exporting of
excess dirt, Thompson repeatedly asked D2 to re-excavate and regrade areas
that other subcontractors’ activity had disturbed. In one case, Thompson’s
mismanagement of other subcontractors required D2 to excavate the same
area six times.
D2 became concerned that Thompson would not actually pay for this
work. It began sending fewer employees to the site, which prompted
negotiations with Thompson about D2’s compensation. Those negotiations
were ultimately unfruitful, and Thompson never provided a change order.
When it became clear that Thompson was not going to pay additional
amounts for the removal of dirt, D2 stopped working. At that point, 98.6% of
the excavation was complete.
D2 then sued for breach of contract, quantum meruit, violations of the
Texas prompt pay statute, and to foreclose on a statutory and constitutional
lien. 2 Thompson, in turn, argued that D2 breached the contract. Thompson
filed an unsuccessful motion for summary judgment, which argued that D2
bore the risk that the site might be unbalanced. At the conclusion of a bench
2
D2 sued both Thompson and Fidelity and Deposit Company of Maryland, which
had issued an indemnity bond. Fidelity’s damages are limited to its bond of $581,605.50.
4
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trial, the district court held in D2’s favor on all claims. It ordered Thompson
to pay D2 $81,068.00 for unpaid work under the contract and $257,588.53
for “excess” excavating work. Interest of 1.5%/month was added to those
awards starting in May 2016, when payment became due under the Texas
prompt payment law. The biggest award of all was for attorneys’ fees:
$356,080.91.
II.
We review the district court’s findings of fact for clear error, but this
appeal largely turns on legal issues of contract interpretation, which we
review de novo. Lyda Swinerton Builders, Inc. v. Okla. Sur. Co., 903 F.3d 435,
450 (5th Cir. 2018).
One of those questions of law is the focus of the appeal: whether D2
could recover beyond the contract price for “excavation of unanticipated
excess soil.” 3 The district court concluded D2 could recover under either a
contract or quantum meruit theory.
A.
Thompson challenges the contract ruling on the ground that D2 bore
the risk that the site might be unbalanced and thus cannot recover beyond the
contract price for any “excess” excavation work. A party to a Texas
3 Texas courts use the term “extra work” to mean work “which, by definition is
work ‘arising outside and independent of the contract, something not required in its
performance.’” Joe F. Canterbury, Jr. & Robert J. Shapiro, Texas
Construction Law Manual § 1:28 (3d ed. 2019) (quoting Brown-McKee, Inc. v.
Western Beef, Inc., 538 S.W.2d 840, 844 (Tex. Civ. App.—Amarillo 1976, writ refused
n.r.e.). In contrast, “additional work” is “that required in the performance of the contract
and without which it could not be carried out.” Id. § 8:8 (quoting City of Houston v. L.J.
Fuller, Inc., 311 S.W.2d 285, 290 (Tex. Civ. App.—Houston 1958, no writ)). We use the
different term “excess,” as that is how the district court and the parties describe the
excavation work for the unanticipated dirt removal. In the Texas parlance, we conclude
that this was “additional work” because it was required under the contract.
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construction project is liable for breach of contract when it provides
inadequate construction plans and the contract allocates to that party the risk
of inaccurate plans. See Interstate Contracting Corp. v. City of Dallas, 407 F.3d
708, 720–21 (5th Cir. 2005). Thompson asserted the site was balanced,
which the district court rightly found was not true. 4
The remaining question is which party bore the risk that the site might
be unbalanced. The default rule in Texas, dating back to a case interpreting
an 1899 contract to construct a building in San Antonio, is that the party
doing the work bears the risk that it will end up being more difficult than
anticipated unless the contract shifts that risk to the buyer of the services.
Lonergan v. San Antonio Loan & Tr. Co., 104 S.W. 1061, 1065–66 (Tex. 1907);
see also Interstate Contracting, 407 F.3d at 720–21 (“In order for an owner to
breach a contract by supplying inadequate plans to a contractor, [Texas law]
require[s] that the contract evidence an intent to shift the burden of risk of
inadequate plans to the owner.”). This default rule flows from the basic
contract principle that “where one agrees to do, for a fixed sum, a thing
possible to be performed, he will not be excused or become entitled to
additional compensation, because unforeseen difficulties are encountered.”
El Paso Field Servs., L.P. v. MasTec N. Am., Inc., 389 S.W.3d 802, 811 (Tex.
2012) (citation omitted). If a factory agrees to manufacture 100 widgets for
$500, it cannot later charge $600 if it ends up taking more labor or materials
to produce the widgets than expected.
The default rule applies here because the excavation contract does not
allocate to Thompson the risk that the site would be unbalanced. If anything,
it placed that risk on D2. D2 agreed that it had “visited the Project site,
become familiar with local conditions under which the Work is to be
4
D2 did not, however, bring claims for breach of warranty or fraudulent
inducement based on misrepresentation.
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performed and correlated personal observations with requirements of the
Contract Documents.” It further represented that it would “evaluate and
satisfy itself” about a number of conditions, including “the location,
condition, layout, and nature of the Project site and surrounding areas.” As
a result, D2 would not be “entitled to an adjustment in the Contract Price or
an extension of time resulting from [its] failure to fully comply” with those
conditions. That agreement to verify the topography of the site put the risk
on D2. “Someone has to bear the loss of additional costs,” id. at 811, and the
excavation contract did not shift those costs to Thompson. Compare
Dall./Fort Worth Int’l Airport Bd. v. INET Airport Sys., Inc., 819 F.3d 245, 252
(5th Cir. 2016) (contractor did not assume all risks when the contract
contained no provision on point and a mixture of provisions allocating risks
of defects to both parties), with Interstate Contracting, 407 F.3d at 721–23
(contractor assumed risk when the written instrument obligated contractor
to independently investigate work site and explicitly allocated “[a]ll risks of
differing subsurface conditions” to the contractor).
D2’s attempt to distinguish MasTec and Interstate Contracting because
they involved different contractual language fails on two levels. First, there
must be language shifting the burden to Thompson. So even if the language
we just cited does not assign the risk to D2, the contract must say that
Thompson assumed the risk that the project would require removing more
dirt than the plans predicted. It does not. Second, the difference in language
is only a matter of degree. To be sure, the language in MasTec was about as
clear an assumption of risk as possible: “[MasTec] assumes full and complete
responsibility for any such conditions pertaining to the Work, the site of the
Work or its surroundings and all risks in connection therewith.” 389 S.W.3d
at 806 (alteration in original). The contract in Interstate Contracting similarly
stated: “All risks of differing subsurface conditions shall be borne solely by
the [contractor].” 407 F.3d at 721. But just because stronger language
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existed in other cases does not mean that “the parties’ intentions as
expressed in [this] writing” are different. MasTec, 389 S.W.3d at 805. D2
knew it had an obligation to confirm the site’s topography because it tried to
do so—but gave up—when Thompson resisted further delay. See Granite
Constr. Co. v. Tex. Dep’t of Transp., 2012 WL 5974085, at *8 (Tex. App.—
Austin Nov. 20, 2012, no pet.) (discussing contractual language obligating a
party to examine a work site and stating that “[c]ourts interpreting similar
contractual provisions have consistently held that this type of language
precludes a contractor from maintaining a claim for varying site
conditions.”).
Although all along its contract claim has relied on the notion that
Thompson mispresented that the site was balanced, D2 now tries to
distinguish Interstate Contracting and Lonergan by arguing this is not a
“defective plans and specifications case.” Metaphysically distinguishing
between “defective plans and specifications” on the one hand and a mere
representation that a site is balanced on the other is inconsistent with Texas
law, as Texas cases largely reason that “plans and specifications . . .
constitute an affirmative representation on which a contractor could rely.”
Interstate Contracting, 407 F.3d at 718; see also id. at 716–720 (collecting
cases).
Of course, a valid modification of the contract via a change order could
render Thompson liable. But change orders, like any modification, must
satisfy the normal requirements of a contract: “a meeting of the minds
supported by consideration.” Hathaway v. Gen. Mills, Inc., 711 S.W.2d 227,
228 (Tex. 1986); see also INET, 819 F.3d at 252 (“[A]ny change order to
adjust for the defects discovered by INET required the assent of both
parties.”). Critically, “[a] promise to fulfill a pre-existing obligation cannot
serve as new consideration for an amendment to a contract.” In re OSG Ship
Mgmt., 514 S.W.3d 331, 338 (Tex. App.—Houston [14th Dist.] 2016, no pet.).
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The oral change order lacked that consideration. D2 acknowledges that the
alleged consideration was its exporting excess soil. The original contract
already obligated D2 to do so without any compensation beyond the contract
price. Hauling the dirt, therefore, cannot serve as consideration. The oral
change order is void.
If the contract had required less excavation work than the parties
expected, Thompson would not be able to get a refund on the $630,000 it
agreed to pay. Likewise, when the work turned out to involve more work
than the parties expected, D2 cannot recover more than the $630,000.
Thompson did not breach its contract with D2 when the site turned out to be
unbalanced. Accordingly, we vacate the $257,588.53 breach-of-contract
award for “excavation of unanticipated excess soil.”
B.
The district court concluded that quantum meruit was an alternative
remedy “[i]n the event that the extra excavation work associated with the
excess soil falls outside the scope of the contract.” We have just held that
the contract required excavation of all the soil, however much it turned out
to be. So by its own terms, the quantum meruit ruling does not stand because
this work was within, not outside, the contract.
The district court properly understood that quantum meruit was
available only if the excess soil work was not covered by the contract. Black
Lake Pipe Line Co. v. Union Constr. Co., 538 S.W.2d 80, 86 (Tex. 1976)
(recognizing that contractor could recover quantum meruit “for the
reasonable value of services rendered and accepted which are not covered by
the contract” (emphasis added)), overruled on other grounds by Sterner v.
Marathon Oil Co., 767 S.W.2d 686 (Tex. 1989). “Quantum meruit is an
equitable theory of recovery which is based on an implied agreement to pay
for benefits received.” Heldenfels Bros., Inc. v. City of Corpus Christi, 832
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S.W.2d 39, 41 (Tex. 1992). It is generally unavailable if a valid contract
covers the goods or services a plaintiff furnished. In re Kellogg Brown & Root,
Inc., 166 S.W.3d 732, 740 (Tex. 2005). Quantum meruit corrects an injustice
when a promise to pay was implied. If the parties reached an express
agreement allocating payments, services, and risks—that is, a contract—then
a court should not step in and impose its view of what would constitute an
equitable arrangement.
Texas recognizes an exception to this general rule in the construction
context. A plaintiff that does not substantially perform a construction
contract, and thus cannot “recover[] under the express contract,” may
pursue quantum meruit for the value of its services. See Murray v. Crest
Constr., Inc., 900 S.W.2d 342, 345 (Tex. 1995). Unlike the goods or services
provided under many contracts, partial work done on a construction project
cannot be transferred to another buyer. So it would be unjust to allow the
party receiving the partial construction to not pay anything for it. See Vortt
Exploration Co. v. Chevron U.S.A., Inc., 787 S.W.2d 942, 944 (Tex. 1990)
(noting that “quantum meruit is founded on unjust enrichment”). If there
is no free lunch, then certainly there is no free house. As a result, when a
breaching contractor cannot recover the contract price, it nonetheless may
be able to recover in quantum meruit. Murray, 900 S.W.2d at 345; cf. WARD
FARNSWORTH, RESTITUTION: CIVIL LIABILITY FOR UNJUST
ENRICHMENT 89–90 (2014) (recognizing that the related equitable claim of
restitution may be available when a breaching party no longer has a contract
claim but should recover for benefits conferred).
That “partial performance” exception does not fit this case. D2 seeks
a quantum meruit recovery despite having substantially performed its
contractual duties and, therefore, being able to collect on the contract. In
other words, D2 wants quantum meruit plus the contract price. That is not
allowed. See Balfour Beatty Rail, Inc. v. Kan. City S. Ry. Co., 173 F. Supp. 3d
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363, 451 (N.D. Tex. 2016) (denying quantum meruit when the work was
within the scope of the contract); Bright Excavation, Inc. v. Pogue Constr. Co.,
2020 WL 1921681, at *7 (Tex. App.—Dallas April 21, 2020, no pet.) (same);
see also FARNSWORTH, supra, at 90 (explaining that the contract price
remains “a ceiling” on what a breaching party can recover from the
defendant on an equitable claim). It would override the parties’ agreement
to allow the plaintiff to recover more than the contract price for work the
contract required. Excess Underwriters at Lloyd’s, London v. Frank’s Casing
Crew & Rental Tools, Inc., 246 S.W.3d 42, 50 (Tex. 2008) (“[W]hen a valid
agreement already addresses the matter, recovery under an equitable theory
is generally inconsistent with the express agreement.” (quoting Fortune Prod.
Co. v. Conoco, Inc., 52 S.W.3d 671, 684 (Tex. 2000))). Because the
unanticipated excavation work was D2’s responsibility under the contract,
quantum meruit is not a vehicle for recovering more than the contract price.
Neither breach of contract nor quantum meruit allows D2 to recover
for “excavation of unanticipated excess soil.”
III.
We have emphasized the sanctity of the agreement the parties reached
in rejecting any remedy beyond the contract price. Recall, though, that the
district court awarded $81,068 to ensure that Thompson paid that full
contract price. That figure included the unpaid amounts to D2, reduced by
the $20,000 it cost Thompson to complete the work once D2 stopped
performing.
Thompson also challenges this award. This argument is part of its
appeal of the district court’s rejection of its counterclaim for breach of
contract. Thompson contends that, because D2 stopped performing before
it completed the work, Thompson does not owe the $81,068 in outstanding
charges to D2 and instead should have received damages from D2 for the
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costs of completing the work. D2 argues that Thompson did not adequately
brief this issue. Forfeiture presents a close call, which we avoid making
because the deference we owe the district court’s findings allows us to readily
reject the argument on the merits.
The district court found that D2 did not breach the contract, and even
if it did, Thompson’s prior breach and its failure to manage the construction
site excused D2’s failure to perform. The district court found that
management of the site was so deficient that D2 had to regrade the same areas
as many as six times and was unable to complete its work in other parts of the
site, justifying D2’s cessation of work. That finding is not clear error. It is a
bedrock principle of contract law that “the conduct of one party to a contract
which prevents the other from performing his part is an excuse for non-
performance.” United States v. Peck, 102 U.S. 64, 65 (1880); see also Hearne
v. Garrett, 49 Tex. 619, 624–25 (1878) (“Where one is employed to perform
some stipulated work . . . and, after part performance of the contract on his
part, he is wrongfully prevented from completing the work contracted for, or
laboring for the full period of time stipulated, it seems fully settled that the
employee may treat the contract as abandoned . . . .”). As a result, we affirm
the damage award for $81,068 and the rejection of Thompson’s
counterclaim.
IV.
Thompson also challenges the rulings that it violated the Texas
prompt pay statute, which results in annual interest of 18% on the unpaid
claims, and that D2 could foreclose on statutory and constitutional liens to
recover its judgment. Its only argument is that these remedies require an
underlying breach of contract and that it has no contractual liability. We
agreed in part with Thompson’s appeal of the contract claims, so it also
enjoys only partial success on these claims. For the contractual recovery we
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have reversed, obviously there can be no interest or lien. But for the
contractual recovery we affirmed, these other remedies still attach.
***
We AFFIRM the judgment for the $81,068 in unpaid work and the
related prompt payment statute and lien remedies for that breach of contract.
We REVERSE the judgment of $257,588.53 for the “excavation of
unanticipated excess soil” and RENDER judgment for Thompson on those
breach of contract and quantum meruit claims. We REMAND for
modification of the judgment consistent with this opinion.
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