Kiewit Offshore Services, LTD v. Dresser-Rand Glob ( 2018 )

Case: 17-20438 Document: 00514671684 Page: 1 Date Filed: 10/08/2018
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 17-20438 United States Court of Appeals
Fifth Circuit
FILED
October 8, 2018
KIEWIT OFFSHORE SERVICES, LIMITED,
Lyle W. Cayce
Plaintiff - Appellee Clerk
v.
DRESSER-RAND GLOBAL SERVICES, INCORPORATED,
Defendant - Appellant
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:15-CV-1299
Before HIGGINBOTHAM, DENNIS, and COSTA, Circuit Judges.
PER CURIAM:*
This case involves a dispute between two contracting parties about
whether one must pay the other approximately $10 million. Dresser-Rand
Global Services, Inc. (Dresser-Rand) contends that Kiewit Offshore Services,
Ltd. (Kiewit) changed the contract’s scope of work without complying with the
contract’s required procedures and is therefore not entitled to payment from
Dresser-Rand for work reflected in several invoices. The district court granted
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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summary judgment in favor of Kiewit. Dresser-Rand appealed. Because we
conclude the district court correctly held that there were no genuine fact issues
and Kiewit was entitled judgment as a matter of law, we AFFIRM.
I
In 2012, Dresser-Rand solicited a bid from Kiewit to design, engineer,
and fabricate two large litoral compression modules, ultimately for use by
Dresser-Rand’s customer, PEMEX Exploration and Production (PEMEX), on
an existing offshore oil-drilling platform in the Gulf of Mexico. 1 Dresser-Rand
accepted Kiewit’s bid and, in 2013, the parties entered into a contract. Kiewit
subcontracted separately with Excel Engineering (Excel) to assist with
engineering the modules. The completed modules were delivered to Dresser-
Rand in 2014, and Dresser-Rand accepted them.
Several provisions of Dresser-Rand’s contract with Kiewit are relevant
on appeal. Appendix E to the contract set forth the contract’s “scope of work”
for equipment and services. Article 303 required the parties to propose change
orders for any changes to the contract’s scope of work. Appendix A set forth
the completion date, contract price, payment schedule, and notes regarding
reimbursement procedures. Article 701 of Appendix A set forth a total “target
estimate” of the contract price before any change orders of $27,271,336. The
same article also set forth documentation and timekeeping requirements for
work compensated by reimbursable rates. The contract contained no
maximum or “not-to-exceed” price.
Kiewit submitted eight invoices to Dresser-Rand, reflecting a total price
of $42,792,860. Dresser-Rand paid the first four invoices, which totaled
$33,265,588, but refused to pay the remaining four invoices, DR-04b, 05, 06,
and 07, totaling $9,486,588. The parties agree that Kiewit did not submit any
1 Kiewit was not a party to the agreement between Dresser-Rand and PEMEX.
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change orders for work reflected in Invoices DR-04b, 05, and 06, which are the
subject of this appeal. 2
In May 2015, Kiewit filed suit against Dresser-Rand, alleging breach of
contract, promissory estoppel, and unjust enrichment and seeking
compensatory damages in the amount listed in the remaining four invoices.
Dresser-Rand counter-claimed, alleging breach of contract and seeking to
recover over $2.3 million in damages, including liquidated damages assessed
to Dresser-Rand by PEMEX for late delivery of the modules. The parties cross-
moved for summary judgment, and the district court granted Kiewit’s motion,
dismissing all of Dresser-Rand’s counterclaims and awarding Kiewit damages
for nonpayment of Invoices DR-04b, 05, and 06.
II
We review a district court’s grant of summary judgment de novo. Howell
v. Town of Ball, 827 F.3d 515, 521 (5th Cir. 2016). Summary judgment is
appropriate where “there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a). The
function of the judge at the summary judgment stage is not to weigh the
evidence and determine the truth of the matter, but to determine whether
there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
249 (1986). A genuine dispute of material fact exists when, based on the
evidence, “a reasonable jury could return a verdict for the nonmoving party.”
Id. at 248. The non-movant’s evidence “is to be believed, and all justifiable
inferences are to be drawn in his favor.” Id. at 255. We may affirm a district
court’s grant of summary judgment on any ground supported by the record and
raised below. See Windham v. Harris Cty., 875 F.3d 229, 234 (5th Cir. 2017).
2 Invoice DR-07, totaling $41,031, was the subject of a separate summary judgment
motion. Dresser-Rand does not appeal the district court’s order as to DR-07.
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A party asserting a genuine factual dispute must support that “assertion
by citing to particular parts of materials in the record.” FED. R. CIV. P.
56(c)(1)(A). “If the evidence is merely colorable, or is not significantly
probative, summary judgment may be granted.” Anderson, 477 U.S. at 249–
50 (internal citations omitted). Conclusional allegations are insufficient to
defeat a motion for summary judgment. Rushing v. Kan. City S. Ry. Co., 185
F.3d 496, 513 (5th Cir. 1999). Nor can the non-moving party satisfy its burden
by establishing “some metaphysical doubt as to the material facts,” or by
putting forth “unsubstantiated assertions” or a “scintilla” of evidence. Little v.
Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (internal citations
omitted). In deciding issues of contractual interpretation, we “apply the
contract law of the particular state that governs the agreement,” which the
parties here agree is Texas. Al Rushaid v. Nat’l Oilwell Varco, Inc., 757 F.3d
416, 419 (5th Cir. 2014) (quoting Wash. Mut. Fin. Grp., LLC v. Bailey, 364 F.3d
260, 264 (5th Cir. 2004)).
III
The district court determined that “it is undisputed that Kiewit did not
submit [c]hange [o]rders for the work reflected in Invoices DR-04B, 05, and 06
and that the invoices accurately reflect the costs Kiewit incurred.”
Accordingly, the court proceeded to consider a single question: whether the
costs reflected in the invoices constituted a change in the contract’s “scope of
work” such that Kiewit was required to submit a change order pursuant to
Article 303 of the contract. Finding that Dresser-Rand’s summary judgment
evidence was insufficient to establish any changes to the contract’s scope of
work, the court denied Dresser-Rand’s motion for summary judgment with
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respect to the invoices, and granted Kiewit’s corresponding motion for
summary judgment.
On appeal, Dresser-Rand raises three arguments that the district court
erred by granting summary judgment in favor of Kiewit. First, that it raised
a genuine issue of material fact that Kiewit changed the contract’s scope of
work by building modules with three decks instead of two. Second, that Kiewit
did not comply with the contract’s condition precedent to repayment. Third,
that Kiewit submitted insufficient, conclusory summaries of the work
underlying the invoices, preventing the district court from determining how
Kiewit derived its damages claim. We address each of these arguments in turn.
A
Dresser-Rand first contends that the district court improperly
disregarded summary judgment evidence that it claims raised a genuine fact
issue as to whether Kiewit changed the contract’s scope of work without
complying with Article 303. Dresser-Rand specifically argues that Kiewit
created two non-identical, three-deck modules, even though the contract’s
scope-of-work provision specified that the two modules should be identical and
have two decks. In response, Kiewit argues that no change orders were
necessary because the increased costs in the invoices were reflective of changes
within the original scope of work resulting from substantial design evolution,
and therefore did not constitute changes to the contract’s overall scope.
According to Kiewit, the contract’s scope, as defined in Appendix E, was a
“black box,” granting it broad discretion to design and engineer the modules,
so long as it incorporated certain performance requirements provided by
PEMEX. For the following reasons, we find Kiewit’s arguments persuasive
and affirm the district court’s judgment.
It is indisputable that Kiewit ultimately furnished modules with three
decks. However, on the plain language of the contract, it is ambiguous whether
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this constituted a change to the contract’s scope of work. 3 In construing a
written contract, Texas courts first attempt to determine the parties’ true
intentions as expressed in the instrument. Valence Operating Co. v. Dorsett,
164 S.W.3d 656, 662 (Tex. 2005). Texas courts consider a contract in its
entirety, harmonizing and giving effect to all provisions and rendering none
meaningless. Id. Extraneous evidence may be considered to determine the
true meaning of the contract only if the contract is ambiguous. David J. Sacks,
P.C. v. Haden, 266 S.W.3d 447, 450–51 (Tex. 2008) (citing Nat’l Union Fire Ins.
Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995)). “Whether a contract
is ambiguous is a question of law that must be decided by examining the
contract as a whole in light of the circumstances present when the contract was
entered.” Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d
587, 589 (Tex. 1996). If a contract, on its face, can be given a “definite certain
legal meaning,” courts may not look to extrinsic evidence to render it
ambiguous. EOG Res., Inc. v. Killam Oil Co., 239 S.W.3d 293, 298 (Tex. App.
2007). Ambiguity exists where “the contract is subject to two or more
reasonable interpretations after applying the pertinent rules of construction.”
Columbia Gas Transmission Corp., 940 S.W.2d at 589.
Article 303 of the contract states that Kiewit must submit a change order
to Dresser-Rand for any change to the contract’s scope of work:
At any time during the progress of the Work, either Company or
Contractor may propose Change Orders. . . . Contractor shall be
entitled to a Change Order making necessary and reasonable
adjustments to the Contract Price . . . solely and to the extent
reasonably necessary resulting from impacts to the Work resulting
3 Neither party claims on appeal that the contract is ambiguous; indeed, both parties
consistently maintained that it was unambiguous below. However, “even when both parties
agree that their contract is unambiguous and merely disagree as to its unambiguous
meaning, [we] may independently conclude that the contract is ambiguous.” 14 TEX. JUR. 3D
CONTRACTS § 229 (2018) (citing Plotkin v. Joekel, 304 S.W.3d 455 (Tex. App. 2009)).
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from events beyond Contractor’s control including without
limitation: Changes in the Scope of Work.
Additionally, Dresser-Rand is correct that Appendix E, setting forth the
contract’s scope of work, refers generally to a “2 deck module.” 4 However,
Appendix E also states that “the module(s) layout will be set by control
parameters,” including allowable space, safety and allowances for exit access,
construction, maintenance, operation, weight restrictions, and third-party
certification. Additionally, the scope-of-work provision specifies that “[t]he
ultimate goal of the module layout is to minimize space and weight
requirements without compromising on safety, constructability,
maintainability and operability.” Viewed in its entirety, Appendix E’s plain
language could reasonably support two different readings: the first, that
Kiewit was required to build modules with two decks; the second, that the
layout of the modules, including the number of decks per module, was flexible
and intended ultimately to yield to other considerations if necessary. See
Valence Operating Co., 164 S.W.3d at 662. Thus, the plain language of the
contract does not definitively answer whether, by designing and building
modules with three decks instead of two, Kiewit changed the contract’s scope
of work and was therefore required to comply with Article 303’s change-order
requirement.
The circumstances existing at the time the parties entered into the
contract do not clarify this ambiguity. See Columbia Gas Transmission Corp.,
940 S.W.2d at 589; Kachina Pipeline Co. v. Lillis, 471 S.W.3d 445, 450 (Tex.
2015) (considering “the commercial or other setting in which the contract was
negotiated and other objectively determinable factors that give context to the
parties’ transaction” to determine whether a contract is ambiguous) (quoting
4We have not found similar support within Appendix E for Dresser-Rand’s contention
that Kiewit changed the contract’s scope of work by building modules that were not identical.
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Americo Life, Inc. v. Myer, 440 S.W.3d 18, 22 (Tex. 2014)). Stephen Shupak,
Commercial Support Director for Dresser-Rand, testified that PEMEX,
Dresser-Rand’s customer that would ultimately use the modules, provided a
“performance spec” focused on module output and that the contract
consequently left the design of the modules to Kiewit. Dresser-Rand’s General
Projects Manager, Daniel Simpson, similarly stated that Kiewit had discretion
to design the modules if they complied with end-game performance
requirements and “the basic data sheet spec” provided by PEMEX, detailing
the “material to use on the internals of the compressors, the pressures you’re
dealing with, that kind of thing.” Likewise, Jerry Walker, Dresser-Rand’s
Executive Vice President, testified that PEMEX provided “a very open-ended
spec . . . we referred to it as kind of a black box. It allowed the fabricator to do
what it needed to have a—more of a functional performance.” Such evidence
could reasonably support a conclusion that the contract’s scope of work focused
primarily on Kiewit meeting PEMEX’s performance expectations, rather than
the specific design of the modules. Even so, this does not preclude a conclusion
that Kiewit was required to submit a change order to Dresser-Rand before
altering the number of decks per module. Because we conclude that the
contract is ambiguous in this respect, we examine extrinsic evidence to
determine the parties’ intention. See Haden, 266 S.W.3d at 450–51.
Considering all relevant evidence in the summary judgment record, 5 we
conclude that the district court was correct to hold that no reasonable jury
5 The bulk of Dresser-Rand’s summary judgment evidence consists of documents
referencing changes to Excel’s scope of work. We agree with the district court that “‘Scope of
Work’ is a defined term with a particular meaning” within each contract. Excel’s subcontract
with Kiewit contained a distinct “scope of work” provision with a proposal for basic and
detailed engineering and design, including a multi-page list of specific design deliverables.
The subcontract also broadly required “an approved change order” for “[a]ny and all changes
to th[e] Agreement.” Thus, changes to Excel’s detailed engineering and design proposal, as
outlined in the subcontract, were not necessarily indicative of changes to the scope of work
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could find that Kiewit’s design and construction of the modules constituted a
change in the contract’s scope of work, and Kiewit was entitled to summary
judgment. See Jhaver v. Zapata Off-Shore Co., 903 F.2d 381, 384 (5th Cir.
1990) (recognizing that summary judgment is appropriate if extrinsic evidence
of the parties’ intent does not present a genuine issue of material fact); see also
United States v. Tracts 31a, Lots 31 & 32, 852 F.3d 385, 390 n.5 (5th Cir. 2017)
(citing Jhaver for the same proposition). Extrinsic evidence supports Kiewit’s
argument that the increased costs in Invoices DR-04b, 05, and 06 reflected
design changes within the original scope of work. Simpson testified that the
original scope of the project was “two compression modules” and “the scope of
supply didn’t change.” He also stated that what Dresser-Rand balked at was
not a scope change, but rather the number of hours Kiewit took to complete the
modules:
Effectively, we contracted to build two modules. You know, we had
two modules that were built. It wasn’t like there was extra
compression—compression put in and extra scrubbers and extra
lube oil consoles. The scope did not materially change, but yet
engineering spent three times more money engineering the module
than what they were contracted to do in the beginning. . . . The
item—the issue is not with the scope of what they produced. The
issue is with the amount of hours and what they charged to
produce it. That’s the issue that we have.
Significantly, Kenneth DeVito, Dresser-Rand’s Project Manager, testified that
Kiewit was not required to submit change orders for increased costs,
quantities, or manhours incurred during Kiewit’s performance of the original
scope of work. Thus, the record demonstrates that Dresser-Rand understood
Kiewit’s scope of work to comprise building two compression modules that
set forth in Appendix E. Dresser-Rand’s assertion that “a scope change for Excel has to be a
scope change for Kiewit” is “conclusory,” “unsubstantiated,” and thus insufficient to defeat
summary judgment. See Rushing, 185 F.3d at 513; Little, 37 F.3d at 1075.
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complied with the general performance requirements specified in the contract.
The increased costs above the contract’s target estimate for building the
modules, which resulted from Kiewit’s evolving design process, thus did not
require Kiewit to request a change order under Article 303. 6 Though Dresser-
Rand undoubtedly came to owe Kiewit more than it expected it would, we agree
with the district court that Dresser-Rand assumed the risk of the increased
costs reflected in the invoices by failing to include a limiting, “not-to-exceed”
price in the contract.
Dresser-Rand’s most compelling evidence that there was a scope
change—the language in Appendix E referring to a two-deck module—is
“merely colorable” and “is not significantly probative,” in light of the parties’
intent that Kiewit should have broad design discretion. See Anderson, 477 U.S.
at 249–50. Because Dresser-Rand has failed to raise a genuine issue of
material fact that the costs reflected in the invoices were for work outside of
the contract’s original scope of work, Kiewit was entitled to summary
judgment.
B
Dresser-Rand next contends that Article 701 of Appendix A to the
contract required Kiewit to receive advanced authorization from Dresser-Rand
as a condition precedent to repayment for all reimbursable rates-driven scope
work. Under Texas law, a condition precedent requires that an event occur or
be performed before a right accrues and can be enforced. Centex Corp. v.
Dalton, 840 S.W.2d 952, 956 (Tex. 1992). Whether a condition exists, rather
than a covenant or promise, must be gathered from the contract as a whole and
6 By contrast, the parties executed a change order when Dresser-Rand asked Kiewit
to provide engineering analysis related to PEMEX’s decision to use a different lift-rigging
system for setting the modules than originally planned. Because analysis for the new lift-
rigging system fell outside of Kiewit’s original scope of work under the contract, a change
order was necessary.
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from the intent of the parties. Citizens Nat’l Bank v. Tex. & Pac. Ry. Co., 150
S.W.2d 1003 (Tex. 1941). Conditions precedent are normally created through
use of language such as “if,” “provided that,” “on condition that,” or other
similar conditional phrases. Criswell v. European Crossroads Shopping Ctr.,
Ltd., 792 S.W.2d 945, 948 (Tex. 1990). While the inclusion of such language is
not necessary, its absence is probative of an intent to make a promise, rather
than impose a condition, and the terms will be construed as a covenant to
prevent unfairness from nonpayment for completed work. Id. Courts avoid
finding a condition precedent where another reasonable reading of the contract
is possible, where the intent of the parties is doubtful, or where a condition
would impose an absurd or impossible result. Schwarz-Jordan, Inc. v. Delisle
Constr., 569 S.W.2d 878, 881 (Tex. 1978); Hohenberg Bros. v. George E. Gibbons
& Co., 537 S.W.2d 1, 3 (Tex. 1976). Texas courts do not favor conditions due to
“their harshness in operation.” Sirtex Oil Indus. v. Erigan, 403 S.W.2d 784,
787 (Tex. 1966).
In Dresser-Rand and Kiewit’s contract, Article 701, Note (v) to Appendix
A states:
Amounts for work compensated by Reimbursable Rates are
factored into the milestone payments and shall be spread
throughout multiple milestones. Reimbursable Rates-driven scope
will be supported by weekly time sheets/time sheet summaries,
each authorized in advance by Company and confirmed as
accepted for payment by signature of a duly authorized Company
representative.
The plain language of Article 701, Note (v) uses imperatives such as “shall”
and “will” instead of the conditional language traditionally associated with the
creation of conditions precedent, suggesting that the parties intended to make
a promise. See Criswell, 792 S.W.2d at 948. Moreover, the contract as a whole
appears to support this interpretation; other provisions of the contract employ
explicitly conditional language, suggesting that Dresser-Rand knew how to
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create a condition precedent and chose not to do so in Article 701. Accordingly,
we construe Article 701 as a covenant and not a condition precedent. See
Schwarz-Jordan, Inc., 569 S.W.2d at 881. Doing so is in line with Texas courts’
aversion to finding conditions precedent and avoids an unfair result here, as
Kiewit completed the work reflected in the invoices and Dresser-Rand accepted
it. See Sirtex Oil Indus., 403 S.W.2d at 787; Criswell, 792 S.W.2d at 948.
C
Finally, Dresser-Rand contends, for the first time on appeal, that Kiewit
submitted insufficient, conclusory summaries of the work reflected in Invoices
DR-04b, 05, and 06, preventing the district court from verifying the total
amount of damages Kiewit claimed. Dresser-Rand failed to raise this
argument below, and we therefore decline to consider it here. 7 See Vogel v.
Veneman, 276 F.3d 729, 733 (5th Cir. 2002) (“Except in cases of extraordinary
circumstances, we do not consider issues raised for the first time on appeal.”)
(internal quotations and citations omitted); AG Acceptance Corp. v. Veigel, 564
F.3d 695, 700 (5th Cir. 2009) (“Extraordinary circumstances exist when the
issue involved is a pure question of law and a miscarriage of justice would
result from our failure to consider it.”) (internal quotations and citations
omitted).
***
For these reasons, we AFFIRM the district court’s judgment.
7 The district court noted that it was undisputed that the invoices accurately reflected
actual costs incurred by Kiewit for work performed and accepted by Dresser-Rand.
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