Hall Contracting v. Entergy Services ( 2002 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 01-1777
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Hall Contracting Corporation *
*
Appellant, *
* Appeal from the United States
v. * District Court for the
* Eastern District of Arkansas.
Entergy Services, Inc. *
*
Appellee. *
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Submitted: September 13, 2002
Filed: November 5, 2002
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Before BYE, BEAM, and MELLOY, Circuit Judges.
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BEAM, Circuit Judge.
In this diversity action, Hall Contracting Corporation ("Hall") appeals from the
decision of the district court granting summary judgment in favor of Entergy
Services, Inc. ("Entergy"). We affirm in part and reverse in part.
I. BACKGROUND
Entergy owns and operates the Remmel Dam on the Ouachita River near Hot
Springs, Arkansas. Constructed in 1923, the dam is an "Amberson-style" gravity dam
comprised of abutments on the north and south shores of the river and a spillway that
spans the river and connects the two abutments. In 1996, Entergy solicited bids for
a construction project designed to alleviate the Federal Energy Regulatory
Commission's concerns relating to the structural integrity of the dam. The project
involved removing debris from and cleaning "cells" in all three sections of the dam,
filling the hollow cells with rock and concrete, and placing "anchors" in the dam's
north abutment. Phase One of the project covered the debris removal and cleaning
of the twenty-three spillway cells.
In preparation for submitting a bid on the project, Hall representatives toured
and inspected the dam on at least two occasions. During those inspections, Entergy
informed Hall that each cell would need to be cleaned down to bedrock at
approximately 245.5 feet above mean sea level ("MSL"). Entergy also informed Hall
that the catwalk above the cells was 275.5 feet MSL. Thus, by measuring the distance
from the catwalk to the debris in each cell and then by subtracting that figure from the
height of the catwalk, one could estimate the amount of debris above 245.5 feet MSL.
According to Hall-representative Raleigh Jones, Entergy representatives estimated
that each cell probably contained two to three feet of water, mud, and silt. Jones
dropped a tape measure into approximately five of the twenty-three spillway cells
during one inspection, but did not inspect or measure the debris in the other eighteen
cells. Hall made no further inspection of the spillway cells.
Entergy invited bidders to bid on a time-and-materials basis for Phase One of
the project. This would allow a contractor to be compensated for its labor,
equipment, and material costs regardless of the actual amount of debris in the
spillway cells. Believing it could obtain a competitive advantage, however, and
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apparently relying on the rough figures and opinions supplied by Entergy regarding
the debris in the cells, Hall decided to submit a lump-sum bid for the entire project.
Entergy notified Hall that it was the successful bidder on October 3, 1996. On April
16, 1997, Entergy and Hall executed a contract for the Remmel Dam remedial
construction project.
Hall mobilized for construction in May 1997 and, shortly thereafter, hired
subcontractor Henderson Specialties, Inc. ("HSI") to perform Phase One. Hall and
HSI agreed that a hydraulic electric pump would be the most effective method for
removing the two to three feet of water, mud, and silt that they believed was in the
cells. Entergy's engineer, Keith Dickerson, approved this approach. But HSI's
removal operations revealed debris in much greater volume and of much bulkier
composition than anticipated. The bedrock was well below 245.5 feet MSL in some
places, and some cells apparently contained nearly ten vertical feet of debris that
included large rocks, boulders, wooden forming materials, and a small railroad car.
Instead of a hydraulic pump, HSI used backhoes and other heavy machinery to haul
the debris through eight-by-eight-foot holes that it cut into the downstream wall of
each cell.
The agreement provided that a contractor "waives all claims for . . . additional
compensation beyond that allowed in this Agreement . . . unless the claim is expressly
authorized . . . and is made in accordance with" specific procedures for submission,
approval, and payment. At various times during construction, Hall submitted written
change-order requests, and Entergy approved and paid for the changes, according to
the contract procedures. One such request related to the debris discovered below
245.5 feet MSL. Hall did not, however, submit change-order requests for debris
above 245.5 feet MSL or for the additional costs of removing the bulkier debris. HSI
completed Phase One, and Hall ultimately completed the project, but at substantially
greater cost than they originally contemplated in their respective bids. HSI then
brought an arbitration proceeding against Hall to recover the extra costs. Hall and
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HSI settled their dispute on December 2, 1999. Meanwhile, Entergy withheld
payment of Hall's final invoice, invoking a provision in the contract that required Hall
to provide "satisfactory evidence of no undischarged liens arising because of the
Work." According to Entergy, Hall had not produced such evidence.
Hall brought this action in the district court to recover its final payment (the
"retainage") and the additional costs associated with Phase One. Hall argues that any
conceivable "lien" within the meaning of the contract's retainage provision has been
effectively discharged by Arkansas statutes of limitation. Entergy counters that
"undischarged liens" should be read broadly to include the possibility of a judgment
lien resulting from this action. With respect to the Phase One costs, Hall asserted
breach of contract, mutual mistake, unjust enrichment, and fraudulent
misrepresentation. Entergy responded that the contract governs claims for additional
compensation and that, by failing to follow the contract's change-order procedures,
Hall waived any claims relating to Phase One. The district court granted Entergy's
motion for summary judgment on all counts. Hall appeals the district court's order
with respect to all but the fraud claim.
II. DISCUSSION
We review de novo the district court's grant of summary judgment, viewing the
evidence in the light most favorable to the non-moving party and giving that party the
benefit of all reasonable inferences. Fed. R. Civ. P. 56(c); Mathes v. Furniture
Brands Int'l, Inc., 266 F.3d 884, 885 (8th Cir. 2001). Reasonable inferences are those
that may be drawn without resorting to speculation. Sprenger v. Fed. Home Loan
Bank, 253 F.3d 1106, 1110 (8th Cir. 2001). Under Arkansas contract law,1 a court
1
Section 50 of the contract states that it "shall be governed and construed in
accordance with the laws of the state in which the applicable Owner's site . . . is
located." The Remmel Dam is located in Arkansas.
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considering a motion for summary judgment ascertains, with the same favoritism to
the nonmovant, "the plain and ordinary meaning of the language in the written
instrument, and if there is any doubt about the meaning, there is an issue of fact to be
litigated." Carver v. Allstate Ins. Co., 76 S.W.3d 901, 904 (Ark. App. 2002). And
"[w]hen the intent of the parties as to the meaning of a contract is in issue, summary
judgment is particularly inappropriate." Id.
A. The Retainage
Section 8.5 of the contract provides: "Payment of Contractor's final invoice
under a particular Contract Order is conditioned upon final completion of the Work
described in the Contract Order, Owner's acceptance thereof, and receipt by Owner
of satisfactory evidence of no undischarged liens arising because of the Work."
Entergy does not allege that Hall did not complete the work it contracted to perform,
and there is no indication that Entergy did not accept Hall's work on the project.
Entergy asserts, however, that Hall failed to provide "satisfactory evidence of no
undischarged liens arising because of the Work." It has withheld Hall's final invoice
payment of $354,114 on that basis.
Hall argues that section 8.5 can only be read as referring to statutory
mechanic's or materialmen's liens designed to secure payment for work and materials
provided by construction contractors. Hall contends that the expiration of all
statutory limitation periods for filing such liens2 constitutes "satisfactory evidence of
2
Under Arkansas law, mechanic's and materialmen's liens attach "from the time
that the construction or repair first commenced." Ark. Code Ann. § 18-44-110(a)(1).
In order to perfect and enforce construction liens, a contractor must provide the owner
with statutorily prescribed notice of non-payment within 75 days of completion. Ark.
Code Ann. § 18-44-115(e)(2)(A) & (B). Then the contractor must file a lien account
with the applicable circuit court clerk within 120 days. Ark. Code. Ann. § 18-44-
117(a). Finally, section 18-44-119 provides that "[n]o lien shall continue to exist . . .
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no undischarged liens" since, once the liens are time-barred, Entergy is no longer
exposed to any threat of lien liability.
Entergy argued in its motion for summary judgment that it was entitled to
withhold Hall's final payment "[u]ntil Hall can provide Entergy with proof that HSI's
claim has been resolved." Appellant's App. Vol. I, at 218. There is some indication
in the record that while Hall had, in fact, obtained lien-waiver certificates from other
subcontractors, it had not obtained a waiver from HSI. But in response to Hall's
contention that all potential liens have been "discharged" by statutes of limitation,
Entergy now argues on appeal that the possibility of a judgment lien resulting from
this litigation entitles it to continue withholding the retainage. The district court
apparently agreed with Entergy's new construction of section 8.5, and added that, in
any event, the res judicata effect of a judgment in favor of Entergy on all other counts
would then entitle Hall to the retainage, less litigation fees.
We reject Entergy's construction of section 8.5. It is difficult to see why the
res judicata effect of a judgment is any better evidence of "no undischarged liens"
than a statutory bar. We find that the plain and ordinary meaning of "liens arising out
of the Work" includes mechanic's and materialmen's liens, but does not include the
future possibility of a judgment lien. Under Entergy's view, a project owner, armed
with a similar retainage provision, could always withhold final payment for any
reason or for no reason at all for at least the period of a general contract statute of
limitations. In addition, the moment a contractor initiated legal proceedings to
recover the payment, the possibility of a resulting judgment lien would then justify
a continued withholding and entitle the owner to retain the payment until the absolute
. . for more than fifteen (15) months after the lien is filed, unless within that time an
action shall be instituted as described in this subchapter." There is no evidence that
HSI or any other subcontractor has filed a lien or commenced any action against
Entergy pursuant to the statutory provisions, and all of the statutory deadlines have
long since expired.
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conclusion of the litigation in its favor. Hall correctly observes: "This is
bootstrapping of the first order." Appellant's Reply Brief at 3. Although Entergy may
have initially been authorized to withhold payment based on the course of conduct
between the parties relating to lien waivers, we agree with Hall that the expiration of
all statutory periods of limitation for mechanic's and materialmen's lien filings
constitutes "satisfactory evidence of no undischarged liens." Summary judgment in
favor of Entergy on count one was improper. We reverse and remand to the district
court with instructions to enter judgment in favor of Hall on count one with
imposition of maximum interest of any description and a corresponding reduction in
attorney's fees under Arkansas Code Annotated § 16-22-308.
B. Claims for Additional Compensation
Remaining counts two through four relate to Hall's claim for additional
compensation arising from the unexpected volume and composition of debris in the
spillway cells.
1. Waiver of Contract Procedures
Hall first contends that Entergy's refusal to pay additional compensation for
Phase One constitutes a breach of contract. Entergy argues in response that, by
failing to comply with contract procedures, Hall has waived any claims for additional
compensation. RAD-Razorback Limited Partnership v. B.G. Coney Co., 713 S.W.2d
462, 466 (Ark. 1986), states the applicable Arkansas law on this point: "The general
rule pertaining to construction contracts is, absent a waiver . . ., if it is required, a
request for additional compensation must be in writing and cannot be made after the
work is completed." Hall does not dispute its failure to comply with change-order
procedures, but argues instead that Entergy (1) waived strict compliance through its
course of conduct, and (2) had actual knowledge of the debris conditions in the
spillway cells.
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Section 6.4 of the contract clearly states: "Contractor hereby waives all claims
for schedule extensions or additional compensation beyond that allowed in this
Agreement or by a Contract Order, unless the claim is expressly authorized under this
Agreement and is made in accordance with the following procedures." Sections 6.2,
6.4, and 37.3 then provide detailed procedures for the submission, approval, and
payment of such claims. But according to Hall, Entergy would normally first approve
change-order requests orally. Hall would only commence the written change-order
procedures after it had obtained oral approval. It would then memorialize the
modification with the required paperwork. Hall claims that Entergy denied Hall's
initial request for additional compensation arising from the debris conditions, thus
rendering a written request futile. The district court found, however, that Hall had
"simply not met its burden of showing that the custom, practice and conduct of the
parties was that written requests would only be made once oral approval had been
received and so there is no basis for a finding of waiver." We agree.
Even accepting Hall's evidence of waiver at face value,3 Hall has not presented
evidence sufficient to create a fact question or to justify a finding of waiver under
Arkansas law. In Rivercliff Co. v. Linebarger, 264 S.W.2d 842, 846 (Ark. 1954), the
Arkansas Supreme Court found that a waiver had occurred where several changes
"had been made and paid for during the construction . . . yet . . . only one written
3
Hall contends that the district court improperly weighed the evidentiary value
of project-manager Mike Milton's affidavit. Finding numerous contradictions
between the affidavit and Milton's earlier deposition testimony, the district court ruled
that Hall could not rely on Milton's "discredited" affidavit to resist summary
judgment. It relied on our holding in RSBI Aerospace, Inc. v. Affiliated FM
Insurance Co., 49 F.3d 399, 402 (8th Cir. 1995), to the effect that "parties to a motion
for summary judgment cannot create sham issues of fact" when "earlier testimony is
in conflict with the affidavits." While we note, after a careful comparison of the
testimony and affidavit, that the district court's application of RSBI was perhaps
overbroad and its reading of the evidence mistaken in places, we find that the
evidence, even when fully credited, is insufficient to create a triable issue of fact.
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change order had been made." Likewise in J.N. Heiskell v. H.C. Enterprise, Inc., 429
S.W.2d 71, 74-75 (Ark. 1968), the court found that a fact question as to waiver was
properly submitted to the jury where the contractor had presented evidence that oral
changes were approved and paid for on "many occasions." Finally, we held in Falcon
Jet Corp. v. King Enterprises, Inc., 678 F.2d 73, 77 (8th Cir. 1982), that waiver had
occurred where virtually all changes had been approved orally. In contrast, it is
undisputed in this case that Hall submitted several change orders, and Entergy paid
them, according to the contract procedures, while there is no evidence that Entergy
ever approved and paid for any changes without the required paperwork. The district
court correctly found the evidence of waiver insufficient to create a triable question
of fact.
Hall's contention that Entergy had actual knowledge of the debris conditions
and therefore cannot equitably require compliance with contract procedures is
likewise without merit. The two cases Hall cites on this point, St. Louis I.M. & S. Ry.
Co. v. Shepherd, 168 S.W. 137 (Ark. 1914), and Marion County Rural School District
No. 1 v. Rastle, 576 S.W.2d 502 (Ark. 1979), are inapposite. First, neither of these
cases involve contractually required change-order procedures. Second, and more
importantly, the contracts at issue in the cases are not construction contracts. RAD-
Razorback definitively establishes that, absent a waiver, change-order provisions in
construction contracts will be strictly enforced in the state of Arkansas. 713 S.W.2d
at 466. We find that Hall has not provided sufficient evidence to create a fact
question on whether Entergy waived compliance with change-order procedures. By
failing to comply with those procedures, Hall forfeited its right to seek additional
compensation under the contract.
2. Mutual Mistake
Hall next contends that the contract should be reformed because it was the
result of a mutual, material mistake as to the volume and composition of debris in the
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spillway cells. Under Arkansas law, parol evidence is admissible to establish a
mutual mistake, but "must be clear and convincing before reformation is justified."
Mizell v. Carter, 504 S.W.2d 743, 745 (Ark. 1974). In the aggregate, Hall's evidence
on this point is not clear and convincing, but establishes only that Entergy sources
occasionally expressed opinions or estimates about the debris in the cells.
Moreover, the contract unequivocally allocates the burden of inspection and
the risk of mistake to Hall. The Restatement (Second) of Contracts § 152(1) (1979)
states that a mutual mistake renders a contract "voidable by the adversely affected
party unless he bears the risk of the mistake under the rule stated in § 154."
According to section 154, "[a] party bears the risk of mistake when . . . the risk is
allocated to him by agreement of the parties." This is clearly the case here. Section
37.1 of the agreement requires Hall to make its own inspection and assessment of the
"nature and quantity of surface and subsurface materials to be encountered" and the
"equipment and facilities needed preliminary to and during performance." And
section 37.2 states that information provided by Entergy does not relieve Hall of its
duty to inspect. Under both the contract and the Restatement, Hall clearly bore the
risk of mistake. While no Arkansas case expressly adopts section 154, the district
court correctly applied Crookham & Vessels, Inc. v. Larry Moyer Trucking, Inc., 699
S.W.2d 414, 416-17 (Ark. 1985), which essentially employs a pre-existing duty
approach: "'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.'" Id. (quoting Baton Rouge Contracting Co.
v. West Hatchie Drainage Dist. of Tippah County, 304 F. Supp. 580, 585 (N.D. Miss.
1969)).
Hall's argument that its inspections were reasonable and that it reasonably
relied on Entergy's representations is without merit. The contract "squarely placed
the risk of uncertainty as to site and soil conditions on the contractor." Green Const.
Co. v. Kan. Power & Light Co., 1 F.3d 1005, 1009 (10th Cir. 1993). And the fact that
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Entergy invited bids on a time-and-materials basis in order to allow for changed
conditions is further evidence that Hall assumed the risk of changed conditions by
submitting a lump-sum bid. The district court correctly granted summary judgment
in Entergy's favor on count three.
3. Unjust Enrichment
Hall next argues that, even if there was no breach of contract or mutual
mistake, Entergy has been unjustly enriched by Hall's and HSI's "extra" work on
Phase One. We reject this argument. Under Arkansas law, the doctrine of unjust
enrichment does not apply when there is a valid, legal, and binding contract. See
Lowell Perkins Agency, Inc. v. Jacobs, 469 S.W.2d 89, 92-93 (Ark. 1971). Arkansas
courts have recognized some exceptions to this general rule. Friends of Children, Inc.
v. Marcus, 876 S.W.2d 603, 605 (Ark. App. 1994). For example, restitution might
be available "where the parties to a contract find they have made some fundamental
mistake about something important in their contract." Id. But since the district court
found, and we agree, that there was no mutual mistake in the formation of this
contract, there is no basis for resorting to quasi-contract. Hall's argument to the
contrary is without merit; it repeatedly cites cases that permit restitution despite
contracts that are void. Friends of Children represents the Arkansas rule for cases
with valid contracts. The district court properly granted summary judgment for
Entergy on count four.
III. CONCLUSION
For the reasons set forth above, we reverse the district court's grant of summary
judgment as to count one and remand for disposition consistent with this opinion. We
affirm the district court with respect to the remaining counts.
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A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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