CFS Forming Structures Co. v. Flintco, Inc.

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IN THE UNITED STATES COURT OF APPEALS United States Court of Appeals FOR THE FIFTH CIRCUIT Fifth Circuit FILED
August 16, 2010 N o . 09-50770 Lyle W. Cayce Clerk

C F S FORMING STRUCTURES CO., INC. P la in t if f -A p p e lle e v. F L I N T C O , INC. D e fe n d a n t -A p p e lla n t

A p p e a l from the United States District Court for the Western District of Texas N o . USDC 1:07-cv-00973-LY

B e fo r e KING, WIENER, DENNIS, Circuit Judges. P E R CURIAM:* T h is contract dispute arises out of a construction contract to build a c o n fe r e n c e center in San Marcos, Texas. Defendant-Appellant Flintco, Inc. (" F lin t c o " ) is a general contractor who contracted with Plaintiff-Appellee CFS F o r m in g Structures, Inc. ("CFS") to perform concrete work on the conference c e n t e r and an adjacent hotel. During the course of construction, Flintco sent C F S a "cure" letter, pursuant to their subcontract, which directed CFS to " c o m m e n c e " installation of concrete work.
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Ten days later, asserting that

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 R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR.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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No. 09-50770 in s t a lla t io n had not commenced, Flintco terminated its subcontract with CFS a n d hired another concrete subcontractor. CFS sued Flintco for breach of

c o n t r a c t, and Flintco counterclaimed for breach of contract. A jury returned a v e r d ic t for CFS and against Flintco. Flintco properly moved, post-verdict, for a ju d g m e n t as a matter of law ("JMOL"), which the district court denied. Flintco t h e n timely filed a notice of appeal, asserting that the district court abused its d is c r e t io n in instructing the jury and erred in denying Flintco's motion for J M O L . We affirm. I . FACTS AND PROCEEDINGS T h e subcontract at issue was signed on February 6, 2007. It provided that C F S 's work was to occur on or before the date specified in the "master project s c h e d u le ." This term was not defined in the subcontract, and no date for work c o m p le t io n was specified. The subcontract also contained a "time is of the e s s e n c e " provision. Crucially, paragraph 9 of the subcontract also gave CFS the r ig h t to "cure" any noncompliance under the subcontract for "fail[ure] or refus[al] t o proceed with or properly perform Work as directed by FLINTCO . . . ." Specifically, the subcontract stated that "FLINTCO shall notify Subcontractor in writing of Subcontractor's failure to comply. If FLINTCO determines that S u b c o n t r a c t o r has not remedied and cured the event(s) of default within three (3 ) days of written notification, then FLINTCO may . . . terminate this S u b c o n t r a c t . . . ." C e n t r a l to the organization and coordination of the overall construction p r o je c t was the "master project schedule," which the district court held to be the " c r it ic a l path method" schedule (the "CPM"). This CPM scheduled the project's t a s k s , specifying both commencement and completion dates, and arranged the s e q u e n c e of each task so that, as necessary, it would occur before, during, or a ft e r other tasks. "Noncritical" tasks were those that, if delayed or not timely c o m p l e t e d , would not delay the project's ultimate completion date; "critical" 2

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No. 09-50770 t a s k s were those whose delayed or untimely completion would delay the project. The CPM was updated and re-issued by Flintco monthly as tasks were c o m p le t e d or not completed; a particular task's status could shift between n o n c r it ic a l and critical. T h e bid documents that predated the subcontract's execution contained a b a s e lin e schedule outlining the subtasks and the project completion date. This w a s re-issued on February 22, 2007, with new interim dates and a project c o m p le t io n date of October 14, 2008. This completion date never changed during t h e course of the nine interim CPM updates that CFS received between the s u b c o n t r a c t 's execution and its termination by Flintco on October 9, 2007. Completion dates for some tasks did change, however, including, for example, C F S 's slab work, which was eventually scheduled to be completed by October 2 5 th . After construction commenced, there were multiple alterations to the CPM s c h e d u le issued by Flintco, which pushed back CFS's schedule several times. Accordingly, CFS could not and did not commence or complete its work either as o r ig in a lly scheduled or by the updated schedule. B e c a u s e of delays attendant on the installation of concrete by CFS, Flintco b e c a m e concerned about meeting the project's ultimate deadline and being able t o proceed with other components of the project, such as structural steel in s t a lla t io n . Attributing the delay in concrete floor installation to what Flintco c o n s id e r e d to be CFS's dilatory performance, Flintco's project manager sent CFS a "cure letter" on September 28, 2007, which directed that CFS "commence" o p e r a t io n s on the "conference center slab on grade" task. The cure letter stated t h a t the slab work was scheduled to be completed by October 8. Immediately a ft e r sending the letter, the project manager left on vacation. As soon as it r e c e iv e d the letter, CFS "commenced" the slab work by laying down vapor b a r r ie r s , applying pest control, grading the site, and the like. It also scheduled c o n c r e t e pours for October 10 and 11. Importantly, CFS put on evidence at trial 3

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No. 09-50770 t h a t the cure letter's October 8 completion date came from an older CPM update a n d that the CPM date in effect on September 28 was actually October 25. The project manager returned from vacation on October 8 and was a u t h o r iz e d by Flintco to terminate CFS's subcontract on October 9. He did so by le t t e r , stating that, because "no significant carton form operation has taken p la c e " Flintco deemed CFS to have refused to commence work under the su b con tra ct. A t the jury charge conference before commencement of the jury trial on the p a r tie s ' opposing breach of contract claims, the opposing parties' lawyers d is a g r e e d on the appropriate structure of the jury charge. Flintco wanted the c o u r t to use a so-called Mustang Pipeline1 charge ("Mustang Charge") which w o u ld ask disjunctively (1) whether either party was in breach, and (2), if so, w h ic h breach occurred first. Flintco also objected to the fact that the court's p r o p o s e d jury charge would ask if CFS was in breach at the time of the Flintco c u r e letter, September 28, rather than at the time of the subcontract's t e r m in a t io n , October 9. The district court denied these objections and submitted the jury charge w it h o u t Flintco's proposed changes. The court also held as a matter of law that t h e CPM in effect on September 28 was the "master project schedule" for p u r p o s e s of CFS's putative breach, ruling that this date was the only reasonable c a n d id a t e . Flintco argued that the February baseline schedule should be the m a s t e r schedule, but the court discounted this, reasoning that heavy rain delays in the spring, which in turn had delayed the beginning of construction, as well a s the fact that the CPM updates effected multiple changes in interim task c o m p le t io n dates, rendered the February schedule untenable. The submitted jury charge read:

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Mustang Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d 195 (Tex. 2004).

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No. 09-50770 Q u e s t i o n 1: Do you find that CFS was in compliance with the master p r o je c t schedule on September 28? If "No"proceed to question 2; if yes, p r o c e e d to question 3. Q u e s t io n 2: Do you find that CFS satisfied the notice in the "cure letter" o f September 28 by commencing operations? If yes, proceed to question 3; if "no" proceed to question 4. Q u e s t io n 3: What amount of money would compensate CFS for Flintco's te r m in a tio n ? Q u e s t io n 4: What amount of money would compensate Flintco for CFS's breach ? The jury found that CFS was not in breach of the subcontract on S e p t e m b e r 28 and awarded it damages for Flintco's unjustified termination. Flintco then moved for a JMOL, asserting that CFS's actions were a material b r e a c h of contract because of the "time is of the essence" clause. The district c o u r t denied this motion. O n appeal, Flintco contends that the district court abused its discretion by (1 ) not giving a Mustang Charge in the disjunctive, and (2) not instructing the ju r y to determine CFS's putative breach as of the day that Flintco terminated t h e subcontract with CFS. Flintco also claims that the district court erred in d e n y in g its JMOL motion because CFS's actions constituted a material breach o f the subcontract by virtue of its "time is of the essence" clause. I I . ANALYSIS A . Standard of Review W e review challenges to jury instructions for abuse of discretion.2 "A ju d g e m e n t will be reversed only if the charge as a whole creates substantial and in e r a d ic a b le doubt whether the jury has been properly guided in its d e lib e r a t io n s ."3 "In diversity actions, a federal court's jury instructions must a c c u r a t e ly describe the applicable state substantive law, but the district court

2

Huss v. Gayden, 571 F.3d 442, 460 (5th Cir. 2009). United States v. Monroe, 178 F.3d 304, 307 (5th Cir. 1999).

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No. 09-50770 h a s wide discretion in formulating the charge."4 Even if we find error, "we will n o t reverse if we determine, based on the entire record, that the challenged in s t r u c t io n could not have affected the outcome of the case." 5 W e review a district court's grant or denial of a JMOL de novo, applying t h e same legal standard as the district court.6 "A motion for judgment as a m a t t e r of law . . . in an action tried before a jury is a challenge to the legal s u ffic ie n c y of the evidence supporting the jury's verdict."7 JMOL is proper when, a ft e r a party as been heard by a jury, there is no legally sufficient evidentiary b a s is for a reasonable jury to have found for that party with respect to that is s u e .8 B . Discussion T h e facts here closely track those in Mustang Pipeline . There, the pipeline o w n e r Mustang Pipeline contracted with Driver to build a pipeline. The contract d ic t a t e d that time was of the essence in the completion of the work by Driver.9 D r iv e r 's work was delayed, and Mustang repeatedly asked for assurances that t h e work would be timely completed. Convinced by Driver's pattern of delay that t h e project would not be completed on time, Mustang ultimately terminated the D r iv e r contract forty days before the targeted completion date and hired another p ip e lin e contractor.

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Baker v. Canadian Nat'l/Ill. Cent. R.R., 536 F.3d 357, 363-64 (5th Cir.2008). Wright v. Ford Motor Co., 508 F.3d 263, 268 (5th Cir.2007).

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Flowers v. Southern Regional Physician Serv's, Inc., 247 F.3d 229, 235 (5th Cir. 2001) (citation omitted).
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Ford v. Cimarron Ins. Co., 230 F.3d 828, 830 (5th Cir. 2000). Id.

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The several opinions that resulted are silent as to whether there was also a "cure" provision, but if such a provision existed, it played no role in the determinations of either the trial court or the appellate courts.

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No. 09-50770 M u s t a n g then sued Driver for breach of contract, and Driver c o u n t e r c la im e d for wrongful termination of the contract. The case was tried to a jury, and the trial court submitted the following four-question charge: 1 ) Did Driver Pipeline Company fail to comply with the contract it h a d with Mustang Pipeline Company? 2 ) Was Mustang Pipeline Company justified or not justified in t e r m in a t in g Driver Pipeline Company? 3 ) What sum of money, if any, if now paid in cash would fairly and re a son a b ly compensate Mustang Pipeline Company for its damages, if any, that resulted from such failure to comply? 4 ) What sum of money would fairly and reasonably compensate D r iv e r for its damages, if any, that resulted from Mustang's failure t o comply with the Contract? 1 0 A lt h o u g h the jury found that Driver had breached the contract, it also fo u n d that Mustang had wrongfully terminated the contract. Mustang moved t o set aside the jury's verdict as to Mustang's conduct, arguing that, if Driver m a t e r ia lly breached the contract first, Driver could not then seek damages for w r o n g fu l termination. The trial court denied Mustang's motion, and it appealed. The intermediate appellate court affirmed the trial court, holding that the jury v e r d ic t as to Mustang could only be set aside if Driver's breach was material, a n d that materiality was a question for the jury. The Texas Supreme Court r e v e r s e d , holding that, based on the evidence of Driver's delay, the emphasis t h a t Mustang had placed on (1) timeliness, (2) the aggressive schedule which h a d never varied in target completions dates, and (3) the "time is of the essence" c la u s e , Driver's breach was material as a matter of law.1 1 Accordingly, the Texas S u p r e m e Court set aside the verdict against Mustang.1 2

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Id. at 197. Id. at 200. Id.

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No. 09-50770 T h e court then noted in dicta that the jury instruction's defects could have b e e n avoided by a charge worded in the disjunctive, reasoning: T h e s e problems could have been avoided had the trial court submitted the b r e a c h of contract question disjunctively ("Did Driver Pipeline Company o r Mustang Pipeline Company fail to comply with the parties' contract?") a c c o m p a n ie d by an appropriate instruction directing the jury to decide w h o committed the first material breach. .... I n the standard contract dispute, one party cancels the contract or refuses t o pay due to alleged breaches by the other; in such circumstances, jurors w ill often find both parties failed to comply with the contract (as the jury d id here) unless instructed that they must decide who committed the first m a t e r ia l breach.13 F lin t c o insists that this case is indistinguishable from Mustang Pipeline a n d that the district court abused its discretion in refusing to give the d is ju n c t iv e jury instruction mentioned in dicta by the Texas Supreme Court. Specifically, Flintco asserts that "when a party contends that its termination of a contract is excused because the other committed a material breach first, the is s u e should be submitted . . . in the disjunctive. That is, the question should a s k whether either party breached, and if both did, which party breached first." Flintco also urges that the jury instructions submitted by the district court were in error because they presume that, if the jury should find that CFS was either n o t in breach on September 28 or was in breach and failed to cure that breach in the cure period, Flintco's termination was automatically wrongful. Flintco a s s e r t s that a Mustang Charge would have obviated this problem, i.e., when both p a r tie s are in putative breach, by allowing the jury to determine which party b r e a c h e d first. According to Flintco, this would effectuate the principle that a c o n t r a c t is not enforceable against a party in putative breach when there is an a n t e c e d e n t material breach by the other party.

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Id. (emphasis added).

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No. 09-50770 C o n t r a r y to Flintco's contention that the sequence of the breaches is the e s s e n t ia l issue, the key question that the Texas Supreme Court's instruction in M u s ta n g Pipeline attempted to resolve is materiality. If the jury finds that both p a r tie s breached the contract under facts akin to those in Mustang Pipeline, i.e., a second breach that occurs as a result of an earlier breach, the sequence of the b r e a c h ­ who breached first ­ is obvious. In Mustang Pipeline, Driver had to b r e a c h first because that was the antecedent event to the subsequent breach by M u s t a n g , after which no further business was done between the parties. Because Driver was alleged to have breached first and Mustang second, the d e t e r m in a t iv e question was whether Driver's initial breach was material. This is borne out by the Mustang Pipeline court's analysis, which was concerned solely w i t h whether Driver's delay constituted a material breach as a matter of law, a n d thus excused Mustang's subsequent breach.14 T h e district court's jury instructions here adequately capture the question o f materiality despite their not being worded in the disjunctive. The charge c o n t a in s the implicit assumption that the breaches, if they occurred, were m a t e r i a l.1 5 That is, the jury questions require that, (1) if the jury finds that C F S breached the subcontract by failing to comply with the CPM , Flintco must

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Mustang Pipeline, 134 S.W.3d at 200.

Under the jury instructions, this is true for both parties. If the jury had found that CFS was not in compliance on September 28th and failed to cure, its breach was deemed, under the questions, to be material because the jury was then to assess damages. Importantly, if the jury had found CFS to be in breach, it was not to consider whether Flintco breached the subcontract, presumably because, as CFS's delay was material, Flintco's termination could not be wrongful. This assumption of materiality by the jury instructions is supported by the fact that the questions specifically refer to discrete occurrences as potential breaches. Contrast the specificity of these instructions with those in Mustang Pipeline: "Did Driver Company fail to comply with the contract it had with Mustang Pipeline?". 134 S.W.3d at 197. In fact, the very generality of the Mustang Pipeline instructions is what gives rise to the need for the Texas court's fix because, under the original instructions, it is impossible to know which specific act of Driver's constituted the breach and, therefore, whether it was material.

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No. 09-50770 b e awarded damages, but (2) if CFS was in compliance, then Flintco's t e r m in a t io n was wrongful and the jury must determine the quantity of damages in c u r r e d by CFS. Even though they do not explicitly require the jury to decide m ate r ia lit y ,1 6 these instructions will nevertheless establish which breach, if any, is material. And, because of the "cure" provision, CFS could only be in breach u n d e r the instant facts if it were first notified of a putative breach and afforded a n opportunity to cure. There is no question that Flintco terminated the

s u b c o n t r a c t and that it purported to do so because of CFS's putative failure to c u r e the delay outlined in the "cure letter." It necessarily follows that if CFS w a s not actually in breach vel non, then the termination for that breach was w r o n g fu l. U n d e r the facts presented at trial, there were only two potential breaches a t issue: (1) CFS's tardiness as of September 28, and (2) Flintco's contract t e r m in a t io n for delay. The district court's jury instructions put the question of m a t e r ia lit y of both breaches to the jury and did so in a way that prevented any p o s s ib le conflicting jury findings. The charge was proper, given the fact that C F S 's "breach" triggered a "cure letter" under the subcontract, and Flintco's b r e a c h terminated the entire subcontract before completion. The jury

in s t r u c t io n s prevented an inconsistent jury verdict, such as the one that o c c u r r e d in Mustang Pipeline. Accordingly, Flintco has failed to show

" s u b s t a n t ia l and ineradicable doubt whether the jury has been properly guided in its deliberations."

Put another way, by structuring the instruction in the way that it did, the district court appears to have held that, as a matter of law, each breach, if proved, was material. This is amply supported by the evidence. First, it is clear that an unwarranted termination of the subcontract is a material breach. Termination is only unwarranted if the reason for the breach ­ here CFS's delay ­ was not material. Failure to satisfy the requirements of a valid cure letter is also, under the terms of the subcontract, a material breach. Clearly then, both putative breaches at issue were potentially material.

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No. 09-50770 F li n t c o 's other issues with the jury instructions are that (1) the verdict fo r m asked the jury whether CFS was in compliance on the date of the cure le t t e r rather than the date of Flintco's termination of the subcontract, and (2) the ju r y charge refers to "first floor slab," the cure letter refers to commencement of t h e "slab on grade operation," and the termination letter refers to "slab on carton fo r m operation," potentially confusing the jury. Flintco has failed to show an abuse of discretion under either issue. First, t h e termination letter refers to CFS's delay and failure to cure as the reasons for t e r m in a t in g the subcontract, and it references the Paragraph of the subcontract, t h a t outlines the materiality of delay, the right to cure, and the termination c o n s e q u e n c e s for failing to cure. The right to cure for delay means that Flintco h a d to send the cure letter and give CFS 72 hours to commence curing the delay. Necessarily, CFS could not be in breach until and unless it were never given s u c h notice and right to cure. Flintco argues in response that CFS's conduct following receipt of the cure le t t e r but before Flintco terminated the subcontract could have supported F lin t c o 's claim of breach. The flaw in this argument is that Flintco sent only one c u r e letter. It certainly may be (and the jury instructions capture this fact) that if CFS failed to comply with the cure letter in this interim period, it was in b r e a c h . Under the terms of the cure provision in the subcontract, however, CFS's c o n d u c t during the interim period can only fall into one of four categorical d e s c r ip t io n s : (1) continuing compliance with the subcontract, notwithstanding t h e cure letter's complaints; (2) resulting compliance with the subcontract by c o r r e c t in g the earlier breaches outlined in the cure letter; (3) continuing nonc o m p lia n c e with the subcontract through failure to comply with the cure letter; o r (4), irrespective of any earlier breach, committing an independent breach of t h e subcontract.

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No. 09-50770 T h e jury instructions capture only the first three of these possibilities by c h a r g in g the jury to consider CFS's alleged breach as of September 28. This is a b s o lu t e ly the correct date to use, however, because CFS could only have been in breach for delay after being notified and afforded the opportunity to cure. If C F S had in fact committed a new breach in the interim period after the cure le t t e r , i.e., conduct other than that complained of in the cure letter, Flintco w o u ld have been obliged to issue a new cure letter and give CFS another 72 h o u r s to cure before lawfully terminating the contract. Otherwise, any conduct o c c u r r in g in the interim period would not be actionable or be related to the in it ia l cure letter. As it is undisputed that Flintco sent only the September 28 c u r e letter, the district court's decision to charge the jury with determining C F S 's compliance as of that date was not only not an abuse of discretion, but the o n ly licit choice. If instead of the cure letter's date, the court had specified the s u b c o n t r a c t 's termination date as the material date of breach, the jury could h a v e found CFS in breach for conduct unrelated to the September 28th cure le t t e r . Such a finding would have been wrongful, however, because the evidence s h o w s that no subsequent conduct was ever afforded the cure period as required b y the subcontract. By setting September 28 as the date of putative breach, the d is t r ic t court prevented this erroneous outcome. Accordingly, the court's date o f choice does not give rise to substantial doubt that the jury was misguided in it s deliberations. F lin t c o also claims that the term "first floor slab" may have misled the jury t o conclude that CFS's initial steps to lay down the concrete slab constituted " c o m m e n c e m e n t " under the cure letter when, in fact, the cure and termination le t t e r 's terminology actually contemplated commencement of the "final stages" o f the slab work. Flintco simply states that the term "first floor slab" is

" n a r r o w e r ," and that the "earlier steps" CFS undertook after the cure letter were

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No. 09-50770 n o t what Flintco complained of and "should not have been considered steps t o w a r d compliance." Beyond these bald assertions, Flintco does not otherwise support its c o n t e n t io n that the term "first floor slab" misled the jury to view non-compliant c o n d u c t erroneously as compliant. The cure letter lucidly states that CFS has 7 2 hours after receipt to "commence" its concrete work, and the evidence a d d u c e d at trial supports a jury finding that CFS did in fact commence this w ork . Even assuming that the term is inaccurate, Flintco's self-serving

a s s e r t io n s as to the definitions of these terms fail to give rise to "substantial and in e r a d ic a b le doubt" that the jury was misled or, assuming error, that it affected t h e outcome of the trial. Finally, Flintco argues that it is entitled to a JMOL because the "time is o f the essence" clause in the subcontract renders CFS's myriad delays material b rea ch e s . As discussed above, however, the Texas Supreme Court held in

M u s ta n g Pipeline held that, under the discrete facts of that case, Driver's delay w a s a material breach of the contract as a matter of law.1 7 That court did not h o ld that, in every case, a "time is of the essence" provision ipso facto makes any d e la y a material breach. Under the JMOL standard, Flintco had to show that t h e "time is of the essence" provision meant that, in light of the evidence a d d u c e d , "there is no legally sufficient evidentiary basis for a reasonable jury to h a v e found" that CFS was in compliance on September 28. First, unlike in M u s ta n g Pipeline, CFS had a right to cure any breach for delay. Under the t e r m s of the subcontract, CFS would only be in material breach if it were notified o f that fact and afforded an opportunity to cure. As none of the delays prior to t h e September 28 cure letter prompted a cure letter, CFS could not have been

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137 S.W.3d at 200.

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No. 09-50770 in material breach for any conduct preceding the conduct that prompted the cure le t t e r of September 28. As for its conduct that did prompt the September 28 letter, CFS points out t h a t evidence adduced at trial proved that CFS's work on the slab operation was n o t delaying the overall project. For example, the CPM in effect on September 2 8 confirms that the slab was to be completed on October 25, and that it was a " n o n c r it ic a l" task. Furthermore, contrary to Flintco's assertion that the

s t r u c t u r a l steel installation was delayed by CFS's conduct, CFS has shown that F lin t c o 's project superintendent testified that the slab work did not need to be c o m p le t e d for steel installation to commence. I n sum, Flintco has failed to meet the high standard of showing that there is no "legally sufficient evidentiary basis" for the jury's verdict. I V . CONCLUSION F o r the foregoing reasons, the district court is, in all respects, A F F IR M E D .

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