Orion Marine Contractors, Inc. v. City of Seward
Filing
45
ORDER: re Cross-Motions for Summary Judgment 31 and 22 . Signed by Judge Sharon L. Gleason on 08/03/2016. (AEM, CHAMBERS STAFF)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ALASKA
ORION MARINE CONTRACTORS,
INC.,
Plaintiff,
v.
CITY OF SEWARD,
Defendant.
Case No. 3:15-cv-000151-SLG
ORDER RE CROSS-MOTIONS FOR SUMMARY JUDGMENT
Before the Court are Orion Marine Contractors, Inc.’s Motion for Summary
Judgment at Docket 22, and the City of Seward’s Cross-Motion for Summary Judgment
at Docket 31. Both motions have been fully briefed. 1 Oral argument was held on the
motions on June 21, 2016.
FACTS & PROCEEDINGS
In July 2014, the City of Seward (the City) issued a public notice inviting bids on
its Breakwater Rock Production project. Rock for the breakwater was to be taken from
the City’s quarry, but conditions in the quarry required that the contractor extract rock from
previously untested areas. 2
1
See Docket 25 (City Opp’n); Docket 33 (Orion Reply); Docket 35 (Orion Opp’n); Docket 38 (City
Reply).
2
Docket 23-1 (Contract Documents) at 4; Docket 25-3 (Invitation to Bid).
In recognition of the fact that the untested areas of the quarry might produce
insufficient rock for the project, the City divided the contract into four phases: a “Base
Bid” and three “Additive Amounts.” The Base Bid phase required only “opening the quarry
and production of 10,000 pounds of primary armor [rock].” 3 The three “Additive Amounts”
covered the production and stockpiling of the rock to be used for the breakwater. 4 The
contract also included an addendum, added after the bid forms were sent out, that allowed
a contractor to request termination of the contract after completion of the Base Bid
phase. 5 Titled “Addendum No. 3,” this document provided in part that
[a] request for termination of the Contract may [be] initiated by the
Contractor after the Base Bid is completed. The quarry development plan
will initially establish the blasting plan, etc. and this will be reviewed by the
City’s Consultant. If the plan is not achievable during the first phase, the
Contractor may request termination of the contract. This will be subject to
additional review by the City. 6
Orion Marine Contractors, Inc. (Orion) was the low bidder on the project with a total
bid of $6,150,900, which included $1,520,000 for the Base Bid phase. 7 A lump-sum bid
item of $873,000 for “Mobilization and Demobilization” was included in Orion’s Base Bid
amount. The City’s bid schedule had included “Mobilization and Demobilization” as a bid
item in the Base Bid phase only; the “Mobilization and Demobilization” item did not appear
3
Docket 23-1 (Contract Documents) at 4; Docket 25-3 (Invitation to Bid).
4
Docket 23-1 (Contract Documents) at 103, 105, 115–17.
5
Docket 23-1 (Addendum No. 3) at 111; Docket 25-5 (Addendum No. 3).
6
Docket 23-1 (Addendum No. 3) at 111; Docket 25-5 (Addendum No. 3); see also Docket 23-1
(Contract Documents) at 71–73 (Section 14.4, Termination for Convenience).
7
Docket 23 (Erickson Decl.) at ¶ 6; Docket 23-1 (Bid Schedule) at 113–117; Docket 25-6 (Orion’s
Bid) at 1–5.
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in the bid item schedules for any of the three additive phases. 8 Orion signed the contract
with the City agreeing to receive a total of $6,150,900 in exchange for its completion of
all four phases of the project. 9
Part 4 of Section 01505 of the contract addressed the payment for the mobilization
and demobilization (mob/demob) bid item. That provision, which is quoted in its entirety
at page seven of this order, allowed Orion to recover its mob/demob bid item
incrementally, based on the amount of work performed. It provided that when Orion had
completed 4% of the original contract amount of $6,150,900, it was entitled to a partial
payment, and when Orion had completed 8% of the original contract amount, it was
entitled to another partial payment. 10 Orion began work on the Base Bid of the contract
in the fall of 2014. Orion presented submittals to the City for mob/demob payments at
both the 4% mark and just short of the 8% mark. 11 The City paid Orion a total of $492,072
for the two submittals, which amounted to roughly 56% of the $873,000 Orion had bid for
mob/demob.
On November 17, 2014, Orion completed the Base Bid phase. However, Orion
had by then determined that due to a “lower than expected” rock yield, it could not feasibly
complete the three additive phases of the contract at the contract price. 12 Orion first
8
Docket 23-1 (Bid Schedule) at 113–117; Docket 25-6 (Orion’s Bid) at 1–5.
9
Docket 31-9 (Contract) at 1.
10
Docket 23-1 (Section 01505, Part 4) at 109.
11
Docket 25-11 (Pay Application No. 2) at 2.
12
Docket 23 (Erickson Decl.) at ¶ 7.
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proposed a price modification to the contract, which the City rejected.
Orion then
requested “termination for convenience” pursuant to Addendum No. 3 and Section 14.4.2
of the contract—the termination for convenience provision—on November 25, 2014. 13 On
December 2, 2014, the City accepted Orion’s request for termination. 14
During the ensuing closeout process, the City informed Orion that “[t]he recently
approved payment for mob/demob of $492,072.00 from Pay Request 2 will be the full
amount for this category since full mobilization was not performed to support the contract
Additive production requirements. The final payment request will not include any further
amounts in this item.” 15
On February 17, 2015, Orion submitted a claim to the City for $380,928—the
difference between Orion’s bid amount for mob/demob ($873,000) and the amount it had
been paid for that item ($492,072). 16 Orion’s claim explained that its request for the full
mob/demob amount was being made under Part 4 of Section 01505, the section of the
contract specifically covering payment for the mob/demob bid item. 17 On March 2, 2015,
the Project Manager denied Orion’s request for the additional mob/demob payment. 18
13
Docket 23 (Erickson Decl.) at ¶ 7; Docket 23-1 (Erickson Letter) at 121; Docket 23-1 (Contract
Documents, Section 14.4.2) at 72 (“When the CITY orders termination of the Work effective on a
certain date, all Work in place as of that date will be paid for in accordance with Article 13 of the
Contract.”).
14
Docket 23 (Erickson Decl.) at ¶ 10.
15
Docket 25-12 (Wise Letter) at 1. At the closeout of the project, Orion had incurred $278,974 in
mob/demob costs. Docket 25-7 (Leick Depo.) at 3.
16
Docket 25-13 (Erickson Letter) at 1.
17
Docket 25-13 (Erickson Letter) at 4. The provision is quoted infra, at page 7.
18
Docket 25-14 (Wise Letter) at 2.
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Orion appealed to the City Manager. On May 1, 2015, the City Manager affirmed the
Project Manager’s decision to reject Orion’s request for additional payment for
mob/demob. 19 On August 26, 2015, Orion filed this case against the City for breach of
contract, seeking to recover the $380,928 that it asserts it is due under the contract. 20
DISCUSSION
I.
Jurisdiction
The Court has subject-matter jurisdiction over this action pursuant to 28 U.S.C. §
1332(a) because there is diversity between the parties and the amount in controversy
exceeds $75,000.
II.
Summary Judgment Standard
Federal Rule of Civil Procedure 56(a) directs a court to “grant summary judgment
if the movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” When considering a motion for
summary judgment, a court must draw “all justifiable inferences” in the non-moving party’s
favor. 21 In this case, the parties do not dispute the underlying facts, and both assert that
summary judgment is appropriate. 22 The question is which party is entitled to judgment
as a matter of law based on those agreed-upon facts.
19
Docket 1 (Complaint) at ¶¶ 15–16; see Docket 4 (Answer) at ¶¶15–16.
20
Docket 1 (Complaint) at ¶¶ 18–21.
21
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986) (citing Adickes v. S.H. Kress & Co.,
398 U.S. 144, 158–59 (1970)).
22
Docket 22 (Orion Mot.); Docket 31 (City Mot.); Docket 44 (Minute Entry).
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III.
The Contract Dispute
Because the Court is sitting in diversity, it applies the substantive law of the forum
state, Alaska. 23 The Alaska Supreme Court interprets contracts so as to give effect to the
parties’ reasonable expectations. 24 “Those expectations are discerned from the language
of the disputed provisions, other provisions, and relevant extrinsic evidence, with
guidance from case law interpreting similar provisions.” 25 A court will depart from the
plain meaning of the contract only if the contract is ambiguous. A contract is ambiguous
only if, taken as a whole, it is “reasonably subject to differing interpretations.”26 “The mere
fact that the parties disagree about the proper interpretation of the contract does not mean
that the contract is ambiguous.” 27
Both parties assert that the contract is unambiguous. 28 Orion asserts that the
contract language unambiguously requires the City to pay the full mob/demob amount
when the contract is terminated after the Base Bid has been completed, and hence it is
due the $380,928 under the contract. The City assets that the same contract language
unambiguously requires completion of the entire contract before it is obligated to pay the
23
See Erie Railroad v. Tompkins, 304 U.S. 64 (1938).
24
Lingley v. Alaska Airlines, Inc., No. S-15529, __ P.3d __, 2016 WL 2812936, at *3 (Alaska May
13, 2016); Williams v. Crawford, 982 P.2d 250, 253 (Alaska 1999).
25
Williams, 982 P.2d at 253; see also Nautilus Marine Enters., Inc. v. Exxon Mobil Corp., 305
P.3d 309, 316 (Alaska 2013).
26
Tesoro Alaska Co. v. Union Oil Co. of Ca., 305 P.3d 329, 333 (Alaska 2013).
27
Nelson v. Progressive Cas. Ins. Co., 162 P.3d 1228, 1234 (Alaska 2007).
28
Docket 22 (Orion Mot.) at 8; Docket 25 (City Opp’n/Mot.) at 1–2, 15–16.
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full amount set out in the bid for mob/demob, and hence it has not breached its contract
with Orion and does not owe any additional amounts. 29
The relevant portion of the contract, Part 4 of Section 01505, provides as follows:
A. When 4% of the original contract amount from other bid items is earned, 40% of
the amount bid for mobilization and demobilization, or 4% of the original contract
amount, whichever is less[,] will be paid.
B. When you earn a total of 8% of the original contract amount from other bid items,
an additional 40% of the amount bid for mobilization and demobilization, or an
additional 4% of the original contract amount, whichever is less, will be paid.
C. The remaining balance of the amount bid for Mobilization and Demobilization will
be paid after all submittals under the Contract are received and approved. 30
The term “Contract,” as used in subpart C of this provision, is defined elsewhere in the
contract as “[t]he written agreement between the CITY and the CONTRACTOR setting
forth the obligations of the parties and covering the Work to be performed, all as required
by the Contract[] Documents.” 31 The contract defines “Work” as “the act of, and the result
of, performing services, furnishing labor, furnishing and incorporating materials and
equipment into the Project and performing other duties and obligations, all as required by
the Contract Documents. Such Work, however incremental, will culminate in the entire
completed Project, or the various separately identifiable parts thereof.” 32 And the term
“Contract Documents” is defined as “[t]he Contract form, Addenda, the bidding
29
Docket 22 (Orion Mot.) at 8–9; Docket 25 (City Opp’n/Mot.) at 15–22.
30
Docket 25-4 (Contract Documents) at 6 (emphasis added).
31
Docket 23-1 (Contract Documents) at 34. In this definition, “Contractor Documents” is
capitalized as though it is a defined term, but only “Contract Documents” is included in the
definition section. The Court concludes that “Contractor” was a typo and that the definition meant
to refer to the defined term “Contract Documents.”
32
Docket 23-1 (Contract Documents) at 36.
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requirements and CONTRACTOR’S bid (including all appropriate bid tender forms), the
bonds, the Conditions of the Contract and all other Contract requirements, the
Specifications, and the Drawings furnished by the CITY to the CONTRACTOR, together
with all Change Orders and documents approved by the Contracting Officer for inclusion,
modifications and supplements issued on or after the Effective Date of the Contract.”33
A second contract provision, Section 14.4.2, is also relevant. That provision
specifies certain costs that will be paid when the contract is terminated for convenience,
in that it provides that the “part of the job start-up and phase-out costs not amortized by
the amount of Work accomplished shall be paid by the CITY.” 34 Here, the parties appear
to agree that mob/demob is amortized such that it would not be payable under Section
14.4.2 upon termination of the contract for convenience. 35 Certainly a fair reading of the
three sections of Part 4 of Section 01505 would supports conclusion. 36 And although
Orion has not specifically stated as much, the fact that it did not move for the balance of
the mob/demob bid item under Section 14.4.2 supports a conclusion that it did not
maintain that mob/demob was recoverable under that provision. Thus, the Court finds
that under the contract, the mob/demob bid item is payable only under the specific
mob/demob provision set forth at Part 4 of Section 01505.
33
Docket 23-1 (Contract Documents) at 34.
34
Docket 23-1 (Contract Documents) at 72.
35
Docket 25 (City Opp’n/Mot.) at 8; Docket 35 (Orion Opp’n/Reply) at 11.
36
Black’s Law Dictionary defines Amortize as “[t]o extinguish (a debt) gradually.” BLACK’S LAW
DICTIONARY 93 (8th ed. 2004).
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At its core, the parties dispute whether the phrase “all submittals under the
Contract” in Part 4(C) of Section 01505 means submittals for the entire contract, made
up of all four stages, or whether it refers to submittals for only the Base Bid stage when
there has been a termination for convenience by the contractor. Orion asserts that once
it conveyed all submittals under the Base Bid stage and those submittals were accepted,
it was entitled to the full amount of its mob/demob bid item. Orion cites to the fact that
the mob/demob bid item was included in only the portion of the bid form addressing the
Base Bid phase. Orion asserts that its analysis is reasonable because it could not
terminate the contract before completing the Base Bid phase. 37 Once it had completed
the Base Bid phase and terminated the contract, Orion asserts that it was no longer
contractually obligated to perform any more of the contract, such that the closeout
submittals constituted “all submittals” required under the contract. 38 In the alternative,
Orion asserts that it was never obligated to perform anything other than the Base Bid
phase of the contract, and that the “subsequent additive phases were always contingent”
on the success of the Base Bid phase. 39
The City responds that “Contract” refers to all four phases of the contract, and not
only to the first phase of the contract. It asserts that under Orion’s theory, Orion could
perform only a small fraction of the work but collect the entire mob/demob amount so long
as the City paid any submittals presented to it, making the amortization provision
37
Docket 22 (Orion Mot.).
38
Docket 35 (Orion Opp’n/Reply) at 8–9.
39
Docket 35 (Orion Opp’n/Reply) at 3–5, 11.
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superfluous. The City asserts that it is clear from the contract and correspondence that
the “Contract” was for the Base Bid phase as well as the three additional phases; there
were not separate contracts for each different phase. And it asserts that the specifications
of the contract control over the bid forms, so the inclusion of the mob/demob in only the
Base Bid page of Orion’s bid is not persuasive. 40 Finally, the City notes that the contract
was for $6,150,900 of work, “meaning that all submittals [required under the Contract]
could not be in until those submittals reflected $6,150,900 in work.” 41
The Court is unpersuaded by Orion’s assertion that because it was able to
terminate the contract early for convenience, the three additive phases were
contingencies that were not part of the original contract. The use of a termination for
convenience provision results in the early termination of a contract, with only partial
performance, but without a remedy for breach. 42 It is a method by which a party may limit
its exposure for the risk of being unable to perform an entire contract, not a means by
which a party may create a new contract with a decreased scope. Here, the Court finds
that the plain language of the contract between the City and Orion makes it clear that the
parties contracted for the Base Bid and the three additive phases, not solely for the Base
Bid; these three phases were not contingent, separate contracts. Upon signing the
40
Docket 25 (City Opp’n/Mot.) at 16–19 (citing Docket 25-4 (General Conditions) at 2–3 (providing
order of control in case of discrepancies among documents)).
41
Docket 25 (City Opp’n/Mot.) at 20; Docket 23-1 (Bid Schedule) at 117.
42
See 5 BRUNER & O’CONNOR, CONSTRUCTION LAW § 18:45 (2016) (“The thrust of the termination
for convenience clause is to convert the contractor’s compensatory damages interest from
‘expectancy’ to ‘reliance’ damages.”); Winmar, Inc. v. Al Jazeera Int’l, 741 F.Supp.2d 165 (D.D.C.
2010) (noting that the purpose of a termination clause is to “permit a party receiving services to
unilaterally cancel its contractual obligations and still avoid committing a breach that would expose
it to damages”).
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contract, Orion became obligated to perform all of that contract, unless and until the entire
contract was completed or terminated for convenience. 43 This reading is strengthened
by Orion’s express reference to $6,150,900 as the full contract amount in its first
mob/demob invoice submitted under Section 01505 when it sought mob/demob payment
for completion of 4% of the project. 44
Thus, because a new contract did not arise when the original contract was
terminated for convenience, the term “Contract” as used in part C of the mob/demob
provision can only rationally be read to refer to that original contract. Likewise, it follows
that the term “all submittals” refers to the submittals required under these additive phases
as well. Several points further influence this decision. First, the Court finds that the
specific amortized payments provisions of A and B of Part 4 of Section 01505 would be
largely superfluous if at the end of the Base Bid phase the contractor was entitled to
receive the entire mob/demob payment. Sections A and B could still remain as a means
of spreading out the payment of the mob/demob over the course of the Base Bid phase,
but the last two payments would likely be in such rapid succession that the three separate
timing provisions serve little purpose. For example, in this case, Orion submitted its
invoice for the second 4% the day before it exercised its right to terminate. 45 Second,
43
The contract was structured so that the contract would terminate if the City approved Orion’s
request for early termination; Orion could not unilaterally terminate the contract on its own. See
Docket 23-1 (Section 14.4.2) at 72, 111 (“[T]he Contractor may request termination of the
contract. This will be subject to additional review by the City.”).
44
Docket 25-9 (Orion Invoice). The invoice for completion of 8% of the contract also appears to
be based on the full contract price.
45
Docket 25-11 (Pay Application No. 2); Docket 23 (Erickson Decl.) at ¶ 7.
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paying the contractor the entire mob/demob bid item upon termination of only the Base
Bid phase would appear to conflict with the termination for convenience provision itself.
For that provision explicitly states that upon termination, the contractor receives a variety
of payments for extra costs, but these payments specifically do not include the amortized
amounts under the mob/demob provision. 46
If a contractor could receive its entire
mob/demob bid item after termination for convenience under subpart 4(C), it would
conflict with the termination provision. In contrast, the City’s proposed reading of Part 4
of Section 01505 is consistent with the termination for convenience provision and it does
not require reading in extra verbiage, which Orion’s interpretation requires: “after all
submittals under the Contract[’s Base Bid phase] are received and approved.”
In Quality Asphalt Paving, Inc. v. State, Department of Transportation and Public
Facilities, the Alaska Supreme Court encountered a similar situation. 47 There, the state
retained Quality Asphalt Paving (QAP) for a road-paving project, but the project soon
encountered a roadblock, and the state terminated the contract. QAP then sought to
recover the entire mob/demob line item in the contract; the state refused to pay any more
than the actual mob/demob costs incurred, citing the limited work that QAP had performed
on the project. The Alaska Supreme Court held that the amount of mob/demob that the
parties had agreed to must be read in light of the fact that QAP had “covenant[ed] and
agree[ed] to furnish and deliver all the materials and to do and perform all the work.” 48
46
See Docket 23-1 (Section 14.4.2) at 72.
47
71 P.3d 865 (Alaska 2003).
48
Quality Asphalt Paving, 71 P.3d at 870 (emphasis in original).
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The court observed that QAP “did not deliver all the materials, and it did not perform all
the work,” and it was therefore reasonable to base the “award on costs incurred rather
than the ‘agreed price’ for complete performance.” 49
Orion argues that Quality Asphalt Paving is inapplicable because here the contract
contained a specific provision controlling the payment of the mob/demob bid item, while
the operative provision in Quality Asphalt Paving was only a general payment provision. 50
However, in Quality Asphalt Paving, QAP asserted, like Orion here, that its mob/demob
item was an “agreed price” that should be fully recoverable under the specific “agreed
price” term of the termination provision, but the Alaska Supreme Court upheld the use of
cost incurred because QAP had not reached the “complete performance” that the court
found necessary to trigger application of the “agreed price.” 51 Although the contract in
this case contains different language, the Court finds that Quality Asphalt Paving is
sufficiently analogous to have informed Orion’s reasonable expectations. And based on
Quality Asphalt Paving, the Court finds that Orion could not have had a reasonable
expectation that it would be paid its entire mob/demob bid item when it had completed
only one of the four phases of the contract.
The Court finds that the City has proposed the only reasonable interpretation of
the phrase “all submittals under the Contract” in Part 4(C) of Section 01505 given the
49
Id. The Court also notes that on a costs-incurred basis, Orion has already recovered
considerably more than its actual mob/demob expenses. And yet, as Orion correctly observed,
its base bid was the lowest of all the bidders, even including the entire mob/demob amount.
50
Docket 33 (Orion Reply/Opp’n) at 13–14.
51
Quality Asphalt Paving, 71 P.3d at 870.
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plain language of the parties’ contract, the circumstances of the formation of the contract,
and the surrounding contract provisions. Under that interpretation, the City does not owe
the entire mob/demob bid amount when only the Base Bid was completed. Accordingly,
the Court will grant summary judgment to the City.
CONCLUSION
For the foregoing reasons, IT IS ORDERED that Plaintiff Orion Marine Contractors,
Inc.’s Motion for Summary Judgment at Docket 22 is DENIED. The City of Seward’s
Cross-Motion for Summary Judgment at Docket 31 is GRANTED. The Clerk of Court is
directed to enter a final judgment accordingly. The trial date and all associated pre-trial
deadlines are VACATED.
DATED this 3rd day of August, 2016.
/s/ Sharon L. Gleason
UNITED STATES DISTRICT JUDGE
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