Durham Stabilization Incorporated v. SBBI Incorporated et al

Filing 41

ORDER denying 23 Motion for Partial Summary Judgment; denying 25 Motion for Summary Judgment. IT IS FURTHER ORDERED the parties shall each file a proposed elements/substantive jury instruction for this case within ten (10) days from the date this Order is filed. (See document for further details). Signed by Senior Judge James A Teilborg on 3/3/17. (LAD)

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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Durham Stabilization Incorporated, Plaintiff, 10 11 SBBI Incorporated, et al., 13 ORDER v. 12 No. CV-15-08166-PCT-JAT Defendants. 14 15 Pending before the Court are Plaintiff United States of America, for the use and 16 benefit of Durham Stabilization, Inc.’s Motion for Partial Summary Judgment on the First 17 and Second Claims for Relief, (“Plaintiff’s Motion,” Doc. 23), and Defendants SBBI, Inc. 18 and Hartford Fire Insurance Company’s Motion for Summary Judgment, (“Defendants’ 19 Motion,” Doc. 25). The Court now rules on both Motions. 20 I. BACKGROUND 1 21 This case arises out of the Three Forks Road Project (the “Project”) for the United 22 States government located in Apache County, Arizona. Defendant SBBI was the prime 23 24 25 26 27 28 1 Pursuant to the Court’s Order dated December 20, 2016, (Doc. 35), Defendants withdrew, edited, and resubmitted a sworn declaration by Deborah Fain, president and shareholder of SBBI. (Doc. 37). The substituted declaration clarified whether Ms. Fain had personal knowledge of the information contained therein. Plaintiff subsequently filed an objection to the substituted declaration—particularly, paragraph 16—arguing that deposition testimony by Ms. Fain contradicted paragraphs within the substituted declaration. (Doc. 38). The Court declines to rule on Plaintiff’s objection at this time (without prejudice to Plaintiff raising this objection at trial) because Defendants have cited to similar statements by other witnesses in the record. (See Docs. 30-1 at 31–33; 30-2 at 16–17). Plaintiff does not object to the personal knowledge of these witnesses. 1 contractor on the Project. SBBI subcontracted with Plaintiff Durham Stabilization. 2 In May 2014, SBBI entered into a construction contract with the Federal Highway 3 Administration (“FHA”) involving the Project. (Separate Statement of Facts in Support of 4 Plaintiff[’s] Motion for Partial Summary Judgment, Doc. 24 (“PSOF”) at ¶¶ 1, 2; 5 Defendants[’] Statement of Facts, Doc. 26 (“DSOF”) at ¶ 1). SBBI obtained a Miller Act 6 payment bond from Defendant Hartford Fire Insurance Company in relation to the 7 Project. (PSOF at ¶ 3; Defendants[’] Controverting Statement of Facts, Doc. 29 at 3–17 8 (“DCSOF”) at ¶ 3). 9 10 SBBI subcontracted with Plaintiff to provide materials in the estimated quantities as follows: 11 12 13 14 15 Item Description Est. Quantity (tons) Unit Price Total Amount Emulsified Asphalt Grade CSS-1 1,310.00 $700.00 $917,000.00 Emulsified $10.54 $704,072.00 Asphalt Treated 66,800.00 Aggregate Base Total 16 $1,621,072.00 17 (Doc. 1-1 at 11). Plaintiff also agreed to provide two types of bond allocation. 2 (Id.). The 18 subcontract was a unit price contract, which obligated SBBI to pay Plaintiff for all items 19 actually supplied by Plaintiff, even if those amounts were above the estimates provided in 20 the subcontract. (DSOF at ¶ 4; Plaintiff[‘s] Objection to Defendant[’]s Separate 21 Statement of Facts, Doc. 28 (“PODSOF”) at ¶ 4; Doc. 1-1 at 3). 22 SBBI grew concerned over “potential negative effects of rain on paving 23 conditions” and wanted to change the materials it had contracted with FHA to provide. 24 (Doc. 37 at 2; see also Doc. 24-2 at 18). As a result, after SBBI and Plaintiff entered into 25 the subcontract but before Plaintiff commenced work, SBBI and Plaintiff agreed to a “no- 26 27 28 2 The payments on the bond premium are not at issue in this litigation and, thus, will not be further referenced in this Order. (See PSOF at ¶ 30; DCSOF at ¶ 30). -2- 1 cost change order” but failed to define this term during their negotiations. 3 (Docs. 24-1 2 at 17; 24-2 at 14; 23 at 3; 29 at 6). SBBI and Plaintiff agreed to replace the emulsified 3 asphalt grade CSS-1 with two separate items: foamed asphalt grade oil (“FAGO”) and 4 cement type II/V. The two parties agreed to price the cement at $400 per ton, but it is 5 unclear whether the parties agreed to a specific unit price for the FAGO. (PSOF at ¶ 7; 6 DCSOF at ¶ 7). Maintaining a price of $10.54 per ton, SBBI and Plaintiff also agreed to 7 replace the emulsified asphalt treated aggregate base with foamed asphalt and cement 8 treated aggregate base. (PSOF at ¶ 7; DCSOF at ¶ 7). While the subcontract included a 9 procedure for the parties to follow in implementing a written change order, (Doc. 1-1 10 at 4), the parties ignored this provision and agreed to the change order orally, (Docs. 24-1 11 at 17; 24-2 at 14; DSOF at ¶ 18; PODSOF at ¶ 18). 12 In June 2014, SBBI submitted to FHA an informal, written proposal to change the 13 contract specifications, reflecting the change of materials described above. (DSOF at ¶ 9; 14 PODSOF at ¶ 9; Doc. 24-2 at 98–99). In the proposal, SBBI stated that the change 15 “would not affect the cost to [FHA],” and “SBBI will absorb the additional cost for this 16 method of installation since the current specification will be very difficult to meet this 17 time of year owing to anticipated monsoonal activity for the area.” (Doc. 24-2 at 98). 18 FHA did not return the “final Amendment of Solicitation/Modification of Contract,” 19 reflecting the aforementioned changes, to SBBI until December 2014. (DSOF at ¶ 31; 20 PODSOF at ¶ 31). 21 In August 2014, FHA acknowledged that it would approve the changes pending 22 receipt of “certified cost and pricing data” and notified SBBI that it could proceed with 23 the proposed contract change. (Doc. 24-2 at 56–57, 167–68; PSOF at ¶ 13; DCSOF 24 at ¶ 13). Shortly thereafter, SBBI communicated this approval to commence work to 25 Plaintiff. (PSOF at ¶ 13; DCSOF at ¶ 13; Doc. 24-2 at 59). Plaintiff then completed the 26 work pursuant to the changed specifications in a “timely and workmanlike manner.” 27 3 28 Despite SBBI and Plaintiff finalizing the change order after entering into the subcontract, the evidence suggests that the parties had planned to request the change order even before SBBI submitted the bid to FHA. (See Docs. 30-1 at 22; 24-1 at 46). -3- 1 (PSOF at ¶ 15; DCSOF at ¶ 15; Doc. 24-3 at 3). 2 Plaintiff submitted two invoices to SBBI for the project: one based on estimated 3 quantities and the second based on actual quantities delivered for the Project. (PSOF 4 at ¶ 16; DCSOF at ¶ 16). Plaintiff’s second invoice—based on actual quantities 5 delivered—included the following quantities and unit prices: 6 7 8 9 10 11 Item Description Quantity (tons) Unit Price Total Amount Foamed Asphalt Grade Oil 1,014.44 $700.00 $710,108.00 Cement Type II/V 605.35 $400.00 $242,140.00 $10.54 $647,454.91 Foamed Asphalt and Cement 61,428.36 Treated Aggregate Base Total 12 $1,599,702.91 13 (Doc. 24-2 at 184). Following receipt of the two invoices, SBBI paid Plaintiff a total of 14 $1,357,562.92, (Doc. 34 at 2), which represented payment for both the FAGO and 15 foamed asphalt and cement treated aggregate base. 4 (DCSOF at ¶¶ 17–19; PSOF 16 at ¶¶ 17–19). SBBI rejected “any charges for cement at $400 per ton” because FHA “had 17 not yet approved the change order[,] and it was therefore impossible to invoice the 18 cement component.” (DSOF at ¶ 17; Doc. 24-2 at 183). SBBI finally received FHA’s 19 approval of the change order in December 2014. (DSOF at ¶ 31; PODSOF at ¶ 31). 20 In January 2015, SBBI reconciled Plaintiff’s two invoices and FHA’s Amendment 21 of Solicitation/Modification of Contract. (DSOF at ¶ 32; PODSOF at ¶ 32). Specifically: 22 1) SBBI replaced FHA’s estimates under the contract with FHA’s “new specifications,” or estimates, for material quantities under the change order. 5 (DSOF at ¶ 33). Specifically, FHA estimated the Project would require: 23 24 25 26 27 28 4 Following this payment, Plaintiff had received all money it demanded under the subcontract except for $242,139.99, which is $0.01 less than the $242,140.00 Plaintiff invoiced for the cement. 5 The Court notes that these estimates first appeared in a letter from FHA to SBBI dated July 10, 2014. (See Doc. 24-4 at 139–40). SBBI does not state that these estimates were ever provided to Plaintiff until after Plaintiff completed all work pursuant to the subcontract. (See also Doc. 24-1 at 38–39). -4- (a) 66,800 tons of foamed asphalt and cement treated aggregate base; (b) 1,230 tons of FAGO; and (c) 835 tons of cement type II/V. (Doc. 24-4 at 139–40; DSOF at ¶ 33). 1 2 2) SBBI then used unit prices of $10.54 for the foamed asphalt and cement treated aggregate base and $400 for the cement type II/V to calculate a $473.98 FAGO unit price. In other words, setting the FAGO unit price at $473.98 ensured that the total contract price using the FHA estimates for the change order materials would be nearly identical to the original subcontract’s total price ($1,621,067.40 for the changed specifications and $1,621,072.00 for the original specifications—a $4.60 difference). (DSOF at ¶¶ 33–36). These calculations are depicted below: 3 4 5 6 7 8 Item Description FHA Est. Quantity (tons) Unit Price Total Amount 10 Foamed Asphalt Grade Oil 1,230.00 $473.98 $582,995.40 11 Cement Type II/V 835.00 $400.00 $334,000.00 12 Foamed Asphalt and Cement 66,800.00 $10.54 $704,072.00 13 Treated Aggregate Base 9 Total 14 15 $1,621,067.40 3) Finally, SBBI replaced FHA’s estimated quantities with the quantities Plaintiff actually supplied. (Id. at ¶ 35). Thus, SBBI calculated that it owed Plaintiff $1,370,419.18. (Doc. 34 at 2). 6 These calculations are reflected below: 16 17 18 Item Description Actual Quantity (tons) Unit Price Total Amount 19 Foamed Asphalt Grade Oil 1,014.44 $473.98 $480,824.27 20 Cement Type II/V 605.35 $400.00 $242,140.00 21 Foamed Asphalt and Cement 61,428.36 $10.54 $647,454.91 22 Treated Aggregate Base 23 Total $1,370,419.18 24 25 26 27 28 6 The Court notes that SBBI explains a slightly different method it used to calculate the amount owed to Plaintiff. (See DSOF at ¶ 35). The method described by the Court obtains the same result in fewer steps. Additionally, in an earlier Order, the Court highlighted multiple mathematical errors in SBBI’s calculations. (See Doc. 33). Correcting these errors resulted in SBBI admitting it owed Plaintiff an additional $12,856.26 under the subcontract, for a total of $1,370,419.18. (Doc. 34 at 2). SBBI has paid this amount to Plaintiff. (Id.). -5- 1 SBBI believes that the term “no-cost change order” implied the performance of these 2 reconciliation calculations. (DSOF at ¶ 19). Thus, after completing the reconciliation, 3 SBBI determined that it had paid Plaintiff in full. (Id. at ¶ 38). 4 On the other hand, Plaintiff believes that the term “no-cost change order” meant 5 that the total price of the original contract ($1,621,072.00) would be greater than or equal 6 to the total price of the subcontract reflecting the changed specifications and actual 7 quantities ($1,599,702.91). (Doc. 23 at 3). Plaintiff states this is a “no-cost change order” 8 because “the changed product would require [Plaintiff] to use less oil so the tonnage 9 quantity was going to be reduced and the difference was going to pay for the cement 10 component.” (Id.). 11 Plaintiff filed this suit against SBBI and SBBI’s surety, Hartford Fire Insurance 12 Company, under the Miller Act, which requires contractors doing construction contract 13 work for the United States government to obtain performance and payment bonds to 14 ensure the work is completed and that all persons supplying labor and material for the 15 project are paid. See 40 U.S.C. §§ 3131–34 (2012). Plaintiff also sued Defendants under 16 breach of contract and promissory estoppel theories. (See Doc. 1). 17 II. LEGAL STANDARD 18 Summary judgment is appropriate when “there is no genuine dispute as to any 19 material fact and the movant is entitled to judgment as a matter of law.” Fed. R. 20 Civ. P. 56(a). A party asserting that a fact cannot be or is genuinely disputed must 21 support that assertion by “citing to particular parts of materials in the record,” including 22 depositions, affidavits, interrogatory answers or other materials, or by “showing that 23 materials cited do not establish the absence or presence of a genuine dispute, or that an 24 adverse party cannot produce admissible evidence to support the fact.” Id. 56(c)(1). Thus, 25 summary judgment is mandated “against a party who fails to make a showing sufficient 26 to establish the existence of an element essential to that party’s case, and on which that 27 party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 28 (1986). -6- 1 Initially, the movant bears the burden of pointing out to the Court the basis for the 2 motion and the elements of the causes of action upon which the non-movant will be 3 unable to establish a genuine issue of material fact. Id. at 323. The burden then shifts to 4 the non-movant to establish the existence of material fact. Id. A material fact is any 5 factual issue that might affect the outcome of the case under the governing substantive 6 law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The non-movant “must 7 do more than simply show that there is some metaphysical doubt as to the material facts” 8 by “com[ing] forward with ‘specific facts showing that there is a genuine issue for trial.’” 9 Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586–87 (1986) (quoting 10 Fed. R. Civ. P. 56(e)). A dispute about a fact is “genuine” if the evidence is such that a 11 reasonable jury could return a verdict for the non-moving party. Liberty Lobby, Inc., 12 477 U.S. at 248. The non-movant’s bare assertions, standing alone, are insufficient to 13 create a material issue of fact and defeat a motion for summary judgment. Id. at 247–48. 14 However, in the summary judgment context, the Court construes all disputed facts in the 15 light most favorable to the non-moving party. Ellison v. Robertson, 357 F.3d 1072, 1075 16 (9th Cir. 2004). 17 At the summary judgment stage, the trial judge’s function is to determine whether 18 there is a genuine issue for trial. There is no issue for trial unless there is sufficient 19 evidence favoring the non-moving party for a jury to return a verdict for that party. 20 Liberty Lobby, Inc., 477 U.S. at 249–50. If the evidence is merely colorable or is not 21 significantly probative, the judge may grant summary judgment. Id. 22 III. ANALYSIS 23 Plaintiff seeks entry of partial summary judgment in favor of its breach of contract 24 and Miller Act claims. (Doc. 23). Defendants seek entry of summary judgment against 25 Plaintiff’s breach of contract, Miller Act, and promissory estoppel claims. (Doc. 25). 26 A. Breach of Contract and Miller Act Claims 27 The parties dispute the meaning of a “no-cost change order,” which was the term 28 used by both parties to describe their contract modification. Plaintiff asks that the Court -7- 1 grant summary judgment on its breach of contract and Miller Act claims and award 2 Plaintiff $229,283.73 7, plus interest costs and attorneys’ fees. (Docs. 23 at 12; 34 at 2). 3 Plaintiff argues that the parties never agreed to a uniform definition of “no-cost change 4 order,” but the parties’ oral modification of the contract did not change a pre-established 5 “agreement that the price of the [FAGO] would be $700.00 per ton.” (Doc. 32 at 6, 9– 6 10). In contrast, Defendants ask the Court to grant summary judgment in their favor on 7 Plaintiff’s breach of contract and Miller Act claims. (Doc. 25 at 5). Defendants argue that 8 Plaintiff agreed to the reduction in the unit price of FAGO by agreeing to SBBI’s 9 unambiguous definition of a “no-cost change order.” (See Docs. 25 at 5, 7–8, 10; 31 at 6– 10 7). Thus, Defendants argue, the parties formed a valid contract setting a $473.98 FAGO 11 unit price, and SBBI fulfilled its obligations under the contract by fully paying Plaintiff. 12 (Doc. 31 at 6–7). 13 The Miller Act, 40 U.S.C. §§ 3131–34, governs surety bonds on federal 14 construction projects that cost more than $100,000. Under the Miller Act, a contractor 15 must post both a performance bond and a payment bond for a project. 40 U.S.C. § 3131. 16 Additionally, under the Miller Act: 17 Every person that has furnished labor or material in carrying out work provided for in a contract for which a payment bond is furnished under section 3131 of this title and that has not been paid in full within 90 days after the day on which the person did or performed the last of the labor or furnished or supplied the material for which the claim is made may bring a civil action on the payment bond for the amount unpaid at the time the civil action is brought and may prosecute the action to final execution and judgment for the amount due. 18 19 20 21 22 23 Id. § 3133(b)(2). To establish a Miller Act claim, Plaintiff must show: 24 (1) the materials were supplied in prosecution of the work provided for in the contract; (2) [Plaintiff] has not been paid; (3) [Plaintiff] had a good faith belief that the materials were intended for the specified work; and (4) the jurisdictional requisites were met. 25 26 27 7 28 This number differs from the amount listed in footnote four due to an additional payment of $12,856.26 made by Defendants to Plaintiff during the course of this litigation. (See Doc. 34). -8- 1 United States ex rel. Martin Steel Constructors, Inc. v. Avanti Constructors, Inc., 2 750 F.2d 759, 761 (9th Cir. 1984). “The purpose of the Act is to protect persons 3 supplying materials and labor for federal projects, and it is to be construed liberally in 4 their favor to effectuate this purpose.” Id. 5 “[S]tate law controls the interpretation of Miller Act subcontracts to which the 6 United States is not a party.” United States ex rel. Reed v. Callahan, 884 F.2d 1180, 1185 7 (9th Cir. 1989). Even though Plaintiff is a California corporation and SBBI is a Louisiana 8 corporation, because the contract at issue was both executed and to be performed in 9 Arizona, Arizona law is most applicable. See United States ex rel. Union Bldg. Materials 10 Corp. v. Haas & Haynie Corp., 577 F.2d 568, 571 n.1 (9th Cir. 1978) (applying 11 Hawaiian law to a Miller Act claim where “the contract at issue was both executed and to 12 be performed in Hawaii”). Arizona law is also applicable for the state breach of contract 13 claim. 8 See Swanson v. Image Bank, Inc., 77 P.3d 439, 441–42 (Ariz. 2003) (applying the 14 “most significant relationship” test from the Restatement (Second) of Conflict of 15 Laws § 188). 16 Under Arizona law, the elements of a breach of contract are: “(1) the existence of 17 a contract; (2) breach; and (3) resulting damages.” First Am. Title Ins. Co. v. Johnson 18 Bank, 372 P.3d 292, 297 (Ariz. 2016) (citing Graham v. Asbury, 540 P.2d 656, 657 19 (Ariz. 1975)). However, “[i]t is well-established that before a binding contract is formed, 20 the parties must mutually [assent] to all material terms.” Hill-Shafer P’ship v. Chilson 21 Family Tr., 799 P.2d 810, 814 (Ariz. 1990). “A distinct intent common to both parties 22 must exist without doubt or difference, and until all understand alike there can be no 23 assent.” Id. (citing Gifford v. Makaus, 540 P.2d 704, 708 (Ariz. 1975)). 24 25 26 27 28 8 In mixed sales/services contracts between a contractor and subcontractor, Arizona courts apply the Restatement (Second) of Contracts rather than Article 2 of the Uniform Commercial Code, in the absence of contrary authority. See AROK Constr. Co. v. Indian Constr. Servs., 848 P.2d 870, 874–79 (Ariz. Ct. App. 1993) (applying principles from the Restatement (Second) of Contracts to interpret an oral contract made between a contractor and subcontractor); see also Bank of Am. v. J. & S. Auto Repairs, 694 P.2d 246, 248 (Ariz. 1985) (“In the absence of contrary authority Arizona courts follow the Restatement of the Law.”). -9- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 The Arizona Supreme Court follows the Restatement’s provisions regarding the effects of a misunderstanding on the formation of a contract: (1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and (a) neither party knows or has reason to know the meaning attached by the other; or (b) each party knows or each party has reason to know the meaning attached by the other. (2) The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if (a) that party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party; or (b) that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party. Id. at 815 (quoting Restatement (Second) of Contracts § 20 (Am. Law Inst. 1981)). Thus, “[e]ven though the parties manifest mutual assent to the same words of agreement, there may be no contract because of material difference of understanding as to the terms of the exchange.” Id. (quoting Restatement (Second) of Contracts § 20 cmt. c). In determining whether the parties mutually assented to the material terms in a contract, courts may examine the language of the agreement, “the conduct of the parties, and the surrounding circumstances.” Muchesko v. Muchesko, 955 P.2d 21, 24 (Ariz. Ct. App. 1997); see also Johnson v. Earnhardt’s Gilbert Dodge, Inc., 132 P.3d 825, 828 (Ariz. 2006). Importantly, such mutual assent “is based on objective evidence, not on the hidden intent of the parties.” Hill-Shafer, 799 P.2d at 815. Further, a court may only determine that the parties lacked mutual assent if each party’s misunderstanding is reasonable. Id. at 816; see also Heywood v. Ziol, 372 P.2d 200, 203 (Ariz. 1962); Buckmaster v. Dent, 707 P.2d 319, 321–22 (Ariz. Ct. App. 1985). Finally, “absent or uncertain terms are not fatal to the enforceability of an otherwise binding contract.” AROK Constr., 848 P.2d at 876. Rather, the terms of an - 10 - 1 agreement are sufficiently certain “if they provide a basis for determining the existence of 2 a breach and for giving an appropriate remedy.” Id. (citing Restatement (Second) of 3 Contracts § 33(2)). 4 Here, the parties assigned materially different meanings to the term “no-cost 5 change order.” Plaintiff believed that, because the Project would require less of the 6 substituted materials, the decrease in material quantities would pay for the cement and 7 keep the total contract price below the former contract’s total price. (Doc. 23 at 3). Thus, 8 Plaintiff believed a “no-cost change” did not affect the $700.00 FAGO unit price. (Id.). 9 On the other hand, SBBI believed that a deduction in the FAGO unit price was necessary 10 to pay for the cement. (Doc. 25 at 5). This unspecified lower unit price was dependent on 11 the estimates later provided by FHA. (Id. at 4). 12 In determining whether the parties formed a contract, the Court must first 13 determine whether the contract language is “‘reasonably susceptible’ to the interpretation 14 asserted by its proponent.” Earnhardt’s, 132 P.3d at 828 (quoting Taylor v. State Farm 15 Mut. Auto. Ins. Co., 854 P.2d 1134, 1140 (Ariz. 1993)). If both interpretations are 16 reasonable, the Court then examines whether the parties have presented extrinsic 17 evidence revealing that the opposing party knew of its differing interpretation. Id.; see 18 also Restatement (Second) of Contracts § 20. If neither party presents extrinsic evidence, 19 the Court may determine that the parties failed to form a contract because of the 20 materially different meanings attached to the language in the contract. Restatement 21 (Second) of Contracts § 20(1). 22 1. Reasonability of Each Party’s Interpretation 23 The Court finds that each party’s interpretation of a “no-cost change order” is 24 reasonable. Both meanings are literally “no-cost” changes because they both result in a 25 lower-than-estimated total contract cost for the Project. Additionally, the parties have 26 presented evidence that bolsters the reasonability of both interpretations. For example, 27 Plaintiff presents evidence in which Robert Durham, who negotiated the “no-cost change 28 order” on Plaintiff’s behalf, stated that Plaintiff paid $603.00 per ton for the FAGO. - 11 - 1 (Doc. 24-1 at 46). Thus, had Plaintiff agreed to receive only $473.98 per ton of FAGO, 2 Plaintiff would have lost money on the FAGO, which supports Plaintiff’s position that 3 there was no such agreement. On the other hand, Defendants present evidence in which 4 Ted Walker, who negotiated the “no-cost change order” on SBBI’s behalf, described the 5 difficulty in predicting quantities used for FHA projects. (Doc. 30-1 at 23). Thus, in Mr. 6 Walker’s experience, agreeing to a contract “predicated on a theoretical amount of 7 tonnage” would be unpredictable. (Id. at 42). Thus, each party’s interpretation has “a 8 logic to it.” Farnam Cos. v. Stabar Enters., No. CV 03-503-PHX-NVW, 9 2005 WL 3369473, at *6–8 (D. Ariz. Dec. 12, 2005) (evaluating the reasonableness of 10 two parties’ divergent interpretations of a contractual term). 11 Further, neither party has presented any evidence that the other party’s 12 interpretation was unreasonable given the information available at the time of the 13 attempted formation of the new contract. While the original contract defines a “change 14 order,” it fails to mention the term “no-cost change order.” (See Doc. 1-1 at 4). In 15 describing the process for change orders, the contract appears to contemplate only 16 disagreements over price adjustments before agreeing to a change order. (Id. (“If the 17 parties are unable to agree upon [price] adjustments, [SBBI] may elect to issue the 18 Change Order to [Plaintiff] unilaterally, and any adjustments to [p]rice or time shall be 19 subject to an ultimate determination in accordance herewith.”)). Additionally, neither 20 party has presented any extrinsic evidence—e.g., common trade usage known by both 21 parties at the time they agreed to the change order—that would make the other party’s 22 interpretation of a “no-cost change order” unreasonable. The parties reasonably could 23 have understood that a “no-cost change order” meant to convey Plaintiff’s quantity-based 24 understanding or SBBI’s estimate-based understanding. 25 2. Whether Each Party Knew of the Other Party’s Interpretation 26 Given that each party’s interpretation was reasonable, the Court turns next to 27 whether either party knew or had reason to know the other party’s interpretation of a “no- 28 cost change order.” See Restatement (Second) of Contracts § 20(2)(a)–(b). Defendants - 12 - 1 argue that a “no-cost change order” is an unambiguous term, and both parties shared the 2 interpretation currently held by Defendants at the time they agreed to the change. 3 (Doc. 29 at 10). In support of their contention, Defendants cite to the deposition of 4 Sharon Groesbeck, one of Plaintiff’s former officers. (Id.). Defendants cite specifically to 5 the following language: 6 8 Q. (By Mr. Thompson) Here’s my question. The proposal that you submitted would have had a price for the three units, three different specification units; in other words, so the foamed asphalt, right, it would have had the aggregate base, the cement and the foamed asphalt; right? 9 A. 7 10 Correct. Q. And you would have proposed quantities for each of those particular specified units; correct? 11 A. 12 Correct. 13 Q. And then you would have proposed a price for each of those specified units; correct? 14 A. 15 Q. And then that would have added up to the $1,637,282.72; correct? 16 A. 17 Correct. I don’t know if to the penny, but yes. 18 Q. I can tell you that in this case it was within – it was less than $5 in the difference, okay? 19 A. 20 21 22 23 24 25 26 27 28 Close. (Doc. 30-3 at 18). However, this excerpt is not inconsistent with Plaintiff’s interpretation of a “no-cost change order.” Plaintiff’s assumption all along was that the quantities of materials would decrease to pay for the change in materials. The above definition is actually consistent with either party’s interpretations of a “no-cost change order.” 9 Thus, 9 Defendants also cite to Mr. Durham’s deposition for support as well. (See Doc. 31 at 6–7). However, Mr. Durham provides the same interpretation Plaintiff advances in its Motion. (See Doc. 24-1 at 18 (“[W]hat was going to happen, because we were using less oil, is that tonnage quantity that was estimated for the 66,000 tons and 1,310 tons was going to drop about 300 tons, which the difference was going to pay for the cement component . . . .”)). This does not prove that Mr. Durham knew or had reason to know of SBBI’s differing interpretation of a “no-cost change order” upon agreeing to the contract modification. - 13 - 1 Defendants have failed to present any evidence based on the summary judgment record 2 that Plaintiff knew or had reason to know SBBI’s interpretation of a “no-cost change 3 order.” However, Plaintiff has not disproven Defendants’ theory regarding interpretation; 4 therefore, there remains a question for the jury as to whether Defendants’ interpretation 5 of a “no-cost change order” should be operative in interpreting the contract. 10 6 Plaintiff argues that SBBI’s course of performance demonstrates SBBI knew and 7 agreed with Plaintiff’s interpretation of a “no-cost change order” at the time the parties 8 modified the contract. Plaintiff cites to three different pieces of evidence to support its 9 argument: (1) an e-mail from SBBI asking Plaintiff to send in two invoices: one invoice 10 that included the FAGO at $700.00 per ton, and a second invoice for the cement at 11 $400.00 per ton, (Doc. 24-2 at 180); (2) SBBI’s failure to object after receiving Plaintiff’s 12 multiple invoices with $700.00 and $400.00 unit prices for the FAGO and cement, 13 respectively, (Docs. 32 at 7; 24-2 at 186–87); and (3) SBBI’s explicit payment for the 14 FAGO at a $700 unit price, and SBBI’s reassurance that it would “pay the cement cost” 15 as soon as FHA approved the change order, (Doc. 32 at 10). Plaintiff’s theory is that 16 SBBI would not have acted so consistently with Plaintiff’s interpretation of a “no-cost 17 change order” if SBBI’s interpretation truly differed. 18 Plaintiff has presented evidence raising a genuine issue of material fact, which 19 must be resolved by a jury. A reasonable jury could infer that SBBI intended to agree 20 with Plaintiff’s interpretation of a “no-cost change order” and later altered its intent. See 21 Tabler v. Indus. Comm’n of Ariz., 47 P.3d 1156, 1159 (Ariz. Ct. App. 2002) (“The 22 determination of intent is a factual question.”). Because the Court cannot determine 23 SBBI’s contemporaneous intent upon entering the contract as a matter of law, it is a 24 question for the jury as to whether (1) the contract is void for failure of the parties to 25 mutually assent to a material term, or (2) the contract is operative on Plaintiff’s 26 interpretation of a “no-cost change order.” See Restatement (Second) of Contracts § 20. 27 Thus, because there are issues of material fact remaining, the Court must deny 28 10 Defendants have requested a jury trial. (See Doc. 8 at 1). - 14 - 1 both Plaintiff’s Motion and Defendants’ Motion as to the breach of contract and Miller 2 Act claims. 3 B. 4 Defendants also move for summary judgment on Plaintiff’s promissory estoppel 5 claim. “The elements of promissory estoppel are a promise, which the promissor should 6 reasonably foresee would cause the promisee to rely upon which the promisee actually 7 relies to his detriment.” Contempo Constr. Co. v. Mountain States Tel. & Tel. Co., 8 736 P.2d 13, 16 (Ariz. Ct. App. 1987). Promissory estoppel “is a proper claim for relief 9 as an alternative to [a] contract claim.” AROK Constr., 848 P.2d at 878. Promissory Estoppel 10 Defendants again argue that its interpretation of a “no-cost change order” 11 precludes Plaintiff’s recovery under promissory estoppel because SBBI has fulfilled its 12 promise to Plaintiff through full payment. (See Doc. 25 at 11–12). In making this 13 argument, Defendants misconstrue the evidence in the record. Defendants state that both 14 parties “agree that . . . $299,369.09 worth of original estimated material was not installed 15 by [Plaintiff] . . . . This means that $299,369.09 is subtracted from the original contract 16 amount of $1,637,282.72, entitling [Plaintiff] to a total of $1,337,909.03.” (Id. at 11). 17 However, under Defendants’ own definition, a unit price contract “obligates the general 18 contractor to pay the subcontractor all the items as supplied.” (Id.). Using Plaintiff’s 19 interpretation of a “no-cost change order,” SBBI would have promised to pay Plaintiff 20 $700.00 per ton of FAGO. From this, a jury could infer that SBBI promised to pay 21 $700.00 per ton of FAGO regardless of what material Plaintiff failed to install. 22 Defendants also argue that the Court should grant summary judgment in their 23 favor because an individual from FHA and two individuals from SBBI understood “that 24 [Plaintiff] was to receive $400 per ton for the cement and the reduced amount of $473.98 25 per ton for the [FAGO].” (Doc. 31 at 8–9). However, as discussed in the previous section, 26 Plaintiff has cited to evidence regarding its interpretation of a “no-cost change order” that 27 raises an issue of material fact that a jury must resolve. Thus, Defendants have failed to 28 meet their burden of establishing no disputed issues of material fact regarding promissory - 15 - 1 estoppel 2 See Celotex, 477 U.S. at 336 (“Having chosen to base its motion on the argument that 3 there was no evidence in the record to support [the] plaintiff’s claim, [the defendant] was 4 not free to ignore supporting evidence that the record clearly contained.”). 5 IV. that would allow the Court to enter summary judgment. CONCLUSION 6 Based on the foregoing, 7 IT IS ORDERED that Plaintiff’s Motion, (Doc. 23), is DENIED. 8 IT IS FURTHER ORDERED that Defendants’ Motion, (Doc. 25), is DENIED. 9 IT IS FURTHER ORDERED the parties shall each file a proposed 10 elements/substantive jury instruction for this case within ten (10) days from the date this 11 Order is filed. 12 Dated this 3rd day of March, 2017. 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 16 -

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