American Electric Co., LLC v. Parsons RCI, Inc.

Filing 213

ORDER (1) GRANTING IN PART AND DENYING IN PART COVANTA HONOLULU RESOURCE RECOVERY VENTURE'S MOTION FOR PARTIAL SUMMARY JUDGMENT RE DISALLOWED CLAIMS (DOC. NO. 113) AND (2) DENYING COVANTA HONOLULU RESOURCE RECOVERY VENTURE'S MOTION FOR PART IAL SUMMARY JUDGMENT RE PARSONS, RCI, INC.'S DUTY TO DEFEND AND, WITH RESPECT TO THE DISALLOWED CLAIMS, TO INDEMNIFY (DOC. NO. 122) re 113 , 122 - Signed by Judge BARRY M. KURREN on 2/27/2015. granting in part and denying i n part (113) Motion for Partial Summary Judgment; denying (122) Motion for Partial Summary Judgment in case 1:13-cv-00471-BMK Associated Cases: 1:13-cv-00471-BMK, 1:14-cv-00020-BMK(emt, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
AMERICAN ELECTRIC CO., LLC,

)
)
Plaintiff,
)
)
vs.
)
)
PARSONS RCI, INC.,
)
)
Defendant.
)
)
)
)
COVANTA HONOLULU
)
RESOURCE RECOVERY
)
VENTURE,
)
)
Plaintiff,
)
)
vs.
)
)
PARSONS RCI, INC.,
)
)
Defendant.
______________________________ )

CIV. NO. 13-00471 BMK
CIV. NO. 14-00020 BMK
(CONSOLIDATED CASES)
ORDER (1) GRANTING IN PART
AND DENYING IN PART
COVANTA HONOLULU
RESOURCE RECOVERY
VENTURE’S MOTION FOR
PARTIAL SUMMARY JUDGMENT
RE DISALLOWED CLAIMS (Doc.
No. 113) AND (2) DENYING
COVANTA HONOLULU
RESOURCE RECOVERY
VENTURE’S MOTION FOR
PARTIAL SUMMARY JUDGMENT
RE PARSONS, RCI, INC.’S DUTY
TO DEFEND AND, WITH
RESPECT TO THE DISALLOWED
CLAIMS, TO INDEMNIFY (Doc.
No. 122)

ORDER (1) GRANTING IN PART AND DENYING IN PART
COVANTA HONOLULU RESOURCE RECOVERY VENTURE’S
MOTION FOR PARTIAL SUMMARY JUDGMENT
RE DISALLOWED CLAIMS (Doc. No. 113) AND
(2) DENYING COVANTA HONOLULU RESOURCE RECOVERY
VENTURE’S MOTION FOR PARTIAL SUMMARY JUDGMENT
RE PARSONS, RCI, INC.’S DUTY TO DEFEND AND, WITH
RESPECT TO THE DISALLOWED CLAIMS, TO INDEMNIFY (Doc. No. 122)

Before the Court is Plaintiff/Third-Party Defendant Covanta Honolulu
Resource Recovery Venture’s (“Covanta”) Motion for Partial Summary Judgment
re Disallowed Claims (the “Motion re Disallowed Claims”). (Doc. no. 113.)
Covanta seeks partial summary judgment against Defendant/Third-Party Plaintiff
Parsons RCI, Inc. (“Parsons”) on the grounds that Parsons cannot “pass through”
claims made against it by subcontractor Plaintiff American Electric Co., LLC
(“AE”). Covanta contends, inter alia, that Parsons is precluded from asserting
AE’s claims against it, as Parsons itself has refused to recognize the validity of
AE’s claims and did not follow the contractual requirements to assert such claims,
and that Parsons is not asserting the claims “on behalf of” AE.
Also before the Court is Covanta’s Motion for Partial Summary
Judgment re Parsons, RCI, Inc.’s Duty to Defend and, With Respect to the
Disallowed Claims, to Indemnify (the “Motion re Duty”). (Doc. no. 122.)
Covanta urges the Court to hold that Parsons has a contractual duty to defend and
indemnify it against any claims related to claims brought by a subcontractor
against Covanta or Parsons.
The Motion re Disallowed Claims and Motion re Duty (collectively,

2

the “Motions”) came on for hearing before the Court on February 11, 2015.1 After
careful consideration of the Motions, the supporting and opposing memoranda, and
the arguments of counsel, the Court hereby GRANTS IN PART and DENIES IN
PART the Motion re Disallowed Claims and DENIES the Motion re Duty.
BACKGROUND
I.

FACTUAL BACKGROUND
Covanta is the developer and operator of the Alternative Energy

Facility/Third Boiler Addition at the H-Power Facility (the “Project”) in Kapolei,
Hawaii. (Covanta’s Concise Statement of Facts (“CSF”) ¶ 1.) Covanta entered
into a General Contract (“Contract”) with Parsons to provide labor, equipment,
materials, construction, supervision, and construction management for the Project.
(Id. ¶ 2.) Parsons, in turn, entered into a Subcontract (“Subcontract”) with AE to
provide the electrical work required for the Project. (Parsons’s CSF ¶ 5.)
A.

The Contract and Subcontract Provisions
The Contract between Covanta and Parsons provides that “Covanta

1

Concurrent with the hearing on the present Motions, the Court also heard
arguments on (1) Parsons’s Motion for Partial Summary Judgment Against
Covanta Honolulu Resource Recovery Venture on its Claims and Counterclaims
for Liquidated Damages, and (2) Parsons’s Renewed Motion for Leave to File First
Amended and Consolidated Third-Party Complaint and Counterclaim. (Doc. nos.
153 and 174.) The Court disposes of those motions by separate orders.

3

may, at any time, or from time to time, order additions, deductions, deletions,
revisions to any portion of the Work . . . or make changes to the Design or other
Contract Documents within the scope of this Contract.” (Covanta’s CSF, Exh. A,
Contract art. 7.1.) The Contract further provides that any changes “shall be
authorized by a written change order.” (Id. art. 7.2.1.)
Adjustments to the cost or timing of the Project necessitated by
changes to the scope of work are also addressed in the Contract, which provides
that
Contractor shall not be entitled to an increase in the
Contract Price or an extension of any Completion Date
with respect to any Work performed, except as
specifically provided in this Article 7. A Change Order,
approved in writing by Covanta, shall be a condition
precedent to Contractor’s right to an increase or decrease
in the Contract Price or any Completion Date.
(Id. art. 7.2.2.)
More specifically, with respect to the COR process, the Contract
states,
[i]f any directive or action by Covanta will cause a
material increase or decrease in the costs of, or time of
performance of the Work, a Change Order shall be issued
in accordance with this Article 7, adjusting the Contract
Price and/or any Completion Date. Any request for a
Change Order by Contractor under this Article 7 shall be
made upon Notice to Covanta in accordance with Article

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11.11 of this Contract within (7) days of the
commencement of the event giving rise to the request.
Within twenty (20) days of submission of Notice to
Covanta, Contractor shall submit a “Change Order
Request.” Such Change Order Request shall be
accompanied by a detailed description of the
circumstances and the specific reasons for the Change
Order Request; a detailed itemization and substantiation
of any requested adjustment in the Contract Price or any
Completion Date; documentation, charts, graphs,
photographs and reports, which bear on the change;
specific reference to the provisions of this Contract and
any other supporting data and information upon which
Contractor intends to rely or which Covanta requests.
Failure to provide Notice and/or to submit a Change
Order Request, including all required documentation,
timely or otherwise in accordance with this Article 7
shall be deemed a waiver by Contractor of the right to
seek any adjustment to the Contract Price or any
Completion Date.
(Id. art. 7.2.3.) Accordingly, under the plain language of Article 7.2.3, to seek an
adjustment in the Contract price due to changes, Parsons was required to provide
written Notice to Covanta within 7 days of the “event giving rise to the request,”
and then submit a second written Change Order Request (“COR”) within 20 days
of the Notice.
In the event that a dispute arose concerning the approval of a COR or
any other contract issue, either party could make a claim upon the other,
which shall mean a written demand proposing specific
relief or a remedy to an issue of dispute arising out of or

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relating to this Contract, the breach, the termination of, or
validity of the Contract, the Contract Documents or the
Work, including all contract claims, equitable claims,
claims for an extension of time and claims brought by the
Contractor, on behalf of a subcontractor, against
Covanta, all of which will be handled in Accordance with
this Article 11.5. A Party shall submit “Notice of
Claim,” together with supporting documentation and
transmitted in accordance with the requirements of
Article 11.11, within thirty (30) days of the event giving
rise to the Claim.
(Id. art. 11.5.2.) Article 11.5 provides that either party may make a claim
regarding “the breach . . . of this Contract, . . . including all contract claims,
equitable claims, claims for an extension of time and claims brought by Contractor,
on behalf of a subcontractor, against Covanta, all of which will be handled in
accordance with this Article 11.5.” (Id. art. 11.5.)
The Contract also includes certain provisions regarding
indemnification. Article 2.9.2 provides:
Contractor shall notify Covanta of any claim or suit made
or commenced by any subcontractor or supplier of any
tier against Contractor, Covanta or the Client. To the
fullest extent permitted by Applicable Law, Contractor
shall protect, defend, indemnify, save and hold harmless
Covanta, its Affiliates, its Client, members of the Client’s
City Council, and all of their respective agents,
consultant[s] and employees from and against any and all
loss, claims, damages and/or liability relating to any such
claim or suit made or commenced by any such
subcontractor or supplier of any tier against Contractor,

6

Covanta or the client, including attorneys’ fees and
related expenses, and the payment of any award or
settlement amounts resulting therefrom. . . .
(Id. art. 2.9.2.) Moreover, Article 6.1.1 provides for indemnification concerning
tort claims:
To the fullest extent permitted by Applicable Law,
Contractor agrees, at its cost and expense, to protect,
defend, save, indemnify and, and [sic] hold completely
free and harmless Covanta, its Affiliates, its Client,
members of the Client’s City Council, and all of their
respective parents, Affiliates, agents, consultants,
employees and successors or assign . . . from and against
any and all allegations, liabilities, actions, appeals, claims
(including any and all claims for personal injury, death to
any person or party, including Contractor’s employees, or
loss of or damage to third party property), liens,
damages, costs, judgments, causes of action, losses and
expenses, including attorneys’ fees and related
expenses . . . arising directly out of or related to the
performance or nonperformance of the Work and this
Contract attributable to the negligence, error, omission
willful misconduct, bad faith or lack of due diligence, to
the extent caused by Contractor, its subcontractors,
vendors, suppliers, employees or anyone for whose acts
any of them may be liable. . . .
(Id. art. 6.1.1.)
Regarding the Subcontract between AE and Parsons, the parties
appeared to agree that Parsons could pass through AE’s claims to the Project
owner. Notably, the Subcontract did contemplate the existence of pass-through

7

claims:
CONTRACTOR and SUBCONTRACTOR agree that all
claims, disputes or other controversies relating to this
SUBCONTRACT which are not pass-through claims to
OWNER, shall be decided by litigation unless
CONTRACTOR elects to have such claim, dispute or
controversy resolved by arbitration.
(Subcontract § 4.3 ¶ 1 (emphasis added) (doc. no. 57-3).)
Specifically, the Subcontract appears to contemplate a dispute
between AE and Parsons based on Covanta’s alleged wrongdoing. Paragraph 3 of
section 4.3 provides:
In the event of any dispute or claim between
CONTRACTOR and OWNER which directly or
indirectly involves the work performed or to be
performed by SUBCONTRACTOR, or in the event of
any dispute or claim between CONTRACTOR and
SUBCONTRACTOR caused by or arising out of
conduct for which OWNER may be responsible,
SUBCONTRACTOR agrees to be bound to
CONTRACTOR and CONTRACTOR agrees to be
bound to SUBCONTRACTOR to the same extent that
CONTRACTOR is bound to OWNER by the terms of the
MAIN CONTRACT and by any and all procedures and
resulting decisions, findings, determinations, or awards
made thereunder by the person so authorized in the
MAIN CONTRACT, or by an administrative agency,
board, court of competent jurisdiction or arbitration. If
any dispute or claim of SUBCONTRACTOR is
prosecuted or defended by CONTRACTOR together
with disputes or claims of CONTRACTOR’S own, and
the SUBCONTRACTOR is not directly a party,

8

SUBCONTRACTOR agrees to cooperate fully with
CONTRACTOR and to furnish all documents,
statements, witnesses, and other information required by
CONTRACTOR for such purpose and shall pay or
reimburse CONTRACTOR for all expenses and costs,
including reasonable attorneys’ fees incurred in
connection therewith, to the extent of
SUBCONTRACTOR’S interest in such claim or dispute.
SUBCONTRACTOR agrees to be bound by the
procedure and final determination as specified in the
MAIN CONTRACT and it will not take, or will suspend,
any other action or actions with respect to any such
claims and will pursue no independent litigation with
respect thereto, pending final determination of any such
dispute resolution procedure between OWNER and
CONTRACTOR. It is expressly understood and agreed
that as to any and all claims asserted by
SUBCONTRACTOR in connection with this Project
arising from the actions or fault of OWNER,
CONTRACTOR shall not be liable unless
CONTRACTOR’S conduct is grossly negligent,
fraudulent, or in bad faith to SUBCONTRACTOR for
any greater amount than OWNER is liable to
CONTRACTOR, less any markups or costs incurred by
CONTRACTOR. As to any claims asserted by
SUBCONTRACTOR for or on account of acts or
omissions of OWNER or its agents or design
professionals, at the sole option of CONTRACTOR,
SUBCONTRACTOR agrees to prosecute such claims in
CONTRACTOR’S name. For any amount recovered or
collected (whether through proceedings or settlement) by
SUBCONTRACTOR, CONTRACTOR shall be entitled
to ten percent (10%) of such amount received or
collected as its mark-up for such claims provided,
however, that CONTRACTOR cooperates with, and
does not hinder or interfere with
SUBCONTRACTOR’S pass through claim.

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SUBCONTRACTOR shall have full responsibility for
preparation and presentation of such claims and shall
bear expenses thereof including attorneys’ fees.
(Id. ¶ 3 (emphases added).)
B.

AE’s Work on the Project
Based upon preliminary drawings that were substantially incomplete,

AE agreed to perform the electrical work on the Project for $12,866,586. (AE
First. Am. Compl. ¶ 9.) According to AE, Covanta committed to provide a full and
final project design by November 2010, before the majority of AE’s work on the
project was to take place. (Id. ¶¶ 48-49.) AE, however, was required to begin
work well before the completion of project design work due to the “fast-track”
nature of the third boiler project. (Id. ¶ 49; Covanta First Am. Compl. ¶ 10.)
AE asserts that the “multitude of changes during construction,”
evidenced by numerous CORs and Field Change Requests (“FCR”), “caused
substantial escalation in the quantities and cost of the work beyond any reasonable
estimate at the time of contract, and beyond the quantities provided by AE to
document the basis of its bid.” (AE First Am. Compl. ¶ 13.) AE contends that it
was required by Parsons “to perform extra work which was outside of its original
scope of work, accelerate its work, re-sequence its work, and perform rework due
to uncoordinated and deficient drawings, with the promise and agreement that

10

[AE] would be compensated for its extra work.” (Id. ¶ 198.) In light of this
additional work and associated expense, AE brought suit against Parsons seeking
“$12,579,308 plus accruing interest, attorney’s fees and costs,” owed for additional
work performed over and above the amount of AE’s original bid. (Id. ¶ 201.)
Of the $12,579,308 claimed by AE, $6,439,773 has been identified by
Covanta as arising from the so-called “Disallowed Claims,” i.e., claims that
Parsons allegedly cannot assert against Covanta, for the reasons discussed in the
Motion re Disallowed Claims. The alleged Disallowed Claims are as follows:
1
2
3
4
5
6

Disallowed Claim
Amount
Additional Conduit Scope Growth (COR281)
$1,581,061
Additional Wire Scope Growth (COR282)
$104,531
Additional Fitting Scope Growth (COR 283)
$1,684,330
Delay/Extended Overhead
$441,142
Additional Supervision
$2,117,810
2
Outstanding FCRs
$510,899
Total $6,439,7733

(Mot. re Disallowed Claims at 10.)4 Covanta alleges that it is undisputed that

2

Covanta lists the Outstanding FCRs as CORs 35, 57, 91, 99, 101, 111, 113,
117, 126, 132, 136, 138, 139, 142, 144, 157, 178, 179, 187, 191, 194, 202, 206,
208, 211, 212, 215, 219, 220, 223, 227, 232, 233, 237, 239, 249, 251, and 286.
(Mot. re Disallowed Claims at 10.) However, Covanta acknowledges that COR
227 may be a part of AE’s Delay/Extended Overhead claim. (Id. at 10 n.4.)
3

Parsons states that AE has since revised the total sum of its Growth Claims
to $6,662,468. (Parsons’s CSF ¶ 21.) For the purposes of this present Motion, the
Court will reference the dollar amounts provided in the Motion.

11

Parsons has rejected each of these claims by AE, and therefore Parsons cannot pass
the claims through to Covanta. (Id. at 11-13.) Conversely, Parsons contends that it
properly provided Covanta with adequate notice of the Disallowed Claims. (Mem.
in Opp’n to Mot. re Disallowed Claims at 28-30.)
II.

PROCEDURAL BACKGROUND
On September 16, 2013, AE filed suit against Parsons, alleging claims

for breach of contract and unjust enrichment, based on Parsons’s alleged refusal to
pay for the additional work. (Doc. no. 1.) AE subsequently amended its
Complaint on September 24, 2013 (the “AE Complaint”). (Doc. no. 5.) On
January 22, 2014, Parsons filed its Third-Party Complaint against Covanta, and
Covanta filed a counterclaim against Parsons. (Doc. nos. 25, 53, 103.)
Around the same time that Covanta filed its counterclaim against
Parsons, it filed its own Complaint in a separate action against Parsons, which it
amended on August 15, 2014 (the “Covanta Complaint”). (Doc. no. 1 in 14-cv00020 ACK-RLP; Doc. no. 102 in 13-cv-00471 SOM-BMK.) On March 21, 2014,

4

In its memorandum in opposition, Parsons refers to CORs 280, 281, 282,
283, and 287 as “Growth Claims,” and groups the “Outstanding FCR” claims into
“Category 5” and “Category 6” claims. (Mem. in Opp’n to Mot. re Disallowed
Claims at 11-13.) Parsons admits that it did not pass the Category 5 and 6 claims
on to Covanta. (Id. at 14-15.) The Court will collectively refer to CORs 280, 281,
282, 283, and 287 as the “Growth Claims,” and the remaining claims as the
“Outstanding FCRs.”

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Parsons filed its answer to the Covanta Complaint and asserted a counterclaim
against Covanta and a counterclaim against American Electric. (Doc. no. 51.)
Covanta additionally filed a counterclaim against Parsons on March 31, 2014.
(Doc. no. 53.)
The Covanta Complaint is substantially similar to the counterclaim
against Parsons. First, Covanta seeks to require Parsons to defend and indemnify it
against AE’s claims and to pay fees and costs already incurred. (Covanta Compl.
at 30.) Second, Covanta seeks liquidated damages provided for under the Contract.
(Id. at 29.) Third, Covanta seeks a declaratory ruling that change orders or claims
that were not timely submitted under either the Contract or Subcontract are time
barred and/or otherwise waived. (Id. at 27-29.)
The two cases were consolidated into one action before this Court on
or around February 24, 2014. (Doc. no. 12 in 14-cv-00020 ACK-RLP.) Having all
relevant parties and claims before it, the Court was presented with Parson’s Motion
for Declaratory Ruling Regarding Notice and for Partial Summary Judgment.
(Doc. no. 56.) Parsons requested a declaratory ruling that the terms of the Contract
and Subcontract regarding notice and claim procedures are strictly enforceable
under Hawaii law, and further that the Court dismiss claims by AE that were
allegedly waived or failed to comply with the applicable notice and claims

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procedures. The Court denied that motion by order dated June 4, 2014, holding
that summary judgment was not appropriate at that time, because there were
genuine issues of material fact regarding the parties’ compliance with the notice
requirements. (Doc. no. 76.)
Covanta now brings its present Motions before the Court, largely
repeating the arguments raised by Parsons with regard to AE’s claims. It further
requests that the Court hold that, based on the language in the Contract, Parsons
owes it a duty to defend and indemnify against Parson’s claims based on AE’s
allegations.
STANDARD
Summary judgment is appropriate only where the Court determines
that there is no genuine issue of material fact and that the undisputed facts warrant
judgment for the moving party as a matter of law. See Fed. R. Civ. P. 56(c)
(2010). In assessing whether a genuine issue of material fact exists, courts must
resolve all ambiguities and draw all factual inferences in favor of the non-moving
party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); see also
Cline v. Indus. Maint. Eng’g & Contracting Co., 200 F.3d 1223, 1228 (9th Cir.
2000). However, the non-moving party cannot rely upon conclusory allegations
unsupported by factual data to create an issue of material fact. Hansen v. United

14

States, 7 F.3d 137, 138 (9th Cir. 1993).
In deciding a motion for summary judgment, the Court’s function is
not to try issues of fact, but rather to determine whether there are issues to be tried.
Anderson, 477 U.S. at 249. If there is any evidence in the record from which a
reasonable inference could be drawn in favor of the non-moving party on a
material issue of fact, summary judgment is improper. See T.W. Elec. Serv., Inc.
v. Pac. Elec. Contractors Ass’n, 809 F.2d 626, 631 (9th Cir. 1987).
DISCUSSION
I.

MOTION FOR PARTIAL SUMMARY
JUDGMENT RE DISALLOWED CLAIMS
The Court first addresses Covanta’s Motion re Disallowed Claims,

which requests that the Court hold, as a matter of law, that Parsons cannot assert
“pass-through” claims against it. For the reasons discussed herein, the Court
grants summary judgment as to the Outstanding FCRs, but denies summary
judgment as to the remainder of that Motion because—even though Parsons has
admitted that it denied AE’s CORs at issue—there are disputes of material fact
regarding whether Covanta received adequate notice of the Growth Claims.
Moreover, the Court holds that a contractor can likely pass-through a
subcontractor’s claim during litigation, and there again exist genuine disputes of

15

material fact regarding whether Parsons properly brought such claims “on behalf
of” AE. As such, summary judgment as to those issues is not warranted at this
time.
A.

Parsons’s and AE’s Discovery Responses and Allegations
As a preliminary matter, the Court agrees with Covanta that certain of

Parsons’s and AE’s discovery responses and statements in their pleadings can be
deemed binding admissions. Rule 36 of the Federal Rules of Civil Procedure
(“FRCP”) states:
(b) Effect of an Admission; Withdrawing or
Amending It. A matter admitted under this rule is
conclusively established unless the court, on motion,
permits the admission to be withdrawn or amended.
Subject to Rule 16(e), the court may permit withdrawal
or amendment if it would promote the presentation of the
merits of the action and if the court is not persuaded that
it would prejudice the requesting party in maintaining or
defending the action on the merits. An admission under
this rule is not an admission for any other purpose and
cannot be used against the party in any other proceeding.
Fed. R. Civ. P. 36(b) (2007). The advisory committee notes to Rule 36 provide
that Rule 36 “give[s] an admission a conclusively binding effect, for purposes only
of the pending action, unless the admission is withdrawn or amended. In form and
substance a Rule 36 admission is comparable to an admission in pleadings or a
stipulation drafted by counsel for use at trial, rather than to an evidentiary

16

admission of a party.” Id. (advisory committee notes) (citations omitted). “Unless
the party securing an admission can depend on its binding effect, he cannot safely
avoid the expense of preparing to prove the very matters on which he has secured
the admission, and the purpose of the rule is defeated.” Id. (advisory committee
notes) (citations omitted); see also Tillamook Country Smoker, Inc. v. Tillamook
County Creamery Ass’n, 465 F.3d 1102, 1112 (9th Cir. 2006) (“the court and
parties are bound by such admissions, which cannot be ‘ignored by the district
court simply because it finds the evidence presented by the party against whom the
admission operates more credible’” (citation omitted)).
With regard to pleadings, as a general proposition, “[u]nder federal
law, stipulations and admissions in the pleadings are generally binding on the
parties and the Court. Not only are such admissions and stipulations binding
before the trial court, but they are binding on appeal as well.” Am. Title Ins. Co. v.
Lacelaw Corp., 861 F.2d 224, 227 (9th Cir. 1988) (quoting Ferguson v.
Neighborhood Housing Servs., 780 F.2d 549, 551 (6th Cir. 1986) (citations
omitted)). But see Sicor Ltd. v. Cetus Corp., 51 F.3d 848, 859-60 (9th Cir. 1995)
(“Where, however, the party making an ostensible judicial admission explains the
error in a subsequent pleading or by amendment, the trial court must accord the
explanation due weight.”). However, as opposed to a statement in a pleading,

17

“statements of fact contained in a brief may be considered admissions of the party
in the discretion of the district court.” Am. Title Ins. Co., 861 F.2d at 227
(emphasis in original).
In the present case, to the extent Parsons or AE has clearly admitted
certain facts in its response to Covanta’s request for admissions and its pleadings,
those facts can conclusively bind the admitting parties. It does not appear that
Parsons contests this point, as it addresses only the allegedly “elusive” discovery
responses. (See Mem. in Opp’n to Mot. re Disallowed Claims at 20-21.) AE
similarly does not address Covanta’s argument that its admissions are
“conclusively established.” (See generally AE’s Mem. in Opp’n to Mot. re
Disallowed Claims and Mot. re Duty.) As such, the Court determines that Parsons
and AE are bound by their admissions in discovery responses and pleadings.5
However, Covanta also seeks to conclusively bind Parsons where the
latter’s discovery responses were allegedly evasive and evidenced a lack of good
faith. (See Mot. re Disallowed Claims at 23-27.) Covanta argues that certain of
Parsons’s responses to Covanta’s requests for admissions are inconsistent with
Parsons’s position taken elsewhere and do not logically comport with other

5

The subject admissions are identified in the Motion re Disallowed Claims
and relate to Parsons’s handling of the Disallowed Claims. (Mot. re Disallowed
Claims at 11-13.)

18

admissions. (Id.) In support of its position, Covanta cites two district court cases
from other circuits in which the courts deemed discovery answers admitted when
the responding parties acted in bad faith or abused the discovery process. (Id. at
23.)
In the present case, however, the Court declines to impose on Parsons
such a drastic punishment. Parsons represents that “Covanta’s motion is the first
notice Parsons has received indicating that Covanta took issue with any of these
discovery responses.” (Mem. in Opp’n to Mot. re Disallowed Claims at 20.)
Assuming Parsons’s statement is true, it would be unfair for the Court to deem the
disputed discovery responses admitted, given that Parsons was never given notice
that Covanta found the responses insufficient or given an opportunity to clarify or
correct its answers. Certainly, there is not enough in the record for the Court to
determine that Parsons has acted in bad faith with regard to its discovery responses
or otherwise abused the discovery process, merely because Covanta unilaterally
determined that it received unsatisfactory answers. Cf. Conlon v. United States,
474 F.3d 616, 621 (9th Cir. 2007) (“Unanswered requests for admissions may be
relied on as the basis for granting summary judgment.” (emphasis added)). As
such, for the purposes of the present Motions, Parsons’s allegedly “evasive”
discovery responses cannot be deemed admitted against Parsons.

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B.

The Viability of the “Disallowed Claims”
Having determined that certain discovery admissions are binding on

Parsons, the Court next considers the gravamen of the Motion re Disallowed
Claims, i.e., whether Parsons may assert the Disallowed Claims against Covanta.
The parties argue, somewhat confusingly, the viability of the Disallowed Claims in
both the context of the COR process, as well as in the context of the present
litigation. In the interest of clarity, the Court considers each issue separately.
First, the Court addresses the argument that Parsons did not follow the proper COR
or Claims procedure during the construction of the Project by providing Covanta
with untimely or insufficient documentation. Second, the Court looks to whether,
as a part of this litigation, Parsons is precluded from asserting AE’s claims as
“pass-through” claims against Covanta.
1.

COR and Claims Process Under the Contract

Covanta argues that Parsons did not adhere to Article 7, which defines
the COR process, and Article 11, which defines the Claims process, and as a result,
waived the ability to seek any change in the Contract price. In response, Parsons
argues that it did provide notice and fulfilled its obligations under the Contract. In
order to determine whether or not Parsons properly followed the COR process, the
Court turns to the terms of the Contract.

20

Regarding the interpretation of a contract, the Hawaiʻi Supreme Court
has stated that, “[a]s a general rule, the construction and legal effect to be given a
contract is a question of law.” Koga Eng’g & Constr., Inc. v. State, 122 Hawaiʻi
60, 72, 222 P.3d 979, 991 (2010) (citations omitted). “[A]bsent an ambiguity, [the]
contract terms should be interpreted according to their plain, ordinary, and
accepted sense in common speech.” Id. (some alterations in Koga) (quoting Found.
Int’l, Inc. v. E.T. Ige Constr., Inc., 102 Hawaiʻi 487, 495, 78 P.3d 23, 31 (2003)).
When interpreting a contractual provision, the court’s goal is to determine the
intention of the parties. Pancakes of Hawaii, Inc. v. Pomare Props. Corp., 85
Hawaiʻi 300, 304-05, 944 P.2d 97, 101-02 (Ct. App. 1997). “When the terms of a
contract are definite and unambiguous there is no room for interpretation.”
Hanagami v. China Airlines, Ltd., 67 Haw. 357, 364, 688 P.2d 1139, 1144 (1984)
(quoting H. Hackfield & Co. v. Grossman, 13 Haw. 725, 729 (1902)). If the
parties use language that “leaves some doubt as to the meaning and intention[,]”
however, then the court will “apply the rules of construction and interpretation in
an effort to ascertain the intention of the parties to the contract.” Id.
It is undisputed that, under the Contract, Covanta and Parsons agreed
to the procedure for requesting change orders. It is further undisputed that the
Contract provides the steps that Parsons was to follow when submitting a COR or

21

Claim on behalf of a contractor. However, the parties differ as to whether Parsons
actually adhered to the proper process.
Under Article 7.2.2, Parsons “shall not be entitled to an increase in the
Contract Price . . . , except as specifically provided in this Article 7. A Change
Order, approved in writing by Covanta, shall be a condition precedent to
contractor’s right to an increase or decrease in the Contract Price or any
Completion Date.” (Contract art. 7.2.2 (emphasis added).) As for the proper
notice procedure, Article 7.2.3 provides:
Any request for a Change Order by Contractor under this
Article 7 shall be made upon Notice to Covanta in
accordance with Article 11.116 of this Contract within (7)
days of the commencement of the event giving rise to the
request. Within twenty (20) days of submission of
Notice to Covanta, Contractor shall submit a “Change
Order Request.” Such Change Order Request shall be
accompanied by a detailed description of the
circumstances and the specific reasons for the Change
Order Request; a detailed itemization and substantiation
of any requested adjustment in the Contract Price or any
Completion Date; documentation, charts, graphs,
photographs and reports, which bear on the change;
specific reference to the provisions of this Contract and
any other supporting data and information upon which
Contractor intends to rely or which Covanta requests.
Failure to provide Notice and/or to submit a Change

6

Although Article 7.2.3 references Article 11.11, the latter is a provision on
nondiscrimination. Instead, Article 11.12 concerns notice.

22

Order Request, including all required documentation,
timely or otherwise in accordance with this Article 7
shall be deemed a waiver by Contractor of the right to
seek any adjustment to the Contract Price or any
Completion Date.
(Id. art. 7.2.3 (emphases added).) Thus, a plain reading of the Contract reveals that
Parsons must (1) provide Covanta with notice7 of the request within seven days of
the event; and (2) submit a COR within 20 days of the initial notice, which must be
accompanied by a detailed description, itemization and substantiation of the
adjustments, documents, charts, graphs, and references to the applicable Contract
provisions. (Id.)
Separate and apart from the COR process, there is a mechanism for
Parsons to submit a claim on behalf of a subcontractor. If Parsons asserts a
“Claim,” meaning “a written demand proposing specific relief or remedy to an
issue or dispute arising out of or relating to [the] Contract, the breach, the
termination of, or validity of this Contract, the Contract Documents or the Work,
including all contract claims, claims, equitable claims, claims for an extension of

7
 In terms of notice, Article

11.12 requires that “All Notices, consents and
approvals required or permitted by this Contract shall be in writing and shall be
sufficient when delivered or transmitted by recorded express delivery . . . or
registered or certified mail, return receipt requested, with Notice deemed to have
been given upon receipt . . . .” (Id. art. 11.12.)

23

time and claims brought by Contractor, on behalf of a subcontractor, against
Covanta[,]” then it must “submit a ‘Notice of Claim,’ together with supporting
documentation . . . within thirty (30) days of the event giving rise to the Claim.”
(Id. art 11.5.2.)
2.

Parsons’s Notice to Covanta of AE’s Requests

Based on the plain language of the Contract, the Court must determine
whether the facts show that Parsons did not adhere to Articles 7.2.3 and 11.5.2 of
the Contract. Parsons and Covanta are two sophisticated parties that presumably
read and understood the provisions regarding the COR and Claims process. It
appears that Parsons was required to provide certain types of notice and
documentation to Covanta within prescribed amounts of time. The Court
acknowledges that, under the Contract, Parsons must provide sufficient notice to
Covanta regarding AE’s claims, but it is unable to say that only strict adherence to
the Contract terms satisfies these requirements. Under a liberal interpretation of
the Contract, the notice and documentation provided here by Parsons may be
sufficient.8

8

In its previous ruling denying Parsons’s Motion for Declaratory Ruling and
for Partial Summary Judgment, the Court stated that, although it believed that
Hawaii courts would adopt a purpose-based interpretation of contractual notice and
claim provisions, unlike the strict interpretation urged here by Covanta, it was

24

Regardless of whether a strict or liberal interpretation is applied, the
Court finds that there are genuine disputes of material fact concerning whether the
documentation that Parsons provided to Covanta constituted timely and adequate
notice of certain claims under the Contract. Covanta argues that the Contract
requires that CORs must be timely submitted, yet Parsons admitted (1) that it did
not submit any COR to Covanta regarding the outstanding FCRs at issue and (2)
that it rejected each of the other Disallowed Claims, so could not have submitted
those CORs to Covanta. Covanta points to Parsons’s various discovery responses
and pleadings, arguing that each of the identified CORs was not submitted to
Covanta in accordance with the Contract. (Mot. re Disallowed Claims at 11-13,
17-18, 20-22.)
In response, Parsons argues that Covanta did receive notice of certain
claims and even provided written acknowledgement of those claims. (Mem. in
Opp’n to Mot. re Disallowed Claims at 28-29.) While Parsons admits that it

unnecessary to reach that ultimate conclusion, because genuine factual disputes
precluded summary judgment. (Order Denying Mot. for Declaratory Ruling and
for Partial Summ. J. at 14-17.) The Court’s analysis is applicable to the present
motion, as well; although the Court still finds it likely that Hawaii courts would
adopt a liberal construction of notice provisions, it need not make that
determination here, as the Court denies summary judgment for the reasons
discussed herein. Under either a strict or liberal interpretation of the Contract, the
Court cannot say that Parsons did not comply with Articles 7 and 11.

25

rejected some of AE’s requests, it argues that it provided Covanta with proper
notice of CORs 280, 281, 282, 283, and 287 (i.e., the “Growth Claims”), totaling
$5,851,600. (Id. at 7-12.) Parsons points to correspondence, meetings, and written
receipts as evidencing Covanta’s acknowledgements of the claims. (Id. at 28-30.)
Parsons concedes that it did not pass certain change requests on to Covanta
(identified by Covanta as the “Outstanding FCRs”), which it has grouped into
“Category 5” and “Category 6” claims totaling $510,899. (Id. at 12-15.) The
Court considers each of these arguments in turn.
a.

The Outstanding FCRs

First, there does not seem to be any dispute that Parsons did not
provide Covanta with notice, much less documentation, of the Outstanding FCRs.
Parsons stated in its Answer to Covanta’s First Amended Complaint that it
“acknowledges and therefore admits that it has rejected specific claims asserted by
American Electric due to a lack of information or substantiation provided by
American Electric.” (Covanta’s CSF, Exh. D ¶ 40.) It admits that the Outstanding
FCRs “have not been passed-through to Covanta for consideration.” (Id.) For
each of the identified Outstanding FCRs, Parsons admitted that it “did not issue a
notice of change or a change order request to Covanta relative to the claims[s]
identified by AE . . . .” (Covanta’s CSF, Exh. F ¶¶ 99 (COR 35), 101 (COR 57),

26

103 (COR 91), 105 (COR 99), 107 (COR 101), 109 (COR 111), 112 (COR 113),
114 (COR 117), 116 (COR 126), 117 (COR 132), 118 (COR 136), 119 (COR 138),
120 (COR 139), 122 (COR 142), 124 (COR 144), 126 (COR 157), 127 (COR 178),
131 (COR 179), 135 (COR 187), 139 (COR 191), 140 (COR 194), 141 (COR 202),
144 (COR 206), 147 (COR 208), 148 (COR 211), 149 (COR 212), 150 (COR 215),
151 (COR 219), 152 (COR 220), 154 (COR 223), 155 (COR 232), 158 (COR 233),
159 (COR 237), 160 (COR 239), 161 (COR 249), 163 (COR 251), 164 (COR
286)).9 Parsons admits that the “Category 5 Claims” “were never submitted to
Covanta due to a lack of substantiation or documentation.” (Parsons’s CSF ¶ 22.)
Additionally, it acknowledges that the “Category 6 Claims” “relate only to matters
between Parsons and AE” and do not concern Covanta. (Id. ¶ 24.)
Therefore, the Court GRANTS the Motion re Disallowed Claims as to
the Outstanding FCRs (with the exception of COR 227), which were denied by
Parsons for various reasons and never presented to Covanta for its review. Parsons
cannot now assert these claims against Covanta, as it failed to comply with Articles
7 and 11 of the Contract. These claims are thus DISMISSED against Covanta.

9

The Court notes that Covanta provides no evidence that Parsons denied and
did not present COR 227 to Covanta. Although Covanta lists COR 227 as an
“Outstanding FCR,” it acknowledges that it “includes CR 227 in reference[ ] to
AE’s Delay/Extended Overhead Claim.” (Mot. re Disallowed Claims at 10 n.4.)

27

b.

The Growth Claims (CORs 280, 281, 282, 283, 287)

Second, the so-called “Growth Claims,” which make up the bulk of
the Disallowed Claims, are at the center of the parties’ dispute. For each of these
claims, Covanta provides the Court with Parsons’s admissions that it denied the
particular Growth Claim. The “Delay/Overhead” claim (including COR 280) was
allegedly denied on or around January 7, 2013, because Parsons determined that
the claim lacked substantiation. (Covanta’s CSF, Exh. F ¶¶ 35-38.) Parsons
admitted that it denied COR 281 for Additional Conduit Scope Growth on or
around January 21, 2013 because it allegedly lacked substantiation and was
untimely. (Id. ¶¶ 7-11.) Parsons also admitted that it similarly denied COR 282
for Additional Wire Scope Growth on or around January 21, 2013. (Id. ¶¶ 18-22.)
Parsons admitted that it denied COR 283 for Additional Fitting Scope Growth on
or around January 29, 2013 for the same reasons. (Id. ¶¶ 28-32.) Finally, as to the
“Additional Supervision” claims in COR 287, Parsons also denied those claims.10

10

The Court also notes that, in its answers to interrogatories in Exhibit F to
Covanta’s CSF, Parsons denies denying the Additional Supervision claim, stating
that it cannot locate any correspondence in which it specifically denied AE’s claim.
(Covanta’s CSF, Exh. F ¶ 55.) However, regardless of whether Parsons admitted
or denied denying the Additional Supervision claim, the Court’s conclusion is the
same, insofar as there is a dispute of material fact whether Parsons provided
adequate notice of that claim to Covanta.

28

(Covanta’s CSF, Exh. I ¶¶ 55-59.) In its memorandum in opposition, Parsons
appears to concede that it denied the Growth Claims. (Parsons’s CSF, Decl. of
Michael Swartz ¶ 10.)
However, despite its denial of the Growth Claims, Parsons contends
that it still gave proper notice to Covanta of those claims such that it complied with
the Contract. (Mem. in Opp’n to Mot. re Disallowed Claims at 28-30.) It claims
that AE presented it with notice of the Growth Claims on September 5, 2012, and
Parsons thereafter forwarded notice of those claims to Covanta on September 10,
2012. (Parsons’s CSF, Exh. I.) Parsons informed Covanta that, “[p]ursuant to
Contract Section 7.2.3 Change Orders, Parsons hereby notifies Covanta Energy
that American Electric is seeking additional compensation related to electrical
scope growth.” (Id.) Parsons represented that AE would submit further
information, and thereafter Parsons would assign a COR number. (Id.) However,
before Parsons could assign a COR number, Covanta rejected those claims by
letter dated September 12, 2012, stating that the claims were “untimely and
unsubstantiated.” (Parsons’s CSF, Exh. J.) Covanta chastised Parsons for
forwarding AE’s claims when it appeared that Parsons had already rejected them.
(Id.)
Moreover, Parsons argues that Covanta received further notice of the

29

claims on March 11, 2013, when it forwarded AE’s March 7, 2013 letter to Parsons
in an e-mail titled “Notice of Claim” to Covanta’s project manager. (Parsons’s
CSF, Exhs. L, M.) The letter from AE contained a spreadsheet of the various
outstanding change orders totaling $12,575,471.44. (Parsons’s CSF, Exh. L.)
Covanta allegedly acknowledged receipt of the e-mail that same day. (Parsons’s
CSF, Decl. of Julie Sankey (“Sankey Decl.”) ¶ 7.) However, by letter dated March
14, 2013, Covanta responded by informing Parsons that it is not to submit
unsubstantiated or untimely claims, and, if the claims have any merit, then Parsons
is to address any claim that AE has against it. (Parsons’s CSF, Exh. N.)
Parsons additionally argues that Covanta was put on notice of the
Growth Claims when the three parties convened on February 6, 2013 to discuss
resolving the outstanding CORs relating to AE’s work. (Mem. in Opp’n to Mot. re
Disallowed Claims at 29; Parsons’s CSF, Sankey Decl. ¶ 6.)
After a careful review of the discovery responses and pleadings relied
upon by Covanta and the correspondence and documentation relied upon by
Parsons, the Court cannot hold, as a matter of law, the Parsons did not comply with
Articles 7.2.3 and 11.5.2. Parsons’s discovery responses and pleadings, which the
Court agrees establish that Parsons denied the Growth Claims, nevertheless show

30

that Parsons submitted AE’s requests to Covanta.11 Parsons further provides
documentation that Covanta received the information concerning the Growth
Claims and, for various reasons, summarily rejected them. Covanta claims that the
CORs were untimely or unsubstantiated under the terms of the Contract, but there
is not enough evidence before the Court to make that determination. Without
further information, the Court cannot say that the method of notice provided by
Parsons is insufficient under the Contract, or that the documentation provided by
Parsons is deficient, such that Parsons is precluded from asserting the Growth
Claims.
Therefore, given the factual discrepancies at hand, the Court HOLDS
that a genuine dispute of material fact exists that would preclude summary
judgment on the Growth Claims, and the Court will not rule, as a matter of law,
that Parsons failed to follow the terms of the Contract regarding the Growth
Claims. In particular, the Court lacks sufficient facts to determine whether

11

The Court additionally notes that, although Covanta repeatedly claims that
Parsons must admit liability on the Disallowed Claims before passing them on to
Covanta, it is unable to locate any provision in the Contract that evidences such a
requirement in the COR or Claims process. Rather, Covanta only points to the
general requirement that Parsons must “[p]rotect Covanta’s interests by mitigating
potential and/or actual claims by contractors on the Site.” (Contract, Exh. E
§ 01035 ¶ G.) The cases cited by Covanta in support of its argument relate to a
pass-through-claim lawsuit, not a COR process.

31

Covanta was provided sufficient and timely notice of the Growth Claims under
Articles 7 and 11 of the Contract. As such, summary judgment on the Growth
Claims is DENIED.
Moreover, the Court agrees with Parsons that the Court’s previous
ruling on Parsons’s Motion for Declaratory Ruling and for Partial Summary
Judgment is applicable here. As noted in its June 4, 2014 order, there is a
possibility that “negligence and breach on the part of Parsons . . . may have
rendered AE’s compliance with the Subcontract impossible. If the nature of the
project and the manner in which Covanta/Parsons directed AE’s work effectively
prevented AE from understanding the true extent of Project changes and their
subsequent impact on AE’s costs, the question arises as to when the clock would
begin to tick on any notice requirements.” (Order Denying Mot. for Declaratory
Ruling and for Partial Summ. J. at 14-17.) In other words, there may be external
factors affecting the notice that Parsons provided to Covanta, and the Court holds
that there are too many factual questions here to warrant summary judgment.
Finally, it is somewhat unclear to the Court whether Parsons was
presenting AE’s claims to Covanta as a “Change Order Request” under Article
7.2.3, or as a “Claim” under 11.5.2. Although, in the final analysis, this may not
make any difference, the parties should clarify whether the disputed issues concern

32

Parsons’s alleged failure to follow the COR procedure, the Claims procedure, or
both.
3.

Parsons’s Assertion of AE’s Pass-Through Claims

Next, assuming, arguendo, that Parsons followed the proper COR and
Claims procedure, the Court considers whether Parsons may allege “pass-through”
claims against Covanta in this present litigation. Although not seemingly
addressed by the Ninth Circuit or Hawaii courts explicitly, a pass-through claim is
essentially a claim based upon a subcontractor’s cause of action against a
contractor, which the contractor then “passes through” to the project owner, who is
allegedly liable for the injury. In California, the courts there have stated that:
Pass-through or representative claims are claims
asserted by a prime contractor on behalf of a
subcontractor against the other party to the prime
contract (typically a government project owner).
(Howard Contracting, Inc. v. G.A. MacDonald
Construction Co. (1998) 71 Cal. App. 4th 38, 60, 83 Cal.
Rptr. 2d 590; Calvert et al., Pass Through Claims and
Liquidation Agreements (Oct. 1998)[;] 18 Construction
Lawyer 29; Kester et al., Subcontractor Pass Through
Claims and Sponsorship Litigation (Sept. 2003)
Construction Briefings No. 2003-9.) Pass-through claims
originated as a means of compensating lower tier
subcontractors on public works projects who suffered
damages as the result of governmental agency delays or
misconduct but had no claim against the government
contractor, either in tort because of governmental
immunity or in contract because of a lack of privity.

33

(Kates, [F]acilitating Subcontractor’s Claims Against the
Government through the Prime Contractor as the Real
Party in Interest (1983) 52 Geo. Wash. L. Rev. p. 146,
fn.4.)
Superior Gunite v. Mitzel, 117 Cal. App. 4th 301, 314, 12 Cal. Rptr. 3d 423, 43233 (Cal. App. 2d Dist. 2004); see also Interstate Contracting Corp. v. City of
Dallas, 135 S.W.3d 605, 610 (Tex. 2004) (“A pass-through claim is a claim (1) by
a party who has suffered damages . . . ; (2) against a responsible party with whom
it has no contract . . . ; and (3) presented through an intervening party . . . who has
a contractual relationship with both.”).
a.

Validity of Pass-Through Claims in Hawaii

Covanta argues that Parsons has no basis in law or contract for
remaining neutral in this dispute and “passing through” AE’s claims to Covanta.
(Mot. re Disallowed Claims at 2.) Specifically, it takes the position that the
Contract does not allow pass-through claims, as Parsons’s failure to submit a
COR—the only contractual vehicle by which Parsons can request an increase in
the Contract price—precludes it from now asserting claims against Covanta. (Id.
at 27.) Additionally, Covanta argues that, although Hawaii law does not
specifically address pass-through claims, courts in other jurisdictions have made
clear that “an essential element required for a general contractor to have standing

34

to bring a pass-through claim on behalf of a subcontractor is an admission of
liability by the general contractor to the subcontractor.” (Id. (emphasis omitted)
(citations omitted).) Covanta contends that, because Parsons has allegedly denied
liability on all of AE’s claims against it, it cannot pass through those claims to
Covanta. (Id. at 28-29.)
In response, Parsons argues that pass-through claims are routinely
permitted against a project owner, even when a contractor has not admitted liability
to the subcontractor. (Mem. in Opp’n to Mot. re Disallowed Claims at 21-22.)
Parsons argues that Covanta misconstrues the cases cited in its own motion, many
of which are inapplicable to the case at hand. (Id. at 22-26.) Rather, Parsons states
that other district courts within the Ninth Circuit have held that pass-through
claims are permissible. (Id. at 22 n.4.) AE echoes many of Parsons’s arguments.
(See AE’s Mem. in Opp’n to Mot. re Disallowed Claims and Mot. re Duty at 2-6.)
Given the foregoing arguments, the Court first determines that Hawaii
courts would likely recognize the existence of pass-through claims, based on the
well-developed law in other jurisdictions. In California, for example, the courts
there have clearly recognized the validity of pass-through claims:
As a matter of law, a general contractor can
present a subcontractor’s claim on a pass-through basis.
(Maurice L. Bein v. Housing Authority (1958) 157 Cal.

35

App. 2d 670, 321 P.2d 753.) When a public agency
breaches a construction contract with a contractor,
damage often ensues to a subcontractor. In such a
situation, the subcontractor may not have legal standing
to assert a claim directly against the public agency due to
a lack of privity of contract, but may assert a claim
against the general contractor. In such a case, a general
contractor is permitted to present a pass-through claim on
behalf of the subcontractor against the public agency.
(D.A. Parrish & Sons v. County Sanitation Dist. (1959)
174 Cal. App. 2d 406, 344 P.2d 883.)
Howard Contracting, Inc. v. G.A. MacDonald Constr. Co., Inc., 71 Cal. App. 4th
38, 60, 83 Cal. Rptr. 2d 590, 602 (1998).
Similarly, in Interstate Contracting Corp., the Supreme Court of Texas
discussed the development of pass-through claims in federal and state courts. It
noted that, “[i]n breach of contract actions against the federal government,
contractors have long been permitted to present subcontractors’ claims on a passthrough basis against the government, even though the no-privity rule would
otherwise bar subcontractors from recovering directly against the government.”
Interstate Contracting Corp., 135 S.W.3d at 610-11 (citations omitted). “The
federal pass-through procedure has become the standard method by which such
claims are resolved.” Id. at 611 (citations omitted). Indeed, under this doctrine,
“as long as the general contractor remains liable to the subcontractor for the
subcontractor’s damages, the general contractor can bring an action against the

36

government for the subcontractor’s damages.” Id. (citations omitted).12 The Court
agrees that the reasoning of the above-cited cases is sound. As such, the Court
holds that pass-through claims are well established in federal law and would likely
be adopted by Hawaii courts.
Moreover, it appears that Covanta and Parsons contemplated the
possibility of pass-through claims against Covanta, even though the parties did not
use the express term “pass-through claims.” Article 11.5 of the Contract provides
that:
Either Party may make a “Claim,” which shall mean a
written demand proposing specific relief or a remedy to
an issue or dispute arising out of or relating to this
Contract, the breach, the termination of, or validity of
this Contract, the Contract Documents or the Work,
including all contract claims, equitable claims, claims for
an extension of time and claims brought by Contractor,
on behalf of a subcontractor, against Covanta, all of
which will be handled in accordance with this Article
11.5.
(Contract art. 11.5.2 (emphasis added).) That the parties to the Contract explicitly
recognized that Parsons may bring claims against Covanta on behalf of a
subcontractor appears to suggest that the parties contemplated the existence of

12

The Texas Supreme Court tracked the development of the pass-through
doctrine through federal and state courts, additionally noting that, of the 19 states
that have addressed pass-through claims, only one state (Connecticut) explicitly
rejects them. Id. at 613-14.

37

pass-through claims.
b.

Parsons’s Admission of Liability on AE’s Claims

The Court similarly disagrees with Covanta’s contention that Parsons’s
refusal to admit liability to AE on the Disallowed Claims precludes it from
asserting those claims against Covanta. Under the so-called “Severin Doctrine,” “a
prime contractor may not sue the government for contract damages incurred by a
subcontractor unless the prime contractor remains potentially liable to the
subcontractor for those same damages.” Harper/Neilsen Dillingham, Builders, Inc.
v. United States, 81 Fed. Cl. 667, 669 n.2 (2008) (citing Severin v. United States,
99 Ct. Cl. 435, 443 (1943), cert. denied, 322 U.S. 733 (1944)). “In determining
whether a prime contractor is liable to the subcontractor for purposes of the
Severin doctrine, ‘damages are not limited to payments actually made to
subcontractors but can include potential liability.’” Id. (emphasis in original)
(quoting C & H Commercial Contractors, Inc. v. United States, 35 Fed. Cl. 246,
257 (1996)). In other words, this type of lawsuit “may be maintained only when
the prime contractor has reimbursed its subcontractor for the latter’s damages or
remains liable for such reimbursement in the future.” George Hyman Constr.
Co. v. United States, 30 Fed. Cl. 170, 174 (1993) (emphasis added) (quoting J.L.
Simmons Co. v. United States, 158 Ct. Cl. 393, 304 F.2d 888-89 (1962)).

38

As such, the most that can be said is that Parsons must remain
potentially liable to AE for it to assert pass-through claims against Covanta. The
few cases cited by Covanta in support of its position that Parsons must explicitly
deny liability appear to be in the minority.13 (See Mot. re Disallowed Claims at
27-28.) Even George Hyman Construction Co., cited by Covanta, at most stands
for the proposition that Parsons need only remain potentially liable for AE’s
damages in the future.14 Rather, it appears that the majority rule merely requires
the possibility that Parsons may be liable to AE in order to pass through the claims
to Covanta. Furthermore, the Court also notes that Article 11.5.2 of the Contract,

13

Covanta’s citation to Wexler Construction Co. v. Housing Authority of
Town of Norwich, 183 A.2d 262, 264 (Conn. 1962), is unpersuasive, as
Connecticut appears to be the only jurisdiction that explicitly rejects pass-through
claims unless the contractor admits liability and impleads the project owner. See
Interstate Contracting Corp., 135 S.W.3d at 614 n.6. Similarly, its reliance to two
Southern District of New York cases, Travelers Casualty and Surety Co. v.
Dormitory Authority – State of New York, 735 F. Supp. 2d 42 (S.D.N.Y. 2010),
and Honeywell, Inc. v. J.P. Maguire Co., Inc., No. 93 CIV. 5253 DABHBP, 2000
WL 307398 (S.D.N.Y. Mar. 23, 2000), is also misplaced, as those two cases are
factually distinguishable, and the requirement of an admission of liability appears
to be the minority position.
14

Although the United States Court of Federal Claims ultimately held that
the contractor could not pass through the subcontractor’s claims against it to the
United States, the court’s analysis was informed by the subcontractor’s release of
all claims against the contractor. Thus, because the subcontractor had agreed that
the contractor was not liable to it, the contractor could not assert any of the
subcontractor’s claims. See George Hyman Constr. Co., 30 Fed. Cl. at 175-77.

39

seemingly allowing Parsons to pass through AE’s claims to Covanta, does not
memorialize any requirement that Parsons first admit liability to the subcontractors
whose claims it would assert.
c.

Claims Brought “on Behalf of” AE

Having first determined that Parsons may assert pass-through claims
against Covanta, the Court now considers whether, as Covanta argues, Parsons
fails to assert those claims in this litigation “on behalf of” AE. In other words,
even if pass-through claims are permissible, Covanta argues that “Parsons’
pleadings do not assert that Parsons’ claims are being brought on American
Electric’s behalf. Nor could they, since Parsons is being sued by American
Electric on those very same claims and has clearly and unequivocally admitted that
it has denied the very same claims as untimely and unsubstantiated.” (Reply at 4.)
In other words, Covanta focuses on whether Parsons is asserting the pass-through
claims “on behalf of” AE, as opposed to in its own right. (Id. at 15.) Covanta
further argues that Parsons’s suit against Covanta is comprised of “Parsons’s own
claims, which arise from Covanta’s own acts or omissions.” (Id. at 16 (emphasis
in original).) Because this particular argument was raised in the Reply, Parsons did
not have an opportunity to submit a written response, and it did not directly address
this argument during the hearing on the Motions.

40

Although Parsons admits that it is prosecuting its “own claims,” it
claims that it is also asserting AE’s causes of action against Covanta, since AE
lacks contractual privity and cannot assert such claims against Covanta. Covanta
argues that Parsons’s and AE’s interests are at odds with each other, but it provides
no authority standing for the proposition that the two entities must cooperate with
each other or that Parsons must have the consent of its subcontractor. (See Reply
at 4-5.) In other words, Covanta’s bald assertion that “Parsons cannot ‘passthrough’ claims against which it is simultaneously defending” is completely
unsupported. (Id. at 4.) Given the lack of legal authority and argument before the
Court regarding the interpretation of “on behalf of,” the Court is unable to say, as a
matter of law, that Parsons did not bring the Disallowed Claims on AE’s behalf.
Moreover, the factual record is not clear regarding Parsons’s actions
“on behalf of” AE. Even assuming, arguendo, that Covanta is correct and Parsons
cannot bring claims on behalf of an uncooperative party, the Court cannot
determine whether Parsons failed to act on behalf of AE in asserting the
Disallowed Claims. On the one hand, the Subcontract provides for Parsons’s
ability to assert AE’s claims as pass-through claims against Covanta. The
Subcontract does contemplate (1) a dispute between Parsons and Covanta
concerning AE’s work, and (2) a dispute between Parsons and AE arising out of

41

Covanta’s conduct:
In the event of any dispute or claim between
CONTRACTOR and OWNER which directly or
indirectly involves the work performed or to be
performed by SUBCONTRACTOR, or in the event of
any dispute or claim between CONTRACTOR and
SUBCONTRACTOR caused by or arising out of conduct
for which OWNER may be responsible,
SUBCONTRACTOR agrees to be bound to
CONTRACTOR and CONTRACTOR agrees to be
bound to SUBCONTRACTOR . . . .
(Subcontract § 4.3 ¶ 3.) Moreover, the Subcontract provides that, “[i]f any dispute
or claim of SUBCONTRACTOR is prosecuted or defended by CONTRACTOR
together with disputes or claims of CONTRACTOR’S own, and the
SUBCONTRACTOR is not directly a party, SUBCONTRACTOR agrees to
cooperate fully . . . .” 15 (Id. (emphases added).) Thus, the Subcontract not only
allows Parsons to assert AE’s claims as pass-through claims against Covanta, but it
contemplates that AE will not be a party to that action and that Parsons may also
assert its own claims against Covanta.
On the other hand, there are no facts before the Court regarding

15

Whether AE properly cooperated with Parsons under the terms of the
Subcontract is a separate matter not currently before the Court. Presently at issue
is whether Parsons may, under the terms of the Contract and Subcontract, assert
AE’s pass-through claims against Covanta.

42

whether Parsons brought the Disallowed Claim “on behalf of” AE, including
whether Parsons and AE have complied with the terms of the Subcontract such that
Parsons could assert claims on behalf of AE. The Court recognizes that Parsons’s
Motion for Summary Judgment against AE over the latter’s alleged breach of the
Subcontract is the subject of a separate motion not currently before the Court. The
Court thus DENIES the Motion re Disallowed Claims as to the issue of Parsons’s
ability to assert the Disallowed Claims on behalf of AE, given that (1) no party has
presented the Court with any authority with which to construe the phrase “on
behalf of,” and (2) the factual record is unclear whether or not Parsons failed to
assert the Disallowed Claims “on behalf of” AE. The Court may later take up this
issue in connection with Parsons’s Motion for Partial Summary Judgment against
Plaintiff American Electric Co., LLC Related to its Claim for Breach of Contract
as Alleged in its Amended Complaint and Request for Declaratory Ruling on
Entitlement to Attorneys’ Fees and Costs. (Doc. no. 192.)
Based on the foregoing, the Court determines that Hawaii courts
would likely recognize pass-through claims and would not, as a prerequisite,
require that the contractor admit liability on the subcontractor’s claims. However,
there is insufficient legal authority and facts before the Court to allow it to
determine that Parsons is not asserting the Disallowed Claims “on behalf of” AE,

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and the Court DENIES the Motion re Disallowed Claims as to the pass-through
claims. Therefore, for the reasons stated above, the Court GRANTS IN PART and
DENIES IN PART the Motion re Disallowed Claims.
II.

MOTION FOR PARTIAL SUMMARY JUDGMENT
RE PARSONS, RCI, INC.’S DUTY TO DEFEND AND,
WITH RESPECT TO THE DISALLOWED CLAIMS, TO INDEMNIFY
Next, regarding Covanta’s Motion re Duty, the Court addresses

whether, as a matter of law, Parsons owes Covanta a duty to defend and/or
indemnify it. Based on the current record before this Court, the Contract is
ambiguous, and there is a genuine issue of material fact regarding the parties’
intent concerning the indemnification provisions in the Contract. Furthermore, the
Court has denied the Motion re Disallowed Claims, thus rendering moot Covanta’s
arguments regarding the duty to indemnify. As such, the Court DENIES the
Motion re Duty in its entirety.
A.

Parsons’s Duty to Defend
First, the Court considers whether Parsons breached its duty to defend

Covanta. This district court has aptly summarized the rule regarding the duty to
defend in Hawaii:
Under Hawai‘i law, private indemnity contracts are
interpreted according to the same principles as insurance
contracts. See Pancakes of Hawaii v. Pomare Properties

44

Corp., 85 Hawai‘i 286, 291, 944 P.2d 83, 88 (App. 1997)
(expanding the duty to defend based on the complaint
allegation rule to non-insurance indemnity contracts); see
also City and County of Honolulu v. Churchill, 167 F.
Supp. 2d 1143, 1157 (D. Haw. 2000) (holding that the
duty to defend arising under an indemnity agreement
should be analyzed just as if it had arisen under an
insurance policy). In Pancakes, the Intermediate Court of
Appeals incorporated the complaint allegation rule to
apply to private indemnity contracts and observed that an
indemnitor’s duty to defend is broader than the duty to
indemnify and must be determined at the onset of
litigation using the complaint allegation rule. 85 Hawai‘i
at 291, 944 P.2d at 88. Under the complaint allegation
rule, the duty to defend is triggered whenever the
allegations of the complaint raise the possibility that the
indemnitor may have a duty to defend. Id. at 294, 944
P.2d at 91 (holding that the duty to defend is triggered
when “any of the allegations in the complaint potentially
include conduct” that is covered by the indemnity
contract). In addition, if there is a potential to defend
against any of the claims raised in the complaint, the
indemnitor must defend against all of the claims brought
against the indemnitee. See id.
Shaughnessy v. KC Rainbow Devel. Co., LLC, Civ. No. 09-ACK-LEK, 2010 WL
157486, at 5 (D. Haw. Jan. 15, 2010) (emphasis in original) (internal footnote
omitted). The first question the Court must answer is whether the Contract
imposes on Parsons the duty to defend Covanta. If it does, the Court next inquires
as to whether the duty was triggered by the allegations in this action.
Covanta takes the position that Articles 2.9.2 and 6.1.1 of the Contract

45

clearly require Parsons to defend and indemnify it against any claim relating to
claims made by AE against either Covanta or Parsons. Article 2.9.2 provides that
“[Parsons] shall protect, defend, indemnify, save and hold harmless Covanta . . .
from and against any and all loss, claims, damages and/or liability related to any
such claim or suit made or commenced by any such subcontractor . . . against
[Parsons or] Covanta . . . .” (Contract art. 2.9.2.) Covanta argues that Article 2.9.2
is valid under Hawaii law, so long as the provision contains “enough specificity to
demonstrate that the indemnitor is ‘fully cognizant’ of the agreement it is making.”
(Mot. re Duty at 15 (citing Servco Pac., Inc. v. Dods, 193 F. Supp. 2d 1183, 1193
(D. Haw. 2002)).) Covanta states that Parsons was “fully cognizant of its
unqualified agreement to indemnify Covanta,” and the “express and unequivocal
language” of Article 2.9.2 “requires Parsons to defend and indemnify Covanta not
only against subcontractor claims and allegations against Parsons, but also against
subcontractor allegations and claims against Covanta.” (Id. (emphasis in
original).)
Moreover, Article 6.1.1 provides that “[Parsons] agrees, at its cost and
expense, to protect, defend, save, indemnify and hold completely free and harmless
Covanta . . . from and against any and all . . . claims . . . arising directly out of or
related to the performance or nonperformance of the Work and this Contract

46

attributable to the negligence, error, omission willful misconduct, bad faith or lack
of due diligence, to the extent caused by [Parsons] . . . .” (Contract art. 6.1.1.)
Covanta argues that Article 6.1.1 is triggered if any of the claims are the result of
Parsons’s negligence. (Mot. re Duty at 16-17.)
Conversely, Parsons argues that the parties did not intend for Parsons
to indemnify Covanta against claims brought by Parsons. It argues that Article
2.9.2 is “nonsensical,” given that it conflicts with Article 11.5, which
“contemplates a process by which claims by Parsons and Parsons’ subcontractors
will be addressed.” (Mem. in Opp’n to Mot. re Duty at 20.) Given the conflict,
Parsons argues that the two provisions are “incompatible and fundamentally at
odds with one another[,]” such that the Contract is ambiguous. (Id. at 23.) Parsons
argues that, because ambiguous contract terms are construed against the drafter of
the contract, Covanta, as the drafter, should not be allowed to enforce the
ambiguous provision. (Id. at 23-24.)
Parsons further argues that Article 6.1.1 is inapplicable to the present
case, as none of the complaints allege theories of negligence or other tort claims
against any party. Rather, Covanta bases its argument on this Court’s prior
holding, in which it stated that, “whether Parsons contributed to any AE failure to
provide notice, due to negligence, breach, or failure to follow industry standards

47

are questions of fact, which preclude summary judgment.” (Id. at 27.) However,
Parsons argues, the possibility of such defenses existing does not mean that any
party has asserted a tort claim. (Id.)
1.

Contractual Ambiguity and Question of Fact Regarding Intent

It is a fundamental principle of contract law that “terms of a contract
should be interpreted according to their plain, ordinary and accepted use in
common speech, unless the contract indicates a different meaning.” Amfac, Inc. v.
Waikiki Beachcomber Inv. Co., 74 Haw. 85, 108, 839 P.2d 10, 24 (1992) (citations
omitted). However, pursuant to the rule of reasonable construction, when:
the language of the contract is contradictory, obscure or
ambiguous, or where its meaning is doubtful so that it is
susceptible of two constructions, one of which makes it
fair, customary and such as prudent men [or women]
would naturally execute, while the other makes it
inequitable, unusual or such as reasonable men [or
women] would not be likely to enter into, the
interpretation [that] makes it a rational and probable
agreement must be preferred.
Pancakes of Haw., Inc., 85 Haw. at 296 n.6, 944 P.2d at 93 n.6 (quoting Hawaiian
Pineapple Co. v. Masamari Saito, 24 Haw. 787, 799 (1919)). Moreover, the Court
must avoid construing a contract in a way that would lead to an absurd result. See
Canton Ins. Office v. Woodside, 90 F. 301, 303-04 (9th Cir. 1898) (“Where the
strict construction of the language of a contract will lead to such an unjust or

48

absurd result that it may be said that it was not within the reasonable contemplation
of the parties to the contract, the court will avoid such a construction, and
endeavor to ascertain the real intention of the parties, which, in a case of insurance
having indemnity for its object, will be construed liberally to that end.”); cf. State
v. McKnight, 131 Hawaiʻi 379, 319 P.3d 298 (2013) (“Pursuant to established
principles of statutory construction, the court will depart from a literal reading of a
statute when the plain language results in an ‘absurd or unjust result’ and is
‘clearly inconsistent with the purposes and policies of the statute.’” (citation
omitted)).
In construing Hawaii law, the Ninth Circuit has stated, with respect to
contractual ambiguity, that:
[a]n ambiguous term is one susceptible to more than one
reasonable interpretation. Port of Portland v. Water
Quality Ins. Syndicate, 796 F.2d 1188, 1194 (9th
Cir.1986); MPM Hawaiian Inc. v. World Square, 4 Haw.
App. 341, 345, 666 P.2d 622, 626 (an ambiguity exists
when there is some doubt as to the meaning of written
words), rev’d on other grounds, 66 Haw. 675 (1983).
The presence of an ambiguous material term may
indicate that no meeting of the minds occurred when the
document was signed. 1 Corbin, Contracts § 4.10
(1993); Restatement 2d of Contracts § 20 (“There is no
manifestation of mutual assent to an exchange if the
parties attach materially different meanings to their
manifestations and . . . neither party knows or has reason
to know the meaning attached by the other. . . .”).

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Local Motion, Inc. v. Neischer, 105 F.3d 1278, 1280 (9th Cir. 1997).
As a general rule, the Court will look no further than the four corners
of the contract to determine whether an ambiguity exists. State Farm Fire & Cas.
Co. v. Pac. Rent-All, Inc., 90 Hawai‘i 315, 324, 978 P.2d 753, 762 (1999) (noting
that the parties’ disagreement as to the meaning of a contract does not render it
ambiguous).  However, “[u]nder Hawaii law, ‘extrinsic evidence . . . [may] be
considered by the court to determine the true intent of the parties if there is any
doubt or controversy as to the meaning of the language embodying their bargain.’
Ambiguity can exist within a contract even if no particular words or phrases are
themselves ambiguous.” Metzler Contracting Co. LLC v. Stephens, 774 F. Supp.
2d 1073, 1082-83 (D. Haw. 2011) (quoting Hokama v. Relinc Corp., 57 Haw. 470,
476, 559 P.2d 279, 283 (1977)).
2.

Construction of Articles 2.9.2 and 11.5

At the outset, the Court acknowledges that the plain language of
Article 2.9.2 seemingly insulates Covanta from any claim relating to a
subcontractor’s claim.16 Article 2.9.2 provides that “[Parsons] shall protect,

16

Conversely, Article 6.1.1 appears irrelevant to the present motion, as there
are no allegations that any of the operative claims arise out of Parsons’s or AE’s
“negligence, error, omission willful misconduct, bad faith or lack of due

50

defend, indemnify, save and hold harmless Covanta . . . from and against any and
all loss, claims, damages and/or liability related to any such claim or suit made . . .
by any such subcontractor . . . against” Parsons or Covanta. Certainly, Parsons’s
claims against Covanta are “related to” a subcontractor’s claims against it, as
Parsons has even admitted that its case against Covanta is based on the “passing
through” to Covanta of AE’s claims. In other words, because Parsons seeks to
assert claims against Covanta that are related to AE’s claims, Parsons ostensibly
must defend Covanta from such claims.
However, Parsons also directs the Court’s attention to Article 11.5,
which provides the mechanism for which the parties may bring claims against each
other. Under Article 11.5:
Either party may make a “Claim,” . . . to an issue or
dispute arising out of or relating to this Contract, the
breach, the termination of, or validity of this Contract,
the Contract Documents or the Work, including all
contract claims, equitable claims, claims for an extension
of time, and claims brought by Contractor, on behalf of
a subcontractor, against Covanta, all of which will be
handled in accordance with this Article 11.5.
(Contract art. 11.5 (emphasis added).) Parsons argues that, when read together,

diligence[.]” (Contract art. 6.1.1.) AE only alleges Breach of Contract (Count I)
and Unjust Enrichment (Count II) in its First Amended Complaint. Accordingly,
the Court holds that Article 6.1.1 does not provide a basis on which to impose a
duty to defend on Parsons.

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these two provisions create an ambiguity in the Contract.
When reading Articles 2.9.2 and 11.5, it appears that, on the one hand,
the Contract specifically contemplates that Parsons may assert “claims . . . on
behalf of a subcontractor, against Covanta.” (Id. art. 11.5.) Here, it is possible that
Parsons has properly asserted against Covanta, under a “pass-through” theory,
AE’s claims against Parsons. However, on the other hand, the Contract also
provides that Parsons must defend and indemnify Covanta against any and all of
Parsons’s claims that are “related to” the subcontractor’s claims. (Id. art. 2.9.2.)
Taken together, this means that, if Parsons is ever to assert a claim against Covanta
based on a subcontractor’s claim, it must also assume a duty to defend, and thus
Parsons must defend Covanta against Parsons’s own lawsuit.17
The Court recognizes that “[i]t is the duty and responsibility of the
courts, not to re-write contracts according to their own views of what is practical
and fair, but to enforce them in accordance with the evidence and recognized
principles of law.” United States v. Bethlehem Steel Corp., 315 U.S. 289, 310
(1942). However, the Court finds that these two provisions, when read together,
are ambiguous, and the enforcement of such would lead to an absurd and

17

Taken to its next logical conclusion, Covanta’s position also means that,
even if Parsons prevails in such a lawsuit, Parsons must indemnify Covanta and,
essentially, pay itself any damages award.

52

unreasonable result. Although the particular words themselves are unambiguous,
the enforcement of Article 2.9.2 would render Article 11.5 meaningless in certain
situations, as Parsons’s express ability to sue Covanta and successfully recover
damages arising out of a subcontractor’s claim would be completely nullified. The
Court finds it difficult to accept that this absurd result was the intent of the parties.
“When an ambiguity exists so that there is some doubt as to the intent
of the parties, intent is a question for the trier of fact.” Found. Int’l, Inc. v. E.T. Ige
Constr., Inc., 102 Hawaiʻi 487, 78 P.3d 23 (2003) (citing Bishop Trust Co., Ltd. v.
Central Union Church of Honolulu, 3 Haw. App. 624, 628, 656 P.2d 1353, 1356
(1983)). “Where ambiguity exists, summary judgment is usually inappropriate
because ‘the determination of someone’s state of mind usually entails the drawing
of factual inferences as to which reasonable men might differ.’” Amfac, Inc., 74
Haw. at 108, 839 P.2d at 107. Because neither party has provided the Court with
any facts upon which to determine the intent of the parties, summary judgment is
inappropriate at this time.
Moreover, given that Covanta drafted the Contract, the Court must
construe the ambiguity against Covanta. Koga Eng’g & Constr., Inc., 122 Hawaiʻi
at 72, n.19, 222 P.3d at 991 n.19 (“Ambiguities in a contract are construed against
the drafter.”); Luke v. Gentry Realty, Ltd., 105 Hawaiʻi 241, 249, 96 P.3d 261, 269

53

(2004) (“This court has affirmed the general rule that, in interpreting contracts,
ambiguous terms are construed against the party who drafted the contract.”).
Accordingly, the Court determines that there is an ambiguity in the
Contract, insofar as Articles 2.9.2 and 11.5 cannot reasonably be read together.
Furthermore, because there is a genuine issue of material fact regarding the parties’
intent concerning Parsons’s ability to bring suit and recover damages against
Covanta for a subcontractor’s claim, the Court holds that Covanta has failed to
carry its burden on summary judgment with respect to the duty to defend.
B.

Parsons’s Duty to Indemnify
Finally, Covanta requests that the Court hold that, under the Contract,

Parsons owes it a duty to indemnify it against AE’s claims being asserted by
Parsons. Covanta summarizes its arguments from its Motion re Disallowed Claims
and argues that, “[i]f the Court rules in favor of Covanta on its Motion Re:
Disallowed Claims, it would therefore also be appropriate for the Court to enforce
the indemnity provisions in the General Contract with respect to the Disallowed
Claims and rule that any liability as to the Disallowed Claims is Parsons’.” (Mot.
re Duty at 19-20.)
However, as discussed above, the Court has held that there are
genuine disputes of material fact precluding summary judgment on the Disallowed

54

Claims. It has not been determined that Parsons owes Covanta a duty to defend,
because the indemnification provision in the Contract is ambiguous, and the Court
also cannot say that Parsons owes Covanta a duty to indemnify. Accordingly,
because it has denied in part the Motion re Disallowed Claims and denied the
Motion re Duty insofar as Covanta seeks a declaratory ruling regarding Parsons’s
duty to defend, the Court also denies the Motion re Duty regarding Parsons’s duty
to indemnify. Therefore, the Motion re Duty is DENIED in its entirety.
//
//
//
//
//
//
//
//
//
//
//
//
//

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CONCLUSION
For the foregoing reasons, the Court GRANTS IN PART and
DENIES IN PART the Motion for Partial Summary Judgment re Disallowed
Claims. Furthermore, the Court DENIES the Motion for Partial Summary
Judgment re Parsons, RCI, Inc.’s Duty to Defend, and, with Respect to the
Disallowed Claims, to Indemnify.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, February 27, 2015.

/S/ Barry M. Kurren
Barry M. Kurren
United States Magistrate Judge

American Electric Co., LLC v. Parsons RCI, Inc., CIV. NO. 13-00471 BMK, CIV. NO. 1400020 (Consolidated), ORDER (1) GRANTING IN PART AND DENYING IN PART
COVANTA HONOLULU RESOURCE RECOVERY VENTURE’S MOTION FOR PARTIAL
SUMMARY JUDGMENT RE DISALLOWED CLAIMS (Doc. No. 113) AND (2) DENYING
COVANTA HONOLULU RESORCE RECOVERY VENTURE’S MOTION FOR PARTIAL
SUMMARY JUDGMENT RE PARSONS, RCI, INC.’S DUTY TO DEFEND AND, WITH
RESPECT TO THE DISALLOWED CLAIMS, TO INDEMNIFY (Doc. No. 122) 

56