United States of America, for the use and benefit of Ash Equipment Co., Inc. et al v. Morris, Inc. et al
ORDER denying 140 Motion for Partial Summary Judgment; denying 153 Motion for Partial Summary Judgment; granting in part and denying in part 170 Motion for Summary Judgment. Signed by US Magistrate Judge Veronica L. Duffy on 8/8/2017. (CG)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
UNITED STATES OF AMERICA, FOR THE
USE AND BENEFIT OF ASH EQUIPMENT
CO., INC. D/B/A AMERICAN HYDRO;
AND ASH EQUIPMENT CO., INC., A
ORDER DENYING IN PART AND
GRANTING IN PART
THE PARTIES' VARIOUS MOTIONS
FOR PARTIAL SUMMARY JUDGMENT
DOCKET NOS. 140, 153 & 170
MORRIS, INC., A SOUTH DAKOTA
CORPORATION; UNITED FIRE AND
CASUALTY COMPANY, AN IOWA
CORPORATION; AND RED WILK
CONSTRUCTION, INC., A SOUTH
TABLE OF CONTENTS
INTRODUCTION ............................................................................................. 1
FACTS ............................................................................................................ 1
A. Contractual Relations Between the Parties.............................................. 1
B. Hydrodemolition ..................................................................................... 2
C. Hydro's Pre-Contract Proposals .............................................................. 4
D. Disputes While Work Was Progressing .................................................... 6
1. Start Time ........................................................................................... 6
2. Red Wilk's Alleged Breaches ................................................................ 7
3. Manholes............................................................................................. 9
4. Measurement of Concrete Removal .................................................... 10
5. The End ............................................................................................ 12
E. Claims Asserted by the Parties ............................................................. 13
F. Arguments in Favor of Partial Summary Judgment ............................... 13
1. Hydro's Motion for Partial Summary Judgment .................................. 13
2. Red Wilk's Motion for Partial Summary Judgment ............................. 14
3. Morris' Motion for Partial Summary Judgment ................................... 14
DISCUSSION ................................................................................................ 15
A. Summary Judgment Standard .............................................................. 15
B. South Dakota Contract Law.................................................................. 16
C. Hydro's Motion for Partial Summary Judgment..................................... 18
1. Liability on Miller Act Claim ............................................................... 18
2. Whether Red Wilk's Liquidated Damages Are Enforceable .................. 25
a. Validity of Liquidated Damages as a Matter of Law ....................... 25
b. Waiver of Liquidated Damages ...................................................... 42
3. Red Wilk's Counterclaim .................................................................... 44
a. Notice and Opportunity to Cure .................................................... 44
b. Red Wilk Caused its Own Damages .............................................. 49
c. Whether Red Wilk's Damages are Speculative ............................... 49
d. Manholes ..................................................................................... 50
D. Red Wilk's Motion for Partial Summary Judgment ................................ 58
1. Request for Extension of Time ........................................................... 59
a. Section 9.6 ................................................................................... 59
i. Damages are Not Limited.......................................................... 59
ii. Hydro Requested an Extension of Time .................................... 62
b. Acceleration Damages .................................................................. 65
c. Section 16.2 ................................................................................. 68
2. Delay Damages in Favor of Hydro ...................................................... 71
E. Morris' Motion for Partial Summary Judgment ..................................... 78
1. Survey Requirement .......................................................................... 79
2. Quantum Meruit ............................................................................... 84
3. Lost Productivity Damages................................................................. 90
CONCLUSION ............................................................................................... 92
This is a Miller Act action (40 U.S.C. § 3133(b)(3)(B)), brought by the United
States of America for the use and benefit of Ash Equipment Company, Inc., doing
business as American Hydro (“Hydro”). Defendants are the general contractor on
the project, Morris, Inc. (“Morris”); the company that issued the payment bond,
United Fire and Casualty Company (“UF&CC”); and subcontractor Red Wilk
Construction, Inc. (Red Wilk). Pending before the court are motions from each
party for partial summary judgment in their respective favors. See Docket Nos.
140, 153 & 170. This matter is before this court on the consent of all parties
pursuant to 28 U.S.C. § 636(c).
Contractual Relations Between the Parties
Defendant Morris contracted with the United States Army Corps of
Engineers (“the Corps”) to do work on the Fort Randall Dam spillway at Pickstown,
South Dakota, in September, 2013. Work on the spillway was necessitated (in
part) due to a flood which occurred in the summer of 2011. The project included
removal and replacement of damaged concrete. Morris obtained a Miller Act
payment bond on the project from defendant UF&CC in the amount of
$7,472,670.25. The payment bond obligated Morris and UF&CC jointly and
severally to guarantee payment to any subcontractor of Morris’ who furnished
labor and materials on the project as well as to persons who had a direct
contractual relationship with Morris on the project.
The project plans and specifications of the Corps required concrete removal
using, in part, hydrodemolition methods. Morris subcontracted the
hydrodemolition work to Red Wilk in October, 2013. Red Wilk in turn
subcontracted with Hydro on April 9, 2014. See Docket Nos. 158-1 and 158-2.1
Red Wilk promised to pay Hydro for Hydro’s work on the project within 10 working
days after Morris paid Red Wilk on monthly progress payments. Specific
provisions of these three contracts are discussed in depth below in the
DISCUSSION section of this opinion.
Hydrodemolition is the process of removing concrete with high-pressure
water jets mounted on a robot. A hydrodemolition system includes three main
components: (1) the robot; (2) high-pressure pumps which operate on diesel or
electricity and deliver to the robot up to 100 gallons of water per minute at
pressures up to 40,000 pounds per square inch; and (3) a trailer holding the
pumps, spare parts, tools, fuel, water, hoses and filters. The depth of a cut is
determined by the force of the water coming out of the robot's jets and how long
Three separate copies of the Red Wilk-Hydro contract were filed with the court.
See Docket Nos. 158-1, 158-2, and 158-3. Docket No. 158-1 is a complete copy of
the contract together with all the hand-written changes and acknowledgements of
those changes made by the contracting parties. It is, however, difficult to read.
Docket No. 158-3 is a similar copy, but parts of the contract are obscured by
sticky-notes and page 14 is missing altogether. Docket No. 158-2 is the original
typewritten portions of the contract but it is missing the handwritten changes and
initials. The court cites to both Docket No. 158-1 and 158-2 throughout this
opinion so that the reader has a version that is readable and also one containing
the handwritten additions. In addition, whoever scanned the contract found at
Docket No. 158-2 mixed up pages 16-18. Therefore, the page numbers assigned
by CM/ECF (the court's electronic docketing system) do not correspond to the
page numbers on the contract itself at the bottom of each page. When the court
cites to page numbers, it is citing to the page number of the actual contract as
indicated at the bottom of each page of the contract.
the jets linger over an area of concrete. The deeper the cut, the more water force
and time required. In addition to supplying copious amounts of water on the
front-end of the process for the robot's jets, hydrodemolition also requires prompt
removal of waste water.
The removal of waste water is important for three reasons. First, only upon
removal of wastewater can the operator of the robot assess how deeply and cleanly
the concrete is being demolished and, therefore, whether the pressure or time
being used should be adjusted. Second, if wastewater is allowed to pool over the
cutting site, the jetted water from the robot hits the pool first rather than directly
hitting the concrete. This diminishes the power of the jets to cut the concrete
because the pool of wastewater deflects, to some extent, the power of the water
emanating from the jets. Finally, if wastewater is not quickly and efficiently
removed, the particles in the wastewater can resettle in the cut area and resolidify,
essentially filling in or partially filling in a cut that has been made.
The robot used for hydrodemolition in this case weighed approximately
7,000 pounds. Needless to say, it is not an easy piece of equipment to move
around. Maximum efficiency for using the robot dictates that all of the concrete
removal in a particular area be done at the same time rather than skipping around
doing spot removals in numerous different areas. Further, if the robot is cutting
concrete on a slope, it has to be secured with tethers. The tethering must be
relocated whenever the robot is moved to another area on the slope. These details
of hydrodemolition are important to know in order to understand the parties'
Hydro's Pre-Contract Proposals
Prior to Red Wilk and Hydro entering into their finalized contract, Hydro
submitted four proposals to Red Wilk. Hydro's first proposal dated July 29, 2013,2
included unit prices for hydrodemolishing 47,375 square feet of concrete to a 6inch depth, 40,500 square feet of concrete to a 10-inch depth, and 6,400 square
feet at 16 manhole locations to an 18-inch depth. See Docket No. 159-1. Different
rates applied depending on the depth of the concrete removal and whether the
removal was taking place upstream of tier 46 or downstream of tier 46. Id. The
upstream-downstream designation had to do with whether the hydrodemolition
occurred on a horizontal surface or a slope—the downstream area was the sloped
The second proposal submitted by Hydro was dated August 22, 2013. See
Docket No. 161-1. This proposal reiterated the offer to remove 40,440 square feet
of concrete at the six-inch depth upstream, 6,935 square feet at the six-inch depth
downstream, 29,575 square feet at a 10-inch depth upstream, and 10,925 square
feet at a 10-inch depth downstream. Id. This second proposal did not include an
offer to do any manhole work denominated by name; nor did the proposal include
any 18-inch demolition which was associated with manhole work. Id.
The third proposal submitted by Hydro was dated August 30, 2013, and
includes the same exact amount of square footage for removal of concrete at the
six-inch and ten-inch depths (47,375 square feet and 40,500 square feet
respectively). See Docket No. 159-2. The third proposal changed the description
for removal of concrete at the 18-inch depth. Id. This offer reinserted an offer to
The date of this proposal may have been wrong. The actual date of the proposal
may have been August 29, 2013. See Docket No. 166-9 at p. 28.
do manhole work. It described hydrodemolishing "any work upstream" to a depth
of 18 inches at a rate of $55.88 per square foot and $67.58 per square foot for
"any work downstream" at the 18-inch depth. Id. Hydro's third proposal for
removal to a depth of 18 inches did not include a total square footage associated
with the 18-inch depth. Id. Hydro submitted a fourth proposal dated April 2,
2014, which was identical to its third proposal in terms of its description of square
feet of concrete to be removed, depth of removal, and rates for removal. Compare
Docket No. 159-2 with Docket No. 159-3.
All four of Hydro's written proposals indicate a spring, 2014, start date and
also indicate that Hydro required a minimum of three weeks’ notice prior to
beginning work. See Docket Nos. 159-1, 161-1, 159-2, all at page 1, and 160-8, at
page 2. The contract between Red Wilk and Hydro was signed April 9, 2014.
Three weeks from April 9 was April 30, 2014.
Hydro's first proposal set 207 working days as the time Hydro needed to
complete the work. See Docket No. 159-1 at p. 2. Hydro's second proposal
reduced the total time needed to complete the work to 169 days. See Docket No.
161-1 at p. 2. The third proposal further reduced the proposed work time to 165
days. See Docket No. 159-2. Hydro's fourth and final proposal was for 83 days,
which was adopted in the parties' final contract dated April 9, 2014. Compare
Docket No. 160-8 at p. 2; with Docket No. 158-1 at § 9.3; Docket No. 158-2 at §
Disputes While Work Was Progressing
The subcontract had a project completion date of August 1, 2014. See
Docket No. 158-1 at p. 15, § 9.3; Docket No. 158-2 at p. 15, § 9.3. The
subcontract was to be performed over 83 working days, with Sundays and public
holidays excluded (a six-day work week). See Docket No. 158-1 at p. 6, § 4.1.16;
Docket No. 158-2 at p. 6, § 4.1.16. A working day was to be 10 hours long and
begin at 7:00 a.m. Id. The contract stated that the date of commencement of the
contract was to be calculated from the date of completion. Id. at p. 14, § 9.1.
Unless otherwise provided, the start date was to be the date the agreement was
executed. Id. Counting backwards from August 1, 2014, the contract would have
needed to be begun by April 24, 2014, in order to run for 83 days (excluding all
Sundays, Memorial Day and Independence Day) and to be completed on August 1,
2014. The contract specified that "time is of the essence." Id. at p. 15, § 9.4.
Disputes between Hydro and Red Wilk materialized almost immediately.
Despite representations in its proposals that it could start work with three weeks'
notice, Hydro asserts it orally told Red Wilk before the contract was entered into
that it could not begin working on the project until late May or even potentially
early June. If supplied with the necessary water, removal of waste water, and
continuous cutting as specified in the contract, Hydro alleges it could have met the
target completion date of August 1 with far less than 83 working days. Red Wilk
issued a demand on April 28 that Hydro begin work immediately, insisting that the
contract required Hydro to have begun work on April 21. Hydro mobilized and
arrived on the job site on May 7. After setting up its equipment, Hydro was ready
to begin work at noon on Friday, May 9.
When Hydro arrived, however, it was not able to begin working. The Corps
required Red Wilk to test the berm which would contain the wastewater from
hydrodemolition before beginning work. Red Wilk had not performed the
necessary testing of the berm before Hydro arrived. Hydro actually began work on
Tuesday, May 13. The contract between Hydro and Red Wilk provided in §§ 8
and 10.3 for payment of $3,000 per day to Hydro for "idle and standby charges,"
that is, time Hydro was forced to wait around doing nothing because of Red Wilk.
Hydro billed Red Wilk and Red Wilk paid $3,000 per day for the days Hydro spent
idle waiting for the start of hydrodemolition.
Red Wilk agrees Hydro orally told it when it could start, but alleges Hydro
told Red Wilk it could start three weeks after the contract was signed, consistent
with Hydro's written proposals. Red Wilk asserts that the parties discussed and
agreed upon a specific start date of April 21, 2014, while the parties were at a preproject meeting on March 25, 2014.
Red Wilk's Alleged Breaches
Once Hydro was able to begin work, Hydro alleged that Red Wilk failed in its
contract requirements in several respects. Hydro asserts the contract required
Red Wilk to order Hydro's work so as to provide two phases maximum of
continuous cutting. This provision meant, according to Hydro, that Red Wilk was
obligated to order Hydro's work so as to provide one phase of cutting at the D wall
and half of the gates and one phase of cutting at the E wall and half of the gates.
See Docket No. 203-6 at pp. 8-9; Docket No. 167-2. This provision, according to
Hydro, was intended to allow Hydro to perform hydrodemolition without having to
relocate its robot, pumps, and trailer more than two times. Id. Instead, Hydro
alleges Red Wilk required Hydro to perform hydrodemolition in small patches all
around the work site, requiring Hydro to relocate its equipment nine to ten times.
Id. at p. 10.
Red Wilk was to supply Hydro with 300 gallons of water per minute for
hydrodemolition and Hydro alleges Red Wilk did not consistently do so. Red Wilk
was also supposed to continuously clean the cuts made by Hydro so Hydro could
see whether it was cutting sufficiently, which Hydro also alleges Red Wilk failed to
Hydro also alleges Red Wilk was to make saw cuts around the areas to be
hydrodemolished as required by the Corps' plans and specifications. Hydro alleges
Red Wilk failed to make these saw cuts, with the result that Hydro could not see
the outlines of the area to be cut once it was inundated with water and concrete
Finally, Hydro alleges Red Wilk failed to provide sufficient containment for
the waste water from the hydrodemolition, with the result that waste water flooded
over areas to be cut, reducing the effectiveness of Hydro's equipment which was
then forced to cut into a "pond" instead of directly cutting into concrete.
Hydro alleges its fell behind schedule due to Red Wilk's breaches. Hydro
requested an extension of the August 1 deadline set by the contract due to this
situation. Red Wilk refused the request, insisting on completion of the work by
August 1. Therefore, Hydro attempted to accelerate its work by bringing in
additional employees and equipment. Hydro alleges Red Wilk refused to allow
Hydro to utilize these additional workers and equipment because Red Wilk could
not answer the demand for additional support services, particularly it was not able
to accommodate the increase in wastewater to be handled if Hydro increased its
hydrodemolition pace. See Docket No. 203-6 at p. 10.
Red Wilk claims that Hydro was responsible for hydrodemolishing around
the perimeter of manholes and refused to carry out this work. Hydro claims that
hydrodemolition around manholes was not covered by its contract with Red Wilk.
The original Corps plans and specifications called for 18-inch hydrodemolition
around manholes, as well as less than 8-inch and more than 8-inch
hydrodemolition in other places.
The final contract between Red Wilk and Hydro calls for hydrodemolition
only at 6-inch and 10-inch depths. See Docket Nos. 158-2 at pp. 13-14; 158-3 at
pp. 13-14. The square footage for removal at the six- and 10-inch depths matches
exactly all four of Hydro's pre-contract proposals for hydrodemolition of concrete at
the six-inch and ten-inch depths: 47,375 square feet for six-inch depth removal
and 40,500 square feet for ten-inch depth removal. Id. The final contract contains
no mention of removal of concrete at the manholes specifically nor does it contain
any provision for removal of concrete to a depth of 18 inches. Id. Hydro claims
the final contract it entered into with Red Wilk did not include the manholes.
Red Wilk claims the Corps amended its plans and specifications with an
addendum on August 30, 2013, changing the hydrodemolition depth for manholes
to 10 inches, instead of 18 inches. Hydro claims it never received the Corps'
August 30, 2013, addendum. Red Wilk claims it provided the amendment to
Hydro via email. However, Red Wilk has never produced a copy of any email
documenting this delivery.
The Corps' August 30, 2013, amendment does change the work with regard
to manholes, but the amendment is unclear with regard to the required depth of
hydromilling around manholes or the square footage of concrete to be removed in
connection with manholes. The amendment was made in response to a question.
Both the question and the Corps' answer, which were incorporated into the Corps
contract, are as follows:
Q2: Note 1 on sheet S-501 states to remove concrete by
hydrodemolition methods as necessary to install manholes. The slab
needs to be removed completely. Would it not make better sense to
sawcut full depth and remove concrete? Hydrodemolition of 18" thick
concrete is very costly.
A2: Full depth saw cutting will be allowed within the extents of the
manhole. The area around the manhole will need to be hydromilled
to facilitate the repaired condition lap splice or mechanical splice of
See Docket No. 160-2. It is clear from this Q & A that the Corps dispensed with
the requirement of 18-inch hydrodemolition around manholes. In its place, the
manholes were to be sawcut, something that was outside of Hydro's contract,
which dealt only with concrete removal through hydrodemolition. However, the
Corps continued to require some hydromilling around manholes, though at an
unspecified depth and unspecified square footage.
Measurement of Concrete Removal
The general contract between Morris and the Corps contains several
provisions for concrete removal. See Docket No. 156-4 at pp. 6-8, Parts 1, 2.
Concrete removal under the general contract is to be measured by the square foot,
with measurement made by a survey of the removal limits. Id. at pp. 7-8, Parts 1,
2, ¶¶ 1.2, 2.2. Payment is then to be made by multiplying the unit price by the
number of square feet of concrete removed and accepted. Id. The terms of the
prime contract are incorporated by reference into the contract between Hydro and
Red Wilk. The prime contract calls for hydrodemolition of a total of 81,775 square
feet of concrete. See Docket No. 160-2 at pp. 4, 7-8. The contract between Hydro
and Red Wilk called for the removal of 87,875 square feet of concrete (47,375
square feet at a depth of six inches; 40,500 square feet at a depth of ten inches).3
See Docket Nos. 158-2 at pp. 13-14, and 158-3 at pp. 13-14.
Morris asserts that the only true survey made of the concrete removal was
made by itself on September 15, 2014, and showed that Hydro had removed
57,776 square feet of concrete. It seeks to limit Hydro's claim for unpaid concrete
removal to this figure. Hydro counters that Morris billed the Corps and was paid
for removal via hydrodemolition of 62,000 square feet of concrete.4 However,
Morris asserts that approximately 6,000 square feet of this 62,000 figure was work
done by Hydro's successor on the job site, 2X Hydro-Demolition, LLC, thus leaving
Hydro's portion at 57,776.
Hydro submitted progress billings to Red Wilk as its work progressed and
Red Wilk in turn billed Morris accordingly. Between May, 2014, and December,
Actually, even within the subcontract there are discrepancies in the total amount
of concrete to be removed. Sections 8 and 10.3 quoted above show a total of
87,875 square feet, but section 9.3 shows 87,720 square feet.
This issue is muddled still further by the fact that Morris in fact originally billed
the Corps and was paid for removal of 68,000 square feet of concrete. This figure
was later determined to be an overbilling/overpayment of 6,000 square feet. See
Docket No. 215-1. Morris and the Corps rectified their accounts so as to
compensate for the error.
2014, Morris paid Red Wilk $1,248,914.10 for Hydro's work on the project.
However, Red Wilk in turn only paid Hydro $475,074 for its work.
On July 29, 2014, Hydro left the project site. See Docket No. 197-12 at pp.
102-03. There was additional hydrodemolition work due under the contract.
However, Red Wilk had never supplied Hydro with a schedule for work. Each day
Hydro would have to consult with Red Wilk to get its instructions for work for that
day. On Friday, July 25, 2014, Walter "Red" Wilk, owner of Red Wilk, was on the
job site but refused to speak to Hydro.5 No one else from Red Wilk gave Hydro
instructions as to what work to perform. Hydro sent its workers home for the day.
No one from Red Wilk was on the job site the next day, Saturday, July 26, 2014,
either and no one contacted Hydro with instructions via phone. Hydro sent its
crew home that day as well. On Monday, July 28, 2014, Walter Wilk was on the
job site. When Hydro asked for direction as to work, Walter told Hydro the only
work available for Hydro were the manholes. See Docket No. 167-1 at p. 66.
Since this was a disputed issue and Red Wilk refused to give Hydro any other
work, Hydro withdrew from the job site. Id. at 65-66.
Hydro returned twelve days later on August 11, 2014, to finish the
remaining work. See Docket No. 203-23 at pp. 64-66. Hydro brought this lawsuit
on August 22, 2014, but stayed on the job site until August 25 finishing work.
The parties dispute whether, at the time Hydro made its final departure on August
Hydro employee Tony Head overheard Walter talking on his phone at
approximately 7 a.m. stating that he had sold his company, Red Wilk
Construction, Inc. See Docket No. 167-1 at pp. 67-68. After the phone call ended,
Tony asked Walter three times to please answer some questions about work Hydro
was to do. Walter refused to do so. Id.
25, there was any defective work needing to be remedied which Hydro knew of and
refused to remedy. The parties also dispute whether Hydro completed all of its
work due under the contract because Red Wilk asserts Hydro promised to
hydrodemolish the manholes and did not do so. Red Wilk also asserts there were
additional areas above tier 46 that still needed to be hydrodemolished which Hydro
did not complete before leaving the job site.
Claims Asserted by the Parties
Hydro gave notice to Morris that it had not been paid. In its complaint,
Hydro asserts a common law breach of contract claim against Red Wilk, an
equitable claim in quantum meruit against Morris, and a Miller Act claim against
the UF&CC bond.
Morris and UF&CC asserted a cross-claim against Red Wilk, seeking
indemnification and setoff for any damages Hydro might obtain from Morris
and/or UF&CC on account of Red Wilk's actions.
Red Wilk counterclaimed against Hydro. Red Wilk asserted a breach of
contract claim, asserting Hydro did not perform all work called for by its contract,
it performed incomplete and nonconforming work, and it left the project work site
without finishing its work. Red Wilk also asserted a claim for liquidated damages
against Hydro pursuant to their contract. Finally, Red Wilk asserts the equitable
defenses of unclean hands and unjust enrichment.
Arguments in Favor of Partial Summary Judgment
Hydro's Motion for Partial Summary Judgment
Hydro moves for partial summary judgment [Docket No. 170] on the
following grounds: (1) Hydro has established liability on its Miller Act claim and
only damages should be tried; (2) Red Wilk's claim for liquidated damages should
be dismissed because the liquidated damages provision in the contract between
Red Wilk and Hydro is not enforceable; and (3) Hydro is entitled to judgment as a
matter of law on Red Wilk's counterclaims: (a) because Red Wilk did not give
Hydro notice and an opportunity to cure any alleged defects; (b) because Red Wilk
caused its own damages; (c) because Red Wilk's damages calculation is too
speculative; and (d) because manholes were not part of the contract between
Hydro and Red Wilk.
Red Wilk's Motion for Partial Summary Judgment
Red Wilk moves for partial summary judgment on the following grounds: (1)
because Hydro did not request an extension of time to complete its work Hydro is
not entitled to money damages or acceleration costs; and (2) Hydro's exclusive
remedy for delay caused by Red Wilk is the $3,000 per day delay damages
specified in the contract between Red Wilk and Hydro.
Morris' Motion for Partial Summary Judgment
Morris seeks partial summary judgment on three issues: (1) it seeks to limit
Hydro's damages to the amount of concrete removal demonstrated by the
September 15, 2014, survey it conducted; (2) it seeks dismissal of Hydro's
quantum meruit claim against Morris; and (3) it seeks to limit Hydro's damages for
"lost productivity" to those liquidated damages specified in the Red Wilk-Hydro
contract for idleness or delay.
Summary Judgment Standard
Under Rule 56(a) of the Federal Rules of Civil Procedure, summary judgment
is appropriate where the moving party Ashows that there is no genuine dispute as
to any material fact and the movant is entitled to judgment as a matter of law.@
FED. R. CIV. P. 56(a).
The court must view the facts, and inferences from those facts, in the light
most favorable to the nonmoving party. See Matsushita Elec. Co. v. Zenith Radio
Corp., 475 U.S. 574, 587–88 (1986) (citing United States v. Diebold, Inc., 369 U.S.
654, 655 (1962)); Helton v. Southland Racing Corp., 600 F.3d 954, 957 (8th Cir.
2010) (per curiam). Summary judgment will not lie if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party. See Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Allison v. Flexway Trucking, Inc., 28
F.3d 64, 66 (8th Cir. 1994).
The burden is placed on the moving party to establish both the absence of
any genuine issue of material fact and that the moving party is entitled to
judgment as a matter of law. FED. R. CIV. P. 56(a). Once the movant has met its
burden, the nonmoving party may not simply rest on the allegations in the
pleadings, but must set forth specific facts, by affidavit or other evidence, showing
that a genuine issue of material fact exists. Anderson, 477 U.S. at 256; FED. R.
CIV. P. 56(e) (each party must properly support its own assertions of fact and
properly address the opposing party=s assertions of fact, as required by Rule 56(c)).
The underlying substantive law identifies which facts are Amaterial@ for
purposes of a motion for summary judgment. Anderson, 477 U.S. at 248. AOnly
disputes over facts that might affect the outcome of the suit under the governing
law will properly preclude the entry of summary judgment. Factual disputes that
are irrelevant or unnecessary will not be counted.@ Id. (citing 10A CHARLES ALAN
WRIGHT, ARTHUR R. MILLER & MARY KAY KANE, FEDERAL PRACTICE AND PROCEDURE
' 2725, at 93–95 (3d ed. 1983)). A[T]he mere existence of some alleged factual
dispute between the parties will not defeat an otherwise properly supported motion
for summary judgment; the requirement is that there be no genuine issue of
material fact.@ Id. at 247–48.
Essentially, the availability of summary judgment turns on whether a proper
jury question is presented: AThe inquiry performed is the threshold inquiry of
determining whether there is the need for a trial—whether, in other words, there
are any genuine factual issues that properly can be resolved only by a finder of
fact because they may reasonably be resolved in favor of either party.@ Id. at 250.
South Dakota Contract Law
The parties agree that South Dakota law applies in this case. See Secura
Ins. v. Horizon Plumbing, Inc., 670 F.3d 857, 861 (8th Cir. 2012) (State law
governs the interpretation of a contract when federal jurisdiction is based on
diversity of citizenship). "A contract is an agreement to do or not to do a certain
thing." See SDCL § 53-1-1. The party asserting a breach of contract claim must
prove (1) an enforceable promise, (2) a breach of that promise, and (3) resulting
damages. Gul v. Ctr. for Family Medicine, 2009 S.D. 12, 762 N.W.2d 629, 633.
Under South Dakota law, contract interpretation is a question of law. Cornelius v.
Nat=l Cas. Co., 2012 S.D. 29, ¶ 6, 813 N.W.2d 167, 169; Lillibridge v. Meade
School Dist. #46-1, 2008 S.D. 17, & 9, 746 N.W.2d 428, 431.
When interpreting a contract, Aeffect will be given to the plain meaning of its
words.@ In re Dissolution of Midnight Star, 2006 S.D. 98, & 12, 724 N.W.2d 334,
337. Courts must Agive effect to the language of the entire contract and particular
words and phrases are not interpreted in isolation.@ Id. (internal citation omitted).
When provisions of a contract conflict and full weight cannot be given to each
provision, the more specific provision controls the more general provision as it is
presumed the more specific clause reflects the parties' intention. Spiska Eng=g,
Inc. v. SPM Thermo-Shield, Inc., 2007 S.D. 31, & 21, 730 N.W.2d 638, 645;
Bunkers v. Jacobson, 2002 S.D. 135, 653 N.W.2d 732, 738. Courts look Ato the
language that the parties used in the contract to determine their intention.@
Pauley v. Simonson, 2006 S.D. 73, & 8, 720 N.W.2d 665, 667-68. In interpreting
the contract, the court is to ascertain and give effect to the parties' intentions.
Bunkers, 653 N.W.2d at 738.
If the language of the contract is clear and unambiguous, Ait is the duty of
[the] Court to declare and enforce it.@ Pauley, 2006 S.D. 73, & 8, 720 N.W.2d at
668. However, if the contract is ambiguous, then Aparol and extrinsic evidence
may be utilized >to show what [the parties] meant by what they said . . .= @ Id.
(quoting Jensen v. Pure Plant Food Internatl., Ltd., 274 N.W.2d 261, 264 (S.D.
1979)). AA contract "is ambiguous when it is fairly susceptible to two
constructions.@ Fall River Co. v. South Dakota Public Assur. Alliance, 2001 S.D.
40, & 6, 623 N.W.2d 735, 737. Where the identity of a crucial party named in a
contract, such as "engineer," is not defined, parol evidence can and should be
admitted to show who the "engineer" was and what its duties were vis-a-vis the
contracting parties. Subsurfco, Inc. v. B-Y Water Dist., 337 N.W.2d 448, 457 (S.D.
If a contract is ambiguous, it is construed strictly against the author of the
contract. Ass Kickin Ranch, LLC v. North Star Mut. Ins. Co., 2012 S.D. 73, & 9;
822 N.W.2d 724, 727; Pete Lien & Sons, Inc. v. First American Title Ins., Co., 478
N.W.2d 824, 827 (S.D. 1991). This is because the Alanguage employed is that of
the [author] and it is consistent with both reason and justice that any fair doubt
as to the meaning of its own words should be resolved against it.@ Mut. Life Ins. v.
Hurni Packing Co., 263 U.S. 167, 174 (1923). However, the court may not seek
out a Astrained or unusual meaning.@ Chord v. Reynolds, 1999 S.D. 1, & 14, 587
N.W.2d 729, 732. Where there is no ambiguity, however, a contract is construed
according to the plain and ordinary meaning of its words. Pete Lien & Sons, Inc.,
478 N.W.2d at 827.
Hydro's Motion for Partial Summary Judgment
Liability on Miller Act Claim
The Miller Act provides that for any federal public works contract of more
than $100,000, the general contractor who is awarded the contract must furnish a
performance bond and payment bond with a satisfactory surety to the officer
awarding the contract in an amount the officer considers adequate. See 40 U.S.C.
§ 3131(b). The payment bond is for the protection of all persons supplying labor or
materials in carrying out the public works contract. Id.
The purpose of these provisions is to protect subcontractors and
materialmen who do not receive payment for their contributions to a project. With
a private owner, the subcontractor would be able to file a lien against the project to
ensure payment is made. See F.D. Rich Co. v. United States ex rel. Indus. Lumber
Co., Inc., 417 U.S. 116, 121-22 (1974), superseded by statute on other grounds,
31 U.S.C. § 3905. When the owner is the federal government, no such lien is
allowable. Id. Hence, the Miller Act is designed to remedy this situation. Consol.
Elec. & Mech., Inc. v. Biggs Gen. Contracting, Inc., 167 F.3d 432, 434 (8th Cir.
1999). Because it is remedial in nature, the Miller Act is to be broadly construed.
The Miller Act further specifies:
(1) 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.
(2) A person having a direct contractual relationship with a
subcontractor but no contractual relationship, express or implied,
with the contractor furnishing the payment bond may bring a civil
action on the payment bond on giving written notice to the
contractor within 90 days from the date on which the person did
or performed the last of the labor or furnished or supplied the last
of the material for which the claim is made. The action must state
with substantial accuracy the amount claimed and the name of
the party to whom the material was furnished or supplied or for
whom the labor was done or performed. The notice shall be
(A) by any means that provides written, third-party verification
of delivery to the contractor at any place the contractor
maintains an office or conducts business or at the
contractor's residence; or
(B) in any manner in which the United States marshal of the
district in which the public improvement is situated by law
may serve summons.
See 40 U.S.C. § 3133(b)(1) & (2).
Here, no party disputes that Hydro was a person having a direct contractual
relationship with a subcontractor (Red Wilk), but no direct contractual relationship
with the contractor (Morris). Accordingly, in order to present a prima facie case,
Hydro must show it provided labor or materials on the project for which it has not
been paid and that Hydro provided written notice to Morris of its claim within 90
days from when the last of the labor or materials were furnished. Id. No party
disputes the timeliness of Hydro's notice to Morris nor the sufficiency of the
content of that notice. Nor does any party dispute that Hydro provided labor and
materials for which it has not been paid—although the amount of Hydro's
damages is hotly disputed.
Morris argues in opposition to Hydro's motion for partial summary judgment
on its Miller Act claim that there are numerous issues with Hydro's request for
damages under the Miller Act. Furthermore, Morris suggests that submitting
Hydro's contract damages to the jury will confuse the jury regarding what is
compensable under the Miller Act. Hydro concedes there are fact issues with
regard to Miller Act damages, but emphasizes it is seeking only partial summary
judgment as to Miller Act liability.
"A surety's liability under the Miller Act is measured by the general
contractor's liability under the construction contract." Consol. Elec. & Mech., Inc.,
167 F.3d at 435. But Miller Act claims are creatures of federal law, they "are
separate and distinct from state law breach of contract actions." Id. One of the
ways in which Miller Act claims are different from contract claims is that lost
profits are not recoverable under the Miller Act. Id.
"Labor" under the Miller Act includes not only physical, manual labor, but
also technical and professional skill and judgment if it is done on the job site of
the Miller Act project. United States ex rel. Olson v. W.H. Cates Const. Co., Inc.,
972 F.2d 987, 990-91 (8th Cir. 1992). In addition, the on-site work must have
been performed in order to complete the project, not to correct defects. Id. at 991.
In one case, an employee of the general contractor who had not been paid his full
salary was allowed to prosecute a Miller Act claim consisting of his on-site
supervisory work done on federal projects for his employer and not done for
purposes of repairing defective work. Id. "Labor" does not include worker's
compensation and comprehensive general liability insurance premiums. United
States ex rel. Cobb-Strecker-Dunphy & Zimmerman, Inc. v. M.A. Mortenson, Co.,
894 F.2d 311, 312 (8th Cir. 1990).
A subcontractor who is damaged by delays on a project (where the delays
are not of his own making), may recover delay damages under the Miller Act, but
such damages are limited to actual out-of-pocket expenditures. Lighting & Power
Servs., Inc. v. Roberts, 354 F.3d 817, 821 (8th Cir. 2004); Consol. Elec. & Mech.,
Inc., 167 F.3d at 435. This is true even if the general contractor is not at fault in
causing the delays. Lighting & Power Servs., Inc., 354 F.3d at 821. "The Miller
Act favors allowing full recovery from a general contractor regardless of fault
because general contractors have privity of contract with the government and can
thus recover delay damages directly from the government, while subcontractors
cannot." Id. (quoting Consol. Elec. & Mech., Inc., 167 F.3d at 434-35 (citations
omitted and emphasis added by the Roberts court)).
The total cost method can be used to calculate damages under the Miller
Act. Id. The total cost method requires proof that:
(1) the nature of the particular losses make it impossible or highly
impracticable to determine them with a reasonable degree of accuracy; (2)
the plaintiff's bid or estimate was realistic; (3) its actual costs were
reasonable; and (4) it was not responsible for the added expenses.
In United States ex rel. Yonker Const. Co. v. Western Contracting Corp., 935
F.2d 936, 938 (8th Cir. 1991), Western was the general contractor on a federal
canal project. It subcontracted part of the work to Yonker, but agreed to perform
certain actions that Yonker relied upon in making its bid. Id. Western agreed to
deliver reinforcing steel ("resteel"), already fabricated, sorted, and tagged according
to contract specifications. Id. It also agreed to perform excavating work; to
provide certain materials, equipment and survey information; and access to work
sites. Id. Yonker brought a Miller Act claim alleging Western breached its contract
by failing to perform timely excavation work, failing to deliver resteel according to
specifications, not sorting and tagging the resteel, and not providing access to the
job site. Id. Yonker alleged these breaches caused delay damages and, when it
requested time extensions, Western refused, causing Yonker to accelerate work
and incur additional damages. Id.
Attorney's fees are generally not available under the Miller Act unless there
is proof that the defendant acted in bad faith, vexatiously, wantonly or for
oppressive reasons. Id. at 942 (citing F.D. Rich, Inc., 417 U.S. at 129). If a
plaintiff asserts both a Miller Act claim and a state law breach of contract claim,
attorney's fees and/or prejudgment interest may be awarded on the state claim if
such remedies are available under state law. United States ex rel. Triple S Alarm
Co., Inc. v. Westfield Ins. Co., 2012 WL 12902491 at *2-3 (E.D. Ark. Aug. 13,
2012); United States ex rel. Cal's A/C & Elec. v. Famous Const. Corp., 220 F.3d
326, 327-28 (5th Cir. 2000).
Here, Hydro is a subsubcontractor (sometimes also called a "second tier
subcontractor"), which has no contractual relationship with Morris, the general
contractor. Therefore, the remedies against the various parties are distinct. As
against Morris and its surety, Hydro's exclusive remedies are under the Miller Act
or, as to Morris, quantum meruit. Hydro cannot sue Morris or its surety under a
contract theory because there was no privity of contract between them. As against
Red Wilk, which is neither the general contractor nor the surety, Hydro has no
Miller Act claim or remedies. Also, as the district judge previously ruled, Hydro
has no claim for quantum meruit against Red Wilk. As against Red Wilk, then,
Hydro's remedies are determined by South Dakota state contract law.
There are factual scenarios where the state law remedies and Miller Act
remedies overlap, as where the plaintiff is a subcontractor with a direct
contractual relationship with the general contractor. In such a situation, the
plaintiff could assert a Miller Act claim and a state law contract claim against the
same defendant-general contractor. Different remedies would be available for each
claim, giving rise to the possibility of confusion with the jury. That is not an issue
here as there are distinct claims and remedies against Morris and its surety as
compared to Red Wilk. The court is confident that the jury in this case will be able
to sort out the various claims and remedies as to the various parties.
Finally, Morris argues that, although Hydro has shown it contributed labor
and materials to the Fort Randall Dam project, it cannot show it is entitled to
payment. This is because, according to Morris, Hydro cannot show that its Miller
Act claim for payment exceeds Morris' recoupment claim. Morris itself
acknowledges the uncertain nature of a claim in recoupment—whether it is an
affirmative defense that must be raised or is waived, or whether it simply negates
an element of the plaintiff's prima facie case. See Docket No. 232 at 3 n.3.
The Eighth Circuit has held that "recoupment is a defensive action that
operates to diminish the plaintiff's recovery rather than to assert affirmative relief."
Rosebud Sioux Tribe v. Val-U Const. Co. of South Dakota, Inc., 50 F.3d 560, 562
(8th Cir. 1995). Furthermore the First Circuit has held that recoupment "is a
reduction or rebate by the defendant of part of the plaintiff's claim because of a
right in the defendant arising out of the same transaction." United Structures of
Amer., Inc. v. G.R.G. Eng'g., S.E. and New Hampshire Ins. Co., 9 F.3d 996, 998
(1st Cir. 1993). Recoupment ensures that the judgment "does justice in view of
the one transaction as a whole." Id. at 999. See also, United States ex rel. Butler
Supply, Inc. v. Power & Data, LLC, 2014 WL 7271986 at *2 (E.D. Mo. Dec. 18,
2014); United States ex rel. Tennessee Valley Marble Holding Co. v. Grunley
Constr., 433 F. Supp. 2d 104, 116 (D.D.C. 2006). Since recoupment only serves to
diminish the plaintiff's recovery, it does not negate an element of Hydro's prima
Here, Morris itself acknowledges that Hydro was never paid for 100% of the
work it did on the project within 90 days of submitting its invoices for that work.
Furthermore, Morris does not quantify the amount of its recoupment and, even if
it did, Hydro's damages are themselves disputed and will be decided at trial.
Hydro has shown all the undisputed facts necessary to prove up a Miller Act claim.
Partial summary judgment as to liability on Hydro's Miller Act claim will be
granted. Whether Hydro's Miller Act damages exceed Morris' recoupment is a
matter for trial.
Whether Red Wilk's Liquidated Damages Are Enforceable
Validity of Liquidated Damages as a Matter of Law
Hydro argues that the liquidated damages clause in its contract with Red
Wilk is void as a matter of law because it constitutes an unlawful forfeiture or
penalty. The contract provides in pertinent part as follows:
§ 9 DATE OF COMMENCEMENT AND SUBSTANTIAL
-----§ 9.7 The liquidated damages for this project are assessed
upon late completion and idle time shall not count as working days
will be, $3,500 per Day for the first 10 days-$10,000/day for each day
after initial 10 days, as set by Contractor to Subcontractor separately
in this agreement and which are independent from liquidated
damages set by the Prime Contract and/or the Contractor's
relationship to Owner. 300 GALLONS PROVIDED AT ALL TIMES H2O
Providing: 2 PHASES MAX OF CONTINUOUS CUTTING. CONSTANT
CLEAN UP AT ROBOT TO MONITOR CUT.
Additionally, liquidated damages assessed by Owner to
Contractor shall be additional liquidated damages to Subcontractor
for any portion thereof related to or caused by Subcontractor's work
and/or action and/or caused delays, etc. Damages will be assessed
per delinquent task and not as overall progress. Meaning if the
subcontractor fails to meet the deadline on a singular task yet meets
the overall schedule the Subcontractor will still be responsible for
amount of time delinquent on that single task. (Also see § 3.3.1.)
Delay charges in effect.6
See Docket No. 158-1 at p. 16.
The handwritten insertions to § 9.7 of the contract were initialed by both
parties' representatives and the word "OK" was handwritten off to the left margin.
The typeface which differs from that used in the rest of this opinion signifies the
parties' handwritten insertions into the contract.
Id. Section 9.7 refers to section "3.3.1," however there is no such section in the
contract. The contract contains a section 3.1, a section 3.1.1, a section 3.3, and a
section 3.3.2, but there is no section "3.3.1."
South Dakota has a statute addressing liquidated damages:
Every contract in which an amount of damage or compensation for
breach of an obligation is determined in anticipation thereof is void to
that extent except the parties may agree therein upon an amount
presumed to be the damage for breach in cases where it would be
impracticable or extremely difficult to fix actual damage.
See SDCL § 53-9-5.
There is a long line of South Dakota Supreme Court cases interpreting this
statute. In 1899, the court refused to enforce a provision in a contract for the
purchase of real estate over a five-year period that purported to allow the seller to
keep all payments made by the purchaser as damages, plus proceeds from any
crops on the land, should the seller breach the contract at any point. See Barnes
v. Clement, 12 S.D. 270, 81 N.W. 301, 301 (1899). The only breach of contract
committed by the purchaser was that, after making the first two annual payments
on time, he was unable to make the third payment. Id. at 301-02. Approximately
one month later, the purchaser was able to make the third installment and offered
to do so, but the seller refused to accept the money. Id. The only damage to the
seller was the loss of the use of the land for the three-year period during which
the purchaser occupied the land, a loss that was easy to calculate. Id.
The seller sought to enforce the stipulated damages provision in the
contract, noting that it had been expressly negotiated and agreed to by both
parties. Id. at 302. The court rejected this argument, stating that "[p]enalties and
forfeitures are not favored by courts of equity, and, whenever they can find
reasonable ground for holding that the provisions of a contract for 'stipulated
damages' are in the nature of a penalty or forfeiture, they have not hesitated to
relieve the party in default from such penalty or forfeiture;" subject to the
nonbreaching party's actual damages. Id. The court noted that forfeitures "have
always been considered as odious in the law" and would not be enforced when
compensation for actual harm can be made. Id. at 303.
One year later, the court again refused to enforce a stipulated damages
provision. Olaf Seim agreed to build a house for Charles Krause, originally for
$2,298, but thereafter Charles requested certain changes. Seim v. Krause, 13
S.D. 530, 83 N.W. 583, 583 (1900). Charles paid Olaf $1,000, but refused to pay
the remaining balance due, alleging Olaf had breached the contract in several
particulars. Id. The contract provided for stipulated damages if Olaf did not
complete the house on time. Citing the statute, Olaf argued this provision in the
contract was an unenforceable forfeiture. Id. at 584-85. The court agreed. Id.
The house was an ordinary two-story dwelling and Olaf's failure to complete the
house on time—absent any special circumstances--would have caused Charles
readily-assessable damages in the form of loss of use, which could be measured by
the reasonable rental value of the house for the delay period. Id.
In Smith v. Detroit & D. Gold Min. Co., 17 S.D. 413, 97 N.W. 17, 18 (1903),
the parties entered into a contract whereby the owner of land in the Black Hills
agreed, in return for specified payments, to allow a third party to prospect on his
property, with certain actions to take place if gold was discovered. At the time of
entering the contract, both parties knew that a portion of the owner's title to the
land was in dispute and the contract contained a provision for how that would
affect the parties' rights and obligations under the contract should the title be
decided adversely to the owner. Id. The prospector thereafter sunk two mining
shafts and explored extensively, to no avail: no gold was discovered. Id.
Thereafter, the prospector withdrew from the property and sought to rescind
the contract on the grounds that the owner had misled the prospector about the
owner's good title to all the land. Id. The contract contained a liquidated damages
clause in the event of a breach of contract by the prospector. Id. The court
brushed aside the claim of misrepresentation because the terms of the contract
clearly showed both parties were aware of the adverse title claim at the time they
entered into the contract. Id. at 18-19.
The court also enforced the liquidated damages clause. Id. at 19. The
prospector tried to characterize the two mining shafts as "improvements" to the
land, but court rejected the contention that holes in the earth were
"improvements." Id. Furthermore, the damage to the owner consisted of not only
having two new holes in his land, but also in having the potential of his land to
produce gold disproved, an intangible damage that the parties could not ascertain
without extreme difficulty, since the value of unproved lodes are speculative in the
extreme. Id. Because the parties could not easily value this damage caused by
having an unproved potential source of gold definitively disproved, it was proper
and lawful for them to affix a liquidated damages figure to that detriment. Id.
In Utley v. Dunning, 38 S.D. 447, 161 N.W. 813, 813-14 (1917), the parties
entered into a contract for the sale of a business, including the merchandise and
good will of that business. Each of the parties had deposited $1,000 with a bank,
with the entire $2,000 to be forfeited to the other party if one party breached the
agreement. Id. at 814. The seller breached the contract and the buyer introduced
no evidence of actual damages but requested solely the $2,000 in liquidated
damages held by the bank. Id.
Here, the court noted that the damages for either party were easily
ascertained. Id. If the buyer refused to buy, the seller could be compensated by
paying him the cost of the appraisal (which set the purchase price) and the
difference between the purchase price and the actual value of the business. Id.
Likewise, if the seller breached, as here, the buyer could be compensated for the
loss of the use of his purchase money for a set period of time—a concept called
"interest." Id. Further evidence that the liquidated damages were intended to be
an unlawful penalty was the fact that the damages amount were the same
regardless of who breached the contract and the damages were the same for a
wholesale failure to perform under the contract as well as for a mere delay in
performance under the contract. Id. This, the court held, was clear evidence of a
forfeiture rather than a permissible liquidated damages provision. Id. The court
therefore refused to enforce the provision. Id. An identical contract provision was
struck down in Harden v. Richards, 41 S.D. 415, 171 N.W. 89 (1919) (parties were
to exchange land and either party would be paid $1,000 in the event of a breach
by the other).
In Russell Miller Milling Co. v. McLean, 48 S.D. 198, 203 N.W. 498, 499
(1925), the seller agreed to sell buyer 400 barrels of flour for $11.36 a barrel, to be
delivered within 60 days. In the event the buyer breached the contract, the
contract stipulated that buyer would pay seller 25¢ per barrel plus or minus the
market price difference between the date of contract and the date of cancellation.
Id. Buyer breached the contract and the seller was awarded damages based on
the market price differential, but the seller was not awarded the 25¢ per barrel
amount. Id. On appeal, the court affirmed the judgment, noting that the 25¢-perbarrel amount was clearly a penalty and void under South Dakota's liquidated
damages statute. Id. at 499, 501. However, that penalty was separable from the
other damages provision of the contract, so the market-price-differential provision
was valid and enforceable. Id.
Thirty-eight years later the South Dakota Supreme Court addressed a
liquidated damages clause in Anderson v. Cactus Heights Country Club, 80 S.D.
417, 125 N.W.2d 491 (1963). In that case, the plaintiff was hired under a 10-year
contract to design, build, superintend, and maintain an 18-hole golf course for the
defendant country club, during which time plaintiff could be discharged only for
good cause. Id. at 492-93. If defendant breached the agreement, the contract
provided for liquidated damages to be paid to the plaintiff in graduated amounts
depending on how many years of the 10-year contract had elapsed before the
breach. Id. at 492.
The court stated contractual parties may agree to the amount of money to
be paid in the event of a breach if that amount approximates fair compensation for
the damage occasioned by the breach and not a penalty. Id. at 493. Because of
the South Dakota statute, liquidated damages provisions are void unless they
come within the exception spelled out by statute: damages are impracticable or
extremely difficult to fix. Id. Liquidated damages provisions will be upheld if it
appears at the time of contracting the damages in the event of a breach are
incapable or very difficult to accurately estimate, there was a reasonable endeavor
by the parties to fix fair compensation, and the amount bears a reasonable
resemblance to probable damages and is not disproportionate to anticipated
damages. Id. Here, because the contract was for personal services of a golf course
designer, damages were difficult to estimate or prove at the time the contract was
entered into. Id. Also, the provision was saved from being construed as a penalty
because the amount of liquidated damages gradually went down over time as a
greater portion of the contract was served. Id. This showed the parties were trying
to fix fair compensation for a breach rather than impose a penalty. Id. at 493-94.
The court upheld the provision as lawful. Id. at 494.
In a prominent case which signaled a sea-change in the law, the South
Dakota Supreme Court upheld a liquidated damages clause in a construction
contract with the state of South Dakota for paving a public highway. See Dave
Gustafson & Co. v. South Dakota, 83 S.D. 160, 156 N.W.2d 185, 189 (1968). In
that case, the contract provided time was of the essence and failure by the
contractor to complete the work by the stipulated date resulted in daily liquidated
damages. Id. at 186-87. The amount of liquidated damages was fixed in tandem
with the overall amount of the contract, so that small projects had small liquidated
damages amounts and large projects of over $2 million had liquidated damages of
$420 per day for each day beyond the completion date. Id. at 187.
The court suggested that the earlier presumption against liquidated
damages provisions expressed in Barnes had been replaced with a more "modern"
view, evidenced by the Cactus Heights decision, that liquidated damages
provisions should not be viewed with disfavor. Id. at 187-88. The court stated
liquidated damages provisions are often particularly useful in government
contracts where the delay in use of, for example, a highway, by the public is
difficult to project and measure. Id. at 188. Here, the court sustained the
provision because (1) delayed use of the highway by the public was "impossible" to
measure; (2) the fact that the amounts of liquidated damages were graduated
according to the size of the project indicated an attempt by the parties to fix fair
compensation of the loss caused by the delay; and (3) the stipulated amount bore
a reasonable relation to probable damages and was not disproportionate to
damages reasonably anticipated. Id. at 189. The Gustafson decision expressly
overruled earlier holdings that (1) liquidated damages would not be enforced if the
delay was not the fault of the party breaching the contract; (2) stipulated damages
are to be measured by the relation they bear to actual loss incurred and are not
enforceable above the actual loss. Walter Motor Truck Co. v. South Dakota Dept.
of Transportation, 292 N.W.2d 321, 323 (S.D. 1980) (discussing the holding of
If a stipulated damages provision is upheld as lawful liquidated damages
and not a forfeiture, then the nonbreaching party is entitled to that amount only,
neither more nor less, even if actual damages are greater or lesser than the
stipulated sum. Dave Gustafson & Co., 156 N.W.2d at 187. Evidence of actual
damages is irrelevant and immaterial. Id. In another construction contract case,
the court clarified that where it is the owner who terminates the contract, the
owner may recover the cost of completing the construction contract, but it may not
recover liquidated damages. See Subsurfco, Inc. v. B-Y Water Dist., 337 N.W.2d
448, 457-58 (S.D. 1983).
In Walter Motor Truck Co., the court outlined some rules of construction.
The language the parties use to describe the stipulated damages is entitled to
some weight, but is not controlling. Walter Motor Truck Co., 292 N.W.2d at 323.
The language of the parties must be accepted until it is shown that the provision is
a penalty. Id. Furthermore, liquidated damages provisions are not to be viewed
with disfavor and they are not against public policy. Id. Finally, they are useful in
public contracts where the damages are uncertain or unmeasurable. Id. The
validity of the liquidated damages clause is a question of law for the court to
determine. Id. at 323-24.
The contract in Walter was for the supply of fire trucks at numerous South
Dakota commercial airports due to a new Federal Aviation Administration ("FAA")
rule requiring such fire-suppression measures. Id. at 322. At the time of
contracting, the FAA had granted limited waivers for compliance with the rule, but
it was unknown whether the FAA would continue to grant further waivers. Id. at
322-23. Damage due to delay could include each city having to supply municipal
fire trucks at the airport for each takeoff and landing of each airplane, as well as
the possibility of some accident or catastrophe occurring. Id. 322-24. Given these
potential losses, and the difficulty of predicting the amount of loss in advance, the
court upheld the $50 per day, per truck, liquidated damages provision. Id. at 324.
Further, the parties' negotiations indicated they undertook to fix a fair
compensation in light of the contingencies should the FAA refuse to grant further
waivers. Id. The court upheld the provision stating the damages were not so
disproportionate to the amount of any damage reasonably contemplated at the
time of contracting so as to be oppressive. Id.
In Prentice v. Classen, 355 N.W.2d 352 (S.D. 1984), the court distilled the
modern take on liquidated damages clauses:
The modern tendency, reflected in public contract cases, is not to look
with disfavor upon liquidated damages provisions in contracts.
Whether a stipulated sum is an unenforceable penalty or an
enforceable liquidated damages provision is a question of law for the
court to determine based upon a consideration of the instrument as a
whole, the situation of the parties, the subject matter of the contract,
the circumstances surrounding its execution, and other factors.
Ordinarily a provision for payment of a stipulated sum for liquidated
damages will be sustained if (1) at the time the contract was made the
damages in the event of breach were incapable or very difficult of
accurate estimation, (2) there was a reasonable endeavor by the
parties to fix fair compensation, and (3) the amount stipulated bears a
reasonable relation to probable damages and is not disproportionate
to any damages reasonably to be anticipated. . . . [The party seeking
to invalidate liquidated damages bears] the burden of establishing
that the liquidated damages clause constituted a penalty.
Prentice, 355 N.W.2d at 355 (citations omitted).
The Prentice court upheld a liquidated damages clause in a contract for
deed among private parties whereby the balance due under the contract was
accelerated upon the buyer's default and, upon the buyer's failure to pay the
remaining balance due, the buyer forfeited all payments made under the contract
as stipulated damages. Id. at 355-56. In reaching its holding, the court noted
that the sellers reduced the downpayment required at the inception of the contract
and gave buyers a favorable interest rate. Id. at 355. Although the buyers had
made improvements to the property during their three-year occupancy, they also
had the use of the property, including the residence. Id. The loss of rents and
other detriment to the sellers was not disproportionate to the amount of stipulated
damages. Id. Furthermore, the court noted that the trial court retained the
equitable power to adjust the rights of the parties to the contract, but had not
found facts justifying such adjustment. Id.
Just a few years later, the court again upheld a liquidated damages clause
in a contract for deed for a ranch where both parties were represented by lawyers
in the contract negotiations, the buyers had sought and received several changes
to the proposed contract before it was finalized, the parties had used reasonable
efforts to estimate damages in advance but were unable to predict possible losses
from overgrazing, other waste, possible damage to the property, future market
value of the property, projected rental value of the ranch, or potential loss of
royalty income from mineral development. Heikkila v. Carver, 378 N.W.2d 214,
216-17 (S.D. 1985).
Despite finding the parties were evenly matched, no overreaching occurred,
and the contract was arrived at through arms-length bargaining, the court stated
the clause could be invalidated if the buyer should show "by clear evidence that a
substantial disparity exists between the payments made on the contract, together
with the improvements made to the property, and the loss of rents and other
detriment suffered by the vendors due to the loss of use and possession of the
property." Id. at 217. In making this statement, the Heikkila court cited to
Prentice and to SDCL § 21-50-2, a now-repealed statute that used to allow for
equitable adjustment between the parties in the case of real estate foreclosures.
Id. The liquidated damages were not disproportionate to the sellers' actual
damages, so the clause was upheld. Id. at 218. See also Overholt Crop Ins. v.
Travis, 941 F.2d 1361, 1369-70 (8th Cir. 1991) (applying South Dakota law to
uphold a liquidated damages clause in an insurance agent's employment contract).
In Safari, Inc. v. Verdoorn, 446 N.W.2d 44, 44-45 (S.D. 1989), the court
invalidated a liquidated damages provision in the sale of a bar. The parties had
each been advised by lawyers before entering into the contract, but the liquidated
damages provision called for buyers to forfeit their $50,000 downpayment and all
interim payments made until the breach occurred. Id. The buyers possessed the
bar and ran it for only three months, after which they were unable to make
payments and voluntarily relinquished the business back to the sellers. Id. The
trial court found the sellers had $30,168.32 in actual damages; it invalidated the
liquidated damages provision as an unlawful penalty and ordered sellers to pay
buyers $21,831.68, which represented the balance of payments (including the
downpayment) the buyers had made over the short term of the contract, less the
sellers' damages. Id. The Supreme Court affirmed. Id. at 45-46.
In BankWest, N.A. v. Groseclose, 535 N.W.2d 860, 863-64 (S.D. 1995), in an
opinion written by then-Justice Amundson, the court appeared to harken back to
the earlier standards announced in Barnes, Seim, and Utley by stating "the law
abhors a forfeiture. Forfeitures are considered as odious in the law, and are not
favored by the courts. Courts of equity will seize upon slight circumstances to
relieve a party therefrom." Id. at 864 (citation omitted). Compare this statement
in the Groseclose decision with the following from Gustafson: "[The Cactus
Heights] case reflects the modern tendency not to 'look with disfavor upon
"liquidated damages" provisions in contracts. When they are fair and reasonable
attempts to fix just compensation for anticipated loss caused by breach of
contract, they are enforced. . . They serve a particularly useful function when
damages are uncertain in nature or amount or are unmeasurable, as is the case in
many government contracts.' " Dave Gustafson & Co., 156 N.W.2d at 188. See
also Prentice, 355 N.W.2d at 355 (stating "[t]he modern tendency . . . is not to look
with disfavor upon liquidated damages provisions in contracts.").
The Groseclose court then reversed the burden of proof established in
numerous cases by saying: "The burden of proving that a forfeiture clause is valid
as a liquidated damages clause is upon the party relying on the clause." Id. (citing
a North Dakota case, Hofer v. W.M. Scott Livestock Co., 201 N.W.2d 410 (N.D.
1972)). This, of course, is the opposite of what the court had said in earlier
cases—that a liquidated damages clause would be upheld unless the party against
whom it was being enforced was able to show it was an unlawful forfeiture. See,
e.g., Safari, Inc., 446 N.W.2d at 46 (stating "[t]he burden of establishing that such
a provision is a penalty rests on the party against whom enforcement is sought.");
Heikkila, 378 N.W.2d at 216 (stating "[t]he burden of establishing that the
liquidated damages provision is an unlawful penalty rests with the party against
whom enforcement is sought."); Prentice, 355 N.W.2d at 355 (stating "Mrs. Classen
[against whom the liquidated damages clause was asserted] bore the burden of
establishing that the liquidated damages clause constituted a penalty."); Walter
Motor Truck Co., 292 N.W.2d at 323 (stating a liquidated damages clause must be
accepted as valid "unless it is shown that the provision is for a penalty.").
The facts of the Groseclose case were somewhat unusual. Groseclose sold
agricultural land on a contract for deed. Groseclose, 535 N.W.2d at 862. The
buyers7 breached the agreement after making payments for 12 years when they
failed to pay real estate taxes when due. Id. The seller immediately paid the taxes
The original buyers had to assign some of their interests in the land to assignees
in order to satisfy other obligations. Groseclose, 535 N.W.2d at 862. The court
refers to all of these parties collectively as "buyers."
herself and sought to retake the land. Id. The buyer offered to pay the taxes the
next day to cure the default, but the seller refused to accept the payment. Id.
Buyers then tendered the full outstanding accelerated balance due and owing on
the contract; the seller again refused to accept the payment. Id.
The contract for deed contained a provision that, upon default by the
buyers, all right, title and interest in the land reverted fully to the seller and the
buyers forfeited all previous payments made on the contract along with any right,
title and interest in and to all improvements on the land. Id. at 864-65. The court
noted that the seller did not argue or present any evidence that the forfeiture
clause was in reality a lawful liquidated damages clause; accordingly, the court
ruled against the seller because she failed to carry "her burden" to prove the
provision was valid. Id. at 865.
The Groseclose case stands as an anomaly. Its language is clearly at odds
with the holdings of every case decided on liquidated damages since Cactus
Heights was decided in 1963. However, if one looks past the language of the
decision and applies the proper test as set forth in Prentice, Safari, Inc. and other
modern South Dakota cases, it is clear the same result would have been obtained
had the Groseclose court applied the test and burdens announced in those more
modern cases. The Groseclose contract provision was clearly a forfeiture: it was
not graduated in any way to take into account the shifting equities between the
parties as the buyers paid more and more years on the contract. Id. at 864-65.
The contract also contained no requirement that the seller give notice of default
and time to cure the default before the forfeiture provision went into effect. Id.
Even under the progeny of the Cactus Heights and Dave Gustafson & Co. cases,
the provision in the Groseclose contract would have been invalidated.
Applying this body of law to the liquidated damages clause in § 9.7 of the
contract between Hydro and Red Wilk, the court concludes it is valid and is not an
unlawful forfeiture. First, this was a public contract which, as the Dave Gustafson
& Co. court noted, means any harm for late completion is suffered by the public
and is particularly difficult to measure or quantify.
Dave Gustafson & Co., 156 N.W.2d at 188. The work on the Fort Randall Dam
was being occasioned, in part, by a catastrophic flood that had occurred in 2011.
Such a flood could have recurred at any time during construction, with results
equally or more catastrophic than the original event.
In addition, hydrodemolition is a highly specialized service which requires
the use of highly specialized, expensive equipment which is difficult and expensive
to move. At the time of negotiating this contract, both Hydro and Red Wilk knew
that if Hydro breached the agreement, it would be difficult if not impossible to get
a replacement hydrodemolition company on site and working within a short period
of time. Red Wilk characterizes Hydro's role in the project as "critical."
Furthermore, Red Wilk argues that when a Hydro breach occurred would affect
Red Wilk's damages—breaches near the beginning of the project would be more
costly than breaches at the end. Red Wilk's damages in the event of a Hydro
breach would also include the presence of Red Wilk's crew at the job site, the
presence of ProAct8 on the job site, as well as the presence of various rental
The parties state ProAct was a water supplier and water treatment subcontractor.
From this description, the court infers that ProAct was the party responsible for
providing the 300 gallons per minute of water for Hydro's hydrodemolition and
agreements tied to Hydro's performance. Red Wilk considered all these factors
before arriving at the liquidated damages figure. See Docket No. 197-8 at p.5.
Hydro concedes that the daily cost of having ProAct alone at the construction site
was $3,000 per day. At the time the contract was made, then, damages for breach
by Hydro were difficult to accurately estimate.
There is no evidence from either Red Wilk or Hydro that the parties
discussed § 9.7 from the contract face-to-face. However, both parties are
sophisticated businesses which are used to negotiating construction contracts.
The handwritten insertions to the liquidated damages clause indicate that Hydro's
representative read the provision, understood the provision, and suggested
changes to the contract because he was concerned about the provision.
Specifically, Hydro conditioned Red Wilk's entitlement to liquidated damages on
Red Wilk satisfying three obligations: (1) providing Hydro 300 gallons of water at
all times; (2) organizing the hydrodemolition so that Hydro could perform its work
in two phases maximum of continuous cutting; and (3) providing constant clean
up at the robot to monitor the cut. See Docket No. 158-1 at p. 16. Those changes,
conditioning Red Wilk's entitlement to liquidated damages, were accepted by Red
Wilk, as evidenced by the initialing of the changes by Red Wilk's owner. Id. This
satisfies the requirement that the parties make reasonable efforts to fix fair
Hydro argues the provision is clearly an unlawful forfeiture because it
applies to individual tasks, not days of delay. As discussed more fully below at
section D.1 of this opinion, this contract began its life in its initial iteration as a
that ProAct was responsible for capturing and treating the wastewater created by
the hydrodemolition process.
form contract. As such, it retained many artifacts that were irrelevant,
inapplicable or contradictory to the relationship between Hydro and Red Wilk. The
tasks/days distinction is one of these. Hydro was hired to do one thing:
hydrodemolish concrete. Hydro did not even provide its own support services
under the terms of the contract. Therefore, the tasks/days distinction is
inapplicable to the Red Wilk-Hydro contract because the only "task" Hydro was
hired to perform was hydrodemolition. Therefore, the task/days distinction does
not render the liquidated damages provision void as a matter of law in this context.
The final requirement is that the liquidated damages not be disproportionate
to any actual damages. Both Red Wilk and Morris were subject to liquidated
damages in their respective contracts moving up the chain of command to the
Corps if they were late in their work. This would constitute part of Red Wilk's
actual damages. In addition, Red Wilk itself was obligated under §§ 8, 9.7 and
10.3 of the contract to pay Hydro liquidated damages if Red Wilk was responsible
for delay or idle time, another recognition of the invaluable time-is-money nature
of the specialized hydrodemolition business, a sword that cuts both ways should
either party breach.
The amount of the liquidated damages in favor of Red Wilk was far greater
than the amount of liquidated damages specified in the contract between Morris
and the Corps, and between Morris and Red Wilk.9 However, this alone does not
The general contract between Morris and the Corps provided for liquidated
damages of $850 per day for every day the project went over the completion date.
See Docket No. 49-1 at p. 16. The subcontract between Morris and Red Wilk
essentially incorporated the liquidated damages from the general contract in that it
required Red Wilk to reimburse Morris for any liquidated damages assessed
against Morris because of Red Wilk's failure to perform work or supply materials
on time. See Docket No. 149-2 at p. 6.
demonstrate the provision is a forfeiture. In addition to having to pay liquidated
damages to Morris if Red Wilk did not finish its work on time due to a Hydro
breach of contract, Red Wilk would have additional damages in the form of
payments to ProAct, and Red Wilk's own crew and equipment would stand idle
while Red Wilk sought and found another hydrodemolition expert, as well as the
expense associated with hiring another such expert to come to the dam and work.
Red Wilk has placed testimony in the record that its actual damages were $17,000
per day. Although actual damages are irrelevant to the question of the validity of
liquidated damages, it does serve to show that the liquidated damages the parties
agreed upon are not completely out of touch with reality.
The court concludes that the liquidated damages clause of § 9.7 of the
contract between Red Wilk and Hydro is valid under South Dakota law, regardless
of whether the burden is on Hydro to prove it was an invalid forfeiture or whether
it was Red Wilk's burden to show the provision was valid under SDCL § 53-9-5.
That does not mean Red Wilk is automatically entitled to liquidated damages. As
can be seen from the text of § 9.7 itself, Red Wilk's entitlement to liquidated
damages is conditioned on its own performance in supplying adequate water,
adequate clean up, and two phases of continuous cutting. Whether Red Wilk
satisfied these preconditions is disputed. Therefore, this opinion does not
represent the court's conclusion that liquidated damages should be awarded to
Red Wilk. That will be determined by the jury at trial.
Waiver of Liquidated Damages
Hydro also argues that Red Wilk has waived its right to liquidated damages
since it was Red Wilk's own actions that prevented Hydro from timely performing
its contractual obligations. Waiver applies "where one in possession of any right,
whether conferred by law or by contract, and with full knowledge of the material
facts, does or forebears the doing of something inconsistent with the exercise of
the right." Subsurfco, Inc., 337 N.W.2d at 455. To demonstrate waiver, "there
must be a showing of a clear, unequivocal and decisive act or acts showing an
intention to relinquish the existing right." Id.
Hydro's waiver argument is based on Hydro's assertion that Red Wilk did
not supply water or clean up as required and that Red Wilk did not organize the
work into two phases of continuous cutting. As indicated above, that is a
contested factual issue. It does not appear as a matter of law that by failing to
perform hydrodemolition support work as Hydro expected, Red Wilk clearly,
unequivocally, and decisively intended to communicate it was giving up its right to
liquidated damages under the contract. The jury will determine this issue as
genuine issues of material fact abound.
Hydro's citation to United States ex rel. Gillioz v. John Kerns Constr. Co.,
140 F.2d 792 (8th Cir. 1944), does not change this conclusion. In that case, the
liquidated damages provision was not conditioned on the performance of
prerequisite acts by the recipient of damages as the clause in the Red Wilk-Hydro
contract is. See Gillioz, 140 F.2d at 793-94. Furthermore, that contract was for
the construction of a dam for the federal government. Id. at 793. Although the
contract was to be completed by December, 1940, engineers for the government
continued to make changes to the plans and specifications affecting the
subcontractor's work until April, 1941, five months after the date when the dam
was to have been completed. Id. at 794. As the court observed, the subcontractor
was not liable to the general contractor for liquidated damages because the
contract could not be read to require the subcontractor to "do the impossible," i.e.
construct a dam the plans and specifications for which were not even completed.
Id. at 795. The Gillioz decision does not change this court's conclusion that
whether Red Wilk was responsible for the delay which ostensibly triggers
liquidated damages presents a fact question for the jury.
Red Wilk's Counterclaim
Hydro argues it is entitled to summary judgment on Red Wilk's counterclaim
for four reasons: (1) Red Wilk failed to give notice and an opportunity to cure, (2)
Red Wilk caused its own damages, (3) Red Wilk's damages calculation is too
speculative, and (4) manholes were not included in the Red Wilk-Hydro contract.
Notice and Opportunity to Cure
In its counterclaim, Red Wilk asserts that Hydro failed to complete its work
under the contract in a workmanlike manner in compliance with the specifications
of the Corps. Hydro argues that (1) there is a factual dispute about who is to
blame for any defective hydrodemolition and (2) Red Wilk cannot assert a claim on
the basis of poor work unless it gave Hydro prior written notice of the defective
work and an opportunity to cure the defective work.
As to the latter, Red Wilk admits it did not give notice and an opportunity to
cure, but alleges it was contractually excused from doing so because Hydro
abandoned the work site and made it clear it would not do any more work on the
project. The contract states "[i]f the Subcontractor defaults or neglects to carry out
the Work in accordance with this Agreement and fails within three working days
after written notice from the Contactor to commence and continue correction of
such default, or neglect with diligence and promptness, the Contractor may" fix
the problem itself and charge Hydro with the costs of the fix. See Docket No. 1581 at pp. 4 & 12, §§ 3.4 & 7.2.1; Docket No. 158-2 at pp. 4 & 12, §§ 3.4 & 7.2.1.
Red Wilk alleges early on in the project there was deficient work done by
Hydro and it asked Hydro to make another pass over the area to hydrodemolish
the concrete to a deeper depth. Red Wilk alleges Hydro refused. There was at
least one instance where the Corps specifications required hydrodemolition to
either a six or 10-inch depth and Hydro performed that demolition. Examination
of the area afterward showed the concrete was "delaminated" to a deeper depth
than had been thought before. Hydro's position was that requiring
hydrodemolition to a new depth not spelled out in the plans and specifications
required a change order. See Docket No. 203-8 at pp. 9-10. However, Red Wilk
also argues there was at least one area where Hydro only removed concrete to a
depth of one inch, which if true, would not be in conformity with the Corps' plans
North Dakota contract law tracks closely with South Dakota contract law.
In United States ex rel. Huwe v. Yerba Buena Engineering & Const., Inc., 2016 WL
7507794 at *1 (D.N.D. May 12, 2016), the court applied North Dakota law to a
construction contract on a Miller Act project. Specifically, the subcontract
between the general contractor, Yerba Buena, and the subcontractor, Huwe, called
for Huwe to move nine buildings to a different location. Id. Yerba Buena issued
one notice to cure, with which Huwe complied. Id. After completing the work,
Huwe submitted a bill for the entire contract price of $152,000. Id. Yerba Buena
paid Huwe only $100,000. Id. Thereafter, Huwe brought a Miller Act action
against Yerba Buena and its surety for the remainder of the contract price. Id.
Yerba Buena asserted a counterclaim, alleging Huwe breached the subcontract by
performing its work defectively. Id.
The subcontract required Yerba Buena to give notice and an opportunity to
cure to Huwe if Yerba Buena intended to withhold payment on account of defective
work. Id. at *2-3. It was undisputed Yerba Buena had not given such notice as to
the claimed defects. Id. Yerba Buena's position was that it was not required to
give such notice and opportunity because it would be futile to do so and that the
notice and opportunity to cure section of the subcontract was inapplicable. Id.
Addressing the latter argument, the court gave effect to the notice and
opportunity to cure provision, noting it was broadly written. Id. at **3-4. Further,
if the court failed to apply the provision to these facts, the provision would be
rendered essentially meaningless. Id. As to the futility argument, the court held
Yerba Buena had failed to submit affidavits containing admissible evidence
sufficient to entitle them to summary judgment. Id. at **4-5. For this reason,
summary judgment was denied on Yerba Buena's counterclaim. Id.
Here, it is clear the notice and opportunity to cure provision in the HydroRed Wilk contract is valid and enforceable. It is equally clear that Red Wilk failed
to give such notice. As to whether that precludes Red Wilk from maintaining its
counterclaim for defective work, however, there are genuine issues of material fact.
Red Wilk claims Hydro left the work site without finishing its work. Hydro
asserts it finished all work to Red Wilk's satisfaction except the manhole work,
over which the parties disagreed. Hydro also asserts any hydrodemolition that
was deemed not sufficiently deep is Red Wilk's fault because Red Wilk failed to
clean continuously at the robot and failed to manage the waste water so as to
allow Hydro to ascertain how deep it was cutting and whether further passes over
an area were necessary.
Hydro supplied an email from Hydro's Wayne Younger to Red Wilk's Patrick
McGinnis dated August 25, 2014, sent at 11:45 a.m. stating that as of 1 p.m. that
day, Hydro would be done with all work on the Fort Randall Dam and would start
charging Red Wilk idle and delay charges unless Red Wilk advised that there was
additional work to be done. See Docket No. 176-10. Red Wilk responded that
Hydro had completed all the work it was willing to do except the manhole
locations. Id. Red Wilk informed Hydro that it could leave without completing the
manholes, but this would not waive Red Wilk's right to assert a later claim for the
manhole work. Id.
Hydro also supplied an excerpt from Red Wilk's Federal Rule of Civil
Procedure 30(b)(6) deposition wherein Red Wilk acknowledged it knew of defective
work by Hydro before Hydro decamped from the job site. See Docket No. 225-2 at
p. 3. However, in this deposition, Red Wilk alleged it informed Hydro of the
defective work and Hydro refused to cure the defect. Id. Specifically, there was an
area near wall E that Hydro had demolished that was demolished to a depth of
only approximately one inch. The defect was such that Red Wilk characterized it
as "obvious." Red Wilk asserts it told Hydro about this and requested Hydro to
cure the defect. Allegedly, Hydro's response was "there are no recuts in our
contract"—in other words, Hydro refused to go over the defective area again with
its robot and deepen the cut. In support of Red Wilk's position, it is notable that
Hydro never supplied the court with a certificate of substantial completion by Red
The court concludes that there is a genuine issue of material fact as to
whether Hydro left the work site under circumstances where it would have been
futile for Red Wilk to give notice and an opportunity to cure. In the August 25
email, Hydro notified Red Wilk within less than two hours that it would quit the
job site or, in the alternative, begin charging $3,000 per day for idle charges. Red
Wilk's assent to Hydro leaving under these circumstances can hardly be taken as a
representation that Red Wilk believed Hydro had satisfactorily performed all its
The same can be said for the deposition passage. If Red Wilk had informed
Hydro in the past of defective work and Hydro refused to bring its work into
compliance, it may very well have been futile for Red Wilk to give Hydro written
notice and an opportunity to cure.
Hydro emphasizes that the contract requires written notice and that it is
undisputed Red Wilk never gave Hydro written notice of defects. That may be true,
but parties to a contract through their common practice can modify terms of a
contract to excuse written notice for change orders or defects, thus nullifying the
requirement that such matters be reduced to writing. See All Star Const. Co., Inc.
v. Koehn, 2007 S.D. 111, 741 N.W.2d 736, 744-45. It is unknown whether that
happened in this contractual relationship or not. Summary judgment cannot be
issued on these facts.
Red Wilk Caused its Own Damages
Hydro argues that Red Wilk's damages were caused by its own conduct in
failing to provide Hydro with 300 gallons of water per minute for hydrodemolition,
failure to continuously clean up at the robot, and failure to handle the wastewater
created by hydrodemolition. These are issues for the jury because genuine issues
of material fact exist. In addition, the court notes that Red Wilk's damages also
include the manholes, discussed below, as well as work that was left unfinished
above tier 46. Neither of these sources of potential damages were the result of Red
Wilk's alleged other shortcomings. Partial summary judgment will not issue to
Hydro on the basis that Red Wilk caused its own damages.
Whether Red Wilk's Damages are Speculative
Hydro argues that Red Wilk's damages for its counterclaim are too
speculative and the court must therefore dismiss the counterclaim. The basis for
Hydro's argument is that Red Wilk's expert, Holloway, has not provided any source
accounting documents supporting his opinion as to Red Wilk's damages.
First, this assertion appears not to be wholly true. One element of damages
Red Wilk is claiming is that Hydro was supposed to hydrodemolish the manholes
and refused to do so. In deposition passages submitted to the court on other
issues, the court has observed discussion that Red Wilk provided to Hydro in
discovery the billings from 2X, who performed this work after Hydro left the job
site. Therefore, at least some of the source documents appear to have been
provided by Red Wilk.
Also, Red Wilk's counterclaim includes not only the manhole work it claims
Hydro left undone, but also other work above tier 46 that was to be completed by
Hydro and never was. Red Wilk claims that, when Hydro returned to the job site
on August 11, 2014, after having left on July 29, Red Wilk gave Hydro a list of
areas remaining to be hydrodemolished, including this work above tier 46. See
Docket No. 197-8 at p. 18. Red Wilk claims Hydro never did this work.
South Dakota contract law requires Red Wilk to prove its damages to a
reasonable certainty. Bunkers, 653 N.W.2d at 743; McKie v. Huntley, 2000 SD
160, 620 N.W.2d 599, 603. At trial, Red Wilk will be required to show a
reasonable relationship between the method used to calculate its damages and the
amount claimed. Id. On the present record, the court cannot conclude that Red
Wilk's damages are so speculative that Hydro is entitled to summary judgment on
the entirety of Red Wilk's counterclaim. Therefore, Hydro's motion is denied to
Hydro's final argument in support of its motion for partial summary
judgment is that manholes were not included in the work of its contract with Red
Wilk because they are not separately addressed in the contract. Hydro asserts it
discussed manholes explicitly with Red Wilk at a March 25, 2014, meeting before
the contract was entered into and Red Wilk told Hydro manholes were not included
in the contract. See Docket No. 176-3 at p. 9. At a minimum, Hydro asserts there
was either a mutual mistake of fact or a failure to reach a meeting of the minds as
Red Wilk asserts that hydrodemolition around manholes was included in
the contract and that it was lumped in with the hydrodemolition work at the 10inch depth. Red Wilk argues that the Corps' August 30, 2013, amendment to its
plans and specifications make clear that manholes were part of the 10-inch
hydrodemolition work. Furthermore, Red Wilk asserts that the issue of manholes
and the requirement that they be hydrodemolished to a depth of 10 inches was
specifically discussed with Hydro at the March 25, 2014, meeting. See Docket No.
197-8 at p. 6.
The final contract between Red Wilk and Hydro contains this pertinent
§ 8: THE WORK OF THIS SUBCONTRACT
The Subcontractor shall execute the following portion of the Work and
work implied pursuant to [sic] described in the Subcontract
Documents, including all labor materials, equipment services and
other items required to complete such portion of the Work, except to
the extent specifically indicated in the Subcontract Documents to be
the responsibility of others. To Supply equipment and labor to perform
hydrodemolition work for Fort Randall Dam Spillway Phase II in
Hydrodemolition to an average depth of 6" for approximately 40,440
s.f. upstream of tier 46.
Hydrodemolition to an average depth of 6" for approximately
6,935 s.f. downstream of tier 46.
Hydrodemolition to an average depth of 10" for approximately 29,575
s.f. upstream of tier 46.
Hydrodemolition to an average depth of 10" for approximately 10,925
s.f. downstream of tier 46.
Equipment and Labor Provided by American Hydro:
One (1) hydrodemolition unit utilizing 6 pumps to accomplish scope of
work listed above. Shall provide employees properly trained and
competent for their daily duties, all employees shall be required to
wear proper safety equipment at all times. Daily clean up of
employee's [sic] garbage and debris shall [sic] without additional cost
General shall supply the following
Staging area, within 100' of the project, for hydrodemolition
Continuous and uninterrupted water filtered to 5 micron through a 2"
hose, at a minimum rate of 250 gallons per minute up to a rate of up
to 300 gallons per minute delivered to American Hydro's 1,000 gallon
water tank. delivered at all times.
Anchor system to support 7,000 pound robot for all work below tier
Protection as required to protect people and property from debris and
Containment and disposal of all water and concrete debris from the
Crane and operator for placing up to 40,000 lb. hydrodemolition
equipment into the work area.
Control and treatment of all runoff water from hydrodemolition and
Equipment for moving hydrodemolition system around project site.
Equipment and manpower mobilization to the project site cut only.
Idle time and standby charges while on project. $3,000/day
Idle and standby charges shall not be assessed if site and weather
conditions do not allow work to be completed safely. Standby and
idle charges will not be assessed if idle time interferes with the critical
timeline tasks and has been scheduled (3) days prior to standby.
See Docket Nos. 158-1 at pp. 13-14; 158-1 at pp. 13-14 (strike-through and
underlining in the original). The amounts and depths of hydrodemolition in the
contract are repeated in §§ 9.3 and 10.3. Id. at pp. 15 & 17, §§ 9.3 & 10.3.
Prior to the parties executing the final contract containing the above
provision, Hydro submitted four proposals. Each of Hydro's proposals included
figures for removal of specified square footage of concrete at the six-inch depth and
removal of specified square footage of concrete at the ten-inch depth. See Docket
Nos. 159-1, 161-1, 159-2, and 159-3. Three of the proposals also separately set
forth proposals for hydrodemolition of manholes specifically, or 18-inch demolition
specifically, since manholes were originally to be hydrodemolished to a depth of 18
inches. See Docket Nos. 159-1, 159-2, and 159-3.
The final contract between Hydro and Red Wilk does not specifically
mention hydrodemolition of manholes, nor does it specify any hydrodemolition at a
depth of 18 inches. See Docket No. 158-3. This is significant. In the second
proposal by Hydro, no manhole work was proposed. See Docket No. 161-1. The
sequence of dates of the four proposals were, in 2013: July 29, August 22, and
August 30; and in 2014: April 2. See, respectively, Docket Nos. 159-1, 161-1,
159-2, & 159-3. The August 22, 2013, proposal (second chronologically) is the
only one that does not include a proposal for manhole work by name or manhole
work by reference to hydrodemolition at the depth of 18 inches. See Docket No.
Also, in the prime contract between the Corps and Morris, manhole work is
always separately set forth. See Docket Nos. 156-1 at p.14; 160-2 at p.6; 191-8 at
pp. 9, 24, 33, 171-74, 177-78. The custom or practice between the parties on this
project appears to have been to separately delineate the manhole work from other
types of concrete demolition.
If Red Wilk and Hydro had agreed that Hydro would perform
hydrodemolition of manholes, it seems almost certain that the parties would have
separately addressed manhole work in their contract. As a matter of offer and
acceptance, Hydro offered to hydrodemolish manholes (as evidenced by three of
their proposals), but Red Wilk did not accept that part of Hydro's offer. Even more
telling is the fact that the square footage figures for hydrodemolition of concrete at
the six-inch and 10-inch depths in the final Red Wilk-Hydro contract are identical
to those same figures in all four of Hydro's proposals. Compare Docket Nos. 158-1
at pp. 13-14, and 158-2 at pp. 13-14; with Docket Nos. 159-1, 160-2, 159-2, and
159-3. This lends credence to Hydro's argument that manholes are not covered by
the Red Wilk-Hydro contract. If manhole work was lumped in with Hydro's other
10-inch demolition work, the square footage in Hydro's proposals for 10-inch
removal would have increased at some point. That the figure remained static
The square footage for removal of concrete at the 10-inch depth stayed the
same throughout the negotiation of the Red Wilk-Hydro contract and in the final
contract itself: 40,500 square feet. If manholes were added to the total of 10-inch
hydrodemolition in the final contract as Red Wilk asserts, the total square footage
for 10-inch concrete removal in the contract would have increased from that set
forth in the proposals. Instead, the square footage for 10-inch removal by Hydro
remained the same in each of Hydro's four proposals and in the final contract. See
Docket Nos. 159-1, 158-2 at pp. 13-14, 158-3 at pp. 13-14, and 160-2. In each of
these documents hydrodemolition of concrete at the 10-inch depth is 40,500
square feet. No additional square footage was added to the total for 10-inch
hydrodemolition to take into account hydrodemolition of manholes at a 10-inch
Red Wilk argues that the Corps amended its contract on August 30, 2013,
to allow hydrodemolition of the manholes to a depth of 10 inches and that the 10inch removal in its final contract with Hydro includes hydrodemolition of
manholes. Hydro alleges it was never advised of, or provided a copy of, the Corps'
August 30, 2013, amendment.
However, there is ambiguity which the parties never explain to the court. In
the contract between the Corps and Morris, a total of 81,775 square feet of
hydrodemolition of concrete is provided for in the following categories: less than 8"
upstream, downstream, at the walls, and at the gates; and more than 8" in all the
same locations. See Docket No. 160-2 at pp. 4, 7-8. The contract between Morris
and Red Wilk tracks the same figures for the same square footage of
hydrodemolition at the same locations. See Docket No. 156-2 at p. 10.
The total of hydrodemolition agreed to between Red Wilk and Hydro was
87,875 square feet, all denominated either "upstream" or "downstream," but none
of which is separately designated to be at the gates, walls, or manholes. The court
is aware from arguments of the parties on other issues that Hydro's work did
include hydrodemolition at the gates and walls. The hydrodemolition square
footage figures from the Corps-Morris and Morris-Red Wilk contracts, no matter
how the court combines them, do not reconcile with the square footage figures set
forth in the Red Wilk-Hydro contract. 10 The Red Wilk-Hydro contract total square
footage is more than that set forth in the other two contracts.
Red Wilk's agent testified he came up with the totals for square feet of
concrete to be hydrodemolished in the Red Wilk-Hydro contract and that the total
For that matter, the parties never explain why both the Corps-Morris contract
and the Morris-Red Wilk contract specify less than 8-inch removal and more than
8-inch removal, while the Red Wilk-Hydro contract specifies 6-inch removal and
figure was just his "best guess."11 See Docket No. 197-8 at p. 7. It seems to the
court a fairly unorthodox business practice to "guess" at the amount of concrete to
be hydrodemolished when that amount was rather precisely set forth by the Corps
in its plans and specifications. It is even more unorthodox to set the amount at a
figure higher than what the Corps—the owner—asked for. But even if Red Wilk
"guessed" at the total square footage of concrete to be demolished, this still begs
the question why the total would not have increased when additional work was
added to it—i.e. when manholes were supposedly lumped in with 10-inch
Further complicating matters is the Corps' August 30, 2013, amendment.
The amendment eliminated the requirement of 18-inch hydromilling of manholes
and instead specified that the full depth of the concrete around the manholes was
to be removed via sawcut, not hydrodemolition. See Docket No. 160-2 at p.1. The
contract between Hydro and Red Wilk does not include any sawcut work. See
Docket Nos. 158-2 & 158-3. Despite this amendment, the Corps continued to
require some hydromilling around the manholes, but did not specify how much.
See Docket No. 160-2 at p. 1. The parties do not specify the square footage
associated with hydromilling manholes, either before or after the Corps' August
30, 2013, amendment.
Also, Red Wilk asserts the Corps dramatically decreased the scope of what was
to be hydrodemolished. The citation Red Wilk gives in support of this assertion is
simply a discussion of manholes in the deposition of William Hach of Hydro. See
Docket No. 197-10 at p.6. It is undisputed the Corps removed its original
requirement to hydrodemolish manholes to a depth of 18 inches. But other than
that, the court has not been directed to any other decreases in the Corps' square
feet of concrete to be demolished.
The Corps also issued an amendment on August 27, 2013, in response to a
question. See Docket No. 160-1 at p.1. Neither party discusses this amendment,
but it appears relevant. The question and its answer were as follows:
Q1: There are bid items that are separately identified for VCP drains,
types A, B, and C manholes, and frost blanket material replacement.
These activities require hydrodemolition and concrete replacement of
the existing slab. Are the quantities for hydrodemolition and concrete
replacement in these areas covered in the bid items for
hydrodemolition and concrete replacement, or are they in addition to
them, and need to be added to the bid items for VCP drains, types A,
B, and C manholes, and frost blanket material replacement?
A1: Hydrodemolition and concrete replacement shall be included in
the bid items for Type A manholes, Type B manholes, and Type C
manholes. Hydrodemolition and concrete replacement will be paid
under their respective line items for replacement of the VCP drain and
replacement of frost blanket material.
See Docket No. 160-1 at pp. 1-2.
This August 27 amendment raises more questions than it answers. First,
was Hydro aware of this amendment? Second, the implication of the answer to the
question is that if one bids the manhole work, that necessarily includes the
hydrodemolition for the manholes. But one might also read the answer to mean
that if one bids the hydrodemolition work, that necessarily includes the
hydrodemolition for the manholes. In other words, the answer is susceptible of
more than one interpretation.
Third, this amendment was issued three days before the second
amendment, discussed above, which did away with the requirement for 18-inch
hydromilling of manholes. If one reads the August 27 amendment to mean that
the total square footage of hydrodemolition in the Corps project included
hydromilling for manholes, why did the Corps not amend downward the total
square footage for hydrodemolition after the August 30 amendment? If manholes
were included in the total hydrodemolition figures pre-amendment, and 18-inch
hydrodemolition was eliminated by the amendment, the total hydrodemolition
figures should have been less after the August 30 amendment. The court is aware
of no such adjustment in the Corps project description after the August 30
The parties never explain these several discrepancies. The discrepancies
leave open the possibility that Red Wilk is right—that the Red Wilk-Hydro contract
lumped manhole work in with the other hydrodemolition. There is also the
possibility that Hydro is right—Hydro's proposals and the parties' final contract
lend credence to Hydro's argument. Although portions of the parties' depositions
have been provided to the court, the court does not have before it the entirety of
any of these depositions—so the court is unable to read the parties' descriptions of
their understanding of the contract as they entered into it. Accordingly, the court
concludes there is a genuine issue of material fact that must be decided by the
jury as to whether the Red Wilk-Hydro contract included manhole work. The court
denies Hydro's motion for summary judgment on Red Wilk's manhole
Red Wilk's Motion for Partial Summary Judgment
Red Wilk argues it is entitled to partial summary judgment against Hydro on
two issues. First, Red Wilk argues that Hydro's sole remedy for delay was to seek
an extension of time to perform. Since Red Wilk alleges Hydro never asked for an
extension of time to perform, Red Wilk argues Hydro is not entitled to any money
damages or acceleration costs. Second, Red Wilk argues Hydro's exclusive remedy
for delay caused by Red Wilk is the $3,000 per day specified in the contract. Red
Wilk seeks to preclude any other damages on Hydro's part.
Request for Extension of Time
Damages are Not Limited
The prow of Red Wilk's argument is premised on § 9.6 of the contract. That
section provides generally that scheduling information shall be provided by Red
Wilk and Hydro must keep on schedule. It provides that if Hydro falls behind, the
contractor may require Hydro to accelerate work with no additional compensation.
Then the provision contains this passage: "No claims for additional
compensation or damages for delays, whether caused . . . [by] Contractor,
including, but not limited to, conduct amounting to a breach of this
Agreement . . . shall be recoverable from Contractor, and a mutually agreed
upon extension of time for completion shall be the sole remedy of
Subcontractor, . . ." Red Wilk argues this provision means that Hydro cannot
obtain any damages and its only remedy is to request an extension of time from
Red Wilk. Red Wilk further argues that Hydro did not request an extension of
time, so it is not even entitled to that remedy.
If one read § 9.6 in isolation, one might conclude in favor of Red Wilk. But
there is simply no way to read the contract as a whole in this way. Other
provisions in the contract make evident that Hydro has other remedies aside from
merely requesting an extension of time. Section 4.7 of the contract says if Red
Wilk fails to pay Hydro within 30 days of when payment was due, Hydro may,
"without prejudice to any other available remedies and upon fifteen additional days'
written notice to the contractor, stop work . . .until payment . . . has been
received." See Docket No. 158-1 at p. 10, § 4.7; Docket No. 158-2 at p. 10, § 4.7
Section 5.3 also states a subcontractor may make claims to
the contractor for additional cost, extensions of time, and "damages for delay or
other causes." Id. at p. 11, § 5.3 (emphasis added). Section 7.3.1 allows Red Wilk
to, without cause, suspend, delay or interrupt Hydro's work. Id. at p.13, § 7.3.1.
If Red Wilk does so, Hydro is entitled to "an equitable adjustment of the
Subcontract Time and Subcontract Sum." Id. (emphasis added).
Most importantly, though, is the fact that Hydro and Red Wilk specifically
negotiated and provided for money damages in favor of Hydro if Red Wilk caused
idle or standby time. Id. at pp. 13, 16, and 17, §§ 8, 9.7, and 10.3. These
provisions simply cannot be squared with the language in § 9.6 that the only
remedy for delay is to request an extension of time. This court must read the
contract as a whole and give effect to all provisions, if possible. In re Dissolution
of Midnight Star, 2006 S.D. 98, ¶ 12, 724 N.W.2d at 337. Barring that, the court
must give effect to highly specific provisions over more general provisions. Spiska
Eng'g, Inc., 2007 S.D. 31, ¶ 21, 730 N.W.2d at 645. The highly specific provisions
detailing Hydro's right to idle and standby money damages, as well as the contract
as a whole, dictate that § 9.6 should not be read so as to preclude money damages
for Hydro for delay occasioned by Red Wilk.
Red Wilk attempts to split hairs and argue that "delay" as used in § 9.6 is
different and distinct from "idle and standby" as used in §§ 8 and 10.3. First, the
ordinary meaning of "delay" is "to put off to a later time; defer; postpone," and "to
impede the process or progress of; retard; hinder," and "to put off action; linger;
loiter."12 The definition of "idle" includes "not working or active; unemployed;
doing nothing; not in use or operation; not kept busy."13 "Standby" is similarly
defined as "something or someone held ready," "kept readily available for use," and
"in a state of readiness to act, respond, or be used immediately when needed."14 It
is clear the concept of "delay," "idle" and "standby" are all but interchangeable.
Evidence that the parties themselves understood those words to be
interchangeable can be found in the contract. At § 9.7, the parties hand-wrote off
to the side "delay charges in effect." See Docket No. 158-1 at p. 16, § 9.7; Docket
No. 158-2 at p. 16, § 9.7. In §§ 8 and 10.3, the damages are denominated "idle
and standby charges." Id. at p. 14, § 8; p. 17, § 10.3. The contract is clearly
referring to the same damages in all three places. Furthermore, Red Wilk itself
used the term "delay damages" interchangeably with "idle and standby charges."
See Docket No. 203-25, bottom half of document. The court rejects the argument
that "delay damages" as referenced in § 9.6 are something other than "idle and
standby charges" as referenced in §§ 8 and 10.3.
This contract was originated by Red Wilk, so any ambiguities are interpreted
against Red Wilk. Ass Kickin Ranch, LLC, 2012 S.D. 73, ¶ 9, 822 N.W.2d at 727.
Furthermore, this contract began as a form contract for private construction
projects on which Red Wilk was the general contractor. As such, the contract
contains many "artifacts" that should have been stricken by the parties as
irrelevant, inapplicable, or inconsistent. The parties did not go through the
contract and eliminate all these artifacts.
See www.dictionary.com/browse/delay?s=t last checked Aug. 2, 2017.
See www.dictionary.com/browse/idle?s=t last checked August 2, 2017.
See www.dictionary.com/browse/standby?s=t last checked August 2, 2017.
For example, Red Wilk is described as the "Contractor," Morris is described
at the "Owner," and Hydro is described as the "Subcontractor." See Docket No.
158-1 at p. 1; Docket No. 158-2 at p. 1. Section 4.5.1 requires the "materials"
Hydro provides to be new and of good quality—Hydro was not providing any
materials to be installed on this project. Id. at p. 9, § 4.5.1. Sections 9.1 and 9.2
provide that the date of execution of the agreement shall be the commencement
date for the work except if Hydro obtains permission to timely file mortgages,
mechanic's liens and other security interests. Id. at pp. 14-15, §§ 9.1 & 9.2.
Similarly, § 11.7 requires Hydro to execute a lien waiver before receiving each
progress payment. Id. at p. 19, § 11.7.
As discussed elsewhere in this opinion,
no mortgages, mechanic's liens or security interests can be filed against the federal
government on a Miller Act project, so these provisions in the contract are
irrelevant. The court concludes that the language in § 9.6 purporting to limit
Hydro's damages for delay caused by Red Wilk is an artifact from the form
contract. The court will not give effect to that provision.
Hydro Requested an Extension of Time
Even if the court were to hold that § 9.6 limited Hydro in the case of delays
to requesting an extension of time, the court finds Hydro did in fact make such a
request. The allegation by Red Wilk's counsel that Hydro never requested an
extension of time borders on a sanctionable violation of FED. R. CIV. P. 11. Red
Wilk's lawyer writes in his brief in opposition to Hydro's motion for summary
judgment, that "no request for extension of time for performance was requested."
See Red Wilk Brief at Docket No. 192, p. 13. This assertion is belied by the facts.
Hydro sent Red Wilk at letter dated May 15, 2014, in which it stated: "Per
section 5 of the contract, American Hydro hereby makes a claim for an
extension of time, additional cost, delay damages, and idle equipment
charges." See Docket No. 203-32 at p. 1. That Hydro formally and in writing
sought an extension of time to perform under the contract—with a specific citation
to the applicable contract provision—is indisputable. Counsel's representation to
the contrary does a disservice to the reputation of all lawyers.
Red Wilk also alleges it served Hydro with requests to admit and that Hydro
failed to admit or deny those requests within the 30 days allotted by FED. R. CIV. P.
36. Accordingly, Red Wilk asks the court to deem those requests admitted. If they
are admitted, then Red Wilk argues this establishes Hydro never asked for an
extension of time. Red Wilk is wrong on so many counts.
First, the court has read the requests to admit. See Docket No. 167-7.
Even if these requests were deemed admitted, they would not extinguish Hydro's
acceleration damages. As explained above, Hydro claims acceleration damages for
two events or times: (1) at the beginning of the contract when Red Wilk demanded
Hydro begin work on April 21 and (2) in mid-contract when Red Wilk refused to
grant an extension of time and insisted Hydro complete its work by August 1,
2014. As to the latter, Red Wilk's requests to admit do not affect those claimed
acceleration damages at all. Id. Request to admit nos. 24 and 25 would affect the
former category of acceleration damages if they were deemed admitted. Id. at p. 4.
Second, the full facts are as follows. Counsel for Hydro prepared signed
answers to the requests to admit and personally placed them in a United States
mail receptacle, postage prepaid, addressed to Red Wilk's counsel within the 30
days allotted by Rule 36. See Docket No. 188. That document never arrived at
Red Wilk's counsel's office. Id. When Red Wilk's counsel contacted Hydro's
counsel about the responses Red Wilk thought were overdue, counsel for Hydro (1)
explained what steps he had taken to timely serve Red Wilk with Hydro's
responses and (2) sent duplicate responses. Id. Red Wilk's counsel received the
replacement document within days of when they would originally have been due in
any event. Id.
Red Wilk's counsel was fully aware of these facts when he made his
specious argument that the requests to admit should be deemed admitted.
Furthermore, Hydro investigated the matter and found other examples where mail
had been placed in the same receptacle and never arrived. See Docket No. 202.
Of course, this "extra mile" by Hydro is not required by the rules.
Rule 5 of the Federal Rules of Civil Procedure provides that discovery
responses may be served on the requesting party by mailing the responses to the
requesting party's attorney. See FED. R. CIV. P. 5(b)(1) and (2). If service is made
by mail, "service is complete upon mailing." Id. at (2)(C). "Since [Rule 5] expressly
directs that service is complete upon mailing, nonreceipt or nonacceptance of the
papers by the person to be served generally does not affect the validity of service."
Wright & Miller, Fed. Practice & Procedure, § 1148. Therefore, despite the fact Red
Wilk's counsel never received the original responses, they are deemed received as
of the date Hydro's counsel placed them in the mail as evidenced by the certificate
of service. So the Rules themselves show Red Wilk's argument to be baseless.
But last and finally, the court expects better from counsel, especially
counsel in South Dakota where our standards are high, our bar collegial, and we
have been (mostly) free of the sharp practices that often characterize law practice
in big urban centers in other states. If counsel for Red Wilk really believed that
the requests to admit were deemed admitted and that they provided a valid basis
for partial summary judgment, why did counsel wait 18 months to so move? The
court rejects Red Wilk's argument that Hydro never requested an extension of time
on all of the bases described above.
Even were there a legitimate factual dispute about whether Hydro requested
an extension of time to perform, Red Wilk's argument obviously overlooks the fact
that Hydro performed work and billed it to Red Wilk and Red Wilk never paid for
that work, even though Red Wilk received payment for the work from Morris.
Clearly, Hydro has a claim to work done and not paid for under the contract
completely separate from its claim for damages occasioned by delay. Also, as the
court concluded, supra, the contract does not eliminate the normal and ordinary
contract damages available under the law to Hydro.
Because there was allegedly no request for extension of time, Red Wilk seeks
to preclude Hydro's claim for acceleration damages. This argument is dispensed
with above, but for the sake of completeness the court addresses the parties'
The court understands Hydro's claim for acceleration damages to represent
the additional cost Hydro incurred due to Red Wilk's insistence that Hydro report
for work on April 21, resulting in Hydro arriving on the job May 7.15 In addition, in
mid-June Red Wilk insisted that Hydro finish the project by August 1. In
Although Hydro arrived on site May 7, it was not ready to begin hydrodemolition
work until noon on May 9, 2014. See Docket No. 161-10 at p. 1.
response, Hydro brought an 8-pack robot and additional personnel to the job site.
The court understands this, too, to be part of Hydro's claim for acceleration
Hydro asserts that the contract contained no start date. See Docket No. 198
at p. 7. Therefore, when Red Wilk issued its letter on April 28, 2014, demanding
that Hydro report to the job site and start work, Hydro characterizes this demand
as a breach of the contract.
Hydro is correct to the extent the contract did not contain a date certain
when the work was to commence. However, it did address the start date. The
contract stated the date the contract was executed was its commencement date.
See Docket No. 158-1 at p. 14-15, § 9.1; Docket No. 158-2 at p. 14-15, § 9.1. The
date the contract was executed was April 9, 2014.
Alternatively, the contract stated the "Subcontract Time is the period of time
including authorized adjustments, allotted in the Subcontract Documents for
Substantial Completion of the Work described." Id. at p. 14, § 9.1. The date for
substantial completion of the work was August 1, 2014. Id. at p. 15, § 9.3. The
contract provided for 83 working days, with a six-day work week, 10-hour work
days, and excluding Sundays and national holidays. Id. at p. 6, § 4.1.16; p. 15, §
9.3. Subtracting 83 days from August 1, 2014, and excluding Sundays and
national holidays, the start date would have been April 24, 2014.
As between these two alternate dates—April 9 and April 24—the contract
does not specify which date is to control. Additionally, the contract states "[t]he
Subcontractor's date of commencement is the date from which the Subcontract
Time of § 9.3 is measured; it shall be the date of this Agreement, as first written
above, unless a different date is stated below or provision is made for the date to be
fixed in a notice to proceed issued by the Contractor." Id. at pp. 14-15, § 9.1
(emphasis added). No "different" start date was "stated below" but it is unclear
whether there was provision made for the date to be fixed in a notice to proceed by
Red Wilk. Red Wilk never argues that its April 28, 2014, letter demanding Hydro
begin work was a "notice to proceed" issued pursuant to § 9.1 of the contract.
Although the contract specifies that "time is of the essence," (id. at p. 15, §
9.4), the start date for Hydro to begin its work is ambiguous. Accordingly, parol
evidence may be considered. Pauley, 2006 S.D. 73, ¶8, 720 N.W.2d at 668.
Hydro claims it orally told Red Wilk prior to signing the contract that it
would not be able to start work on the Fort Randall Dam until late May or even
early June, 2014, and that Red Wilk agreed to this. Red Wilk claims the parties
orally agreed to an April 21 start date (which itself is different from either of the
two dates offered under the contract terms). Whether the parties had an oral
agreement that Hydro was allowed to start work in late May or early June and was
capable of performing the contract before August 1 even if it did not start work
until then is a genuine issue of material fact for the jury. Hence, whether Red
Wilk was justified in demanding Hydro arrive at the job site on April 21 is also a
material question of fact which is in dispute. Although the contract explicitly gives
Red Wilk the power to accelerate work, Red Wilk was free to agree to an early June
start date without contradicting that provision. Whether Hydro incurred
unwarranted acceleration expenses in coming to the job site sooner than it had
planned to is likewise a question for the jury.16
Hydro also claims acceleration damages because, in mid-June, Red Wilk
reiterated its insistence on Hydro performing its work on the project by August 1,
2014. Hydro claims this untoward demand by Red Wilk caused it to bring
additional personnel and equipment to the job site in July, costing Hydro extra
money. Of course, Hydro agreed under the terms of its contract to the August 1
completion date. In general, it would not have been unreasonable for Red Wilk to
insist upon observance of that contractual provision.
But Hydro argues that Red Wilk itself was responsible for delaying Hydro's
work, making it impossible to finish the job by August 1. There was a formal
written request from Hydro to Red Wilk dated May 15, 2014, asking for an
extension of time to complete the job due to Red Wilk's delays. See Docket No.
203-32 at p. 1. Acceleration damages arising from the June, 2014, events also
presents a question of fact for the jury.
Red Wilk also points to § 16.2 and argues that provision eliminates Hydro's
delay damages. Section 16.2 states, "[t]he Subcontractor waives claims against
Contractor for consequential damages arising out of or relating to this
Subcontract, including without limitation, any consequential damages due to
Subcontractor being terminated." Id. at p. 24, § 16.2. The first observation is that
The contract already provided for payment to Hydro of $22,000 to mobilize its
equipment and manpower to the job site. Acceleration damages must, therefore,
entail something more than only the cost of mobilizing manpower and equipment.
Presumably Hydro will adduce proof that it was more expensive to move earlier, or
that it had to forgo other work it could have done if allowed to report to the job site
later. These are questions that will have to await trial.
§ 16.2 is limited to those situations in which Hydro was terminated. Here, no one
alleges Hydro was terminated. So the provision is inapplicable. Even if it were
applicable, the parties specifically made allowances for certain consequential
Consequential damages are defined as "losses that do not flow directly and
immediately from an injurious act, but that result indirectly from the act." Black's
Law Dictionary, p. 394 (7th ed. 1999). The general rule is that consequential
damages are recoverable if they were foreseeable to the defendant at the time of
contracting. Johnson v. John Deere Co., 306 N.W.2d 231, 236 (S.D. 1981); 24
Williston on Contracts § 64:13 (4th ed). Parties may, however, agree under the
terms of their contract to limit or eliminate altogether consequential damages so
long as such provision is not against public policy or unconscionable. Durham v.
Ciba-Geigy Corp., 315 N.W.2d 696, 700 (S.D. 1982); 24 Williston on Contracts §
64:17 (4th ed). Such a provision limiting or excluding consequential damages, like
any other contract provision, must be read in light of the contract as a whole. In
re Dissolution of Midnight Star, 2006 S.D. 98, ¶ 12, 724 N.W.2d at 337.
Here the contract itself reveals that the parties specifically bargained for and
provided for consequential damages for several circumstances anticipated by the
parties at the time of contracting. Hydro was in a unique, and unenviable,
position. In order to perform its duties under the contract, Hydro depended upon
the supply of copious amounts of water on the front end of its hydrodemolition
process and also depended upon the prompt clean up of waste water at the site
where the concrete was being cut. But these crucial support services were out of
Hydro's control—Red Wilk (through ProAct) would be providing these services.
In addition, Hydro could only maximize production of its work by performing
hydrodemolition in contiguous passes. But, again, Red Wilk was in control. If
Hydro's witnesses are to be believed, Red Wilk never supplied Hydro with a
demolition schedule so that Hydro could anticipate where and when it would be
working. As a consequence, Red Wilk told Hydro where to cut from day to day and
Red Wilk had the power to provide continuous cutting in adjacent areas (high
efficiency for Hydro), or require Hydro to hop around from place to place at
nonadjacent areas (poor efficiency for Hydro). The contract forbid Hydro from
communicating with anyone else on the project except Red Wilk unless Red Wilk
gave express permission to do so. See Docket No. 158-1 at p. 7, § 4.1.17.
The contract reflects numerous places where the parties inserted
information about the supply of water (p.14, § 8; p.16, § 9.7), clean up of waste
water (p. 14, § 8, p.16, § 9.7, p. 17, § 10.6), and providing continuous passes for
cutting (p. 16, § 9.7, p. 17, § 10.6). In each case, mention of these items in the
contract was tied to idle and standby charges in favor of Hydro or the items were
used to precondition Red Wilk's own entitlement to liquidated damages.
Reading the contract as a whole, then, and giving effect to every portion to
which it is possible to give effect, the court concludes that Hydro can obtain
consequential damages for losses foreseeable to Red Wilk at the time of
contracting, but certainly the items specifically provided for in the contract were
foreseeable: failure to supply 300 gallons of water continuously, failure to clean
up continuously at the robot, and failure to provide contiguous passes of cutting.
In summary, the court concludes that where, as here, there is a
contradiction between the "form" "canned" parts of the contract and the portions of
the contract which the parties negotiated and discussed particularly and inserted
and initialed into the contract, the custom-created provisions control over the
"canned" "form" parts of the contract where the two cannot be reconciled.
Therefore, the court gives effect to the provisions allowing delay damages in favor
of Hydro as found in §§ 8, 9.7 and 10.3 and does not give effect to the contrary
provision in § 9.6.17 Similarly, the court refuses to read § 16.2 to preclude
consequential damages because Hydro was never terminated and because it is
inconsistent with the parties' intent to allow consequential damages for specific
circumstances addressed in the contract such as providing 300 gallons per minute
supply water, cleaning up continuously at the robot, cleaning up wastewater
promptly, and providing two phases maximum of continuous cutting. The court
denies Red Wilk's request for partial summary judgment holding that Hydro's sole
remedy is to request an extension of time.
Delay Damages in Favor of Hydro
Alternatively, Red Wilk argues that Hydro is entitled to the damages for idle
and standby time as specified in the contract ($3,000 per day) and can obtain no
other damages. Hydro argues it is entitled to idle and standby damages plus other
compensatory damages. Neither party alleges the idle and delay damages are void
as a matter of law. Although the idle and delay damages are a species of
liquidated damages, the court finds them valid for the same reasons discussed
above in the section on Red Wilk's liquidated damages.
In this regard, the court rejects the affidavit from Red Wilk's Jerry MacNeil. See
Docket No. 143. Mr. MacNeil is attempting to tell the court how to interpret the
contract at issue. Contract interpretation is a question of law for the court to
decide. Cornelius, 813 N.W.2d at 169. Even if there were ambiguity creating a
fact question, that question would go to the jury, not be decided by the court in a
summary judgment motion.
The contract between Red Wilk and Hydro references idle and delay
damages in several places. In describing the scope of the work to be done, after
listing eight items which were Red Wilk's obligation to perform, the contract stated:
Idle time and standby charges while on project. $3,000/day
Idle and standby charges shall not be assessed if site and weather
conditions do not allow work to be completed safely. Standby and
idle charges will not be assessed if idle time interferes with the critical
timeline tasks and has been scheduled (3) days prior to standby.
See Docket Nos. 158-1 at § 8, p. 14; 158-2 at § 8, p. 14. That exact language is
repeated in § 10.3. Id. at p. 17, § 10.3. Also, as noted above, in the provision of
the contract describing Red Wilk's entitlement to liquidated damages, the parties
inserted "Delay charges in effect" in the provision describing the preconditions to
Red Wilk's entitlement to liquidated damages. See Docket Nos. 158-1 at § 9.7, p.
16; 158-2 at § 9.7, p. 14.
Clearly, there are many ways a contract can be breached, causing delay or
idle time is just one of those ways. Red Wilk's argument that Hydro is limited
exclusively to delay and idle damages leads, if one accepts it, to ridiculous results.
For example, if Hydro performed its work fully on the contract and Red Wilk
caused no delay or idle time, but refused to pay Hydro for its work, this would be a
breach of the contract for which, according to Red Wilk's proposed interpretation,
Hydro could receive no damages. This bizarre intent is not found in the contract
between Red Wilk and Hydro. Such an intent flies in the face of established
contract law. If the parties intended such a result, it would have had to have been
clearly and explicitly established in the contract. Cf. Subsurfco, Inc., 337 N.W.2d
at 453-54 (holding an intent to make conclusive an engineer's opinion as to
damages must be explicitly provided for in the contract; it will not be implied). The
contract contains no such clear and explicit intent. In fact, there are numerous
provisions in the contract that seem to explicitly acknowledge Hydro's entitlement
to damages aside from idle and standby damages. See Docket No. 158-1 at pp.
10-11, and 13, §§ 4.7, 5.3, 7.3.1; Docket No. 158-2 at pp. 10-11, and 13, §§ 4.7,
5.3, 7.3.1. The court holds Hydro's damages are not limited to idle and standby
South Dakota provides the following regarding contract damages:
For the breach of an obligation arising from contract, the measure of
damages, except where otherwise expressly provided by this code, is
the amount which will compensate the party aggrieved for all the
detriment proximately caused thereby, or which, in the ordinary
course of things, would be likely to result therefrom. No damages can
be recovered for a breach of contract which are not clearly
ascertainable in both their nature and their origin.
See SDCL § 21-2-1. The purpose of contract damages is to put the nonbreaching
party in the same position it would have been in had there not been a breach.
Casper Lodging, LLC v. Akers, 2015 S.D. 80, 871 N.W.2d 477, 490, reversed on
other grounds, Magner v. Brinkman, 2016 S.D. 50, 883 N.W.2d 74, 79-80
(reversing as to standard of review on appeal for denial of a motion for judgment as
a matter of law, changing the review from abuse of discretion to de novo).
"In order to award contract damages there must be evidence that the
damages were in fact caused by the breach." Bunkers, 653 N.W.2d at 743. "Proof
of damages requires a reasonable relationship between the method used to
calculate damages and the amount claimed." Id. (quoting McKie v. Huntley, 2000
S.D. 160, 620 N.W.2d 599, 603). "In applying this rule, a reasonable certainty test
is employed. 'Reasonable certainty requires proof of a rational basis for measuring
loss,' without allowing any room for speculation." Id. (quoting McKie, 620 N.W.2d
A party suing to recover damages on a construction contract has the burden
of showing it substantially performed that contract. Barton Masonry, Inc. v.
Varilek, 375 N.W.2d 200, 202 (S.D. 1985). A party may not receive in damages for
breach of an obligation more than that party would have received had both parties
fully performed their obligations. See SDCL § 21-1-5; Casper Lodging, LLC, 871
N.W.2d at 491. Although a jury may award the lesser measure of damages as
between (1) cost of repairs and (2) diminution in value, it is not necessary for the
plaintiff to present the jury with evidence of both measures of damage. Casper
Lodging, LLC, 871 N.W.2d at 491. If one party presents evidence of only one
measure of damage, the opposing party may present evidence of the other
measure. Id. at 491-92.
If a plaintiff successfully proves a breach of contract, it "is entitled to recover
all [its] detriment proximately caused by the breach, not exceeding the amount he
would have gained by full performance. The issue is what [the plaintiff] is entitled
to under his contract, less the cost of fully completing it in accord with its terms."
Big Band, Inc. v. Williams, 87 S.D. 24, 202 N.W.2d 121, 123 (1972). Where a
plaintiff entered into a contract to manufacture defendant's new product, plaintiff
was not entitled to recover on its breach of contract claim the costs of tools
necessary to perform the contract, other equipment, or the erection of a building.
Id. The court held these were ordinary costs of commencing and continuing in
business and it would be unfair to charge them to the defendant, whose costs
would be different depending on whether he contracted with a new manufacturer
or an established manufacturer with an already-established plant. Id. at 124.
Prejudgment interest on past damages may be obtained from the day of loss
until the jury returns its verdict. See SDCL § 21-1-13.1. The interest rate
applicable shall be the rate specified in the contract or, if there is none, then at the
Category B rate. Id. Prejudgment interest is mandatory, not discretionary. Alvine
v. Mercedes-Benz of North America, 2001 S.D. 3, 620 N.W.2d 608, 614.
Prejudgment interest applies even though the amount of damages may have been
uncertain prior to the jury rendering its verdict. All Star Const. Co, Inc. v. Koehn,
2007 S.D. 111, 741 N.W.2d 736, 742.
The court makes several observations regarding the law and the Red WilkHydro contract. The contract between Red Wilk and Hydro provided for payment
of either the sum of $1,361,144.59 or the sum of $1,360,634, to Hydro if Hydro
fully performed its obligations under the contract. See Docket Nos. 158-1 at p. 17
and 158-2 at p. 17.18 In addition to that figure, Hydro was entitled to delay/idle
damages caused by Red Wilk and interest on any work done and not paid.
The discrepancy between the two figures is as follows. Section 10.1 of the
contract specifies a total sum of $1,361,144.59. See Docket Nos. 158-1 at p. 17,
158-2 at p. 17. Section 10.3 of the contract specifies the unit prices as follows:
Hydrodemolition—6" upstream—40,440 s.f. x $12.83 per s.f.= $518,896
Hydrodemolition—6" dwnstrm—6,935 s.f. x $15.16 per s.f. = $105,134
Hydrodemolition—10" upstrm—29,575 s.f. x $16.49 per s.f. = $487,692
Hydrodemolition—10" dwnstm—10,925 s.f. x $20.77 per s.f.= $226,912
Equipment & manpower mobilization-$ 22,000
TOTAL OF ITEMIZED COSTS:
Id. The parties do not take note of, or explain, this $510.59 discrepancy between
the stated total of the unit prices in § 10.1 of the contract and the itemized unit
prices in § 10.3 of the contract.
Setting aside the matter of delay damages and interest for the moment, Red
Wilk billed Morris over $1.2 million for Hydro's work. Morris paid Red Wilk the
same amount. However, Red Wilk paid only $475,074 of the money it received
from Morris to Hydro. Therefore, under South Dakota contract law, the outer
limits of Hydro's damages are $885,560 or, alternatively, $886,070.59 ($1.361
million - $475,074). This is the difference between the contract price, which would
have included a profit component, and what Hydro was actually paid by Red
Hydro, through its expert Mark Gentry, is claiming $1,159,656 in damages
Unpaid Unit Price Work
Acceleration Related Damages
Lost Productivity Damages
Unplanned Exec. Oversight/Mgmt.
TOTAL CLAIMED DAMAGES
See Docket No. 162-3 at p. 5. Subtracting the interest included in Hydro's
calculation, Hydro is claiming $1,004,299 in damages in addition to the $475,074
it has already received, for a total of $1,479,373.21 This seems to be an
The "cap" on Hydro's damages is actually probably lower. The $1.36 million
figure was based on the contract square footage of 87,875. See Docket Nos. 158-1
at § 8 and 158-2 at § 8. However, the actual square footage removed by Hydro was
somewhere between 57,776 and 62,073 square feet. The money due under a unit
price contract where the total units end up significantly less than the total
anticipated at the inception of the contract would necessarily be less.
The unpaid unit price work in Mr. Gentry's calculation includes billings for delay
or idle damages as well as hydrodemolition work done by Hydro. See Docket No.
184-7 at p. 10.
This statement is necessarily qualified by the comments made in the
immediately preceding footnote.
impermissible result under SDCL § 21-1-5. See SDCL § 21-1-5; Subsurfco, Inc.,
337 N.W.2d at 455. None of the parties address SDCL § 21-1-5.
However, it remains for another day and another opinion to sort out the
validity of the damages asserted by Hydro through Mr. Gentry. It suffices for now
to conclude that the contract between Red Wilk and Hydro contains no terms
which lead this court to conclude the parties intended to supplant the entirety of
South Dakota contract damages law when they allowed Hydro to obtain delay and
idle charges. Simply reserving to one party a particular remedy does not deprive
that party of other remedies available under the law. Wolken v. Bunn, 422 N.W.2d
417, 419 (S.D. 1988). If a contract wishes to eliminate the availability of a lawful
remedy, the contract must do so in definite and positive terms showing the parties'
clear intention to exclude that remedy or remedies. Id. No such language is found
in the Hydro-Red Wilk contract.
It is true when parties provide for liquidated damages in a contract, actual
damages are not allowed to be proven and recovered if the liquidated damages
clause is valid. Dave Gustafson & Co., 156 N.W.2d at 187. However, it is also
true that liquidated damages are a remedy for a material or total breach of a
contract, and where the breach is not material, the liquidated damages clause is
usually rejected as an invalid forfeiture.22
The cases do not use the word "material," but it is clear that is what is being
evaluated. Liquidated damages clauses are upheld when they closely approximate
the actual damages the parties anticipate at the time of contracting—and actual
damages is evaluated in terms of a material breach. Heikkila, 378 N.W.2d at 217;
Prentice, 355 N.W.2d at 355. Also, where the amount of liquidated damages is
graduated depending on the size of the contract or the number of years the
contract is performed, the court has upheld the contract, which also ties the
breach to materiality. Dave Gustafson & Co., 156 N.W.2d at 189; Cactus Heights,
125 N.W.2d at 493-94.
Here, the delay and idle damages were clearly intended by the parties to be
compensation for the nonperformance of the support duties Red Wilk owed under
the contract which would cost Hydro money—instead of being able to complete its
work efficiently and move on to other projects, Hydro would be stalled out on the
Fort Randall Dam project due to Red Wilk's inefficiencies in providing water, clean
up and waste water handling. Thus, the delay damages provision was not
intended to be liquidated damages for a material breach of the contract; nor were
delay damages intended to supplant the full panoply of damages otherwise
available to Hydro under the law.
If the court were to accept Red Wilk's argument that the delay damages in
favor of Hydro precluded any other damages, the same would apply to the
liquidated damages provided for Red Wilk under the contract. Under Red Wilk's
proffered interpretation, if Hydro performed substandard work under the contract
but finished its work on time, Red Wilk would have no remedy. The court refuses
such a preposterous interpretation. It is neither sensible, congruent with the
contract, nor what the parties anticipated when they entered the contract.
Morris' Motion for Partial Summary Judgment
Morris asserts three arguments in favor of its motion. First, it seeks to limit
Hydro's damages to the amount of concrete removal verified by a September 15,
2014, survey it conducted. Second, it seeks dismissal of Hydro's quantum meruit
claim against Morris. And third, it seeks to limit Hydro's damages for "lost
productivity" to the $3,000 per day in delay and idle damages specified in the
contract between Red Wilk and Hydro.
Morris seeks partial summary judgment in its favor holding that the survey
it conducted September 15, 2014, establishes the limits of what Hydro is owed for
its hydrodemolition of concrete.23 That survey documented 57,776 square feet of
concrete removed through hydrodemolition, 44,865 square feet at unspecified
locations upstream and downstream, and 12,912 square feet at gates 1-21. Hydro
resists the motion, asserting that it conducted "field surveys" which establish that
it hydrodemolished 62,073 square feet of concrete. Since the contract does not
define the term "survey," Hydro asserts that its field surveys also constitute
"surveys" for purpose of receiving payment under the contracts.
The contract between Hydro and Red Wilk, as well as the hydrodemolition
portions of the contracts between Red Wilk and Morris and between Morris and
the Corps, are what is known as "unit price" contracts. That is, the contract is for
a specific number of units of work to be paid for at a specified price per unit.
When a contract is a unit price contract, the contract usually provides for the
payment of progress payments while the work is ongoing and these progress
payments are made based upon actual, though approximate, work as it is done.
See Subsurfco, Inc., 337 N.W.2d at 458. Progress payments are usually adjusted
at the end of the job based on quantities actually verified. Id.
So it is with the Red Wilk-Hydro contract. The contract provides for unit
work at a unit price. See Docket No. 158-1 at § 8, pp. 13-14; Docket No. 158-2 at
This "survey" argument has application both under subpart C, above, discussing
the terms of the Red Wilk-Hydro contract, and also is applicable to Hydro's Miller
Act claim as it has bearing on what "labor and materials" Hydro provided to the
project. The court chooses to discuss it in conjunction with the Miller Act claim
because it was an issue Morris raised, not Red Wilk.
§ 8, pp. 13-14. It also provides for progress payments along the way. Id. § 11, pp.
18-20. Finally, through its incorporation of the prime contract between Morris
and the Corps, it provides for a final survey to determine quantities (units) actually
verified by survey.24 See Docket No. 191-8 at §§ 1.2, 2.2, 4.2, and 5.2, at pp. 2021; § 22.214.171.124 at p. 93; § 3.8.1 at p. 102. The Red Wilk-Hydro contract contains an
acknowledgement by the parties that, because it is a unit price contract, "[a]ctual
supplied and installed quantities shall be verified and final contract price shall
directly reflect actual final quantities, contract may increase and decrease based
on the variations between actual quantities and estimated quantities." See Docket
No. 158-1 at p. 18, § 10.7; Docket No. 158-2 at p. 18, § 10.7.
Morris claims its September 15, 2014, survey is the only one made and that
the contract requires a survey. Morris is right. A "survey" is defined as "to
determine the exact form, boundaries, position, extent, etc., of (a tract of land,
section of a country, etc.) by linear and angular measurements and the application
of principles of geometry and trigonometry." See
www.dictionary.com/browse/survey?s=t, last checked August 2, 2017. Another
definition is "to view in detail, especially to inspect, examine, or appraise formally
or officially in order to ascertain condition, value, etc." Id. Clearly, in the context
of a very large federal government construction project, when the contract says
that removal amounts will be verified by "survey," it means a formal land survey.
Although, as noted above, progress payments prior to the conclusion of the work
may be based on less formal field surveys of the sort Hydro describes. But the
The Red Wilk-Hydro subsubcontract incorporates by reference the Morris-Red
Wilk subcontract. See Docket No. 158-1 at § 1.1 at p. 2. The Morris-Red Wilk
subcontract incorporates by reference the Morris-Corps prime contract. See
Docket No. 156-2 at § I at p. 1.
amounts verified by field surveys are subject to adjustment when the final survey
is done at the conclusion of the work.
Hydro claims Morris waived any requirement for a formal survey of removed
amounts of concrete by making progress payments. Waiver applies "where one in
possession of any right, whether conferred by law or by contract, and with full
knowledge of the material facts, does or forebears the doing of something
inconsistent with the exercise of the right." Subsurfco, Inc., 337 N.W.2d at 455.
To demonstrate waiver, "there must be a showing of a clear, unequivocal and
decisive act or acts showing an intention to relinquish the existing right." Id.
Here, the contract itself provided for progress payments. See Docket No. 158-1 at
p. 18-20, § 11; Docket No. 158-2 at pp. 18-20, § 11. The requirement of a formal
survey only applied at the conclusion of the work, not to interim progress
Morris did not waive the survey requirement by making progress payments
based on less formal methods of measurement prior to completion of the work.
Morris' progress payments were in conformity with the contract, not a voluntary
relinquishment of rights contrary to a contractual provision. Although waiver is
usually a question of fact for the jury, here Hydro fails to show that Morris' actions
were in any way contradictory to a known right of Morris under the contract.
Even though the final amount due under the contract for unit price work
must be determined with a formal survey, there is a dispute about the amount of
square footage demonstrated by the survey, how much of that square footage is
attributable to Hydro as opposed to 2X, how many square feet the Corps paid
Morris for, and whether the survey amount is subject to adjustment because of
Morris' knowledge of Red Wilk's malfeasance.
In Morris' initial brief in support of its motion for partial summary
judgment, Morris stated that it "had a survey performed on September 15, 2014,
shortly after American Hydro abandoned the project, which revealed only 44,865
square feet of concrete had been removed. . . Morris utilized the September 15,
2014, survey for its pay request to the [Corps] and was paid accordingly. . ." See
Docket No. 154 at pp. 6, 9-10. In its subsequent reply brief, Morris accuses Hydro
of "misstating the record" when Hydro suggested Morris was claiming Hydro
should only be paid for 44,865 square feet of concrete removal. To the contrary,
this court also understood Morris' original brief as "suggesting" exactly that—that
Hydro was entitled to be paid for only 44,865 square feet.
But in its reply brief, Morris states that the survey actually shows a total of
57,776 square feet of concrete was removed by Hydro. See Docket No. 214 at p. 3.
In addition, although Morris states it was paid by the Corps for only 62,000 square
feet of concrete removed (57,776 by Hydro and approximately 6,000 removed by
Hydro's successor, 2X), Morris provides the court with no citation to the record
demonstrating that is what the Corps paid Morris or that this is what 2X was paid.
Hydro provided an email from November 26, 2014, sent by Morris' agent
stating that Morris' survey showed Hydro removed and was paid for 68,000 square
feet of concrete. See Docket No. 203-38 at p.1. Of course, that figure was really
determined later to be 62,000 square feet. What is relevant about the email is (1)
the figure Morris recited therein is based on Morris' survey and (2) at that time,
Morris was attributing 62,000 square feet of concrete removal to Hydro, not
57,776. The survey requirement controls the amount of unit price work to be paid
for under the contract, but the amount attributable to Hydro pursuant to that
survey is a factual question for the jury.
In addition, Hydro claims one of the ways Red Wilk breached the contract
was to fail to wash away debris and waste water promptly. In fact, Morris
acknowledged that Red Wilk's clean up of hydrodemolished areas often lagged
months behind Hydro's actual hydrodemolition work. See Docket No. 203-38 at p.
1. When debris and slurry are allowed to remain in the hydrodemolished areas,
sediment can resolidify, thus obscuring the totality of the hydrodemolition that
was performed. Morris' survey was conducted approximately one month after
Hydro left the job site.
Hydro is entitled to be paid, by Red Wilk if not by Morris, for the entirety of
its work on the project, not just for the amounts that can be determined after
wastewater and sediment have been allowed to partially fill in previously
hydrodemolished areas. Morris knew this was a complicating factor in measuring
the amount of hydrodemolition done by Hydro. Id. Hydro submitted proof that it
billed Red Wilk for 62,000 square feet of concrete removed through
hydrodemolition verified by field surveys and that Morris paid Red Wilk for the
entirety of that billing, thus supporting Hydro's assertion that it removed more
concrete than documented by the September, 2014, survey.
The total amount of verifiable work done by Hydro thus presents a fact
question for the jury. Morris can argue its position to the jury. If Hydro is able to
establish with reasonable certainty that it performed quantities of work that were
then obscured by Red Wilk's failure to promptly clean away the debris and waste
water, Hydro may argue its position to the jury—and may attempt to prove Morris
knew of this. Both parties are free to adduce evidence about the division of the
62,000 square feet of concrete removal as between Hydro and 2X. The court
concludes summary judgment on this issue is not proper as genuine issues of
material fact exist.
Morris also seeks partial summary judgment in its favor dismissing Hydro's
claim for quantum meruit. It argues that quantum meruit does not lie where there
is an actual, explicit contract. Morris also argues that Hydro would have to prove
Morris was unjustly enriched. Since Morris paid Red Wilk in full for all work billed
by Hydro, Morris argues Hydro cannot show Morris was unjustly enriched (even
though Red Wilk may have been).
Hydro counters that there is no express contract between it and Morris
which would prevent a quantum meruit claim. Further, Hydro argues that, under
the law, it need not show Morris received a benefit from Hydro's services.
An implied contract or quantum meruit "is a fiction of the law adopted to
achieve justice where no true contract exists." Weller v. Spring Creek Resort, Inc.,
477 N.W.2d 839, 841 (S.D. 1991). Unjust enrichment contemplates an
involuntary or nonconsensual transfer, unjustly enriching one party. The
equitable remedy of restitution is imposed because the transfer lacks an adequate
legal basis." Johnson v. Larson, 2010 S.D. 20, 779 N.W.2d 412, 416. There are
two types of implied contracts: contracts implied in fact and those implied in law.
Thurston v. Cedric Sanders Co., 80 S.D. 426, 125 N.W.2d 496, 498 (1963).
Contracts implied at law do not arise because the parties intended to create a
contract; rather, they arise where necessary under equity to prevent one person
from enriching himself unjustly at the expense of the other. Id.
Contracts implied in fact arise where the parties' intention to create a
contract is not manifested by words, but is gathered by implication from the
parties' conduct, language used, acts done, or other pertinent circumstances
surrounding the transaction. Weller, 477 N.W.2d at 841; Mahan v. Mahan, 80
S.D. 211, 121 N.W.2d 367, 369 (1963). "[I]f a party voluntarily indulges in
conduct reasonably indicating assent he may be bound even though his conduct
does not truly express the state of his mind." Weller, 477 N.W.2d at 841 (quoting
Fed. Land Bank of Omaha v. Houck, 68 S.D. 449, 4 N.W.2d 213, 219-20 (1942)).
The terms of an implied in fact contract "are manifested by conduct" of the parties.
Lien v. McGladrey & Pullen, 509 N.W.2d 421, 423 (S.D. 1993). "Under South
Dakota law, the existence of an implied contract between the parties creates a
genuine issue of material fact that must be decided by a jury." Id. at 424; Jurrens
v. Lorenz Mfg. Co. of Benson, MN, 1998 S.D. 49, 578 N.W.2d 151, 154.
An implied contract, whether one of law or one of fact, is subject to a higher
standard of proof. Mahan, 121 N.W.2d at 369. The plaintiff seeking to prove the
existence of an implied contract must establish it by clear and convincing
"Where there is a valid express contract between parties in relation to a
transaction fully fixing the rights of each, there is no room for an implied promise,
or suit on quantum meruit." Surgical Institute of SD, PC v. Sorrell, 2012 S.D. 48,
816 N.W.2d 133, 141 (quoting Aetna Life Ins. Co. v. Satterlee, 475 N.W.2d 569,
574 (S.D. 1991)) (emphasis added). See also Johnson, 779 N.W.2d at 416;
Jurrens, 578 N.W.2d at 153 (both holding no implied contract or unjust
enrichment claim lies where the rights of the parties are controlled by express
contract). In such a case, summary judgment on a claim of implied contract is
appropriate. Surgical Institute of SD, PC, 816 N.W.2d at 141. Where, however, no
contract exists or the dispute centers on a subject not addressed by the contract,
an issue of fact is created and quantum meruit may apply as to that subject. See
ABC Elec., Inc. v. Nebraska Beef, Ltd., 249 F.3d 762, 767 (8th Cir. 2001) (applying
In Nebraska Beef, Nebraska Beef was the owner of a slaughtering and beef
processing plant. Id. at 764. It hired a general contractor to renovate and expand
the premises. Id. The general contractor then entered into a subcontract with
ABC to provide the electrical work. Id. The primary issue at trial was the scope of
the work under the ABC subcontract. Id. at 765. The prime contract and the
subcontract had both been entered into at a time when the general contractor and
ABC had already begun work on the project, but before Nebraska Beef defined the
scope of work beyond that described in some architectural drawings. Id. at 767.
It was the work in addition to the work depicted in the architectural drawings that
was the nub of the dispute. Id. at 765.
The court noted that ABC's quantum meruit claim did not include work for
which Nebraska Beef had paid the general contractor—the claim involved extra
work in addition to that which had been paid for through the general contractor.
Id. Furthermore, Nebraska Beef had been directly involved with ABC, supervising
part of the project directly, controlling the entire project, giving final approval to
change orders, and directly paying ABC for work performed. Id. Although noting
that a party may not sue under quantum meruit for work it did pursuant to an
express contract, the court held a party may recover reasonable pay for work not
covered by the contract. Id.
The express contract required ABC to perform electrical work for the sum of
$880,000. Id. The critical issue, as regards ABC's quantum meruit claim, was
determining what work was covered by that $880,000. Id. The district court
interpreted the contract to unambiguously mean that ABC's work in exchange for
the $880,000 payment was only that work described in the architectural drawings;
any work in addition to that specified in the drawings was in addition to the
contract work and, therefore, not covered by the contract. Id. The Eighth Circuit
affirmed, holding that quantum meruit was appropriate under these circumstances.
In the Johnson case, a farmer had orally agreed with a contractor that the
contractor would remove rock and install drain tile on the farmer's land. Johnson,
779 N.W.2d at 414-15. The contractor's compensation was to receive the value of
the rock and to be allowed to store the rock on the farmer's land until the
contractor needed it. Id. The farmer later gave the rock away to a third party in
order to get it off his land after repeated inquiries to the contractor about removing
the rock went unanswered. Id. The contractor sued the farmer for breach of
contract and lost. Id. at 415. The contractor also brought equitable claims
against the farmer and the third party which the court decided in favor of the
On appeal, the court held it was error to imply a contract between the
farmer and the contractor because there was already an express, though oral,
contract between them and that contract controlled the rights of the parties. Id. at
416. However, as to the contractor and the third party who received the rock,
there was no express contract. Id. at 416. As to the third party, the court stated
the contractor was required to prove (1) the third party received a benefit, (2) he
was aware he was receiving a benefit, and (3) it would be inequitable to allow him
to retain the benefit without paying for it. Id. The court affirmed the trial court's
equitable holding in the contractor's favor as to the third party. Id. at 417.
In discussing the damages awarded on that equitable claim, however, the
court had to choose between (1) awarding damages based on the time, effort, and
cost to the contractor of excavating the rocks or (2) awarding damages based on
the value of the benefit to the third party. Id. This, the court held, was the
difference between quantum meruit and unjust enrichment. Id. at 417-18.
Quantum meruit requires the plaintiff to prove the defendant requested the
plaintiff's services and the plaintiff reasonably expected to be paid. Id. at 417. If
these elements are proved, damages may be awarded even if the defendant did not
benefit from the plaintiff's services. Id. at 417-18.
Unjust enrichment allows an award of restitution based on the value of the
benefit conferred rather than the value of the service provided. Id. at 418. The
key thing is that the defendant must be unjustly enriched. Id. Under the facts of
this case, where there was no wrongdoing on the part of the third party who
received the rocks, the third party did not request the contractor's services, and
the contractor did not reasonably expect to be paid by the third party, the court
held the proper measure of damages was unjust enrichment—the value of the
benefit received by the third party. Id. The Johnson court disavowed an earlier
statement in Burch v. Bricker, 2006 S.D. 101, 724 N.W.2d 604, 609, stating that
quantum meruit was a remedy for unjust enrichment.25 Johnson, 779 N.W.2d at
Hydro argues its claim is for quantum meruit, not unjust enrichment, and
that Hydro need not prove unjust enrichment for a quantum meruit claim. That
much is true. Johnson, 779 N.W.2d at 417-18. But quantum meruit requires the
plaintiff to prove the defendant requested the plaintiff's services and the plaintiff
reasonably expected to be paid. Id. at 417. Here, Hydro has not shown that
Morris requested Hydro to perform services for Morris. Rather, the facts show that
Red Wilk is the party who requested Hydro to perform services for Red Wilk. The
district court has already determined that Hydro cannot assert a quantum meruit
claim against Red Wilk because an express contract controlled the relationship
between Red Wilk and Hydro. See Docket No. 39.
The facts presented on this summary judgment motion do not neatly fit
within the ABC case or the Johnson case. Unlike ABC, here, Morris did pay Red
Wilk for Hydro's services; Red Wilk just failed to pass that payment along in full to
Morris also billed the Corps for Hydro's work and received payment. As
discussed in connection with the discussion of the survey requirement though, it
is not apparent how much the Corps paid Morris for Hydro's work. If the Corps
paid Morris for 62,000 square feet of concrete removed by Hydro, Morris would be
Counsel for Morris quotes the discredited statement from Burch in its brief:
"Quantum meruit is 'used as an equitable remedy to provide restitution for unjust
enrichment.' " See Morris Brief at Docket 154, p. 14. Johnson overruled this very
statement, so it is no longer good law, a fact counsel should have noted in its brief.
Presumably Morris' counsel did read Johnson as counsel cited to Johnson in its
brief along with Burch. However, the court notes no "flag" showing negative
treatment of Burch appears when the case is viewed on Westlaw.com.
unjustly enriched if it only compensated Hydro for 57,776 square feet. It is
unknown on this record if Morris has reaped an unjust enrichment like the third
party in Johnson or Nebraska Beef in ABC.
Morris argues that, unlike the subcontractor in ABC, here Hydro is not
alleging it performed work outside the scope of its subcontract--the work Hydro
did was specifically pursuant to the terms of its contract with Red Wilk. However,
if Hydro did work amounting to 63,000 square feet of concrete removal and Morris'
position is that only 57,776 square feet are within the contract, then conceivably
Hydro did do work outside the contract to the tune of approximately 5,000 square
feet of concrete removal. Finally, neither party addresses whether, like Nebraska
Beef, Morris directly supervised and directed Hydro or ever made payments
directly to Hydro, bypassing Red Wilk.
On this record, the court finds factual issues abound and Morris is not
entitled to summary judgment on Hydro's quantum meruit claim. This issue will
be decided after a full trial.
Lost Productivity Damages
Morris argues that the provision in the contract for delay and idle charges in
favor of Hydro prohibits Hydro's claim for damages for loss of productivity. Morris
equates lost productivity damages with damages arising from delay or idle time
caused by Red Wilk. If that were true, the court might agree with Morris.
However, Hydro argues that its lost productivity damages stem from more
than just delay and idle time caused by Red Wilk. Hydro alleges the following acts
by Red Wilk caused Hydro's lost productivity damages: failure to conduct cleanup
of concrete removal areas, failure to provide 300 gallons per minute of water for
hydrodemolition, failure to provide saw cutting around the perimeters of the areas
to be hydrodemolished, failure to provide two phases only of continuous cutting,
and demanding that the work be completed by August 1, which in turn caused
Hydro to bring an 8-pack pump and additional personnel to the work site, which
was less efficient.
The allegations that Red Wilk failed to clean up, failed to provide water, and
failed to provide two continuous passes of cutting are specifically contemplated as
sources of delay and idle payments under the contract. These acts by Red Wilk
cannot form the basis for lost productivity damages because they are already
covered by idle and delay charges, a form of liquidated damages agreed to by the
parties for this type of delay.
The failure to provide saw cuts around the perimeter of areas to be
hydrodemolished was not contemplated in the idle and delay damages. This is a
species of default by Red Wilk that would not be covered by the liquidated
damages. Therefore, to the extent Hydro can show with reasonable certainty that
failure to provide saw cuts resulted in measurable loss of productivity to Hydro,
Hydro can recover these damages.
As to the fact Red Wilk insisted Hydro finish the work by August 1, that may
or may not be recoverable as part of Hydro's claim for lost productivity damages.
The contract between Red Wilk and Hydro quite clearly set forth an August 1,
2014, completion date and also set forth the fact that time was of the essence in
this contract. Hydro promised to finish the work on time when it signed the
On the other hand, Hydro alleges Red Wilk itself was the cause of Hydro
falling behind on the schedule and finishing work on August 25 instead of August
1. The contract obligated Red Wilk to grant extensions of time to complete the
work when such requests were reasonable. As already established, Hydro did
request extensions of time and Red Wilk refused. The cause of the delay, and
whether Red Wilk's refusal to grant an extension was unreasonable, are disputed
questions of material fact which await the jury. The court will not grant summary
judgment on this ground.
Based on the foregoing law, facts and analysis, it is hereby
ORDERED that Hydro's motion for partial summary judgment [Docket No.
170] is granted as to liability against Morris and UF&CC on Hydro's Miller Act
claim. The remainder of Hydro's motion for partial summary judgment is denied
in all other respects. It is further
ORDERED that the motions for partial summary judgment by Morris
[Docket No. 153] and by Red Wilk [Docket No. 140] are denied in their entireties.
DATED August 8, 2017.
BY THE COURT:
VERONICA L. DUFFY
United States Magistrate Judge
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