RMS Inc v. Shea-Kiewit Joint Venture et al
Filing
150
DECISION AND ORDER signed by Magistrate Judge Nancy Joseph on 12/31/2015 granting 79 plaintiff's Motion for Partial Summary Judgment; granting defendants' 93 Motion for Partial Summary Judgment. (cc: all counsel) (llc)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
RMS OF WISCONSIN, INC.,
Plaintiff,
v.
Case No. 13-CV-1071
S-K JV and J.F. SHEA CONSTRUCTION,
INC.,
Defendants.
DECISION AND ORDER ON PLAINTIFF’S AND DEFENDANTS’ MOTIONS FOR
PARTIAL SUMMARY JUDGMENT
On February 3, 2015, RMS of Wisconsin, Inc., was granted leave to file a third
amended complaint against Shea-Kiewit Joint Venture and J.F. Shea Construction, Inc.
(collectively the “defendants”). (Docket # 67.) In the third amended complaint, RMS, a
subcontractor who is a certified by the City of Indianapolis as a minority and/or women
owned business, alleges fraud in the inducement, breach of contract, and breach of the
covenant of good faith and fair dealing against the defendants stemming from a
subcontractor agreement it entered into with the defendants. (Third Am. Compl., Docket #
68.) RMS alleges the defendants never intended to honor the contract, but rather used RMS
to fulfill a requirement imposed by the City of Indianapolis to employ women and minority
owned business enterprises. (Id.) The defendants deny these allegations and have
counterclaimed against RMS for breach of the subcontractor agreement. (Defendants’ Ans.
and Countercl., Docket # 70.)
Both parties now move for partial summary judgment. The defendants move for
summary judgment on RMS’ fraud in the inducement claim. (Docket # 93.) RMS moves
for summary judgment on its breach of contract claim, asking the Court to find that the
subcontract between the parties is a “lump sum” contract as opposed to a “time and
materials” contract. (Docket # 79.) The issues have been fully briefed and are ready for
resolution. For the reasons that I explain in this decision, the defendants’ motion for partial
summary judgment is granted and the plaintiff’s motion for partial summary judgment is
granted.
SUMMARY JUDGMENT STANDARD
Pursuant to Fed. R. Civ. P. 56(a), a party can seek summary judgment upon all or
any part of a claim or defense asserted. The court shall grant summary judgment if the
movant shows that there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); see also Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).
“Material facts” are those under the applicable substantive law that “might affect the
outcome of the suit.” See Anderson, 477 U.S. at 248. The mere existence of some factual
dispute does not defeat a summary judgment motion. A dispute over a “material fact” is
“genuine” if “the evidence is such that a reasonable jury could return a verdict for the
nonmoving party.” Id.
In evaluating a motion for summary judgment, the court must draw all inferences in
a light most favorable to the nonmovant. Matsushita Electric Industrial Co., Ltd. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986). However, when the nonmovant is the party with the
ultimate burden of proof at trial, that party retains its burden of producing evidence which
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would support a reasonable jury verdict. Celotex Corp., 477 U.S. at 324. Evidence relied upon
must be of a type that would be admissible at trial. See Gunville v. Walker, 583 F.3d 979, 985
(7th Cir. 2009). To survive summary judgment, a party cannot rely on his pleadings and
“must set forth specific facts showing that there is a genuine issue for trial.” Anderson, 477
U.S. at 248. “In short, ‘summary judgment is appropriate if, on the record as a whole, a
rational trier of fact could not find for the non-moving party.’” Durkin v. Equifax Check
Services, Inc., 406 F.3d 410, 414 (7th Cir. 2005) (citing Turner v. J.V.D.B. & Assoc., Inc., 330
F.3d 991, 994 (7th Cir. 2003)).
UNDISPUTED FACTS
RMS performed excavating and shaft digging work for Shea/Kenny, a J.F. Shea
Construction joint venture, on the Milwaukee Metropolitan Sewerage District deep tunnel
project (“Milwaukee Project”) for more than six years. (Pl.’s Resp. to Defs.’ Proposed
Statement of Facts (“DPF”) ¶ 1, Docket # 112.) On August 11, 2010, the City of
Indianapolis and the Sanitary District of the City of Indianapolis sold the rights to the
Indiana Deep Rock Tunnel Project to CWA Authority Inc./Citizens Energy Group. (Defs.’
Resp. to Pl.’s Statement of Proposed Material Facts (“PPMF”) ¶ 1, Docket # 138.) The
asset purchase agreement contained a provision stating that the purchaser would establish
policies and procedures designed to provide minority business enterprises (“MBE”),
women-owned business enterprises (“WBE”), veteran-owned business enterprises (“VBE”),
and local firms with “the maximum practicable opportunity to compete for work” related to
the provision of wastewater treatment services in the Indianapolis community. (Id. ¶ 3.) The
provision further contained annual goals for the percentage of contracts awarded to MBEs,
WBEs, and VBEs. (Id.)
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Near the Milwaukee Project’s end, Shea approached RMS to see if it would be
interested in working with Shea on the Indianapolis Deep Tunnel Project (“Deep Tunnel
Project”) as a “Minority/Women Business Enterprise.” (Pl.’s Resp. to DPF ¶ 2.) In its bid
to the City of Indianapolis, the defendants warranted that they had made a good faith effort
to meet the goal of awarding 14% of the their subcontracting dollars to MBEs, 8% to WBEs,
and .2% to VBEs. (Defs.’ Resp. to PPMF ¶ 5.) Carl Christensen, J.F. Shea’s Vice President
of Operations, urged Tammy Miramontes, the owner of RMS, to have RMS apply for WBE
certification with the City of Indianapolis. (Id. ¶ 6.) RMS was ultimately certified as a WBE
in August 2011. (Id.; Pl.’s Resp. to DPF ¶ 3.)
Shea contacted RMS to begin negotiating the details of the subcontract and scope of
work and the parties met at a pre-bid meeting in August of 2011 in Indianapolis, and on
October 5, 2011 in Atlanta. (Pl.’s Resp. to DPF ¶ 4.) On September 8, 2011, J.F. Shea Vice
President, Dennis Poulton, wrote to the City of Indianapolis Department of Public Works
to inform the City that S-K JV was revising its Minority/Women Business Enterprise
participation goals to 15% MBE, 8% WBE, and 3% VBE. (Defs.’ Resp. to PPMF ¶ 7.) In his
September 8th letter, Poulton wrote that “SK, JV understands in conference with the
Owner, this procedure is consistent with the Asset Purchase Agreement between the City of
Indianapolis and Citizens Energy Group/CWA, Authority, Inc. as the plan follows the
current existing lines of business associated with the Agreement.” (Id. ¶ 8.)
At the Atlanta meeting, the parties discussed rates and what equipment RMS should
bring to the project. (Pl.’s Resp. to DPF ¶ 5.) The parties also discussed what Shea
equipment S-K JV wanted RMS to transport to Indianapolis from the Milwaukee and
Illinois equipment yards. (Id. ¶ 6.) At the meeting, RMS was told that things were going to
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“run the same way as [they] did in Milwaukee,” meaning that RMS would be doing the
same sort of work that it did in Milwaukee. (Id. ¶ 7.)
In November of 2011, S-K JV (a joint venture between Shea and Kiewit
Infrastructure Co.) was awarded the Deep Tunnel Project contract. (Id. ¶ 8.) S-K JV sent a
proposed subcontract to RMS on December 19, 2011. (Id. ¶ 9.) RMS supplied its list of
equipment and its equipment rates to the defendants before signing the contract. (Def.’s
Resp. to PPFOF ¶ 14.) RMS signed and returned the subcontract on or about January 24,
2012. (Pl.’s Resp. to DPF ¶ 10.) On January 1, 2012, Stuart Lipofsky, S-K JV’s project
manager, called RMS’s owner Tammy Miramontes and told her to mobilize RMS’s men
and equipment to the Indianapolis jobsite. (Id. ¶ 11.) On January 3, 2012, RMS employees
began bringing equipment to Indianapolis. (Id. ¶ 12.) Other RMS employees commuted
back and forth moving equipment. (Id. ¶ 13.) On either January 2 or January 3, 2012, RMS
began work on site setup and prep and continued work onsite thereafter. (Id. ¶ 14.) Daily
Reports show that RMS “met w/ Bob,” Shea’s foreman on the project, and “planned for
next week.” (Id. ¶ 15.) RMS brought its own equipment and employees to the jobsite and
used its own employees and equipment to perform its scope of work. (Id. ¶ 16.) On January
16, S-K JV’s office manager, Donnalynn Hansen, wrote “we had these two gentlemen come
in this morning and I was told they would be on your payroll but that is all I know.” (Def.’s
Resp. to PPMF ¶ 16.) However, RMS never requested these employees. (Id. ¶ 17.)
RMS submitted weekly applications for payment for its work on the project. (Pl.’s
Resp. to DPF ¶ 17.) Defendants paid RMS a total of $467,947.77 and received broad claim
and lien waivers from RMS for all of the payments. (Id. ¶ 19.) With each pay application,
RMS submitted backup documentation to justify the time worked by RMS employees as
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well as union hall laborers and equipment operators, the cost of materials furnished by
RMS, and the expenses incurred by RMS for supplies. (Id. ¶ 20.) For example, RMS
submitted time sheets for its employees, receipts for reimbursement for expenses such as:
“office,” “travel,” gas, tolls, lodging, postage, and meals, among other things. (Id. ¶ 21.)
Defendants paid RMS’s first two pay applications in full. (Id. ¶ 22.) Subsequently, however,
Defendants began paying only certain line items, and questioning others. (Id. ¶ 23.) RMS
acknowledged that S-K JV was disputing its rates. Tammy Miramontes expressly wrote in
an email to Hansen on February 27, 2012: “Rick is NOT changing or agreeing to any other
rates than the one’s on the sheet that I faxed over to you.” (Id. ¶ 24.) And in response to
Hansen’s statement on February 27, 2012 that Lipofsky “said he will not pay until he gets
the new price list and there is some kind of agreement on rates,” Tammy Miramontes
writes: “the rate sheet you have is the rates for this job.” (Id. ¶ 25.)
On February 20, 2012 Lipofsky called Tammy Miramontes and asked her to fly to
Indianapolis for a meeting regarding disputed charges. (Id. ¶ 28.) On February 24, 2012,
Tammy Miramontes, Rick Wilinski, and Scott Miramontes of RMS met with Lipofsky,
Hansen, Danny Martz, and Jim Eichberger of S-K JV. (Id. ¶ 29.) During the meeting
Lipofsky stated that there had been a misunderstanding and RMS was charging labor,
management fees, and equipment rates that were too high. (Id. ¶ 30.) According to Tammy
Miramontes, Lipofsky “had issues with the management fee charged on the invoice[s],” and
he “had an issue with the monthly expenses.” (Id. ¶ 31.) Tammy Miramontes’ notes from
the meeting show that equipment rates and monthly expenses were discussed. (Id. ¶ 32.) The
February 24 meeting did not satisfy RMS, so they called Christensen to discuss their
concerns. (Id. ¶ 33.)
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Christensen called Tammy Miramontes and told her that he and Jeffrey Salai (J.F.
Shea’s vice president) would like to meet with RMS to discuss matters further. (Id. ¶¶ 34-35.)
During the conversation, Christensen stated that the “situation had to be resolved soon or
we could all go to jail.” (Id. ¶ 36.) The parties arranged to meet in Milwaukee on March 13,
2012. (Id. ¶ 37.) At the meeting, Christensen discussed with Tammy Miramontes and
Wilinksi the money that S-K JV owed to RMS. (Id. ¶ 38.) According to Tammy
Miramontes, Salai stated that there had been a misunderstanding, and asked Tammy
Miramontes, “You didn’t really think you were getting a $6.785 million contract, did you?”
(Id. ¶ 39.) In settlement, S-K JV agreed to pay $124,852.61 for unpaid invoices and truck
rental costs, out of the roughly $153,000.00 in unpaid invoices. (Id. ¶ 40.) The agreement
was memorialized in a document entitled “Final Adjustment to Progress Pymts thru
3/09/12.” (Id. ¶ 41.) S-K JV offered to pay RMS a management fee at a rate of $8,500.00
per month going forward, which RMS alleges was to do menial tasks to give the appearance
that S-K JV was using a WBE subcontractor. (Id. ¶¶ 42, 44.)
ANALYSIS
Choice of Law
As an initial matter, I must determine the applicable law governing this dispute.
When a district court exercises diversity jurisdiction, it must apply the choice of law
principles of the state in which it sits. Tanner v. Jupiter Realty Corp., 433 F.3d 913, 915 (7th
Cir. 2006). Therefore, Wisconsin’s choice of law principles apply. The choice of law is made
on an issue-by-issue basis. International Administrators, Inc. v. Life Insurance Co., 753 F.2d
1373, 1376 n.4 (7th Cir. 1985). RMS alleges both breach of contract and fraud in the
inducement. The subcontract agreement at issue in this case contains a choice of law
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provision providing that “[t]his Agreement shall be governed by and construed in
accordance with the laws of the State of Indiana.” (Third Am. Compl., Exh. D at 15,
Docket # 69-1.)
As a general rule, Wisconsin law recognizes validly executed choice of law
provisions in the absence of any public policy reasons to disregard them; however, this is
true primarily of contract disputes. Taurus IP v. Daimler Chrysler Corp., 519 F. Supp. 2d 905,
923 (W.D. Wis. 2007) (citing Bush v. National School Studios, Inc., 139 Wis. 2d 635, 642, 407
N.W.2d 883 (1987)). Tort claims generally fall outside the scope of choice of law provisions.
CERAbio LLC v. Wright Medical Technology, Inc., 410 F.3d 981, 987 (7th Cir. 2005) (citing
Kuehn v. Children’s Hospital, 119 F.3d 1296, 1302 (7th Cir.1997)). A choice of law provision
may be construed to govern tort disputes, but only if “it is clear that this is what the parties
intended.” Kuehn, 119 F.3d at 1302.
Thus, Indiana law applies to RMS’ breach of contract claim under the choice of law
provision in the subcontract agreement. However, RMS’ fraud in the inducement claim is
not subject to the provision because it is unclear whether the parties intended Indiana law to
cover tort claims. When a choice of law provision does not apply, the law of the forum state
generally applies unless it is “clear” that the contacts in the nonforum state are of “greater
significance” than the contacts in the forum state. State Farm Mutual Automobile Insurance Co.
v. Gillette, 2002 WI 31, ¶ 51, 251 Wis. 2d 561, 641 N.W.2d 662. However, if the laws of the
competing states are the same, courts in Wisconsin apply the law of Wisconsin regardless of
the relative state contacts. CERAbio LLC, 410 F.3d at 987 (citing Deminsky v. Arlington
Plastics Machinery, 259 Wis. 2d 587, 657 N.W.2d 411, 420 (2003)).
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With regard to the alleged tortious behavior, the parties do not argue that their
contacts in Indiana are of greater significance than their contacts in Wisconsin. Nor do the
parties point to a substantial difference in Indiana and Wisconsin law on the law of fraud in
the inducement. Moreover, Indiana and Wisconsin law appear equivalent for fraud in the
inducement. See Tru-Cal, Inc. v. Conrad Kacsik Instrument Systems, Inc., 905 N.E.2d 40, 44-45
and n.6 (Ind. Ct. App. 2009) (stating that the elements of fraud are (1) a material
representation of past or existing facts which (2) was false, (3) was made with knowledge or
reckless ignorance of its falsity, (4) was made with the intent to deceive, (5) was rightfully
relied upon by the complaining party, and (6) proximately caused injury to the complaining
party and noting that fraudulent inducement occurs “when a party is induced through
fraudulent misrepresentation to enter into a contract”); Kaloti Enterprises, Inc. v. Kellogg Sales,
Co., 2005 WI 111, ¶¶ 12, 30, 283 Wis. 2d 555, 699 N.W.2d 205 (stating the following
elements for fraud in the inducement: (1) the defendant made a factual representation; (2)
which was untrue; (3) the defendant either made the representation knowing it was untrue
or made it recklessly without caring whether it was true or false; (4) the defendant made the
representation with intent to defraud and to induce another to act upon it; and (5) the
plaintiff believed the statement to be true and relied on it to his/her detriment). Therefore, I
will apply Wisconsin law to the issue of fraud in the inducement.
Fraud in the Inducement
The defendants move for summary judgment on RMS’ claim for fraud in the
inducement. As state above, to prevail on a claim for fraud in the inducement, RMS must
prove that the defendants made “a statement of fact that is untrue, made with the intent to
defraud, and for the purpose of inducing the other party to act on it, which the other party
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relies on to his or her detriment, where the reliance is reasonable.” Kailin v. Armstrong, 2002
WI App 70, ¶ 31, 252 Wis. 2d 676, 702, 643 N.W.2d 132, 145-46; see also Kaloti Enterprises,
Inc. v. Kellogg Sales, Co., 2005 WI 111, ¶¶ 12, 30, 283 Wis. 2d 555, 699 N.W.2d 205; Digicorp,
Inc. v. Ameritech Corp., 2003 WI 54, ¶ 52, 262 Wis. 2d 32, 662 N.W.2d 652. Further, the
misrepresentation must have occurred before the formation of the contract. Kaloti
Enterprises, 2005 WI 111, ¶ 30; Digicorp, Inc, 2003 WI 54, ¶ 52. A plaintiff must prove the
elements by “‘clear, satisfactory, and convincing evidence.’” Digicorp, Inc, 2003 WI 54, ¶ 52
(quoting Wis. JI-Civil 205, Burden of Proof: Middle).
Once again, to prove fraud in the inducement, one needs a false statement of fact.
“[A]n action for misrepresentation cannot be based on future events or facts not in existence
when the representation was made, or on unfulfilled promises.” Schurmann v. Neau, 2001
WI App 4, ¶ 10, 240 Wis. 2d 719, 624 N.W.2d 157. One exception to this rule is “when at
the time of making the promises the promisor has a present intention not to perform.”
Constr. Mortgage Investors Co. (“CMIC”) v. VWH Dev., LLC, 2009 WI App 56, ¶ 5, 317 Wis. 2d
732, 768 N.W.2d 64 (unpublished).
At its core, RMS alleges the type of fraud described by the court in CMIC, a “present
intention not to perform.” See id. In its Third Amended Complaint, RMS alleges that the
defendants falsely represented to RMS that they intended for RMS to fully complete the
subcontracting work for the Deep Tunnel Project and that it would pay the full
$6,785,000.00 value of the contract; however at the time the subcontract was signed, the
defendants knew that they did not intend to honor the agreement. (Third Am. Compl. ¶¶ 6061.) As evidence of this fraud, RMS points to these facts: the defendants were aware of
RMS’ equipment prices prior to entering into the contract so their contention that the
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contractual relationship ultimately failed because the parties disputed equipment prices is
untrue; the defendants were making unauthorized purchases on RMS’ behalf and putting
employees on RMS’ payroll; and Christensen’s statement that “we could all go to jail.”
The defendants’ principal argument is that the parties were performing under the
contract without disputes for several weeks and that partial performance of the contract
evidences the defendants’ intent to perform. The defendants rely on two Wisconsin cases in
support of their position, Wausau Med. Ctr. v. Asplund, 182 Wis. 2d 274, 514 N.W.2d 34 (Ct.
App. 1994) and CMIC. In Wausau Med. Ctr., the defendant signed an employment contract
that contained a covenant not to compete. Forty-five days after he started his employment,
the defendant informed his employer that he was quitting. His former employer sued him
for intentional misrepresentation, arguing that the defendant intentionally mispresented his
interest in returning to work for the plaintiff. The court found that the defendant’s statement
did not meet the second element of misrepresentation—that the representation was false—
because he did, in fact, return to work for the plaintiff. 182 Wis. 2d at 291, 514 N.W.2d at
42. In CMIC, the parties entered into a subordination agreement in which Maple Lawn
agreed that CMIC’s mortgage would have priority. Maple Lawn argued that CMIC made
various promises with regard to the loan and asserted that it would not have entered into the
agreement if not for CMIC’s assurances. Thus, Maple Lawn argued that CMIC fraudulently
induced it to sign the subordination agreement. In finding for CMIC on this claim, the court
considered the fact that CMIC did partially perform under the agreement and “[t]his bit of
performance negates any inference that it never intended to perform.” 2009 WI App 56, ¶ 8.
RMS argues that the defendants did not partially perform under the contract because
Miramontes wrote to Hansen that the only payroll S-K JV paid was for Indiana employees,
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Miramontes expressed concern over Lipofsky refusing to make progress payments, and
because S-K JV “haggled over RMS performing the work from the start.” (Pl.’s Br. in Opp.
Defs.’ Mot. Summ. Judg. at 18-19, Docket # 115.) However, the record shows that between
January 25, 2012 and March 18, 2012, RMS submitted invoices to the defendants and the
defendants paid the invoices, subtracting the amount paid from the contract price of
$6,785,000. (Declaration of Mark M. Leitner (“Leitner Decl.”) ¶¶ 13-17, 24-25, 28, 30, 3335, Exhs. 11-15, 22-23, 26, 28, 31-33, Docket # 127.) RMS does not dispute that the
defendants paid RMS a total of $467,947.77 and received broad claim and lien waivers from
RMS for all of the payments. (Pl.’s Resp. to DPF ¶ 19.) The fact that RMS did perform
work and was paid under the subcontract negates the inference that the defendants never
intended to honor the agreement. Thus, because RMS cannot show that an untrue factual
representation was made, the defendants are entitled to summary judgment on RMS’ fraud
in the inducement claim.
Interpretation of the Contract
The parties dispute whether their contract was for time and materials or was a lump
sum contract. RMS has moved for partial summary judgment, asking the Court to find that
the contract is a lump sum contract. This issue requires me to construe the terms of a written
contract and therefore involves a pure question of law. See Whitaker v. Brunner, 814 N.E.2d
288, 293 (Ind. Ct. App. 2004). When construing the meaning of a contract, my primary task
is to determine and effectuate the intent of the parties. Id. First, I must determine whether
the language of the contract is ambiguous. Id. The “unambiguous language of a contract is
conclusive upon the parties to the contract and upon the courts.” Id. (internal quotation and
citation omitted). If the language of the instrument is unambiguous, the parties’ intent will
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be determined from the four corners of the contract. Id. at 293-94. If, however, a contract is
ambiguous, its meaning must be determined by examining extrinsic evidence and its
construction is a matter for the fact-finder. Id. at 294. When interpreting a written contract, I
attempt to determine the intent of the parties at the time the contract was made. Id. I do this
“by examining the language used in the instrument to express their rights and duties.” Id.
Once again, the parties dispute whether the contract was a lump sum or a time and
materials contract. “Generally construction contracts are either fixed price contracts, in
which the parties agree on a specific price for the entire job, or time and materials contracts,
in which the parties agree that the builder will be paid according to the time and materials
used in the job.” 6 Ind. Law Encyc. Contracts § 97 (West 2015). In fixed price contracts
(also known as lump sum contracts), the “contractor receives one fixed price for performing
the work no matter how costly it is to perform, subject to certain possible price adjustments
for changed conditions, or changes or delays imposed by the owner.” 2 Bruner & O’Connor
Construction Law § 6.71 (2015). In a time and materials contract, “a contractor will be
reimbursed for labor at an hourly rate that includes profit and overhead and is typically
negotiated and not necessarily based upon costs. Material may be reimbursed at a set unit
fee negotiated between the parties, or at cost plus a percent fee.” 2 Bruner & O’Connor
Construction Law § 6.83 (2015).
Both parties argue that the extrinsic evidence supports their respective positions.
However, as stated above, if a contract is unambiguous, the extrinsic evidence is irrelevant.
My interpretation of an unambiguous contract must “give effect to the intention of the
parties as expressed in the four corners of the instrument.” See Trustees of Indiana Univ. v.
Cohen, 910 N.E.2d 251, 257 (Ind. Ct. App. 2009). Both parties are sophisticated. Had they
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intended to enter into a time and materials contract, they could have drafted the contract as
such. Rather, I find that the contract language unambiguously shows a lump sum contract.
The contract language clearly states that the contractor agrees to pay the subcontractor the
sum of $6,785,000 for “the full and complete performance of the Work.” (Exhibit D to
Third Am. Compl., Docket # 69-1 at 5.) This is the only price found in the contract. Section
29 of the contract, which is entitled “Scope of Work and Unit Price,” articulates the work to
be performed by RMS and states that “[a]ll work described in the Scope of Work” shall be
performed at the following amount—$6,785,000. (Id. at 17-18.) The method of payment
further indicates that the contract is a lump sum contract. Section 3 of the contract states
that payments would be made to RMS “in an amount equal to one hundred percent (100%)
of the value of the Work” and that “progress payments will be wire transferred weekly.” (Id.
at 5.) In fixed price contracts, “progress payments are typically based upon the percentage of
the project completed.” Bruner & O’Connor Construction Law § 6.71.
The nature of the contract as a lump sum agreement becomes more apparent when
considered in conjunction with the section that allows for price adjustments. As previously
stated, even in lump sum agreements, the contract may provide for price adjustments. See id.
Section 5 of the contract at issue contains such a provision. (Docket # 69-1 at 7-8.) In order
for RMS to be paid for additional work not covered by the contract, RMS was required to
submit a breakdown of all costs associated with the additional work, including labor,
equipment, and materials. (Id. at 7.) Thus, it seems the additional work is paid on a time
and materials basis. However, the contract contains no such requirement (i.e., submitting a
cost breakdown) for payment of work covered by the contract. Further, the contract
specifically states in the “Scope of Work and Unit Price” section that “[a]ny Items of Work
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for which a fixed price is not agreed to shall be performed on a cost plus basis. For any
Items of Work performed on a cost plus basis, the Subcontractor will submit to the
Contractor labor time sheets, invoices for all supplies and materials purchase, and any other
documentation required by the Contractor.” (Id. at 18.) This provision confirms that the
work articulated in the contract is paid on a “fixed price,” (i.e., lump sum) basis and any
additional work is paid on a “cost plus” (i.e., time and materials) basis.
The defendants argue that even if the “form of the agreement were a lump sum
contract,” the parties mutually modified the contract to a time and materials contract
through their conduct. The defendants principally rely on RMS’ billing method, arguing
that RMS’ billing practices were consistent with a time and materials contract where the
subcontractor receives reimbursement for the costs it incurs, plus a fee. (Defs.’ Resp. Br. at
11-12, Docket # 123.) Specifically, the defendants argue that RMS billed it in a manner
consistent with a time and materials contract because it billed for the costs of labor payroll,
equipment, overhead charges for RMS’ office, a “management fee,” vehicle expenses, travel
expenses, and a 3% mark-up fee. (Id.)
While it is true that modification of a contract can be implied from the conduct of the
parties, City of Indianapolis v. Twin Lakes Enterprises, Inc., 568 N.E.2d 1073, 1084-85 (Ind. Ct.
App. 1991), the record evidence does not establish a mutual agreement to change the
contract from a lump sum to time and materials. To begin, even assuming that RMS billed
on a time and materials basis, the billing method alone does not establish the nature of the
contract. Rotsko v. Rice, 221 A.D.2d 915 (N.Y. App. Div. 1995) is instructive on this point.
In Rotsko, the court found that the contract unambiguously was a “not to exceed” contract
in which the plaintiff agreed to construct the defendant’s house at a guaranteed maximum
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price of $300,000, despite the fact the plaintiff billed the defendant on a time and materials
basis. Id. at 916. RMS’ billing practice was similar. Even though RMS was not specifically
billing based on a percentage of work that it had completed (which is typically how a lump
sum agreement is billed), it is clear that each application for payment noted the “original
contract sum” of $6,785,000 and subtracted from that number the “total completed and
stored to date,” to get the “balance to finish, including retainage.” (Leitner Decl. ¶¶ 13-17,
24-25, 28, 30, 33-35, Exhs. 11-15, 22-23, 26, 28, 31-33, Docket # 127.) Thus, each
application for payment completed a portion of the $6,785,000 total and the amount RMS
was to receive was not going to exceed that amount. This billing confirms the fact the
contract was for a fixed price of $6,785,000. As such, I find that the contract between the
parties was for a lump sum. RMS’ motion for partial summary judgment is granted.
CONCLUSION
Both parties have moved for partial summary judgment. The defendants have moved
for summary judgment on RMS’ fraud in the inducement claim. Because I find that RMS
has not shown that a the defendants made a statement of fact that is untrue, the defendants’
motion for partial summary judgment is granted and RMS’ fraud in the inducement claim is
dismissed. RMS has moved for partial summary judgment asking me to construe the
subcontract agreement and determine that the agreement is a lump sum contract. I find that
the plain language of the subcontract agreement demonstrates a lump sum contract. As
such, RMS’ motion for partial summary judgment is also granted.
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ORDER
NOW, THEREFORE, IT IS ORDERED that the defendants’ motion for partial
summary judgment (Docket # 93) is GRANTED and the plaintiff’s fraud in the inducement
claim is dismissed.
IT IS FURTHER ORDERED that the plaintiff’s motion for partial summary
judgment (Docket # 79) is GRANTED and it is determined that the parties’ subcontract
agreement is a lump sum contract.
IT IS FURTHER ORDERED that the clerk of court shall contact the parties to set a
scheduling conference to discuss scheduling this matter for trial. The parties are to confer
regarding proposed trial dates prior to the conference.
Dated at Milwaukee, Wisconsin this 31st day of December, 2015.
BY THE COURT:
s/Nancy Joseph ____________
NANCY JOSEPH
United States Magistrate Judge
17
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