Aarow Equipment & Services, Inc. v. Travelers Casualty & Surety Co. of America , 417 F. App'x 366 ( 2011 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 10-1375
AAROW EQUIPMENT & SERVICES, INCORPORATED, United States of
America for the use and benefit of,
Plaintiff - Appellant,
v.
TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA,
Defendant - Appellee.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Anthony J. Trenga,
District Judge. (1:09-cv-00861-AJT-TCB)
Argued: January 27, 2011 Decided: March 18, 2011
Before NIEMEYER, DAVIS, and KEENAN, Circuit Judges.
Vacated and remanded by unpublished per curiam opinion.
ARGUED: Michael Jacob Kalish, WALSH COLUCCI LUBELEY EMRICH &
WALSH, PC, Prince William, Virginia, for Appellant. James
Dennis Coleman, WATT, TIEDER, HOFFAR & FITZGERALD, LLP, McLean,
Virginia, for Appellee. ON BRIEF: Eugene Andrew Burcher, WALSH
COLUCCI LUBELEY EMRICH & WALSH, PC, Prince William, Virginia,
for Appellant.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
This appeal concerns an action brought by a subcontractor
against a surety under the Miller Act (the Act), 40 U.S.C. §§
3131 through -3134. Under the Act, before a general contractor
is awarded a contract by the federal government in an amount
greater than $100,000, the general contractor is required to
obtain a “payment bond” “for the protection of all persons
supplying labor and material in carrying out the work provided
for in the contract.” 40 U.S.C. § 3131(b)(2). The Act provides
a cause of action, such as the one asserted here, permitting a
subcontractor to file suit seeking payment from a surety on a
payment bond when the subcontractor has not been paid by the
general contractor within 90 days of completing the
subcontractor’s work. 40 U.S.C. § 3133(b)(1). For the reasons
that follow, we vacate the district court’s award of summary
judgment in favor of the surety and remand the case for further
proceedings.
I.
We review the facts in the light most favorable to Aarow,
the non-moving party in the district court. Hooven-Lewis v.
Caldera, 249 F.3d 259, 265 (4th Cir. 2001). In 2007, Syska
Hennessy Group Construction, Inc. (Syska) was awarded a contract
(the prime contract) by the United States government (the
2
government) to construct a training facility for the District of
Columbia Army National Guard at Fort Belvoir, Virginia (the
project). Syska served as the general contractor on the project
and obtained a payment bond, as required by the Miller Act, from
Travelers Casualty and Surety Company of America (Travelers).
Syska awarded Aarow Equipment & Services, Inc. (Aarow) a
subcontract, which set forth the “work” that Aarow was required
to perform on the project.
Section 11.1 of the subcontract stated that Syska may “make
changes in the [w]ork covered by this [s]ubcontract,” and that
any changes must be made in writing. The subcontract also
provided that Aarow must submit in writing to Syska any claims
for changes in the price or payment due under the contract.
According to the subcontract, any such change in price or
payment to Arrow “shall be made” “only to the extent that” Syska
is entitled to relief from the government, and payment to Aarow
shall be equal to Aarow’s share of any adjustment to the prime
contract.
When changes to the “work” under the subcontract were made,
Aarow generally submitted the proposed cost of the change to
Syska, and Syska issued a “change order” to the subcontract.
Aarow’s “work” described in the subcontract included several
categories of responsibilities, including “earthwork” relating
to water distribution and drainage. During Aarow’s performance
3
of this “earthwork,” the government determined that the “erosion
control plan” Aarow was implementing was “not up to
standard[s].” Aarow ceased working until it received new
erosion plan “drawings,” which required the construction of
sedimentary ponds and other water management measures (the pond
work).
Aarow and Syska agreed that the pond work was not included
in the “work” defined in the subcontract. In September 2007,
Aarow submitted a proposal of $402,500 to Syska for the pond
work. Syska directed Aarow to perform the pond work, but did
not issue a “change order” for the pond work at that time.
Aarow completed the pond work, with the understanding that Syska
would issue a “change order” at some point in the future.
Upon Syska’s determination that the pond work was not
included in the scope of the prime contract, 1 Syska asked that
the government agree to a “modification” of the prime contract. 2
Syska requested that Aarow wait to submit its invoice for the
1
The record does not contain a copy of the prime contract,
and there were no depositions taken during discovery in this
case of the government officials involved with the prime
contract.
2
According to deposition testimony provided by a Syska
employee, a “modification” is essentially the same as a “change
order,” except that the prime contract was amended by a
“modification,” while the subcontract was amended by a “change
order.”
4
pond work until after the government issued a “modification” to
the prime contract and Syska issued a “change order” to the
subcontract.
Several months later, neither a “modification” nor a
“change order” had been issued. Nevertheless, Aarow submitted
an invoice to Syska for the completed pond work. Syska
instructed Aarow to use a billing procedure that would allow
Syska to pay Aarow for the pond work even though a “change
order” had not been issued. This billing procedure required
Aarow to list the pond work under a “line item” designated for
certain “finishing” work on the project that had not yet been
completed. 3 According to Syska, the government had authorized
this billing procedure while Syska’s “modification” request was
pending.
After Aarow complied with this different billing procedure
in accordance with Syska’s directions, Syska submitted a similar
invoice to the government identifying the pond work as
“finishing” for a “three-story building.” The government paid
Syska $484,980, which included the invoice in the amount of
$402,500 submitted by Aarow, plus a fee representing Syska’s
“normal markup.” Syska, in turn, paid Aarow $402,500 for the
3
The “finishing” work was included in the “work” described
by the subcontract.
5
pond work. Syska advised Aarow that after Syska received a
“modification” and issued a “change order,” Aarow could
reallocate the funds received for the pond work to the proper
“line item.” Shortly after the government paid Syska the
requested amount of $484,980, the government determined that the
pond work was included in the prime contract. Accordingly, the
government denied Syska’s request for a “modification” of the
prime contract based on the government’s construction of the
prime contract’s terms.
The government later withheld several payments to Syska to
recover the funds previously paid for the pond work. In
response, Syska withheld payment from Aarow for other work
completed by Aarow between May 2009 and June 2009.
On July 1, 2009, Aarow sent Syska a letter stating that
Syska had a “significant outstanding and past balance due,” and
that Aarow would stop work on the project at the end of the week
unless payment was made. When Syska did not submit payment to
Aarow under the terms of the demand, Aarow ceased work on the
project.
On July 17, 2009, Syska sent Aarow a letter notifying Aarow
that it was in default of the subcontract for failing “to
proceed with the work” according to the project schedule. In
that letter, Syska instructed Aarow to correct and complete
specific alleged defaults. Aarow did not return to work on the
6
project or otherwise attempt to cure the alleged defaults. On
July 23, 2009, Syska sent another letter to Aarow stating that
because Aarow had not cured the defaults, Syska was terminating
the subcontract as provided in Section 12.1 of that agreement.
Section 12.1 of the subcontract stated, in relevant part:
If, in the opinion of [Syska], [Aarow] shall at any
time . . . fail in any respect to prosecute the Work
according to the current schedule. . . then, after
serving three (3) days written notice, unless the
condition specified in such notice shall have been
eliminated within such three (3) days, [Syska] may at
its option . . . terminate the Subcontract for default
. . . . [Aarow] shall not be entitled to receive any
further payment until the Work shall be fully
completed and accepted by [the government].
Under Section 12.2 of the subcontract, however, if Syska
wrongfully terminated the subcontract, Syska would be liable for
“the reasonable value of [the] Work performed by [Aarow] prior
to [Syska’s] wrongful action.”
With regard to payment, the subcontract required that Syska
pay Aarow monthly, provided that Syska already had received
payment from the government. This “pay-when-paid” provision
stated, in relevant part:
Conditioned upon the satisfactory progress of [Aarow],
compliance with the documentation requirements of this
Subcontract, and [Syska] has received payment from the
[government] THEN [Syska] will make monthly payments
to [Aarow]. [Aarow] acknowledges and agrees that in
the event payment is not made to [Syska] for any
reason . . . [Aarow] shall look exclusively to [the
government] for payment of any and all funds due under
this Contract. [Aarow] further agrees that the delay
in payment or nonpayment by the [government] does not
7
create any separate obligation of [Syska] to pay
regardless of the extent of the delay.
In its complaint filed against Travelers, the surety on
Syska’s payment bond, Aarow asserted that Syska breached the
subcontract by failing to pay Aarow for several months. Aarow
sought from Travelers the sum of Aarow’s past-due invoices to
Syska, in the amount of $484,870.71.
In response, Travelers filed an answer and a motion for
summary judgment. Aarow opposed the motion, and the parties
filed a series of briefs addressing numerous issues. In
December 2009, the district court held a hearing on the motion
for summary judgment.
In its pleadings and during the hearing, Travelers asserted
two primary arguments in support of its motion. Travelers first
maintained that because the terms of the “pay-when-paid”
provision in the subcontract were clear and the government did
not pay Syska for several months, Syska did not breach its
payment obligation to Aarow under the subcontract. Travelers
thus contended that Syska properly terminated the subcontract
under Section 12.1 based on Aarow’s failure to perform, and that
Aarow was not entitled to payment under the terms of Section
12.1. Travelers argued alternatively that even if Syska
wrongfully had terminated the subcontract, Syska paid Aarow more
8
than Aarow was due under the subcontract and, therefore, Aarow
was not entitled to additional payment.
Two months after the hearing, but before the district court
entered its judgment, Travelers requested leave to supplement
its motion for summary judgment to discuss a new decision issued
by this Court. In that supplemental pleading, Travelers argued
that under this Court’s decision in Universal Concrete v. Turner
Construction Co., 595 F.3d 527 (4th Cir. 2010), “pay-when-paid”
provisions are valid defenses in a breach of contract action
when the terms of such provisions are unambiguous.
Aarow filed a brief in response, arguing that the holding
in Universal Concrete did not establish a new principle of law.
(J.A. 649.) Aarow also cited in its supplemental brief the
“prevention doctrine,” a principle of contract law establishing
that one who prevents the performance or the happening of a
condition to his performance may not take advantage of that
condition. See Barnhill v. Veneman, 524 F.3d 458, 474 (4th Cir.
2008). Aarow contended that this doctrine barred Syska from
relying on the “pay-when-paid” provision of the contract because
Syska was partially at fault for the government’s failure to
make the requested payment to Syska. Aarow argued that Syska’s
fault was demonstrated by its failure to obtain the appropriate
“modification” to the prime contract, and by its failure to
issue a “change order” to the subcontract for the pond work.
9
The district court entered an order permitting both parties to
supplement the record with these pleadings.
Three weeks later, the district court entered an order
granting summary judgment in favor of Travelers. In its
memorandum opinion, the district court held that because the
subcontract contained an enforceable “pay-when-paid” provision,
and because it was undisputed that the government failed to pay
Syska for several months, Aarow was unable to “justify its
[w]ork stoppage based on Syska’s failure to pay Aarow.”
Notably, the district court did not address Aarow’s prevention
doctrine argument.
The district court concluded that Syska’s “termination for
default” was proper under Section 12.1 of the subcontract based
on Aarow’s failure to complete its work under the subcontract.
Accordingly, the district court held that Aarow was not owed
payment under the subcontract and that, therefore, Travelers had
“no payment obligation to Aarow.” Aarow filed a timely appeal
in this court.
II.
We review the district court’s award of summary judgment de
novo. See S.C. Green Party v. S.C. State Election Comm’n, 612
F.3d 752, 755 (4th Cir. 2010). Under Rule 56(a) of the Federal
Rules of Civil Procedure, summary judgment is appropriate when
10
the moving party “shows that there is no genuine dispute as to
any material fact” and when the moving party “is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a); see
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986)
(construing former Rule 56(c) of the Federal Rules of Civil
Procedure).
A.
Aarow argues on appeal that the district court erred in
failing to apply the prevention doctrine in determining whether
Travelers was entitled to judgment as a matter of law. Aarow
asserts that Syska was responsible for the government’s failure
to make the requested payment under the prime contract.
Therefore, according to Aarow, a jury should determine whether
Syska breached the terms of the subcontract by failing to pay
Aarow for the work it had completed.
In response, Travelers argues that the district court
properly granted summary judgment in its favor. Initially,
Travelers contends that Aarow’s prevention doctrine argument was
not asserted timely and should not be considered in the
resolution of this appeal. Addressing the merits of Aarow’s
argument, Travelers asserts that because the government withheld
payment from Syska, the terms of Syska’s subcontract with Aarow
permitted Syska to withhold the requested payment to Aarow.
11
Travelers therefore maintains that, as a matter of law,
Travelers did not owe any payment to Aarow under the bond
because Syska complied with the terms of the subcontract and
Aarow wrongfully abandoned the project. We disagree with
Travelers’ arguments.
We find no merit in Travelers’ assertion that Aarow failed
to preserve its prevention doctrine argument in the district
court. Although Aarow used the term “prevention doctrine” for
the first time in a later-filed supplemental pleading, the
district court accepted that supplemental pleading and included
it in the record three weeks before the court rendered its
judgment. Furthermore, in Aarow’s initial brief opposing
summary judgment, Aarow set forth the factual predicate for its
prevention doctrine argument by asserting that Syska directed
Aarow to complete the pond work before issuing a “change order”
for that work, and that Syska acted in bad faith by attempting
to “back charge” Aarow for the pond work. Thus, we conclude
that Aarow’s prevention doctrine argument was presented
adequately to the district court and was not, as Travelers
argues, articulated for the first time on appeal. See Evans v.
Metro. Life Ins. Co., 358 F.3d 307, 310 n.2 (4th Cir. 2004)
(explaining that although appellant’s argument was not raised in
district court until oral argument on the motion for summary
judgment, the argument was preserved for appellate review).
12
B.
We turn to examine the present record to determine whether
Travelers was entitled to judgment as a matter of law at the
summary judgment stage of the proceedings. Based on Aarow’s
argument before the district court, we give particular
consideration to the evidence before the district court bearing
on the issue of the prevention doctrine.
Under the prevention doctrine, when a general contractor
materially contributes to the failure of a condition limiting
the duty to perform under a contract, the general contractor may
not rely on that failure as a defense to its performance of its
contractual obligations. See Moore Bros. Co. v. Brown & Root,
Inc., 207 F.3d 717, 725 (4th Cir. 2000). In Moore Brothers, we
applied the prevention doctrine in a dispute involving a “pay-
when-paid” provision in a subcontract. There, in response to
two subcontractors seeking payment for completed work, the
general contractor asserted as a defense the “pay-when-paid”
condition in the subcontract and the owner’s failure to pay the
general contractor. Id. at 724-25.
We affirmed the district court’s award of summary judgment
in favor of the subcontractors because the record established
that the general contractor materially contributed to the
owner’s failure to pay. Id. at 725-26. Thus, we concluded that
the general contractor was liable to its subcontractors for
13
payment notwithstanding the “pay-when-paid” provision in the
subcontract. Id. at 725. Applying our analysis in Moore
Brothers to the present case, we consider whether a jury
reasonably could find that Syska’s actions materially
contributed to the government’s failure to pay Syska under the
prime contract, thereby preventing Travelers from relying on the
“pay-when-paid” condition in the subcontract in defense of
Syska’s failure to pay Aarow.
Travelers maintains that the government directed the method
of billing for the pond work and that, therefore, Syska was not
responsible for the government’s refusal to pay Syska when the
government later determined that the billing for the pond work
was improper. In support of its position, Travelers relies on
the deposition testimony of Robert F. Geremia, Syska’s vice
president in charge of construction, who stated that the
government had “instructed my people in the field to bill for
some [finishing] work that actually wasn’t done.”
Aarow, however, asserts that Syska’s actions materially
contributed to the government’s failure to make the payment at
issue. Aarow points to evidence in the record that Syska
directed Aarow to perform the pond work even though Syska had
not issued a “change order” or received a “modification” to the
prime contract. The record also contains evidence that Aarow
completed the pond work, relying on Syska’s promise that a
14
“change order” was forthcoming. However, when Syska did not
obtain a “change order,” Syska directed Aarow to remove its
invoice references to “sediment ponds and associated work,” and
to categorize the pond work as “finishes” for a “three-story
building,” which had not yet been constructed.
Based on these facts, a jury reasonably could return a
verdict for Aarow if the jury concluded that Syska’s actions, in
directing Aarow to perform the pond work before issuing a
“change order,” and in agreeing to employ an arguably improper
billing procedure that obscured the expanded scope of the “work”
under the subcontract, materially contributed to the
government’s later decision to withhold certain payments to
Syska. If Syska’s actions materially contributed to the
government’s decision, Travelers could not rely on the “pay-
when-paid” provision of the subcontract to excuse Syska’s
failure to pay Aarow for its work performed under the
subcontract. See Moore Bros., 207 F.3d at 725.
We are not persuaded by Travelers’ assertion that it was
entitled to summary judgment based on Geremia’s testimony that
the government instructed Syska to employ the questionable
billing procedure. In essence, Travelers seeks to absolve Syska
of any responsibility for the arguably improper billing
procedure because “the project owner told us to do it.” The
allocation of responsibility for the billing practices, however,
15
raises credibility issues and other issues of fact that are
matters for a jury’s consideration. Therefore, we hold that
Travelers was not entitled to summary judgment on the issues
whether Syska breached the subcontract and whether Aarow was
entitled to payment from Travelers under the bond. 4
For these reasons, we conclude that the district court
erred in granting summary judgment in favor of Travelers.
Accordingly, we vacate the district court’s judgment and remand
the case for further proceedings consistent with this opinion.
VACATED AND REMANDED
4
Based on our holding, we do not address Aarow’s remaining
argument regarding the issue whether the district court erred in
relying on letters from Syska’s counsel to Aarow relating to
Syska’s termination of the subcontract. We also need not
address Aarow’s contention that the district court’s judgment
violated the policy underlying the Miller Act.
16