United States Ex Rel. Varco Pruden Buildings v. Reid & Gary Strickland Co. ( 1998 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 97-11068
The United States of America for the use of VARCO PRUDEN BUILDINGS,
a unit of United Dominion Industries, Inc., a Delaware Corporation,
also known as United Dominion Industries, Inc.
Plaintiff - Counter Defendant - Appellant
versus
REID & GARY STRICKLAND CO., A Texas Corporation
Defendant - Counter Claimant - Third Party Plaintiff
Appellee - Appellant
and
ST. PAUL FIRE AND MARINE INSURANCE COMPANY, a Minnesota Corporation
Defendant - Counter Claimant - Counter Defendant
Appellant
versus
FILE-STEELE ERECTORS CO. INC., a New Mexico Corporation
Third Party Defendant - Counter Claimant - Appellee
Appeals from the United States District Court
for the Northern District of Texas
December 1, 1998
Before HIGGINBOTHAM, DAVIS and BARKSDALE, Circuit Judges.
HIGGINBOTHAM, Circuit Judge:
This appeal resolves several claims for attorneys’ fees and
interest stemming from the construction of an Air Force hangar in
New Mexico. The ultimate resolution of the damage claims is not
before us. We must decide whether to apply the law of Texas or the
law of New Mexico and whether the claims for attorneys’ fees are
efforts to recover attorneys’ fees as part of a Miller Act claim or
state law claims supplemental to a Miller Act claim.
I.
In April 1993, Reid & Gary Strickland Company, a general
contractor, submitted to the United States Corps of Engineers a bid
to construct a six-bay hangar at Cannon Air Force Base near Clovis,
New Mexico. On June 4, 1993, Strickland signed and returned to
Varco Pruden Buildings, Inc., a purchase order for metal building
components needed to complete the hangar. The purchase order was
signed and returned to avoid a possible price increase and was
contingent upon the award of the hangar contract to Strickland.
The form provided that the transaction would be governed by the
laws of Tennessee.
The United States awarded the hangar contract to Strickland on
August 2, 1993. On the same day, Strickland submitted an order
form to Varco Pruden which stated that Varco Pruden would furnish
the pre-fabricated and pre-engineered metal building necessary for
the completion of the hangar in return for $607,865.00. The August
2
2, 1993, purchase order provided that Texas law would govern the
transaction. Varco Pruden returned the form on March 15, 1994.
Pursuant to the Miller Act, Strickland and St. Paul Fire and
Marine Insurance Company executed and delivered to the United
States on August 3 a payment bond for $6,833,599.28.1
On August 9, Strickland and File-Steele Erectors Company
executed two subcontracts for the hangar project. One subcontract
was for the unloading and erecting of all reinforcing steel, and
the other was for the erection of the structural steel and the
metal building.
Varco Pruden delivered the metal building components to the
job site in New Mexico, but the components were non-conforming,
defective, and mismarked. As a result, File-Steele had to perform
additional work--labor not originally contemplated in its
subcontract with Strickland--to remedy the problems. At various
times throughout the project, representatives of both Strickland
and Varco Pruden assured File-Steele that it would be paid for its
extra work on the project.
In March 1994, Varco Pruden agreed directly with File-Steele
to pay File-Steele for the extra work. Pursuant to this
1
The Miller Act requires the bond “for the protection of all
persons supplying labor and material in the prosecution of the work
provided for in . . . [the] contract.” 40 U.S.C. § 270a(a)(2).
The Act further provides that any person who has so furnished labor
or material and who has not been paid in full within ninety days
after the last labor was performed or materials supplied may bring
suit in federal court on the payment bond for the unpaid balance.
See id. § 270b(a).
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arrangement, File-Steele submitted extra work “tickets” to
Strickland so that Strickland could confirm that File-Steele had
actually performed the work denoted on the tickets. Strickland
then returned the tickets to File-Steele for pricing; after File-
Steele placed prices on the tickets, it returned them to Strickland
for forwarding to Varco Pruden.
At the end of the project, Varco Pruden had not received full
payment from Strickland, and File-Steele had not been paid for its
extra work. In addition, Strickland still owed File-Steele
$8,344.38 under its original contract.
Varco Pruden filed a Miller Act claim against Strickland in
federal district court in New Mexico. The case was transferred by
stipulation to the district court for the Northern District of
Texas. Strickland counterclaimed against Varco Pruden, alleging
breach of contract, and filed a third-party claim against File-
Steele, seeking a declaratory judgment to determine the correct
amount owed by Strickland to File-Steele. In its answer and
counterclaim to the third-party complaint, File-Steele asserted
Miller Act and state law claims against Strickland, St. Paul, and
Varco Pruden.
The case was tried to the bench for nine days. The court
awarded File-Steele $238,645.97 from Strickland and St. Paul for
File-Steele’s extra work. The amount was offset by $44,403.51--
payments Strickland previously had made to File-Steele as an
incentive to continue with the project. The court also awarded
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File-Steele $8,344.38 against Strickland under the original
subcontract. The trial court found against File-Steele on its
claim against Strickland for delay damages and on its claim against
Strickland and Varco Pruden for fraud and misrepresentation.
The court awarded Strickland $11,057.66 against Varco Pruden
on its breach of contract claim, and the court found that Varco
Pruden was liable to Strickland for the $44,403.07 that Strickland
had paid for File-Steele’s extra work. The court also found that
Strickland was entitled to indemnification from Varco Pruden for
the remaining amounts awarded to File-Steele for extra work--
$194,242.46. These amounts were offset by the amount still owed
Varco Pruden by Strickland, $244,939.00, making a net award to
Strickland against Varco Pruden of $4,764.63. That is, assuming
that Strickland or St. Paul would pay File-Steele the $194,242.46
for the extra work, Varco Pruden would owe Strickland $4,764.63,
exclusive of attorneys’ fees and prejudgment interest. The trial
court found against Strickland on its claims against Varco Pruden
for delay damages and on its claims under the Texas Deceptive Trade
Practices Act and the New Mexico Uniform Trade Practices Act.
Finally, the court awarded to File-Steele attorneys’ fees of
$116,708.16 against Strickland and Varco Pruden, jointly and
severally, for which Varco Pruden had to indemnify Strickland, and
it awarded Strickland fees of $71,879.85 against Varco Pruden.
II.
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First, Varco Pruden and Strickland appeal the district court’s
award of attorneys’ fees against them to File-Steele. Awards of
attorneys’ fees are generally reviewed for abuse of discretion, but
application of the correct legal standard is reviewed de novo. See
United States ex rel. Leno v. Summit Constr. Co., 892 F.2d 788, 790
(9th Cir. 1989)
It is undisputed that attorneys’ fees can not be awarded in
Miller Act claims absent an enforceable contract provision or
evidence of bad faith. See F.D. Rich Co., Inc. v. United States ex
rel. Industrial Lumber Co., Inc., 417 U.S. 116, 126-31 (1974).
Varco Pruden and Strickland argue that this is solely a Miller Act
case: File-Steele pressed no state law causes of action, and the
trial court did not find in favor of File-Steele on any state law
claim. Thus, pursuant to F.D. Rich, if this case is solely a
Miller Act case, the award of attorneys’ fees pursuant to state law
was improper.
File-Steele did assert state law claims against Strickland and
Varco Pruden over which the court exercised supplementary
jurisdiction, and the district court awarded attorneys’ fees under
those claims. The Pretrial Order clearly states that File-Steele
sought recovery under state law. Further, the district court held
that File-Steele was entitled to recover attorneys’ fees on its
state law causes of action. We do not read F.D. Rich to prohibit
an award of attorneys’ fees under a state claim over which the
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court has exercised supplementary jurisdiction in a Miller Act
case. Admittedly, in many Miller Act cases supplemental
jurisdiction offers a neat sidestep to the broad policy statements
of F.D. Rich. When the sidestep is available it is because
Congress has by separate statute, 28 U.S.C. § 1367, made possible
simultaneous prosecution of Miller Act and state law claims. See
United States v. Insurance Co. of N. Am., 695 F.2d 455, 457-58
(10th Cir. 1982) (holding that recovery under the Miller Act is not
a subcontractor’s exclusive remedy against the general contractor);
United States v. McKee, Inc., 702 F. Supp. 1298, 1301-02 (N.D. Tex.
1988) (construing the Miller Act as an alternative means of
recovery, not a replacement of state law causes of action).
Moreover, it is only a half step because recovery on the bond must
be under the Miller Act.
Moreover, the district court was correct in applying Texas law
to File-Steele’s state-based claims against Strickland and thus
looking to Texas law on the issue of attorneys’ fees. The general
rule is that a federal court applies the choice-of-law rules of the
state in which it sits. See Atlantic Mut. Inc. Co. v. Truck Ins.
Exch., 797 F.2d 1288 (5th Cir. 1984). When a suit is transferred
pursuant to 28 U.S.C. § 1406(a), the choice-of-law rules of the
transferee court’s state apply. See Tel-Phonic Servs., Inc. v. TBS
Int’l, Inc., 975 F.2d 1134, 1141 (5th Cir. 1992). A federal court
in Texas tried this case after a transfer for improper venue from
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New Mexico. Under Texas law, the substantive law of the state
chosen by the parties to govern their contractual rights and duties
will be applied unless the chosen state has no substantial
relationship to the parties or the transaction and there is no
other reasonable basis for the parties’ choice. See DeSantis v.
Wackenhut Corp., 793 S.W.2d 670, 677 (Tex. 1990). File-Steele’s
contract with Strickland provided that Texas law would govern the
transaction. Strickland is incorporated in Texas and conducts
business in Texas; thus, Texas has a substantial relationship to
the transaction and the forum clause will be upheld. Attorneys’
fees are recoverable under Texas law. See TEX. CIV. PRAC. & REM. CODE
ANN. § 38.001.
We need not reach whether the district court could correctly
hold that Varco Pruden independently owed attorneys’ fees to File-
Steele. The district court held Varco Pruden and Strickland
jointly and severally liable for the fees, and it held that Varco
Pruden had to indemnify Strickland for fees it paid to File-Steele.
Because we affirm the district court’s holding on fees as to
Strickland, and Varco Pruden does not appeal the indemnification
ruling, File-Steele’s award on attorneys’ fees against both parties
goes undisturbed.
III.
8
Varco Pruden contends that, in the event that the district
court did not err in awarding attorneys’ fees to File-Steele, File-
Steele should have been required to segregate its fees. A party
requesting attorneys’ fees carries the burden of proof and the duty
to segregate fees. See Smith v. United National Bank-Denton, 966
F.2d 973, 978 (5th Cir. 1992). An award of attorneys’ fees rests
in the sound discretion of the trial court, and its judgment will
not be reversed absent a clear showing that it abused its
discretion. See Brunn v. Central Realty of Louisiana, 592 F.2d
891, 892 (5th Cir. 1979).
The district court did not require that File-Steele segregate
its fees into those fees incurred for successful claims and those
incurred for unsuccessful claims. Instead, the court found that no
segregation was required because the claims arose out of the same
transaction and were so interrelated that their prosecution or
defense entailed proof or denial of essentially the same facts.
See Flint & Assocs. v. Intercontinental Pipe & Steel, Inc., 739
S.W.2d 622 (Tex. App.--Dallas 1987, writ denied).
However, Varco Pruden points out that while the court awarded
damages under the Federal Prompt Pay Act and for the cost of the
extra work as shown by the extra work tickets, it denied File-
Steele’s claims for delay damages and for fraud and
misrepresentation. Varco Pruden stresses that fees from the delay
claim in particular should have been segregated.
9
Nonetheless, the district court did not err. These claims are
intertwined and connected to the defective parts and the resulting
extra work. Thus, the trial court did not abuse its discretion in
not requiring the fees to be segregated.
IV.
Varco Pruden maintains that the district court erred in
granting attorneys’ fees to Strickland from Varco Pruden.
Strickland asserted state law claims against Varco Pruden. The
issue of whether Strickland is entitled to attorneys’ fees from
Varco Pruden hinges upon which state’s law applies to the award of
fees. The two states under consideration, Texas and New Mexico,
have different laws regarding attorneys’ fees. Texas law provides
for recovery of attorneys’ fees, see TEX. CIV. PRAC. & REM. CODE ANN.
§ 38.001, but New Mexico does not, see Aboud v. Adams, 507 P.2d
430, 438-39 (N.M. 1973) (noting that New Mexico follows the general
rule, with limited exceptions not applicable here, that each party
to litigation must pay his own counsel fees). Varco Pruden wants
New Mexico law to apply, and Strickland wants Texas law to apply.
Under Texas choice-of-law rules, the substantive law of the
state chosen by the parties to govern their contractual rights and
duties will be applied unless the chosen state has no substantial
relationship to the parties or the transaction and there is no
10
other reasonable basis for the parties’ choice. See DeSantis v.
Wackenhut Corp., 793 S.W.2d 670, 677 (Tex. 1990).
There is a complication: two different forms with two
different choice of law provisions. The June 4 order specifies
Tennessee law as controlling the transaction; the August 2 order
specifies Texas law. Both sides offer solutions to this dilemma.
Varco Pruden argues that this exchange of orders was an exchange of
offers and constitutes a “battle of the forms,” implicating § 2-207
of the Uniform Commercial Code. On the other hand, Strickland
argues that the contract in this case was formed June 4, and that
the June 4 agreement was modified by the August 2 purchase order.
The August 2 order provided that Texas law applied to the
transaction.
Before we can reach the question of which law to apply to the
transaction, we must decide whether the two forms present a battle
of the forms or whether the August 2 order was a modification. To
decide this initial question, we must choose a particular state’s
law and apply it to the facts. Fortunately, the law of the states
with the most significant contacts to this transaction--New Mexico
and Texas--is substantially the same on these issues.
Under either state’s law, the initial question is whether the
June 4 order form constitutes an offer or a binding contract. The
Varco Pruden purchase order states that it “shall be subject to
acceptance by Varco Pruden.” The trial court found that, even
11
though no representative of Varco Pruden signed the purchase order,
it was accepted by Varco Pruden and constituted a binding contract
between the parties. The order could constitute a contract if it
was considered “a writing in confirmation of the contract” under
New Mexico Statute § 55-2-201(2) or Texas Business and Commerce
Code § 2.201(b). These sections provide that, between merchants,
if a writing in confirmation of an agreement is received by one
party within a reasonable time, there is a binding contract if no
objection is made within ten days. See N.M. STAT. ANN. § 55-2-201;
TEX. BUS.& COM. CODE ANN. § 2.201.
Varco Pruden objects that even if the June 4 order was a
binding contract, the August 2 order was not a valid modification
because it was not supported by consideration. However, both Texas
Business and Commerce Code § 2.209 and New Mexico Statute § 55-2-
209 provide that in contracts for the sale of goods, such as this
one, a modification needs no consideration to be binding.
Strickland also argues that in the stipulation transferring
this case from the District of New Mexico to the Texas federal
district court, Varco Pruden expressly agreed that the August 2
purchase order was the controlling agreement between the parties.
However, a review of the stipulation for transfer in the record
reveals that Varco Pruden stipulated that the August 2 form
contained a valid venue selection clause; nothing was stated about
the choice-of-law provision. The June 4 order form did not contain
12
a venue selection clause. Thus, pursuant to Varco Pruden’s “battle
of the forms” argument, the August 2 venue provision could be
considered part of the contract, assuming the venue clause is not
considered a material alteration under U.C.C. § 2-207.
If Strickland’s argument is incorrect and the June 4 form was
actually just an offer, then New Mexico Statute § 55-2-207 and
Texas Business and Commerce Code § 2.207 apply. Section 2-207’s
provisions determine whether additional or conflicting terms
submitted in a subsequent form--in this case a different choice of
law provision--become part of the contract. According to § 2-207,
the additional terms are construed as proposals for additions to
the contract and, as between merchants, become part of the contract
unless:
(1) the offer expressly limits acceptance to the terms
of the offer;
(2) they materially alter it; or
(3) notification of objection to them has already been
given within a reasonable time after notice of them is
received.
N.M. STAT. ANN. § 55-2-207; TEX. BUS.& COM. CODE ANN. § 2.207.
Both parties are merchants, and Varco Pruden contends that
exception (2) applies to the instant case. According to Varco
Pruden, the provision of the August 2 form stating that Texas law
applies materially alters and conflicts with the June 4 form
provision applying Tennessee law. Under New Mexico law, when such
terms conflict, the terms do not become part of the contract. See
Gardner Zemke Co. v. Dunham Bush, Inc., 850 P.2d 319, 325-26 (N.M.
13
1993). In Texas, there is a split of authority as to whether the
offeror’s terms control or whether the conflicting terms drop out
of the contract. See Reynolds Metal Co. v. Westinghouse Elec.
Corp., 758 F.2d 1073, 1077 n.5 (5th Cir. 1985); Brochsteins, Inc.
v. Whittaker Corp., 791 F. Supp. 660, 661 (S.D. Tex. 1992). Thus,
either Tennessee law applies pursuant to the June 4 order under
Texas law, or the court must conduct a choice-of-law analysis to
determine the applicable law because the June 4 provision drops out
of the contract. However, even if Texas law applies and the June
4 provision does not drop out of the contract, Texas will not abide
by that choice of law provision if Tennessee had no substantial
relationship to the parties or the transaction. See DeSantis, 793
S.W.2d at 677. In this case, Tennessee had no connection to the
transaction. Thus, assuming the June 4 order was an offer, the
court--whether it applies New Mexico or Texas law--ultimately must
perform a “most significant contacts” choice of law analysis to
determine what state’s law will apply to the attorneys’ fees issue.
If Texas law prevails, Strickland, the prevailing party in the
dispute, is entitled to its attorneys’ fees. See TEX. CIV. PRAC. &
REM. CODE ANN. § 38.001. New Mexico law does not permit an award of
attorneys’ fees in this case. See Aboud, 507 P.2d at 438-39.
Nevertheless, the stronger view appears to be that the June 4
order was a binding contract under New Mexico Statute § 55-2-207
and Texas Business and Commerce Code § 2.207, and the August 2
14
order was a valid modification under Texas Business and Commerce
Code § 2.209 and New Mexico Statute § 55-2-209. Thus, Texas law
applies to the award of attorneys’ fees. Because Texas has a
substantial relationship to the transaction, the district court did
not err in finding that Strickland was entitled to its fees from
Varco Pruden under Texas law. See TEX. CIV. PRAC. & REM. CODE ANN. §
38.001.
V.
Varco Pruden contends that, in the event that the district
court did not err in awarding attorneys’ fees to Strickland, the
fees should have been segregated. First, the court found that all
of Strickland’s claims related to Varco Pruden’s failure to furnish
material that complied with its subcontract and the attendant costs
and resulting delays to all the parties involved. While Strickland
did not recover on its claim of delay damages, the court found that
the facts relating to Strickland’s delay claim were essentially the
same and intertwined with the facts underlying the breach-of-
contract claim. However, the court found that one part of the
delay claim could be separated out--the testimony relating to
actual money damages for the delay claim. Strickland did not
segregate the fees attributable to proof of the dollar amounts for
delay damages, but the trial court decided that the fees for
15
preparation and trial time for proof of such amounts could not have
exceeded ten percent of Strickland’s total attorneys’ fees. Thus,
the trial court reduced the amount of Strickland’s recovery of
attorneys’ fees by ten percent.
Varco Pruden maintains that the court should have segregated
Strickland’s fees. Strickland pursued three claims against Varco
Pruden: (1) the successful claim for breach of contract for which
Strickland was awarded damages of $11,056.66 for extra work
performed to correct a problem with anchor bolts, (2) the
unsuccessful claim for delay damages, and (3) the unsuccessful
claim for violations of the Texas DTPA. Varco Pruden insists that
an examination of the pleadings and the record reveals that the
facts relating to the unsuccessful delay claim and the Texas DTPA
claim are not the same as those related to the successful breach of
contract claim and that Strickland expended a substantial majority
of its effort in the prosecution of its unsuccessful claims.
Varco Pruden maintains that the successful anchor bolt claim
is simple and easily can be segregated from the other unsuccessful
claims. In the anchor bolt claim, Strickland alleged that it had
installed anchor bolts in the building foundation pursuant to
designs submitted by Varco Pruden that later proved to be
incorrect. Thus, Strickland had to perform extra work to correct
the problem. Varco Pruden contends that the only proof needed to
prove this claim was the submission and receipt of the incorrect
design, reliance upon the design by Strickland, Strickland’s
16
installation of the bolts pursuant to the design, and the value of
the extra work to correct the mistake.
On the other hand, argues Varco Pruden, the elements required
to prove the delay claim were more complex, and the delay claim had
nothing to do with the anchor bolt claim. Further, Varco Pruden
argues that the Texas DTPA claims required proof of different
facts: Strickland had to show that Varco Pruden employed false or
misleading practices, breached its warranties, misrepresented its
goods and services, and committed an unconscionable act or course
of action by failing to properly engineer, fabricate, and deliver
the metal building.
While the court had discretion in its award of attorneys’
fees, it should have abided by the general rule that recoverable
fees must be segregated from unrecoverable fees. Even though such
segregation might be difficult, in this case the simple claim on
which Strickland prevailed--the anchor bolt claim--could have been
isolated from the other unsuccessful claims.
VI.
The trial court awarded to File-Steele against Strickland
and St. Paul prejudgment interest for its extra work claim. It is
undisputed that prejudgment interest falls within the “scope of the
remedy” available to a Miller Act claimant. United States ex rel.
17
Lochridge-Priest, Inc. v. Con-Real Support Group, Inc., 950 F.2d
284, 287 (5th Cir. 1992). State law governs the prejudgment
interest award. See id. Under Texas law, if the contract
specifies no rate of interest, as in this case, “interest at the
rate of six percent per annum shall be allowed on all . . .
contracts ascertaining the amount payable.” TEX. REV. CIV. STAT. ANN.
art. 5069.1.03 (recodified at TEX. FIN. CODE ANN. § 302.002). If the
sum payable is not ascertainable from the contract, prejudgment
interest may be appropriate in equity, at the rate specified in
Texas Revised Civil Statutes Annotated article 5069.1.05--in this
case, ten percent. The district court determined that the oral
contract, in which Strickland and File-Steele agreed that File-
Steele would perform extra work, did not fix a measure of
ascertainable damages with reasonable certainty; thus, the court
applied prejudgment interest at a rate of ten percent under Article
5069.1.05.
Strickland and St. Paul argue that the sum payable to File-
Steele for its extra work was readily and reasonably ascertainable
from its oral agreement with File-Steele, so the court erred in not
applying the six percent rate. A contract is one “ascertaining the
sum payable” within the meaning of Article 5069-1.03 when it
“provide[s] the conditions upon which liability depends and . . .
fix[es] ‘a measure by which the sum payable can be ascertained with
reasonable certainty.’” Perry Roofing Co. v. Olcott, 744 S.W.2d
18929, 930 (Tex. 1988) (citations omitted). Article 5069-1.03
applies when calculating prejudgment interest even if extrinsic
evidence is needed to quantify contract damages, so long as the
contract fixes a measure by which the sum payable can be
ascertained with reasonable certainty in light of the attending
circumstances. See Great Am. Ins. Co. v. North Austin M.U.D. No.
1, 950 S.W.2d 371, 373 (Tex. 1997). Strickland and St. Paul,
relying on North Austin M.U.D., argue that the oral contract with
File-Steele fixed a measure by which the sum payable could be
ascertained with reasonable certainty, and the court used extrinsic
evidence to quantify the damages.
However, the oral contract did not fix a measure by which to
ascertain the sum payable. A review of the record reveals that the
measure of damages was hotly contested at trial precisely because
there was no fixed measure for purposes of Article 5069-1.03.
Thus, the trial court did not err in assigning a ten percent rate.
VI.
Thus, we AFFIRM the award of fees from Strickland and Varco
Pruden, jointly and severally, to File-Steele. We also AFFIRM the
district court’s holding that File-Steele did not have to segregate
its fees. Further, we AFFIRM the district court’s holding that
Strickland is entitled to attorneys’ fees from Varco Pruden, but we
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VACATE and REMAND so that the district court can segregate the
fees. Finally, we AFFIRM the district court’s use of a ten percent
interest rate on the award of prejudgment interest.
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