Millgard Corp. v. McKee/Mays ( 1995 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 94-10066
MILLGARD CORP.,
Plaintiff-Appellee,
Cross-Appellant,
versus
McKEE/MAYS, A JOINT VENTURE,
Defendant-Third-Party
Plaintiff-Appellant-
Appellee,
Cross-Appellee,
versus
DALLAS COUNTY AND THE COMMISSIONERS'
COURT OF DALLAS COUNTY,
Third-Party Defendants-
Appellants,
Cross-Appellees.
Appeal from the United States District Court
for the Northern District of Texas
(March 31, 1995)
Before HIGGINBOTHAM, SMITH, and STEWART, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
This Texas diversity case raises the familiar question of a
price adjustment to a construction contract. Here a subcontractor
encountered wet soil while sinking piers for a foundation. A soil
report accompanying the bid documents signaled dry soil, but the
bid documents stated that this soil report was not part of the
contract documents. A provision in the subcontract allowed for
price adjustment if the subcontractor encountered conditions at
variance with those indicated in the subcontract or those
ordinarily encountered. Another clause disclaimed all
responsibility for the accuracy of the soils investigation. We
hold that the subcontract provided for adjustment of contract price
in two circumstances and neither was present. We reverse the
judgment of the district court entered upon a jury verdict and
vacate a judgment against the owner that passed the price increases
through to the owner.
I.
On April 5, 1978, Dallas County contracted with McKee/Mays for
the construction of a new county jail and courthouse, called the
Lew Sterrett Justice Center. In November 1978, McKee/Mays
solicited bids to subcontract the pier drilling for caisson
foundations for the project. McKee/Mays gave Millgard a packet of
information about the project, including a set of instructions to
bidders, the project specifications, and a copy of some soil boring
logs. Mason-Johnston & Associates had conducted the soils
investigation at Dallas County's request. Section 1.21(b)(3) of
the instructions to bidder warned that the soil "[r]eport and log
of borings is available for Bidders' information only. The report
is not a warranty of subsurface conditions, nor is it a part of the
Contract Documents." Section 1.21(c) continued:
1. Bidders are expected to examine the site and the
subsurface investigation reports and then decide
for themselves the character of the materials to be
encountered.
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2. The Owner, Architect and Construction Manager
disclaim any responsibility for the accuracy, true
location and extent of the soils investigation that
has been prepared by others. They further disclaim
responsibility for interpretation of that data by
Bidders, as in projecting soil-bearing values, rock
profiles, soil stability and the presence, level
and extent of underground water.
On January 10 and 11, 1979, Millgard's officials met in Dallas
with McKee/Mays's officials and discussed the project, including
subsurface conditions. McKee/Mays's officials gave them a copy of
the soil report written by Mason-Johnston. Millgard's officials
visually inspected the site, examined soil samples, and spoke with
Bill Howard, one of the authors of the soil report. Millgard
interpreted the data to indicate no problem water in the soil, and
Howard concurred. At the scheduled pre-bid conference on January
11, Howard told bidders that the driller would encounter dry,
cohesive soil that was probably clay, except in the fill and shale
layers. He stated that there was no reason to anticipate problem
water, and told bidders to look at the soil report and samples.
Though one other bidder drilled its own test hole, Millgard did not
do so.
On January 18, 1979, Millgard submitted a winning bid of
$2,987,000. Millgard then submitted proposed drilling plans to
McKee/Mays for approval. Millgard proposed to insert temporary
casings through the fill layer. These casings would clear the way
for drilling through the dry clay until the drill reached the sand
and gravel layer above the shale, at which point Millgard would
insert another casing. The plan reiterated Howard's statement that
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"problem volumes of water would not be expected." McKee/Mays,
Dallas County, and Mason-Johnston reviewed and approved the plans.
McKee/Mays signed the subcontract with Millgard on March 6,
1979. Section 12.2.1 of the subcontract contained a clause
entitled "CONCEALED CONDITIONS":
Should concealed conditions encountered in the
performance of the Work below the surface . . . be at
variance with the conditions indicated by the Contract
Documents, or should unknown physical conditions below
the surface of the ground . . . differing materially from
those ordinarily encountered . . . be encountered, the
Contract Sum shall be equitably adjusted by Change Order
. . . .
Millgard began work in late June 1979. It encountered a layer
of quicksand-like material, between five and fifteen feet thick,
between the fill area and the sand and gravel layer. These
conditions affected seventy-four percent of the holes drilled and
made the drilling plans impractical. Millgard spent more money
than it expected, completing the work in early January 1980.
Millgard sought its additional costs, and McKee/Mays forwarded its
claim to Dallas County. Dallas County decided that the conditions
were not materially different from those indicated by the contract
documents and refused to adjust the contract price.
Millgard brought this diversity suit in federal district court
to recover its additional costs. McKee/Mays filed a third-party
claim for indemnity from Dallas County. A jury trial followed.
The district court redacted section 1.21(b)(3) of the instructions
to bidders in the version of the contract that was introduced into
evidence. The deleted language read: "nor is [the soil report] a
part of the Contract Documents." The court also excised
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section 1.21(c)(2), which stated that the owner, architect, and
McKee/Mays "disclaim any responsibility for the accuracy . . . of
the soils investigation [and] interpretation of that data." The
court forbade McKee/Mays and Dallas County to mention this language
or to elicit it at trial. The jury was asked whether Millgard
"reasonably relied on the subsurface information furnished to it in
its preparation of its bid" and whether conditions "differed
materially from those conditions indicated by the subsurface
information." The jury answered "yes" to both questions. The
court denied defendants' motions to set aside the verdict and for
judgment as a matter of law, entered judgment for Millgard, and
ordered Dallas County to indemnify McKee/Mays for the full amount
of the judgment. McKee/Mays and Dallas County appeal, and Millgard
cross-appeals the rate of prejudgment interest.
II.
The district court reasoned that all of the parties "relied on
the accuracy of the soil report" and that the disclaimers did not
"preclude, for all purposes, reliance on the soil report."
Instead, the court interpreted the disclaimers as insuring "that
any inaccuracies in the soil report would be inadequate grounds to
rescind, or excuse nonperformance of, [Millgard's] contractual
obligation to construct the caissons." The district court
therefore redacted the disclaimers and phrased the jury
instructions to allow Millgard to recover an equitable adjustment
based on its reliance on the soil reports.
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Millgard does not rely upon the second half of the concealed
conditions clause, dealing with conditions not "ordinarily
encountered." Its sole theory of liability is a breach of contract
claim resting on the first half of the clause, which permits a
price adjustment if conditions are "at variance with the conditions
indicated by the Contract Documents."
One problem with this contention is that section 1.21(c)(2)
"disclaim[s] any responsibility for the accuracy, true location and
extent of the soils investigation," including data concerning "the
presence, level and extent of underground water." Section
1.21(b)(3) is even more explicit: "The [soil] report is not a
warranty of subsurface conditions, nor is it a part of the Contract
Documents." If the soil report is not part of the contract
documents, it cannot form the basis of a claim that conditions were
"at variance with the conditions indicated by the Contract
Documents." The district court's gossamer distinction between
grounds for escaping the contract and grounds for claiming an
equitable adjustment finds no anchor in the blunt contract language
disavowing "any responsibility." Part 1.05 of the project manual's
earthwork specifications underscores this point: "No allowance or
extra payments will be made by reason of variation in types of soil
encountered or variations in their moisture contents."
Nor do we find persuasive case law holding that "conditions
indicated by the Contract Documents" can embrace soil reports that
are not themselves part of the contract documents. City of
Columbia v. Paul N. Howard Co., 707 F.2d 338, 340 (8th Cir.), cert.
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denied, 464 U.S. 893 (1983); Fattore Co. v. Metropolitan Sewerage
Comm'n, 454 F.2d 537, 542 (7th Cir. 1971), cert. denied, 406 U.S.
921 (1972). Either the soil report is part of the contract
documents or it is not. Whatever be the force of trade customs in
the absence of controlling contract language, the plain language of
section 1.21 "disclaim[s] any responsibility" and excludes the soil
report from the contract documents.
Millgard and the district court argue that giving effect to
the literal wording of the disclaimers would gut the concealed
conditions clause. See Foster Constr. C.A. & Williams Bros. Co. v.
United States, 435 F.2d 873, 888 (Ct. Cl. 1970) (collecting cases).
But the converse holds true--allowing reliance on the soil reports
under the concealed conditions clause would eviscerate the
disclaimers. Nor is it true that the concealed conditions clause
would lack meaning if the disclaimers are given effect. The
concealed conditions clause would still allow for equitable
adjustment based on subterranean conditions that are not
"ordinarily encountered." It would also allow for equitable
adjustment based on variances from any contract documents, such as
the blueprints and specifications. These contract provisions do
not clash. Even if they did clash, we would enforce the
disclaimers because they specifically mention the soils
investigation while the concealed conditions clause does not. It
is a maxim of interpretation that when two provisions of a contract
conflict, the specific trumps the general. United States Postal
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Serv. v. American Postal Workers Union, 922 F.2d 256, 260 (5th
Cir.), cert. denied, 112 S. Ct. 297 (1991).
In short, the disclaimers and the language of the project
manual show that the parties placed the risk of underground water
on Millgard. Millgard took its chances by not boring its own hole
and instead relying on the soil reports. The bargain struck by the
parties allocated the risk and there it ends. We enforce the
contract.
III.
Because the disclaimers were effective as a matter of law to
disavow all responsibility for the soils investigation, the
district court erred in redacting the contract, limiting argument
and testimony, and phrasing the jury instructions. The district
court should instead have granted the motions for judgment as a
matter of law. The district court was correct, however, in
rejecting McKee/Mays's claim against Dallas County for
reimbursement of its attorney's fees. Texas law grants Dallas
County governmental immunity from such awards. See Tex. Loc. Gov't
Code Ann. § 5.904 (Vernon Supp. 1995); City of Terrell v.
McFarland, 766 S.W.2d 809, 813 (Tex. App.--Dallas 1988, writ
denied). We need not reach the other issues presented on appeal or
cross-appeal. We REVERSE the judgment of the district court on
Millgard's claims and RENDER judgment for McKee/Mays. We AFFIRM
the portion of the district court's judgment that rejects
McKee/Mays's claim against Dallas County for its attorney's fees
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and VACATE the judgment against Dallas County and in favor of
McKee/Mays, there now being no award against McKee/Mays.
AFFIRMED IN PART, VACATED IN PART, AND REVERSED IN PART.
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