Shaw Constructors v. ICF Kaiser Engineers ( 2005 )

United States Court of Appeals
Fifth Circuit
F I L E D
REVISED JANUARY 24, 2005
December 30, 2004
UNITED STATES COURT OF APPEALS
For the Fifth Circuit Charles R. Fulbruge III
Clerk
No. 02-30183
SHAW CONSTRUCTORS, INC.,
Plaintiff-Appellant, Cross-Appellee,
VERSUS
ICF KAISER ENGINEERS, INC., ET AL.,
Defendants,
PCS NITROGEN FERTILIZER, L.P.
Defendant-Appellee, Cross-Appellant
Appeal from the United States District Court
For the Middle District of Louisiana
Before HIGGINBOTHAM, GARZA and DENNIS, Circuit Judges.
DENNIS, Circuit Judge:
This is an action based on the Louisiana Private Works Act
that requires the interpretation and application of the Louisiana
Civil Code articles in the chapters on Third Party Beneficiary and
1
Dissolution of Contracts.
A subcontractor performed its part of the work in constructing
a $38 million Nitric Acid Facility for the owner of an industrial
plant. In the subcontract with the general contractor, the
subcontractor “agrees to and does waive” its right to file claims
or liens against the owner’s property. When the general contractor
materially breached its primary obligation to pay the subcontractor
the $5.3 million balance due for work on the owner’s facility, the
subcontractor filed claims and privileges or liens against the
owner’s property and brought suit against the owner under the
Louisiana Private Works Act (“LPWA”).1 The owner filed a counter-
claim, as third party beneficiary of the subcontract’s lien waiver
provision, seeking the enforcement of that provision, the
cancellation of the claims and liens filed, and the award of
damages and attorneys’ fees. Applying Louisiana law in this
diversity jurisdiction suit, we reverse the magistrate judge’s
holding that the subcontractor may not raise against the owner-
third party beneficiary’s demand the defenses it could have raised
against the general contractor. Instead, we enter summary judgment
sustaining the subcontractor’s right to regard the subcontract as
dissolved and the parties restored to their pre-contract positions
1
La. R.S. § 9:4801, et seq. The subcontractor also brought suit
against the general contractor, but these parties entered into a
“Compromise Agreement,” described more fully herein, reserving
the subcontractor’s rights against the owner.
2
when it became evident that the general contractor would not
perform and had materially breached the subcontract.2 Because
dissolution and restoration operate retroactively to have effect as
of the day the subcontract was entered into, and because the
subcontractor did not explicitly waive its right to dissolution,
the dissolved lien waiver provision of the rescinded subcontract
could not be invoked to preempt or bar the exercise of the
subcontractor’s right to file claims and liens under the LPWA and
seek to enforce them against the owner and its property.
I.
On September 17, 1997, PCS Nitrogen Fertilizer, L.P. (“PCS”),
owner of an industrial plant near Geismar, Louisiana, entered into
a $38 million contract (“Prime Contract”) with general contractor
ICF Kaiser Engineering, Inc. (“Kaiser”) for design and construction
of a structure named the “1265 STPD NITRIC ACID FACILITY.” The
facility was built at the PCS plant straddling the boundary line
between Iberville and Ascension Parishes.
Under the Prime Contract, PCS authorized Kaiser to subcontract
portions of the work but specified that Kaiser would be responsible
for the actions of subcontractors. The Prime Contract also
provided that Kaiser would pay and discharge any lien that may be
filed, and indemnify, defend, and hold PCS harmless from liens on
2
Id. arts. 2013, 2016, & 2018.
3
its property.3 In addition, the Prime Contract provided that
Kaiser would reimburse PCS whatever costs PCS incurred in
discharging any liens. Although the LPWA authorized PCS to protect
itself against personal liability and privileges on its property
under the Act by filing a notice of the contract and having Kaiser
file a bond to protect subcontractors,4 PCS chose not to do so.
In January 1998, Kaiser subcontracted a portion of its work to
Shaw Constructors, Inc. (“Shaw”).5 The subcontract states that
Shaw agrees to provide labor, equipment, materials, and other
construction services for the 1265 STPD NITRIC ACID FACILITY
project and “agrees to and does waive its right to file any
mechanic’s lien or claims of any sort or kind against [PCS’s]
premises or any part thereof.”6 In exchange, Kaiser obligated
3
The common law term “lien” and civil law term “privilege”
will be used interchangeably throughout this opinion because the
parties spoke of the terms as equivalent and as the differences
between the terms are not relevant to our analysis.
4
La. R.S. § 9:4802(C).
5
PCS was not a party to the subcontract, and there was no
privity between PCS and Shaw. However, the subcontract between
Kaiser and Shaw referred to the Prime Contract between PCS and
Kaiser, referred to PCS as “owner,” and stated that
“Subcontractor hereby agrees to and does waive its right to file
any mechanic’s lien or claims of any sort or kind against owner’s
premises or any part thereof.”
6
The full text of the lien waiver clause provides:
Subcontractor hereby agrees to and does waive its right
to file any mechanic’s lien or claims of any sort or
kind against owner’s premises or any part thereof.
Subcontractor further agrees to obtain a written waiver
4
itself in the subcontract to make payments to Shaw, based on its
monthly progress, within 45 days after receiving each of Shaw’s
invoices.
As Shaw’s work progressed, Kaiser failed to make timely
payments, and Shaw contemplated stopping work. Instead, on January
12, 1999, Shaw agreed to continue work in exchange for Kaiser
making specifically scheduled payments and obtaining a payment bond
for the remainder of the work on the project.
Nevertheless, Kaiser still failed to perform its obligation
under the subcontract to pay for Shaw’s work. Instead, on January
26, 1999, Kaiser notified Shaw that it could or would not make any
further payment under the subcontract. Shaw, which essentially had
completed its work, wound up its portion of the project on February
1, 1999. At the time of Kaiser’s complete, material breach of the
subcontract, it had failed to pay Shaw over $5.2 million for Shaw’s
construction work on the PCS nitric acid facility. On January 27,
1999, Shaw filed and recorded statements of claim and privilege
asserting its rights under the LPWA against PCS and its property
of the right to file any mechanic’s liens or claims of
any sort or kind against Owner’s premises or any part
thereof from any and all subcontractors, suppliers and
materialmen at the time any subcontracts or purchase
orders are issued in connection with the work. In
accordance with Article 25E of Exhibit “C”, General
Conditions for Subcontract, a “Release and Waiver of
Lien” in the form of Appendix 1-A shall be executed by
Subcontractor prior to release of each payment
hereunder.
5
for Shaw’s uncompensated work on the PCS facility.
On February 23, 1999, Shaw filed suit against PCS and Kaiser
in state court in Iberville Parish. PCS and Kaiser removed the
case to federal court. On April 8, 1999, Shaw and Kaiser entered
into an agreement (“Compromise Agreement”) that: (1) Kaiser would
pay off $5,238,217.90 owed to Shaw for work on the PCS facility in
20 monthly installments; (2) a default judgment would be entered to
that effect; (3) Shaw’s liens on PCS’s property would not be
cancelled unless Kaiser filed a bond or other security in
conformity with the requirements of the LPWA or furnished a
$5,300,000 letter of credit; and (4) Shaw would not dismiss its
claims and lawsuit against PCS unless Kaiser furnished replacement
security or Kaiser’s monthly installment payment obligations to
Shaw were satisfied. Pursuant to the Compromise Agreement, Kaiser
confessed to the allegations in Shaw’s petition in its Answer and
Confession of Judgment, admitting its default under the
subcontract, its debt to Shaw, and the validity of Shaw’s claim and
privilege against PCS. PCS did not participate in the negotiations
and agreements between Shaw and Kaiser, and Shaw reserved all of
its rights against PCS. After a default judgment was entered,
Kaiser made installment payments to Shaw totaling $3,201,133.21,
but never provided replacement security. Thereafter, Kaiser
defaulted on the remaining amount, leaving an unpaid principal
balance of $2,037,084.77 due Shaw. On June 9, 2000, Kaiser filed
6
a petition in bankruptcy. On October 20, 2000 PCS demanded that,
within ten days thereof, Shaw cancel the claim, privilege or lien
and dismiss this lawsuit against PCS with prejudice, and on October
26, 2000 Shaw refused.
After the foregoing events, Shaw moved for partial summary
judgment on liability only to the effect that, under the LPWA, PCS
was personally liable and its nitric acid facility was subject to
a privilege for Shaw’s uncompensated work on the project. PCS
moved for partial summary judgment dismissing Shaw’s demands and
cancelling Shaw’s statements of claim and privilege filed on PCS’s
property. The parties consented to adjudication before a
magistrate judge. On August 3, 2001, the magistrate judge ruled in
favor of PCS on both of the cross-motions for summary judgment,
dismissing Shaw’s claims and ordering Shaw’s lien removed from the
public records. Thereafter, Shaw and PCS filed a second set of
motions for summary judgment concerning attorneys’ fees and
damages. On December 21, 2001, the magistrate granted summary
judgment in favor of PCS and awarded it $61,614.68 in attorneys’
fees and damages under La. R.S. § 9:4833 of the LPWA. Both Shaw and
PCS appealed.
Shaw argues that the magistrate judge erred by holding that
PCS was a third party beneficiary of the subcontract and therefore
able to demand specific enforcement of Shaw’s obligation to comply
with the lien waiver provision. Alternatively, Shaw charges that,
7
if PCS was a third party beneficiary, under Louisiana Civil Code
article 1982 Shaw had the right to raise against PCS, as third
party beneficiary, defenses based on the contract that it could
have raised against Kaiser, had Kaiser made the same demand against
Shaw. Specifically, Shaw contends that, when Kaiser materially
breached the subcontract, Shaw had the right to refuse to perform
its file-no-lien obligation, to employ all rights and defenses
against PCS that it may have raised against Kaiser, and to enforce
its claim and privilege or lien against PCS and its property under
the LPWA.
PCS argues that the magistrate judge correctly ruled that Shaw
could not raise against PCS the defenses it could have raised
against Kaiser, and that, in any event, Kaiser’s material breach of
the subcontract had no effect upon the lien waiver provision of the
subcontract. PCS contends that the magistrate judge correctly held
that it may as third party beneficiary enforce the lien waiver
provision against Shaw, that Shaw’s claim and privilege or lien
therefore were filed in violation of the lien waiver provision,
that Shaw’s claim and privilege or lien were improperly filed under
the LPWA for the same reason and others, that Shaw therefore cannot
hold PCS personally liable or enforce a lien or privilege against
PCS’s property under the LPWA, that Shaw did not have reasonable
cause to refuse to cancel its lien upon PCS’s demand, and that Shaw
should be taxed with attorney’s fees and damages pursuant to the
8
LPWA.
Both Shaw and PCS appealed.
We review rulings on motions for summary judgment de novo,
applying the same standards prescribed for use by the district
court.7 Cross-motions must be considered separately, as each
movant bears the burden of establishing that no genuine issue of
material fact exists and that it is entitled to judgment as a
matter of law.8 If there is no genuine issue and one of the
parties is entitled to prevail as a matter of law, the court may
render summary judgment.9 Louisiana substantive law applies to
7
See Walker v. Thompson, 214 F.3d 615, 624 (5th Cir. 2000).
8
10A CHARLES ALAN WRIGHT, ARTHUR R. MILLER & MARY KAY KANE, FEDERAL
PRACTICE AND PROCEDURE §2720 (3d ed. 1998)(“The court must rule on
each party’s motion [for summary judgment] on an individual and
separate basis, determining for each side, whether a judgment may
be entered in accordance with the Rule 56 standard.”)
9
10A CHARLES ALAN WRIGHT, ARTHUR R. MILLER & MARY KAY KANE, FEDERAL
PRACTICE AND PROCEDURE §2720 (3d ed. 1998)(“But if there is no
genuine issue and one or the other party is entitled to prevail
as a matter of law, the court will render judgment.”) Vela v.
City of Houston, 276 F.3d 659, 671 (5th Cir. 2001)(In situations
involving cross-motions for summary judgment and upon finding no
genuine issues of material fact, this court regularly reverses
grants of summary judgment and enters judgment for the opposite
party.). See also Owsley v. San Antonio Independent School Dist.,
187 F.3d 521, 527 (5th Cir. 1999)(reversing and rendering
judgment for the adverse party on cross motions for summary
judgment.); Ehrlicher v. State Farm Ins. Co. 171 F.3d 212,(5th
Cir,. 1999)(reversing and rendering judgment for the adverse
party on cross motions for summary judgment.); Gilley v.
Protective Life Ins. Co. 17 F.3d 775, (5th Cir. 1994)(reversing
and rendering judgment for the adverse party on cross motions for
summary judgment.)
9
this diversity jurisdiction case.10
II.
The magistrate judge correctly interpreted the subcontract
between Kaiser and Shaw as stipulating a benefit for PCS as a third
party beneficiary, but it incorrectly concluded that Shaw could not
raise against PCS the defenses on the contract that it could have
raised against Kaiser.
As the magistrate judge, in concluding that PCS was a third
party beneficiary of the Kaiser-Shaw subcontract’s lien waiver
provision, stated:
Shaw expressly agreed to waive its right to file any
liens or claims of any sort against the owner’s premises.
The subcontract clearly identifies PCS as the owner....
The preamble of the subcontract... stated that the
subcontract was made pursuant to the contract between PCS
and Kaiser.... Because of Kaiser’s agreement in the
prime contract, the subcontract lien waiver provision
benefitted both Kaiser and PCS. This arrangement does
not render the benefit which Shaw unequivocally conferred
upon PCS by agreeing to the condition any less apparent
or direct.11
Nor do we see any error in the magistrate judge’s conclusion that
PCS adequately manifested its intention to avail itself of the
benefit before any attempt was made by Kaiser and Shaw to revoke
10
Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938).
11
Aug. 3, 2001 Magistrate Judge Opinion, at 13-15 (citing
Merco Mfg., Inc. v. J.P. Michael Const. Co., 372 F.Supp. 967, 974
(W.D.La. 1974)(footnote omitted)).
10
the stipulation.12
The magistrate judge erred, however, in concluding that Shaw
could not raise against PCS the defenses based on the subcontract
that it had against Kaiser. Louisiana Civil Code Article 1981
provides, in pertinent part, that “[t]he stipulation gives the
third party beneficiary the right to demand performance from the
promisor.”13 That right is qualified, however, by Louisiana Civil
Code Article 1982, which states that “[t]he promisor may raise
against the beneficiary such defenses based on the contract as he
may have raised against the stipulator.”14 Thus, in the present
12
See La. Civil Code arts. 1978-1979. PCS filed an
affidavit by its senior counsel that he had informed Kaiser as
early as February 26, 1999 and on numerous other occasions that
Kaiser should take no action which would waive or limit PCS’s
third party beneficiary rights. Shaw offered no evidence to
refute these expressions by PCS that implied its intention to
avail itself of the benefit. The events that Shaw contends
revoked the stipulation occurred after February 1999. “Once the
third party has manifested his intention to avail himself of the
benefit, the parties may not dissolve the contract by mutual
consent without the beneficiary’s agreement.” Id. art. 1978.
“Under this Article, the beneficiary’s intention to accept the
benefit may be made known in any manner, even implied.” Id. art.
1978 rev. cmt. b. “The stipulation may be revoked only by the
stipulator and only before the third party has manifested his
intention of availing himself of the benefit.” Id. art. 1979.
13
Id. art. 1981.
14
Id. art. 1982. Louisiana Civil Code Article 1982 is
similar to the prevailing rule in other jurisdictions. See
RESTATEMENT (SECOND) OF CONTRACTS § 309(2) (1981)(“If a contract
[creating the promisor’s duty to the intended beneficiary] ceases
to be binding in whole or in part because of... present or
prospective failure of performance, the right of any beneficiary
is to that extent discharged or modified.”); Id. cmt.b. (“Thus a
11
case, Shaw, the promisor, had the right to raise against PCS, the
beneficiary, any defense based on the subcontract that Shaw could
have raised against Kaiser, the stipulator or promisee.15
The magistrate judge concluded that interpreting Article 1982
to allow Shaw to raise against PCS any defense based on the
contract that Shaw could have raised against Kaiser, “would negate
the right of PCS under articles 1978 and 1981 to accept and demand
failure of the promisee to perform a return promise ordinarily
discharges the promisor’s duty to a beneficiary to the same
extent that it discharges his duty to the promisee.”); 13 RICHARD
A. LORD, WILLISTON ON CONTRACTS § 37:55 (4th ed. 2000) (collecting
authorities, e.g., Nauru Phosphate Royalties, Inc. v. Drago Daic
Interests, Inc.,138 F.3d 160, 166 (5th Cir. 1998)).
15
Article 1982 was adopted in 1984 to “express[] a
conclusion reached by the Louisiana jurisprudence.” La. Civ.
Code art. 1982 rev. cmt. (citing Union Bank of Louisiana v.
Bowman, 9 La. Ann. 195 (1845); Tiernan v. Martin, 2 Rob. 523(1842)); see also J. Denson Smith, Third Party Beneficiaries in
Louisiana: The Stipulation Pour Autrui, 11 TUL. L. REV. 18, 57
(1936-37)(“[T]he promisor may oppose the suit of the beneficiary
any defenses arising from the contract which are available to him
as against the promisee such as that the contract was ineffective
because ... there was a failure of consideration, or of a
condition upon which performance of the promise was made to
depend.” (citing Bowman, 9 La. Ann. at 195, Brandon v. Hughes, 22
La. Ann. 360 (1980); Janney v. Ober, 28 La. Ann. 281 (1876);
Tennent v. Caffrey, 129 So. 128 (1930))); 2 MARCEL PLANIOL, TREATISE
ON THE CIVIL LAW, No. 1264(5) (La. State L. Inst. Transl. 1959)
(“Failure by the Stipulator to Execute his Obligations. If the
stipulator has not carried out his own obligations to the
promisor, the latter is discharged from his obligation to the
third person.... [I]t is in conformity to the apparent will of
the parties to presume that the promisor is not obligated to the
third person except in consideration of the obligations towards
him.”).
12
performance of the stipulation pour autri.”16 We cannot agree.
Article 1982 only subjects the beneficiary’s demand for performance
from the promisor to the same contractual defenses which would
apply if the stipulator demanded performance under the contract.
Article 1982 would have no application to a case in which the
promisor has no defense based on the contract against the
stipulator or promisee. Thus, Article 1982 does not “negate” or
nullify the third party beneficiary’s right to avail himself of the
benefit and demand performance from the promisor under Articles
1978 and 1981. In sum, when we interpret Article 1982 in reference
to the other code articles on the same subject,17 as we think the
Louisiana Supreme Court would, we conclude that the beneficiary’s
16
The magistrate judge’s reasoning seems to be based on the
incorrect assumption that the beneficiary’s right must be
considered as either an absolute right or a nullity. The court’s
full statement provides:
Article 1981 grants both the stipulator and the third
party beneficiary the right to demand performance.
Under the second part of the article, if Kaiser
demanded performance it would be doing so not for
itself but for PCS. By exercising its equal right
under article 1981 to claim the benefit of the
stipulation, PCS cannot be exercising greater or better
rights than Kaiser. Interpreting article 1982 as
suggested by Shaw in the context of this case, would
negate the right of PCS under articles 1978 and 1981 to
accept and demand performance of the stipulation pour
autri.
Aug. 3, 2001 Magistrate Judge Opinion, at 19 (footnote omitted).
17
See La. Civ. Code art. 13 (“Laws on the same subject
matter must be interpreted in reference to each other.”)
13
right is not absolute or independent. Inherently, it is a right
derived solely from the third party beneficiary contract between
the promisor and the stipulator or promisee. Unsurprisingly, then,
the Code provides in Article 1982 that the beneficiary’s right is
amenable to the same defenses based on that contract that the
promisor may use against the stipulator or promisee.
In comparison, this contextual interpretation of Article 1982
is consistent with the prevailing general rule recognized by other
American jurisdictions.18 “As with any contract, the promisor’s and
promisee’s substantive purpose in entering a third party
beneficiary contract is the performance of the mutual promises. If
the promisee fails to perform, the promisor has not received the
agreed consideration. Under these circumstances, it is manifestly
unjust to allow a mere donee to enforce the promise. Even creditor
beneficiaries are not entitled to any greater right than their
debtor possessed.”19 This reading of Article 1982 is also in accord
with Marcel Planiol’s treatise on the civil law, which states that
“[i]f the stipulator has not carried out his own obligations to the
promisor, the latter is discharged from his obligation to the third
18
See supra note 12.
19
13 LORD, WILLISTON ON CONTRACTS, supra note 12, § 37:56.
(internal footnotes omitted).
14
person.”20 Planiol maintained this view, despite disagreement from
“[c]ertain authors” at the time, because “it is in conformity to
the apparent will of the parties to presume that the promisor is
not obligated to the third person except in consideration of the
obligations towards him.”21
For these reasons, we conclude that the Louisiana high court
would follow the plain words of Article 1982 and allow Shaw to
raise against PCS such defenses based on the subcontract as it may
have raised against Kaiser. Accordingly, we turn to an examination
of the Civil Code rights and defenses that Shaw argues it could
have raised against Kaiser had Kaiser demanded that Shaw perform
its obligation arising from the subcontract’s waiver of right to
file liens provision.
III.
Shaw’s most relevant argument is that it was entitled, because
of Kaiser’s material breach of the commutative subcontract between
them, to rescind the contract and invoke a non-breaching party’s
right under La. C.C. art. 2022 to refuse to perform its own
obligations under the contract. Consequently, Shaw further
20
2 PLANIOL, TREATISE ON THE CIVIL LAW, supra note 13, No.
1264(5); see also Smith, supra note 13, at 57 (citing Bowman, 9
La. Ann. at 195, Brandon v. Hughes, 22 La. Ann. 360 (1980);
Janney v. Ober, 28 La. Ann. 281 (1876); Tennent v. Caffrey, 129
So. 128 (1930)).
21
2 PLANIOL, TREATISE ON THE CIVIL LAW, supra note 13, No.
1264(5).
15
contends, it was entitled to refuse to perform its obligation not
to file liens even as to PCS, the third party beneficiary, because
Civil Code article provides that “[t]he promisor [Shaw] may raise
against the beneficiary [PCS] such defenses based on the contract
as he may have raised against the stipulator [Kaiser].” For the
reasons now assigned, we conclude that Shaw’s arguments have merit.
A.
The subcontract between Kaiser and Shaw was a commutative
contract making “the performance of the obligation of each party
... correlative to the performance of the other,”22 as well as a
bilateral or synallagmatic contract in which “the parties obligate
themselves reciprocally, so that the obligation of each party is
correlative to the obligation of the other.”23
22
La. Civ. Code art. 1911and rev. cmt.(b)&(c); see Morris v.
Homco International, Inc., 853 F.2d 337, 342 (5th Cir. 1988);
SAÚL LITVINOFF, 5 CIV. L. TREATISE § 15.12 (2d ed. 2001); ALAIN A.
LEVASSEUR, PRECIS IN CONVENTIONAL OBLIGATIONS: A CIVIL CODE ANALYSIS 24
(Michie, 1980)(“A contract is commutative when a party considers
that what he gives or does is the equivalent of what it will
receive from the other party.”)
23
La. Civ. Code art. 1908 and rev. cmt.(b)(citing 1 SAÚL
LITVINOFF, OBLIGATIONS 396-400 (1969) ; see Morris, 853 F.2d at 342;
cf.., Stockstill v. Byrd, 132 La. 404, 407, 61 So. 446, 447
(1913)(“The courts at the present day incline strongly against
the construction of promises as independent; and, in the absence
of clear language to the contrary, promises which form the
consideration for each other will be held to be concurrent or
dependent, and not independent, so that a failure of one party to
perform will discharge the other, [and] so that one cannot
maintain an action against the other without showing the
performance or tender of performance on his part.”); Accord: 15
LORD, WILLISTON ON CONTRACTS, supra note 14, § 44:5 (“The modern rule
16
“Either party to a commutative contract may refuse to perform
his obligation if the other has failed to perform or does not offer
to perform his own at the same time, if the performances are due
simultaneously.”24 Therefore, when Kaiser failed to perform its
obligation under the subcontract of making payments for work done
by Shaw, Shaw had the right to refuse to perform its obligation
adopts a presumption that mutual promises in a contract are
dependent and are to be so regarded, whenever possible.”); §44:11
(“Under the modern view, promises in a contract are generally
presumed to be dependent unless a contrary intent is
shown.”)(also quoting RESTATEMENT (Second) of Contracts § 232);
Foley Lumber Industries, Inc. v. Buckeye Cellulose Corp., 286
F.2d 697, *700 (5th Cir. 1961)(“Although many nice distinctions
are to be found in the books upon the question, whether the
covenants or promises of the respective parties to the contract,
are to be considered independent or dependent; yet it is evident,
the inclination of courts has strongly favored the latter
construction, as being obviously the most just.” (quoting Bank of
Columbia v. Hagner, 1828, 1 Pet. 455, 465, 26 U.S. 455)).
24
La. Civ. Code art. 2022 and rev. cmt.(b)(citing 2 SAÚL
LITVINOFF, OBLIGATIONS 426-434, 501-506 (1975)). The Second
Restatement of Contracts expresses a similar principle in the
introduction to Chapter 10 on Performance and Nonperformance:
The most important and complex of the rules stated
in this Chapter apply to the most significant type of
contract, that in which the parties have exchanged
promises in the expectation that there will be a
subsequent exchange of performances....
When a party fails to receive the performance that
he expects,....[i]t is, therefore generally fairer to
give the injured party, to the extent that it is
possible, the right to suspend his own performance and
ultimately to refuse it and, if the other party’s
nonperformance is not justified, to claim damages for
total breach of contract.
RESTATEMENT (SECOND) OF CONTRACTS ch. 10 intro. note, at 193-94.
17
under the subcontract.25
More important, when it became evident that Kaiser would not
perform its subcontract obligation, Shaw had the right to consider
the subcontract and all of its provisions dissolved26 and the
25
Article 2022 gives “general formulation to the exceptio
non adimpleti contractus (defense of nonperformance).” La. Civ.
Code art. 2022 rev. cmt. b. As Planiol explained, the “exception
non adimpleti contractus...is interposed when one of the parties
is claiming of the other the performance of his engagement,
without himself offering what he owes; such party is nonsuited by
the filing of the above mentioned exception.” 2 PLANIOL, TREATISE ON
THE CIVIL LAW, supra note 13, No. 949(2). “[W]hen two persons
obligate themselves the one to the other, each one of them gives
only but conditional consent to the act; one obligates himself
because the other also obligates himself towards him. The
reciprocity of the obligations necessarily implies performance
and this concept leads, on the one hand, to a ‘give and take’
system of performance or to the exceptio non adempleti
contractus..., and on the other hand, to the right to demand the
resolution when it was too late to oppose the said exception
because the obligation was already performed.” Id. No. 1309.
26
La. Civ. Code art. 2016 (“[W]hen it is evident that the
obligor will not perform, the obligee may regard the contract as
dissolved without any notice to the obligor.”); id. rev. cmt.
(“Louisiana courts have established that a putting in default is
not necessary when the obligor has communicated an intention not
to perform, or in a situation where time is of the essence
(citing Allen v. Steers, 2 So. 199 (1887); Abels v. Glover, 15
La. Ann.247(1860); Kinsell & Locke, Inc. V. Kohlman, 126 So. 257(La. App. Orl. 1930))); id. art. 2013 (“When the obligor fails to
perform, the obligee has a right to the judicial dissolution of
the contract or, according to the circumstances, to regard the
contract as dissolved.”).
Planiol explained some of the principles underlying the
right of resolution or dissolution as follows:
Art. 1184 in establishing the action of resolution,
indicates in the following terms the circumstances
which gives rise to it: “in case one of the contracting
parties does not comply with his engagements.” The law
is not precise as to the nature of the cause which
18
parties restored to the situation that existed before the
subcontract was made.27 Thus, the “dissolution operates
prevents him from complying.... The text makes no
distinction, and the jurisprudence therefore concludes,
as do the majority of the authors, that there is an
action in resolution, whatever is the cause for which
the adverse party fails to comply with his
engagements.”
2 PLANIOL, TREATISE ON THE CIVIL LAW, supra note 13, No. 1313
(citations omitted).
The action in resolution established by Art. 1184 is
given only to the party who is ready to perform his
engagement or who has already performed it. The other
party has no right to the resolutions of the
contract.... It is natural, therefore, that the party
at fault should suffer the resolution by the will of
the other, without being able to demand it himself.
Id. No. 1314 (citations omitted).
The party entitled to the action of resolution is not
limited to this means only; he has the choice of
resolving the contract or of demanding its performance
if he prefers it, provided that the fault of the debtor
has not rendered such performance impossible.
Id. No. 1315.
The resolution of the contract is not sufficient in
itself to completely satisfy the plaintiff. His
recovering or keeping the object of his obligation
often does not give him the contemplated profits he
would have obtained upon the effective performance of
the contract. To compensate him for the damage
suffered by this loss of profits, he is entitled to
damages to be fixed by the judge.
Id. No. 1317.
27
La. Civ. Code art. 2018 (“Upon dissolution of a contract,
the parties shall be restored to the situation that existed
before the contract was made.”); see Sliman v. McBee, 311 So. 2d
19retroactively,”28 “has a retrospective effect to the day that the
engagement was contracted,”29 and “the parties are restored to the
situation in which they would be if the contract had not been
entered into.”30
Moreover, under the Louisiana Supreme Court’s decisions, in
order for a party to waive his right to dissolve a commutative
contract upon the other party’s material breach, the non-breaching
party must express therein his intent to relinquish that right in
words that make specific reference to the action to dissolve. In
the leading case of Sliman v. McBee,31 Mrs. Sliman sold immovable
248, 252 (La. 1975)(“The effect [of dissolution] is to place all
parties in the same position they occupied prior to the sale.”);
Louis Werner Saw Mill Co. v. White, 17 So. 2d 264, 268 (La.
1944)(“The effect of the dissolution is to place matters in the
same state as though the obligation had not existed.”); U.S. v.
Maniscalco, 523 F.Supp. 1338, 1342(E.D.La. 1981)(“The effect of
the resolutory condition is codified in Article 2130 which states
that obligations are "extinguished" by the effect of the
dissolving condition.”).
28
2 A.N. YIANNOPOULOS, LA. CIVIL LAW TREATISE: PROPERTY § 233, at
469 (4th ed. 2001).
29
Liquidators of Prudential Sav. & Homestead Soc. v.
Langermann, 100 So. 55, 61 (La. 1924); McKenzie v. Bacon, 5 So.
640 (La. 1889).
30
Hood v. Southern Prod. Co., 19 So. 2d 336, 341 (La.
1944)(dictum); Sliman v. McBee, 311 So. 2d 248, 252 (La.
1975)(“[T]he seller may sue for dissolution of the sale and
return of the property. The effect is to place all parties in
the same position they occupied prior to the sale.” (citations
omitted)).
31
311 So. 2d 248 (1975).
20
property to the McBees, her daughter and son-in-law.32 In the act
of sale, Mrs. Sliman waived her vendor’s privilege stating that “no
lien shall exist on the lots here sold securing payment” of the
notes given by the McBees as part of the purchase price.33 The
McBees defaulted and Mrs. Sliman brought suit for dissolution of
the sale for nonpayment.34 The trial and appeals courts both
decided against Mrs. Sliman, the latter holding that she had waived
not only her vendor’s lien but also her right to dissolution of the
sale for nonpayment.35 The Louisiana Supreme Court reversed,
holding that (1) a “dissolving, or resolutory, condition is implied
in all commutative contracts and takes effect upon the failure of
either party to comply with his engagement and the demand for
dissolution by the aggrieved party;”36 (2) the right of dissolution
is an independent, substantive remedy in no way dependent upon the
existence of a security device such as a mortgage or a privilege;37
32
Id. at 249.
33
Id. at 250.
34
Id. at 251.
35
Id. at 250-51.
36
Id. at 252 (citing and quoting La. Civ. Code art. 2045
(1870): “The dissolving condition is that which, when
accomplished, operates the revocation of the obligation, placing
matters in the same state as though the obligation had not
existed.”)
37
Id. The right to dissolution arises from the contract
itself. La. Civ. Code art. 2013 comment (b).
21
(3) in order to waive the separate and independent right of
dissolution the non-breaching party must “express her intent to
relinquish that right in words that make specific reference to the
action to dissolve as distinguished from the action to enforce the
contract;”38 (4) the language in the act of sale does not constitute
a waiver by Mrs. Sliman of her right to rescind the sale upon the
McBees’ default in payment of the purchase price.39 “The fact that
the vendor has lost, or not preserved, his vendor’s lien, or
mortgage, presents no sort of obstacle to the exercise of this
right of resolution.”40
The already strong right to dissolution was preserved and
strengthened by the 1984 revision of Title III of Book III of the
Louisiana Civil Code of 1879, “Of Obligations.” Article 2013
“reproduces the substance of C.C. Arts. 2046 and 2047 (1870)and
also provides that, according to the circumstances, the obligee has
a right to regard the contract as dissolved, a right recognized by
the Louisiana jurisprudence in numerous decisions.”41 Further,
38
Id.39
Id. at 253.
40
Id. at 253 n.8 (quoting Stevenson v. Brown, 32 La. Ann.
461, 463 (1880)).
41
La. Civ. Code art. 2013 rev. cmt. a (citations omitted).
Article 2013 (1984) provides:
When the obligor fails to perform, the obligee has a
right to the judicial dissolution or the contract or,
according to the circumstances, to regard the contract
as dissolved. In either case, the obligee may recover
22
Under this Article, either party to a contract may seek
dissolution upon the other’s failure to perform. [T]his
remedy is [no longer] predicated upon a resolutory
condition implied in every commutative contract. This
Article abandons both that rationale and that limitation,
in accordance with modern doctrine. Nevertheless, under
this Article a party’s right to dissolution because of
the other party’s failure to perform arises from the
contract itself, and to that extent it can be said to be
implied in it, although not in the form of a resolutory
condition.42
Louisiana Civil Code Article 2018, in part, provides that:
“Upon dissolution of a contract, the parties shall be restored to
the situation that existed before the contract was made.”43 “It
expresses a principle that is implied in C.C. Arts. 1901, 1903,
2045, and 2046 (1870).”44
Thus, we conclude, as we think the Louisiana Supreme Court
would, that the subcontract provision by which Shaw “agrees to and
does waive its right to file any mechanic’s lien or claims” against
PCS’s property, does not constitute a waiver by Shaw of its
dissolution rights because it does not express Shaw’s intent to
relinquish the right to dissolution “in words that make specific
damages.
In an action involving judicial dissolution, the
obligor who failed to perform may be granted, according
to the circumstances, an additional time to perform.
42
Id. rev. cmt. b (citations omitted)(emphasis added).
43
Id. art. 2018.
44
La. Civ. Code art. 2018 rev. cmt. a.
23
reference to the action to dissolve.”45 Further, that waiver
provision is simply too vague, indefinite, and uncertain to
indicate that the parties’ intended for it to supersede all of
Shaw’s rights against Kaiser regardless of Kaiser’s material
failure of performance. For these reasons, Shaw’s right of
dissolution upon Kaiser’s material breach was not affected by
Shaw’s agreement to waive the right to file liens and claims
against PCS.
Accordingly, when Kaiser materially defaulted on its
obligation of performance, Shaw had the right to regard the
subcontract as having been dissolved. Upon its dissolution, the
parties were restored to the situation that existed before the
contract was made.46 Therefore, when PCS filed its counterclaim
seeking, as third party beneficiary standing in Kaiser’s shoes, to
enforce the erstwhile lien waiver provision, it was not entitled to
do so. That provision had been dissolved as part of the dissolved
subcontract; and Shaw was free of any obligation created by the
parties’ agreement to the waiver provision because Shaw had been
restored to the situation that existed before the subcontract.
Consequently, after the dissolution and restoration Shaw had a
right under the LPWA to file a claim and a privilege against PCS’s
property and to seek recovery from PCS personally for uncompensated
45
Sliman v. McBee, 311 So.2d at 252.
46
La. Civ. Code art. 2018 (1984).
24
work on PCS’s nitric acid facility; when Shaw took these actions
the subcontract and Shaw’s obligations under it had been dissolved
ab initio. Therefore, the dissolved lien waiver provision and any
obligation created by it could not have any effect upon Shaw’s
ability to exercise its rights under the LPWA against PCS and its
property.
In other words, PCS, whose right as a third party beneficiary
can rise no higher than the right of Kaiser, its stipulator-
promisee, is not entitled to enforce the lien waiver provision as
if that obligation were separate and independent from the other
obligations arising from the subcontract. PCS is amenable to
Shaw’s defense and right of dissolution just as Kaiser would have
been if it had sought to enforce the lien waiver provision.
B.
PCS argues that, despite Kaiser’s material breach giving rise
to Shaw’s rights and defenses, the magistrate judge’s ruling was
correct and the lien waiver provision may still be enforced by PCS
against Shaw because “‘[A] mechanic’s lien can be obtained only if
there is a breach of contract and if ... a breach of contract
nullifies a written waiver of lien, then there would be no way to
effectively waive the right to a mechanic’s lien.’”47 PCS relies
47
PCS Original Brief, at 28 (citing and quoting Jankoviak v.
Butcher, 159 N.E.2d 377, 378 (Ill. App. 2d Dist. 1959)).
25
principally upon this rationale, which it quotes from the Illinois
Court of Appeal’s opinion in Jankoviak v. Butcher,48 a 1959 decision
applying the Illinois mechanics’ lien statute to uphold a home
builder’s lien waiver in its contract after an owner refused to pay
the home builder.
PCS’s argument is not relevant, however, because it is based
on Illinois rather than Louisiana law. In this diversity
jurisdiction case, we must apply Louisiana law, and in resolving
any issues of interpretation or application, we must decide as we
think the Supreme Court of Louisiana would. For several reasons,
we believe that the Louisiana high court would refuse to borrow and
apply the Illinois court’s interpretation of the Illinois
mechanics’ lien statute here as urged by PCS.
To borrow the rule of decision from an Illinois case would
require a drastic departure from the civil law methodology followed
by the Louisiana Supreme Court. In Louisiana, “[t]he sources of
law are legislation and custom.”49 These authoritative or primary
sources of law are to be “contrasted with persuasive or secondary
sources of law, such as [Louisiana and other civil law]
jurisprudence, doctrine, conventional usages, and equity, that may
guide the court in reaching a decision in the absence of
48
Jankoviak, 159 N.E.2d at 377-78.
49
La. Civ. Code art. 1.
26
legislation and custom.”50 “It is axiomatic that in Louisiana,
courts must begin every legal analysis by examining primary sources
of law: the State’s Constitution, codes, and statutes.”51 “[O]ur
ultimate ‘Erie guess’ requires that we employ the appropriate
Louisiana methodology to decide this issue the way that we believe
the Supreme Court of Louisiana would decide it.”52 We are convinced
that the Louisiana high court would not depart from its usual civil
law methods of examining first the primary sources of law
applicable to the present case, the Louisiana Civil Code and the
LPWA. Therefore, we do not believe that the Louisiana high court
would, in a case under the Civil Code or the LPWA, borrow and apply
a rule of decision from an Illinois court’s interpretation of the
Illinois mechanics’ lien law. In addition, it is likely that no
state supreme court would consider applying case law based on any
50
Id. rev. cmt. b. (citing A.N. YIANNOPOULOS, LOUISIANA CIVIL LAW
SYSTEM §§ 31, 32 (1977).
51
Prytania Park Hotel, Ltd. v. General Star Indem. Co., 179
F.3d 169, 174 (5th Cir. 1999); see also Smith v. Southern
Holding, Inc., 839 So. 2d 5 (La. 2003); Cole-Miers Post 3619
V.F.W. of DeRidder v. State, Dept. Of Rev. & Taxation, Office of
Alcoholic Beverage Control, 765 So. 2d 312 (La. 2000); Albert
Tate, Jr., Techniques of Judicial Interpretation in Louisiana, 22
LA. L. REV. 727, 727-728 (1962)(“[T]he primary basis of law for a
civilian is legislation, and not (as in the common law) a great
body of tradition in the form of prior decisions of the
courts.... The Louisiana judge must, as stated, find primarily in
legislative enactments the legal principles to be applied in
deciding the case before him.”).
52
Lake Charles Diesel, Inc. v. General Motors Corp., 328
F.3d 192, 197 (5th Cir. 2003).
27
other jurisdiction’s mechanics’ lien statute because of the
notorious diversity of such laws among the states.53
In fact, the Illinois mechanic’s lien statute is crucially
different from the LPWA. The 1959 Jankoviak decision is inapposite
Illinois jurisprudence because it was based on two features of the
Illinois mechanics’ lien statute that differ crucially from the
LPWA. First, the Illinois court noted that the Illinois statute
53
See, e.g., UNIFORM CONSTRUCTION LIEN ACT prefatory note, 7
U.L.A. 2 (2002)(“All states presently have mechanics’ lien laws.
Those laws present an extraordinarily varied approach, in
substance, and in language, to the issues involved in mechanics’
lien legislation. In fact, variation among the states may be
greater in this area than in any other statutory area.”); 53 AM.
JUR. 2D Mechanics’ Liens § 7(“The mechanic's lien laws of the
various states are notorious for the extent to which they vary
from each other in their application and operation. The
diversity in the mechanic's lien laws of the various states
diminishes, and may often nullify, the value of a decision from
one state as a precedent in another, and courts often reject the
asserted authority of a decision from another jurisdiction, or
regard it as being of little or no value”(footnotes omitted));
Ethan Glass, Old Statutes Never Die ... Nor Do They Fade Away: A
Proposal for Modernizing Mechanics’ Lien Law By Federal Action,
27 OHIO N.U. L. REV. 67 (2000)(“State statutes create many
different rules regarding what property can be impaired by a
mechanics' lien, who is entitled to claim a mechanics' lien, how
a mechanics' lien may be created, and what the result is of the
creation of a mechanics' lien. The ongoing theme to remember is
that there are fifty-two jurisdictions with fifty-two different
laws.”).
The variety in state lien laws is particularly evident with
respect to the effect of lien waiver clauses on lien rights. See
8 LORD, WILLISTON ON CONTRACTS, supra note 12, § 19:58 (“There is a
conflict in the cases as to the effect of a contractor’s waiver
in a building contract of his right, or that of subcontractors or
materialman, to file mechanics’ liens, with perhaps a majority of
states refusing to permit such waivers, except upon or following
payment.”(footnote omitted)).
28
provided that “[i]f the legal effect of any contract between the
owner and contractor is that no lien or claim may be filed or
maintained by anyone, such provision shall be binding.”54 Second,
that court’s decision was also based on the Illinois statutory
requirement that a mechanic’s lien could be obtained only if there
was first a breach of contract.55
The LPWA does not make the breach of a contract indispensable
to obtaining a lien, as the Illinois mechanics’ lien law does.
Under the LPWA, as soon as the work has been substantially
completed or abandoned or the owner has filed a notice of
termination, a subcontractor may file and obtain a lien, regardless
of whether there has been a breach of contract.56 Thus, under the
54
Jankoviak, 159 N.E.2d at 378.
55
Id. The Illinois statute may have been anomalous and
contrary to a basic principle of contract law. “[I]t is essential
to waiver that the right allegedly waived exist at the time of
the waiver; a party may not waive any right it does not yet have.
After a contract has been made, on the other hand, the right to
performance under the contract may generally be waived either
before or after the time when performance is due.” 13 LORD,
WILLISTON ON CONTRACTS, supra note 12, § 39.10 (footnotes omitted);
see also 31 C.J.S. Estoppel § 75 (“[A] waiver implies and
requires the existence of the right in question at the time of
the alleged waiver; there can be no waiver of a right before it
exists, before a person is in a position to assert it, or after
it has been lost.”); 28 AM. JUR. 2D Estoppel § 201 (“To constitute
a waiver, the right or privilege claimed to have been waived must
generally have been in existence at the time of the purported
waiver. So, a person cannot waive a right before he or she is in
a position to assert it.”).
56
La. R.S. § 9:4822(C).
29
LPWA, the subcontractor is not forced by law to wait until the
general contractor actually defaults before filing a claim or
privilege, as he would have to do under the Illinois statute.
Moreover, unlike the Illinois statute, the LPWA does not declare
that a contract between the owner and the contractor prohibiting
the future filing of liens or claims by anyone “shall be binding.”
In sum, the LPWA is more favorable to a subcontractor than the
Illinois mechanics’ lien statute, because the LPWA does not limit
his access to Civil Code and LPWA rights and remedies in case the
general contractor breaches the contract, and the LPWA does not
make breach of contract a sine qua non to the subcontractor’s right
to file a claim or lien against the owner’s property.
For these reasons, we are not persuaded by PCS’s argument
based on the Illinois case and statute.
C.
PCS does not advance any other argument or authority for the
proposition that it, as a third-party beneficiary, may require that
the Kaiser-Shaw subcontract’s lien waiver provision be enforced
despite Shaw’s rights of dissolution and restoration evoked by
Kaiser’s material breach of that contract.57 Our own research leads
57
PCS cites a number of Louisiana cases cursorily mentioning
or using waiver without defining it or discussing its nature,
conditions or scope. Hero & Co. v. Farnsworth & Chambers Co., 107
So. 2d 650 (La. 1958); Wardlaw Bros. Garage, Inc. v. Thomas, 140
So. 108 (La. App. 2d Cir. 1932); Babineaux v. Grisaffi, 180 So.
2d 888 (La. App. 3d Cir. 1965); Bank of Jena v. Rowlen, 370 So.
30only to additional reasons to doubt that the Louisiana Supreme
Court would affirm that litigation position.
The Kaiser-Shaw subcontract, after stating that Shaw “agrees
to and does waive” its right to file claims and liens against PCS’s
property, does not expressly state what legal effects the parties
intended for the provision to have. The term “waiver” does not
appear to have any fixed meaning or connotation in Louisiana law to
which it can be assumed that the parties must have referred. The
Louisiana Civil Code, which regulates nominate contracts and
juridical acts in detail, does not provide definition or regulation
for a contract or act of waiver.58 The LPWA does not define or
2d 146 (La. App. 3d Cir. 1979); Executive Office Centers, Inc. v.
Cournoyer, 433 So. 2d 324 (La. App. 4th Cir. 1983). See also
Union Texas Petroleum v. PLT Eng’g, 895 F.2d 1043, 1053 n.16 (5th
Cir. 1990); Toomer v. Price, 122 So. 856, 856-58 (La. 1929).
However, these cases do not address or support PCS’s position
that, as third party beneficiary, it may assert greater or better
rights against Shaw than Kaiser, its stipulator-promisee, after
Kaiser’s material breach of the subcontract of which the third
party stipulation was a part. And, while these cases may support
a conclusion that Louisiana courts will enforce “lien waivers”
executed in exchange for contemporaneous payment or alternate
security, they are not support for enforcement of a waiver where
there has been a failure of cause or consideration or material
breach of a commutative contract. As Shaw correctly points out,
they are distinguishable factually, contractually, and on other
grounds. Shaw’s 2d brief, pp. 11-13.
58
The Civil Code in several articles provides for the
“renunciation” of certain accrued or existing rights. See La.
Civ. Code art. 626 (usufruct); id. arts. 737 & 771-772 (predial
servitudes); id. arts. 963-966 (successions); id. art. 1780
(obligations with a term); id. art. 1802 (solidary obligations);
id. 2348 (matrimonial regimes); id. art. 2978 (sequestration);
id. art. 3029 (mandate); id. arts. 3449-3451 (prescription). The
31
regulate waiver either.59
We have found but three cases in which the Louisiana Supreme
Court comprehensively defined “waiver.” In two insurance coverage
cases, involving whether an insurer had waived a coverage
exclusion, and whether an insurer had waived a condition precedent
of sound health, the state high court stated that “[w]aiver occurs
when there is an existing right, a knowledge of its existence and
an actual intention to relinquish it or conduct so inconsistent
with the intent to enforce the right as to induce a reasonable
belief that it has been relinquished.”60 In a third case the
Louisiana Supreme Court, in deciding whether homeowners had waived
their rights to sue the builder for noncompliance with building
plans and specifications, defined waiver in similar but more
Code does not, however, provide a general definition of
“renunciation” applicable to other rights.
59
La. R.S. § 9:4801, et seq.
60
Steptore v. Masco Constr. Co., Inc., 643 So. 2d 1213, 1216
(La. 1994) (emphasis added)(citing Tate v. Charles Aguillard Ins.
& Real Estate, Inc., 508 So. 2d 1371 (La.1987); Ledoux v. Old
Republic Life Ins. Co., 233 So. 2d 731 (La.App. 3d Cir. 1970);
Peavey Co. v. M/V ANPA, 971 F.2d 1168 (5th Cir.1992)). In Tate
v. Charles Aguillard Insurance & Real Estate, Inc., the court
stated: “Of course, reliable proof of such a knowing and
voluntary waiver is necessary and the burden of producing it, as
in the proof of obligations generally, falls on the party who
demands performance.” 508 So. 2d at 1375 (citing La. Civ. Code
art. 1831; id. art. 2232 (1870)); see also BLACK’S LAW DICTIONARY
1574 (7th ed. 1999)(“The party alleged to have waived a right
must have had both knowledge of the existing right and the
intention of forgoing it.”).
32
comprehensive terms: “Though there are various definitions of the
term ‘waiver’, it can be comprehensively defined as a voluntary and
intentional relinquishment or abandonment of a known existing legal
right, advantage, benefit, claim, or privilege, which except for
such waiver the party would have enjoyed.”61 If these waiver
definitions apply here, Shaw would not have been able, when the
Kaiser-Shaw subcontract was formed, to waive a right to file claims
and liens against PCS’s property. Shaw had no known existing
legal right to file a claim or lien against PCS at the inception of
the subcontract under which it had not yet performed any work. We
are not called upon to make an Erie guess as to whether the
Louisiana Supreme Court would apply those definitions of waiver
here. But their existence in the court’s jurisprudence is
consistent with our undiminished Erie duty to follow and apply the
Louisiana Supreme Court’s rule against finding that a party has
waived the right of dissolution of a contract, unless she
“express[es] her intent to relinquish that right in words that make
specific reference to the action to dissolve[.]”62
In sum, we have not discovered any basis in Louisiana law for
concluding that a third party beneficiary, such as PCS, has a right
to demand performance from the promisor, like Shaw, even though the
61
Breaux v. Laird, 88 So. 2d 33, 38 (La. 1956)(emphasis
added).
62
Supra, n. 34.
33
contracting party through which the beneficiary claims, Kaiser,
the stipulator-promisee here, has materially breached the
underlying contract and caused its dissolution. PCS’s reliance on
inapposite Illinois authority indicates that it also was unable to
find Louisiana law to support its position. Consequently, in the
absence of clear language in the subcontract to the contrary, we
conclude that Shaw did not relinquish, but may enforce, its right
to dissolution, and restoration. Consequently, PCS may not enforce
the dissolved lien waiver provision against Shaw. Accordingly,
unless we find merit in PCS’s alternative argument, Shaw is
entitled to enforce its claim and lien, holding PCS liable under
the LPWA.
IV.
A.
Alternatively, PCS urges us to affirm the summary judgment in
its favor on a ground that the magistrate judge did not reach,
viz., that the statement of claim and privilege filed by Shaw did
not reasonably identify the immovable with respect to which its
work was performed.
The LPWA provides that a statement of a claim or privilege
must reasonably identify the immovable with respect to which the
work was performed and its owner.63 “The purpose of a statement of
claim or privilege is to give notice to the owner (and contractor)
63
La. R.S. 9:4822.G.(3)
34
of the existence of the claim and to give notice to persons who may
deal with the owner that a privilege is claimed on the property.”64
“Technical defects in the notice should not defeat the claim as
long as the notice is adequate to serve the purposes intended,”65
The filing of a statement of a claim or privilege is accomplished
when it is filed for registry with the recorder of mortgages of the
parish in which the work is to be performed.66 Each filing made
with the recorder of mortgages which contains a reference to
immovable property shall contain a description of the property
sufficient to clearly and permanently identify the property. A
description which includes the lot and/or square and/or subdivision
or township and range meets the requirement of the Act.67 Naming
the street or mailing address without more is not sufficient.68
On February 17, 1999 Shaw filed with the recorder of mortgages
in Ascension and Iberville Parishes an amended and supplemental
statement of claim and privilege in the amount of $5,350,000
(modifying its original statement of claim and privilege for
64
Id., cmt. (g)(citing Mercantile Nat. Bank of Dallas v. J.
Thos. Driscoll, Inc., 195 So. 497 (La. 1940); See Hibernia
National Bank v. Belleville Historic Development, L.L.C., 815
So.2d 301,*306 (La. App. 4th Cir. 2002).
65
Id.66
La. R.S. 9:4831.A.
67
La. R.S. 9:4831.C.
68
Id.35
$1,389,707.04 filed January 27, 1999)69 for labor, equipment,
materials and other engineering and construction services supplied
to Kaiser to improve the immovable property of PCS. To describe
PCS’s tract of land upon which its plant is located, it appears
that Shaw used the surveyor’s legal property description contained
in the deed by which PCS acquired title to the tract. The tract
evidently borders on the Mississippi River at the boundary line
between Ascension and Iberville Parishes, so that the tract
includes land contiguously located in each parish. In other words,
the line between the parishes runs through PCS’s tract and
intersects its river-front boundary at some point not precisely
disclosed in this record. The surveyor’s legal description does not
attempt to specify which part of the tract lies in each parish but
simply begins by stating that the land is located east of the
Mississippi River in Ascension and Iberville Parishes.70
69
Shaw’s original statement of claim and privilege filed
January 27, 1999 in both parishes was essentially the same as the
amended and supplemental statement, except for lesser amount of
$1,389,707.04. The same surveyor’s legal property description was
attached as in Exhibit A of the amended and supplemental
statement. Both statements were filed timely and are essentially
the same in other respects. Therefore, we will discuss in detail
only the amended and supplemental statement of February 17, 1999.
70
The property description begins:
Legal Description
South Tract
A TRACT OF LAND LOCATED IN SECTIONS 74, 75, &T95-R/E
SECTIONS 38, 39, & 40, T95-R2E, SOUTHEASTERN DISTRICT,
EAST OF MISSISSIPPI RIVER, ASCENSION & IBERVILLE
PARISH, LOUISIANA
36
Apparently, the same deed of acquisition using the same surveyor’s
legal description was recorded by PCS in both Ascension and
Iberville Parishes. In any event, it is undisputed that Shaw’s
statement of claim and privilege uses the only legal description
pertaining to PCS’s property that is recorded in Ascension and
Iberville Parishes. Also, it is undisputed that PCS has not made
available to Shaw any other legal property description to
substitute for the legal property description recorded in the two
parishes.
It is evident from the property description that the PCS tract
upon which the construction was performed is bounded by
identifiable railroad, electric utility, state highway rights of
way, and by identifiable tracts owned by a number of other named
industries, as well as the Mississippi River.71 It is undisputed
71
More specifically, Shaw’s amended and supplemental
statement of claim provides, in pertinent part, as follows:
ICF Kaiser Engineers, Inc...entered into a contract with the
Owners of certain property believed to be PCS Nitrogen
Fertilizer,L.P....whose address is Louisiana Highway 3115
and 30, Post Office Box307, Geismar, La 70734 to provide
labor, equipment, materials and other construction services
for the construction of a project called “1265 STPD NITRIC
ACID FACILITY.”
...Pursuant to [the Kaiser-Shaw] subcontract, SHAW supplied
labor, equipment, materials and other
engineering/construction services to...Kaiser...to improve
the immovable property described...below.
The subject immovable property, upon which the work was
performed, is owned by...PCS Nitrogen Fertilizer,
L.P....which immovable property is further described on
37
that the 1265 STPD Nitric Acid Facility was erected at the PCS
plant located within the described PCS tract near Geismar,
Louisiana;72 that the prime PCS-Kaiser contract provides that PCS
will pay Kaiser $38,890,000 for the construction of the 1265 Nitric
Acid Facility;73 and that Shaw was not paid $5,350,000 for the
labor, equipment, materials and other engineering/construction
services that it alone had contributed to the project.
The Louisiana courts have not added any legal gloss to the
LPWA’s requirement that a statement of a claim or privilege shall
“reasonably identify” the property with respect to which the work
was performed, for the purpose of notifying the owner, contractor,
and persons dealing with the owner that a privilege is claimed on
the property, and should be upheld despite technical defects if the
notice is adequate to serve the purposes intended.74 They have
Exhibit A attached hereto and made a part hereof.
Exhibit A consists of a surveyor’s lengthy metes and bounds
property description, entitled and commencing as follows:
Legal Description
South Tract
A TRACT OF LAND LOCATED IN SECTIONS 74, 75, &T95-R/E
SECTIONS 38, 39, & 40, T95-R2E, SOUTHEASTERN DISTRICT,
EAST OF MISSISSIPPI RIVER, ASCENSION & IBERVILLE
PARISH, LOUISIANA
72
See PCS Br. at 9.
73
2 R. at 302.
74
See, e.g., Hibernia Nat. Bank v. Belleville Historic
Development, L.L.C., 815 So.2d 301, 305-306 (La.App. 4th Cir.
38
simply applied the unvarnished statutory standards and terms to
each varying factual situation to determine whether the worksite
was reasonably identified so as to provide adequate notice of the
claim and privilege to the owner, contractor and persons dealing
with the owner.75
Applying the pertinent LPWA provisions, as we think the
Louisiana Supreme Court would, we conclude that reasonable minds
must find that Shaw preserved its claim and privilege by, inter
alia, “reasonably identify[ing] the immovable with respect to which
the work was performed...and the owner thereof.”76 The legal
description identifies PCS’s industrial tract on the Mississippi
River with certainty according to surveys by a registered
professional land surveyor with references including state plane
coordinates, certain section corners, metes, bounds and
identifiable landmarks. PCS does not dispute the fact that the
1265 Nitric Acid Facility was constructed at PCS’s plant located
2002)(“[S]trict construction cannot be so interpreted as to
permit purely technical objections to defeat the real intent of
the statute, which is to protect materialmen, laborers and
subcontractors who engage in construction projects.”)(citing
Bernard Lumber Company, Inc. V. Lake Forest Construction Co. Inc.
572 So.2d 178 (La. App. 1 Cir. 1990); Authement's Ornamental Iron
Works v. Reisfeld, 376 So.2d 1061 (La. App. 4th Cir.1979); Morgan
v. Audubon Const. Corp., 485 So.2d 529 (La. App. 5 Cir. 1986))
Norris Rader, Inc. v. Swilley, 625 So.2d 1125 (La. App. 3 Cir.
1993).
75
Id.76
La. R.S.9:4822.G.(3).
39
within PSC’s industrial river-front tract. It is also evident from
the foregoing that the 1265 STPD Nitric Acid Facility is a
substantial construction or edifice with a distinctive name located
in PCS’s plant on the clearly and certainly described river-front
industrial tract. Consequently, we conclude that by furnishing the
surveyor’s legal property description---which described PCS’s
industrial tract on the Mississippi River, wherein PCS’s plant was
located, in which the distinctly named, substantial 1265 STP Nitric
Acid Facility was built—–Shaw reasonably identified the property
with respect to which the work was performed and the owner thereof.
Thus, Shaw’s statement of claim and privilege fulfills its purpose
of “giv[ing] notice to the owner (and contractor) of the existence
of the claim and [gives] persons who may deal with the owner that
a privilege is claimed on the property.”77 Because the “notice is
adequate to serve the purposes intended” any “[t]echnical defects
78
in the notice should not defeat the claim.”
PCS argues that Shaw did not reasonably identify the property
where the work was done because the property description of PCS’s
river-front industrial tract was “too broad” to pin-point the site
of the 1265 STPD Nitric Acid Facility. But the surveyor’s
description of PCS’s unsubdivided industrial tract was the
77
Id. Cmt. (G).
78
Id.40
starting, not the ending, point. Additionally, because of the
magnitude of the construction, the fact that the structure or
building was called by its specific, distinctive name, and the
undisputed fact that it was designed and built as an improvement to
PCS’s plant within the certainly described tract, there was a
reasonable identification of the place where the work was done so
as to give notice of the claim to persons who may deal with the
owner that a privilege is claimed on the property. Because it was
adequate to serve this purpose, its technical defects, if any, do
not defeat the claim.
The cases upon which PCS relies are inapposite. In re Lurgi-
Knost, Inc., was a federal court decision predating the 1981 LPWA
revision holding that a lien affidavit, stating that materials
“were actually used in the construction of additions at the plant
site [of] Enjay Chemical Co., Baton Rouge, Louisiana[,]” was too
general to be effective because there was no legal description of
the plant site, and “there is nothing in the affidavit to even
vaguely indicate which building or structure and which lot or
parcel of ground may be involved.”79 Shaw’s affidavit, in contrast,
specifies far more than the owner’s plant in or near a certain
city; it also provides a surveyor’s detailed legal description of
the parcel containing the owner’s plant, and, in particular, names
79
380 F.Supp. 400, 403 (M.D.La. 1974).
41
specifically the $38 million 1265 STPD Nitric Acid Facility edifice
built at the plant with Shaw’s labor, materials and services.
Among other reasons, the lien in Samedan Oil Corp. V. Ultra
Fabricators, Inc., was invalid because the “steel structures”
fabricated were not identified and there was “no block number or
specific legal description” of the owner’s property.80 As we have
explained, Shaw’s claim and privilege does name the particular
structure upon which the work was done and describes its location
with reference to a specific legal description that includes
specific sections, townships and ranges, among other identifiers.
Finally, Boes Iron Works v. Spartan Building Corp., is the most
inapposite because it held a lien to be invalid on account of its
identification of the property only by its municipal address.81
Shaw, of course, did not place its reliance on a municipal address
but used the multiple factors already described.
B.
Applying Section 4833 of the LPWA,82 the magistrate judge ruled
that Shaw, without reasonable cause, failed to cancel its claims
and privileges in response to PCS’s written request and assessed
80
737 So.2d 846, (La. App. 3d Cir. 1999).
81
648 So.2d 24 (La. App.4th Cir. 1994).
82
La. R.S. 9:4833.
42
damages and attorneys fees against Shaw. After reviewing the
record, however, we conclude that Shaw acted with reasonable cause
and should not be taxed damages and attorneys fees.
The LPWA provides that, if a statement of claim or privilege is
improperly filed, an owner may require the filing party to give
written authorization for the recorder of mortgages to cancel the
statement of claim or privilege from the records.83 If the person
who filed the statement of claim or privilege fails, without
reasonable cause, to comply with the request within ten days, he
shall be liable for damages suffered by the owner as a consequence
and for reasonable attorney’s fees incurred in obtaining
cancellation.84
Shaw filed its claim and privilege on January 27, 1999 in
Ascension and Iberville Parishes and its amended and supplemental
claim and privilege in both parishes on February 27, 1999. On
October 20, 2000 PCS’s attorney sent Shaw’s attorneys a letter
demanding that Shaw cancel its claims and liens in both Ascension
and Iberville parishes and dismiss this action with prejudice
within 10 days. Shaw’s attorney responded on October 26, 2000 that
Shaw would not cancel its filings or dismiss this suit under the
LPWA because, inter alia, Kaiser had materially breached the
83
La. R.S. 9:4833.A.
84
La. R.S. 9:4833.B.
43
subcontract giving Shaw the right under Civil Code article 1982 to
raise against PCS all defenses it could raise against Kaiser.
In parts II & III of this opinion we conclude that, because
Kaiser materially breached the Kaiser-Shaw subcontract, Shaw had a
right under Civil Code articles 2013 et seq. to consider the
subcontract dissolved and to be restored to its position before
entering the subcontract; and Shaw had a right under Civil Code
article 1982 to use these rights in defense against PCS. Thus,
because Shaw was no longer obliged by the dissolved subcontract to
refrain from filing liens or claims against PCS’s property, Shaw
had the right to file the statements of claim and privilege against
PCS’s property upon which Shaw’s work was performed. Consequently,
Shaw’s claim and privilege were properly filed, and it had
reasonable cause to refuse to cancel them from the mortgage
records.
The magistrate judge also decided, however, that Shaw should
be assessed damages and attorney’s fees because it acted
unreasonably in failing to cancel its claim and lien in Iberville
Parish because it knew that none of its work had been performed on
PCS’s property in the parish. But there is no support in the
record or basis in law for the magistrate judge’s decision in this
respect either. Because the Ascension-Iberville line runs through
PCS’s industrial tract and plant, Shaw did not know whether its
44
work had been performed in one or both of these parishes.85 Thus,
when PCS filed a written request that Shaw cancel its claims and
privileges in both parishes and dismiss its lawsuit on October 20,
2000, Shaw had reasonable cause to refuse to comply.
PCS did not send Shaw any other written request for
cancellation of a claim or privilege. Therefore, Shaw was not
called upon to consider making any response to a written request
for cancellation other than PCS’s October 20, 2000 in globo
request. Consequently, Shaw was never without reasonable cause to
refrain from cancelling any of its claims or privileges.
PCS’s January 4, 2001 amendment of its counterclaim to allege
that Shaw had refused to cancel its liens in both parishes and to
85
The magistrate judge apparently concluded that PCS owned
property on both sides of the river and that the nitric acid
facility’s location with respect to the river would have made
clear to Shaw in which parish the work was done. R. at 0683.
However, the legal description of the property establishes that
the whole of the property in question is east of the river. The
surveyor’s description included in Shaw’s statement of claim and
privilege begins
Legal Description
South Tract
A TRACT OF LAND LOCATED IN SECTIONS 74, 75, &T95-R/E
SECTIONS 38, 39, & 40, T95-R2E, SOUTHEASTERN DISTRICT,
EAST OF MISSISSIPPI RIVER, ASCENSION & IBERVILLE
PARISH, LOUISIANA
(emphasis added) and the description of the north tract begins
similarly. The parish line runs essentially perpendicular to the
river, therefore the position of the nitric acid facility
relative to the river would not, in and of itself, make clear in
which parish the work was done.
45
pray for damages and attorney’s fees cannot be considered as such
a request because it related only to Shaw’s rightful refusal to
comply with PCS’s October 20, 2000 request. Nor can we so consider
PCS’s subsequent filing of an affidavit by Robert D. Brinker, its
Lead Process Supervisor, dated February 15, 2001 that “[t]he 1265
STPD Nitric Acid Facility is located [o]n a tract of land 160 feet
x 180 feet, located exclusively in Ascension Parish.” That
instrument did not request Shaw to do anything. Moreover, Mr.
Brinker’s affidavit did not furnish Shaw with satisfactory proof
that none of its work had taken place in Iberville Parish.
According to his affidavit Mr. Brinker is a “Lead Process
Supervisor,” not an attorney or a surveyor, and does not show that
he is qualified to determine the position of the parish line with
respect to PCS’s plant or the 1265 STPD Nitric Acid Facility.
Furthermore, the affidavit does not give any factual basis for such
a determination by Mr. Brinker, does not show that Mr. Brinker’s
opinion as to the location of the parish line with respect to
Shaw’s work has a reliable basis, and does not contain a suitable
legal description by which anyone could determine the location of
the 160 feet x 180 feet tract conclusorily referred to by Mr.
Brinker.
Conclusion
For the reasons assigned, we reverse the judgment of the
46
magistrate judge and instead render judgment in favor of Shaw and
against PCS, on the issue of liability only, for the recognition of
the validity of Shaw’s claim and privilege under the LPWA against
PCS personally, and against its property upon which Shaw’s work was
performed, for the amounts to be determined in further proceedings
consistent with this opinion, and for the assessment of all costs
of these proceedings against PCS.
Magistrate Judge’s Judgments REVERSED; Judgment RENDERED, on the
issue of liability, recognizing Shaw’s right to enforce its claim
and privilege against PCS personally and against PCS’s property
upon which Shaw’s work was performed, for amounts to be determined
in further proceedings, and the assessment of all costs of these
proceedings against PCS. REMANDED for further proceedings
consistent with this opinion.
47