Hensel Phelps Construction Co. v. Cooper Carry Inc. ( 2017 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 21, 2017 Decided June 30, 2017
No. 16-7128
HENSEL PHELPS CONSTRUCTION CO.,
APPELLANT
v.
COOPER CARRY INC.,
APPELLEE
Appeal from the United States District Court
for the District of Columbia
(No. 1:15-cv-01961)
Catherine E. Stetson argued the cause for appellant.
With her on the briefs was Eugene A. Sokoloff.
Paul J. Kiernan and Stephen B. Shapiro were on the brief
for amicus curiae The Associated General Contractors of
America and Associated General Contractors of Metropolitan
Washington D.C. in support of appellant.
Jonathan C. Shoemaker argued the cause for appellee.
With him on the brief was James F. Lee Jr.
Before: BROWN and PILLARD, Circuit Judges, and
SILBERMAN, Senior Circuit Judge.
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Opinion for the Court filed by Circuit Judge BROWN.
BROWN, Circuit Judge: This controversy concerns
breach-of-contract and indemnification claims arising out of
alleged defects in the design of the Marriott Marquis Hotel
adjacent to the Walter E. Washington Convention Center
(“the Project”). Hensel Phelps Construction Company
(“Hensel Phelps”) claims Cooper Carry “materially breached”
its contractual obligations in eighteen respects, including by
failing to meet the applicable standard of care and by failing
to design the Project in accordance with applicable fire codes.
Compl. ¶ 24, J.A. 10–11. Additionally, Hensel Phelps argues
Cooper Cary is contractually obligated to indemnify Hensel
Phelps for the losses associated with rectifying the alleged
design errors. The district court granted summary judgment
to Cooper Carry on both counts. We hold that the statute of
limitations has run on Hensel Phelps’s breach-of-contract
claim, and the terms of the indemnification clause do not
cover first-party claims. We accordingly affirm.
I.
A.
Marriott International entered into an initial Agreement
with Cooper Carry on March 5, 2008, under which Cooper
Carry agreed to design and monitor the construction of the
Project for a lump sum of $14,335,602. The Agreement
divided Project completion into five phases: conceptual
design, schematic design, design development, construction
document, and construction contract administration. As the
Project progressed, Cooper Carry would bill Marriott on a
monthly basis, and final payment was due to Cooper Carry
upon, among other things, “the full completion of the services
hereunder.” Agreement Art. 4.05.6, J.A. 25. The
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construction contract administration phase obligated Cooper
Carry to perform tasks such as “shop drawing and
construction materials sample review and approval, answering
requests for information from contractor(s), preparing
construction contract change order and field orders,
confirming the contractors’ percentage of completion of work
to substantiate payment requests, reviewing and approving
construction mock-ups, and conducting site observations and
preparing reports.” J.A. 39. It also required Cooper Carry to
provide construction administration services as set forth in the
as-of-yet-unwritten construction contract for the Project.
Once the construction contract between Marriott and the
construction entity was finalized, it would be sent to Cooper
Carry for approval and incorporated by reference into the
initial Agreement.
Cooper Carry made numerous promises in the initial
Agreement, two of which are particularly relevant to this
litigation. First, Cooper Carry agreed to act in accordance
with “the professional standards of skill, care and diligence
ordinarily expected of leading, internationally recognized
architectural firms on projects of comparable scope and
complexity.” Agreement Art. 2.01, J.A. 17. Second, Cooper
Carry represented it was knowledgeable of all applicable
laws, “codes, ordinances, rules, regulations and other
requirements imposed by [relevant] governmental
authorities,” “all . . . governmental approval requirements,”
and “National Fire Protection Association (‘NFPA’)
standards.” Agreement Art. 2.05.1, J.A. 19–20. With respect
to fire safety specifically, Cooper Carry agreed to design the
Project in conformity with “the BOCA National Building
Codes, the NFPA National Fire Codes (especially NFPA 101,
Life Safety Code) and the Marriott Fire Protection/Life Safety
design.” J.A. 49. In addition to its service-related obligations
and representations, Cooper Carry acknowledged “Marriott
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may sustain financial loss for which [Cooper Carry] may be
liable if the Project or any part thereof is delayed because
[Cooper Carry] negligently fails to perform the Services in
accordance with this Agreement, including, but not limited to,
the Schedule.” Agreement Art. 3.01, J.A. 22. Cooper Carry
also agreed to indemnify Marriott “[t]o the fullest extent
permitted by law, . . . from and against any claim, judgment,
lawsuit, damage, liability, and costs and expenses, including
reasonable attorneys’ fees, as a result of, in connection with,
or as a consequence of [Cooper Carry’s] performance of the
Services under this Agreement . . . .” Agreement Art. 6.01,
J.A. 27.
The initial Agreement contained a dispute-resolution
provision, which allowed “[a]ny party . . . from time to time”
to “call a special meeting for the resolution of disputes that
would have a material impact on the cost or progress of the
Project.” Agreement Art. 7.09.1, J.A. 31 (emphasis added).
If an informal dispute-resolution process failed, the parties
agreed to attempt mediation, which would last no more than
twenty working days unless the parties agreed otherwise. “If
[a] dispute [was] settled through the mediation process, the
decision [would] be implemented by written agreement
signed by all the parties involved.” Agreement Art. 7.09.2,
J.A. 31. The Agreement provided that “[a]ll claims and
disputes not settled by mediation shall be resolved through
litigation in [the] court having jurisdiction over same.”
Agreement Art. 7.09.3, J.A. 32. Additionally, the Agreement
provided that “[t]he presence of any claim or dispute, or legal
proceeding arising hereunder shall not relieve [Cooper Carry]
from its obligation to properly perform its Services as set
forth herein, nor shall it relieve Marriott from making
payments with respect to undisputed Services in accordance
with the terms of this Agreement.” Agreement Art. 7.09.5,
J.A. 32 (emphasis added).
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B.
As stated above, the initial Agreement, signed in 2008,
contemplated that Marriott would enter into a second contract
governing the Project’s construction. Approximately two-
and-a-half years later, however, the Project was converted to
the design-build model of delivery. Under this approach, the
owner contracts with only one party—the design-builder—to
both design and construct a project. 1 PHILIP L. BRUNER &
PATRICK J. O’CONNOR, JR., ON CONSTRUCTION LAW § 2:17
(Dec. 2016) [hereinafter BRUNER & O’CONNOR]. To
accomplish this conversion, HQ Hotels—which had
previously acquired development rights for the Project from
Marriott—entered into a Design/Build Agreement with
Hensel Phelps on October 26, 2010, under which Hensel
Phelps agreed to complete the Project’s construction “no later
than April 1, 2014” for a guaranteed maximum price of
$354,517,391. Claim Narrative at 2, J.A. 230. Also on
October 26, 2010, Marriott assigned its rights and obligations
under the initial Agreement to Hensel Phelps, without making
any changes to that document. Accordingly, “any and all
duties, obligations, and standards of care that Cooper Carry
owed to Marriott under the [initial Agreement] were assigned
and transferred to Hensel Phelps.” Compl. ¶ 10, J.A. 7.
Thereafter, the Project “progressed effectively on a design-
build basis[,] with Cooper Carry having complete design
coordination.” Claim Narrative at 2, J.A. 230. As of October
26, Cooper Carry had completed the first three phases of the
Project and was in the midst of completing the fourth. The
Design/Build Agreement also included a list of already-
completed design documents provided by Cooper Carry.
Unfortunately, the new arrangement went sour rather
quickly. On March 8, 2011, Cooper Carry met with the
District of Columbia Department of Consumer and
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Regulatory Affairs and was promptly informed that its
designs did not comply with applicable fire codes. Hensel
Phelps claims that remedying these errors cost it $4,402,380
and required “significant” design alterations, “[s]ignificant
changes in mechanical and electrical scopes,” and a ten-and-
a-half-month delay in the Issued for Construction design
issuance. See Claim Narrative at 11–14, J.A. 239–42. Over
the next three years, Hensel Phelps contends it discovered
approximately seventeen additional defects in Cooper Carry’s
designs that, when combined with the fire safety issues,
allegedly cost $8,493,556 to remediate.
Hensel Phelps initiated dispute-resolution proceedings in
January 2015, raising, inter alia, breach-of-contract,
indemnification, and negligent misrepresentation claims.
Regarding breach of contract, it asserted Cooper Cary “failed
to meet the high standard stated in the [initial Agreement]
and/or breached Cooper Carry’s obligations therein,” Claim
Narrative at 2, J.A. 230 (emphasis added), including its
“obligations,” “warranties,” and “representations” pertaining
to “fire and life safety design,” id. at 8–9, 11, J.A. 236–37,
239. See also Claim Narrative at 12, J.A. 240 (“This failure
to address fire and life safety is an express breach of the fire
and life safety obligations contained in the [initial Agreement]
Scope of Work.”). In support of its allegations, Hensel Phelps
submitted a detailed Claim Narrative describing the eighteen
alleged breaches and their respective costs.
Mediation failed in October 2015. Hensel Phelps filed a
complaint in district court the following month, alleging
breach-of-contract and indemnification claims. Cooper Carry
moved to dismiss or, alternatively, for summary judgment,
arguing the District of Columbia (“D.C.”) three-year statute of
limitations for contract claims had already run. Additionally,
it asserted the plain text of the initial Agreement’s
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indemnification clause did not cover first-party claims.
Cooper Carry attached Hensel Phelps’s Claim Narrative to its
motion, and Hensel Phelps did not object.
The district court granted summary judgment for Cooper
Carry. Hensel Phelps Constr. Co. v. Cooper Carry, Inc., 210
F. Supp. 3d 192, 195 (D.D.C. 2016). It found the contract
was first breached—and the statute of limitations therefore
began to run—on October 26, 2010, when Hensel Phelps
assumed Marriott’s rights under the initial Agreement and
Cooper Carry delivered the defective design documents. Id.
at 197 (“Once the time for compliant performance had passed
and Hensel Phelps had accepted the initial design documents
on which its claim for damages is based, the clock began to
run against Hensel Phelps.”); see also id. at 198. The court
also found the text of the initial Agreement’s indemnification
clause did not cover first-party claims, noting that, in
accordance with the traditional purpose of such clauses, it
“clearly anticipate[d] the problem of third-party litigation.”
Id. at 199.
Hensel Phelps now appeals, arguing—as it did below—
that the contract was not breached until April 1, 2014, when
the Project was substantially complete. It asks this Court
either to reverse the district court’s judgment or to remand for
further proceedings to interpret the allegedly ambiguous
provisions of the initial Agreement.
Hensel Phelps is organized under the laws of Delaware
with its principal place of business in Colorado; Cooper Carry
is a Georgia-based corporation with its principal place of
business in Georgia. The district court had diversity
jurisdiction under 28 U.S.C. § 1332, and we have jurisdiction
under 28 U.S.C. § 1291.
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II.
A.
This Court reviews the district court’s grant of summary
judgment de novo, “examin[ing] the record to determine
whether any genuine issue of material fact pertinent to the
ruling remains, and if not, whether the substantive law was
correctly applied.” Caiola v. Carroll, 851 F.2d 395, 398
(D.C. Cir. 1988). All inferences are drawn in the
nonmovant’s favor. Walker v. Johnson, 798 F.3d 1085, 1091
(D.C. Cir. 2015). “[A]mbiguity in a contract raises a genuine
issue of material fact, which is for the factfinder to resolve.”
Debnam v. Crane Co., 976 A.2d 193, 198 (D.C. 2009)
(quoting Rastall v. CSX Transp., Inc., 697 A.2d 46, 51 (D.C.
1997)).
B.
All parties agree D.C. law governs this case. See also
Agreement Art. 7.10, J.A. 32. D.C. Code § 45-401(a) directs
courts to look to the common law where statutes are silent.
D.C. imported the common law of Maryland as of 1801, and
so D.C. courts have “customarily[] looked to post-1801
decisions of the Court of Appeals of Maryland for assistance
in interpreting the law.” Heard v. United States, 686 A.2d
1026, 1029 (D.C. 1996); see also Little v. United States, 709
A.2d 708, 711 (D.C. 1998).
D.C. courts “adhere[] to an objective law of contracts.”
Carlyle Inv. Mgmt. L.L.C. v. Ace Am. Ins. Co., 131 A.3d 886,
894–95 (D.C. 2016). This means “the written language
embodying the terms of an agreement will govern the rights
and liabilities of the parties regardless of the intent of the
parties at the time they entered the contract, unless the written
language is not susceptible of a clear and definite meaning.”
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Id. “The writing must be interpreted as a whole, giving a
reasonable, lawful, and effective meaning to all its terms, and
ascertaining the meaning in light of all the circumstances
surrounding the parties at the time the contract was made.”
Id. at 895. “In determining whether a contract is ambiguous,
[courts] examine the document on its face, giving the
language used its plain meaning,” Debnam, 976 A.2d at 197,
“unless, in context, it is evident that the terms used have a
technical or specialized meaning,” Carlyle, 131 A.3d at 895.
In essence, courts “determine what a reasonable person in the
position of the parties would have thought the disputed
language meant.” Id. at 895. Furthermore, “a contract is not
ambiguous merely because the parties do not agree over its
meaning, and courts are enjoined not to create ambiguity
where none exists.” Id.
Under D.C. law, parties have three years “from the time
the right to maintain the action accrues” to file a breach-of-
contract claim. D.C. CODE § 12-301(7). “Accrue” is not
defined, but “[a]ctions usually accrue when they come into
existence.” Felter v. Kempthorne, 473 F.3d 1255, 1259 (D.C.
Cir. 2007). “An action for breach of contract generally
accrues at the time of the breach.” Wright v. Howard Univ.,
60 A.3d 749, 751 (D.C. 2013); Murray v. Wells Fargo Home
Mortg., 953 A.2d 308, 319–20 (D.C. 2008).
III.
A.
Hensel Phelps and Cooper Carry disagree about what
“first breach” rule this Court should apply to their contract.
Hensel Phelps argues the Project is governed by a unitary
construction contract, under which courts typically interpret
first breach as occurring upon “substantial completion” of the
Project. See 3 BRUNER & O’CONNOR § 8:23 (defining
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“substantial completion” as “that point in the construction
where the work is sufficiently complete that the owner may
occupy or utilize the work for the use for which it was
intended”). Because substantial completion did not occur
until April 2014, Hensel Phelps argues its claim is not time-
barred. By contrast, relying primarily on Comptroller of
Virginia ex rel. Virginia Military Institute v. King, 232 S.E.2d
895, 900 (Va. 1977), and Hilliard & Bartko Joint Venture v.
Fedco Systems, Inc., 522 A.2d 961, 967 (Md. 1987), Cooper
Carry asserts we should view the initial Agreement as a
design agreement, and the contract was thus first breached
when Hensel Phelps accepted Cooper Carry’s defective
designs.
We find it unnecessary to wade into this debate, however.
For, like most other rules of contract, legal rules that specify
first breach are default ones, and parties are free to depart
from them as they wish. Looking to the initial Agreement’s
terms suffices to demonstrate that Hensel Phelps’s cause of
action accrued prior to substantial completion.
As a preliminary matter, we note the parties consented to
have the initial Agreement interpreted according to its “plain
meaning.” Agreement Art. 7.20, J.A. 35. We think the plain
terms of the initial Agreement, read in context, make it clear
that Hensel Phelps could have initiated dispute-resolution
procedures for breach of contract in March 2011, after
discovery of Cooper Carry’s failure to design the Project in
accordance with applicable fire safety codes. The initial
Agreement specified that “[a]ny party may from time to time
call a special meeting for the resolution of disputes that would
have a material impact on the cost or progress of the Project.”
Agreement Art. 7.09.1, J.A. 31. No temporal conditions
precedent needed to be satisfied before parties could
commence dispute resolution; all that was required was a
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material effect on either the Project’s cost or its progress.
According to Hensel Phelps, remedying the fire safety errors
cost almost four-and-a-half million dollars, required
significant structural and design alterations, and resulted in a
ten-and-a-half-month delay in the issuance of a necessary
document. The cost and effects on the schedule suggest the
fire safety issues met the criteria laid out in Article 7.09.1.
We also read the initial Agreement to require parties to
proceed to court if dispute resolution failed. Read in full,
Article 7 of the initial Agreement set out a series of iterative,
sequential steps a party needed to walk through in order to
resolve a dispute, beginning with informal proceedings and
culminating with a lawsuit filed in court. Removing the
description of what procedures were to be used within each
step of the process, the section provided as follows:
Any party may from time to time call a special
meeting for the resolution of disputes that would
have a material impact on the cost or progress of the
Project. . . . If the dispute has not been resolved
within five (5) working days . . . , a mediator,
mutually acceptable to the parties and experienced in
design and construction matters shall be retained by
the parties. . . . If the dispute is settled through the
mediation process, the decision will be implemented
by written agreement signed by all the parties
involved. . . . All claims and disputes not settled by
mediation shall be resolved through litigation in
court having jurisdiction over same.
Agreement Arts. 7.09.1–7.09.3, J.A. 31–32 (emphases added).
The parties added no proviso to the “shall be resolved”
language indicating such lawsuits could not commence until
after substantial completion of the Project. Nor did they do so
12
in the section entitled “Causes of Action,” which merely
stated that “[c]auses of action between the parties to this
Agreement . . . shall be deemed to have accrued and the
applicable statutes of limitations shall commence to run in
accordance with the law applicable to this Agreement.”
Agreement Art. 7.15, J.A. 34. And, in fact, the initial
Agreement expressly contemplated the possibility of litigation
before its completion. Article 7.09.5—contained within the
same section as the dispute-resolution procedures—stated that
“[t]he presence of any . . . legal proceeding arising hereunder
shall not relieve [Cooper Carry] from its obligation to
properly perform its Services as set forth herein, nor shall it
relieve Marriott from making payments with respect to
undisputed Services in accordance with the terms of this
Agreement.” J.A. 32; see also Agreement Art. 5.03, J.A. 26
(permitting Marriott to terminate Cooper Carry for cause
“should [Cooper Carry] fail substantially to perform in
accordance with the terms of this Agreement”). This
provision contained no language cabining its application only
to litigation between a party to the initial Agreement and
subcontractors, as Hensel Phelps argued at oral argument.
See Oral Arg. Rec. 14:10–14:59. By its plain terms, and
contextualized within Article 7 as a whole, it applied equally
to legal disputes between Hensel Phelps and Cooper Carry
that had not been “resolved” via the dispute-resolution
procedures.
Perhaps Hensel Phelps believed a different first breach
rule would apply once the Design/Build Agreement was
signed and introduced the concept of substantial completion, a
concept absent from the initial Agreement. See Design/Build
Agreement Art. 6.15, J.A. 120. But this belief was never
enshrined objectively in the text of either the assignment
agreement or alterations to the initial Agreement’s text, and it
is objective language, not subjective intent, that guides our
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analysis. Carlyle, 131 A.3d at 894. Here, the terms are clear
and unambiguous: Hensel Phelps had the right to begin
dispute-resolution procedures in March of 2011 and to bring a
lawsuit in court if and when those proceedings failed. We
must hold Hensel Phelps to its bargain. Because it filed its
complaint more than three years after the action accrued, its
breach-of-contract claim is time-barred. 1
B.
We similarly find Hensel Phelps’s indemnification
argument unavailing.
Hensel Phelps contends the initial Agreement’s
indemnification clause used broad and expansive language
and contained no limitation confining its scope only to third-
party claims. Like any other contractual provision,
indemnification clauses must be interpreted by looking to the
1
We also find it noteworthy that Hensel Phelps’s characterization
of events corresponds with our interpretation. Though Hensel
Phelps argued to this Court that first breach could not have
occurred until after substantial completion, it repeatedly described
Cooper Carry’s actions as “breaches” in its Claim Narrative. We
recognize the initial Agreement provided that “no reference to . . .
any admissions against interest made in the course [of mediation]
may be made or offered as evidence in any subsequent litigation.”
Agreement Art. 7.09.2, J.A. 31. However, Cooper Carry drew
attention to Hensel Phelps’s characterizations in its response brief.
Appellee Br. 11–12. Hensel Phelps failed to object in its reply brief
and expressly disclaimed the Narrative as a statement against
interest at oral argument. See Oral Arg. Rec. 15:45–17:00. Thus,
whatever protection the Agreement provided against reliance on
admissions in the course of mediation is arguably forfeited. We
need not resolve this forfeiture issue, however; even leaving aside
Hensel Phelps’s descriptions, Cooper Carry is entitled to summary
judgment.
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objective language as the expression of the parties’ intent.
However, this objective analysis also considers the context in
which words are used. Holland v. Hannan, 456 A.2d 807,
816–17 (D.C. 1983); see also RESTATEMENT (SECOND) OF
CONTRACTS § 202 (1981) (“[t]he meaning of words . . .
commonly depends on their context.”). Contextual analysis
allows courts to “determine what a reasonable person in the
position of the parties would have thought the disputed
language meant,” as well as to determine if, “in context, it is
evident that the terms used have a technical or specialized
meaning.” Carlyle, 131 A.3d at 895.
Unquestionably, indemnification clauses have
traditionally been used and interpreted as extending only to
third-party claims. 3 BRUNER & O’CONNOR § 10:39; 42
C.J.S. Indemnity § 1 (June 2017). In the initial Agreement,
the terms “claim, judgment, lawsuit, damage, liability, and
costs and expenses,” Art. 6.01, J.A. 27, must be interpreted in
light of this traditional function. Furthermore, the D.C. Court
of Appeals has advocated for strict construction of
indemnification clauses to avoid covering “any obligations
which the parties never intended to assume.” Am. Bldg.
Maint. Co. v. L’Enfant Plaza Props., 655 A.2d 858, 861 (D.C.
1995); see also id. (noting “[t]here is no liability to indemnify
unless it is plainly spelled out in the contract”); James G.
Davis Constr. Corp. v. HRGM Corp., 147 A.3d 332, 340–41
(D.C. 2016) (reading an indemnification clause covering “any
and all costs and expenses” to reach first-party claims by
looking to a second indemnification clause protecting only
against “loss or losses directly connected with the
performance of the Construction Contract” and reasoning the
parties purposely chose a broader formulation for the clause at
issue). Here, no clear and unequivocal intent to include first-
party claims appears on the face of the instrument and,
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construing the clause strictly, we decline to expand the scope
of its reach. 2
IV.
For the foregoing reasons, the judgment of the district
court is
Affirmed.
2
Hensel Phelps argued, both below and to this Court, that the bulk
of its indemnification claims—approximately 7.2 million dollars’
worth—do constitute third-party claims. It defined third-party
claims as those charged to Hensel Phelps by subcontractors,
whereas first-party claims are those incurred directly by Hensel
Phelps, such as additional overhead and administration costs. See
Oral Arg. Rec. 24:43–27:34. But all first-party claims involve
some payout to a third party. For instance, in Hensel Phelps’s
example of additional administrative costs, Hensel Phelps must pay
out to a third party—its employee—to provide that administration
service. Reading the clause according to Hensel Phelps’s
interpretation would render it no different than a standard breach-
of-contract claim, and we decline to do so here.