Hill Brothers Construction Company, Inc. v. Mississippi Transportation Commission ( 2008 )

IN THE SUPREME COURT OF MISSISSIPPI
NO. 2009-CA-00053-SCT
HILL BROTHERS CONSTRUCTION COMPANY,
INC.
v.
MISSISSIPPI TRANSPORTATION COMMISSION
DATE OF JUDGMENT: 12/12/2008
TRIAL JUDGE: HON. WILLIAM F. COLEMAN
COURT FROM WHICH APPEALED: HINDS COUNTY CIRCUIT COURT
ATTORNEYS FOR APPELLANT: WILLIAM R. PURDY
RALPH B. GERMANY, JR.
JUSTIN JOHN PETERSON
ATTORNEYS FOR APPELLEE: ALAN M. PURDIE
BETTY RUTH FOX
JAMES T. METZ
MICHAEL EDWIN D’ANTONIO, JR.
DION JEFFERY SHANLEY
NATURE OF THE CASE: CIVIL - CONTRACT
DISPOSITION: REVERSED AND REMANDED - 06/17/2010
MOTION FOR REHEARING FILED:
MANDATE ISSUED:
BEFORE CARLSON, P.J., DICKINSON AND PIERCE, JJ.
DICKINSON, JUSTICE, FOR THE COURT:
¶1. This is a dispute over a cost-adjustment provision of a highway construction contract
between Hill Brothers Construction Company and the Mississippi Transportation
Commission. While we agree with the Commission’s interpretation of the provision at issue,
we find that it violates the mandate and scope of its enabling statute. We therefore reverse
the trial court’s grant of summary judgment in favor of the Commission, and remand for
proceedings consistent with this opinion.1
FACTS AND PROCEDURAL HISTORY
¶2. The Commission awarded D. B. Johnson Construction Company, Inc. (“Johnson”) a
contract for construction of approximately 6.25 miles of highway. After Johnson defaulted,
the Commission called upon Johnson’s bonding company, Traveler’s Casualty and Surety
Company of America (“Travelers”), to complete the contract.
¶3. Travelers and Hill Brothers Construction Company, Inc. (“Hill Brothers.”) entered
into a completion agreement that incorporated all the contract documents and special
provisions contained in the contract between Johnson and the Commission. Special
Provision #907-109-01 entitled “Measurement & Payment for Changes in Costs of
Construction Materials (Fuel and Asphalt),” hereinafter referred to as the “FAC,” required
certain monthly cost-adjustments for the purposes of reimbursing Hill Brothers for diesel fuel
and asphalt used in the project.
¶4. The provision established a fuel base price to be used during the bidding process so
that all contractors bidding on the project would have a level playing field with regard to
pricing fuel costs into their bids. Actual reimbursements during the contract period would
be determined by comparing the base price to a cost index published monthly by the
Mississippi Department of Transportation and, where the difference exceeded five percent,
1
The dissent’s concern about our remand is misplaced. We remand because we are reversing
summary judgment, and this matter must now proceed to trial.
2
reimbursement rates would be adjusted accordingly. With respect to adjustments in
reimbursement rates after the contract period, the last sentence of the FAC provided:
After the expiration of contract time, including all extensions, adjustments will
be computed using fuel and material prices that are in effect at the expiration
of the contract time.2
¶5. At the time of the completion agreement, Hill Brothers estimated that the work
defaulted upon and left unperformed on the Johnson contract would take more than two years
to finish, even though less than a month of allowable contract time remained. The
Commission extended the contract to March 13, 2004. Hill Brothers completed the contract
on March 13, 2006, two years past the expiration of the contract time.
¶6. Prior to the expiration of the contract time, the Commission, through its subordinate
and operating entity, the Mississippi Department of Transportation (MDOT), calculated
monthly payments for designated pay items affected by oil prices by adjusting the baseline
price of petroleum products (established when the contract was originally awarded). The
amount of adjustment was controlled by then-current prices as reflected in the index
published monthly by MDOT.
¶7. When the contract time expired on March 13, 2004, and the work was not completed.
the Commission began to make monthly adjustment payments based on the contract
provision recited above. Because prices did not vary to any great extent for a period of time,
2
Hill Brothers had been a party to nine previous contracts with the Commission in which the
same clause was included. However, Hill Brothers asserts that it has experienced inconsistent
interpretations and applications of this provision, varying “from one MDOT District to another,
within the same MDOT District at different times, and even with regard to the same MDOT
contract.” Hill Brothers argues that it never challenged this because, in the past, the price
differential had been insignificant.
3
this change in the method of determining adjustments had little effect on Hill Brothers’ total
reimbursements. However, in August 2005, Hurricane Katrina struck the Mississippi Gulf
Coast, causing the price of petroleum products to skyrocket.3 Because the Commission
interpreted the contract provision to mean that all reimbursements would be determined using
prices in effect at the end of the contract period, Hill Brothers received reimbursements
which were far less than amounts actually expended for petroleum products. According to
Hill Brothers, the Commission’s interpretation cost them nearly $500,000 in unreimbursed
petroleum costs. Travelers and Hill Brothers both protested the application of this provision
to no avail.
¶8. Hill Brothers filed suit against the Commission, asserting the Commission breached
its contract by improperly applying the FAC and underpaying Hill Brothers. Hill Brothers
contended that the proper interpretation of the FAC was for the Commission to replace the
bidding baseline in the contract with the actual price of petroleum products at the end of the
contract period, and then make monthly adjustments.
¶9. On September 4, 2008, the Commission moved for summary judgment, arguing that
the FAC was unambiguous and that Hill Brothers was not entitled to any damages for the
alleged underpayment relating to the FAC. Hill Brothers moved for partial summary
judgment, arguing that its interpretation of the FAC was correct or, in the alternative, that
the provision was ambiguous and should be construed against the Commission. The
3
The dissent incorrectly assumes that the contract provision at issue would always work to
the detriment of the contractor. To the contrary, if at the end of the contract period fuel prices were
lower than at the beginning, the Commission would be required to pay Hill Brothers more for each
gallon of fuel than Hill Brothers actually spent. This would result in a windfall for Hill Brothers.
4
Commission then filed a motion for complete summary judgment, arguing the FAC was not
ambiguous.
¶10. In a September 26, 2008, order, the trial court found that the FAC contract provision
was unambiguous as interpreted by the Commission and denied Hill Brothers’ motion for
partial summary judgment. On October 2, 2008, Hill Brothers filed its response to
Commission’s motion for summary judgment along with its own cross-motion for summary
judgment, arguing that the Commission’s interpretation of the provision was in conflict with
and contrary to Section 31-7-13(i) of the Mississippi Code and therefore should be struck
from the contract. Hill Brothers additionally argued that the provision – as the Commission
sought to apply it – was unconscionable.
¶11. Following a hearing, the trial court found that the FAC as written, interpreted, and
applied by the Commission was not ambiguous, contrary to the statute, or unconscionable.
The court found there were no genuine issues of material fact and therefore, the Commission
was entitled to summary judgment as a matter of law. From that ruling, Hill Brothers
appeals, raising two issues: (1) whether the trial court properly interpreted the fuel
adjustment provision; and (2) whether the commission’s interpretation violates the
authorizing statute such that the limitation on adjustments provided for in the last sentence
of the FAC should be struck.
ANALYSIS
¶12. We apply a de novo standard of review to the trial court’s grant or denial of a motion
for summary judgment. Kuiper v. Tarnabine, 20 So. 3d 658, 660-61 (Miss. 2009) (citations
omitted). A motion for summary judgment “shall” be granted by a court “if the pleadings,
5
depositions, answers to interrogatories and admissions on file, together with the affidavits,
if any, show that there is no genuine issue as to any material fact and that the moving party
is entitled to a judgment as a matter of law.” Miss. R. Civ. P. 56(c).
¶13. The parties sharply dispute the interpretation of the provision governing how
adjustments were to be computed “at the expiration of contract time.” Upon reviewing the
clear language of the provision, we agree with the trial court that the Commission’s
interpretation of the provision was correct. However, we find that the provision exceeds the
scope of authority granted to the Commission by Section 31-7-13(i), which provides::
(i) Road construction petroleum products price adjustment clause
authorization. Any agency or governing authority authorized to enter into
contracts for the construction, maintenance, surfacing or repair of highways,
roads or streets, may include in its bid proposal and contract documents a price
adjustment clause with relation to the cost to the contractor, including taxes,
based upon an industry-wide cost index, of petroleum products including
asphalt used in the performance or execution of the contract or in the
production or manufacture of materials for use in such performance. Such
industry-wide index shall be established and published monthly by the
Mississippi Department of Transportation with a copy thereof to be mailed,
upon request, to the clerks of the governing authority of each municipality and
the clerks of each board of supervisors throughout the state. The price
adjustment clause shall be based on the cost of such petroleum products only
and shall not include any additional profit or overhead as part of the
adjustment. The bid proposals or document contract shall contain the basis and
methods of adjusting unit prices for the change in the cost of such petroleum
products.
Miss. Code Ann. § 31-7-13(i) (Rev. 2008) (emphasis added).
¶14. This Court has held that the “interpretation given [a] statute by the agency chosen to
administer it should be accorded deference.” Williams v. Puckett, 624 So. 2d 496, 499
(Miss. 1993) (citing Gill v. Dept. of Wildlife Conservation, 574 So. 2d 586, 593 (Miss.
1990)). However, this Court will not defer to the agency’s interpretation of the statute if it
6
is repugnant to the plain meaning thereof. Kerr-McGee Chem. Corp. v. Buelow, 670 So.
2d 12, 16 (Miss. 1995). Furthermore, the “powers legislatively granted to and exercised by
an administrative agency are limited to and must not exceed the authority prescribed by the
legislative enactment.” Miss. Pub. Serv. Comm’n v. Miss. Power & Light Co., 593 So. 2d
997, 1000 (Miss. 1991) (citing cases).
Section 31-7-13(i) clearly provides that an agency’s bid proposal may
include “a price adjustment clause, with relation to the cost of the contractor
. . . based upon an industry-wide cost index of petroleum products including
asphalt used in the performance or execution of the contract. . . . Such
industry-wide index shall be . . . published monthly . . . . The price adjustment
clause shall be based on the cost of such petroleum products only and shall not
include any additional profit or overhead as part of the adjustment.” Miss.
Code Ann. § 31-7-13(i) (Rev. 2008).
¶15. In inserting a fuel-adjustment clause into its contract, the Commission was bound to
follow the statutory requirements. The last sentence of the FAC contravenes this mandate
by basing the fuel adjustments on the price of fuel on an arbitrary date unrelated to the date
the fuel was purchased, and unrelated to the actual cost of the fuel to the contractor. Thus,
the price adjustment was not “in relation to the cost of the contractor.” Rather, the
adjustment was fixed arbitrarily based on the prices of petroleum products on the day the
contract expired.
¶16. The Commission argues that this Court’s decision in Farrish Gravel Co., Inc. v.
Miss. State Highway Comm’n, 458 So. 2d 1066 (Miss. 1984), controls. In Farrish,
7
contractors filed suit alleging the following clause violated Mississippi Code Section 31-7-
39,4 a statute nearly identical to Section 31-7-13(i).
Adjustments herein provided shall not apply to fuels consumed or materials
incorporated into the work during any monthly estimate period falling wholly
after the expiration of contract time as determined by checked final quantities.
Farrish, 458 So. 2d at 1067. The contractors contended that the petroleum adjustment could
not be limited just to the work done during the contract period. Id. at 1068. After quoting
the chancery court’s order denying the contractors’ claim, this Court, with little discussion,
stated “We are of the opinion that there is no merit in this assignment.” Id. at 1069.
¶17. Although we do not have the benefit of reading the entire contract in Farish, it is
distinguishable from today’s case in that it completely eliminated adjustments “after the
expiration of contract time.” Thus, the question in Farrish was whether the statute applied
to contracts with no adjustment clause after the contract term. The contract provision in
4
Provided further, any public authority authorized to enter into contracts for the construction,
maintenance, surfacing or repair of highways, roads or streets, including any department or agency
of the State of Mississippi and its political subdivisions, may include in its bid proposal and contract
documents a price adjustment clause with relation to the cost to the contractor, including taxes,
based upon an industry wide cost index, of petroleum products including asphalt used in the
performance or execution of the contract or in the production or manufacture of materials for use
in such performance; such industry wide cost index to be established and published monthly by the
State Highway Department with a copy thereof to be mailed to the clerks of the governing authority
of each municipality and the clerks of each board of supervisors throughout the state. The price
adjustment clause shall be based on such cost of said petroleum products only and shall not include
any additional profit or overhead as part of the adjustment. The bid proposals or document contract
shall contain the basis and methods of adjusting unit prices for the change in such cost of said
petroleum products.
Miss. Code Ann. § 31-7-39 (1975) (repealed 1981).
8
today’s dispute, however, does include a fuel-adjustment provision which must comply with
the statutory requirements. The Commission continued to pay adjustments after the
expiration of the contract time, but the adjustments were computed using the prices in effect
at the expiration of the contract period, rather than the index price for that particular month.
¶18. The Commission argues that its authority to determine how price adjustments for fuel
consumed during a construction project will be made is “necessarily implied” from language
in Section 31-7-13(i), which states that “[t]he bid proposals or document contract shall
contain the basis and methods of adjusting unit prices for the change in such cost of said
petroleum products.” This argument completely ignores the Commission’s current position
that reimbursements following the contract period were not adjusted at all. Providing for no
adjustment is not providing “the basis and methods of adjusting the unit prices for the
change” in the cost of fuel. Such adjustments are required by the specific statutory language
relied upon by the Commission.
CONCLUSION
¶19. We find the provision in question is unambiguous, and the plain meaning of the words
used in the FAC support the Commission’s interpretation of the contract. However, the last
sentence of the FAC, locking in reimbursements to Hill Brothers based on the price of
petroleum as of the expiration of contract time, contravenes the requirements of Section 31-
7-13(i) and thus must be struck from the agreement. The judgment of the trial court is
reversed and this matter is remanded for further proceedings consistent with this opinion.
¶20. REVERSED AND REMANDED.
9
WALLER, C.J., CARLSON, P.J., KITCHENS, CHANDLER AND PIERCE, JJ.,
CONCUR. RANDOLPH, J., CONCURS IN RESULT ONLY. GRAVES, P.J.,
DISSENTS WITH SEPARATE WRITTEN OPINION, JOINED BY LAMAR, J.
GRAVES, PRESIDING JUSTICE, DISSENTING:
¶21. I agree with the majority that the contract provision at issue is unambiguous and has
been properly interpreted by the Mississippi Transportation Commission; however, I disagree
that the provision contravenes Mississippi Code Section 31-7-13(I), the statute authorizing
the Commission to promulgate petroleum price-adjustment provisions in its construction
contracts. Miss. Code Ann. § 31-7-13(i) (Rev. 2008). The majority’s holding and
disposition is problematic not only because of its legal analysis, but also because it is
unreasonable for this Court to hold that the provision must be struck from the contract and
to remand this case to the trial court for further proceedings. Striking the provision from the
contract does not answer the ultimate question of what additional amount, if any, Hill
Brothers should be reimbursed for petroleum costs, and it is not appropriate to remand a case
to the trial court when there are no additional facts that need to be established. Therefore,
I must respectfully dissent and would affirm the trial court’s order granting the Commission’s
motion for complete summary judgment.
¶22. Section 31-7-13(i) in no way prohibits the Commission from including the provision
at issue in its construction contracts; the majority is reading into the statute restrictions that
the plain language of the statute does not impose. As the trial court held, “nothing in the
enabling statute [] would prevent [the Commission] from ‘sunsetting’ the FAC [the Fuel
Adjustment Clause – i.e., the provision] at contract’s end since the statute leaves the duration
and other parameters of a FAC to [the Commission’s] discretion, including whether to place
10
one in the contract at all.” As the trial court further found, the provision at issue is a
provision that Hill Brothers – a sophisticated contracting party – freely agreed to and “knew
or should have known how [i]t operated having been a party to nine previous contracts with
[the Commission] wherein the same clause was included.” The trial court noted that Hill
Brothers could have negotiated (with Travelers) a separate and distinct petroleum price-
adjustment clause, just as it did other terms of the agreement, like time of completion of
work, but it did not. The provision is sensible in that it gives incentive to companies
contracting with the Commission to complete their construction projects before their
contracts expire and, in so doing, to avoid the possibility of having to absorb the cost of
rising petroleum prices.
¶23. Moreover, it is unreasonable for the majority to hold that the provision must be struck
from the contract and to remand this case to the trial court for further proceedings. Striking
the provision from the contract does not answer, or at least not explicitly answer, the ultimate
question the parties seek to have resolved: what additional amount, if any, should Hill
Brothers be reimbursed for petroleum costs. In other words, declaring that the provision
must be struck does not indicate whether this Court is holding that the petroleum
reimbursements following the expiration of the contract should have been adjusted based on
the index published monthly by the Mississippi Department of Transportation (as they were
before the contract expired); whether the post-expiration reimbursements should not have
been adjusted at all; or whether some other reimbursement calculation should have been
used. Furthermore, this is not an appropriate case for this Court to remand to the trial court
11
for further proceedings, because there are no additional facts that need to be established; the
issues Hill Brothers presents are solely questions of law that this Court should decide.
¶24. Accordingly, I must respectfully dissent and would affirm the trial court’s order
granting the Commission’s motion for complete summary judgment.
LAMAR, J., JOINS THIS OPINION.
12