C & A Construction Company v. DHC Development

FILED
United States Court of Appeals
Tenth Circuit
November 5, 2012
UNITED STATES COURT OF APPEALS
Elisabeth A. Shumaker
Clerk of Court
FOR THE TENTH CIRCUIT
C & A CONSTRUCTION
COMPANY, a Utah corporation;
LYNN A. GILBERT, as Trustee of the
Black Diamond Construction Trust;
BLACK DIAMOND
CONSTRUCTION 1 BUSINESS
TRUST,
Plaintiffs-Appellants,
v. No. 11-4139
(D.C. No. 2:08-CV-00258-BSJ)
DHC DEVELOPMENT, a Nevada (D. Utah)
limited liability company; STEVEN P.
DANKO; ZIONS FIRST NATIONAL
BANK,
Defendants-Appellees.
ORDER AND JUDGMENT *
Before TYMKOVICH and BALDOCK, Circuit Judges, and BRORBY, Senior
Circuit Judge.
*
After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and
collateral estoppel. It may be cited, however, for its persuasive value consistent
with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
This appeal involves a dispute over a construction contract. As is often the
case in such disputes, each party to the contract--owner DHC Development
(“DHC”) and general contractor C&A Construction Company (“C&A”)--contends
that the other breached the contract and was responsible for the resulting
damages. 1 The district court entered two orders designed to dispose of all of the
parties’ claims and counterclaims. In its first order, it granted DHC partial
summary judgment on certain claims involving a mechanic’s lien asserted by
C&A. In its second, final order, it estimated the value of each party’s remaining
claims, then offset the estimated value of these claims against one another. The
district court accompanied this second order with a judgment awarding DHC the
difference remaining after the offset.
In its appellate briefing, C&A points to several alleged deficiencies in each
of these orders, and urges that both orders be reversed on the merits. DHC
responds that the district court’s orders are soundly reasoned and should be
affirmed. But having carefully reviewed the challenged orders and the
1
There are actually three appellants: C&A, and two trusts that putatively
hold an interest in C&A’s claims against DHC. The relationships between these
three entities, and the problems this poses for the parties’ standing on appeal, are
explored further in the analysis section of this decision, infra. Throughout this
order and judgment, we refer to all three entities, collectively, as “C&A.”
Similarly, Steven P. Danko, a principal of DHC, is named as an appellee, but we
generally refer to him and DHC collectively as “DHC.” The other appellee, Zions
First National Bank, which served as escrow agent under the Agreement, has not
participated in this appeal.
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voluminous record, 2 we find ourselves unable to reach a disposition on the merits
for either party on the issues presented. Simply put, the unusual procedural path
the district court followed in this case leaves us without an adequately reviewable
final decision.
The problems with this case are illustrated by the fact that the parties
cannot agree on what the district court did. Although the parties do not expressly
challenge the form of the district court’s judgment, preferring instead to argue
about its substance, we find that its disposition failed to resolve so many essential
issues in this complex case that it simply cannot be upheld in its present format. 3
Although in general we may affirm the district court’s order on any basis that
finds adequate record support, the state of the record here does not permit us to
undertake a de novo review of the evidence and enter summary judgment with
proper findings and conclusions for the first instance on appeal. We may
certainly not establish a specific amount of damages on summary judgment
review, and thus, the district court’s order granting a judgment for a specific
2
The appellate record is nearly 2,400 pages long.
3
Oddly, C&A reserves its only real appellate challenge to the procedural
aspects of the district court’s disposition for its appellate motion seeking our
blessing to include certain materials in its appendix and supplemental addendum.
There, it launches a strongly-worded attack on the district court’s improper grant
of what it characterizes as summary judgment entered without proper notice.
Such a procedural challenge is notably absent from C&A’s appellate briefing,
though C&A does ask us to apply a more stringent standard of review because
summary judgment was entered sua sponte, and contends that the district court
improperly resolved disputed factual questions on summary judgment.
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dollar figure cannot be sustained. With some regret for the considerable time and
effort already expended in this case, we therefore find it necessary to vacate the
challenged final order and to remand to the district court for further proceedings.
BACKGROUND
1. The Agreement
The dispute involves the construction of the Black Diamond Project
(“Project”), a condominium development in Brian Head, Utah. C&A and DHC
entered into a Construction Agreement (“Agreement”) governing construction of
the Project. Phase I of the Agreement called for C&A to construct 21
condominium units in three buildings, for which DHC agreed to pay the Contract
Price of $6,661,633. 4 Payment for additional services or materials beyond the
Contract Price was to be made by DHC in accordance with the Agreement’s
change order procedures. See Aplt. App., Vol. 1 at 166.
As portions of Phase I were completed, C&A was entitled to receive
progress payments. The Project’s architect was responsible for evaluating C&A’s
progress-payment applications and the work performed. Within 20 calendar days
of its receipt of an application for payment approved by the architect, DHC was
required to make the appropriate progress payment to C&A. C&A requested such
4
Though the Agreement refers to 21 units, see Aplt. App. at 164, both DHC
and the district court used a figure of 23 units. Any discrepancy on this point is
immaterial to our result.
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progress payments by certifying that C&A had completed the work specified in
accordance with the Agreement, that C&A had paid all amounts due to
subcontractors and suppliers of materials for which DHC had previously paid
moneys to C&A, and that the current payment shown was now due.
Occasionally, upon receiving a progress payment, C&A would also execute
a waiver and release, releasing DHC from C&A’s right to a mechanic’s lien and
to any claim for the amount paid. But C&A asserts that these releases were never
intended to release DHC’s responsibility to pay for change orders.
The Agreement required C&A to finish Phase I within 210 calendar days
from its start date. The parties disagree concerning to what extent the completion
date was extended by the parties, and whether C&A failed to complete the Project
in a timely manner.
During construction, DHC was free to order minor changes to the Project
that did not involve adjustments to the contract price or additional completion
time. But in the event of more substantial changes, C&A was entitled to
“additional consideration for time, labor, equipment, material and a Contractor’s
fee of 10%.” Id. at 173. Such changes also required a written change order
signed by both parties, and it was recognized they would result in modifications
to the contract price and additions to the completion time for the Project.
In the event that DHC or the architect concluded that any of C&A’s work
did not conform to the contractual requirements, C&A was required to make the
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necessary corrections to bring the work into compliance. But the Agreement also
empowered DHC to withhold payment to remedy defective work; to satisfy claims
or liens; to pay for unpaid labor, materials or equipment furnished to C&A; and to
pay subcontractors for labor, materials, or equipment they furnished for the
Project without proper payment from C&A. For its part, DHC agreed not to
interfere with or impede the work of C&A’s subcontractors.
DHC was authorized to terminate the Agreement if C&A:
1. persistently or repeatedly refuse[d] or fail[ed] to supply
sufficient properly skilled workers or proper materials to
maintain [the Project] on schedule[;]
2. fail[ed] to make payment to Subcontractors for materials or
labor. . .[;]
3. persistently disregard[ed] the laws, ordinances, or rules,
regulations, or orders of a public authority having jurisdiction;
or
4. otherwise [was] guilty of a substantial breach of a provision of
the Contract Documents.
Id. at 174.
2. Problems on the Project
The problems with the Project appear to have been deeply rooted. In fact,
they seem to have arisen before construction work had even begun. For example,
C&A has alleged that the plans for the Project were so poorly conceived that
during construction, the condominiums began sliding down the mountainside and
had to be anchored into place with gigantic metal piers at considerable additional
cost and delay. But DHC attributes this need for stabilization to faulty
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workmanship on C&A’s part. DHC also claims that C&A failed, when
negotiating the Agreement, to disclose its involvement in simultaneously
constructing a competing condominium project. According to DHC, this conflict
sapped C&A’s ability and willingness to devote adequate resources to the Project
once construction began.
Things went no better once construction actually began. The parties
presented differing accounts of what went wrong on the Project. C&A alleged
that “inadequate, incomplete, and inconsistent plans [for the Project] delayed the
work and increased [its] construction costs.” Id. at 141. It asserted that over
time, DHC began failing to pay C&A’s progress payment invoices and withheld
portions of the required progress payments. Eventually, this allegedly made it
impossible for C&A to pay its subcontractors.
DHC also allegedly interfered with C&A’s work on the Project, improperly
communicated with C&A’s subcontractors, instructed the subcontractors to make
changes to the Project without C&A’s consent, and supervised their work in
derogation of C&A’s supervisory responsibilities. C&A asserts that DHC’s
principal, Steven Danko, requested additional work on the Project but refused to
sign change orders reflecting this work, and refused to make payment to C&A for
the extra work. DHC purportedly brought its own subcontractors to the Project to
make changes and additions, which caused further interference and delays.
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Finally, DHC’s modifications allegedly caused delays on the Project and extended
its completion date.
DHC told a very different story. It complained that a significant amount of
C&A’s work on the Project was defective, and that C&A refused to correct the
defects. This required DHC to hire cover contractors to correct the work. DHC
claimed C&A failed to employ an adequate number of workers on the Project.
DHC also charges that C&A breached the Agreement by failing to complete the
Project by the completion date specified in the Agreement.
DHC also contended that it made full progress payments to C&A as
required, but that C&A diverted to itself moneys that were supposed to go to
subcontractors. These unpaid subcontractors then filed liens on the Project,
which DHC had to pay to remove. After repeated notices to C&A concerning
these alleged deficiencies, DHC invoked its contractual right to terminate C&A,
and completed the Project itself using another contractor.
3. DHC’s Notice of Default; C&A’s Mechanic’s Lien
These problems culminated in DHC’s issuance of a final notice of default
to C&A on February 22, 2008. The notice specified several alleged deficiencies
on C&A’s part. C&A vigorously disputed each of the alleged deficiencies. The
parties were unable to settle their differences, and on March 4, 2008, DHC
terminated C&A from the Project. C&A recorded a mechanic’s lien against the
Project in the amount of $958,576.58.
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4. Lawsuit and Claims
C&A filed this action in April 2008. In its amended complaint, C&A
charged DHC with breaching the Agreement by contacting, supervising, and
directing C&A’s subcontractors; by impeding C&A’s ability to perform under the
Agreement; by failing to pay C&A amounts due under the Agreement; and by
terminating the Agreement without adequate cause. 5 C&A requested damages in
an amount no less than $1,202,923.15; additional damages including punitive
damages to be proved at trial; foreclosure of its mechanic’s lien valued at
$958,576.60; a declaratory judgment that DHC improperly terminated C&A from
the Project; and attorney’s fees and costs.
DHC filed a counterclaim in which it charged C&A with breach of contract,
relying on the deficiencies identified in its final notice of default. 6 DHC
requested an award of damages in an amount to be proved at trial; damages
5
In addition to a breach-of-contract claim, C&A’s complaint included claims
for breach of the covenant of good faith and fair dealing, declaratory judgment
relating to the termination of the Agreement, intentional interference with
contractual relations, intentional interference with economic relations, injurious
falsehood, and unjust enrichment/quasi-contract. In the event that the district
court released the mechanic’s lien, C&A included a claim against the alternate
security in the form of moneys retained by Zions Bank.
6
DHC’s additional claims against C&A included breach of the covenant of
good faith and fair dealing, abuse of lien and wrongful lien, and unjust
enrichment. DHC also cross-claimed against the Project’s architect for breach of
contract; that claim is not at issue in this appeal.
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equivalent to twice the amount of the excessive portion of DHC’s lien; treble
damages for a wrongful lien; and attorney’s fees, costs, and interest.
Both parties moved for partial summary judgment. They submitted many
voluminous and conflicting exhibits in connection with these motions, including
affidavits, draw requests, bills from contractors, signed waivers, correspondence,
architect’s inspection reports, photographs of the Project, and charts.
5. DHC’s Motion for Partial Summary Judgment
DHC filed a motion seeking to reduce C&A’s mechanic’s lien by amounts
DHC claimed C&A had unconditionally released. DHC argued that C&A had
based $395,000 of its lien on three unsigned change orders, and that it had signed
a payment waiver that barred any claim based on these change orders.
In ruling on DHC’s motion, the district court made certain factual findings,
which it characterized as uncontroverted, concerning the parties’ dispute. It
found that C&A started work on the Project on or before June 29, 2006 and that
under the Agreement, C&A was to have completed the Project on or before
January 25, 2007. (The district court did not, however, rule on whether this
deadline had subsequently been extended by the parties through change orders.)
In exchange for a progress payment of $310,427 and an overall payment of
$5,075,525.95 from DHC, the court determined that C&A had waived its right to
additional payment and/or a mechanic’s lien for any labor, services, equipment, or
materials furnished through December 10, 2007. The district court then addressed
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each of the three challenged change orders, finding them illegitimate. It
concluded that C&A’s amended mechanic’s lien should be reduced by the sum of
$395,000, representing the three rejected change orders.
C&A subsequently moved for a revision of the district court’s order
pursuant to Fed. R. Civ. P. 54(b). The district court denied this motion. 7
6. C&A’s Motions for Partial Summary Judgment
For its part, C&A filed two motions for partial summary judgment. Both
were apparently denied, though the record we have does not appear to contain an
explicit ruling on them. The first motion sought a ruling favorable to C&A on the
Project’s completion date, the amount C&A had completed before its termination
from the Project, and the amount due from DHC on C&A’s Draw Request No. 14.
In its response, DHC emphasized the need for a trial to resolve many of the
factual issues on which C&A sought summary judgment. With respect to the
completion date, DHC stated that “[t]he issue as to the effect change orders had
on the Project completion date is one of fact, and cannot, therefore, be resolved as
a matter of law.” Aplt. App., Vol. 3 at 1005 (typeface altered). DHC noted that
“a triable issue of fact exists to what effect--if any--Section 12 [of the
Agreement] has on extensions of time not explicitly granted through the change
7
DHC apparently filed another motion for partial summary judgment on
January 30, 2010. This motion is not part of the record on appeal, but appears to
have been implicitly denied by or subsumed in the final judgment.
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order process.” Id. at 1006 (typeface altered). DHC concluded that a triable issue
of fact remained both as to the start date for construction and the completion date
for the Project.
DHC also stated that there were “triable issues of fact regarding what was
required from C&A before a progress payment could be made” on Draw Request
No. 14. Id. at 1014 (typeface altered). DHC argued, for example, that C&A’s
alleged unsatisfactory work on the Project affected the amount due under its draw
requests, and that this created “genuine triable issues of fact that cannot be ruled
on summary judgment with respect to rejected work.” Id. at 1015 (typeface
altered). In general, DHC argued that “[a] triable issue of fact exists with respect
to the circumstances surrounding Draw 14.” Id. at 1019 (typeface altered).
C&A’s second partial summary judgment motion requested findings from
the district court that DHC wrongfully terminated C&A from the Project, and
wrongfully delayed the Project. C&A also asserted that DHC made direct
payments to C&A’s subcontractors of no less than $162,715.61, representing
additional work requested by DHC without C&A’s involvement or approval.
C&A’s subcontractors also allegedly did at least $64,000 of other work in
connection with the structural modifications necessitated by the faulty plans,
again without C&A’s involvement.
C&A again claimed that more of the Project was complete than DHC gave
it credit for. It argued that “[b]y DHC’s own admission, C&A had completed no
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less than 94% of its work at the Project as of January 8, 2008 (two months prior
to C&A’s termination).” Id., Vol. 4 at 1248. C&A also again argued that DHC
had authorized draw requests but C&A had not been paid in full for these
requests. C&A claimed that this authorized but unpaid amount totaled
$526,633.63.
In addition, C&A alleged that DHC had failed to pay it for at least
$352,000 in extra work done by C&A or its subcontractors throughout the course
of the Project. In support of this claim, it attached unsigned change orders,
supporting documentation, and affidavits. C&A also asserted “substantial claims
for overhead and supervision which C&A needed to perform at the Project as a
result of various factors beyond C&A’s control, and which entitled C&A to more
than $400,000 in additional compensation from DHC.” Id. at 1252. Finally,
C&A complained that DHC had delayed approval and payment of change orders,
to C&A’s detriment.
7. The Final Pretrial Conference
The district court held a number of pretrial conferences at which the issues,
including the appropriate amount of damages, were hashed out in detail. C&A
has provided us with a transcript of the last of these conferences, which took
place on February 23, 2011, less than a month before a scheduled 14-day jury
trial. This conference featured a remarkable number of often-confusing damage
estimates from both parties, many of them based on disputed facts and competing
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methodologies. We discuss these estimates in some detail, to show how inchoate
matters proved to be at this stage of the proceedings.
At the outset of this conference, the district court asked C&A’s counsel to
“examine with me what’s left and tell me your justification for each of [your]
assertions . . . as to what remains in the way of monetary damages for the alleged
breach of contract.” Id., Vol. 6 at 1963. Counsel indicated that he had performed
a great deal of work attempting to narrow the evidence that supported C&A’s
claims. An exact figure, however, remained elusive.
Based on the architect’s certification of completion, counsel indicated,
C&A’s “contract claim” amounted to “no less than $526,000 as of February 6th,
[2008].” Id. at 1964. When asked to provide a further breakdown of the basis for
C&A’s claim, counsel stated that somewhere between $800,000 and $900,000
remained due under the Agreement. He admitted that DHC had made direct
payments to subcontractors of approximately $200,000, “depending on what
transpires at trial,” which ought to be subtracted from the amount due. Id. at
1965. This left a contract claim of approximately $687,000.
C&A’s counsel then moved on to C&A’s “largest claim,” for delay
damages. Id. at 1969. He asserted that C&A was due $2,500 for each day
construction was delayed by DHC, covering its expenses for “supervision,
insurance, temporary utilities, equipment, cleanup, safety, subsistence, [and] dust
control.” Id. at 1969-70. This amount, in counsel’s estimation, totaled $962,000.
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Counsel added this figure to its “500,000-plus . . . base claim,” and arrived at
total damages in excess of $1.5 million. Id. at 1972. Counsel admitted, however,
that he did not have a breakdown showing that C&A had actually paid out an
additional $962,000; instead, this was a pro rata extrapolation from C&A’s costs
allocated under the Agreement, based on the anticipated 210-day span of
completion.
The district court questioned C&A’s $200,000 estimated value for DHC’s
offset for direct payments to subcontractors. It noted that DHC had supplied
receipts showing payment far in excess of $200,000. C&A’s counsel stated that it
would be “[v]ery, very difficult . . . without a trial” to figure out how much of
DHC’s figures could actually be offset, because the amounts paid to these
subcontractors came from three “buckets”: “work within the scope of C&A’s
contract,” “work on customizing units,” and “work in . . . doing the structural
repairs.” Id. at 1977-78. Counsel opined that there would be “a very significant
challenge at trial to be able to ferret out which bucket” DHC’s claimed expenses
belonged to, and whether an offset was appropriate. Id.
The district court turned to DHC for its damage estimates. DHC’s counsel
noted that there were liens filed on the Project in the amount of $642,000. DHC
negotiated with the subcontractors who had filed the liens, such that it actually
paid $538,290 to settle these lien claims. DHC’s counsel asserted (contrary to
C&A’s counsel’s argument) that these payments were solely paid for “amounts
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that were due and owing C&A on their agreements with the subcontractors.” Id.
at 1991.
DHC had also paid $110,000 on Draw Request 14, for a total of $648,290.
This amount was paid in addition to $5.1 million DHC paid on the other draw
requests, plus an additional $67,000 payment that DHC said it could document,
totaling $5,815,290 DHC paid out under the Agreement. Dividing that amount by
a total estimated contract amount under the Agreement of $6 million, DHC
calculated it had paid 96.9215 percent of the contract amount. Looked at another
way, DHC calculated that it had paid all but $184,710 of the contract price.
In addition, DHC claimed it spent $262,000 to repair defective work on the
Project, and $600,000 to complete the Project. In support of the $600,000 figure,
Mr. Danko provided an itemized list of amounts DHC paid to various contractors,
which actually came to $547,732.82. The itemized repair costs came to
$260,388.50. Mr. Danko also indicated that the subcontractors were “willing and
able to appear and testify as to the work that they did, the repairs that were made,
the validity of their invoices, [and] the fact that they received payment from me
for that work.” Id. at 1997. He calculated the cost overrun on the Project at
$660,924.
Mr. Danko then made an extended pro se argument concerning the legal
and factual basis for DHC’s damages. He claimed that C&A had not produced the
proper lien releases to be paid for Draw Request No. 14. He argued that C&A
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had failed to provide invoices accounting for where the funds paid by DHC had
been spent. He contended that C&A was not entitled to damages for delay,
because (1) it was C&A who had delayed the Project, illustrated by C&A’s
agreement to pay his interest expense for two months through a deductive change
order; and (2) C&A had failed to substantiate its alleged damages resulting from
the delay.
Mr. Danko, though apparently not sworn as a witness, also made many
factual representations during the course of his argument concerning such matters
as what C&A and DHC had paid for on the Project and why C&A had allegedly
failed to perform its obligations under the Agreement. C&A’s counsel responded
by noting the “very big difference between what the plaintiffs argue and the
defendants argue.” Id. at 2016. Counsel contended that in assessing DHC’s
completion costs, the district court should rely on the architect’s certification
showing 94 percent completion. Counsel further argued that the district court
should not credit DHC with repairs for inadequate work because the architect had
certified that the work had been properly performed. Additionally, counsel
argued that DHC had failed to give C&A 30 days’ notice of any defective work,
as required by the Agreement.
Stating that it intended to “address problems today” and “simplify as much
as we can today and rule as much as we can today,” the district court asked
C&A’s counsel whether C&A disputed the amounts DHC claimed it had expended
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to complete the Project. Id. at 2027. Counsel responded that he did not dispute
the alleged payments, but contended that questions remained concerning whether
the work fell “within the allowance categories of C&A’s scope of work.” Id. at
2028. Counsel repeated C&A’s estimate that only $200,000 of the work DHC
performed was a proper offset.
The district court demanded specific evidence to support this figure,
insisting (as it did on numerous occasions during the conference) that C&A must
bring forth its evidence before trial. C&A acknowledged the request, and again
noted the architect’s certification that two months before termination only
$391,000 was left to finish the Project, and it was 97 percent complete. C&A
then stated that its best estimate of its damages was $707,000, which represented
the remainder due under the contract plus the value of signed change orders for
which C&A had not yet been paid. 8 C&A also argued that the jury could
determine that DHC was entitled to no offset, because DHC wrongfully
terminated the Agreement, or because it interfered with the Agreement by directly
settling lien claims with C&A’s subcontractors.
The district court then turned again to C&A’s “delay damage” claim. C&A
repeated its assertion that its claim for $2,500 per day totaled $960,000. The
district court then asked “[w]hich theory are you going to use?” Id. at 2053.
8
C&A later offered two different figures: $526,000 if the Project were 94
percent at the time of termination, and $707,000 if it were 97 percent complete.
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Counsel responded that C&A’s theories were complimentary, not exclusive. The
district court disagreed; it replied that they were inconsistent and that C&A would
have to choose one theory or the other.
Mr. Danko presented additional spreadsheets and unsworn testimony
concerning the payments DHC had made to settle lien claims on the Project. He
also presented information about written change orders on the Project and his
calculation of days and amounts added to the contract by virtue of these change
orders. Upon further questioning from the district court, he specified that DHC’s
out-of-pocket expenses for completing the Project totaled $800,000, representing
$262,000 for repairs and about $547,000 for completing the contract. DHC’s
counsel presented a final figure due from C&A of $660,924, but stated “that
obviously doesn’t count a lot of other theories that we want to bring forward that
we also have evidence for and can prove at trial.” Id. at 2076.
After a bit more argument from each of the parties, the district court
announced the following conclusions:
Giving plaintiffs full credence for their newly-minted damage
assertion, namely, $2,500 a day, amounting to some $900,000, which
contrasts with the prior damage calculation previously asserted in the
court – to the Court of . . . roughly [$]570,000, or if we take the
fixed amount percentage that remains to be finished, namely,
$320,000.
But looking at the out-of-pocket on the part of the defendants
over a period of time and crediting it against . . . the . . . somewhat
spurious amount of $900,000, but even giving them full credit for
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that as an offset . . . that leaves a balance due and owing from
plaintiff to defendant of $442,000.
Id. at 2090-91. The district court instructed DHC’s counsel to craft proposed
findings, conclusions, and a judgment in favor of DHC.
8. C&A’s Objections to DHC’s Proposed Order
The district court later held a hearing on C&A’s objections to DHC’s
proposed order. During this hearing, C&A’s counsel objected generally to what it
viewed as an improper use of summary judgment procedures in the order after
“this Court had previously taken the position that all motions for summary
judgment if not expressly granted had been denied categorically and trial had
been set.” Aplee. Supp. App. at 21. He added that “[o]ne very important
objection that the plaintiffs have is that there was not proper notice given to the
plaintiffs.” Id.
The district court rejected this argument. It stated that it had conducted the
final pretrial conference pursuant to Fed. R. Civ. P. 16 in an effort “to simplify
issues, to ascertain if there are genuine issues that are capable of being tried, that
are genuinely in dispute, if there is a rational footing for the assertions that
counsel has made.” Aplee. Supp. App. at 21.
Counsel responded that its own motion for partial summary judgment had
demonstrated issues of fact for trial. The district court disagreed; it responded
that its “Socratic give-and-take” caused the “situation . . . to shake down” to the
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parties’ “best theory,” based on counsel’s representations at the pretrial
conference. Id. at 22-23. Counsel objected that this “best theory” analysis
“ignore[d] the comprehensive evidence in support of [C&A’s] claims in excess of
1.5 million.” Id. He argued that
the succinct and comprehensive evidence presented in not one full
briefing [binder] that I’m holding, a four-inch binder, but multiple
binders to which at least this one not being responded to by opposing
counsel, except as in the form of a motion to strike [for
untimeliness], at least requires consideration of the jury trial that
defendants demanded.
Id. at 25 (emphasis added).
C&A’s counsel then pleaded for more time to establish its entitlement to
the full $1.5 million value of its claim. He requested the opportunity to present
testimony, just as Mr. Danko had “testified” for DHC. The district court stated:
“I am not going to listen to witnesses. I am going to listen to counsel.” Id. at 28.
It ruled that only the “form and content of the proposed order,” rather than any
consideration about the fairness of the pretrial conference procedure, would be
the subject of the hearing. Id.
Counsel again objected that genuine issues remained for trial concerning
the purpose for which DHC paid subcontractors on the Project. Id. at 34-38. The
district court noted the lack of specific, countervailing evidence from C&A on
this point. Counsel responded that the district court was merely relying on DHC’s
summary conclusion on how much had been paid and that outstanding issues
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remained concerning “whether that is the responsibility of C&A” and whether
“that payment to the sub where, by their own admission, those subs were doing
work outside the scope” of the Agreement. Id. at 39. Counsel further argued that
there was evidence of record that DHC had stipulated that only $391,000 was left
to finish the Project, but that DHC stated that it spent considerably more than that
amount to complete the Project.
Finally, at the end of the hearing, C&A’s counsel offered to present
testimony from its project manager and the superintendent on the Project
concerning the damages issues. The district court responded that the only
relevant record was that which existed at the time of the final pretrial conference
“with not anything added to it, and that is what we were dealing with.” Id. at 53.
It rejected counsel’s request.
9. District Court’s Final Order
In its final order, the district court found that C&A had essentially
advanced three theories to support its recovery of damages in this case: (1) a
contractual nonpayment theory, which included claims that C&A was underpaid
on numerous draw requests and not paid at all on three of its draw requests,
leaving a balance due of more than $526,000; (2) a “delay” theory under which
C&A claimed more than $900,000 based on damages incident to delays caused by
DHC; and (3) an “extra work” theory under which C&A performed more than
$300,000 in extra work for which DHC never made payment. In addition, the
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district court noted C&A’s mechanic’s lien for $958,000, previously reduced to
$352,954. The district court treated these three theories as mutually exclusive.
C&A disputes this characterization.
The largest of these three claims was C&A’s “delay” claim. The district
court credited C&A with the full $962,000 of damages asserted under its “delay”
theory. It then offset this amount against DHC’s entire claimed out-of-pocket
payments for repairing and finishing the Project, which it estimated at
$1,347,290. The district court adopted this $1.347 million offset even though
C&A contended that the legitimate portion of the offset amounted to a much
smaller figure. 9 The district court also found (notwithstanding C&A’s factual
dispute concerning this issue) that “C&A’s non-payment of subcontractors and
suppliers represented a material breach of the Contract.” Aplt. App., Vol. 6 at
2101. It further found that “C&A failed to dispute with any particularity any of
the out-of-pocket expenditures claimed by DHC, or to point to any significant
probative evidence discrediting the evidentiary support proffered in support of
DHC’s claims.” Id.
The district court’s calculation left a balance in favor of DHC against C&A
of $385,290. It then entered judgment in this amount for DHC, and also released
9
The district court arrived at this figure by adding together “DHC’s claim
for the $538,290 paid to subcontractors . . . [its] claims for the subsequent
completion of work ($547,000) and repair of defective work ($262,000) on the
project[.]” Aplt. App., Vol. 6 at 2101.
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to DHC all remaining alternate security funds currently on deposit with Zions
Bank. In addition, it awarded DHC $328,924.57 in attorney’s fees against C&A.
ANALYSIS
1. DHC’s Motion to Dismiss Appeal
DHC has moved to dismiss this appeal on jurisdictional grounds. It
theorizes that “no plaintiff/appellant party currently has standing to appeal the
judgment entered against it.” Mot. to Dismiss, at 4 (emphasis added).
This assertion stems from a spate of complicated procedural maneuvering that
occurred while the case was pending in district court.
About a year after C&A filed its complaint, a drywall contractor obtained
judgment against C&A. To satisfy C&A’s debt, the contractor scheduled a “sale”
of C&A’s claims in this case against DHC. Before this sale could take place,
however, the contractor, C&A, and other parties including Professional
Investment Advisors, LLC (PIA) entered into a settlement agreement by which
the sheriff’s sale was cancelled. As part of this agreement, C&A transferred its
claims against DHC to PIA.
PIA then formed the Black Diamond Construction Trust (“Black
Diamond”), a named plaintiff/appellant in this appeal. PIA assigned C&A’s
claims against DHC to Black Diamond. A few months later, C&A filed Chapter 7
bankruptcy.
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Black Diamond paid C&A’s Chapter 7 trustee $15,000 to settle the
trustee’s claim that the transfer to Black Diamond represented a fraudulent
conveyance that could be avoided in bankruptcy. The trustee then executed a
certification that the bankruptcy estate had reserved no rights with respect to the
claims C&A asserts in this action. The bankruptcy court approved the settlement
between the C&A bankruptcy estate and Black Diamond. Also, DHC sought and
obtained relief from the automatic stay in bankruptcy under 11 U.S.C. § 362(a) to
pursue its claims against C&A.
C&A moved to substitute Black Diamond as a party. But Black Diamond
in turn conveyed C&A’s chose-in-action to another trust, plaintiff/appellant Black
Diamond Construction 1 Business Trust (“BDCBT”). C&A then filed an amended
motion to substitute BDCBT as plaintiff.
In its final order, the district court concluded that BDCBT was the real
party in interest. It joined the trustee of Black Diamond and BDCBT as plaintiffs
and entered judgment against them as well as C&A. In response to DHC’s
post-judgment interrogatories, both Black Diamond and BDCBT stated that they
have no assets other than the claims C&A assigned to them against DHC, and that
they do not intend to fund the trusts with additional assets from which to satisfy
DHC’s judgment.
The appellants, as the parties seeking to invoke federal jurisdiction, bear
the burden of establishing their standing to appeal. Lujan v. Defenders of
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Wildlife, 504 U.S. 555, 561 (1992). The standing required by Article III of the
Constitution “must be met by persons seeking appellate review, just as it must be
met by persons appearing in courts of first instance.” Arizonans for Official
English v. Arizona, 520 U.S. 43, 64 (1997).
To establish Article III standing, a plaintiff must demonstrate that he
has satisfied each of three ‘irreducible constitutional’ elements.
Specifically, the plaintiff must show that: (1) he has suffered an
“injury in fact”; (2) the injury is “fairly traceable” to the
complained-of conduct; and (3) it is “likely as opposed to merely
speculative that the injury will be redressed by a favorable decision.”
Turner v. McGee, 681 F.3d 1215, 1218 (10th Cir. 2012) (citation omitted)
(quoting Lujan, 504 U.S. at 560-61). DHC contends that each of the appellants
have failed to meet the third criterion for standing.
DHC first argues that C&A lacks standing because “C&A has transferred
its claims against DHC in this matter and therefore has no redress from any
appeal.” Mot. to Dismiss, at 7. We agree with DHC that C&A does not have a
stake in affirmatively recovering on its claims against DHC because C&A’s right
to such recovery has been transferred to the trusts. The real question is whether
C&A has a stake in seeking to vacate or reduce the judgment against it.
We conclude this question must also be answered in the negative. It has
long been recognized in the context of appellate review of bankruptcy court
orders that “a hopelessly insolvent debtor does not have standing to appeal orders
affecting the size of the estate, since such an order would not diminish the
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debtor’s property, increase his burdens, or detrimentally affect his rights.”
C.W. Mining Co. v. Aquila, Inc. (In re C.W. Mining Co.), 636 F.3d 1257, 1260
(10th Cir. 2011) (quoting In re El San Juan Hotel, 809 F.2d 151, 154-55
(1st Cir. 1987)). While this principle applies to prudential standing in bankruptcy
proceedings, see C.W. Mining Co., 636 F.3d at 1260 n.5, we detect similar
concerns regarding C&A’s Article III standing here.
DHC has presented evidence that C&A is involved in Chapter 7 liquidation
proceedings and that its assets, estimated at $500,000 to $1 million, are greatly
overwhelmed by its estimated liabilities of $10 million to $50 million. See Aplee.
Supp. App. at 151. C&A fails to show that success in its appeal against DHC,
even if it could potentially reduce the amount C&A owes to DHC, would generate
any assets for C&A, make C&A solvent, or permit any additional distribution to
C&A. This being the case, C&A has failed to meet its burden of demonstrating
any injury to its pecuniary interests that would be redressed by a judgment in its
favor in this appeal. In sum, C&A has not met its burden to establish its standing
to appeal, and must be dismissed as a party.
DHC next argues that Black Diamond lacks standing because it has
transferred the claims it received from C&A to BDCBT. DHC also asserts that
Black Diamond is a non-entity because it has no other assets besides those it
conveyed to BDCBT, and thus lacks a trust res that would make it a valid ongoing
trust under Utah law. In their response brief, appellants’ counsel make no attempt
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to support Black Diamond’s standing. Black Diamond has therefore failed to
meet its burden to show it has standing to pursue this appeal. Its appeal will be
dismissed.
Finally, DHC argues that BDCBT lacks standing because it has no assets
with which to pay the judgment entered against it. This ignores the potential
effect of BDCBT’s appellate claims. Assuming BDCBT is successful on both its
appellate claims seeking to reduce or invalidate DHC’s recovery, and appellate
claims seeking to augment BDCBT’s recovery, BDCBT may potentially be
entitled to an affirmative recovery from DHC. Thus, DHC’s argument lacks
merit, and BDCBT has standing.
2. District Court’s Final Judgment
We now turn to the merits. C&A raises several challenges to the district
court’s final judgment order. 10 Before even considering these arguments, we must
first attempt to determine the nature of the district court’s challenged disposition.
C&A requested a jury trial in its complaint. The Seventh Amendment
guarantees a jury trial “[i]n Suits at common law, where the value in controversy
shall exceed twenty dollars.” The district court could only deprive C&A of its
requested trial by jury with C&A’s consent, or by following appropriate
procedures for a summary disposition.
10
We continue to refer to appellants as “C&A,” though we have demonstrated
that only BDCBT has standing to prosecute this appeal.
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A. Did the District Court Correctly Enter Summary Judgment?
The Seventh Amendment guarantee does not prevent a federal district court
from granting summary judgment, where appropriate. See Shannon v. Graves,
257 F.3d 1164, 1167 (10th Cir. 2001) (“The Seventh Amendment is not violated
by proper entry of summary judgment, because such a ruling means that no triable
issue exists to be submitted to a jury.”). At various points in the proceedings,
both parties filed motions for partial summary judgment. But it does not appear
that a motion for summary judgment concerning the entire controversy was
pending at the time of the pretrial conference. If the district court entered a
summary-judgment order, it was thus entered at least in part sua sponte.
We do not believe, however, that the district court’s final order can be
viewed or reviewed as a sua sponte order granting summary judgment. The order
never purported to enter summary judgment. No summary-judgment standard of
review was stated in it. Rule 56 of the Rules of Civil Procedure, governing
summary-judgment dispositions, was not cited. The order failed to make any
findings of fact or conclusions of law that would have been appropriate for a
summary-judgment disposition. See Fed. R. Civ. P. 56(a) (“The court shall grant
summary judgment if the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law. The court
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should state on the record the reasons for granting or denying the motion.”). 11
Finally, during the motion hearing on DHC’s proposed order, the district court
appears to have implicitly disavowed an intention to enter a summary-judgment
disposition. See Aplee. Supp. App. at 21.
B. Was the District Court’s Order Valid Under Rule 16?
We next consider DHC’s position that the district court’s order was valid
and justified under Federal Rule of Civil Procedure 16. Rule 16 permits the
district court to order parties to appear at a pretrial conference “for such purposes
as:
(1) expediting disposition of the action;
(2) establishing early and continuing control so that the case will not
be protracted because of lack of management;
11
In the final order, the district court did note its previous oral conclusion,
stated during the pretrial conference, that “there had been a complete failure of
the evidence pointed to by C&A to raise triable issues of fact concerning C&A’s
claims and DHC’s counterclaims.” Aplt. App., Vol. 6 at 2101. But we do not
view this statement as a summary judgment finding. For one thing, it focused
only on what C&A “pointed to” at the hearing, not the record as a whole. For
another, it was immediately followed by the district court’s allowance of
$962,000 to C&A for its delay claim; an odd concession if there were no evidence
to support C&A’s claims. Further, in the order, the district court did not adopt
this statement about what it had previously said as a summary-judgment finding.
Moreover, the district court’s actual statement at the pretrial conference,
cited in the order, was much more equivocal than that reflected in the order.
What the district court actually said was: “It seems to me that there is enough
agreement among the accountings that we’ve received to legitimately find that
there is a failure of evidence on the part of plaintiff.” Aplee. Supp. App. at 137.
Again, this falls far short of a definitive summary-judgment finding of “complete
failure of the evidence” on all claims and counterclaims.
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(3) discouraging wasteful pretrial activities;
(4) improving the quality of the trial through more thorough
preparation; and
(5) facilitating settlement.
Fed. R. Civ. P. 16(a).
There are limits, however, to what can be accomplished at a pretrial
conference, particularly without consent of the parties. Such a conference can
certainly culminate in the consensual settlement of all of the parties’ claims.
See Fed. R. Civ. P. 16(c)(2)(I); cf. Rhea v. Massey-Ferguson, Inc., 767 F.2d 266,
268 (6th Cir. 1985) (rejecting Seventh Amendment challenge to rule permitting
referral to pre-trial mediation because a jury remained ultimately responsible for
determining facts unless “settled by the parties or determined as a matter of law”
(emphasis added) (internal quotation marks omitted)). Or, as DHC notes, the
district court can use a Rule 16 conference to weed out frivolous claims or to
simplify the issues for trial. See id. Rule 16(c)(2)(A). But the district court’s
disposition in this case went beyond these permissible actions. Here, the district
court essentially held a mini-trial at which only the attorneys and Mr. Danko
“testified.” It then resolved highly-contentious factual issues and disputes, in
some cases relying on hypothetical assumptions, estimated figures, and disputed
methodology, and entered a judgment resolving the entire case, including the
amount of damages, over C&A’s strenuous objections.
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This case thus resembles the Eleventh Circuit case of Williams v. Georgia
Department of Human Resources, 789 F.2d 881 (11th Cir. 1986). There, the
plaintiff filed a civil rights complaint against a physician who treated her in
prison and various state entities, seeking damages for injuries she allegedly
suffered during and after childbirth. She requested a jury trial. During a Rule 16
pretrial conference, the defendants’ attorney requested leave to move for
summary judgment. In response, the district court judge “stated that he wanted
the parties to submit to him all the evidence that they would put on at trial if a
trial were held.” Id. at 882. Based on this presentation, the judge would decide
whether the case would go to a jury.
Plaintiff’s counsel objected that the defendants should be required to follow
traditional summary-judgment procedures, and if summary judgment were not
granted, plaintiff should receive a jury trial. Counsel nevertheless reluctantly
went along with the district court’s proposed procedure. Both sides submitted
affidavits, depositions, medical records, and briefs to the court. After considering
these materials, the district court entered an order granting a “directed verdict”
against the plaintiff.
The Eleventh Circuit reversed, stating:
This Court [has previously] held that Rule 16 does not confer special
powers to enter judgment not authorized by Rule 56 or the other
rules. [Fid. & Deposit Co. of Md. v. So. Util., Inc.,] 726 F.2d [692,]
693 ([11th Cir. 1984)]. . .
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On the basis of Fidelity & Deposit Co. of Md., we conclude
that the district court erred in granting a “directed verdict” in favor
of defendants. Where a party in a civil case has requested a trial, the
district court has no power to grant a “directed verdict” prior to trial.
The district court may of course entertain a motion for
summary judgment, provided that the court strictly adheres to the
procedures required under Rule 56. Id. at 693 n.2.
Williams, 789 F.2d at 883.
Obviously, a district court may use a pretrial conference to narrow issues
and “facilitat[e] in other ways the just, speedy, and inexpensive disposition of the
action.” Fed. R. Civ. P. 16(c)(2)(P). Here, however, as in Williams, the district
court went beyond this power and essentially directed a pretrial verdict in favor of
one party, DHC, even establishing the amount of damages to be awarded on
disputed claims without complying with the appropriate summary-judgment
procedures. In doing so, it exceeded its powers under the Rule.
C. May the District Court’s Order be Affirmed on Alternative
Grounds?
As we have stated on many occasions, we may affirm the district court’s
disposition on an alternative ground if “there is a record sufficient to permit
conclusions of law.” Ashby v. McKenna, 331 F.3d 1148, 1151 (10th Cir. 2003).
But the district court’s award here cannot be sustained on this record under a
summary-judgment rationale, particularly where the award was based on
estimated figures and the damage issue was hotly disputed by the parties. As
another court stated in similar circumstances:
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The parties debate the merits of their respective positions and
the defects in the opposing party’s arguments. All to no avail. We
do not know the facts. While the district court has given some
reasons for its actions, there has never been a trial on the merits. The
complaint states a claim. The opinion does not even purport to
dismiss the suit for failure to do so. The facts are disputed. The
opinion does not even purport to render a summary judgment on the
basis that there is no genuine dispute of material fact. The plaintiffs
demanded trial by jury in accordance with Federal Rule of Civil
Procedure 38 and the seventh amendment. No reason has been given
why they are not entitled to such a trial. . . . [T]he defendants
characterize the district court’s summary dismissal as proper under
the pretrial conference procedure of Federal Rule of Civil Procedure
16. In this case, however, the plaintiffs were not afforded the
opportunity to develop all of their factual and legal support.
Simon v. City of Clute, Tex., 825 F.2d 940, 942-43 (5th Cir. 1987) (footnotes
omitted).
3. Partial Summary Judgment Order
This brings us to the other challenged order in this appeal, the district
court’s order of partial summary judgment. C&A urges us to reverse the order,
which barred its claims that accrued prior to December 10, 2007. DHC contends
that C&A’s waiver of payment of claims prior to that date was valid and should
be enforced.
The district court’s judgment was technically final, and we therefore have
jurisdiction over the entire appeal, including that portion that seeks review of the
interlocutory partial summary judgment order. See Sines v. Wilner, 609 F.3d
1070, 1075 (10th Cir. 2010) (“An appeal from a final judgment usually draws into
question all prior non final orders and all rulings which produced the judgement.”
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(internal quotation marks omitted)). We thus have subject-matter jurisdiction to
reach an appellate disposition of the challenged partial summary judgment order,
even though we must vacate the final judgment.
Under the unique circumstances of this case, however, we decline to pass
judgment on the correctness of the district court’s interlocutory partial summary
judgment order. Such a disposition on our part would likely bind the district
court under the “law of the case” doctrine. See Richardson ex rel. Richardson v.
Navistar Int’l Transp. Corp., 231 F.3d 740, 743 (10th Cir. 2000) (under law of the
case doctrine, courts will not reconsider a matter resolved in a prior appeal).
But the issue of whether C&A’s alleged waiver should be given effect concerns
something other than a discrete claim or claims that can be severed from the
action as a whole; instead, the issue appears to be intertwined with the overall
merits of the case. The district court should therefore remain free to revisit its
interlocutory conclusions, if necessary, at any time prior to entering final
judgment. See Fed. R. Civ. P. 54(b) (“[A]ny order or other decision, however
designated, that adjudicates fewer than all the claims or the rights and liabilities
of fewer than all the parties . . . may be revised at any time before the entry of a
judgment adjudicating all the claims and all the parties’ rights and liabilities.”).
In sum, given the unusual procedural posture of this case, we decline to cement
the district court’s interlocutory order permanently in place with appellate
adhesive.
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4. Issues Involving the Record on Appeal
C&A has filed a motion requesting us to declare that “it was appropriate for
C&A to include its proposed witness and exhibit lists in the appendix to its
opening brief and to include its March 3, 2010 letter to the district court in a
supplemental addendum to its opening brief.” Mot. at 2. DHC opposes the
motion. Because consideration of these materials was not required to reach our
disposition of this case, this motion is denied as moot.
DHC also responds with a general objection to C&A’s appendix. It
complains that C&A did not give it adequate notice of the contents of the
appendix before it was filed; that DHC only received a copy of the appendix three
days after C&A’s opening brief was filed; and that the appendix contains
irrelevant material, and “needs to be pared down.” Resp. to Mot. at 7.
We find no basis in DHC’s arguments for striking any part of C&A’s
appendix. DHC fails to show prejudice from any of the complained-of conduct.
Notwithstanding DHC’s complaint about the length of the materials submitted by
C&A, we note that DHC filed a supplemental appendix containing an additional
284 pages of material for our review.
CONCLUSION
The judgment of the district court is VACATED, as is its order awarding
attorney’s fees, and the case is REMANDED for further proceedings before the
district court. Daniel Bird, as Trustee of the Black Diamond Construction Trust,
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and C&A Construction Company are DISMISSED as a parties to this appeal for
lack of standing. This court DECLINES TO RULE on the appellate issues raised
pertaining to the district court’s interlocutory order of partial summary judgment.
The pending motions and objections relating to the record on appeal are DENIED.
Entered for the Court
Wade Brorby
Senior Circuit Judge
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