Seneca Waste Solutions, Inc. Vs. Sheaffer Manufacturing Co., Llc And Sheaffer Pen Corporation, A Division Of Bic Usa Inc.

IN THE SUPREME COURT OF IOWA
No. 09–0325
Filed December 10, 2010
SENECA WASTE SOLUTIONS, INC.,
Appellant,
vs.
SHEAFFER MANUFACTURING CO., LLC
and SHEAFFER PEN CORPORATION,
A Division of BIC USA INC.,
Appellees.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Lee (North) County,
Cynthia H. Danielson, Judge.
Contractor appeals from summary judgment ruling dismissing
contract action. COURT OF APPEALS DECISION VACATED; DISTRICT
COURT JUDGMENT REVERSED AND REMANDED.
Brenda L. Myers-Maas, West Des Moines, for appellant.
Benjamin P. Roach of Nyemaster, Goode, West, Hansell & O‘Brien,
P.C., Des Moines, for appellees.
2
HECHT, Justice.
After hiring a contractor to clean and decontaminate its pen
manufacturing plant, the owner of the plant refused to pay more than
the ―not to exceed‖ price designated in the cleaning contract. The
contractor filed suit, claiming entitlement to a judgment in an amount
exceeding the not-to-exceed contract price because the scope of the work
defined in the contract was modified by the owner after the written
contract was formed. The district court granted summary judgment in
favor of the plant owner. On appeal, the court of appeals reversed and
remanded. We granted the plant owner‘s application for further review.
I. Background Facts and Proceedings.
A reasonable fact finder could find the following facts from the
summary judgment record. Sheaffer Manufacturing Company operated a
pen manufacturing plant in Fort Madison, Iowa. After deciding to cease
operations at that location, Sheaffer took bids from several
environmental contractors to clean and decontaminate the plant. Seneca
Waste Solutions submitted a letter bid on September 7, 2006. Sheaffer
offered the contract to Seneca on a time and materials basis but
specifically requested the inclusion of a not-to-exceed price of $170,000.
Seneca agreed, and the agreement was finalized in a written ―Contractor
Agreement.‖ The agreement included the following relevant terms:
2. Scope of work. The Contractor will furnish all of the
materials and perform all of the Work as described in the
first page of the letter dated September 7, 2006, and sent by
Seneca Waste Solutions, LLC to Michele Pancza, BIC
Consumer Products Manufacturing Co. Inc, together with
the itemized worksheet used to calculate the project cost
estimate, which are attached hereto and made a part of this
Agreement as Exhibit A.
....
3
5. Contract Price and Payments. The work shall be
charged on a Time and Materials Cost Basis at the rates
quoted by the Contractor in Exhibit A, except that the Work
shall not exceed One Hundred Seventy Thousand Dollars
($170,000.00), inclusive of all taxes, subcontractor fees, and
any and all other surcharges, costs and expenses. Sheaffer
will pay Contractor upon satisfactory completion of the Work
and within forty-five (45) days of receipt of invoice.
....
12. Complete Agreement. This Agreement, together with
all exhibits attached hereto, constitutes the full and
complete understanding and agreement of the parties
relating to the subject matter hereof and supersedes all prior
or contemporaneous understandings and agreements
relating to such subject matter. Any waiver, modification or
amendment of any provision of this Agreement shall be
effective only if in writing signed by the parties hereto.
The ―Exhibit A‖ referred to in the agreement included the first page
of Seneca‘s September 7 letter bid and a ―Budgetary T & M Estimate
Worksheet prepared for: Sheaffer Pen Plant Closure‖ (―worksheet‖).
The first page of the September 7 letter bid provided, in relevant
part, as follows:
Seneca Waste Solutions LLC, is pleased to submit to
BIC/Sheaffer Pen this Budgetary T&M estimate for
performing decontamination/cleaning/demolition services as
per the scope of work specified in the Vendor-Provided
Sheaffer Closure/Clean-up Activities Document. The project
timeline is estimated at 20 working days. All vacuumed and
rinsate residual and decontamination liquids shall be off
loaded on site in approved containers. This project shall be
performed on a Time and Materials Cost Basis Port-To-Port
with an estimated cost based upon projects of similar
nature, specified scope of work and onsite pre-estimate
inspections. Attached is the itemized worksheet used to
calculate the project cost estimate.
Summary of Fees for service:
Total–does not include Iowa State Sales Tax $143,520.67
Note: All Seneca Waste Solutions LLC Work is to be
completed on a T & M basis. Any materials, supplies or
services NOT utilized or performed will NOT be billed.
4
Please note subcontractor terms, conditions and/or work
scope modifications if applicable which will affect the project
time and cost.
The ―Vendor-Provided Sheaffer Closure/Clean-up Activities‖
document (―vendor-provided document‖) referenced in the bid was six
pages in length. It included a detailed description of the work to be done
and multiple references to the parties‘ expectation that most of the
―rinsate‖—washwater collected in the cleaning process—would be
transferred to Sheaffer‘s on-site wastewater treatment facility for
treatment and disposal. The contracting parties contemplated that a
limited amount of the wastewater (4000 gallons) would be transported
off-site and decontaminated by a third party, Heritage Environmental
Services. The worksheet prepared by Seneca and referenced in both the
letter bid and the written contract is a spreadsheet containing an
estimate of the materials and labor needed to complete the cleaning of
the facility. The estimate included the sum of $5,186, the cost of the off-
site disposal of 4000 gallons by Heritage.
After the contract was executed and about the time Seneca began
its work in November 2006, Sheaffer shut down its on-site wastewater
treatment facility. Sheaffer directed Seneca to dispose of all wastewater
through Heritage. Seneca complied with this directive, but neither
Seneca nor Sheaffer requested a written modification to the contract.
On January 5, 2007, as it neared completion of the project, Seneca
contacted Michele Pancza, Sheaffer‘s Environmental Manager, and
indicated that it ―may be approaching the ‗not-to-exceed‘ price.‖ Pancza
communicated this information to other Sheaffer managers in an email
message:
I received a call late this afternoon from Seneca indicating
they may be approaching the ―not-to-exceed‖ price agreed
upon by the contract. They claim the difference is in the
5
volume of wastewater which they have had to dispose.
Obviously, I did not agree to exceeding the contract price and
I asked them to keep me informed as work concludes next
week.
But, they may have a point. Looking at my original
worksheet, I had assumed (as we all discussed) that Sheaffer
would be treating much of the wastewaters from power
washing, etc, on site in the wastewater treatment unit which
would be the last equipment cleaned and dismantled. But,
as I understand it, this was the first unit cleaned and then
all wastewaters were subsequently sent off site for treatment
via pumper truck.
Even though this was not our original plan, dismantling the
treatment unit first may not have been a bad idea. If we had
treated these additional wastewaters on sight [sic], we very
well may have had more and worse exceedances of the
NPDES permit limit than the two we already experienced
before the shutdown of outfall 001. (And we might be
looking at fines or other enforcement actions.) So, though I
am not thrilled at the possibility of a higher closure/clean up
cost, these potential extra cost [sic] are not so bad when put
into perspective.
On January 15, 2007, Seneca‘s project manager sent an email
message to Pancza summarizing the work left to be done and indicating
that the work would be completed later that week. He noted that Seneca
was ―keeping an eye on the total costs of the project as we near our price
cap.‖
Sheaffer paid Seneca $145,980.87 before receiving the final
invoice. By the time Seneca completed its work under the contract,
Heritage had treated and disposed of more than 18,000 gallons of
wastewater, far in excess of the 4000 gallons contemplated in the
estimate attached to Seneca‘s bid. Seneca submitted invoices to Sheaffer
totaling $211,599.47. Sheaffer tendered to Seneca payment in the
amount of $24,019.13 as the final payment on the contract, an amount
that would have brought Sheaffer‘s total payments under the contract to
$170,000. Seneca rejected the tender and filed suit seeking judgment for
the full amount of its invoices.
6
Both parties moved for summary judgment. The district court
granted Sheaffer‘s motion and dismissed Seneca‘s claim in its entirety,
concluding Seneca was bound by the not-to-exceed price included in the
contract. The court further concluded there were no written
modifications to the contract which would have allowed Seneca to exceed
the price cap. The court also rejected Seneca‘s contract claim for
additional payment under the contract because Seneca‘s answers to
interrogatories revealed the contractor‘s total billings for subcontracted
services, including those provided by Heritage, were less than estimated
by the contracting parties.
Seneca appealed, and we transferred the case to the court of
appeals. The court of appeals reversed the district court, concluding that
while the not-to-exceed clause was unambiguous, the summary
judgment record—including documents fully integrated into the
contract—engendered a genuine issue of material fact as to the amount
owed by Sheaffer to Seneca under the contract. We granted Sheaffer‘s
application for further review.
II. Scope of Review.
We review a district court‘s grant of a motion for summary
judgment for errors of law. Iowa R. App. P. 6.907. Summary judgment
is appropriate
if the pleadings, 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.
Iowa R. Civ. P. 1.981(3). If reasonable minds can differ on how an issue
should be resolved, then a genuine issue of fact exists. Walderbach v.
Archdiocese of Dubuque, Inc., 730 N.W.2d 198, 199 (Iowa 2007). A fact is
7
material ―only when its determination might affect the outcome of the
suit.‖ Baratta v. Polk County Health Servs., 588 N.W.2d 107, 109 (Iowa
1999). When we review a motion for summary judgment, we must view
the evidence in the light most favorable to the nonmoving party. Id.
III. Discussion.
On appeal, Seneca contends the district court erred in two
respects. First, Seneca claims the September 7 letter bid, the worksheet,
and the vendor-provided document were fully integrated into the contract
and that language in these documents entitles Seneca to exceed the not-
to-exceed price. Seneca also contends the district court erred by
dismissing Seneca‘s claim in its entirety because even if Seneca was
bound to the $170,000 not-to-exceed price, it only received payments
totaling $145,980.87 from Sheaffer and is therefore entitled to an
additional payment of $24,019.13.
A. Integration of the September 7 Letter, Worksheet, and
Vendor-Provided Document. Seneca contends the letter bid, the
worksheet, and the vendor-provided document are expressly
incorporated parts of the integrated agreement. Seneca contends the
language in the documents confirms its position that a fact question
exists as to whether Seneca is allowed to exceed the not-to-exceed price
under the circumstances presented here. Specifically, Seneca points to
language in the letter bid which provided that ―subcontractor terms,
conditions and/or work scope modifications if applicable . . . will affect
the project time and cost.‖ Seneca further relies on language within the
worksheet providing Heritage‘s services would be billed to Sheaffer at
―cost plus 15% subject to change based on waste analysis and volume.‖
Seneca posits the incorporated documents confirm the parties‘
agreement that the contract price owed by Sheaffer could exceed
8
$170,000 if the amount of wastewater sent to Heritage for disposal
exceeded 4000 gallons.
Sheaffer contends the bid letter, the worksheet and the vendor-
provided document were not integrated in their entirety into the contract.
Pointing to language in the contract suggesting only limited portions of
the documents are incorporated into the contract, specifically the
description of work to be performed contained in the first page of the
September 7 letter bid and the worksheet, Sheaffer asserts the clauses
discussing the variability of the charges are not included in the portions
of the documents expressly incorporated.
Sheaffer further argues that, even if the entirety of the letter bid
and the worksheet were incorporated, including the clauses relied on by
Seneca to avoid the not-to-exceed price provision, they do not have the
effect advocated by Seneca. Sheaffer contends the language relied upon
by Seneca is not necessarily at odds with the price cap. Seneca
submitted two bids, the first estimating a contract price of $143,520.67
and a revised bid estimating a price of $128,756.72. The agreement
adopted a formula for calculating the price clearly expressing the parties‘
understanding that the amount paid by Sheaffer would vary depending
on the amount of time and materials expended by Seneca in completing
the work. However, the agreement specifically states that ―[t]he work
shall be charged on a Time and Materials Cost Basis at the rates quoted
by the Contractor in Exhibit A, except that the Work shall not exceed One
Hundred Seventy Thousand Dollars ($170,000.00).‖ (Emphasis added.)
Even if we assume the language relied upon by Seneca was incorporated
in the written agreement, we do not believe it can reasonably be
interpreted as an agreement to exceed the price cap. To do so would
render the price cap provision superfluous.
9
Because a contract is to be interpreted as a whole, it is
assumed in the first instance that no part of it is
superfluous; an interpretation which gives a reasonable,
lawful, and effective meaning to all terms is preferred to an
interpretation which leaves a part unreasonable, unlawful,
or of no effect.
Iowa Fuel & Minerals, Inc. v. Iowa State Bd. of Regents, 471 N.W.2d 859,
863 (Iowa 1991). When we interpret the written agreement as a whole,
whether or not the additional documents in their entirety are included,
we find it clear and unambiguous that the contract must be interpreted
in a way giving effect to both the time and materials price formulation
and the price cap. Accordingly, we conclude the language of the written
contract does not support Seneca‘s claim based on a contract price in
excess of $170,000.
B. Modification of the Written Contract. Seneca contends in
the alternative that Sheaffer is not entitled to summary judgment
because the price cap in the contract applies only to the scope of work
described in the written contract. Because the contract clearly
contemplated that all of the rinsate collected from the Sheaffer plant,
except 4000 gallons of wastewater to be processed off-site by Heritage,
would be processed on-site at Sheaffer‘s wastewater facility, Seneca
asserts Sheaffer substantially modified the scope of the work when it
closed the facility and directed Seneca to send all of the rinsate to
Heritage.
Sheaffer contends it ―did not request additional work and did not
enter any agreement to pay for extra work.‖ The heart of the
disagreement between the parties is the definition of the ―scope of the
work.‖ Sheaffer broadly characterizes the scope of the work as the
―cleaning and decontaminating [of] the facility.‖ While certainly that was
the parties‘ general purpose, the language of the written agreement was
10
not so generalized. The agreement describes in detail the scope of the
work to be done, and it specifically contemplates the disposal of roughly
4000 gallons of 50/50 sludge with Heritage, not the disposal of 18,000
gallons of wastewater, which a fact finder could find was actually treated
off-site at Sheaffer‘s direction.1
A reasonable fact finder could find Sheaffer‘s directive to transport
the wastewater off-site for treatment made Seneca‘s performance
substantially more onerous and resulted in a modification of the
contract. Although the written contract states that any modifications
must be in writing, a written contract may be modified by a subsequent
oral contract having the essential elements of a binding contract.
Passehl Estate v. Passehl, 712 N.W.2d 408, 417 (Iowa 2006); see also
Whalen v. Connelly, 545 N.W.2d 284, 291 (Iowa 1996). Consent to the
modification may be either express or implied from acts or conduct.
Passehl Estate, 712 N.W.2d at 417. When a party to a contract modifies
the scope of the work by requesting ―extras‖ or additional work, the party
must pay the fair and reasonable value of the extra work. DeMuth
Landscaping & Design v. Heggestad, 461 N.W.2d 354, 356 (Iowa Ct. App.
1990) (contract implied from the evidence when contractor hired to
landscape north side of lakeshore bank but then requested additional
landscaping of south side of bank); S. Hanson Lumber Co. v. DeMoss, 253
Iowa 204, 208, 111 N.W.2d 681, 684 (1961) (concluding that agreements
made after the execution of a written contract which modify or add to it
are valid and enforceable).
1Sheaffer does not concede that it directed Seneca to transport all of the
contaminants to Heritage‘s facility for treatment and disposal. As this case was
adjudicated in the district court at the summary judgment stage, however, we view the
record in the light most favorable to Seneca.
11
Sheaffer attempts to distinguish DeMuth Landscaping and Hanson
Lumber as cases controlling the modification of ―fixed price contracts,
which are different than time and materials contracts with a maximum
price.‖ However, Sheaffer does not explain why the parties to a time and
materials contract with a not-to-exceed price should be precluded from
orally modifying their contract if they conclude changed circumstances
require it.
The written agreement explicitly called for most of the wastewater
to be processed on-site at Sheaffer‘s wastewater treatment facility. While
the price provision could be reasonably understood to shift to Seneca the
risk of underestimating the amount of wastewater to be processed at
Sheaffer‘s on-site treatment facility, a reasonable fact finder could find
the parties‘ written agreement did not shift the risk that Sheaffer would
make Seneca‘s performance more onerous by directing the processing be
undertaken off-site by Heritage at a substantially higher cost.
Accordingly, we conclude a genuine issue of fact as to whether the
written contract between the parties was modified is engendered in the
summary judgment record.
C. Other Issues. Sheaffer contends that even if the not-to-exceed
price term was modified by the parties, Seneca failed at the summary
judgment stage to establish the off-site treatment of an unexpected
amount of wastewater was the reason Seneca‘s charges exceeded
$170,000. As we have determined a fact question exists as to whether
the parties‘ written contract was modified, any discussion of whether a
breach of contract occurred and the amount of damages, if any, resulting
from any breach, is premature at this juncture.
We also note Sheaffer asserted on appeal that the summary
judgment ruling dismissing Seneca‘s claims against codefendant Sheaffer
12
Pen Company (SPC) should be affirmed on the alternative grounds that
SPC was not a party to the contract, SPC did not own or operate the
facility in Fort Madison, and SPC did not benefit from the work done by
Seneca. Although this issue was raised before the district court, neither
the district court nor the court of appeals addressed the issue, and
Sheaffer did not reassert the issue in its application for further review.
Accordingly, we will not address it.
IV. Conclusion.
We conclude the district court correctly determined that Seneca
was not entitled to more than the $170,000 price cap under the written
contract. However, we conclude the district court erred in concluding as
a matter of law that the written contract was not orally modified to allow
Seneca a contract remedy in excess of $170,000. Because we conclude
there is a genuine issue of material fact as to whether the parties
modified the written contract, summary judgment was inappropriate.
We therefore vacate the decision of the court of appeals, reverse the
judgment of the district court, and remand for further proceedings.
DECISION OF COURT OF APPEALS VACATED; DISTRICT
COURT JUDGMENT REVERSED AND REMANDED.