Larrye Cheaves v. United States

In the United States Court of Federal Claims
No. 12-228C
(Filed: January 10, 2013)
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*
LARRYE CHEAVES, *
*
Plaintiff, *
* Contract Disputes Act, 41 U.S.C. §§
v. * 7101-09; Georgia Dig Law
*
THE UNITED STATES, *
*
Defendant. *
*
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ORDER
Currently pending before the Court is the Government’s Motion to Exclude Expert
Report, filed November 2, 2012. Plaintiff, Larrye Cheaves (“Cheaves”), responded on
November 16, 2012, and the Government filed its reply on November 26, 2012. For the reasons
that follow, the motion is GRANTED.
I. Background
This case is brought under the Contract Disputes Act, 41 U.S.C. §§ 7101-09. Cheaves
operates an underground utility location business, Subsurface Technologies (“ST”). Since 2004,
ST has been locating Government-owned utilities for the Army at Fort Stewart (“Stewart”) and
Hunter Army Airfield (“Hunter”), both in Georgia. ST “locates” – by finding and marking –
each utility at a given physical location, and once all utilities have been “located” at that physical
location, a permit for excavation is issued.
In April of 2007, the parties entered into a contract for utility location services.1 After
providing background information, the contract contains a series of tabulated entries, each of
which is assigned an “Item No.” For example, Item No. 0001 states that the “base period” runs
from “1 Apr 07 – 30 Sep 07.” Item Nos. 0001AA and 0001AB provide data for Stewart and
Hunter, respectively. These items are reproduced below, and are exemplary of the other entries
in the contract.
1
The first contract, which evidently operated from 2004 until the parties entered into the new
contract in 2007, is not at issue in this matter, and is not before the Court.
Ex. A at 6-7.2 Subsequent entries provide for four one-year option periods. Each of these one-
year options provides a “Max Quantity” of 1,150 for Stewart and 350 for Hunter, but otherwise
mirrors language reproduced above.
2
“FFP” means “firm fixed price.”
2
The primary question before the Court in this litigation is whether the “unit” referenced
in these entries is directed at each utility located by ST or each permit processed after ST has
located all the utilities at a given physical location. The definition of unit is important because at
each physical location, there could be four or more separate utilities for which Cheaves must
perform a “locate.” Thus, Cheaves may have to perform at least four locates for each permit.
Cheaves takes the position that the contract is ambiguous, and he urges the Court to
consider extrinsic evidence of trade usage of the terms “unit” and “locate” to resolve the alleged
ambiguity. Based on this trade usage, Cheaves claims that the terms must be understood to mean
that each “locate” (i.e., each separate utility he locates) is a contractual unit. The Government’s
position is that each permit is the proper unit. The relevance is readily apparent: the
Government’s position would result in a payment of $125 per permit, while Cheaves’ would
result in $500 or more per physical location. Multiplied over the 7,804 physical locations at
which Cheaves performed services, these numbers quickly add up: Cheaves claims entitlement to
an additional $2,976,500.00 on top of what he has already been paid.
The dispute surrounding the contract’s terms crystallized at the Court’s initial status
conference in this matter, when Cheaves’ counsel informed the Court that he intended to submit
an expert report discussing the trade usage of the terms “unit” and “locate.” The Government
informed the Court that it would likely oppose the use of an expert in this matter. In order to
streamline adjudication, the Court ordered Cheaves to file a notice of intent, wherein he was
instructed to provide additional details on the purpose of filing his expert report and his position
on ambiguity.
Based on the contents of the notice, the Government filed the instant motion seeking to
exclude Cheaves’ proposed expert report. The motion is fully briefed. The parties’ briefing
speaks to two broad questions: (1) whether the contract is ambiguous; and (2) whether it is
appropriate for the Court to consider extrinsic, expert testimony on trade practice and custom.
II. Legal Standard
The starting point for any contract interpretation is the plain language of the agreement.
See Foley v. United States, 11 F.3d 1032, 1034 (Fed. Cir. 1993) (“Contract interpretation begins
with the plain language of the agreement.”). A contract’s language “must be considered as a
whole and interpreted to effectuate its spirit and purpose, giving reasonable meaning to all parts.”
Hunt Constr. Group, Inc. v. United States, 281 F.3d 1369, 1372 (Fed. Cir. 2002). If the language
of the contract is clear and unambiguous, the Court’s review is generally limited to the contract
itself. See Teg-Paradigm Envt’l, Inc. v. United States, 465 F.3d 1329, 1338 (Fed. Cir. 2006)
(unambiguous language “must be given its ‘plain and ordinary’ meaning and the court may not
look to extrinsic evidence to interpret its provisions.”) (“Teg”). Ambiguity arises when a contract
is susceptible to more than one reasonable interpretation. Id. (citing Edward R. Marden Corp. v.
United States, 803 F.2d 701, 705 (Fed. Cir. 1986)).
Although review of an unambiguous contract is generally limited to the contract itself,
there are exceptions to the rule. One such exception is where trade practice and custom may
inform the meaning of an otherwise unambiguous term. Teg, 465 F.3d at 1338 (“Even when a
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contract is unambiguous, it may be appropriate to turn to one common form of extrinsic
evidence—evidence of trade practice and custom.”) (citing Hunt, 281 F.3d at 1373). The Federal
Circuit has held that “evidence of trade practice may be useful in interpreting a contract term
having an accepted industry meaning different from its ordinary meaning—even where the
contract otherwise appears unambiguous—because the ‘parties to a contract … can be their own
lexicographers and … trade practice may serve that lexicographic function in some cases.’”
Hunt, 281 F.3d at 1373 (quoting Jowett, Inc. v. United States, 234 F.3d 1365, 1368 (Fed. Cir.
2000)). Properly applied, trade practice and custom may not be used “to create an ambiguity
where a contract was not reasonably susceptible of different interpretations at the time of
contracting.” Teg, 46% F.3d at 1338 (quoting Metric Constructors, Inc. v. Nat’l Aeronautics &
Space Admin., 169 F.3d 747, 752 (Fed. Cir. 1999)). Like other extrinsic evidence, trade practice
may also be used to “confirm that the parties intended for the term to have its plain and ordinary
meaning.” See Coast Fed. Bank, FSB v. United States, 323 F.3d 1035, 1040 (Fed. Cir. 2003) (en
banc). Trade practice may not be used to create ambiguity where there otherwise is none.
Metric Constructors, 169 F.3d at 752.
III. Analysis
After a careful review of the parties’ briefs and the exhibits submitted by Cheaves, the
Court concludes that the contract is unambiguous. In light of Teg, however, the Court also
considers the need for expert testimony on trade practice. The Court finds that this testimony
would not further clarify the issues in this case, and it therefore grants the Government’s motion
to exclude.
a. The Contract is Unambiguous
The Court begins with the plain language of the contract. The language at the center of
this dispute is: “Locate Underground FFP Utilities for Issuance of Dig Permits.” The
Government focuses in on “for Issuance of Dig Permits,” while Cheaves focuses in on “Locate
Underground…Utilities.” The contract sets a “Unit Price;” therefore, the dispute boils down to
the question of whether the contemplated unit is a utility or a permit.
Taken on its own, without reference to any other portion of the contract, Cheaves’
position is plausible – the tabulated Item entries state that Cheaves is to “Locate Underground…
Utilities,” and the entry below “Unit” simply states “Each.”3 See, e.g., Ex. A at 6. In isolation,
Cheaves’ position makes sense.
Cheaves attempts to bolster his position by citation to other parts of the contract, but his
argument is unpersuasive. He claims that “other contractual language indicates that the
government hired Cheaves to locate utilities, and as a result, paid him based upon the location of
those utilities…” Resp. at 13. As an example, Cheaves points to language in the qualifications
section stating that the contractor (ST) must provide documentation of its personnel’s “expertise
at performing the location of underground utilities for excavation purposes.” Id. (citing Ex. A at
3).
3
The “Each” appears only in items *001AA and *001AB, not *001.
4
The simple fact that the contract refers to utilities, and in fact describes utility location as
a requirement of the contract and duty of the contractor, does not mean that utilities are the
contract unit. Locating utilities is a middle step in the process, and the permit is the end. This is,
essentially, the tack the Government takes. For example, the Government points to the first
paragraph of the contract, which states that “[t]he contractor shall provide personnel,
management, equipment, material, transportation, and communication to locate underground
utilities and complete/approve excavation permits….” Reply at 4 (citing Ex. A at 3) (emphasis
added by Government). Likewise, the Government observes that paragraph 3.2 associates
performance with completing and submitting permit requests. Id. (citing Ex. A at 5).
The Court agrees with the Government. Looking to the objective of the contract, it is
clear that permits are the unit contemplated. Aside from the language cited above, the table that
includes the unit listings states that the service provided by the contractor is to “Locate
Underground … Utilities for Issuance of Dig Permits… Guaranteed Minimum of 17
Locates/Permits per Month.” Id. at 6 (emphasis added). The end result in each instance is the
issuance of a permit.
Cheaves also argues that performance of the contract would be impossible because he
“had no authority or ability to issue a permit of any sort.” Resp. at 15. He also notes that other
locators had the responsibility of locating utilities not owned by the Government, such that he
could not process permits because other utilities had to be located at each site. These facts,
according to Cheaves, establishes two things: (1) Cheaves believed that he would be paid per
“locate”; and (2) that he could not perform permit processing, rendering the Government’s
reading impossible.
This argument fails. As the Government observes, “[p]ayment under the contract is
based upon[] processed excavation permits.” Reply at 6. The contract specifically states that
“[p]ermit requests, on site locates and permit approvals shall be based on Georgia UPC
procedures[,] policies, laws/ by-laws as well as DPW [Directorate of Public Works] policies and
procedures.” Ex. A at 4 (emphasis added). Likewise, the contract states that the contractor will
“Locate Underground … Utilities for Issuance of Dig Permits.” It does not require the
contractor itself to issue the permits. Thus, a per-permit payment structure does not render
performance impossible.
The Court’s conclusion that the contract contemplated payment on a per-permit basis is
confirmed by another portion of the contract. Section 2.1 of the contract, entitled “Historical
Data,” indicates that “for FY 05 approximately 1,150 excavation permits were submitted at Fort
Stewart and approximately 350 at Hunter Army Airfield.” Ex. A at 4. The 1-year extension
options listed on the contract provide “Max Quantity” values of 1,150 for each option at Fort
Stewart and 350 at Hunter Airfield.4 Thus, the maximum number of units defined in the contract
corresponds exactly to historical permit data. This correspondence is not mere coincidence.
Although not necessary to its conclusion, the Court briefly addresses a final argument by
the Government which was first raised in the parties’ Joint Preliminary Status Report (“JPSR”).
4
The base period of the contract is not for a full year, such that the Court is not concerned that
the estimates for the base period do not match the historical data.
5
In the JPSR, the Government stated that, “during the two option periods on the contract, plaintiff
accepted payment from the Army based upon the number of permits processed. Plaintiff did not
challenge the basis for payments until after the Government elected not to exercise the third
option under the contract.” JPSR at 3.
Cheaves has not addressed this issue, but the Government expanded on this position in
response to Cheaves’ claim that he understood payment to be based on each utility location. The
Government correctly observes that pre-dispute conduct between the parties to a contract “is
entitled to great weight in its interpretation.” Blinderman Constr. Co. v. United States, 695 F.2d
552, 558 (Fed. Cir. 1982); see also P.J. Dick Inc. v. Principi, 324 F.3d 1364, 1375 (Fed. Cir.
2003). The Government claims that, not only did it pay Cheaves on a permit basis from April of
2007 until it declined to exercise the third option in that contract,5 but it also paid Cheaves per-
permit under the initial contract between the parties beginning in 2004. Cheaves’ Complaint
itself corroborates the fact that he did not dispute the Army’s per-permit payments until after his
company had performed locates at over 7,800 physical locations. Again, this observation is not
necessary to the Court’s finding, but it does bolster the Court’s conclusion that the parties
contemplated payment on the basis of permits rather than utilities.
Reading the contract as a whole, which it must, Hunt, 281 F.3d at 1372, the Court finds
that there is only one reasonable interpretation of “unit” in this contract, and that interpretation is
that “unit” refers to issued or processed permits. Thus, there is no ambiguity to be resolved by
resort to extrinsic evidence.
b. Evidence of Trade Practice is not Necessary
Even if the contract is unambiguous, Teg instructs the court that “it may be appropriate to
turn to one common form of extrinsic evidence—evidence of trade practice and custom.” Teg,
465 F.3d at 1338 (emphasis added). The Court now considers the question of whether it is
appropriate to receive Cheaves’ proffered expert report. For the reasons stated below, the Court
finds that the proposed evidence of trade practice would serve no purpose here.
Cheaves has referred to two different terms – “unit” and “locate” – in support of his
position on ambiguity and the need for expert testimony. His position is, effectively, that “unit”
and “locate” are synonymous in the context of this particular contract, and that “locate” has a
special meaning in trade. Cheaves claims that the special meaning attributed in trade to “locate”
is sufficient justification for the Court to receive expert opinion on trade use, and refers the Court
to the Common Ground Alliance Best Practice manual’s definition of “locate,” which mirrors
the trade usage to which Cheaves’ proposed expert would testify. See Ex. D at 73 (defining
“locate” as “[t]o indicate the existence of a line or facility by establishing a mark through the use
of stakes, paint or some other customary manner that approximately determines the location of a
line or facility.”).
The Government astutely responds that Best Practices is incorporated into the contract,
see Ex. A at 3, such that its definition of “locate” is part of the contract. The Court agrees that it
is, therefore, unnecessary to hear expert testimony that is merely redundant over a trade
5
Per the contract, the second option period ended on September 30, 2009. Ex. A at 9.
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definition that is already incorporated into the contract. The Court would, therefore, grant the
Government’s motion to exclude on this basis alone.
However, that is not the only basis upon which it is appropriate to grant the motion to
exclude. Simply put, because the Court has found that the contract unambiguously contemplated
payment on a permit basis, such that the trade usage of the term “locate” is irrelevant to the
dispute before it. Thus, the proposed expert opinion would add nothing to this case. The Court
grants the motion to exclude on this basis, as well.
IV. Conclusion
Although this motion is submitted as a motion to exclude Cheaves’ proposed expert
report, it necessarily involves some effort at construing the contract. Through this effort, the
Court has satisfied itself that the contract term “unit” refers to excavation or dig permits
processed. In light of this finding, Cheaves’ proposed expert offers nothing to move this case
forward. Moreover, the contract already incorporates the trade usage to which the proposed
expert would testify. For these reasons, the Government’s motion to exclude is GRANTED, and
the Court will not consider extrinsic evidence of trade usage in this matter. The parties shall
adhere to the remaining briefing schedule established in this matter.
s/ Edward J. Damich
EDWARD J. DAMICH
Judge
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