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United States v. F. D. Rich Co.

October 16, 1975

UNITED STATES OF AMERICA FOR THE USE AND BENEFIT OF H & S INDUSTRIES, INC., AS ASSIGNEE OF CASS COUNTY STONE CORP., ET AL., PLAINTIFFS-APPELLANTS,
v.
F. D. RICH CO., INC., AND TRANSAMERICA INSURANCE CO., DEFENDANTS-APPELLEES. UNITED STATES OF AMERICA FOR THE USE AND BENEFIT OF H & S INDUSTRIES, INC., AS ASSIGNEE OF CASS COUNTY STONE CORP., ET AL., PLAINTIFFS-APPELLEES, V. F. D. RICH CO., INC., DEFENDANT-APPELLANT. F. D. RICH CO., INC., PLAINTIFF-APPELLEE, V. UNITED STATES FIDELITY & GUARANTY, DEFENDANT-APPELLANT



Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division - No. 70 C 730; CALE J. HOLDER, Judge.

Cummings and Pell, Circuit Judges, and Perry, Senior District Judge.*fn*

Author: Pell

PELL, Circuit Judge

The United States of America contracted with the F. D. Rich Co., Inc., (Rich) as general contractor to build a 200 family housing project at Bunker Hill (now Grissom) Air Force Base near Kokomo, Indiana. Transamerica Insurance Co. was surety of Rich for the benefit of the United States. Cass County Stone Corp. (Cass) was a subcontractor of Rich who was, inter alia, to clear and grade the site to specifications, install a storm drainage system, and prepare the ground in the form of building pads on which a foundation and a concrete slab would be poured by others. United States Fidelity and Guaranty Company (USF&G) was surety of Cass for the benefit of Rich. H & S Industries, Inc., (H & S) is the assignee of Cass of all Cass's claims against Rich.*fn1

The housing project could scarcely be characterized as other than a disaster for all concerned parties. It was scheduled to be completed by July 4, 1970, but was not accepted by the government until July 27, 1973. Rich experienced a loss of over a million dollars even though the contract price was only $3,360,000. Cass abandoned the project before completing its work, alleging nonpayment of amounts due from Rich, and later filed suit against Rich for these amounts and other damages. Rich counterclaimed for damages alleging breach of the subcontract by Cass.

After a lengthy bench trial, the district court issued a thirty-one page (unpublished) memorandum carefully setting forth its findings and conclusions. It found that Cass failed to complete its work on the building pads until 292 days after the date Rich scheduled their completion. It found Rich's schedule was within its authority as provided in the contract and that the time provided was within industry standards. The court further found that the delay resulted in 292 days delay to the entire project because the building pads were on the critical path of the project; viz., no work could be done by other trades on the buildings until the ground was compacted so that concrete slabs could be poured on which the buildings would be built. The court found:

"[Cass] did not prosecute its work under the subcontract diligently and did not maintain sufficient men and equipment forces to prosecute the various segments of its work simultaneously under the subcontract irrespective of the extra work and materials required by the contractor as recited above. The subcontractor was under financed to meet its obligations under the subcontract. When one segment of its work proceeded, the other lagged, and when a shift was made to any new area of its obligations under the subcontract, it caused the preceding areas of work to dissipate or cease entirely. The subcontractor failed to complete any of its work items within the time required by the original contract schedule of which the subcontractor was fully informed at all pertinent times."

Nevertheless the court found that Rich caused one-half (146 days) of this delay by failing to place rock on the subgrade for the road through the project to provide temporary access during construction. Placing this rock on the road would also have enabled water to drain from the construction site. A major problem throughout the construction period was pooling of water.

In accordance with these findings, damages were awarded against Cass and its surety for causing 146 days delay to Rich. Damages were also awarded against Cass for certain payments made to Cass and to Cass subcontractors who had not been paid, for payments made to Cass subcontractors to complete subcontract work, and for deficiencies charged by the government against Rich. Cass was allowed to set off the cost of repairing damages by Rich to Cass's work and payment for work requested by Rich which was in addition to the work indicated in the subcontract. The details of these awards are set out in the first column of figures of Schedule A appended to this opinion.

Following entry of judgment and amendment to that judgment, USF&G and H & S for the benefit of Cass appealed; Rich cross-appealed.

I. Propriety of Cross-Appeal

Cass, by motion, requested Rich's cross-appeal be dismissed on the grounds that Rich had accepted benefits of the judgment in its favor. Following entry of the judgment, counsel for each party signed an agreement entitled "Waiver of Costs and Limited Waiver of Interest." Cass now alleges that the attorney who signed the agreement was not authorized to do so and that this attorney no longer represents Cass. The attorney who signed the agreement had been Cass's attorney at trial. We need not decide whether this attorney had actual or apparent authority to bind Cass or whether his lack of authority affects the validity of the agreement as it applies to Rich because of our interpretation of the agreement.

The parties first dispute whether federal law or Indiana law should be applied to determine Rich's right of appeal. Cass argues that Indiana law should be applied relying generally on Erie R.R. Co. v. Tompkins, 304 U.S. 64, 82 L. Ed. 1188, 58 S. Ct. 817 (1938). Also in Moser v. Buskirk, 452 F.2d 147 (7th Cir. 1971), this court accepted and commented favorably on a stipulation of counsel in a diversity case which followed Indiana law and indicated that acceptance of benefits of a judgment precludes an appeal. There is no indication in Moser that the question of which law to apply was argued or considered. It is by no means certain that this is the law of Indiana today.*fn2

In Dorin v. Equitable Life Assurance Society, 382 F.2d 73 (7th Cir. 1967), this court was faced with a clear issue of whether Erie controlled a question which was closely analogous to the one at bar. In Dorin, a cross-appeal was filed after remittitur was accepted. Under the circumstances of that case, Illinois law would have allowed the appeal but federal law would not. Relying on Hanna v. Plumer, 380 U.S. 460, 468, 14 L. Ed. 2d 8, 85 S. Ct. 1136 (1965), this court held that the aims of Erie - discouragement of forum shopping and avoidance of inequitable administration of the laws - would not be served by applying state law to a problem of procedure which would arise, if at all, after completion of trial. The same rationale applies in this case, and we therefore hold that federal law applies.

In United States v. Hougham, 364 U.S. 310, 5 L. Ed. 2d 8, 81 S. Ct. 13 (1960), the Supreme Court stated:

"It is a generally accepted rule of law that where a judgment is appealed on the ground that damages awarded are inadequate, acceptance of payment of the amount of the unsatisfactory judgment does not, standing alone, amount to an accord and satisfaction, of the entire claim." Id. at 312.

Cass argues that the preclusion rule still has vitality and attempts to distinguish Hougham on the grounds that in the case before us the acceptance did not stand alone. The Ninth Circuit correctly states current law in Hawaiian Paradise Park Corp. v. Friendly Broadcasting Co. Inc., 414 F.2d 750 (9th Cir. 1969):

"[When] a party accepts the benefits of a judgment under circumstances which indicate an intention to finally compromise and settle a disputed claim, an appeal may be foreclosed. In such a case, it is '* * * the mutual manifestation of an intention to bring the litigation to a definite conclusion upon a basis acceptable to all parties' which bars a subsequent appeal, and not the fact, standing alone, that benefits under the judgment were accepted. Gadsden v. Fupp, 4 Cir., 330 F.2d 545, 548." Id. at 752.

A similar rule is advocated in 9 Moore's Federal Practice para. 203.06 at 719 (1973).

By its terms, the agreement in this case waived taxable costs and post-judgment interest after April 24, 1974, if a specified amount was paid prior to May 5, 1974. It has not been demonstrated that the agreement and payment thereunder was anything other than what it purported to be, i.e., a device whereby one who was then obligated under a judgment would by payment of the amount of the judgment avoid the payment of the costs which would be taxed on the judgment plus stopping the accruing of interest on a judgment which both the payor and the payee contemplated appealing, and did in fact appeal. We find no basis in the record for considering this not unusual arrangement to be a final compromise and settlement of claims which obviously were still in dispute.*fn3 The motion to dismiss Rich's appeal is denied.

II. Verbal Exchanges with Counsel

Appellants urge that the district court judge committed error or abused his discretion in three instances during the trial and therefore that a new trial should be ordered. In these instances, it is asserted either the trial judge talked counsel out of objections to evidence, which may or may not have been technically correct but for which he saw no strategic purpose, or he insistently encouraged stipulations on issues which he did not consider seriously in dispute.

A jurisprudential argument might be made that it is better practice for a trial judge to allow counsel to decide what objections and stipulations to make and confine himself to legal rulings. On the other hand, a practical argument can be made that pressure from the court to settle minor issues is necessary in the interest of litigation time economy. Certainly, a simplification of complex issues would not seem to hinder a quest for the truth. In the context of this lengthy trial, the transcript of which covers in excess of 1800 pages, we find no such abuse of discretion as to require a new trial. In no event should counsel have withdrawn an objection or made a stipulation if he felt the point was critical to his case; he should have explained why it was important. The trial judge's actions were not one-sided; his firm handling of the course of the trial was even-handed and he expressed his views to counsel for both sides at various points during the trial.

One of the points raised regarding the conduct of the trial is closely tied to the correctness of the trial court's determination of damages and will be discussed in Part IV.A.4., infra.

III. Contractual Responsibilities for Temporary Roads

Two references are made in the project specifications to temporary roads. These specifications were incorporated into the contract between Rich and the Government; these in turn were incorporated by reference into the subcontract between Rich and Cass although Cass was only responsible by the terms of the subcontract for performing certain sections of the specifications. Neither section on temporary roads is a section for which responsibility explicitly had been delegated to Cass. The first requires Rich to construct any access roads needed to get to the construction site. Rich instructed Cass to build such a road, and a claim for payment for that road was initially an issue in this lawsuit. Partial judgment was granted for Rich on this issue because the evidence showed that the parties had earlier reached an agreement regarding this work. No appeal was taken from this order.

The second reference treats temporary roads within the construction site. It provides:

"(A) General: The Contractor shall be responsible for the roads in his work area and shall at his sole expense:

(2) Provide and maintain new access roads required by him."

As indicated previously, the district court found that Rich had breached its duty to provide temporary access by rocking the road subgrades. The court further found that the rocking had to have been coordinated with the installation of the drainage system by Cass or the storm sewer inlets would be elevated above the unrocked roadways and the sewer pipes would have a tendency to clog with silt and debris. The above facts and provisions standing alone would be persuasive that the district court's judgment on this issue was correct. However, they do not stand alone. Article XXVII of the Rich-Cass subcontract provides:

"....

"The second party [Cass] hereby distinctly and expressly declares and acknowledges that before signing this contract it has carefully read the same and the whole thereof together with and in connection with said plans and specifications; that it has made such examination of this contract and of said plans and specifications, and the location where said work is to be done, as to enable it to thoroughly understand the intention of the same, and the requirements, covenants, agreements, stipulations and restrictions contained in this contract, and the general contract and in said plans and specifications; and distinctly agrees that it will not hereafter make any claim or demand upon the first party, based upon or arising out of any alleged misunderstanding or misconception on its part of the said requirements, covenants, stipulations and restrictions; ... and second party will not make any claim for delay or damage by reason of the condition of the site, roads or utilities and first party [Rich] shall not be responsible for difficulty of access and shall not be required to provide access to the site or any part thereof." ( Emphasis added.)

The effect of this article is to shift the risk of difficulty in access, which was placed on Rich by the general contract, to Cass. Rich cannot be held responsible for delaying Cass 146 days for failing to rock or otherwise provide temporary access roads. The district court's findings of breach by Rich also included reference to the failure of coordination on the part of the general contractor. However, it appears clear from the record that central to any claim of Cass that its delay in adhering to the schedule was attributable to Rich, rather than its own fault, was the lack of access roads. When that basis of the claim falls, the coordination prong, pendent to it, also falls. Failure to coordinate a matter as to which with relation to Cass it had no duty to perform is as to Cass no failure at all. Cass therefore must bear the full responsibility for the 292 days delay except as damages are otherwise modified in this opinion. The effect of this holding on damages is shown in Schedule A appended to this opinion. Specific items of damage are discussed in Part IV, infra.

We note that Judge Beamer of the Northern District of Indiana in an unpublished opinion reached the same interpretation of this contract as we reach. The case involved a different plaintiff but the language of the contract between Rich and the plaintiff was identical to the language in this contract except with respect to the work to be done. United States for the use of Henry Construction Co., Inc. v. F.D. Rich Co., Civ. No. 71 S 87, May 10, 1974.

Appellants argue that Rich is foreclosed from relying on Article XXVII because it was not pleaded by Rich as an affirmative defense under Fed. R. Civ. P. 8(c). This argument is without merit. The issue is a matter of interpreting the contract between Rich and Cass. The contract must be read as a whole. Article XXVII is not a separate agreement reached by the parties after breach.

Appellants also argue that this Article should not be considered because it was not argued to the district court. Apparently it was not stressed before the district court to the extent it was before this court, but it was cited by Rich's attorneys several times. Also the entire subcontract was incorporated by reference into the opinion of the district court. We cannot ignore Article XXVII.

Because we find no breach by Rich in relation to Cass, we need not consider whether it was proper for the district judge to award damages to Rich in spite of the breach by Rich found by the court or whether Cass's abandonment was justified by the Breach of Rich - issues to which the parties devoted substantial portions of their briefs.

IV. Damages

Appellants argue that seven errors were made by the district court in computing damages. Rich also argues errors were made in allowing a setoff by Cass. Since computation of damages is a factual issue, we must affirm the findings of the district court unless we find them*fn4 "clearly erroneous." Fed. R. Civ. P. 52. The arguments of the parties will be considered seriatim.

A. Errors Urged by Appellants

1. No evidence on which to base delay by Cass. This argument has two aspects. The first is whether there was evidence to support the equal division of the 292 days delay between Rich and Cass. Since we have found as a matter of law that Rich could not be held responsible for one-half of the delay, we need not further consider this point; the entire delay in constructing the building pads must be charged to Cass.

In the second prong of this argument, appellants challenge whether the evidence is sufficient to show that the 292 days delay in completion of the building pads delayed the project by the same amount. Appellants note that eight of the building pads they completed were not used by Rich for several months. They further argue that Cass was not the "lead man" throughout the project.

The record contains evidence that the pads were scheduled to be completed in an orderly designated, geographic sequence and in a smooth fashion over the period during which they were scheduled for construction. The pads were delivered in a haphazard order and to some extent in groups of several at one time. For these reasons we cannot hold that Rich's failure to use eight of the pads completed is so inconsistent with the findings of the district court that we must hold them clearly erroneous.

Similarly we cannot find that deviations from the planned order of work took Cass out of the critical path. First, appellants misconstrue the sense in which a contractor must be "lead man" for it to be on the critical path. It need not be the first contractor on the job but only need be the contractor whose work must be completed before the next contract holder can go to work. Thus, it is of no significance that a surveyor needed to complete his work before Cass could proceed unless Cass was delayed because the surveyor had not completed his work. Suffice it to say the district court did not so find. Appellants also argue that the order of construction was changed so that foundations were poured before Cass compacted the pads. This change did not prevent construction from being delayed by Cass's delinquency because a building slab could not be poured and erection started until after a pad passed compaction. We cannot fault the district court for treating the deviations cited by appellants as insignificant.

2. Computation of General and Administrative Expense. The district court charged Cass with the increase in general and administrative expense incurred by Rich as a result of the delay. That delay has an impact on general and administrative expense is beyond dispute, but the extent of that impact is difficult to estimate. To compute increased general and administrative expense, the district court determined general and administrative expense as a percentage of sales for 1969 and 1970, took the lower of the two figures, multiplied this by the original contract price, and then divided by the original contract period to determine the general administrative expense allocable to the contract on a per day basis. This figure was then multiplied by the 146 day delay found by the district court to arrive at damages chargeable to Cass. Appellants do not challenge the percentage of sales figures used or the technique used for making the allocation. They do challenge the use of the original contract price rather than the adjusted contract price.

We find no justification for the use of the original contract price. The district court found that in early 1969 the government eliminated items from the contract which reduced the price from $3,846,000.00 to $3,360,000.00. Rich's arguments and the testimony in the court below supporting the use of the higher figures are almost totally conclusionary. The district court's figures appear to be taken directly from an exhibit prepared by Rich. We can see no reason Rich should pass on overhead costs at the per diem rate originally bid rather than that ultimately agreed upon. As counsel for Cass stated: "A percentage reflecting general and administrative expense must be based on sales that one has and not upon sales that one thought that one might get."

In accord with these findings, we have recomputed the damages allowed for general and administrative expenses. The details of both the district court's and our calculations are set forth in Schedule B attached to this opinion.

3. Liquidated Damages Assessed by the Government. The trial court charged to Cass the entire 76 days liquidated damages assessed against Rich by the Government. Cass argues that there is no logical reason for not splitting these damages between Rich and Cass in the same manner that the other damages for delay were divided. Since we have determined that none of the delay damages should be divided, we need not further consider this point.

4. House services for water distribution eliminated. Appellants argue that it was error for the trial judge to talk Cass's attorney out of objecting to the admission into evidence of a change order, which Cass had not signed, dated February 12, 1971 (after the complaint in this suit was filed). Cass was originally to install the house services, but this requirement was eliminated from Cass's contract when the government changed the specifications to plastic pipes. Cass's president testified that the parties agreed to reduce the contract price by $13,667.21. A witness for Rich testified that the proper deletion was the amount shown on the change order to which Cass objects, $22,754.00. The amount on the change order purported to be taken from a payment breakdown of May 18, 1969, prepared by Cass. Though we do not hold that it was error for the district court to admit the change order as evidence, we hold it was error for it to use $22,754.00 in computing the adjusted subcontract price.

Rich was obliged to make periodic payments to Cass as construction progressed. To receive such payments, Cass completed an application for partial payment on a form provided by Rich. The cover sheet of the form contained columns for Cass to show 1) the breakdown amount for major categories of work, 2) the percentage completed, and 3) the total amount completed for which payment was being requested (after 10% retainage and prior payments were deducted). The same page also contained columns "For F.D. Rich Company Use Only" in which Rich would indicate the percentage and amount completed. In these columns Rich would adjust amounts requested based on the work that had been approved by the Government. The internal pages of the form contained the detail upon which the composite figures on the cover were based.

House services were included on the forms in the major category, "Water Mains." Under the subcategory "House Services," the breakdown amount for "Valves, Stops & Services" was $22,754.00, the amount shown on the change order issued by Rich and the amount used by the district court. The columns for work completed show $7,614.80. Similarly Rich's bar graph of the Cass contract (Trial Exhibit IK) shows that Cass performed work in this category before the house services were deleted. On the cover page Rich included this amount of work as work completed in the "For F.D. Rich" columns, and it clearly should not have been adjusted out of the amount deleted. In later applications for partial payment, the cover page shows a deduction from the Water Main category of $13,667.21 for the contract modifications. This is the agreed adjustment according to the testimony of Cass's president. He testified that the additional $1,471.99 resulted from a later agreement.*fn5

Rich's approval of Water Main Work completed indicates the work was 98% complete. Rich multiplies this by the adjusted price shown by Cass to arrive at the amount approved. Since $13,667.21 was used by both parties as the correct adjust amount, without objection until after this litigation began, and having read the testimony of both Cass's president and Rich's witness concerning this figure,*fn6 we hold it was error for the district court to ...


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