HomeMy WebLinkAboutRes2018-101 Sponsored by: City Attorney
CITY OF SEWARD, ALASKA
RESOLUTION 2018-101
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SEWARD,
ALASKA, PROVIDING FOR FINAL CONTRACT SETTLEMENT WITH
ORION MARINE CONTRACTORS, INC.
WHEREAS,the City of Seward secured grant funding in 2015 to construct a breakwater at
the Seward Marine Industrial Complex (SMIC) and put the project out for public bidding; and
WHEREAS, Orion Marine Contractors was the lowest bidder and awarded the four-phase
breakwater construction contract; and
WHEREAS, Orion requested and was granted a termination for convenience after only
completing the first phase of the contract; and
WHEREAS, a dispute arose as to whether Orion was entitled to its entire bid amount for
mobilization/demobilization, or only sums paid to date; and
WHEREAS,the United States District Court for Alaska found in favor of the City of Seward
in regard to this dispute; and
WHEREAS, the Ninth Circuit Court of Appeals reversed the District Court's decision in
favor of Orion; and
WHEREAS,the Ninth Circuit Court of Appeals has denied rehearing on this matter; and
WHEREAS, the case has been remanded to enter judgment in favor of Orion on the
principle amount of$380,776; and
WHEREAS, as the prevailing party, Orion is entitled to prejudgment interest, costs, and
partial attorney's fees by law, with a total potential exposure to Seward of approximately 485,000;
and
WHEREAS,Orion has agreed to compromise its claim for the amount of$450,000 in order
to avoid any further litigation; and
WHEREAS, Due to substantially lower than expected construction costs, the remaining
grant funds are sufficient to pay for the full mobilization/demobilization claim of Orion.
NOW,THEREFORE,BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF SEWARD, ALASKA that:
CITY OF SEWARD, ALASKA
RESOLUTION 2018-101
Section 1.The litigation with Orion Marine Contractors in regard to the SMIC breakwater is
to be fully and finally resolved by settlement.
Section 2. A payment to Orion of$450,000 in exchange for dismissal of all claims between
the parties is hereby approved.
Section 3. Funding in the amount of $450,000 for payment to Orion is appropriated as
follows: 1) $380,776 to contracted services Account No. 12333-0000-7009; and $69,224 to
contracted services Account No. 12000-0000-7009.
Section 4. This resolution shall take effect immediately.
PASSED AND APPROVED by the City Council of the City of Seward, Alaska, this 10th
day of December, 2018.
THE CITY OF SEWARD,ALASKA
Sue McClure, Vice Mayor
AYES: Lane, Osenga, Horn, Towsley, McClure
NOES: None
ABSENT: Seese, Squires
ABSTAIN: None
ATTEST:
Brenda J. Ballou/ MC
City Clerk
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Agenda Statement
Meeting Date: December 10, 2018
To: City Council
From: City Attorney
Agenda Item: Orion Settlement
BACKGROUND & JUSTIFICATION:
This matter was discussed with Council in executive session on November 26. Attached are
the appeal briefs of the parties to provide a factual and procedural summary as to the settlement of
the Orion lawsuit.
In short, Seward prevailed at the trial court level on Orion’s claim for payment of an
additional $381,000 for mobilization/ demobilization after the contract was terminated. The Ninth
Circuit Court of Appeals reversed the trial court decision. Seward asked for a re-hearing which was
denied. Orion is therefore entitled to prejudgment interest, costs, and partial attorneys fees on the
principal amount of $381,000. Judgment has not been entered, but appears likely, with a total
exposure of approximately $485,000. Orion has agreed to compromise on fees and costs and is
willing to settle for $450,000.
This settlement in is the City’s best interest as a compromise on the total exposure and in
order to avoid further costs and fees, not to mention avoiding additional exposure relating to Orion’s
fees, and continuing prejudgment interest.
INTENT:
To resolve the outstanding construction claim of Orion Marine Contractors arising out of work
performed in the initial phase of SMIC breakwater construction.
CONSISTENCY CHECKLIST: Yes No N/A
1. Comprehensive Plan (document source here): X
2. Strategic Plan (document source here):X
3. Other (list):
101
Res 18-101
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NO. 16-35919
_________________________________________
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
__________________________________________________________________
ORION MARINE CONTRACTORS, INC.,
Plaintiff-Appellant,
v.
CITY OF SEWARD,
Defendant-Appellee.
_____________________________________
On Appeal from the United States District Court
for Alaska at Anchorage
The Honorable Sharon L. Gleason
Case No. 3:15-cv-00151-SLG
_______________________________________________________________________________
APPELLANTS’ OPENING BRIEF
___________________________________________
Traeger Machetanz
Conner G. Peretti
DAVIS WRIGHT TREMAINE LLP
1201 Third Avenue, Suite 2200
Seattle, Washington 98101
Tel: 206-757-8337/Fax: 206-757-7337
Attorneys for Plaintiff-Appellant
Orion Marine Contractors, Inc.
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CORPORATE DISCLOSURE STATEMENT
Appellant Orion Marine Contractors, Inc., a non-governmental corporate
party, states that it is wholly owned by Orion Marine Group, Inc., and no publicly
held corporation owns 10 percent or more of Orion Marine Contractors, Inc.’s
stock.
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TABLE OF CONTENTS
Page
JURISDICTIONAL STATEMENT .......................................................................... 1
A. District Court Jurisdiction ..................................................................... 1
B. Timeliness of Appeal ............................................................................ 1
STATEMENT OF THE ISSUE ................................................................................. 1
STATEMENT OF THE CASE .................................................................................. 2
A. Introduction ........................................................................................... 2
B. Statement of Facts ................................................................................. 3
1. The Project and Orion’s Bid. ...................................................... 3
A. Orion’s Base Bid Performance and Termination of the Contract
for Convenience. ................................................................................... 6
B. Orion’s Demobilization and Seward’s Failure to Pay. ......................... 7
C. Procedural History ................................................................................. 9
SUMMARY OF ARGUMENT ............................................................................... 10
ARGUMENT ........................................................................................................... 11
A. Standard of Review ............................................................................. 11
B. The District Court Erred in Granting Summary Judgment to
Seward and Not to Orion. .................................................................... 12
1. The District Court Erred by Misinterpreting the Scope of
Orion’s Duty to Provide “All Submittals Required Under
the Contract” ............................................................................. 12
2. The Language and Structure of the Contract Support the
Interpretation That the Termination for Convenience
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Meant Further Submittals Were Not “Required Under the
Contract” ................................................................................... 18
3. Extrinsic Evidence of the Parties’ Intent Contradicts the
District Court’s Interpretation. .................................................. 20
4. The District Court Erred by Relying on the General
Termination for Convenience Section and Quality
Asphalt. ..................................................................................... 24
CONCLUSION AND RELIEF REQUESTED ....................................................... 28
STATEMENT OF RELATED CASES ................................................................... 30
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TABLE OF AUTHORITIES
Page(s)
Cases
Casey v. Semco Energy, Inc.,
92 P.3d 379 (Alaska 2004) ................................................................................. 12
Cook v. Cook,
249 P.3d 1070 (Alaska 2011) ............................................................................. 17
Gasperini v. Center for Humanities, Inc.,
518 U.S. 415, 116 S.Ct. 2211, 135 L.Ed.2d 659 (1996) .................................... 20
Estate of Hutchinson,
577 P.2d 1074 (Alaska 1978) ............................................................................. 24
Lingley v. Alaska Airlines, Inc.,
373 P.3d 506 (Alaska May 13, 2016) ................................................................. 20
Monzingo v. Alaska Air Grp., Inc.,
112 P.3d 655 (Alaska 2005) ............................................................................... 12
Nautilus Marine Enterprises, Inc. v. Exxon Mobil Corp.,
305 P.3d 309 (Alaska 2013) ......................................................................... 12, 20
Ness v. National Indem. Co. of Nebraska,
247 F. Supp. 944 (D. Alaska 1965) .................................................................... 13
Norville v. Carr-Gottstein Foods Co.,
84 P.3d 996 (Alaska 2004) ................................................................................. 24
Peterson v. Wirum,
625 P.2d 866 (Alaska 1981) ............................................................................... 18
Providence Washington Ins. Co. of Alaska v. Fireman’s Fund Ins.
Companies,
778 P.2d 200 (Alaska 1989) ................................................................... 12, 13, 14
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Quality Asphalt Paving, Inc. v. State, Dep’t of Transp. & Pub.
Facilities,
71 P.3d 865 (Alaska 2003) ..........................................................................passim
Rockstad v. Glob. Fin. & Inv. Co.,
41 P.3d 583 (Alaska 2002) ................................................................................. 12
Snead v. Metro. Prop. & Cas. Ins. Co.,
237 F.3d 1080 (9th Cir. 2001) ............................................................................ 20
Stordahl v. Government Employees Ins. Co.,
564 P.2d 63 (Alaska 1972) ................................................................................. 18
Teva Pharm. USA, Inc. v. Sandoz, Inc.,
135 S. Ct. 831 (2015) .......................................................................................... 11
Wessells v. State Dep't of Highways,
562 P.2d 1042, 1046 (Alaska 1977) ................................................................... 12
Williams v. Crawford,
982 P.2d 250 (Alaska 1999) ............................................................................... 20
Wright v. Vickaryous,
598 P.2d 490 (Alaska 1979) ............................................................................... 18
Yu v. Albany Ins. Co.,
281 F.3d 803 (9th Cir. 2002) .............................................................................. 11
Statutes
28 U.S.C. § 1332(a) ................................................................................................... 1
Other Authorities
2 Philip L. Bruner and Patrick J. O’Connor, Jr., Bruner & O’Connor
on Construction Law § 5:270 (1st ed. 2002) ...................................................... 14
Fed. R. App. P. 4(a)(1)(A) & (a)(4) ........................................................................... 1
Fed. R. Civ. P. 59(e) ............................................................................................... 1, 9
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JURISDICTIONAL STATEMENT
A. District Court Jurisdiction
The District Court properly exercised jurisdiction over this action under
28 U.S.C. § 1332(a). ER 188.
B. Timeliness of Appeal
After hearing oral argument on June 21, 2016, the district court (Judge
Sharon L. Gleason, presiding) denied Orion’s summary judgment motion and
granted Seward’s summary judgment motion by order on August 3, 2016. ER 1.
On August 30, 2016, Orion moved to amend the judgment under Fed. R. Civ. P.
59(e), which the district court denied on October 28, 2016. On November 3, 2016,
Orion filed its Notice of Appeal of the summary judgment order. ER 15; Fed. R.
App. P. 4(a)(1)(A) & (a)(4).
STATEMENT OF THE ISSUE
Did the district court err by holding that submittals following a termination
for convenience were “required under the Contract,” despite the termination ending
Orion’s submittal obligations, as supported by the contract’s plain language,
structure, and the reasonable expectations of the parties?
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STATEMENT OF THE CASE
A. Introduction
Orion Marine Contractors, Inc., contracted with the City of Seward for the
production of rock for use in constructing a new breakwater for Seward. Seward
originally intended to make four separate awards of the contract’s four phases: the
Base Bid and Additive phases A, B and C. Orion submitted its bid for all four
phases, which included an amount for mobilization and demobilization from the
project site (“Mob/Demob”). Shortly before the bid deadline, Seward decided to
award all phases at once, with phases after the Base Bid phase contingent on
adequate rock production from previous phases. Seward selected Orion, which had
the lowest bid. Orion completed the Base Bid phase, but the parties mutually
agreed to terminate the contract for convenience at that time because rock
production had fallen below expectations.
Section 01505 of the contract provided for full payment of the Mob/Demob
bid item—$873,000—once Orion provided “all submittals required under the
Contract.” ER 150, Part 4 § 4.1(C). Seward did not pay the full Mob/Demob bid
item even though Orion provided all submittals required by the contract following
the termination for convenience.
Orion attempted to recover the full Mob/Demob bid item in the District
Court of Alaska (Judge Sharon L. Gleason, presiding). The parties both moved for
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summary judgment on the issue of whether Seward had to pay Orion the full
Mob/Demob bid item. The district court granted Seward’s motion and denied
Orion’s, finding that “all submittals required under the Contract” meant all
submittals required under all four phases, ER 11, so Orion had to complete every
phase to recover the full bid item. In so holding, the district court erred by failing
to account for the fact the termination for convenience changed what submittals
Orion was “required” to provide. After the termination, the submittals “required
under the Contract” were only those for the Base Bid phase. Orion provided, and
Seward accepted, the Base Bid submittals. The contract’s plain language, its
structure, the language of other provisions, and the reasonable expectations of the
parties all support this interpretation. This Court should therefore reverse the
district court’s award in Seward’s favor based on the district court’s erroneous
interpretation of the contract.
B. Statement of Facts
1. The Project and Orion’s Bid.
In early 2014, Seward invited bids for the production of armor rock and core
rock from the City of Seward Quarry for use in constructing a new breakwater at
the City’s Seward Marine Industrial Center. ER 53 ¶ 2. Seward’s bid documents
split the contract for the project (“the contract”) into four separate phases: the Base
Bid phase and three Additive phases, A, B and C, ER 59; with each Additive phase
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awarded following satisfactory rock production from the prior phase. The contract
documents reflect this phased approach. ER 59; ER 160 ¶ F; ER 69; ER 158 ¶ I.
As Mr. Erickson repeatedly testified during his deposition, it was Orion’s
expectation during the RFP phase that “only the Base Bid would be awarded to
start with.” ER 20 (Erickson Dep. 32:6-7; 41:10-17; 57:4-9; 58:9-12; 60:5-9;
60:21-61:8; 64:5-6). Thus, the bidders reasonably understood that Mob/Demob
would be paid in full if the project ended after the Base Bid phase. After the Base
Bid, the City would award the Additive phases as separate awards: “[The City]
would go to the [City Council]1 . . . and then they would award additive alternate
one. And then if that got done and contractor [and Seward] on [Additive phase A]
both were agreeable, then it would go to additive . . . [B] . . . and so forth.” Id.
(Erickson Dep. 62:11-63:2). During the RFP phase, the City therefore requested
bids for all four phases to assess bidders, but intended to make four separate
awards if rock production proceeded apace. Id. (Erickson Dep. 60:7-9); ER 59;
ER 160 ¶ F; ER 69; ER 158 ¶ I.
However, that is not how the City proceeded, instead opting for an award of
all phases at once, with the three Additive phases contingent on satisfactory rock
production from the previous phase. On August 12, 2014, two days before Orion
1 Mr. Erickson referred to “the assembly,” which is the legislative body for the Kenai Peninsula Borough,
on which Seward has one seat of nine. The body that would approve any contract for the City of Seward
is the Seward City Council. ER 59.
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submitted its bid, Seward issued Addendum No. 3 to the contract, stating, “A
request for termination of the contract may be initiated by the contractor after the
Base Bid is completed.” ER 166.
Mr. Erickson recalled a conversation with the City that it changed the plan
because each phase award would need approval by the City Council, which would
be too time-consuming:
We prepared the bid anticipating we would do only the Base Bid like the
RFP said. We would only [be] awarded the Base Bid, and then if everything
checked out with the owner and the contractor, then you’d go onto the
additive of alternate one, they would award that.
But then we became in the middle – caught between a rock and a hard place
when [Seward] said, well, if we do it that way, it’s going to be a long delay,
because the [City Council] has to award each additional piece. And the . . .
sub[contractor] schedule wouldn’t allow it, so we ended up with a $6.1
million [contract price] when the RFP said it was just going to be the Base
Bid.
ER 20 (Erickson Dep. 60:21-61:8). Mr. Erickson also described this post-bid
about-face on Seward’s part as putting Orion under pressure to accept the change
and sign the contract with limited time to consider all the implications. Id.
(Erickson Dep. 64:10-16).
Orion submitted its bid for the Project on August 14, 2014, on a Bid Form
created by Seward. ER 168. The Bid Form reflected the four phases, with
separate pages for each. ER 169-172. Only the Base Bid portion of Seward’s
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Form included the Mob/Demob bid item. 2 Id. Orion’s bid item for Mob/Demob
totaled $873,000 and was included only in the Base Bid phase portion of the Bid
Form. ER 169. Orion was the low bidder and was awarded the Project Contract.
ER 54.3 Orion’s Base Bid amount was $125,000 lower than the second lowest
bidder. Id.
A. Orion’s Base Bid Performance and Termination of the Contract for Convenience.
Orion performed the contract’s Base Bid phase, blasting armor rock from the
quarry for use in constructing the breakwater, completing the phase on
November 17, 2014. ER 54 ¶ 7. However, the rock yield was lower than expected
during the Base Bid phase, making performance of later phases economically
unfeasible under the terms of the contract. Id. Orion proposed a price
modification to make performing the Additive phases feasible, but Seward
declined. Id. In a November 24, 2014, letter, Seward reminded Orion that Orion
could terminate the contract for convenience under Addendum No. 3. ER 174.
Orion requested termination for convenience under Addendum No. 3 in a letter
dated the next day. ER 176. Orion did not request termination for any reason
other than that rock yield fell below expectations. ER 54 ¶ 9. Seward accepted the
2 This was the only location in the bid documents where a Mob/Demob item was listed, which makes
sense since most of the equipment would be mobilized before contract performance and demobilized after
contract performance, which could end after the Base Bid if the project were terminated for convenience.
3 Orion was the low bidder for the Base Bid and the combined bid (Base Bid and Addititves A, B and C).
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termination and sent Orion its Notice of Convenience Termination on December 2,
2014, effective as of November 25, 2014. ER 179. In that letter, Seward advised
Orion that “[a]ll rock production will cease and Additives A, B, and C will not be
performed.” Id. Seward further advised Orion that “[o]ther convenience
termination items will be further clarified and the requirements for contract
closeout will be presented to you no later than December 5, 2014.” Id.
B. Orion’s Demobilization and Seward’s Failure to Pay.
Seward instructed Orion in a December 4, 2014, letter to “perform closeout
procedures,” which contained a list of required submittals. ER 183. Orion
fulfilled these obligations. ER 59. Orion provided, and Seward approved, the
required submittals. ER 55, ER 187. Seward acknowledged that it received and
approved all submittals required under the contract in a January 16, 2015, letter:
“The closeout submittals provided were accepted on January 5, 2015. . . . The
referenced contract with the City of Seward is closed.” Id. In the December 4,
2014, letter, Seward also instructed Orion to “complete demobilization from the
project site,” which Orion did. ER 55, ER 183. Seward’s letter instructed Orion to
“[r]efer to contract specification Section 01505 Mobilization and Demobilization”
regarding payment of the Mob/Demob bid item. ER 187.
Section 01505 Part 4 governs payment of the Mob/Demob bid item
($873,000) and formed the basis for Orion’s claim, the district court’s opinion, and
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the present appeal. ER 150. It has three sections: A, B and C. Section A provides
that, “[w]hen 4% of the original contract amount from other bid items is earned,
40% of the amount bid for mobilization and demobilization, or 4% of the original
contract amount, whichever is less, will be paid.” Id. Part B provides for an
additional 4% of the original contract amount, or 40% of the amount bid for
Mob/Demob, whichever is less, when Orion earned another 4% of the original
contract amount from other bid items. Id.
Here, 4% of the original contract amount was always less than 40% of the
Mob/Demob bid item, so the provision is simple: Orion receives 4% of the original
contract amount after earning 4% of the contract amount from items other than
Mob/Demob, and another 4% of the original contract amount after earning another
4% of the contract amount from items other than Mob/Demob. This comprises
Sections A and B of Part 4.1. However, there is a third portion: Section C.
Section C states that Seward must pay Orion the remaining balance of the
Mob/Demob bid item—$873,000 in total—after approving all submittals required
by the contract:
The remaining balance of the amount bid for Mobilization and
Demobilization will be paid after all submittals required under
the Contract4 are received and approved.
4 The agreement defines “Contract” as “[t]he written agreement between [Seward] and [Orion] setting
forth the obligations of the parties and covering the Work to be performed, all as required by the
Contract[] Documents.” ER89.
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Id. (emphasis added). Seward triggered its obligation to pay the remaining balance
of the Mob/Demob bid item by receiving and approving all submittals required
following the termination for convenience. Seward completed the Base Bid and
demobilized, but Seward refused to perform its payment obligations. ER 55.
Rather, Seward paid Orion only $492,072 for Mob/Demob, a difference of
$380,928 from the full $873,000 Mob/Demob bid item the contract required
Seward pay Orion. Id. ¶ 14.
C. Procedural History
Orion filed its Complaint for breach of contract on August 26, 2015, alleging
that Seward failed to pay Orion the full amount due for Mob/Demob as required by
Section 01505. ER 188. After limited discovery, Orion moved for summary
judgment on March 23, 2016. Seward opposed Orion’s motion and moved for
summary judgment on the contract claim on April 15, 2016. After hearing oral
argument on June 21, 2016, the district court (Judge Sharon L. Gleason, presiding)
denied Orion’s motion and granted Seward’s. ER 1. On August 30, 2016, Orion
moved to amend the judgment under Fed. R. Civ. P. 59(e), which the district court
denied on October 28, 2016. On November 3, 2016, Orion filed its Notice of
Appeal of the summary judgment order and asks this Court to reverse the district
court’s Order with instructions to find in favor of Orion. ER 15.
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SUMMARY OF ARGUMENT
The district court committed four principal errors:
First, the termination for convenience changed what submittals were
“required under the Contract,” excusing Orion from providing submittals for later
phases. After the termination, submittals for later phases were no longer
“required;” at that point, only submittals for the Base Bid phase and contract
closing were “required.” Orion provided its Base Bid submittals, triggering
Seward’s obligation to pay the balance of the Mob/Demob bid item.
Second, the structure of the contract and the language of other provisions
show that the Additive phases were contingent, so the contract scope was flexible
from the start. “[A]ll submittals required under the Contract” accounted for this
flexibility because a termination before completing every phase would change
which submittals were required. Thus, Orion’s provision of all submittals required
by the Base Bid alone triggered Seward’s Mob/Demob payment obligations under
Section 01505.
Third, relevant extrinsic evidence supports Orion’s interpretation that “all
submittals required under the Contract” meant “all submittals required under the
Contract” at the time performance concluded, whether Orion’s required
performance included just the Base Bid or any number of Additive phases.
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Fourth, the district court erred by interpreting Section 01505 as controlled
by an inapplicable, general provision regarding payments following a termination
for convenience, especially after holding that provision did not apply. The court
then relied on Quality Asphalt, a distinguishable case that does not resolve the
central question of this case and appeal: whether providing “all submittals required
under the Contract” meant submittals for every phase or submittals for any number
of phases.
As Orion shows below, the termination for convenience of a multi-phase
contract after the first phase meant only those submittals for the Base Bid phase
were “required under the Contract,” so Orion must be paid the full amount bid for
Mob/Demob. This is the only interpretation that reasonably reconciles the plain
language of the contract, its structure, the language of other provisions, and the
reasonable expectations of the parties.
ARGUMENT
A. Standard of Review
“The interpretation and meaning of contract provisions are questions of law
reviewed de novo.” Yu v. Albany Ins. Co., 281 F.3d 803, 807 n.2 (9th Cir. 2002).
Any findings of fact are reviewed for clear error. Teva Pharm. USA, Inc. v.
Sandoz, Inc., 135 S. Ct. 831, 841 (2015).
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B. The District Court Erred in Granting Summary Judgment to
Seward and Not to Orion.
1. The District Court Erred by Misinterpreting the Scope of
Orion’s Duty to Provide “All Submittals Required Under the
Contract.”
The district court wrongly concluded that “all submittals required under the
Contract” meant all submittals required for every phase. ER 150. Instead, the
termination for convenience changed what submittals were “required,” excusing
Orion from providing submittals for later phases. After the termination, submittals
for later phases were no longer “required;” at that point, only submittals for the
Base Bid phase and contract closing were “required.”
Contract interpretation “must . . . begin by examining the plain language” of
the contract. Monzingo v. Alaska Air Grp., Inc., 112 P.3d 655, 661 (Alaska 2005).
Courts may use extrinsic evidence to determine “what the contract means,”
regardless of whether it is ambiguous. Nautilus Marine Enterprises, Inc. v. Exxon
Mobil Corp., 305 P.3d 309, 315–16 (Alaska 2013). On the one hand, “[i]f the
[contract] is clear and unambiguous, we construe it solely according to its written
terms.” Rockstad v. Glob. Fin. & Inv. Co., 41 P.3d 583, 586 (Alaska 2002) (citing
Wessells v. State Dep't of Highways, 562 P.2d 1042, 1046 (Alaska 1977)). On the
other, “extrinsic evidence is generally admissible to interpret the meaning of the
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language of a contract.” Casey v. Semco Energy, Inc., 92 P.3d 379, 383 (Alaska
2004). Here, both the contract and extrinsic evidence support Orion’s position.
In Providence Washington Ins. Co. of Alaska v. Fireman’s Fund Ins.
Companies, the Alaska Supreme Court affirmed the lower court’s grant of
summary judgment for breach of an unambiguous payment provision in a contract.
778 P.2d 200, 203 (Alaska 1989). The lower court interpreted a provision in an
insurance policy that required Providence Washington to pay post-judgment
interest on a judgment against it. Id. The provision stated that Providence
Washington must pay “all interest on the entire amount of any judgment therein
which accrues after entry of the judgment . . . .” Id. The Court affirmed the lower
court’s plain reading of the payment provision, reasoning that, “[w]here no
ambiguity exists the court ‘should not do violence to the plain terms of a
contract.’” Id. (quoting Ness v. National Indem. Co. of Nebraska, 247 F. Supp.
944, 947 (D. Alaska 1965)). Here, the district court misinterpreted the plain terms
of the contract.
Specifically, the district court erred by interpreting the following
Mob/Demob payment provision too narrowly:
The remaining balance of the amount bid for Mobilization and
Demobilization will be paid after all submittals required under the Contract
are received and approved.
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ER 150. The agreement defines “Contract” as “[t]he written agreement between
[Seward] and [Orion] setting forth the obligations of the parties and covering the
Work to be performed, all as required by the Contract[]5 Documents.” ER 89.
“Contract Documents” is a broad term for the contract and contract-attendant
documents like addenda and change orders. Id. The term “Contract” is therefore a
flexible term that can change with the evolution of the project.
The district court was right to note that “a new contract did not arise when
the original contract was terminated for convenience,” but the district court erred
by not taking into account how the termination ended Orion’s performance
obligations. ER 11. The Court found that, “because a new contract did not arise
when the original contract was terminated for convenience, the term ‘Contract’ as
used [in the above provision] . . . can only rationally be read to refer to that original
contract.” Id. “Likewise,” the court continued, “it follows that the term ‘all
submittals’ refers to the submittals required under these additive phases as well.”
Id. As the court reasoned, because Orion never completed the Additive phases,
and necessarily never provided submittals for those phases, Orion never provided
“all submittals required under the Contract.” Id. But simply looking to the
5 The definition reads “Contractor Documents,” but there is only a definition for “Contract Documents,”
not “Contractor Documents,” so this is likely a typographical error.
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universe of possible future submittals at the time of contract formation fails to
account for the effect of the early termination.
The termination for convenience changed which submittals were “required”
under the contract. When two parties terminate a contract for convenience, further
performance of the contract ends. 2 Philip L. Bruner and Patrick J. O’Connor, Jr.,
BRUNER & O’CONNOR ON CONSTRUCTION LAW § 5:270 (1st ed. 2002) (“Bruner &
O’Connor”) (noting that the purpose of a termination-for-convenience clause is to
“permit a party receiving services to unilaterally cancel its contractual obligations
and still avoid committing a breach that would expose it to damages”). Submittals
for further phases are no longer required, because the parties terminated
performance that would necessitate further submittals.
After the termination, the contract did not require Orion to perform Additive
Phase A or provide submittals therefor; after termination, the contract did not
require Orion to perform of Additive Phase B or submittals therefor; nor must
Orion have performed or provided submittals for Phase C following termination
for convenience after the Base Bid was complete. The termination for convenience
thus changed what performance, and therefore what submittals, were “required
under the Contract,” cutting off any obligation to provide submittals for phases
after termination. ER 150.
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The district court erred by not sufficiently accounting for the effect of a
termination for convenience on what performance was “required under the
Contract.” The Court narrowly focused on the contract’s requirements at
formation, as though what Orion was contractually required to do would never
change as a result of a termination for convenience. When the district court
interpreted Section 01505, it focused solely on the submittal requirements on the
date of contract formation, which overlooked the change to the scope of required
performance resulting from the termination for convenience. The court was right
that the contract at formation included work for all four phases, even if the
Additive phases were contingent on sufficient rock production. However, the court
erred by not taking into account the effect of a termination for convenience on
what the contract required. Termination for convenience changes what the
contract requires by cutting off post-termination performance obligations. See
Bruner and O’Connor § 5:270. As a result, Orion did not have to provide
submittals for the Additive phases because the termination for convenience
narrowed the submittals “required under the Contract.” ER 150.
The district court also erred by finding that the “specific amortized payments
[sic] provisions of A and B of Part 4 of Section 01505 would be largely
superfluous if at the end of the Base Bid phase the contractor was entitled to
receive the entire Mob/Demob payment,” because “the last two payments would
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likely be in such rapid succession that the three separate timing provisions serve
little purpose.” ER 11. The district court is referring to the provisions which
provide for partial payments toward Mob/Demob costs after completing 4% and
8% of the “original contract amount from other bid items.” ER 150.
However, the district court read too much into the fact that Orion submitted
its invoice for the second 4% the day before exercising its right to terminate. This
is a coincidence that the contract drafters, writing before receiving any bids, would
not have been able to foresee. Seward had to draft the contract before receiving
bids in order for the contractors to calculate their bids. This step-wise payment of
Mob/Demob is simply an inexact means of providing for partial, then full, payment
of a bid item in the contract. It could just as easily have been 3% and 6%, which
would nullify the district court’s argument, since the 6% invoice would have come
sooner than the day before termination. The district court thus erred by drawing
conclusions about the purpose of this step-wise payment of Mob/Demob when no
one drafting the contract could have known how the payment timing would
proceed before receiving bids.
The district court therefore erred by not concluding the contract entitled
Orion to the full Mob/Demob bid item for submitting all required submittals
following termination.
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2. The Language and Structure of the Contract Support the
Interpretation That the Termination for Convenience Meant
Further Submittals Were Not “Required Under the Contract.”
The structure of the contract and the language of other provisions show that
the Additive phases were contingent, so the contract scope was flexible. “[A]ll
submittals required under the Contract” accounted for this flexibility because it
could mean all submittals required after completing the Base Bid or any number of
phases. Thus, Orion’s provision of all submittals required by the Base Bid alone
triggered Seward’s Mob/Demob payment obligations under Section 01505.
A contract’s structure informs a court’s interpretation of its terms’ meaning.
Cook v. Cook, 249 P.3d 1070, 1079 (Alaska 2011). “In interpreting a contract, the
object is to give effect to the reasonable expectations of the parties,” including by
looking to “the language of other provisions of the contract.” Peterson v. Wirum,
625 P.2d 866, 872 (Alaska 1981) (citing Wright v. Vickaryous, 598 P.2d 490, 497
(Alaska 1979). “It is established that a contract should be interpreted to give
effect, if possible, to all of its provisions.” Id. (citing Stordahl v. Government
Employees Ins. Co., 564 P.2d 63 (Alaska 1972)).
The language and structure of the contract show the contingent nature of the
Additive phases, making “all submittals required under the Contract” a flexible
provision that could trigger, as here, the full payment of the Mob/Demob bid item
after only the Base Bid phase. For instance, as stated in the contract: “The contract
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is set up with Additive bid amounts which will be added to the contract if the rock
being produced continues to meet these specifications.” ER 160 ¶ F (emphasis
added). Here, the phrase “will be added to the contract” shows that “the contract”
could mean the agreement to perform only the Base Bid phase, since the Additive
phases may or may not have been “added.” Id. This provision would have been
meaningless if, as the district court reasoned, “the Contract” only meant the
agreement to perform all four phases and nothing less. ER 11.
This pattern continues in other portions of the contract. In the City’s Public
Notice – Invitation to Bid, the contract contemplated the contingent nature of the
phases:
To ensure that the armor rock produced for this contract conforms to the
gradation and quality specifications required for this project . . . [t]he City
intends to award all phases of work . . . pending satisfactory results of
previous phases and continued conformance with the armor rock
specification.”
ER 59 (emphasis added). The contract again reiterated the contingent nature of the
Additive phases in the Bid Schedule: “The following Additive Bid Amounts will
be awarded in alphabetical order to the maximum possible [sic] upon confirmation
that the material being produced meets the project specifications.” ER 69
(emphasis added). In the section on rock production: “Additive bid amounts will
be awarded upon confirmation that the material produced from the quarry meets
these specifications.” ER 158 ¶ I (emphasis added).
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These structural features of the contract and the language of these provisions
show that “the Contract” as used in Section 01505 could have been, like here, for
the Base Bid portion alone. The Additive phases were contingent on adequate rock
production from previous phases. As a result, the contract contemplated that the
work may have ended after the Base Bid phase. The phrase “all submittals
required under the Contract” is therefore flexible enough to account for different
performance requirements, whether of one phase, two or all four. If the drafters
wanted to have it apply only after completing all four phases, they could have
written, “The remaining balance of the amount bid for Mobilization and
Demobilization will be paid after all submittals for all four phases are received
and approved,” instead of “after all submittals required under the Contract are
received and approved.” ER 150. The district court therefore erred by not
sufficiently acknowledging the flexible nature of the contract and how
Section 01505 accounted for it.
3.Extrinsic Evidence of the Parties’ Intent Contradicts the
District Court’s Interpretation.
As the district court correctly noted, “[t]he Alaska Supreme Court interprets
contracts so as to give effect to the parties’ reasonable expectations,” including
“extrinsic evidence.” ER 6 (citing Lingley v. Alaska Airlines, Inc., 373 P.3d 506,
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512 (Alaska May 13, 2016); Williams v. Crawford, 982 P.2d 250, 253 (Alaska
1999))6. “Extrinsic evidence” is a broad category that includes the parties’ intent:
Extrinsic evidence is evidence other than the language of the contract that
bears on the parties’ intentions. The extrinsic evidence that may be
considered includes the language and conduct of the parties, the objects
sought to be accomplished and the surrounding circumstances at the time the
contract was negotiated . . . . Trial courts have broad latitude in looking at
extrinsic evidence.
Nautilus Marine Enters. v. Exxon Mobil Corp., 305 P.3d 309, 316 (Alaska 2013)
(internal citations omitted). Here, relevant extrinsic evidence supports Orion’s
interpretation that “all submittals required under the Contract” meant “all
submittals required under the Contract,” whether Orion’s required performance
included the Base Bid alone or any number of Additive phases.
Orion’s reasonable expectation, grounded in pre-award discussions with the
City, was that the City was first going to make four separate awards. However, the
City changed the contract scheme to a single award of one required Base Bid and
three contingent Additive phases just before bid submission. It was therefore
Orion’s expectation that “all submittals required under the Contract” was a flexible
phrase at contract signing that, informed by the original intent of four separate
6 Because the district court sat in diversity, the substantive law of Alaska applies. See Snead v.
Metro. Prop. & Cas. Ins. Co., 237 F.3d 1080, 1090 (9th Cir. 2001) (citing Gasperini v. Center
for Humanities, Inc., 518 U.S. 415, 426, 116 S.Ct. 2211, 135 L.Ed.2d 659 (1996)).
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awards and supported by other contract provisions, could account for full payment
of Mob/Demob after completing any of the four phases. The set of submittals
required under the contract would expand if the work progressed past the Base Bid
or remained limited to the Base Bid phase only, as here.
As the district court noted, Seward asserted that there were not separate
contracts for each different phase. The Court adopted this view in concluding
“[the Additive] phases were not contingent, separate contracts.” ER 10. These
positions, while technically valid, present a factually incomplete picture. Before
contract signing, and during the RFP phase, the City intended to make four
separate awards. ER 59; ER 160 ¶ F; ER 69; ER 158 ¶ I. During the RFP phase,
the City therefore requested bids for all four phases to assess bidders, but intended
to make four separate awards if rock production proceeded apace. (Erickson Dep.
60:7-9); ER 68-71. If the City had proceeded with its original plan, then the parties
would likely not be here. Rather, the “Contract” would, without question, include
just the Base Bid and no Additive phases, and Section 01505 would trigger
complete payment of the Mob/Demob bid item because Seward would have
awarded only the Base Bid phase. However, that is not how Seward proceeded,
instead opting for an award of one contract with three contingent Additive phases.
In light of the original intent to make four separate awards, Orion’s interpretation
that Section 01505 would permit payment of the full Mob/Demob after completing
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the Base Bid was reasonable. And it was certainly what Orion believed at the time
of contract signing, as Mr. Erickson expressed his “shock” that Seward would not
pay the full amount:
“When [the City] said we weren’t going to get paid any more [for
Mob/Demob], I was shocked. I couldn’t believe it was coming from
Seward.”
Id. (Erickson Dep. 56:18-20).
Seward’s communications around the time of termination and closeout also
show that Seward believed the only submittals required were those for the Base
Bid. On December 4, 2014, after it accepted termination, Seward provided a
“CONTRACT CLOSEOUT LIST,” with a list of “Submittals (required prior to
final payment request).” ER 185. After Orion provided those submittals, Seward
wrote back: “The closeout submittals provided were accepted on January 5, 2015 .
. . . The referenced contract with the City of Seward is closed.” ER 187. Seward
therefore cannot argue that more submittals were required following the
termination for convenience. Seward acknowledged that “all submittals required
under the Contract” had been submitted, otherwise it would not have accepted
them and closed the contract. The district court therefore erred when it concluded
that Orion had to provide submittals for all four phases to recover the Mob/Demob
bid item.
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4. The District Court Erred by Relying on the General
Termination for Convenience Section and Quality Asphalt.
The district court rightly concluded that the contract’s general termination-
for-convenience section (Section 14.4.2) would not apply to the payment of
Mob/Demob, but then contradicted itself by wrongly applying Section 14.4.2 to its
interpretation of Section 01505. The district court pointed out that Section 14.4.2
only applies to the “‘part of the job start-up and phase-out costs not amortized by
the amount of Work accomplished shall be paid by the CITY.’” ER 8 (quoting
ER 127). The district court rightly found that “the parties appear to agree that
mob/demob is amortized” under Section 01505, “such that it would not be payable
under Section 14.4.2.” ER 8. “Certainly a fair reading of the three sections of
Part 4 of Section 01505 would support [that] conclusion,” it noted. Id. “Thus,” the
court held, “the Court finds that under the contract, the mob/demob bid item is
payable only under the specific mob/demob provision set forth at Part 4 of
Section 01505.” Id. However, the district court later states that Orion’s
interpretation of Section 01505 “would appear to conflict with [payment under
Section 14.4.2].” ER 12. The district court rightly found that the only controlling
payment provision for Mob/Demob is Section 01505. ER 8. It should not have
interpreted payment under Section 01505 as controlled by an inapplicable
provision, Section 14.4.2.
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Moreover, Section 01505’s specific provision for payment of Mob/Demob
controls over any general provision in Section 14.4.2. See Norville v. Carr-
Gottstein Foods Co., 84 P.3d 996, 1004 (Alaska 2004) (quoting Estate of
Hutchinson, 577 P.2d 1074, 1075 (Alaska 1978)) (“In contracts, as in statutes,
‘where one section deals with a subject in general terms and another deals with a
part of the same subject in a more detailed way, the two should be harmonized if
possible; but if there is a conflict, the specific section will control over the
general.’”). The district court erred by rightly concluding the general termination-
for-convenience provision did not apply but then applied it to the interpretation of
Section 01505.
The district court then further erred by analogizing to Quality Asphalt, a
distinguishable case. Quality Asphalt Paving, Inc. v. State, Dep’t of Transp. &
Pub. Facilities, 71 P.3d 865 (Alaska 2003). In that case, Quality Asphalt Paving
(QAP) provided road-paving services for the state, but the state terminated the
contract for its convenience after encountering problems at the project site. Id. at
868. The contract did not have any contingent phases. Id. The contract had a
general termination-for-convenience clause and no specific section regarding
paying the mobilization and demobilization bid item. Id. at 869-870. However,
the contract provided for payment upon termination of convenience of work
performed at an “agreed price.” Id. The contract restricted application of this
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provision with an explicit requirement that QAP “perform all the work.’” Id.
(quoting the QAP contract). QAP argued that the amount it bid on mobilization
and demobilization was an “agreed price.” Id. The Alaska Supreme Court rejected
this argument, pointing to the requirement that QAP “perform all the work” before
triggering the payment provision. Id. (“But Quality did not deliver all the
materials, and it did not perform all the work. It was therefore permissible for the
hearing officer to base Quality’s award on costs incurred rather than the ‘agreed
price’ for complete performance.”). The Alaska Supreme Court therefore held that
substantial evidence supported the hearing officer’s award of costs incurred, rather
than of the amount bid for Mob/Demob.
Here, the district court erred by finding Quality Asphalt “sufficiently
analogous” to bar Orion’s interpretation that it should be fully paid for
Mob/Demob under Section 01505. ER 13. The district court found that “QAP
asserted, like Orion here, that its mob/demob item was an ‘agreed price’ that
should be fully recoverable under the specific ‘agreed price’ term of the
termination provision.” Id. But this is not a reasonable conclusion, since Orion
has never mentioned “agreed price,” or any similar argument, because there is no
“agreed price” provision in the parties’ contract. The district court went on to state
that, in Quality Asphalt, “the Alaska Supreme Court upheld the use of cost incurred
because QAP had not reached the ‘complete performance’ that the court found
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necessary to trigger application of the ‘agreed price.’” ER 13 (quoting Quality
Asphalt, 71 P.3d at 870). The court continued, “based on Quality Asphalt Paving,
the Court finds that Orion could not have had a reasonable expectation that it
would be paid its entire mob/demob bid item when it had completed only one of
the four phases of the contract.” ER 13. However, the district court
misunderstands the holding in Quality Asphalt.
The Alaska Supreme Court did not find that “complete performance” is
always or even usually required to trigger full payment of Mob/Demob. Quality
Asphalt, 71 P.3d at 870. Rather, the Quality Asphalt court found that the contract
in that case had an explicit requirement of complete performance before triggering
full payment of Mob/Demob, and QAP failed to meet it. 71 P.3d at 870 (QAP
contract allowed for full payment of Mob/Demob only after QAP “‘perform[ed] all
the work’ . . . . But Quality did not deliver all the materials, and it did not perform
all the work. It was therefore permissible for the hearing officer to base Quality’s
award on costs incurred rather than the ‘agreed price’ for complete performance.”).
There is no such explicit provision in the parties’ contract here.
Instead, the question for the district court and this Court is whether
providing “all submittals required under the Contract” meant submittals for every
phase or submittals for any number of phases. Simply analogizing to Quality
Asphalt begs the question of whether Section 01505 requires performance of, and
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submittals from, every phase. Quality Asphalt would control if there was an
explicit provision in Orion and Seward’s contract that required performance of all
four phases before the full payment of Mod/Demob would trigger. The QAP
contract did not have contingent phases and did not have an ambiguous phrase
about “all submittals required” by a multi-phase contract where work stopped after
the first phase. Quality Asphalt, while it dealt with mobilization and
demobilization costs, does not help resolve the relevant question in this case, and
the district court should not have relied on it in construing Orion’s expectations in
finding Section 01505 required submittals from all phases.
As Orion has shown above, the termination for convenience of a multi-phase
contract after the first phase meant only those submittals for the Base Bid phase
were “required under the Contract,” so Orion must be paid the full amount bid for
Mob/Demob since it provided those required submittals.
CONCLUSION AND RELIEF REQUESTED
For the reasons stated above, Appellant respectfully requests that the Court
reverse the district court’s decision granting Seward’s motion for summary
judgment and denying Orion’s motion for summary judgment.
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RESPECTFULLY SUBMITTED this 27th of February, 2017.
DAVIS WRIGHT TREMAINE LLP
TRAEGER MACHETANZ
By
TRAEGER MACHETANZ
Attorneys for Plaintiff-Appellant
ORION MARINE CONTRACTORS, INC.
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STATEMENT OF RELATED CASES
Pursuant to Circuit Rule 28-2.6, Appellants are not aware of any other
related cases pending in this Court within the meaning of the Rule.
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CERTIFICATE OF COMPLIANCE
This brief complies with the length limits permitted by Ninth Circuit
Rule 32-1. The brief is 6,468 words or 29 pages, excluding the portions exempted
by Fed. R. App. P. 32(f). The brief’s type size and type face comply with Fed. R.
App. P. 32(a)(5) and (6).
DATED this 27th day of February, 2017.
DAVIS WRIGHT TREMAINE LLP
TRAEGER MACHETANZ
By
TRAEGER MACHETANZ
Attorneys for Plaintiff-Appellant
ORION MARINE CONTRACTORS, INC.
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No. 16-35919
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ORION MARINE CONTRACTORS, INC.,
Appellant,
V.
CITY OF SEWARD,
Appellee,
On Appeal from an Order
of the United States District Court for the District of Alaska
The Honorable Sharon L. Gleason
Case No. 3:15-cv-00151-SLG
BRIEF OF APPELLEE, CITY OF SEWARD
William A. Earnhart
BIRCH HORTON BITTNER & CHEROT
510 L Street, Suite 700
Anchorage, Alaska 99501
(907) 276-1550
Counsel for Appellee
____
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i
CORPORATE DISCLOSURE STATEMENT
The City of Seward is a home rule city formed under the laws of the State of
Alaska.
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ii
TABLE OF CONTENTS
CORPORATE DISCLOSURE STATEMENT ........................................................i
TABLE OF CONTENTS ........................................................................................ ii
TABLE OF AUTHORITIES ................................................................................. iv
STATEMENT OF JURISDICTION........................................................................ 1
STATEMENT OF ISSUES PRESENTED FOR REVIEW .................................... 1
STATEMENT OF THE CASE ................................................................................ 1
A. The Breakwater Rock Production Project ............................................... 1
B. Addressing Low Yields ............................................................................ 2
C. Compensation for Mobilization and Demobilization .............................. 5
D. Termination for Convenience Option ...................................................... 7
E. Orion’s Bid ............................................................................................... 8
F. Orion’s Contract is Terminated ................................................................ 9
G. The Parties’ Dispute .............................................................................. 11
H. Procedural History ................................................................................. 12
SUMMARY OF ARGUMENT ............................................................................. 14
ARGUMENT ......................................................................................................... 15
A. Standard of Review ................................................................................ 15
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iii
B. The District Court Properly Considered the Contract Clear
Language and Intent and Denied that Orion had Provided “All
Submissions Required Under the Contract,” when the Contract
was Less than 25% Complete ...................................................................... 16
C. Orion’s Termination for Convenience Did Not Create a
New Contract ............................................................................................... 21
D. The Court was Correct to Disregard Orion’s Late-Submitted
Extrinsic Evidence ....................................................................................... 27
CONCLUSION ...................................................................................................... 30
STATEMENT OF RELATED CASES ................................................................. 30
CERTIFICATE OF COMPLIANCE WITH RULE 32(a) .................................... 31
CERTIFICATE OF SERVICE .............................................................................. 32
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iv
TABLE OF AUTHORITIES
CASES
Ah Quin v. County of Kauai Dept. of Transp.,
733 F.3d 267, 280 (9th Cir. 2013) ............................................................... 15
AmerisourceBergen Corp. v. Dialysist W., Inc.,
465 F.3d 946, 949 (9th Cir. 2006) ............................................................... 15
Carroll v. Nakatani, 342 F.3d 934, 945 (9th Cir. 2003) ........................................ 28
Culinary & Service Emp. Union v. Hawaii Emp. Benefit Administration,
688 F.2d 1228, 1230 (9th Cir. 1982) ........................................................... 16
Easley v. Cromartie, 532 U.S. 234, 242 (2001)) ................................................... 16
Estate of Polushkin ex rel. Polushkin v. Maw,
170 P.3d 162, 167 (Alaska 2007) ................................................................ 17
Hiken v. Dep't of Def., 836 F.3d 1037, 1042 (9th Cir. 2016) ................................ 15
In re Aslan, 909 F.2d 367 (9th Cir. 1990) .............................................................. 16
Kona Enters., Inc. v. Estate of Bishop,
229 F.3d 877, 890 (9th Cir.2000) ................................................................ 28
Lingley v. Alaska Airlines, Inc., 373 P.3d 506, 512 (Alaska 2016) ....................... 17
Mason & Dixon Intermodal, Inc. v. Lapmaster Int'l LLC,
632 F.3d 1056, 1060 (9th Cir. 2011) ........................................................... 15
Nautilus Marine Enters., Inc. v. Exxon Mobil Corp.,
305 P.3d 309, 316 (Alaska 2013) ................................................................ 17
Peterson v. Wirum, 625 P.2d 866, 870 (Alaska 1981) .......................................... 29
Philbin v. Matanuska-Susitna Borough, 991 P.2d 1263, 1271 (Alaska 1999) ...... 29
Quality Asphalt Paving, Inc. v. State, Department of Transportation
and Public Facilities, 71 P.3d 865 (Alaska 2003). ............................... 23, 24
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Taylor-Edwards Warehouse v. Burlington Northern,
715 F.2d 1330, 1333 (9th Cir. 1983) ........................................................... 15
Trishan Air, Inc. v. Fed. Ins. Co., 635 F.3d 422, 427 (9th Cir. 2011) ................... 15
United States ex rel. Lindenthal v. General Dynamics Corp.,
61 F.3d 1402 (9th Cir. 1995) ....................................................................... 16
United States v. 1.377 Acres of Land, More or Less, situated in
City of San Diego, Cty. of San Diego, State of Cal.,
352 F.3d 1259, 1264 (9th Cir. 2003) ........................................................... 16
Williams v. Crawford, 982 P.2d 250, 253 (Alaska 1999) ...................................... 17
Winmar, Inc. v. Al Jazeera Int’l, 741 F.Supp.2d 165 (D.D.C. 2010) .................... 21
Zamani v. Carnes, 491 F.3d 990, 995 (9th Cir. 2007) ........................................... 15
STATUTES
28 U.S.C. § 1291 ...................................................................................................... 1
28 U.S.C. § 1332(a) ................................................................................................. 1
OTHER AUTHORITIES
12 James Wm. Moore et al., Moore's Federal Practice
§ 59.30[4] (3d ed.2000). .............................................................................. 27
5 BRUNER & O’CONNOR, CONSTRUCTION LAW § 18:45 (2016) .............. 21
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STATEMENT OF JURISDICTION
The district court properly exercised diversity jurisdiction under 28 U.S.C. §
1332(a) and this Court has jurisdiction under 28 U.S.C. § 1291 over appeals from
all final decisions of the district courts. Appellant’s appeal is untimely in so far as
it relies primarily on arguments and evidence submitted at Docket 61, after the
district court entered summary judgment at Dockets 45 and 46.
STATEMENT OF ISSUES PRESENTED FOR REVIEW
Was the district court correct in finding that when appellant Orion Marine
Contractors, Inc. (“Orion”) knowingly agreed to perform a $6.1 million contract
but requested a “termination for convenience” after completing less than 1/18th of
the total rock production, that Orion had not completed “all submissions required
under the contract” and was not entitled to any additional sums above what had
already been paid for the work completed.
STATEMENT OF THE CASE
A. The Breakwater Rock Production Project
In 2014, the City of Seward (the “City”) began operations to construct a new
breakwater in Resurrection Bay and in July 2014, the City advertised its request for
bids for the Breakwater Rock Production Project (the “Project”). [ER 59] The
City’s engineer, R&M Consultants, Inc., provided the bid package that was
ultimately executed by the City and its contractor for the Project. See the Contract
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Documents and Technical Specifications Bid Set (“contract”). [ER 57-162]
Construction of the breakwater would require almost two hundred thousand
(200,000) tons of “armor rock,” which the City anticipated would be mined from
the City of Seward Quarry (the “Quarry”) outside of town; conditions in the
Quarry required that rock extraction for the Project would have to be sourced from
previously-untested areas. [ER 59]
B. Addressing Low Yields
The City recognized that the primary concern for any contractor bidding to
mine armor rock out of the Quarry was the Quarry’s yield, on account of the need
to mine from untested areas. Although the City had used the Quarry to obtain
armor rock before, and previous geotechnical reports indicated that a contractor
could get the rock it would need for the Project from the Quarry, there was no
guarantee that a contractor could expect a particular quantity or quality of rock to
match the contractor’s level of effort once operations began. See Invitation to Bid.
[ER 59] Simply put, quality rock might prove too hard to get, necessitating the
importation of armor rock from other quarries elsewhere in Alaska.
The City addressed this uncertainty by breaking the Project into phases. The
contractor would start by mobilizing to the Quarry and producing ten thousand
(10,000) tons of armor rock. [ER 59] This was called the “Base Bid phase.” Id.
Following the conclusion of the Base Bid phase, the City would assess whether the
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rock yields were satisfactory to justify proceeding with the remainder of the work.
[ER 59] If yields were satisfactory, the work would proceed to the next of three
phases, each of which would conclude with another assessment until Project
completion; these three subsequent phases were referred to as “Additive Amounts”
and covered the production and stockpiling of the rock, the total production of
which was to be 196,090 tons. [ER 59] The City was clear that it planned to
award one contract encompassing all four phases: “The City intends to award all
phases of work (Base Bid and Additive Amounts) pending satisfactory results of
previous phases and continued performance with the armor rock specification.”
[ER 59]
The contract also provided the contractor with room to renegotiate the
contract terms in the event that a “yield analysis” during the first phase of the
Project demonstrated that future work was likely to be unprofitable:
The yield analysis will be used to evaluate achievable quantities for
future phases of work (Additive Amounts). . . Re-negotiation of bid
prices and/or termination of the contract may be warranted if the
CONTRACTOR and the ENGINEER agree that the quarry materials
have changed significantly enough to warrant a 25% reduction in
yield.
See Specifications. [ER 158] The contract deliberately set the production
requirements low for the first phase of work, in keeping with this “wait and see”
approach to rock yields, limiting the contractor’s risk.
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Prior to receipt of bids, the City modified the Invitation to Bid on August 12,
2014 with Addendum No. 3. [ER 166] Part of the addendum answered a question
posed by the prospective contractors: “how is our risk limited if we assume a yield
that is much higher than we are able to produce?” Id. The contract had stated that
in such a situation “re-negotiation of bid prices and/or termination of the contract
may be warranted,” but was not clear whether contractors could be sure what
would happen in the event of low yields. [ER 158] (emphasis added). The
addendum thus provided contractors with more certainty:
A request for termination of the Contract may be initiated by the
Contractor after the Base Bid is completed. The quarry development
plan will initially establish the blasting plan, etc. and this will be
reviewed by the City’s Consultant. If the Plan is not achievable
during the first phase, the Contractor may request termination of the
contract. This will be subject to additional review by the City.
[ER 166] The added provision was unique because a “termination for
convenience” had been a remedy previously available only to the City in the event
that the City decided it would be in its best interests to terminate the work. [ER
126-127] Addendum No. 3 gave the contractor the option of requesting a
termination for convenience at the conclusion of the Base Bid phase, and obligated
the City to terminate the contract forthwith. Addendum No. 3 thus empowered the
contractor to walk away from the Project at the conclusion of the Base Bid phase
no matter how bad the numbers were.
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C. Compensation for Mobilization and Demobilization
One substantial cost item for the Project contractor was the mobilization and
demobilization from the Quarry (“mob/demob”). Contractors were asked to
present a lump sum for the total cost of mob/demob as part of the pay items for the
Base Bid phase work. [ER 164; 169] But even though the contractor’s total cost
of mob/demob was described in the Base Bid as a pay item, the contract was
abundantly clear that the contractor could not
A. When 4% of the original contract amount from other bid items
earned, 40% of the amount bid for mobilization and
demobilization, or 4% of the original contract amount,
whichever is less will be paid [for
mobilization/demobilization].
expect full reimbursement of that
sum once it had completed the Base Bid work. Instead, the contractor could only
expect full compensation for mob/demob when it completed all four phases of the
Project. Entitlement to compensation for mob/demob is addressed by Part 4 of
Section 01505 of the contract:
B. When you earn a total of 8% of the original contract amount
from other bid items, an additional 40% of the amount bid for
mobilization and demobilization, or an additional 4% of the
original contract amount, whichever is less, will be paid.
C. The remaining balance of the amount bid for Mobilization and
Demobilization will be paid after all submittals required under
the Contract are received and approved.
[ER 164] (hereafter “Section 01505”). The term “Contract” is defined elsewhere as
the “written agreement between the CITY and CONTRACTOR setting forth the
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obligations of the parties and covering the Work to be performed, all as required by
the Contractor Documents.” [ER 89], see also [ER 7] at pg. 7 (concluding that
“Contractor Documents” in this provision is a typographical error otherwise
referring to the “Contract Documents”). In turn, the term “Work” is contractually
defined as:
the act of, and the result of, performing services, furnishing labor,
furnishing and incorporating materials and equipment into the Project
and performing other duties and obligations, all as required by the
Contract Documents. Such Work, however incremental, will
culminate in the entire completed Project, or the various separately
identifiable parts thereof.
[ER 91]
Thus, by way of example, if the total contract price was $10 million, and the
contractor progressed to the point of submitting pay requests totaling $400,000
(4% of the total contract price), the contractor would receive either 40% of the total
amount of mob/demob described in the Base Bid or $400,000 (4% of the total
contract price) toward the total amount of mob/demob costs described in the Base
Bid or, whichever was less. In the event the contractor then proceeded to perform
work and submit pay requests totaling an additional 4% of the original contract
price (for a total of 8%), the contractor would be entitled to an additional payment
totaling either 40% of the mob/demob costs stated in the Base Bid or an additional
$400,000, whichever was less. But the contractor would not be entitled to full
reimbursement of mob/demob until it completed 100% of the work described in
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the contract. At that point, the contractor would receive a final payment covering
the difference between the amount paid to-date for mob/demob and the total price
of mob/demob as set forth in the Base Bid.
D. Termination for Convenience Option
The Project’s contract scheme admittedly put potential contractors at risk of
failing to recover their full mob/demob costs if they could not finish the project
completely due to economic realities. But, as noted above, the contract contained a
“safety valve” for contractors that needed to cut their losses and get out of the
project, in the form of termination for convenience. [ER 166], [ER 126-27]. If the
contractor encountered poor yields but could not renegotiate contract terms with
the City, it could simply request termination and the City would oblige. The
contractor would then walk away with whatever money it had earned to date,
without further obligation to prosecute what it considered unprofitable work.
The contract was abundantly clear as to what a contractor could expect
following a termination for convenience. The contractor would need to stop all
work, terminate all subcontracts, transmit any drawings to the City, and take
whatever steps necessary to preserve the jobsite conditions. [ER 126-27]. Within
90 days of the termination, the contractor would submit a “termination claim” to
the City under section 14.4.3 of the contract. [ER 127] The termination claim
would be a demand for payment of the following:
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a.All costs and expenses reimbursable in accordance with the
Contract not previously paid to the CONTRACTOR for the
performance of the Work prior to the effective date of the
“Notice of Termination.”
b.So far as not included under “a” above, the cost of settling and
paying claims arising out of the termination of the Work under
subcontracts or orders which are properly chargeable to the
terminated portions of the Contract;
c.The reasonable costs of settlement with respect to the
terminated portion of the Contract heretofore, to the extent that
these costs have not been covered under the payment provisions
of the Contract.
[ER 127]
Importantly, this provision entitles the contractor to only two sources of
reimbursement following termination: (1) payment for work performed prior to the
date of termination, and (2) “closeout” costs related to wrapping-up the work, e.g.
the cost of cancelling orders for materials and returning materials no longer
needed. [ER 127] A contractor is not entitled to costs “covered under the payment
provisions of the Contract,” such as mob/demob. [ER 127] at 14.4.3(c).
E.Orion’s Bid
Orion was among the bidders at the close of bids on August 14, 2014. As
directed by the City, Orion established lump sum bids for each phase of the work.
Orion structured its bid as follows:
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Base Bid: $1,520,000
Mobilization and Demobilization: $873,000
Site Preparation: $92,000
Primary Armor Rock, Class A $410,000
Primary Armor Rock, Class B $145,000
Add-Alternate A: $1,516,290
Add-Alternate B: $1,526,320
Add-Alternate C: $1,588,290
[ER 169-172]
The combined price of the Base Bid and three additives was the total
contract price as shown in the “Bid Summary and Basis for Award” signed by
Orion; its total bid, consisting of the Base Bid and all Add-Alternates (i.e.
additional phases), was $6,150,900. [ER 172] Orion’s bid was deemed the lowest
responsible and responsive bid, and the City informed Orion that it intended to
award Orion the contract based on the amount of Orion’s total bid. On August 22,
2014 Orion signed the City’s contract, wherein it agreed to “provide all materials
and perform all labor” for the project “as bid by the contractor.” [ER 8] [SER 31-
32]
F. Orion’s Contract is Terminated
Orion mobilized to the Quarry and began production in the fall of
2014. By late November, Orion had completed the Base Bid phase rock production
of 10,000 tons. But, Orion was encountering low yields. The yields however were
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not a 25% reduction, low enough to trigger the renegotiation of bid prices under
Section 02371 of the contract, [ER 158] section E, and were within the risk of
uncertainty assumed by Orion. This was precisely the scenario anticipated by the
City and the bidders when the City agreed to the terms of the Addendum No. 3
during the bidding process, which provided a remedy for a contractor’s termination
for convenience. However, rather than immediately requesting termination for
convenience, Orion first proposed a change order increasing the total Contract
price by 25% and extending the completion date. [ER 174] The City declined the
request, instead reminding Orion that the City would terminate the contract for
convenience if Orion requested it. [ER 174]
On November 25, 2014, Orion submitted a certified pay application
certifying that it had put in a total of $483,453 of work on bid items other than
mob/demob. See Certified Pay Application, [SER 23-24] Although such amount
of work did not quite represent 8% of the total contract amount (it was in fact
7.86%), Orion nonetheless claimed that it was entitled to payment of 8% of the
total contract amount as partial compensation for mob/demob and requested
$492,072 (which did represent 8% of the total contract amount) for the two
submittals, which the City paid.1
1 Section 01505 provided that at 8% completion, Orion would have been cumulatively entitled to either 80% of the amount bid for mobilization and demobilization ($698,400) or 8% of the original contract amount ($492,072), whichever was less. Orion received the latter. [ER 164]
[SER 25-26].
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On the same day, November 25, 2014, Orion requested termination for
convenience on the grounds that it was not achieving “satisfactory” rock yields
under Addendum No. 3. [ER 180] On December 4, 2014, the City granted the
request, stating: “the recently approved payment for Mob/Demob of $492,072.00
from Pay Request 2 will be the full amount for this category since full mobilization
was not performed to support the contract Additive production requirements.” See
Letter from R. Wise to B. Erickson, dated December 4, 2014, [SER 20]; [ER 183]
In other words, Orion had not performed to 100% of the original Contract amount,
and thus, under Section 01505, Orion would not be paid 100% of its mob/demob
costs. Orion confirmed that this would be a termination for convenience under
Section 14.4 of the contract and upon the effective date of the termination “all
rights and obligations of the parties toward one another will end…” [ER 176],
second paragraph. The date of termination was November 25, 2014. [ER 179].
G. The Parties’ Dispute
Orion wrote the City on February 17, 2015, submitting a claim for “the full
amount of its mobilization and demobilization fees.” See Orion Claim Letter,
Docket 31-12 at 4 [SER 14]. The numbers for mob/demob were as follows:
Full Mob/Demob Costs per Orion’s Bid $873,000
Actual Mob/Demob Costs as of Termination $278,974
Amount of Mob/Demob Paid By City $492,072
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[ER 169]; [SER 16]; [SER 29]
Orion wanted an additional $380,928, the difference between what it had
been paid in its mob/demob bid ($873,000). Of course, Orion had already received
more than 175% of its actual
Orion’s request flew in the face of Section 01505, wherein Orion agreed that
it would not receive the full $873,000 it had bid for mob/demob until it had
finished the Project. [ER 150] at Part 4.1.C. Orion had only invoiced $975,525 –
far less than the original contract amount of $6,195,900. Put simply, the work
described in the Contract, and in Section 01505, was
mob/demob costs ($278,974), but it wanted the large
“contingency” that it had built into its base bid.
not
The City denied Orion’s claim for full mob/demob costs on March 2, 2015.
See Claim Denial Letter [SER 9-10] The City stressed that there was nothing in
the bid documents or contract documents describing payment of “rock
contingencies.” Orion appealed the decision to the city manager, and the City
Manager affirmed the project manager’s determination. Orion filed this suit,
seeking $380,928: the difference between the amount paid by the City for
mob/demob and the total cost described in Orion’s bid.
complete.
H. Procedural History
Orion’s complaint was filed on August 26, 2015, [ER 188], and after brief
discovery, Orion moved for summary judgment and the City opposed and cross
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moved for summary judgment; both parties agreed that the contract was
“unambiguous.” [ER 6] citing Docket 22 at 8 and Docket 25 at 1-2, 15-16. To
that extent, both counsel agreed at oral argument that there were no issues of fact
and that the court could interpret the Contract as a matter of law. [SER 6-8]
The district court granted summary judgment in favor of Seward. Finding
that the only reasonable interpretation of the phrase “all submittals under the
contract” means the entire contract, not just the first phase and that Orion was not
entitled to further payments under the contract. [ER 1-14]
After the Court ruled, Orion moved to amend the judgment under Fed. R.
Civ. P. 59 asking the court to consider additional extrinsic evidence which was not
in the record. This “evidence” consisted of self serving deposition testimony by
Orion officers as to what they now think they were thinking when the contract was
signed. Orion also advocated that the court rely on out of circuit case law in
making its decision, arguing that the result was somehow a financial hardship
requiring reconsideration. All of Orion’s arguments were denied. [SER 1-5].
Nonetheless, Orion bases much of its appeal on extrinsic evidence which was not
before the district court when it decided summary judgment, and the City has
accordingly filed a separate motion to strike this evidence from the appellate
record. And while Orion failed to appeal the district court’s denial of its motion to
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amend the judgment, insofar as its appeal incorporates such arguments, the City
will also address such procedural impropriety below.
SUMMARY OF ARGUMENT
Orion knowingly signed a $6.1 million contract to provide rock to build a
breakwater. When Orion’s production was not as efficient as projected, and not
enough to trigger an automatic renegotiation, the City, pursuant to the parties’
contractual rights, granted Orion a termination for convenience, thereafter ending
Orion’s obligations under its contract and precluding damages for lost profits or
anticipatory damages. Accordingly, and pursuant the contract terms, for its
mob/demob work during the Base Bid phase of the contract, Orion was paid 8%
($492,072) of the total contract price ($6,150,900), which was a sum well in excess
of Orion’s actual mobilization and demobilization costs of $278,974. The district
court properly considered the clear language and intent of Section 01505 and found
that Orion had failed to provide “all submissions required under the contract” – the
condition upon which full payment of Orion’s mob/demob bid price was due. [ER
11-14] As such, this Court should affirm the district court’s ruling and should
additionally disregard any extraneous evidence (and arguments based thereupon)
improperly submitted by Orion.
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ARGUMENT
A. Standard of Review
An order granting or denying summary judgment is reviewed de novo.2
Review of a trial court’s interpretation of a contract pursuant to state contract law
is also de novo, so long as the interpretation is confined to an analysis of the
contract language.3 A district court's denial of a Rule 59(e) motion to amend
judgment is reviewed for abuse of discretion.4
Generally speaking, federal courts sitting in diversity apply state substantive
law and federal procedural law.
5 As to contractual interpretation, when
interpreting state law, a federal court is bound by the decisions of a state's highest
court.6
Additionally, here, the district court’s August 3, 2016 decision made use of
extrinsic evidence in its interpretation of the parties’ Contract. [ER 11] (The court
analyzed a pay application submitted by Orion to the City near the end of Orion’s
work, for evidence of Orion’s subjective belief as to the overall value of the
2 Ah Quin v. County of Kauai Dept. of Transp., 733 F.3d 267, 280 (9th Cir. 2013). 3 Taylor-Edwards Warehouse v. Burlington Northern, 715 F.2d 1330, 1333 (9th Cir. 1983). 4 Hiken v. Dep't of Def., 836 F.3d 1037, 1042 (9th Cir. 2016). 5 Mason & Dixon Intermodal, Inc. v. Lapmaster Int'l LLC, 632 F.3d 1056, 1060 (9th Cir. 2011); Zamani v. Carnes, 491 F.3d 990, 995 (9th Cir. 2007). 6 Trishan Air, Inc. v. Fed. Ins. Co., 635 F.3d 422, 427 (9th Cir. 2011); AmerisourceBergen Corp. v. Dialysist W., Inc., 465 F.3d 946, 949 (9th Cir. 2006).
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Contract work.) When a trial court renders an opinion on a contract’s language
which is premised on extrinsic evidence, the court’s findings of fact must be
upheld unless clearly erroneous. 7 Thus the district court’s use of extrinsic
evidence triggers the stricter “clearly erroneous” standard of review, and its
decision must be accorded “great deference” during review.8
As shown below, under these standards of review, the clear language of the
contract means Orion is not entitled to its bid amount for mob/demob.
B. The District Court Properly Considered the Contract’s Clear
Language and Intent and Denied that Orion had Provided “All
Submissions Required Under the Contract,” when the Contract
was Less than 25% Complete
Orion appeals the district court’s determination that “the City does not owe
[Orion] the entire mob/demob bid amount when only the Base Bid was
completed.” [ER 14] As this appeal concerns the construction of a contract,
Alaska state law governing contract interpretation controls the analysis.9
7 United States v. 1.377 Acres of Land, More or Less, situated in City of San Diego, Cty. of San Diego, State of Cal., 352 F.3d 1259, 1264 (9th Cir. 2003) (citations omitted); (confirming that if the court’s decision is based upon the evaluation of extrinsic evidence, the court's decision will be upheld unless there is a “definite and firm conviction that a mistake has been committed.” Citing Easley v. Cromartie, 532 U.S. 234, 242 (2001)).
The
Alaska Supreme Court interprets contracts so as to give effect to the parties’
8 Culinary & Service Emp. Union v. Hawaii Emp. Benefit Administration, 688 F.2d 1228, 1230 (9th Cir. 1982); see also United States ex rel. Lindenthal v. General Dynamics Corp., 61 F.3d 1402 (9th Cir. 1995). 9 In re Aslan, 909 F.2d 367 (9th Cir. 1990) (“State law controls both the construction of the contract and the question of breach.”).
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reasonable expectations.10 “Those expectations are discerned from the language of
the disputed provisions, other provisions, and relevant extrinsic evidence, with
guidance from case law interpreting similar provisions.”11 When interpreting a
contract, a court's duty is to “ascertain and give effect to the reasonable intentions
of the contracting parties.” 12
In their summary judgment briefing, the parties did not disagree that Section
01505, Part 4 amortizes Orion’s reimbursement for mob/demob, making the
amount of Orion’s entitlement conditional on the owner’s receipt and approval of
“all submittals under the Contract.” Appellant’s Brief p. 2. Interpretation of that
phrase became the lynchpin of the district court’s analysis. [ER 7] The City has
always maintained, and the trial court agreed, that “Contract” refers to all four
phases of the contract, and not only to the first phase of the contract. Returning to
the issue of interpretation of the contract language, the district court rightly seized
on defining the word “Contract,” and focused on related defined terms; it
ultimately found that the four phases – the Base Bid and the three additive phases –
were all part of the parties’ contract. [ER 10] A reasonable interpretation of the
contract, along with Orion’s own conduct, supports the district court’s decision.
10 Lingley v. Alaska Airlines, Inc., 373 P.3d 506, 512 (Alaska 2016); Williams v. Crawford, 982 P.2d 250, 253 (Alaska 1999). 11 Williams, 982 P.2d at 253; see also Nautilus Marine Enters., Inc. v. Exxon Mobil Corp., 305 P.3d 309, 316 (Alaska 2013). 12 Estate of Polushkin ex rel. Polushkin v. Maw, 170 P.3d 162, 167 (Alaska 2007) (internal quotation marks omitted).
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Part 4(C) of Section 01505 states, “[t]he remaining balance of the amount
bid for Mobilization and Demobilization will be paid after all submittals required
under the Contract are received and approved.” [ER 164] In turn, the contract very
clearly explains what submittals are “required under the Contract,” and not all the
listed submittals were completed. For instance, Section 1700 of the Specifications
sets the requirement for a submittal stating that the contractor has achieved
“substantial project completion for Additional Amounts listed in the bid schedule
and included in the contract.” [ER 151] Orion had not completed any of the
“additive” phases of the work, so this submittal was obviously never sent to the
City, and all submittals required under the Contract were patently not
The payment scheme for mob/demob, which amortized the City’s payments
according to the progress of the work, made sense given the uncertainty of the
Project’s duration. Under other circumstances, if the parties agreed that a
contractor would be reimbursed for mob/demob simply upon proving that
mob/demob was accomplished and submitting a pay request, the contractor would
be guaranteed full reimbursement no matter what, because mob/demob will always
occur regardless of the success or failure of the project. For example, a contractor
could mobilize to the Project, immediately determine that the work is unprofitable,
demobilize, and then receive a windfall in the form of its mob/demob costs plus a
in at the time
of termination.
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substantial markup, despite doing no work and providing the City with no value.
Amortized payment on the basis of the percentage of work actually performed
prevents that from happening.
Tellingly, Orion’s own certified pay request submitted contemporaneously
with its request for termination of the contract indicates that Orion also understood
the terms of Section 01505 as relating to the total contract amount:
[SER 23] When Orion requested reimbursement for mob/demob, it had
requested 8% of the “Original Contract Amount” of $6.15 million, and not 8% of
its Base Bid amount of $1,645,000. In doing so, Orion acknowledged it was
performing a larger contract than just the Base Bid; the stated “Balance to
Complete” was $5.2 million. [SER 23] Orion was agreeing that its work would not
be “complete” until it invoiced another $5.2 million. From the pay request it is
clear that Orion also understood that the full contract price defined the scope of the
parties’ reimbursement conditions and obligations under the contract.
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Additional evidence in the record before the district court on summary
judgment supports Orion’s own, pre-termination belief that “the contract” included
all four phases when it: (1) submitted its bid, [ER 172]; (2) when it signed the
contract [SER 31-32]; (3) and when it submitted for partial payment. [SER 23]
However, Orion now asserts it could perform only a small fraction of the work but
collected the entire mob/demob amount so long as the City paid any submittals
presented to it, making the amortization provision superfluous, as the court noted.
[ER 11] It is clear from the contract and correspondence that the contract was for
the Base Bid phase as well as the three additional phases; there were not separate
contracts for each different phase.
Noting Orion’s own conduct, the district court did not confine its analysis to
the plain language of the writing. The court noted that Orion’s certified requests
for payment were made against the entire $6.1 million contract, and even Orion
expressly confirmed $6,150,900 as the full contract amount in its first and second
mob/demob invoices submitted under Section 01505 when it sought mob/demob
payment for completion of 4% of the project. [SER 23] Orion’s reimbursement
was not paid based on 4% and 4% of the Base Bid phase, but on the entire contract
price. For these reasons, the district court’s interpretation of the contract should
not be disturbed absent a showing that it was “clearly erroneous.” Orion simply
has not carried this burden.
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C. Orion’s Termination for Convenience Did Not Create a New
Contract
Orion argues that the specifications of the contract had control over the bid
forms, so the inclusion of the mob/demob in only the Base Bid page of Orion’s bid
is not relevant. The termination for convenience simply amended the contract
down to one phase, creating a new, smaller contract. See Appellant’s Brief at 15.
A new contract did not arise when the original contract was terminated for
convenience; the term “Contract” as used in Section 01505, Part 4(C) can only
rationally be read to refer to the original contract. Likewise, it follows that the term
“all submittals” refers to the submittals required under these additive phases as
well. Orion’s assertion that because it was able to terminate the contract early for
convenience. The three additive phases were contingencies and not part of the
original contract is contrary to the meaning of the term “termination for
convenience.”
The use of a termination for convenience provision results in the early
termination of a contract, with only partial performance, but without a remedy for
breach.13
13 See 5 BRUNER & O’CONNOR, CONSTRUCTION LAW § 18:45 (2016) (“The thrust of the termination for convenience clause is to convert the contractor’s compensatory damages interest from ‘expectancy’ to ‘reliance’ damages.”); Winmar, Inc. v. Al Jazeera Int’l, 741 F.Supp.2d 165 (D.D.C. 2010) (noting that the purpose of a termination clause is to “permit a party receiving services to unilaterally cancel its contractual obligations and still avoid committing a breach that would expose it to damages”).
Termination for convenience is a method by which a party may limit its
exposure for the risk of being unable to perform an entire contract, not a means by
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which a party may create a new contract with a decreased scope. The plain
language of the contract between the City and Orion makes it clear that the parties
contracted for the Base Bid and the three additive phases, not solely for the Base
Bid; these three phases were not contingent, separate contracts. Upon signing the
contract, Orion became obligated to perform all of the contract, unless and until the
entire contract was completed or terminated for convenience. After the termination
for convenience, Orion was only entitled to unreimbursed costs incurred.
The termination for convenience clause “changes what the contract requires
by cutting off all post termination performance obligations.” Bruner and O’Connor
supra section 5:270, as cited by Orion. Appellant’s Brief at p. 16. The obligations
of both parties are terminated; the contractor performs no additional work other
than leaving the site and the owner makes no further payments other than costs
incurred. Orion would have the termination for convenience only end its
obligation to make “all submittals required” but still have the City make payments
not yet accrued. Section 14.4 termination for convenience ends all obligations
other than the close out items listed in section 14.4.1 and 14.4.2.[ER 127]
There is controlling Alaska law directly on point. The Alaska Supreme
Court addressed this exact factual scenario.14
14 Quality Asphalt Paving, Inc. v. State, Department of Transportation and Public Facilities, 71 P.3d 865 (Alaska 2003).
The State of Alaska retained
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contractor, Quality Asphalt Paving (“QAP”) for a road-paving project. Early in the
project, the state terminated the contract for convenience. QAP then sought to
recover the entire mob/demob line item in the contract as an “agreed price”.15
However, the State refused to pay any more than the actual mob/demob costs
incurred by QAP Based on the termination for convenience clause payment
provisions, because QAP had not completed the project. The Alaska Supreme
Court held that the amount of mob/demob that the parties had agreed to must be
read in light of the fact that QAP had “covenant[ed] and agree[ed] to furnish and
deliver all the materials and to do and perform all the work.”16 Because QAP did
not complete the work, the termination for convenience clause required only an
“award on costs incurred rather than the ‘agreed price’ for complete
performance.”17
Orion again argues that Quality Asphalt Paving is inapplicable because the
Seward/Orion contract contained a specific provision controlling the payment of
the mob/demob bid item, while the operative provision in Quality Asphalt Paving
was only a “general payment” clause. However, in both cases the contractor is/was
asserting the mob/demob item was an “agreed price” that should be fully
Orion’s actual mob/demob costs were substantially less than it
had already been paid on that item. [SER 29]
15 Id. at 71 P3d at 869-70. 16 Id. at 71 P3d at 870. 17 Id.
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recoverable under the specific “agreed price” term of the termination provision.
The Alaska Supreme Court upheld the use of “cost incurred” because QAP had not
reached the “complete performance” that the court found necessary to trigger
application of the “agreed price.”18
Orion mischaracterizes the district court’s finding in regard to the
applicability of Section 14.4.2, the pay provision under termination for
convenience. The district court found 14.4.2 relevant to the termination of the
contract, but not controlling as to payment of “costs amortized …” [ER 8] Section
14.4.2 states the Contractor will be paid for “all work in place as of that date…”
[ER 127] Section 14.4.3 (a) limits the contractor’s recovery to reimbursable
expenses “not previously paid to the CONTRACTOR;”; and Section 14.4.3(c) is
clear that the contractor only recover for costs that “have not been covered under
the payment provisions of the contract.” [ER 127] Orion’s actual mob/demob
costs of $278,974 were less than the $492,072 Orion had already been paid under
Section 1505. [SER 29]. Any actual costs (including mark up) incurred by Orion
due to the unexpected cancellation of the contract had already been paid.
The district court was correct when it found
“Orion could not have had a reasonable expectation that it would be paid its entire
mob/demob bid item when it had completed only one of the four phases of the
contract.” [ER 13]
18 Id. at 870.
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It is important to note that section 14.4.3(c) uses the term “have not been
covered…,” meaning “up to now.” Orion’s interpretation would require the
present progressive tense “are not covered under the payment provisions…,”
meaning “currently.” Payment under 14.4.3 is not applicable because Orion had
already recovered its costs (and a tidy profit) under Section 1505 when the contract
terminated for convenience ending the contract. Any claim for unpaid mob/demob
costs or added mob/demob costs incurred due to the termination are offset by “All
previous payments made to the contractor…” and “All progress payments made to
the contractor…” under section 14.4.4 (a) and (d) respectively.
Appellant argues that the payment clause for mob/demob should take
precedence over the general clause for termination for convenience. The
termination for convenience takes precedence over all other clauses in the contract
as it terminates the contract and by definition voids all other payment provisions.
On the matter of “closeout costs” the provision later goes out of its way to
explicitly state that the amortized repayment for mob/demob described in Section
01505 would remain in force notwithstanding the contractor’s entitlement to
“reasonable costs of settlement:”
The CONTRACTOR shall be paid 10% of the cost, freight not
included, of materials canceled without changes, to the extent that the
CONTRACTOR can establish them. The extra costs due to
cancellation of bonds and insurances and that part of the job start-up
and phase-out costs not amortized by the amount of Work
accomplished shall be paid by the CITY. Charges for loss of profit or
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consequential damages shall not be recoverable except as provided
above.”
[ER 127] at Section 14.4.2 (emphasis added).
Although the terms are not specifically defined in the contract, the most
reasonable interpretation of “job start-up and phase-out costs” is those costs prior
to actual production and following completion of the work, including mob/demob.
This interpretation is bolstered by the fact that the only costs “amortized by the
amount of Work” that were not part of actual rock production were mob/demob.
By limiting the cost entitlement of the contractor at termination to those costs not
amortized by the amount of work, the contract termination provision specifically
limited the contractor’s recovery for mob/demob to the payment scheme set forth
in Section 01505 and quoted above. Termination for convenience explicitly did
not
Here again Orion has not carried its burden of demonstrating that the district
court’s analysis was “clearly erroneous.” The court was correct when it held:
change whether the contractor was entitled to 4% of the total contract, 8% of
the total contract price, or the full amount bid for mob/demob. Orion received the
portion of mob/demob “amortized by the amount of work accomplished,” and in
fact made a profit on that portion of the contract. Orion was not entitled to its
expected additional profit on mob/demob.
… the City has proposed the only reasonable interpretation of the
phrase “all submittals under the contract” in Part (C) of Section 1505
given the plain language of the parties’ contract, the circumstances of
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the formation of the contract, and the surrounding contract provisions.
Under that interpretation, the City does not owe the entire mob/demob
bid amount when only the Base Bid was completed.
[ER 13-14]
D. The Court was Correct to Disregard Orion’s Late-Submitted
Extrinsic Evidence
Orion submitted a Rule 59 Motion to amend a number of pages of deposition
testimony from which it attempts to submit two new arguments that the contract
language was not in fact clear on its face. Both arguments are not properly before
this court and both fail on the merits.
While Rule 59(e) permits a district court to reconsider and amend a previous
order, the rule offers an “extraordinary remedy, to be used sparingly in the interests
of finality and conservation of judicial resources.”19 Indeed, “a motion for
reconsideration should not be granted, absent highly unusual circumstances, unless
the district court is presented with newly discovered evidence, committed clear
error, or if there is an intervening change in the controlling law.”20 A Rule 59(e)
motion may not be used to raise arguments or present evidence for the first time
when they could reasonably have been raised earlier in the litigation.21
19 12 James Wm. Moore et al., Moore's Federal Practice § 59.30[4] (3d ed.2000).
The district
court denied Orion’s motion to amend. [SER 1-5]. The district court's denial of a
20 Carroll v. Nakatani, 342 F.3d 934, 945 (9th Cir. 2003) citing Kona Enters., Inc. v. Estate of Bishop, 229 F.3d 877, 890 (9th Cir.2000). (citations omitted). 21 Id.
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motion for reconsideration is reviewed for an abuse of discretion.22
Orion’s first new argument is that Seward changed the bid request at the last
second from four separate contracts to one, and that Orion was forced to make a
quick decision to sign the contract without considering all implications.
Appellant’s Brief at p.11. Initially, this is an admission that Orion knew this was
one contract, not four – a fact confirmed by Orion’s Vice President, Bryce
Erickson, who signed the contract:
Orion did not
appeal the denial of it motion to amend, and should not be allowed to present the
evidence and arguments made in that motion. As such, Appellant’s entire third
argument, found at pp. 20-23 of its brief, must be stricken.
12· ·Q.· In fact, you wound up signing a contract for the
13· ·whole thing, right?
14· ·A.· Right.
[ER 36] at pg. 60 lines 12-14.
Orion knowingly signed and submitted its bid on August 14, two days after
the addendum that allegedly changed the terms of the bid. [ER 168], [ER 166]
Nothing in Addendum No. 3 indicates more than a clarification that a termination
for convenience could be granted after the Base Bid phase. [ER 166] The
unsubstantiated argument that the City amended the project to avoid going
repeatedly to the “assembly” (City Council) was not before the court on summary
22 Id.
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judgment. [SER 6-8] And as noted above, if a change in the project was made,
and whatever the reason or timing of the change, Orion still voluntarily entered
into the full contract.
The second new argument is that extrinsic evidence in the form of the
testimony of an Orion officer after this lawsuit was filed, but before the summary
judgment briefing was completed, should be considered. See e.g. Appellant’s brief
at pg. 23. Orion’s Motion for Summary Judgment was supported by parts of the
same deposition of Bryce Erickson as it later tried to introduce under Fed. R. Civ.
P. 59. [ER 17-18] Again, much of this extrinsic evidence was not before the
court. The deposition testimony of Bryce Erickson as to what he thought the
contract meant has no value in interpreting the contract. After-the-fact subjective
assertions of intent in contract situations are entitled to no evidentiary weight.23
This Court should not consider the unappealed denial of Orion’s Motion to
Amend and the related evidence and arguments. Even if this Court were to
consider the newly raised extrinsic evidence, it must uphold the district court’s
decision as not clearly erroneous.
Bryce Erickson has admitted Orion agreed to the full $6.1 million contract and the
only probative extrinsic evidence shows that this was one contract not four. [ER
31-10]
23 Philbin v. Matanuska-Susitna Borough, 991 P.2d 1263, 1271 (Alaska 1999) citing Peterson v. Wirum, 625 P.2d 866, 870 (Alaska 1981).
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CONCLUSION
The district court was correct in finding that the language of the contract is
clear and that after termination for convenience, Appellant could only recover
actual unreimbursed costs and is thus not entitled to any additional sums under the
agreement.
STATEMENT OF RELATED CASES
City of Seward is not aware of any related cases pending in this Court.
DATED this 21st day of April, 2017.
BIRCH HORTON BITTNER & CHEROT
Attorneys for Appellant City of Seward
By:
/s/ William A. Earnhart
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CERTIFICATE OF COMPLIANCE WITH RULE 32(A)
This brief complies with the type-volume limitation of Federal Rule of
Appellate Procedure 32(a)(7)(B)(i) because this brief contains 6,499 words,
excluding the parts of the brief exempted by FRAP 32(a)(7)(B)(iii).
This brief complies with the typeface requirements of Federal Rule of
Appellate Procedure 32(a)(5) and (6) because this brief has been prepared in a
proportionally spaced typeface using Microsoft Word 2010 in 14-point Times New
Roman font.
DATED this 21st day of April, 2017.
BIRCH HORTON BITTNER & CHEROT
Attorneys for City of Seward
By: /s/ William A. Earnhart
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CERTIFICATE OF SERVICE
I certify that on April 21, 2017, I electronically filed the foregoing Brief of
Appellee with the Clerk of Court for the Ninth Circuit Court of Appeal by using
the appellate CM/ECF system.
I certify that all participants in the case are registered CM/ECF users and
that service will be accomplished by the appellate CM/ECF system.
DATED this 21st day of April, 2017.
BIRCH HORTON BITTNER & CHEROT
Attorneys for Appellee City of Seward
By: /s/ William A. Earnhart
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4821-9022-0103v.4 0104668-000001
NO. 16-35919
_________________________________________
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
__________________________________________________________________
ORION MARINE CONTRACTORS, INC.,
Plaintiff-Appellant,
v.
CITY OF SEWARD,
Defendant-Appellee.
_____________________________________
On Appeal from the United States District Court
for Alaska at Anchorage
The Honorable Sharon L. Gleason
Case No. 3:15-cv-00151-SLG
_______________________________________________________________________________
ORION’S REPLY
___________________________________________
Traeger Machetanz
Conner G. Peretti
DAVIS WRIGHT TREMAINE LLP
1201 Third Avenue, Suite 2200
Seattle, Washington 98101
Tel: 206-757-8337/Fax: 206-757-7337
Attorneys for Plaintiff-Appellant
Orion Marine Contractors, Inc.
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TABLE OF CONTENTS
INTRODUCTION ..................................................................................................... 1
ARGUMENT ............................................................................................................. 2
A. Seward Misstates the Standard of Review. ........................................... 2
B. The Termination for Convenience Provision Does Not Preclude
Recovery Under Section 01505. ............................................................ 4
1. The contract’s termination for convenience section does
not prevent recovery under Section 01505 and the district
court’s arguments to the contrary are unavailing. ...................... 4
2. Seward’s arguments that the termination for convenience
provision precludes recovery of Mob/Demob costs under
Section 01505 are unavailing. ..................................................... 8
C. Seward’s Other Arguments Regarding Orion’s Recovery Are
Unavailing. .......................................................................................... 10
D. Orion Has Not Made New Arguments, and Leaves the
Disposition of the Motion to Strike to the Parties’ Briefing on
That Issue. ........................................................................................... 12
CONCLUSION ........................................................................................................ 13
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TABLE OF AUTHORITIES
Page(s)
Cases
Conrad v. Ace Prop. & Cas. Ins. Co.,
532 F.3d 1000 (9th Cir. 2008) .............................................................................. 2
Estate of Hutchinson,
577 P.2d 1074, 1075 (Alaska 1978) ..................................................................... 6
Japanese Vill., LLC v. Fed. Transit Admin.,
843 F.3d 445, 455 (9th Cir. 2016) ...................................................................... 11
Mateo v. M/S KISO,
41 F.3d 1283 (9th Cir. 1994) ................................................................................ 3
Norville v. Carr-Gottstein Foods Co.,
84 P.3d 996 (Alaska 2004) ................................................................................... 6
Quality Asphalt Paving, Inc. v. State, Dep’t of Transp. & Pub.
Facilities,
71 P.3d 865, 870 (Alaska 2003) ..................................................................... 9, 10
Rockstad v. Global Fin. & Inv. Co.,
41 P.3d 583, 592-93 (Alaska 2002) ...................................................................... 8
S. Cal. Painters & Allied Trade Dist. Council No. 36 v. Best Interiors
359 F.3d 1127, 1130 (9th Cir. 2004) ..................................................................... 2
Tamen v. Alhambra World Investment, Inc.
22 F.3d 199, 203 (9th Circ. 1994) .......................................................................... 2
United States v. 1.377 Acres of Land, More or Less,
situated in City of San Diego, Cty. of San Diego, State of Cal., 352
F.3d 1259, 1264 (9th Cir. 2003) ....................................................................... 2, 3
Zeman v. Lufthansa German Airlines,
699 P.2d 1274, 1282 (Alaska 1985) ..................................................................... 9
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INTRODUCTION
After misstating the standard of review, Seward does not directly address
Orion’s primary argument: that the termination for convenience changed what
submittals were “required.” ER 150 (Section 01505, Part 4 § 4.1(C)). The
termination excused Orion from providing submittals for phases following the
Base Bid; in other words, submittals for later phases were no longer “required.”
Orion provided all submittals Seward requested in correspondence following
termination. ER 183-187.
Seward attempts to sidestep the plain meaning of Section 01505 by arguing
that the general termination for convenience section precludes recovery under
Section 01505. But the termination for convenience provision includes an express
carve-out for items “covered under the payment provisions of the Contract.”
Section 01505 is one such “payment provision” that the more general termination
for convenience section, by its terms, does not control. The district court therefore
erred in finding the termination for convenience provision and Section 01505
would conflict under Orion’s reading.
Despite Seward’s arguments, addressed in detail below, the district court
erred by holding that submittals following a termination for convenience were
“required under the Contract,” because the termination ended Orion’s submittal
obligations.
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ARGUMENT
A. Seward Misstates the Standard of Review.
“‘In general, interpretation of the language of a contract is a question of law
which is reviewed on a de novo basis, with no deference accorded to the decision
of the district court.’” United States v. 1.377 Acres of Land, More or Less, situated
in City of San Diego, Cty. of San Diego, State of Cal., 352 F.3d 1259, 1264 (9th
Cir. 2003) (quoting Tamen v. Alhambra World Investment, Inc. (In re Tamen),
22 F.3d 199, 203 (9th Cir.1994)). “The district court’s grant of summary judgment
on a contract claim is reviewed de novo, as is its interpretation and meaning of
contract provisions.” Conrad v. Ace Prop. & Cas. Ins. Co., 532 F.3d 1000, 1004
(9th Cir. 2008) (citing 1.377 Acres of Land, 352 F.3d 1259, 1264 (9th Cir. 2003);
S. Cal. Painters & Allied Trade Dist. Council No. 36 v. Best Interiors, 359 F.3d
1127, 1130 (9th Cir. 2004)). While the Court of Appeals gives greater deference to
a district court’s factual findings, “[the district court’s] application of legal
principles to those facts involves a question of law subject to de novo review.” Id.
(citing In re Tamen, 22 F.3d at 203).
The district court’s summary judgment order essentially relies only on its
interpretation of the language of the contract. The Court therefore reviews the
decision de novo, “with no deference accorded to the decision of the district court.”
United States v. 1.377 Acres of Land, 352 F.3d at 1264. The only extrinsic
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evidence even mentioned is one sentence of dicta, where the district court said that
an invoice from Orion to Seward “strengthened” the district court’s “reading” of
the contractual language. ER 11. Seward wrongly argues that this one sentence
transforms the entire opinion into one reviewed under the “clear error” standard.
Appellee’s Brief at 16.
This argument fails for two reasons. First, the district court did not base its
decision on the invoice, it merely referenced it as support for its reading of the
contractual language. Mateo v. M/S KISO, 41 F.3d 1283, 1286–87 (9th Cir. 1994)
(“clear error” applies to decisions that “require review of extrinsic evidence”).
Second, even if the “clear error” standard applied in part, it would only apply to the
district court’s factual finding that Orion referenced the full contract price in two of
its invoices. Thus, the only issue reviewed under the “clear error” standard is
whether the invoices reference the total contract price. That is the only finding of
fact. Whether this fact supports the district court’s interpretation of the contractual
language under applicable case law is reviewed de novo.1 The Court should
1 Seward cites an inapplicable case for its proposition that the Court must
review everything in the decision for “clear error.” In United States v. 1.377 Acres
of Land, the district court interpreted two leases. 352 F.3d at 1264. As to one, the
district court explicitly stated it was not considering extrinsic evidence; as to the
other, it gave no reasoning at all. The Ninth Circuit held that the de novo standard
applied to the district court’s interpretation of both leases. Id. This case does not
stand for the proposition that a passing reference to an extrinsic fact envelops the
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therefore review the substantial core of the district court’s order under the de novo
standard because it focuses entirely on the contractual language, only mentioning
extrinsic evidence, in one sentence, as not inconsistent.
B.The Termination for Convenience Provision Does Not Preclude
Recovery Under Section 01505.
Orion argued in its opening brief that the termination for convenience of the
contract changed which submittals were “required under the Contract.” See
ER 150, Section 01505, Part 4 § 4.1(C). Because the parties declined to pursue
any later phases, submittals for those phases were not “required.” Orion provided
its Base Bid and closeout submittals, triggering Seward’s obligation to pay the
balance of the Mob/Demob bid item. Seward does not attack this interpretation.
Indeed, Seward provides no alternative reading of this provision, instead arguing
that the termination for convenience provision prevents recovery of Mob/Demob
under Section 01505. It does not.
1.The contract’s termination for convenience section does not
prevent recovery under Section 01505 and the district court’s
arguments to the contrary are unavailing.
Orion can recover certain costs specifically under the termination for
convenience section, unless other payment provisions of the contract govern their
recovery. ER 127 § 14.4.3. The termination for convenience section thus carves
entire decision in the standard of review reserved only for factual findings and not
legal conclusions.
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out an allowance for other payment provisions of the contract. It does not displace
them, as the district court wrongly concluded. ER 12.
Section 14.4.3 provides a list of items a contractor may include in a claim
following a termination for convenience. Id. These include settlement costs of
work up to the date of termination (subsection a), the cost of settling and paying
subcontract claims for the terminated portion (subsection b), and the costs of
settlement for the terminated portion of the contract, unless other payment
provisions of the contract provide for their recovery (subsection c):
The reasonable costs of settlement with respect to the terminated
portion of the Contract heretofore, to the extent that these costs have
not been covered under the payment provisions of the Contract.
Id. (emphasis added). Subsection (c) therefore excludes payments covered by
other portions of the contract from the general termination-for-convenience
payment mechanism. Doing so makes sense to prevent double recovery of
payments made under other, more specific, payment provisions and the general
termination for convenience section.
Section 01505, as applied to this project, provided for payment of 4% of the
original contract amount after earning 4% of the original contract amount from
items other than Mob/Demob. ER 150 § 4.1. Seward would pay another 4%, for a
total of 8%, after Orion earned another 4% of the original contract amount from
items other than Mob/Demob. Id. Finally, Seward would pay the remainder of the
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Mob/Demob bid item after Orion provided “all submittals required under the
Contract.” Id.
Section 01505, as described above, is one example of a specific “payment
provision of the Contract” mentioned in 14.4.3, subsection (c), because it
“cover[s]” other “costs” (i.e. Mob/Demob). The specific method for calculating
recovery of Mob/Demob costs under Section 01505 falls outside the generally
applicable method for calculating recoverable costs provided in the termination for
convenience provision. This conclusion is supported by the doctrine that specific
provisions govern over general ones. See Norville v. Carr-Gottstein Foods Co., 84
P.3d 996, 1004 (Alaska 2004) (quoting Estate of Hutchinson, 577 P.2d 1074, 1075
(Alaska 1978)) (“In contracts, as in statutes, ‘where one section deals with a
subject in general terms and another deals with a part of the same subject in a more
detailed way, the two should be harmonized if possible; but if there is a conflict,
the specific section will control over the general.’”). The termination for
convenience provision therefore does not prevent recovery of Mob/Demob under
Section 01505; rather, it expressly permits it.
The district court erred by finding that Section 01505 “conflict[s]” with the
termination for convenience provision. ER 12. The district court reasoned that
because Mob/Demob was not included in Section 14.4.2 of the termination for
convenience section, then that subsection prevents recovery for Mob/Demob.
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ER 12 (“[Section 14.4.2] explicitly states that upon termination, the contractor
receives a variety of payments for extra costs, but these payments specifically do
not include the amortized amounts under the mob/demob provision.”). This
conclusion is wrong for three reasons.
First, the district court read too much into a particular phrase in Section
14.4.2, which is not specific enough to exclude Mob/Demob. That section
provides for recovery of “extra costs due to . . . that part of job start-up and phase-
out costs not amortized by the amount of Work accomplished . . . .” ER 127. The
court reasoned that this provision must exclude recovery of Mob/Demob because
Mob/Demob is an “extra cost due to . . . job start-up and phase-out costs” that is
amortized by the amount of Work accomplished (i.e. 4%, 8%, then the balance).
ER 12. But the district court took this implication too far. Mob/Demob is not an
“extra cost”—it is priced into the contract from the beginning. Orion does not seek
any “extra cost,” only that which is due under the terms of the contract. Moreover,
“start-up and phase-out costs” is not defined and the district court should not have
read it so broadly as to exclude an entire section of the contract, Section 01505,
that deals specifically and explicitly with payment of Mob/Demob.
Second, the rest of the termination for convenience section provides for the
recovery of other costs not included in Section 14.4.2, so the district court should
not have reasoned that Orion cannot recover anything not included in Section
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14.4.2. For instance, Section 14.4.3 provides for the recovery of costs not included
in 14.4.2. The court’s reasoning would render meaningless Section 14.4.3. See
Rockstad v. Global Fin. & Inv. Co., 41 P.3d 583, 592-93 (Alaska 2002) (“[T]his
definition is excluded ... by the rule disfavoring interpretations that leave contract
terms meaningless.”).
Third, Section 14.4.3 carves out costs recoverable under other “payment
provisions of the Contract.” ER 127 § 14.4.3. This provision would be
meaningless if only the costs explicitly listed in the termination for convenience
section were recoverable. To the contrary, the contract makes clear that other
“payment provisions,” like Section 01505, can provide for recovery following a
termination for convenience. The district court therefore erred by reading such a
strong implication into an inapplicable, general phrase.
2. Seward’s arguments that the termination for convenience
provision precludes recovery of Mob/Demob costs under
Section 01505 are unavailing.
Seward’s arguments against payment under Section 01505 are unavailing.
Seward cannot overrule explicit contract terms by appeal to the general practice
that terminations for convenience allow only for recovery of “unreimbursed costs
incurred.” Appellee’s Brief at 22. Parties, especially sophisticated ones like those
here, can draft their contract to follow or not follow typical practice. Here, the
parties specifically provided for payment of Mob/Demob under Section 01505, and
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drafted the termination for convenience provision not to apply to such sections.
ER 127 (Orion can recover under general termination for convenience section “to
the extent these costs have not been covered under the payment provisions of the
Contract”). The Court should not overrule the parties’ bargain by appeal to
common practice. See Zeman v. Lufthansa German Airlines, 699 P.2d 1274, 1282
(Alaska 1985) (“Whatever the usual business practices” of a party, “they are not
the issue before us,” reverting to contractual evidence instead).
Seward and the district court’s analogy to Quality Asphalt Paving fails.
Quality Asphalt Paving, Inc. v. State, Dep't of Transp. & Pub. Facilities, 71 P.3d
865, 870 (Alaska 2003). In that case, QAP sought payment of mobilization and
demobilization costs. Id. The provision at issue conditioned payment of amounts
“agreed to” on performing “all the work” required to complete the entire project:
[T]he Contractor, for and in consideration of the payment or payments
herein specified and agreed to by the Department, hereby covenants
and agrees to furnish and deliver all the materials and to do and
perform all the work and labor required in the construction of project
Chena Hot Springs Road Widening.
Id. (emphasis in original). QAP argued that the State had to pay it the price
“agreed to” for mobilization and demobilization under this provision. Id. The
Alaska Supreme Court rightly held that the second clause of the above sentence
“clearly links” such payments to performing all work necessary to build the entire
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project. Id. (“But Quality did not deliver all the materials, and it did not perform
all the work.”).
Quality Asphalt therefore stands for the plain conclusion that, when a
contract explicitly conditions payment on completion of the entire project, failure
to complete the entire project precludes such payment. There is no such provision
here. Orion does not rely on a section that explicitly predicates recovery on
completion of the entire project. Nothing in the contract precludes recovery of
Mob/Demob before the entire project is complete, let alone as explicitly as in
Quality Asphalt. Quality Asphalt simply does not resolve the issue here: how does
a termination for convenience change what “submittals [are] required under the
Contract”? ER 150 (emphasis added). As Orion has argued, and which Seward
has not seriously disputed, a termination for convenience limits which submittals
are “required.” By Seward’s own admission, it had received all required
submittals, thereby triggering its obligation to pay Orion.
C. Seward’s Other Arguments Regarding Orion’s Recovery Are
Unavailing.
Seward’s reference to the “Original Contract Amount” listed in an Orion
invoice does not mean “Orion was agreeing that its work would not be ‘complete’
until it invoiced another $5.2 million.” Appellee’s Brief at 19. All the invoice
shows is the price for the entire contract, including all four phases. SER 23. The
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invoice has nothing to do with how Seward would pay Mob/Demob should the
parties terminate the contract early and Orion provide “all submittals required
under the Contract.” ER 150. It certainly does not qualify, by Seward’s reading,
as Orion “agreeing” it had to provide all submittals for all four phases before
receiving the balance of its Mob/Demob bid item. Rather, the termination for
convenience changed which submittals were “required,” so Orion triggered full
payment of Mob/Demob by providing all submittals required after completing the
Base Bid phase.
Seward wrongly asserts, for the first time on appeal, that Orion has not
provided all required submittals. Appellee’s Brief at 18. The Court should
disregard this allegation, presented for the first time on appeal. See Japanese Vill.,
LLC v. Fed. Transit Admin., 843 F.3d 445, 455 (9th Cir. 2016). Orion did, in fact,
provide all required submittals. In its pre-closeout letter, Seward provided a list of
submittals “required prior to final payment request.” ER 185 (emphasis added).
Orion provided those materials, and Seward confirmed as much in its January 16,
2015, closeout letter: “The closeout submittals provided were accepted . . . . The
referenced contract with the City of Seward is closed.” ER 187. In the years since
then, Seward has never contended that Orion still had more submittals to provide.
Seward’s argument to the contrary is not supported by the evidence and should be
disregarded as untimely.
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Seward again mischaracterizes Orion’s argument as premised on the
termination for convenience creating a “new contract.” Appellee’s Brief at 21.
Orion has never argued that. The termination for convenience did not create a new
contract: it merely narrowed the meaning of “all submittals required under the
Contract” by reducing the scope of what was “required.” ER 150. After the
termination for convenience, submittals for later phases were not “required,” so
providing submittals following the Base Bid phase triggered full payment of
Mob/Demob under Section 01505. ER 150. Seward has consistently miscast
Orion’s argument on this point. The district court erroneously adopted the flawed
argument in its order by casting Orion’s argument as calling for a “new” contract.
ER 11.
There is no “new” contract, the termination simply reduced the number of
submittals which were required. Orion provided the required submittals, so
Seward must pay the balance of Mob/Demob. This argument does not depend on
creating a “new” contract.
D. Orion Has Not Made New Arguments, and Leaves the Disposition
of the Motion to Strike to the Parties’ Briefing on That Issue.
Seward’s brief closes with more argument regarding its Motion to Strike
certain portions of the Excerpts of Record submitted by Orion. Briefing on that
issue has closed and Seward’s additional argument is improper. Orion stands on
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the points it raised in its opposition to Seward’s motion. The only portion of
Orion’s Argument in its opening brief that references the portions Seward has
sought to strike is a short citation to Bryce Erickson’s “shock” after Seward
refused to pay. Appellant’s Brief at 23. Orion’s argument does not depend on this
fact, and it included it to give the Court the necessary background as required by
the Circuit Rules.
CONCLUSION
Seward has consistently miscast Orion as making a “tidy profit.”
Appellee’s Brief at 25. That is far from the case. The contract provides that
Seward must pay Orion the entire amount bid for Mob/Demob after Orion
completed demobilization and Seward received and approved all submittals
required by the contract. Seward did so, but has refused to pay Orion the balance
of the Mob/Demob bid item. Essentially, Seward has received full performance of
the Base Bid work but wants to pay only 75% of the Base Bid price. The district
court erred when it misinterpreted the contract and allowed Seward to retain this
windfall. Orion respectfully requests that the Court reverse the district court’s
//
//
//
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order decision granting Seward’s motion for summary judgment and denying
Orion’s motion for summary judgment.
RESPECTFULLY SUBMITTED this 5th day of May, 2017.
DAVIS WRIGHT TREMAINE LLP
TRAEGER MACHETANZ
By s/ Traeger Machetanz
TRAEGER MACHETANZ
Attorneys for Plaintiff-Appellant
ORION MARINE CONTRACTORS, INC.
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CERTIFICATE OF COMPLIANCE
This brief has 3,212 words and therefore complies with the length limits
permitted by Ninth Circuit Rule 32-1. The brief’s type size and type face comply
with Fed. R. App. P. 32(a)(5) and (6).
DATED this 5th day of May, 2017.
DAVIS WRIGHT TREMAINE LLP
TRAEGER MACHETANZ
By s/ Traeger Machetanz
TRAEGER MACHETANZ
Attorneys for Plaintiff-Appellant
ORION MARINE CONTRACTORS, INC.
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CERTIFICATE OF SERVICE
I hereby certify that on May 5, 2017, I electronically filed the foregoing
with the Clerk of the Court for the United States Court of Appeals for the Ninth
Circuit by using the appellate CM/ECF system.
I hereby further certify that all participants in the case are registered
CM/ECF users and that service will be accomplished by the appellate CM/ECF
system.
DATED May 5, 2017.
DAVIS WRIGHT TREMAINE LLP
TRAEGER MACHETANZ
By s/ Traeger Machetanz
TRAEGER MACHETANZ
Attorneys for Plaintiff-Appellant
ORION MARINE CONTRACTORS, INC.
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