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Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

UNIVERSAL CONCRETE PRODUCTS 

CORPORATION,

Plaintiff-Appellant,  No. 09-1569

v.

TURNER CONSTRUCTION COMPANY,

Defendant-Appellee. 

Appeal from the United States District Court

for the Eastern District of Virginia, at Norfolk.

Raymond A. Jackson, District Judge.

(2:08-cv-00298-RAJ-TEM)

Argued: January 26, 2010

Decided: February 19, 2010

Before GREGORY and DUNCAN, Circuit Judges,

and Catherine C. BLAKE, United States District Judge

for the District of Maryland, sitting by designation.

Affirmed by published opinion. Judge Gregory wrote the

opinion, in which Judge Duncan and Judge Blake joined.

COUNSEL

ARGUED: James T. Lang, PENDER & COWARD, PC, Virginia Beach, Virginia, for Appellant. Jeffrey Mitchell HumAppeal: 09-1569 Doc: 38 Filed: 02/19/2010 Pg: 1 of 9
mel, SEYFARTH & SHAW, LLP, Washington, D.C., for

Appellee. ON BRIEF: Jack Rephan, PENDER & COWARD,

PC, Virginia Beach, Virginia, for Appellant. Daniel P.

Wierzba, SEYFARTH & SHAW, LLP, Washington, D.C., for

Appellee.

OPINION

GREGORY, Circuit Judge:

This appeal requires us to consider the applicability and

enforceability of a "pay-when-paid" clause agreed to by the

parties in this case. Specifically, we must decide whether certain provisions in a prime contract, which the general contractor and a subcontractor incorporated by reference into their

subcontract, render an otherwise unambiguous pay-when-paid

clause within that subcontract ambiguous. The district court

found that they did not. We affirm.

I.

In October 2007, Universal Concrete Products Corporation

("Universal"), a Pennsylvania corporation, entered into a written agreement with Turner Construction Company ("Turner"),

a New York corporation, to install precast concrete on the

Granby Tower construction project in Norfolk, Virginia. Turner had earlier contracted with the project’s owner to provide

general construction work on the project. The subcontract

executed by Turner and Universal incorporated that prime

contract by reference.

Like countless other construction ventures since the collapse of the real estate market, the Granby Tower project ultimately fell through in March 2008 when the owner could no

longer finance it. By that point, Universal had substantially

completed all of its work on the project. Turner, however, had

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not paid Universal for any of the work performed, because

Turner had not yet been paid by the owner.1

When Universal sought payment of $885,507 from Turner

for the work it had performed, Turner refused, citing a paywhen-paid provision in the subcontract. Universal then filed

suit in the Eastern District of Virginia pursuant to 28 U.S.C.

§ 1332 (2006), alleging breach of contract and several other

claims not germane to this appeal.

Before the district court, Universal alleged that the subcontract, when read in light of Turner’s contract with the owner,

is "patently ambiguous" as to when Turner was required to

pay Universal. Turner, in turn, argued that the language in the

subcontract is unambiguous and that other terms in the prime

contract are consistent with or support the pay-when-paid

clause in the subcontract.

The district court agreed with Turner that the provision,

even when viewed in light of the prime contract, is unambiguous and granted summary judgment to Turner on the breach

of contract claim. Universal appeals.

II.

The sole issue raised by Universal’s appeal is whether or

not the district court correctly found that Universal’s contract

with Turner contained an unambiguous pay-when-paid clause,

which conditioned any payments to Universal on Turner’s

first receiving payment from the owner. Universal asks us to

reverse the district court’s judgment in Turner’s favor and

asks us to follow two, out-of-jurisdiction cases, which support

its reading of the contract. We cannot do so, however,

because we believe that under Virginia law, the contract

1We are informed that Turner is currently involved in litigation against

the owner seeking payment totaling $13,648,845.00, which includes the

amount owed to Universal. 

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unambiguously reflects both parties’ understanding that Universal would only be paid for its work after Turner was paid

by the owner. Consequently, we hold that the pay-when-paid

clause contained in the Turner-Universal subcontract is

enforceable and prevents Universal from demanding payment

from Turner unless and until Turner is first paid by the owner.

a.

We review de novo the district court’s granting summary

judgment to Turner. Long v. Dunlop Sports Group Ams., Inc.,

506 F.3d 299, 301 (4th Cir. 2007). Because this appeal

invokes our diversity jurisdiction, we must apply Virginia

state law, just as the forum would have done had the suit been

brought in state court. See Erie R.R. v. Tompkins, 304 U.S. 64,

78 (1938); St. Paul Fire & Marine Ins. Co. v. Jacobson, 48

F.3d 778, 783 (4th Cir. 1995).

b.

We begin by analyzing the contractual language in both the

Turner-Universal subcontract and the Turner-owner general

contract against the backdrop of Virginia law. Pay-when-paid

clauses are valid in Virginia2 "where the language of the contract in question is clear on its face." Galloway Corp. v. S.B.

Ballard Constr. Co., 464 S.E.2d 349, 354 (Va. 1995). A contractor and subcontractor may create a valid pay-when-paid

clause by including in their contract "an express condition

clearly showing that to be the intention of the parties." Id.

(internal quotation marks omitted). On the other hand, Virginia courts will not enforce pay-when-paid clauses if there is

an ambiguity in the contract, which "‘exists when language is

of doubtful import, admits of being understood in more than

one way, admits of two or more meanings, or refers to two or

2We have previously recognized pay-when-paid clauses’ validity under

Virginia law. See Moore Bros. Co. v. Brown & Root, Inc., 207 F.3d 717,

724 (4th Cir. 2000). 

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more things at the same time.’" Id. at 355 (quoting Allen v.

Green, 331 S.E.2d 472, 475 (Va. 1985)).

The parties do not dispute that the pay-when-paid clause in

the Turner-Universal contract is facially unambiguous.

Indeed, it is hard to see how they could. Article IV of the

agreement states in relevant part:

The obligation of Turner to make a payment under

this Agreement, whether a progress or final payment,

or for extras or change orders or delays to the Work,

is subject to the express condition precedent of payment therefor by the Owner.

J.A. 67.3 The agreement further states that the amount paid to

Universal will be "out of funds received from the Owner." Id.

Finally, Article II of the subcontract states that the agreement

is intended to supplement the agreement between Turner and

the owner and that any conflict between the two agreements

will be read to impose the greater obligation on the subcontractor. J.A. 66.

Universal argues, however, that the subcontract, which

incorporates Turner’s contract with the owner by reference, is

ambiguous when read as a whole. Universal claims that the

Turner-owner contract, which consists of the standard American Institute of Architects ("AIA") provisions, reflects an

understanding that Turner would pay Universal before being

paid by the owner. Specifically, Universal points to A121 section 6.1.3, which states that the costs for which the owner will

reimburse Turner include "[p]ayments made by the Construction Manager to Subcontractors in accordance with the

requirements of the subcontracts." J.A. 240. Universal emphasizes the term "payments made," which it claims demonstrates

3Citations to J.A. __ refer to the Joint Appendix filed by the parties

upon appeal. 

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that Turner and the owner contemplated Turner’s paying Universal before invoicing the owner.

As the district court noted, however, this interpretation

ignores the remainder of the clause, which indicates that "payments made" are those payments made "in accordance with

the requirements of the subcontracts." The district court was

therefore correct to find that this clause relates only to the

reimbursement amount, not to when those amounts would be

paid. This language does not render the pay-when-paid provision "of doubtful import" or make it capable "of being understood in more than one way," Galloway, 464 S.E.2d at 355

(internal quotation marks omitted); rather, it clearly allows the

subcontracting parties freedom to contract for when those

payments will be made.

Likewise, the district court correctly found that other

clauses in the Turner-owner contract contemplate that Turner

could pay its subcontractors after first being paid by the

owner. AIA document A201 section 9.6.2 directs Turner to

pay its subcontractors "upon receipt of payment from the

Owner, out of the amount paid to the Contractor on account

of such Subcontractor’s portion of the Work," and section

9.3.1 requires Turner to submit "requisitions from Subcontractors" with its invoices. Both provisions contemplate the

likelihood that the general contractor and subcontractor will

enter into a pay-when-paid contract. Though Universal argues

that the AIA provides that provisions in A121 should control

over provisions in A201 where the two conflict, whether one

of the two purportedly conflicting provisions controls is irrelevant where, as here, the two provisions can be comfortably

read together. See Galloway, 464 S.E.2d at 354 (courts should

not find ambiguity or conflict where none exists simply

because one party so claims).

c.

Despite the contract’s apparent clarity, Universal points to

two cases, one from Florida and the other from Missouri,

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which support its reading of the contract. In the first case,

OBS Co. v. Pace Constr. Corp., 558 So. 2d 404 (Fla. 1990),

superseded by statute in part, Fla. Stat. § 713.245 (2009), as

recognized in, WMS Constr., Inc. v. Palm Springs Mile

Assocs., Ltd., 762 So. 2d 973 (Fla. Ct. App. 2000), the Florida

Supreme Court held that almost-identical provisions in a subcontract and general contract were ambiguous enough not to

enforce the pay-when-paid provision. Id. at 406. Likewise, in

MECO Sys., Inc. v. Dancing Bear Entm’t, 42 S.W.3d 794

(Mo. Ct. App. 2001), the Missouri Court of Appeals followed

OBS’ reasoning to interpret another contract containing similar provisions. Id. at 807.

Universal contends on appeal that the contractual language

in OBS and MECO is identical to that at issue here and, therefore, that both cases should control the result. We agree that

on the record before us these precedents are not easily distinguishable. But because of how unambiguously the contractual

language reflects the parties’ intent that Turner pay Universal

only after being paid by the owner, we believe that the Virginia Supreme Court would not follow OBS or MECO’s reasoning.

This conclusion is reinforced by a recent Virginia-trialcourt opinion, W.O. Grubb Steel Erection, Inc. v. 515 Granby,

LLC, CL 08-3278 (Va. Cir. Ct. Oct. 16, 2009) (letter opinion),

which involves almost identical facts and contractual language to that which we consider here. W.O. Grubb dealt with

a dispute between Turner and another subcontractor who, like

Universal, was not paid for work performed on the Granby

Tower project. Id. at 1. Like the district court here, the trial

court found the contract between Turner and the subcontractor, when viewed in light of Turner’s same contract with the

owner, to be unambiguous and enforced the pay-when-paid

provision. Id. at 5. Rather than attempt to distinguish OBS and

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MECO, the trial court simply opted not to follow their holdings after questioning their reasoning. Id. at 3.4

Because we are bound to follow Virginia law, we must follow the Virginia trial court’s lead in the absence of any indication that the Virginia Supreme Court would disagree with

its holding. And though we do not question OBS or MECO’s

reasoning, we note that both decisions appear to be based on

policy concerns that the Virginia Supreme Court likely does

not share.

The court in OBS made clear that its decision was largely

based on what it felt to be Florida’s desire to protect subcontractors relative to general contractors. 558 So. 2d at 405-06.

MECO simply adopted OBS’ reasoning. 42 S.W. at 807.

There is no indication that Virginia or its supreme court

shares this policy preference. Quite the contrary. In Galloway,

the state’s supreme court emphasized that its decision to recognize pay-when-paid clauses was based on its policy preference for "freedom to contract" — an interest which directly

conflicts with a paternalistic desire to protect one contracting

party over the other. 464 S.E.2d at 354.

Likewise, it is not even clear that the Florida legislature

really favored subcontractors’ rights to the extent the state

supreme court thought in OBS. Following that decision, the

Florida legislature passed a law making it easier for general

contractors to enforce pay-when-paid clauses, at least where

payment bonds were at stake. See WMS, 762 So. 2d at 977

(explaining application of Fla. Stat. § 713.245). Where the

purpose underlying one state’s precedent has been so undermined by subsequent legislation and caselaw, we certainly

4The trial court wrote, in part: "I have read OBS . . . and MECO . . . and

I do not find them at all persuasive. . . . There are some minor differences

among the terms of the owner-general contractor contracts in OBS,

MECO, and here upon which I could attempt to distinguish them, but the

differences would not justify a reasoned distinction." Id.

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cannot impute that purpose to another state whose cases and

policy statements are directly contrary.

III.

For the foregoing reasons, we affirm the district court’s

order granting summary judgment to Turner.

AFFIRMED

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