1 IN TH E COURT OF APPEALS O F THE ST ATE OF NEW MEXICO

2 O pin ionN um

be r: ___ ____ ___ 3 Fi lin g D at e: S ep te m

be r 10, 201 5 4 N O. 32, 331 5 CENTEX/ WO RTHG ROUP, LLC, 6 Pl ai nti ff

-Appe llant, 7 v
. 8 WORT HGR OUP AR CHITE CTS , L .P . and 9 TERRACON, INC., 10 D ef

en dants -Appe lle es . 11 AP PE AL FR OM T HE D ISTRICT C OUR T OF OTER O C OUN TY 12 Je rr y H . R it te r, D ist ri ctJu dg e 13 Lore nz Law 14 A lic e T
. L or en z 15 Alb uq ue rq ue , NM 16 Aki n Gu m

p S tra us s Hau er & Fe ld LLP 17 Pratik A . S hah 18 H y land H unt 19 W ashingt on, D .C. 20 fo r Appe llant1 Mo nt go m ery & An dr ews , P.A.

2 K ev in M

. S ex ton 3 AndrewS. Montgo m ery 4 San ta Fe, NM 5 for Appellee W orthgroup Ar chitects, L .P
.1 OPIN ION

2 KEN NED Y, Judge. 3 I. IN TRO DU CTION 4 { 1} This appeal in v o l ves a disput e betwe en a genera l contractor, 5 Centex/W orthgroup , L LC (Ce ntex), and a s ub c ontr a c t or , W or

thg r ou p Ar c hi t e c t s, L. P. 6 (A rc hit ec t)

. Ce nte x and Archite ct e nte re d in to a

c ontra ct ua l r el at ion shi p w hic h, 7 am ong oth er

thi ngs, gov er

ne d th e co nstru ct ionof

aMe ch an ic al ly

S ta bil iz ed E ar th 8 (M SE ) W al l. T he MS E W al l ul tim at el y f ai le d, a nd C en te x br ough t this sui t a ga ins t 9 A rc hit ec t and T er

ra co n, I nc . , cl ai m ing ove r $6, 000, 000 in d am ag es f or r ed es igna nd 10 re pa ir c ost s th at

it inc ur re d. Ce nte x a sserted tha t A rc hit ec t i s r equir ed to co ve r the 11 costs Centex incurred in redesigning and repairing the M SE W all. A rchitect 12 co nve rs el y as se rt ed tha t its m one tary obl iga tio ns to Ce nte x have be ensa tis fi ed by the 13 paym en t of

pr oc ee ds of ins ur an ce c ove ra ge that i t w as c ontra ct ua lly obl iga te d to 14 pr oc ur e an d m ai nta in. 15 { 2} Centex appeals a grant of sum m ary j udgm ent to Arc hitect, in w hich the dist rict 16 court apparently

determ ined that a lim itation o f liability clause in a prim e contract 17 fl ow ed

dow n to the sub co ntr ac t by vir tue of a fl ow -d ow n cl au se . W e re ve rs e. W e not e 18 that Centex contends genuin e issues of m aterial fact rem ain, but, for the reasons that 19 follow, we decline to consid er whether this is the case an d rem and so that the district 20 co urt c anc onsi de r the f ac ts and arg um en ts i n li ght of the hol din g inthi s O pin ion

.19 A rc hit ec t a lso e nte re d in to an a gr ee m en t w ithT er ra co n, I nc . f

or se rv ic es to 1 20 construct the MSE W all. T erra con has since been dism issed from this case. 21 Fo r the sake of c lari ty , w e w ill c ont inu e usi ng this c hara ct er iz at ion

. 2 2 1 II . BACKGROUND 2 { 3} In Fe b ru ary

2002 , the I nn of the Moun tain Gods Resort and Casino (Owner) 3 contracte d w i t h C e nt e x f or a n e xp a ns i ona nd

r e no vat i onp r oj e c t . T he se p a rt i es 4 de fi ne d th e te rm s of

the ir bus ine ss r el at ion shi p inase co nd am en de d de sig n/b uil d 5 co n s t ru ction contract (the prim e contract) . C entex then entered into a subcon tract 6 w ithA rc hit ec t, w he re A rc hit ec t a gr ee d to pe rf orm de sig n w ork onthe pr oj ec t. Bo th 7 the prim e contract and the sub contract ar e re levant to ou r analy sis in th is case. 1 8 { 4} W e be ginw ithabr ie f ove rv ie wof the pr im e co ntr ac t and s ubc ontra ct , c ont inu e 9 w itha n ac co unt of the pr oc ee din gs in dis tr ic t co urt, an d en d w ith a dis cu ssi on of the 10 lawr el ev an t t o our hol din g. 11 A. The P rim e C ontract 12 { 5} T he pr im e co ntr ac t go vern s th e co ntr ac tua l r el at ion shi p be tw ee n O w ne r an d 13 Ce nte x wi th r eg ar d to the pr oj ec t. T he f ir st s ec tio n of

the pr im e co ntr ac t tha t the 14 part ie s have te rm ed

the “ lim itatio n of lia

bil ity ” cl au se is re le vant to this appe al

. T he

2 15 lim itatio n of

li ab ili ty c lause pr ovi de s: 16 Ina ddi tio n to a ll oth er ins ur an ce r equir em en ts s et f orth i n th is 17 Agre em ent, D esign/Bui lder shall require its design profession al 18 Su

bc ontra ct or (s ) to o bta in and m ai nta in p ro fession al e rr or s and3

1 om issio ns coverage w ith respect to d esign services in accordance 2 herew ith. .

. . [ S] uch coverage shall be for each such design professio nal 3 Subcontractor i n an am ount not less th an $3,000,000. Owner agre es that 4 it w ill li m it D es ign/B uil de r lia bil ity to [O ] w ne r fo r an y

e rr or s or 5 om iss ion s inthe de sig n of the P ro j ec t t o w ha te ve r sum s O w ne r is a ble 6 to c oll ec t f

ro m the above de sc rib ed

pr of es sio na l e rr or s and o m iss ion s 7 in su ran ce ca rri er. 8 B. The Subc ontract 9 { 6} The subcontract, which governs th e contractual r elationshi p between C entex 10 and Arc hitect with regar d to the project, contains an i n co rp oration byref erence 11 cl au se , w hic h r equir es A rc hit ec t to pe rf orm the de sig n w ork instr ic t a cc or danc e w ith 12 the prim e contract and incorporates the prim e contract by ref erence . T he subcon tract 13 re fl ec ts C en te x’ s and A rc hit ec t’ s in te nt tha t “ al l the te rm s of al l do cu m en ts are to be 14 considered as com

plem entary .” Should su ch an interpre t at ion be im poss ible, 15 how ev er , the part ie s pr ovi de the de sir ed se quenc e fo r use of

the doc um en ts, 16 he rei na fte r refe rred to as t he ord er o f pr eced en ce cl au se . 17 [T ] he or de r of pr ec ed en ce of the doc um en ts, . . . sha ll be : (1 ) th e m ost 18 curr en t a

ppr ove d e dit ionof

the [ c] onstru ct ion[d]oc um en ts; ( 2) 19 m odi fi catio ns t o [ the sub co ntr ac t] ; ( 3) [ the sub co ntr ac t] , unl es s th e 20 [p ri m e co ntr ac t] im pose s a hig he r standard or gr eate r re qui re m en t onthe 2 1 p ar t i es , in wh i ch ca s e th e [p ri m e co n t ra ct ]; (4 ) th e [p ri m e c o n t ra ct ], 2 2 u n l e s s t h e p r o v i s i o n s o f ( 3 ) ap p l y.20 A c oncept closely relate d to incorpo ration by ref erence , “ flow- down” clauses 3 2 1 a r e c o mmo n l y u s e d i n c o n s t r u c t i o n c o n t r a c t s t o a l l o w a s ub c o n t r a c t o r t o “a s s u me 22 tow ar d th e ge ne ra l co ntr ac tor al l of the obl iga tio ns and r es pons ibi lit ie s th e co ntr ac tor 23 as su m es to wardth e o wne r in t h e [ pr im e] con tra ct .” T. BartGary , In co rporati on b y 24 Re ference and Flow-D own Clauses , 10 Co ns t. Law 1 , 46 (19 90 ). 4 1 { 7} The su bc on tra ctals o i nc lu de s a pr ov is io n—refe rred to by the pa rti es as a flo w2 dow n c lause —w hic h st at es : 3 3 Inr es pe ct

of the [ d] es ign[ w ] ork, [A rc hit ec t] sha ll, ex ce pt a s othe rw ise 4 providedherein, have all rights t o wa rd [Centex] which [Centex] has 5 unde r the [ pr im e co ntr ac t] tow ar ds the O w ne r an d [A rc hit ec t] sha ll, to 6 the e xte nt p er

m itt ed by appl ic ab le law s and ex ce pt as pr ovi de d he re in, 7 as sum e al l ob lig at ion s, r is ks [, ] a nd r es pons ibi lit ie s to w ar d [ Ce nte x] 8 w hic h [C en te x] ha s as sum ed tow ar ds the O w ne r in the [ pr im e co ntr ac t] 9 wit h re sp ect to [th e d ]esig n [w]or k. 10 T he ce ntr al dis put e be tw ee n the part ie s r ev olv es a ro und the m eanin g and r ea chof thi s 11 pr ov is io n. 12 { 8} The subcontract also provides a general liability clause, which m akes Ar chitect 13 re spon sib le fo r “ [r ] ed es ign co sts an d a ddi tio na l c onstru ct ionc ost s of [ Ce nte x] a nd/ or 14 the [c] ontractor required to corre ct [A rchitect’ s] err o rs o r o m issio ns,” but specifies 15 that Arc hitect’ s “ responsib ility shall not preclude the pursuit of available insurance 1 6 p ro ce ed s o n ac co u n tt h er eo f[ .]” 17 { 9} Fi na lly , the subc ontra ct as sig ns ri ght s and o bli ga tio ns t o th e part ie s r eg ar din g 18 insurance and liability . F or instan ce , Architect is required to procure “ insurance 19 co ve ra ge f

ro m ins ur er s a cc ep ta

ble to [Cent ex ]” and “ sha ll be r es pons ibl e fo r al l5

1 de duc tib le s r el at in g to c la im s un de r al l a ppl ic ab le ins ur an ce pol ic ie s ona cc ount of 2 the [ d] es ign[ w ] or k, inc lud ing the [ p] ro fe ssi ona l [ l] ia bil ity [ i] nsur an ce pr ovi de d by 3 D es ignBu ild er . ” A rc hit ec t is furthe r re qui re d to na m e Ce nte x, the [ c] ontra ct or , a nd 4 O w ne r as “ ad dit ion al ins ur ed s” on the ins ur an ce c ove ra ge a nd m ai nta in the c ove ra ge 5 “ unt il ex pir at ionof

[ A rc hit ec t’ s] obl iga tio ns” unde r the sub co ntr ac t. A nothe r se ct ion 6 of the subcont ract r equires Ar chitect to “ provide a [ p] r oje ct [p] olicy for [ p] rofessional 7 [l ] ia bil ity ins ur an ce wit h [l] im its of [ l] ia bil ity of $3, 000, 000 pe r oc curr en ce a nd 8 $3 ,00 0,0 00 Agg reg at e.” 9 C . C on st ru ct ion A nd F ail ur e of t he M SE Wa ll 10 { 10} Co nstru ctionof the MS E W al l be gan inJun e 2003
. T he MS E W al l be gan to 11 fa il in Apr il 2004 , c au sin g dam ag e to v ar iou s “ ad j ac en t struc tu re s and g ro und12 supp orted elem ents.” Owner d em anded that Centex rem edy the defec ts and dam age. 13 D es pit e ha vin g de m an de d that A rc hit ec t r ed es ignthe MS E W al l and r ep ai r an y 14 dam age that resulted from the wa ll’ s failure, Centex spent over $6,000,000 for others 15 to r ed es igna nd r ep ai r the MS E W al l in Se pte m be r 2004
. Ce nte x, as a na m ed ins ur ed , 16 re que ste d paym en t of

the a va ila ble pol ic y li m its f ro m L ex ing ton In sur an ce Co m pany 17 (L ex ing ton ) an d r ec ei ve d paym en t in the am ount of $3, 000, 000, r ep re se nti ng the f ull 18 pol ic y li m it fo r the c la im

sub m itt ed

.6

1 D . D ist ri ctC ou rtP ro ce ed in gs 2 { 11} Ce nte x c om

m en ced thi s su it ag ai nst A rc hit ec t i n M ay

200 7 se ek ing 3 $6 , 7 6 6 , 1 5 5
. 5 6 , p l u s c o s t s a n d e x p e n s e s , o n t h e g r o u n d s t h a t A r c h i t e c t r e f u s e dto 4 ad equa te ly

r ei m bur se Ce nte x fo r the da m ag es inc ur re d in i m ple m en tin g th e re de sig n 5 an d r ep ai rs r equir ed byO w ne r. Ce nte x’ s c om pla int a lle ge s ne gli ge nc e, ne gli ge nt 6 m isr ep re se nta tio n, br ea chof co ntr ac t, an d enti tle m en t to atto rn ey fe es . A rc hit ec t, in 7 its r es pons e to C en te x’ s co m pla int , co unt er cl ai m ed ag ai nst Ce nte x w iththr ee c la im s: 8 declara tory

j udgm ent based on the lim itation o f liability clause in the prim e contract 9 an d satis fa ct ionof

li ab ili ty via L ex ing ton ’ s paym en t of the ins ur an ce pr oc ee ds; 10 br ea chof

c on tra ct ba sed onCe nte x’ s f ai lur e to e nf

or ce the li m itatio n of

li ab ili ty 11 clause against Ow ner; and indem nification also based o n Centex’ s failure to enforc e 12 the li m itatio n of

li ab ili ty c lause in favor

of A rc hit ec t. A rc hit ec t l at er f ile d am oti on 13 fo r sum

m ar y j udgm en t, a sse rt ing that the pr im e co ntr ac t’ s li m itatio n of li ab ili ty 14 clause, which was incorporated into th e subcontract through the flow- down clause, 15 lim ite d Cen te x’ s abil ity to re co ve r da m ag es ar isi ng fr om de sig n e rr or s or om iss ion s. 16 A rc hit ec t a lso a sse rt ed in it s m oti on tha t the L ex ing tonpaym en t satis fi ed a nd 17 the re fo re ex tin gui she d Ar ch ite ct ’ s liabil ity to Ce nte x f

or de sig n e rr or s and o m iss ion s. 18 A rc hit ec t f

urthe r as se rt ed

that sum

m ary jud gm en t w as appr opr ia te be ca use of7

1 Ce nte x’ s f

ai lur e to e nf

or ce the li m itatio n of

li ab ili ty c lause f or the b en efit of 2 A rc hit ec t, a s r equir ed

by the sub co ntr ac t. 3 { 12} T he dis tr ic t cour t hel d a hea ri ng on the m oti on for sum m ar y j udgm en t, dur ing 4 w hic h th e par

tie s ar gue d exte nsi ve ly ove r w ha t i nsur ab le r isk the L ex ing tonpaym en t 5 w as int en de d to sa tis fy

. Ce nte x ar gue d tha t the pol ic y w as pa id for co ns tr uc tio n 6 defects w hile Arc hitect argued that the Le xing ton po licy wa s paid for design errors 7 and om issio ns. N o release wa s executed as a r esult of the Le xing ton paym ent. When 8 the di str ic t c ourt qu es tio ne d C en te x a s to w hy , if the pol ic y

w as f or c onstru ct ion 9 de fe ct s, Ce nte x di d not re co ve r fr om the re m ai nin g polic y co ve ri ng des ign er ro rs a nd 10 om iss ion s, Ce nte x co nc ed ed tha t if the L ex ing tonpol ic y w er e ind ee d f

or c onstru ct ion 11 de fe ct s, it co uld

c onc ei vably

m ak e an oth er

c la im a ga ins t a

de sig n e rr or s and 12 om iss ion s po lic y . Ce nte x in sis te d, how ev er , that w hil e the pr im e co ntr ac t w as se t up 13 to s hie ld O w ne r fr om ex ce ss co sts , the subc ontra ct w as not co nstru ct ed to s im ilarl y 14 shi el d A rc hit ec t f

ro m sho uld er ing re de sig n cost s. A ft er he ar ing ar gum en ts fr om the 15 part ie s, the dis tr ic t c ourt or de re d su ppl em en ta l br ie fin g so tha t the part ie s c oul d 16 ad dr es s w ha t e xa ct ly

the ins ur an ce pay out co ve re d. A rc hit ec t inc lud ed a le tte r fr om 17 L ex ing tonto Ce nte x a s an e xhi bit in its sup ple m en ta l br ie fi ng, in w hic h L ex ing ton 18 re m ind ed

Ce nte x th at

it s polic y

spe ci fi ca lly

e xc lud ed

“ an y c la im ba se d up on o r8

1 arising out of the cost to repair or r eplace any faulty . . . con struction

. . . perform ed 2 i n wh o l e o r i n p ar tb y . . . t h e i n s u re d [. ]” 3 { 13} Upon co m

ple tio n of

br ie fi ng, the dis tr ic t c ourt i ssu ed a n or de r gr an tin g 4 A rc hit ec t’ s m ot io n for sum m ar y j udgm en t. T he or de r sim ply state d th at , “ ha vin g 5 co nsi de re d a ll of t he pl eadi ngs an d arg um en ts o f co unse l, it is the f ind ing a nd 6 conclusi o n o f the [c] ourt that there are no disp uted issu es of m aterial f act and that 7 [A rc hit ec t is] en ti tl ed to j udgm en t a s am atte r of lawin ac co rd an ce w ith[ its ] 8 m oti on[ ]
. ” L ooki ng t o th e co ntr ac t and the se f ac ts, w e cannot

de te rm ine on wha t ba sis 9 the dis tr ic t c ourt gr an te d j udgm en t a s am atte r of law . H ow ev er , given th e te rm s of 10 th e co nt ract s, we h ol d th at su m m ary jud gm en t was no t ap pr op ria te , as a m at te r of law, 11 fo r th e rea so ns th atfol lo w. 12 III. DIS CU SSION 13 { 14} N ei the r co unse l cit es , nor ha ve w e bee n able to fi nd, a ny N ewMe xic o auth or ity 14 pr ec ise ly

on p oin t. T he iss ue , w hic h is one of f ir st i m pr es sio n inN ew Mexico , is 1 5 w h e t h e r

t h e f l o w - d o w n c l au s e a l l o w s t h e l i mi t a t i o n o f l i a b i l i t y c l au s e i n t h e p r i me 16 co ntr ac t t o li m it A rc hit ec t’ s li ab ili ty to w ha te ve r sum s Ce nte x coul d coll ec t fr om the 17 error s and om issio ns ins urance po licy , or whether Ar chitect’ s liabilityis controlled 1 8 byt h e g e n e r a l l i ab i l i t y c l au s e i n t h e s ub c o n t r a c t . W e h o l dt h a tt h e g e n e r a l l i ab ili ty 19 clause in the subcon tract c ontrols Ar chitect’ s liabilityin the context of this case.9

1 A. Stand ard of R eview 2 { 15} Rule 1- 05 6( C ) N M RA a l l ow s a part y t o m ov e f or sum m a ry j ud gm e nt w hen 3 the re is “ no g enuin e iss ue a s to a ny m at er ia l f

ac t” a nd the m ovi ng party is en tit le d to 4 “ a j udgm ent as a m atter of law. ” E

. g. , Self v. United P arcel Serv., Inc. , 1998-NMS C5 046, ¶ 6, 126 N
. M. 396 , 970 P
. 2d 5 82. Whe re the fa ct s ar e not in dispu te a nd o nly the 6 le ga l si gn ifi can ce of th e fact s is at is su e, su m m ary jud gm en t i s ap pr op ria te . G ardn er 7 Ze m ke Co

. v . Sta te , 1990 -N MSC- 034, ¶ 11, 109 N .M. 729, 790 P.2d 101 0. “ [W ] hen 8 th e [d is tri ct ] co ur t’s g ran t o f su m m ary jud gm en t i s g ro un de d u po n a n e rro r of law, 9 [h ow ev er , ] the ca se m ay be re m an de d so tha t the iss ue s m ay be de te rm ine d un de r the 10 correc t principles of law. ” R um m el v . L ex ing ton I

ns. Co

. , 199 7- N MS C- 041, ¶ 16, 123 11 N
. M. 752 , 945 P
. 2d 9 70. 12 B. Th e La ng ua ge of t he S ub co nt ra ctC on tr ols 13 { 16} Although the parties disagree a s to how the prim e contract and the subcont ract 14 ap ply in thi s in stanc e, the dis tri ct co ur t m ad e no f ind ing a s to a m

big uity , a nd the 15 pa rti es ag ree t ha t t h e c o n t r a c ts are n ot am bi gu ou s. See Kirkpatrick v. Introspect 16 H ea lth ca re Co rp. , 199 2- N MS C- 070, ¶ 14, 114 N
. M. 706 , 845 P
. 2d 8 00 ( statin g r ule 1 7 t h at “ amb i g u i t y i s n o tes t ab l i s h ed s i m p l y b ec au s e t h e p art i es d i ff ero n t h e c o n t ra ct ’s 18 pr ope r co nstru ct ion ”)

. W e con sid er the co ntr ac ts to be suf fi ci en t t o r ea chour

r es ult

.14 W e ar e aw ar e the dis tr ic t cour t is not re qui re d to state it s r ea sons f or gr an tin g 4 15 su m m ary jud gm en t. Gar re tt

v. Nis se n C

or p. , 1 9 7 2

- N MS C- 046, ¶

¶ 11- 12, 84 N
. M. 16, 16 4 9 8 P .2d 13 59 , ov errul ed on o the r gr ound

s byKlopp v. W

ac ke nhut Co rp. , 199 2- 17 N MS C- 008, 113 N
. M. 153 , 824 P
. 2d 2 93. I n c om pli cate d or

nov el c as es suc h a s th is 18 one , how ev er , it

a ssi sts the part ie s in the ir br ie fi ng to “ know upon w ha t gr ound s th e 19 j udgm en t w as gr an te d inor de r to p ro pe rly pr es en t the c ontro ve rs ia l i ssu e to the 20 appellate court.” W

ils on v . A lbu que rque B d. ofR ea lto rs , 1970 -N MS C- 096, ¶ 12, 81 21 N.M. 65 7, 4 72 P.2d 37 1, ov errul ed in part byA kr e v. W

ashb urn , 197 9- N MS C- 017, 22 92 N
. M. 487, 590 P
. 2d 6 35. I t i s e qua lly be ne fi ci al to ap pe llate c ourts atte m pti ng t o 23 co nd uc t co m

pe te nt ap pe ll at e rev ie w. See Phillips v. United Serv. Auto. Ass’n , 197 7- 24 NMC A- 137, ¶¶ 34-36 , 91 N. M. 325 , 573 P. 2d 680 (Sutin, J., specially concurring). 10 1 { 17} Rather than indicate on what undispu ted facts it relied when granting summ ary 2 j udgm en t, or

or al ly r ec ite it s r ea sons f

or doi ng s o, the dis tr ic t c ourt m ir ro re d th e 3 language of Rule 1-056(C), stating th at there w ere “ no dis puted iss ues of m aterial 4 fact. ” Id

. (re quiring a sh owing of “ no genu ine issue as to any m aterial f

act”) . I t 4 5 appears, based on its o rder, that the district court applied th e flow -down clause, 6 incorporated the lim itation o f liability clause in t o the s ub c ontr a ct, and determ ined that 7 Ar chitect’ s oblig ation to p rocure insurance wa s satisfied by the Le xing ton policy . I f 8 thi s is the ca se , the L ex ing ton paym en t w oul d ha ve re le as ed A rc hit ec t f

ro m li ab ili ty 9 fo r Cen te x’s cl ai m s. 10 1. Th e F low-D own C lau se C on ta in s “Word s of Defini te Li m it at ion ” Th at 11 MustBe Given Eff ect 12 { 18} O ur co ur t s s t r i v e t o g i v e e f f e c tt o ac o n t r a c ta c c o r d i n g t o i t s t e rm s. 13 Ak ti en g es el l s ch a f t De r Harlander Buamwollspinn erie U nd Zwirn-Fabrik v. Lawrence11

1 W alk er Co tto n C o. , 1955 -N MS C- 090, ¶ 33, 60 N
. M. 154 , 288 P
. 2d 6 91. “ Part ie s to 2 a contract agree to be boun d by its provisions . . .

. When a contract w as fre ely entered 3 int o by part ie s ne got ia tin g a t arm ’ s le ngth, the duty of the co ur ts i s or din ar ily

to 4 enforce the term s of the contract which the parties m ade for them selves.” Ne arbu rg 5 v. Yates P etrol eu m Co rp. , 1 9 9 7
- N M C A

- 0 6 9 , ¶ 3 1 , 1 2 3 N
. M
. 5 2 6 , 9 4 3 P
. 2 d 56 0 6 (ci ta ti on om it te d) ; 17 A C.J.S. Co ntrac ts § 43 2 ( 2015 ) (“ [W ] he re it is not a m big uous , 7 a construction cont ract is to b e construed according to its term s.” ( footnot e om itted)). 8 As such, wher e a subcontract contains “ words of definite lim itation,” those words are 9 gi ve n effec t and th e in co rp or at io n of the pr im e co nt ract is li m it edacco rd in gl y . P erry 10 v. U nit ed Sta tes e x re l. Ne we ll , 146 F. 2d 39 8, 400 (5th Ci r. 1945 ) (r easoning that 11 be cau se th e su bc on tra ctco nt ai ne d “ wor ds of d efi ni te li m ita tio n, ” the w or

k de sc ri pti on 12 inc or por at ed f ro m the pr im e co ntr ac t “ w as e ff ec tiv e onl y

to the e xte nt tha t i t di d no t 13 co nf lic t w ithw ha t w as spe ci fi ca lly a gr ee d up on” in the sub co ntr ac t)

. “ A lth ougha 14 subc ontract m ayinc or por at e by r ef er en ce the te rm s of

the pr im e co ntr ac t, the 15 incorporation m ay

be lim ited to a s pecial purpose.” Mountain States Cons tr. Co. v. 16 Tyee Ele c. , I

nc. , 718 P. 2d 82 3, 825 (W ash. Ct. App. 1986 ). 17 { 19} Ce nte x and A rc hit ec t di sput e the i m po rta nc e of

S ec tio n 1. 4. 2( b) in the 18 subc ontra ct . S ec tio n 1. 4. 2( b) pr ovi de s th at A rc hit ec t i s res pons ibl e fo r “ [r ] ed es ign 19 co sts a nd a ddi tio na l cons tr uc tio n cost s of [C en te x] re qui re d to co rr ec t [ A rc hit ec t’ s]12

1 error s or om issio ns.” I n its dis cussion of th e flow-down claus e’ s applicability , C entex 2 arg ue s t ha t th e “ ex cep t as oth erwi se pr ov id ed he rei n” lan gu ag e co nt ai ne d i n t he flo w3 do w n c l au s e l i m i t s t h e f l o w - d o w n c l au s e ’ s ap p l i c ab i l i t y b e c au s e S e c t i o n 1
. 4
. 2( b) 4 s p e c i f i c a l l y a l l o c at e s th e l i ab ili ty

be tw ee n C en te x and A rc hit ec t. T hus, Ce nte x arg ue s, 5 t h e f l o w - d o w n c l au s e d o e s n o t b r i n g i n t h e l i mi t a t i o n o f l i ab i l i t y c l au s e o f

t h e p r i me 6 contract because liability wa s otherwise provided for in the subcon tract. W e agre e 7 w ithCe nte x. 8 { 20} T he e xpr es s langua ge of the fl ow -d ow n cl au se lim its the inc or por at ionof

the 9 pr im e co ntr ac t i nto the su bc ontra ct . By it s te rm s, onl y

r igh ts, obl iga tio ns, r isk s, or 10 re spon sib ili tie s that

the pr im e co ntr ac t se t f orth— an d th e subc ontra ct ha s no t 11 al lo cat ed ot he rwis e—c an flo w d own to th e su bc on tra ct : “ [Arch it ect ] sh al l, ex ce pt a s 12 oth erwi

se pro vi de d he re in , have a ll rights .

. . obligations , r isks and responsibi lities 13 to ward [Cen te x.]” “ Exc ep t as ot he rwis e pr ov id ed ” are “ wor ds of d efi ni te li m it at io n.” 14 Cf

. H old em an v . E ppe rso n , 111 O hio S t. 3d 5 51, 200 6- O hio -6 209, 857 N
. E
. 2d 5 83, 15 at ¶ 19 ( na m ing “ ex ce pt a s othe rw ise pr ovi de d inthe ope ratin g ag ree m en t” a s a 16 “ lim iti ng w or d[ ] ” (i nte rn al quo ta tio n m ar ks and ci ta tio n om itt ed ))

. S ec tio n 1. 4. 2( b) 17 al loc at es A rc hit ec t’ s li ab ili ty to Ce nte x, c lari fy ing that A rc hit ec t i s li ab le f or r ed es ign 18 an d a ddi tio na l c onstru ct ionc ost s r equir ed to co rr ec t A rc hit ec t’ s er

ro rs or om iss ion s. 19 T he r igh ts c re at ed in the lim itatio n of lia bil ity cl au se , if

a llo w ed to fl owdow n to the13

1 subc ontra ct , “ limit [A rc hit ec t’ s] li ab ili ty to [C en te x] fo r an y er ro rs or om iss ion s in the 2 de sig n of the [ p] ro

j ec t” to sum s c oll ec te d f

ro m e rr or s and o m iss ion s in sur an ce . Bo th 3 provisi ons pu rport to allocate A rchitect’ s liabilityto Centex, but d o so in way s that 4 ar e s o d i f

f e r e n tt h a tt h e y

c a n n o tc o e x i s t . I n o r d e r

t o g i v e t h e “ e x c e p ta s o t h e rw ise 5 p ro v i d ed h er ei n ” l an g u ag e f u l l ef fe ct , we t h er ef

o re l i m i tt h e f

l o w- d o wn cl au s e’s 6 b ro ad i n co rp o ra t i o n o f t h e p r i m e c o n t ra ct ; b y i t s ex p re s s t er m s , t h e s ub co n t ra ct ’s 7 al loc at ionof

li ab ili ty gov er ns. 8 2. To The ExtentThat S ection 1. 4.2 (b ) a nd th e Li mit a ti o n Of Liability 9 C lau se A llo c a t e A r c h i te ct ’s Li ab ili ty D if fe re nt ly, S ec ti on 1. 4. 2( b) C on tr ols 10 { 21} E ve n w ith out the fl ow -d ow n cl au se ’ s w or ds of de fi nit e lim itatio n, the 1 1 s ub co n t ra ct ’s al l o ca t i o n o f l i ab i l i t y s t i l l p re v ai l s o v e r t h e f l o w- d o wn cl au s e’s 12 inc or por at ionof

the pr im e co ntr ac t. N um er ous j ur isd ic tio ns h av e im ple m en te d th e 13 ru le that “ if

the spe ci fi c pr ovi sio ns o f the sub co ntr ac t c onf li ct w iththe plans and 14 spe ci fi catio ns, o r wit h the ge ne ra l c ontra ct be tw ee n th e pr im e co ntr ac tor a nd the 15 ow ne r (a ll of

w hic h are inc or

por at ed int o th e subc ontra ct ), the te rm s of the 16 subcon tract pre vail.” M cK inn eyD ril lin g C

o. v . Co lli ns C

o. , 517 F
. S upp. 320 , 327 -2 8 17 (N

. D
. A la

. 198 1)

. “ [W ] he re the [ s] ubc ontra ct ha s c le ar ly

state d th e part ie s’ int en tio ns 18 at the tim e of co ntr ac tin g, the fl ow -thr ough cl au se cannot be re ad to ren de r thos e 19 clear intentio ns a nullit y .” Larry Snyder & Co. v . M iller , N o. 07- CV -4 55- PJ C, 201 0 20 W L 830616, at *6 (N. D. Okla. Mar. 2, 2010). “ Th e g en eral language of a standard14

1 i n co rp o ra t i o n cl au s e c an n o tt ru m p t h e s p ec i fi c l a n g u ag e o f t h e s ub co n t ra ct [. ]” 2 Be rnota s v. Super Fresh Food Mkts. , I nc. , 863 A. 2d 47 8, 484 (Pa. 2004 ). 3 { 22} T he a l l o c a t i o n o f l i ab i l i t y i n t h e p r i m e c o n t r a c tc a n n o tc o e x i s tw i t h S e c tio n 4 1. 4. 2( b)

. A rc hit ec t’ s li ab ili tyund er one is not

e qui va le nt t o it s li ab ili ty und er the 5 other. W

hile the prim e contract lim its Centex’ s recovery from Ar chitect to “ whatever 6 sum s” it can collect f

rom the error s and om issio ns insurance c arrie r, the subcon tract 7 al low s, w ith out lim it, re co ve ry fo r re de sig n co sts an d ad dit ion al c onstru ct ionc ost s, 8 and does not preclude “ pursuit of available insurance proceeds.” Pursuant to the le gal 9 principles ou tlined abov e, the express allocation of liabilityin the subco n t ract 10 pr ev ai ls ove r the lim itatio n of lia bil ity cl au se in the pr im e co ntr ac t; Se ct ion1. 4. 2. (b ) 11 gov ern s Ar ch ite ct ’ s li ab ili ty to Ce nte x. A rc hit ec t m ust the re fo re sho uld er

f ull 1 2 r e s p o n s i b i l i t y fo r

t h e c o n s e qu e n c e s o f

i t s e rr o r s a n do mi s s i o n s , i f a n y. 13 3. Ou r In terpreta tio n Is In Acc or da nce W ith the Or der o f Prece denc e C lau se 14 { 23} T h e p a rt i e s a r e d i v i d e do n w h e t h e r o u r i n t e r p r e t a t i o n o f

t h e c o n t r a c t s i s in 15 acco rd wit h th e or de r of pr eced en ce cl au se . We co nc lu de th atitis

. Se e APAC–T en n., 16 In c. v . J

. M

. H um phr ie s Constr. Co

. , 732 S
. W
. 2d 6 01, 604 ( T en n. Ct
. App. 198 6) 17 (h old ing that the c le ar langua ge of

the or de r of

pr ec ed en ce c lause r equir ed that the 18 subc ontra ct

gov er n in the ev en t tha t the pr im e co ntr ac t’ s pr ovi sio ns w er e inc onsi ste nt 19 w iththe sub co ntr ac t)

. I n th e or de r of pr ec ed en ce c lause , the part ie s r equir ed tha t a ll15

1 te rm s and a ll doc um en ts b e co nside re d a s c om ple m en tary

a nd l ai d ou t an or de r of 2 precedence “ in the event that su ch an i nterpretation is not possi ble[.] ” T he parties 3 ag re ed that, in the e ve nt th at th e te rm s of the c ontra ct s so m eh owc onf lic t, the 4 subcon tract governs unless th e prim e contract “ im poses a high er standard or gre ater 5 re qui re m en t onthe part ie s, ” in wh ic h c as e the pr im e co ntr ac t go ve rn s. E ac h party 6 argues that its own interpretation of the flow- down clause’ s applicabilityis in accord 7 w iththe appl ic at ionof the “ hig he r standard

. ” Fo r ex am pl e, Ce nte x arg ue s th at

the 8 pr im e co ntr ac t do es not im pose a ny hig he r standard , so the sub co ntr ac t sh oul d 9 gove rn . C on ve rse ly , A rc hit ec t arg ue s th at the pr im e co ntr ac t a ct

ua lly im pose s a 10 hi gh er s ta nd ardth an th e su bc on tra ct , so th e p rime con tra ctsh ou ld go ve rn . 11 { 24} To t he ex te nt th atth e fl ow- do wn cl au se cau se s an y co nf li ctbe twee n t he two 12 ag re em en ts’ a llo catio n of lia bil ity , w e agr ee w ith Ce nte x; the subc ontra ct im pose s a 13 high er standard. Sec tion 1 .4. 2(b) repre sents a m ore severe undertaking for A rchitect 14 th an th e li m it at io n of li ab il it y cl au se in ter m s o f m on et ary res po ns ib il it y forit s o wn 15 error s and om issio ns. T he lim itation of l iabilityclause im poses th e re quirem ent that 16 A rc hit ec t ob ta in and m ai nta in a $3, 000, 000 insuranc e poli cy , w hic h then co ve rs it s 17 lia bil ity , w hil e Secti on 1. 4. 2( b) a llo w s Arc hit ec t t o po te nti al ly be li ab le f

or a ny 18 co nstru ct ionor

r ed es ignco sts inc ur

re d a s ar es ult

of it s e rr or s and o m iss ion s. 19 A rc hit ec t i s th er ef

or e lia ble f or am uc h hi ghe r am ount

of m one y fo r its e rr or s and16

1 om iss ion s un de r Se ct ion1. 4. 2( b) than un de r the li m itatio n of li ab ili ty c lause . A s su ch , 2 the sub co ntr ac t t ak es pr ec ed en ce, an d our de te rm ina tio n th at

the te rm s of

the 3 subc ontra ct

gov er n ov er c onf lic tin g te rm s in co rp or at ed fro m the pr im e co ntr ac t i s 4 therefore in accordance with the order of precedence clause. 5 { 25} A lth oughthe f

low -d ow n c lause doe s not inc or por at e the lim itatio n of

li ab ili ty 6 cl au se int o th e subc ontra ct und er our hol din g he re , the flo w- dow n c lause is not 7 r e n d e r e ds up e r f

l u o u s . I ts t i l l ap p l i e s t o i n c o r p o r a t e o t h e r

c l au s e s f r o m th e p r i me 8 co ntr ac t i nto the subc ontra ct , so lon g as suc h an inc or por at ion doe s not

r un a fo ul o f 9 its ow n w or ds o f de fi nit e lim itatio n. I t i s on ly w he n th e subc ontra ct

pr ovi de s r igh ts, 1 0 o b l i g a t i o n s , r i s k s , a n dr e s p o n s i b i l i t i e s t h a t d i f f e r f r o m th o s e s e tf

o rt h i n t h e p r i me 11 co ntr ac t tha t the sub co ntr ac t go ve rn s re gard le ss of the f low -d ow n c lause appl ic at ion

. 12 IV. CO NC LUS ION 13 { 27} W e co nc lud e tha t the dis tr ic t c ourt ba se d it s gr an t of sum m ar y j udgm en t ona 14 m ist ak enint er

pr et at ionof

the law . Appl y ing r

ule s gove rn ing the ap pli ca bil ity of the 15 fl ow -d ow n c lause that are w ide ly a cc ep te d am ong oth er j ur isd ic tio ns, w e de te rm ine 16 tha t the sub co ntr ac t’ s te rm s r eg ar din g li ab ili ty gov er n fo r an y one of thr ee r ea sons : 17 (1 ) the f

low -d ow n c lause ’ s w or ds o f de fi nit e lim itatio n m ust be giv en ef

fe ct ; ( 2) the 18 w el l- re co gni ze d r

ule that w he n sp ec if

ic pr ovi si ons in the sub co ntr ac t c onf lic t w ith 19 pr ovi sio ns i n th e pr im e co ntr ac t, the sub co ntr ac t c ontro ls; a nd (3 ) the or de r or17

1 pr ec ed en ce c laus e ex pl ic it ly requ ire s t ha t t he su bc on tra ctgo ve rn when cla us es can not 2 be r ea d as co m

ple m en tary . W e hol d tha t the f low -d ow n c lause doe s no t i nc or por at e 3 the li m itatio n of

li ab ili ty c lause f

ro m the pr im e co ntr ac t i n th e subc ontra ct , a nd 4 Section 1.4. 2(b) governs Architect’ s liabilityto Centex. W e re verse. 5 { 28} IT IS S O ORDERE D.
6

____ ____ ____ ____ ____ ____ ____ ____ ___ 7 R OD ERIC K T . KE N N ED Y , Ju dg e 8 WE CO NCUR:

9

____ ____ ____ ____ ____ ____ ____ ____ _ 10 M IC HA EL D . BU ST A M A N TE , Ju dg e

11

____ ____ ____ ____ ____ ____ ____ ____ _ 12 JO N A TH A N B. S U TI N , Ju dg e