IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

 

No. 97-11068

 

The United States of America for the use of VARCO PRUDEN BUILDINGS,

a unit of United Dominion Industries, Inc., a Delaware Corporation,

also known as United Dominion Industries, Inc.

Plaintiff - Counter Defendant - Appellant

versus

REID & GARY STRICKLAND CO., A Texas Corporation

Defendant - Counter Claimant - Third Party Plaintiff

Appellee - Appellant

and

ST. PAUL FIRE AND MARINE INSURANCE COMPANY, a Minnesota Corporation

Defendant - Counter Claimant - Counter Defendant

Appellant

versus

FILE-STEELE ERECTORS CO. INC., a New Mexico Corporation

Third Party Defendant - Counter Claimant - Appellee

 

Appeals from the United States District Court

for the Northern District of Texas

 

December 1, 1998

Before HIGGINBOTHAM, DAVIS and BARKSDALE, Circuit Judges.

HIGGINBOTHAM, Circuit Judge:
2

This appeal resolves several claims for attorneys’ fees and

interest stemming from the construction of an Air Force hangar in

New Mexico. The ultimate resolution of the damage claims is not

before us. We must decide whether to apply the law of Texas or the

law of New Mexico and whether the claims for attorneys’ fees are

efforts to recover attorneys’ fees as part of a Miller Act claim or

state law claims supplemental to a Miller Act claim.

I.

In April 1993, Reid & Gary Strickland Company, a general

contractor, submitted to the United States Corps of Engineers a bid

to construct a six-bay hangar at Cannon Air Force Base near Clovis,

New Mexico. On June 4, 1993, Strickland signed and returned to

Varco Pruden Buildings, Inc., a purchase order for metal building

components needed to complete the hangar. The purchase order was

signed and returned to avoid a possible price increase and was

contingent upon the award of the hangar contract to Strickland.

The form provided that the transaction would be governed by the

laws of Tennessee.

The United States awarded the hangar contract to Strickland on

August 2, 1993. On the same day, Strickland submitted an order

form to Varco Pruden which stated that Varco Pruden would furnish

the pre-fabricated and pre-engineered metal building necessary for

the completion of the hangar in return for $607,865.00. The August
1The Miller Act requires the bond “for the protection of all

persons supplying labor and material in the prosecution of the work

provided for in . . . [the] contract.” 40 U.S.C. § 270a(a)(2).

The Act further provides that any person who has so furnished labor

or material and who has not been paid in full within ninety days

after the last labor was performed or materials supplied may bring

suit in federal court on the payment bond for the unpaid balance.

See id. § 270b(a).

3

2, 1993, purchase order provided that Texas law would govern the

transaction. Varco Pruden returned the form on March 15, 1994.

Pursuant to the Miller Act, Strickland and St. Paul Fire and

Marine Insurance Company executed and delivered to the United

States on August 3 a payment bond for $6,833,599.28.1

On August 9, Strickland and File-Steele Erectors Company

executed two subcontracts for the hangar project. One subcontract

was for the unloading and erecting of all reinforcing steel, and

the other was for the erection of the structural steel and the

metal building.

Varco Pruden delivered the metal building components to the

job site in New Mexico, but the components were non-conforming,

defective, and mismarked. As a result, File-Steele had to perform

additional work--labor not originally contemplated in its

subcontract with Strickland--to remedy the problems. At various

times throughout the project, representatives of both Strickland

and Varco Pruden assured File-Steele that it would be paid for its

extra work on the project. 

In March 1994, Varco Pruden agreed directly with File-Steele

to pay File-Steele for the extra work. Pursuant to this
4

arrangement, File-Steele submitted extra work “tickets” to

Strickland so that Strickland could confirm that File-Steele had

actually performed the work denoted on the tickets. Strickland

then returned the tickets to File-Steele for pricing; after FileSteele placed prices on the tickets, it returned them to Strickland

for forwarding to Varco Pruden. 

At the end of the project, Varco Pruden had not received full

payment from Strickland, and File-Steele had not been paid for its

extra work. In addition, Strickland still owed File-Steele

$8,344.38 under its original contract.

Varco Pruden filed a Miller Act claim against Strickland in

federal district court in New Mexico. The case was transferred by

stipulation to the district court for the Northern District of

Texas. Strickland counterclaimed against Varco Pruden, alleging

breach of contract, and filed a third-party claim against FileSteele, seeking a declaratory judgment to determine the correct

amount owed by Strickland to File-Steele. In its answer and

counterclaim to the third-party complaint, File-Steele asserted

Miller Act and state law claims against Strickland, St. Paul, and

Varco Pruden.

The case was tried to the bench for nine days. The court

awarded File-Steele $238,645.97 from Strickland and St. Paul for

File-Steele’s extra work. The amount was offset by $44,403.51--

payments Strickland previously had made to File-Steele as an

incentive to continue with the project. The court also awarded
5

File-Steele $8,344.38 against Strickland under the original

subcontract. The trial court found against File-Steele on its

claim against Strickland for delay damages and on its claim against

Strickland and Varco Pruden for fraud and misrepresentation. 

The court awarded Strickland $11,057.66 against Varco Pruden

on its breach of contract claim, and the court found that Varco

Pruden was liable to Strickland for the $44,403.07 that Strickland

had paid for File-Steele’s extra work. The court also found that

Strickland was entitled to indemnification from Varco Pruden for

the remaining amounts awarded to File-Steele for extra work--

$194,242.46. These amounts were offset by the amount still owed

Varco Pruden by Strickland, $244,939.00, making a net award to

Strickland against Varco Pruden of $4,764.63. That is, assuming

that Strickland or St. Paul would pay File-Steele the $194,242.46

for the extra work, Varco Pruden would owe Strickland $4,764.63,

exclusive of attorneys’ fees and prejudgment interest. The trial

court found against Strickland on its claims against Varco Pruden

for delay damages and on its claims under the Texas Deceptive Trade

Practices Act and the New Mexico Uniform Trade Practices Act. 

Finally, the court awarded to File-Steele attorneys’ fees of

$116,708.16 against Strickland and Varco Pruden, jointly and

severally, for which Varco Pruden had to indemnify Strickland, and

it awarded Strickland fees of $71,879.85 against Varco Pruden.

II.
6

First, Varco Pruden and Strickland appeal the district court’s

award of attorneys’ fees against them to File-Steele. Awards of

attorneys’ fees are generally reviewed for abuse of discretion, but

application of the correct legal standard is reviewed de novo. See

United States ex rel. Leno v. Summit Constr. Co., 892 F.2d 788, 790

(9th Cir. 1989)

It is undisputed that attorneys’ fees can not be awarded in

Miller Act claims absent an enforceable contract provision or

evidence of bad faith. See F.D. Rich Co., Inc. v. United States ex

rel. Industrial Lumber Co., Inc., 417 U.S. 116, 126-31 (1974).

Varco Pruden and Strickland argue that this is solely a Miller Act

case: File-Steele pressed no state law causes of action, and the

trial court did not find in favor of File-Steele on any state law

claim. Thus, pursuant to F.D. Rich, if this case is solely a

Miller Act case, the award of attorneys’ fees pursuant to state law

was improper. 

File-Steele did assert state law claims against Strickland and

Varco Pruden over which the court exercised supplementary

jurisdiction, and the district court awarded attorneys’ fees under

those claims. The Pretrial Order clearly states that File-Steele

sought recovery under state law. Further, the district court held

that File-Steele was entitled to recover attorneys’ fees on its

state law causes of action. We do not read F.D. Rich to prohibit

an award of attorneys’ fees under a state claim over which the
7

court has exercised supplementary jurisdiction in a Miller Act

case. Admittedly, in many Miller Act cases supplemental

jurisdiction offers a neat sidestep to the broad policy statements

of F.D. Rich. When the sidestep is available it is because

Congress has by separate statute, 28 U.S.C. § 1367, made possible

simultaneous prosecution of Miller Act and state law claims. See

United States v. Insurance Co. of N. Am., 695 F.2d 455, 457-58

(10th Cir. 1982) (holding that recovery under the Miller Act is not

a subcontractor’s exclusive remedy against the general contractor);

United States v. McKee, Inc., 702 F. Supp. 1298, 1301-02 (N.D. Tex.

1988) (construing the Miller Act as an alternative means of

recovery, not a replacement of state law causes of action).

Moreover, it is only a half step because recovery on the bond must

be under the Miller Act.

Moreover, the district court was correct in applying Texas law

to File-Steele’s state-based claims against Strickland and thus

looking to Texas law on the issue of attorneys’ fees. The general

rule is that a federal court applies the choice-of-law rules of the

state in which it sits. See Atlantic Mut. Inc. Co. v. Truck Ins.

Exch., 797 F.2d 1288 (5th Cir. 1984). When a suit is transferred

pursuant to 28 U.S.C. § 1406(a), the choice-of-law rules of the

transferee court’s state apply. See Tel-Phonic Servs., Inc. v. TBS

Int’l, Inc., 975 F.2d 1134, 1141 (5th Cir. 1992). A federal court

in Texas tried this case after a transfer for improper venue from
8

New Mexico. Under Texas law, the substantive law of the state

chosen by the parties to govern their contractual rights and duties

will be applied unless the chosen state has no substantial

relationship to the parties or the transaction and there is no

other reasonable basis for the parties’ choice. See DeSantis v.

Wackenhut Corp., 793 S.W.2d 670, 677 (Tex. 1990). File-Steele’s

contract with Strickland provided that Texas law would govern the

transaction. Strickland is incorporated in Texas and conducts

business in Texas; thus, Texas has a substantial relationship to

the transaction and the forum clause will be upheld. Attorneys’

fees are recoverable under Texas law. See TEX. CIV. PRAC. & REM. CODE

ANN. § 38.001.

We need not reach whether the district court could correctly

hold that Varco Pruden independently owed attorneys’ fees to FileSteele. The district court held Varco Pruden and Strickland

jointly and severally liable for the fees, and it held that Varco

Pruden had to indemnify Strickland for fees it paid to File-Steele.

Because we affirm the district court’s holding on fees as to

Strickland, and Varco Pruden does not appeal the indemnification

ruling, File-Steele’s award on attorneys’ fees against both parties

goes undisturbed.

III.
9

Varco Pruden contends that, in the event that the district

court did not err in awarding attorneys’ fees to File-Steele, FileSteele should have been required to segregate its fees. A party

requesting attorneys’ fees carries the burden of proof and the duty

to segregate fees. See Smith v. United National Bank-Denton, 966

F.2d 973, 978 (5th Cir. 1992). An award of attorneys’ fees rests

in the sound discretion of the trial court, and its judgment will

not be reversed absent a clear showing that it abused its

discretion. See Brunn v. Central Realty of Louisiana, 592 F.2d

891, 892 (5th Cir. 1979).

The district court did not require that File-Steele segregate

its fees into those fees incurred for successful claims and those

incurred for unsuccessful claims. Instead, the court found that no

segregation was required because the claims arose out of the same

transaction and were so interrelated that their prosecution or

defense entailed proof or denial of essentially the same facts.

See Flint & Assocs. v. Intercontinental Pipe & Steel, Inc., 739

S.W.2d 622 (Tex. App.--Dallas 1987, writ denied). 

However, Varco Pruden points out that while the court awarded

damages under the Federal Prompt Pay Act and for the cost of the

extra work as shown by the extra work tickets, it denied FileSteele’s claims for delay damages and for fraud and

misrepresentation. Varco Pruden stresses that fees from the delay

claim in particular should have been segregated. 
10

Nonetheless, the district court did not err. These claims are

intertwined and connected to the defective parts and the resulting

extra work. Thus, the trial court did not abuse its discretion in

not requiring the fees to be segregated.

IV.

Varco Pruden maintains that the district court erred in

granting attorneys’ fees to Strickland from Varco Pruden.

Strickland asserted state law claims against Varco Pruden. The

issue of whether Strickland is entitled to attorneys’ fees from

Varco Pruden hinges upon which state’s law applies to the award of

fees. The two states under consideration, Texas and New Mexico,

have different laws regarding attorneys’ fees. Texas law provides

for recovery of attorneys’ fees, see TEX. CIV. PRAC. & REM. CODE ANN.

§ 38.001, but New Mexico does not, see Aboud v. Adams, 507 P.2d

430, 438-39 (N.M. 1973) (noting that New Mexico follows the general

rule, with limited exceptions not applicable here, that each party

to litigation must pay his own counsel fees). Varco Pruden wants

New Mexico law to apply, and Strickland wants Texas law to apply.

Under Texas choice-of-law rules, the substantive law of the

state chosen by the parties to govern their contractual rights and

duties will be applied unless the chosen state has no substantial

relationship to the parties or the transaction and there is no
11

other reasonable basis for the parties’ choice. See DeSantis v.

Wackenhut Corp., 793 S.W.2d 670, 677 (Tex. 1990). 

There is a complication: two different forms with two

different choice of law provisions. The June 4 order specifies

Tennessee law as controlling the transaction; the August 2 order

specifies Texas law. Both sides offer solutions to this dilemma.

Varco Pruden argues that this exchange of orders was an exchange of

offers and constitutes a “battle of the forms,” implicating § 2-207

of the Uniform Commercial Code. On the other hand, Strickland

argues that the contract in this case was formed June 4, and that

the June 4 agreement was modified by the August 2 purchase order.

The August 2 order provided that Texas law applied to the

transaction. 

Before we can reach the question of which law to apply to the

transaction, we must decide whether the two forms present a battle

of the forms or whether the August 2 order was a modification. To

decide this initial question, we must choose a particular state’s

law and apply it to the facts. Fortunately, the law of the states

with the most significant contacts to this transaction--New Mexico

and Texas--is substantially the same on these issues. 

Under either state’s law, the initial question is whether the

June 4 order form constitutes an offer or a binding contract. The

Varco Pruden purchase order states that it “shall be subject to

acceptance by Varco Pruden.” The trial court found that, even
12

though no representative of Varco Pruden signed the purchase order,

it was accepted by Varco Pruden and constituted a binding contract

between the parties. The order could constitute a contract if it

was considered “a writing in confirmation of the contract” under

New Mexico Statute § 55-2-201(2) or Texas Business and Commerce

Code § 2.201(b). These sections provide that, between merchants,

if a writing in confirmation of an agreement is received by one

party within a reasonable time, there is a binding contract if no

objection is made within ten days. See N.M. STAT. ANN. § 55-2-201;

TEX. BUS.& COM. CODE ANN. § 2.201. 

Varco Pruden objects that even if the June 4 order was a

binding contract, the August 2 order was not a valid modification

because it was not supported by consideration. However, both Texas

Business and Commerce Code § 2.209 and New Mexico Statute § 55-2-

209 provide that in contracts for the sale of goods, such as this

one, a modification needs no consideration to be binding.

Strickland also argues that in the stipulation transferring

this case from the District of New Mexico to the Texas federal

district court, Varco Pruden expressly agreed that the August 2

purchase order was the controlling agreement between the parties.

However, a review of the stipulation for transfer in the record

reveals that Varco Pruden stipulated that the August 2 form

contained a valid venue selection clause; nothing was stated about

the choice-of-law provision. The June 4 order form did not contain
13

a venue selection clause. Thus, pursuant to Varco Pruden’s “battle

of the forms” argument, the August 2 venue provision could be

considered part of the contract, assuming the venue clause is not

considered a material alteration under U.C.C. § 2-207.

If Strickland’s argument is incorrect and the June 4 form was

actually just an offer, then New Mexico Statute § 55-2-207 and

Texas Business and Commerce Code § 2.207 apply. Section 2-207’s

provisions determine whether additional or conflicting terms

submitted in a subsequent form--in this case a different choice of

law provision--become part of the contract. According to § 2-207,

the additional terms are construed as proposals for additions to

the contract and, as between merchants, become part of the contract

unless:

(1) the offer expressly limits acceptance to the terms

of the offer;

(2) they materially alter it; or

(3) notification of objection to them has already been

given within a reasonable time after notice of them is

received.

N.M. STAT. ANN. § 55-2-207; TEX. BUS.& COM. CODE ANN. § 2.207. 

Both parties are merchants, and Varco Pruden contends that

exception (2) applies to the instant case. According to Varco

Pruden, the provision of the August 2 form stating that Texas law

applies materially alters and conflicts with the June 4 form

provision applying Tennessee law. Under New Mexico law, when such

terms conflict, the terms do not become part of the contract. See

Gardner Zemke Co. v. Dunham Bush, Inc., 850 P.2d 319, 325-26 (N.M.
14

1993). In Texas, there is a split of authority as to whether the

offeror’s terms control or whether the conflicting terms drop out

of the contract. See Reynolds Metal Co. v. Westinghouse Elec.

Corp., 758 F.2d 1073, 1077 n.5 (5th Cir. 1985); Brochsteins, Inc.

v. Whittaker Corp., 791 F. Supp. 660, 661 (S.D. Tex. 1992). Thus,

either Tennessee law applies pursuant to the June 4 order under

Texas law, or the court must conduct a choice-of-law analysis to

determine the applicable law because the June 4 provision drops out

of the contract. However, even if Texas law applies and the June

4 provision does not drop out of the contract, Texas will not abide

by that choice of law provision if Tennessee had no substantial

relationship to the parties or the transaction. See DeSantis, 793

S.W.2d at 677. In this case, Tennessee had no connection to the

transaction. Thus, assuming the June 4 order was an offer, the

court--whether it applies New Mexico or Texas law--ultimately must

perform a “most significant contacts” choice of law analysis to

determine what state’s law will apply to the attorneys’ fees issue.

If Texas law prevails, Strickland, the prevailing party in the

dispute, is entitled to its attorneys’ fees. See TEX. CIV. PRAC. &

REM. CODE ANN. § 38.001. New Mexico law does not permit an award of

attorneys’ fees in this case. See Aboud, 507 P.2d at 438-39. 

Nevertheless, the stronger view appears to be that the June 4

order was a binding contract under New Mexico Statute § 55-2-207

and Texas Business and Commerce Code § 2.207, and the August 2
15

order was a valid modification under Texas Business and Commerce

Code § 2.209 and New Mexico Statute § 55-2-209. Thus, Texas law

applies to the award of attorneys’ fees. Because Texas has a

substantial relationship to the transaction, the district court did

not err in finding that Strickland was entitled to its fees from

Varco Pruden under Texas law. See TEX. CIV. PRAC. & REM. CODE ANN. §

38.001.

V.

Varco Pruden contends that, in the event that the district

court did not err in awarding attorneys’ fees to Strickland, the

fees should have been segregated. First, the court found that all

of Strickland’s claims related to Varco Pruden’s failure to furnish

material that complied with its subcontract and the attendant costs

and resulting delays to all the parties involved. While Strickland

did not recover on its claim of delay damages, the court found that

the facts relating to Strickland’s delay claim were essentially the

same and intertwined with the facts underlying the breach-ofcontract claim. However, the court found that one part of the

delay claim could be separated out--the testimony relating to

actual money damages for the delay claim. Strickland did not

segregate the fees attributable to proof of the dollar amounts for

delay damages, but the trial court decided that the fees for
16

preparation and trial time for proof of such amounts could not have

exceeded ten percent of Strickland’s total attorneys’ fees. Thus,

the trial court reduced the amount of Strickland’s recovery of

attorneys’ fees by ten percent.

Varco Pruden maintains that the court should have segregated

Strickland’s fees. Strickland pursued three claims against Varco

Pruden: (1) the successful claim for breach of contract for which

Strickland was awarded damages of $11,056.66 for extra work

performed to correct a problem with anchor bolts, (2) the

unsuccessful claim for delay damages, and (3) the unsuccessful

claim for violations of the Texas DTPA. Varco Pruden insists that

an examination of the pleadings and the record reveals that the

facts relating to the unsuccessful delay claim and the Texas DTPA

claim are not the same as those related to the successful breach of

contract claim and that Strickland expended a substantial majority

of its effort in the prosecution of its unsuccessful claims. 

Varco Pruden maintains that the successful anchor bolt claim

is simple and easily can be segregated from the other unsuccessful

claims. In the anchor bolt claim, Strickland alleged that it had

installed anchor bolts in the building foundation pursuant to

designs submitted by Varco Pruden that later proved to be

incorrect. Thus, Strickland had to perform extra work to correct

the problem. Varco Pruden contends that the only proof needed to

prove this claim was the submission and receipt of the incorrect

design, reliance upon the design by Strickland, Strickland’s
17

installation of the bolts pursuant to the design, and the value of

the extra work to correct the mistake.

On the other hand, argues Varco Pruden, the elements required

to prove the delay claim were more complex, and the delay claim had

nothing to do with the anchor bolt claim. Further, Varco Pruden

argues that the Texas DTPA claims required proof of different

facts: Strickland had to show that Varco Pruden employed false or

misleading practices, breached its warranties, misrepresented its

goods and services, and committed an unconscionable act or course

of action by failing to properly engineer, fabricate, and deliver

the metal building.

While the court had discretion in its award of attorneys’

fees, it should have abided by the general rule that recoverable

fees must be segregated from unrecoverable fees. Even though such

segregation might be difficult, in this case the simple claim on

which Strickland prevailed--the anchor bolt claim--could have been

isolated from the other unsuccessful claims.

VI.

The trial court awarded to File-Steele against Strickland

and St. Paul prejudgment interest for its extra work claim. It is

undisputed that prejudgment interest falls within the “scope of the

remedy” available to a Miller Act claimant. United States ex rel.
18

Lochridge-Priest, Inc. v. Con-Real Support Group, Inc., 950 F.2d

284, 287 (5th Cir. 1992). State law governs the prejudgment

interest award. See id. Under Texas law, if the contract

specifies no rate of interest, as in this case, “interest at the

rate of six percent per annum shall be allowed on all . . .

contracts ascertaining the amount payable.” TEX. REV. CIV. STAT. ANN.

art. 5069.1.03 (recodified at TEX. FIN. CODE ANN. § 302.002). If the

sum payable is not ascertainable from the contract, prejudgment

interest may be appropriate in equity, at the rate specified in

Texas Revised Civil Statutes Annotated article 5069.1.05--in this

case, ten percent. The district court determined that the oral

contract, in which Strickland and File-Steele agreed that FileSteele would perform extra work, did not fix a measure of

ascertainable damages with reasonable certainty; thus, the court

applied prejudgment interest at a rate of ten percent under Article

5069.1.05.

Strickland and St. Paul argue that the sum payable to FileSteele for its extra work was readily and reasonably ascertainable

from its oral agreement with File-Steele, so the court erred in not

applying the six percent rate. A contract is one “ascertaining the

sum payable” within the meaning of Article 5069-1.03 when it

“provide[s] the conditions upon which liability depends and . . .

fix[es] ‘a measure by which the sum payable can be ascertained with

reasonable certainty.’” Perry Roofing Co. v. Olcott, 744 S.W.2d
19

929, 930 (Tex. 1988) (citations omitted). Article 5069-1.03

applies when calculating prejudgment interest even if extrinsic

evidence is needed to quantify contract damages, so long as the

contract fixes a measure by which the sum payable can be

ascertained with reasonable certainty in light of the attending

circumstances. See Great Am. Ins. Co. v. North Austin M.U.D. No.

1, 950 S.W.2d 371, 373 (Tex. 1997). Strickland and St. Paul,

relying on North Austin M.U.D., argue that the oral contract with

File-Steele fixed a measure by which the sum payable could be

ascertained with reasonable certainty, and the court used extrinsic

evidence to quantify the damages.

However, the oral contract did not fix a measure by which to

ascertain the sum payable. A review of the record reveals that the

measure of damages was hotly contested at trial precisely because

there was no fixed measure for purposes of Article 5069-1.03.

Thus, the trial court did not err in assigning a ten percent rate.

VI.

Thus, we AFFIRM the award of fees from Strickland and Varco

Pruden, jointly and severally, to File-Steele. We also AFFIRM the

district court’s holding that File-Steele did not have to segregate

its fees. Further, we AFFIRM the district court’s holding that

Strickland is entitled to attorneys’ fees from Varco Pruden, but we
20

VACATE and REMAND so that the district court can segregate the

fees. Finally, we AFFIRM the district court’s use of a ten percent

interest rate on the award of prejudgment interest.