Opinion ID: 691321
Heading Depth: 1
Heading Rank: 6

Heading: compensation in light of the termination for convenience clause

Text: 45 Having determined that the termination for convenience clause is applicable in this case, we must next decide whether the district court erred in granting summary judgment for HACC and denying Linan-Faye all compensation. Linan-Faye contends that the district court exceeded its role at the summary judgment stage because there still remain six contested issues concerning its contract claim. According to Linan-Faye, the district court erred in determining: (1) the definition of work performed under the contract; (2) there was no evidence of compensable pre-termination expenses under the contract; (3) the reason why HACC retained Linan-Faye's performance bond; (4) that Linan-Faye refused to begin work; (5) that Linan-Faye misunderstood the contract specifications; and (6) that there was proper HUD approval of the contract's termination. 46 Our scope of review is plenary in determining the propriety of summary judgment. Oritani Savings & Loan Ass'n v. Fidelity & Deposit Co., 989 F.2d 635, 637 (3d Cir.1993). Summary judgment is proper only if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). Further, at the summary judgment stage, the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). 47 Three of the issues that Linan-Faye raises are genuine issues of material fact in dispute. The other issues concern facts that are either not material, or are not in dispute. We will reverse the decision of the district court granting summary judgment on those issues where there is a genuine issue of material fact in dispute. 48
49 Linan-Faye argues that the trial court improperly selected isolated phrases from correspondence between the parties in its determination that the phrase work performed in paragraph 17 of the contract 16 refers only to physical construction and not to preparatory work. The district court conceded that the contract documents, which include the contract's General Conditions and its Supplement to the Standard Form Agreement, failed to define the term work. Linan-Faye Construction Co., 847 F.Supp. at 1206. Based on an analysis of the word work as used in several paragraphs of the contract, the district court concluded that work could not include preparatory work until after Linan-Faye began physical construction on the project. Id. at 1207. We conclude that the district court erred in determining this disputed issue of fact. 50 Paragraph 8(a) of the General Conditions of this contract is the paragraph from which the district court draws the most support for its conclusion that work under the termination for convenience clause does not include preparatory work. The court's reading of this paragraph, however, is too strained to support a grant of summary judgment. Paragraph 8(a) of the General Conditions states: 51 Progress payments will be made at approximately thirty (30) day intervals; and in preparing estimates, acceptable work in place, material delivered to and properly stored on the site, and preparatory work done will be taken into consideration. If the contract covers more than one project, a separate estimate shall be furnished for each. 52 App.Vol. II at 42. From this paragraph, the district court deduced that expenses for preparatory work were recoverable only if the contractor begins the physical construction required under the contract. Linan-Faye Construction Co., 847 F.Supp. at 1207. This conclusion is unjustified. 53 There is nothing in the language of paragraph 8(a) that speaks to situations where HACC terminates Linan-Faye for convenience after Linan-Faye has performed preparatory work, but before it has begun physical construction. If anything, the language of this paragraph demonstrates that both parties considered preparatory work to be a compensable cost because the paragraph states that preparatory work will be taken into consideration in preparing estimates for compensation. Thus, the district court erred in concluding that this paragraph is dispositive. 54 The district court's survey of numerous other paragraphs containing the word work also produces inconclusive results. According to the court, paragraph 2 which requires the contractor to furnish all necessary labor, materials, tools, equipment, water, light, heat, power, transportation, and supervision necessary for performance of the work, and paragraph 22 which allows the contractor to request from the architect drawings which will [be required] in the planning and production of the work  somehow indicate that work performed under paragraph 17 does not include preparatory work. Id. at 1206 (emphasis added). These provisions, on their face, do not appear to support any such conclusion. In addition, the district court determined that paragraphs 26, 29 and 35, which refer to the contractor's obligation to protect work completed to date and to the warranty as to work done, support the conclusion that work performed under the termination for convenience clause does not include preparatory work. Once again, if anything, these provisions merely beg the question of how to define work under paragraph 17 of the contract. Finally, the court refers to paragraphs 7 and 31 that speak to obligations of the contractor before and shortly after commencing work under the contract. Unfortunately, these paragraphs also do not illuminate whether the parties considered preparatory work to constitute compensable work for purposes of the termination for convenience clause. 17 55 Linan-Faye asks for the opportunity to present testimony and cross-examine witnesses concerning the intent of the parties in using the phrase work performed in paragraph 17 of the contract. Based on the evidence mustered by the district court, we cannot conclude that there is no dispute as to this issue. Further, this issue is material to the question of what constitutes proper compensation under paragraph 17. Therefore, Linan-Faye should be allowed to present the evidence that it feels is appropriate to determine the intent of the parties. Accordingly, we hold that the district court erred in granting summary judgment for HACC on this disputed issue.
56 Related to the disputed issue of the definition of work performed under the contract is the issue of whether Linan-Faye produced any evidence of pre-termination expenses compensable as work performed. The district court determined that Linan-Faye had presented no evidence of expenses that would merit an equitable adjustment to the contract. Id. at 1208 n. 22. Linan-Faye argues that the certification which it submitted in opposition to HACC's third motion for summary judgment provides the requisite evidence. Linan-Faye is correct. 57 The district court, at this early stage of the litigation, improperly concluded that there was no evidence of expenses compensable under the termination for convenience clause. Linan-Faye described 15 types of expenses that Linan-Faye incurred preparing for work on the HACC contract. Certification of Norman Faye (October 21, 1993); App. at 231-33. While many of these expenses may not be compensable, some of the stated expenses, such as time spent with municipal building, plumbing and electrical inspectors regarding job phasing, contract details, code requirements, and problem solving, may be compensable if the parties so intended under the termination for convenience clause of the contract. Cf. ITI Defense Communications Division, Nos. 11858, 13439, 1970 WL 1124, 1970 ASBCA Lexis 29, at  56 (July 29, 1970) (cost of work done by appellant in preparing and submitting configurations that were never used still properly compensable under the termination for convenience clause); Navgas, Inc., No. 9240, 1964 WL 475, 1964 ASBCA Lexis 1139, at  29 (November 18, 1964) (costs of investigating work to be done, and determining the best way to perform the contract, if awarded, are properly compensable under termination for convenience clause). Although, on the whole, the evidence produced by Linan-Faye in this certification appears meager, by granting summary judgment for HACC the district court improvidently prevented the plaintiff from developing the record more fully. There was not a complete lack of evidence. Accordingly, we must reverse the grant of summary judgment on this issue and remand for trial. 58 In remanding for trial on this issue, however, it is important to explain precisely the scope of our holding. We do not hold that Linan-Faye is entitled to pre-termination expenses that accrued as the result of any alleged pre-termination breaches of contract by HACC. As the district court correctly held, cases that have addressed the issue of pre-termination breaches have concluded that claims for such damages are subsumed in the termination for convenience clause. Linan-Faye Construction Co., 847 F.Supp. at 1203, 1204 (citing Nolan Brothers, Inc. v. United States, 405 F.2d 1250, 186 Ct.Cl. 602 (1969)); Descon System Ltd. v. United States, 6 Cl.Ct. 410 (1984)). Pre-termination expenses that accrued as the result of any alleged pre-termination breaches by HACC are not compensable. On remand, the triable issue is limited to a determination of the pre-termination expenses which Linan-Faye incurred that the parties intended to be compensable as work performed under the termination for convenience clause of the contract. 59
60 Linan-Faye next contends that the trial court improperly resolved a factual dispute as to why HACC retained Linan-Faye's performance bonds after terminating Linan-Faye. According to Linan-Faye, it is entitled to damages arising from HACC's failure to return this performance bond. Linan-Faye alleges that by retaining its bond, HACC prevented it from accepting other construction contracts and used the bond as an inducement to force Linan-Faye to accept an unreasonable resolution of this dispute. HACC argues that it retained Linan-Faye's performance bond because Linan-Faye instituted a suit seeking specific performance and if Linan-Faye were successful, HACC would need Linan-Faye's bond. 61 This issue is not resolved solely by reference to the termination for convenience clause because the events that give rise to this claim occurred after termination. 18 Recognizing this, the district court decided the issue by concluding that keeping the bonds during the pendency of the litigation was the logical response to the plaintiff's lawsuit. Linan-Faye Construction Co., 847 F.Supp. at 1205. 62 Unfortunately, there is no testimony or record evidence to support the conclusion that HACC engaged in the logical response posited by the district court. No one from HACC ever indicated that it was Linan-Faye's suit for specific performance that prevented HACC from returning the bond. Counsel for HACC simply raised this argument when the case took on a litigation posture. This naked assertion by counsel, without record support, is not sufficient to warrant a grant of summary judgment. 63 The district court attempts to justify its decision to accept HACC's argument by referring to the September 25, 1990 termination letter sent by Gregory Kern, the Interim Executive Director of HACC. Nevertheless, its reasoning is unpersuasive. According to the court, Mr. Kern's letter which indicated that HACC would return the bonds was sent before Linan-Faye instituted suit. Linan-Faye, 847 F.Supp. at 1205 n. 16. Therefore, the court reasoned, [t]he decision of the HACC to depart from Mr. Kern's original plan only supports [the] finding that HACC felt compelled to hold onto the bonds until the Court had disposed of plaintiff's claims for specific performance. Id. (emphasis added). The court in this passage, however, merely assumes its conclusion. What eludes the district court is any evidence indicating that it was the suit for specific performance that caused retention of the bond. In effect, what the district court stated is that the decision of HACC to depart from Kern's original plan supports HACC's decision to depart from Kern's original plan--a statement without significance. 64 Moreover, even taking HACC's view of the timing of the relevant events, there was an unjustified gap of over one month between the time HACC terminated Linan-Faye and the time Linan-Faye served its complaint seeking specific performance. According to HACC, after it issued its September 25, 1990 letter of termination, Linan-Faye sought reversal of HACC's decision to terminate. HACC states that it sent a letter to Linan-Faye on October 23, 1990 confirming its decision to terminate. Linan-Faye did not serve its complaint for specific performance until early in December of 1990, however, and the bond had not yet been returned. This unexcused delay strengthens Linan-Faye's argument that HACC did not decide to hold onto the performance bond as the result of the specific performance suit. In light of these facts, we will reverse the district court's grant of summary judgment for HACC and remand for trial on this disputed issue. 19 65
66 Linan-Faye asserts that the district court improperly found it refused to begin work. According to Linan-Faye, it did not refuse to begin work, but merely wanted to agree on any changes that HACC desired before it began construction. Linan-Faye contends that there is no basis in the record for the district court's finding that it flatly refused to begin work. 67 We find that the question of whether Linan-Faye flatly refused to begin work is immaterial to this case. Whether Linan-Faye actually refused to begin work would be relevant if it was necessary to decide if Linan-Faye defaulted on its obligations. The district court, however, based its holding on the doctrine of constructive termination for convenience. Linan-Faye Construction Co., 847 F.Supp. at 1203. The constructive termination for convenience doctrine makes the original reason for termination relevant only to the extent that it evidences the government's bad faith or a change in circumstances from the time of contracting. 20 The issue of whether there was an actual default by Linan-Faye in refusing to begin work is immaterial. In this case the default termination is converted into a termination for convenience of the government by operation of law. Since we agree with the district court that it was appropriate to apply the constructive termination for convenience doctrine, we hold that this issue is immaterial. 68
69 Linan-Faye argues that the district court improperly concluded that it misunderstood the contract specifications because the court indicated in a footnote that [a]t the very least, plaintiff misinterpreted the architect's specifications for the project. Linan-Faye Construction Co., 847 F.Supp. at 1203 n. 13. According to Linan-Faye, it was HACC who misinterpreted the contract specifications. The dispute over proper interpretation of the contract specifications, argues Linan-Faye, prevented the court from resolving this issue at the summary judgment stage. 70 Linan-Faye's argument misinterprets the district court's reasoning. The relevant statement the court made in this footnote is merely that there was discord between the parties over interpreting their agreement. The district court mentioned the discord to support its conclusion concerning the constructive termination for convenience doctrine. Whether Linan-Faye actually misunderstood the specifications, or whether it was HACC's misunderstanding, is irrelevant where there is a termination for convenience. As the district court held, the constructive termination for convenience doctrine operates to allow the government to extricate itself from contractual relationships without arguing as to which party was in default. Id. at 1203. Accordingly, the issue of who misunderstood the contract specifications is not material, and played no part in the order granting summary judgment. 71
72 Linan-Faye suggests that whether HUD approved a termination for convenience is a disputed issue that precludes summary judgment. It concedes that HACC obtained HUD's general approval to terminate the contract, but argues that HUD never approved a termination for convenience. Linan-Faye contends that HUD approval of a termination for convenience was a condition precedent to invoking that clause, and failure to obtain such approval precludes summary judgment. Linan-Faye does not succeed in raising a disputed material issue on this point. 73 For the purposes of deciding this case, the district court did not assume that HACC originally terminated for convenience. While there is a dispute as to whether the original letter of termination constituted a default termination or a termination for convenience, HACC prevails under the district court's reasoning without having to prove that it obtained HUD approval of a termination for convenience. The court proceeded on a constructive termination for convenience theory. Linan-Faye does not dispute that HUD had approved HACC's right to terminate generally. Thus, concerning the original termination, HACC fulfilled its obligations by informing HUD, and obtaining from HUD a general approval for the termination of the contract. Because HACC received general HUD approval to terminate, there is no bar to this court's using the constructive termination for convenience doctrine to convert this into a termination for convenience by operation of law. Further, and most importantly, there is simply no dispute as to the material facts of what approval HACC obtained. Indeed, both parties concede that HACC obtained HUD approval to terminate generally, but did not obtain specific HUD approval of a termination for convenience. Therefore, this cannot be a disputed factual issue as Linan-Faye erroneously contends. 74 Accordingly, we will reverse the district court's grant of summary judgment and remand for trial on the issues of: (1) the definition of work performed under paragraph 17 of the contract; (2) the pre-termination expenses incurred by Linan-Faye that are compensable as work performed under the termination for convenience clause; and (3) HACC's possible liability for damages resulting from its retaining Linan-Faye's bond after termination.