Court Opinion

ID: 7036
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:24:13+00
Date Added: 2024-06-11T12:03:28.057950
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS

                      FOR THE FIFTH CIRCUIT

                          No. 94-10066

MILLGARD CORP.,
                                          Plaintiff-Appellee,
                                          Cross-Appellant,

                               versus

McKEE/MAYS, A JOINT VENTURE,
                                          Defendant-Third-Party
                                          Plaintiff-Appellant-
                                          Appellee,
                                          Cross-Appellee,

                               versus

DALLAS COUNTY AND THE COMMISSIONERS'
COURT OF DALLAS COUNTY,
                                          Third-Party Defendants-
                                          Appellants,
                                          Cross-Appellees.

          Appeal from the United States District Court
               for the Northern District of Texas

                        (March 31, 1995)

Before HIGGINBOTHAM, SMITH, and STEWART, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

     This Texas diversity case raises the familiar question of a

price adjustment to a construction contract.   Here a subcontractor

encountered wet soil while sinking piers for a foundation.      A soil

report accompanying the bid documents signaled dry soil, but the

bid documents stated that this soil report was not part of the

contract documents.   A provision in the subcontract allowed for
price adjustment if the subcontractor encountered conditions at

variance    with     those     indicated       in   the    subcontract    or    those

ordinarily     encountered.            Another        clause     disclaimed       all

responsibility for the accuracy of the soils investigation.                       We

hold that the subcontract provided for adjustment of contract price

in two circumstances and neither was present.                     We reverse the

judgment of the district court entered upon a jury verdict and

vacate a judgment against the owner that passed the price increases

through to the owner.

                                         I.

      On April 5, 1978, Dallas County contracted with McKee/Mays for

the construction of a new county jail and courthouse, called the

Lew   Sterrett      Justice    Center.         In   November    1978,    McKee/Mays

solicited    bids    to   subcontract      the      pier   drilling     for   caisson

foundations for the project.          McKee/Mays gave Millgard a packet of

information about the project, including a set of instructions to

bidders, the project specifications, and a copy of some soil boring

logs.      Mason-Johnston       &   Associates       had    conducted    the    soils

investigation at Dallas County's request.                  Section 1.21(b)(3) of

the instructions to bidder warned that the soil "[r]eport and log

of borings is available for Bidders' information only.                   The report

is not a warranty of subsurface conditions, nor is it a part of the

Contract Documents."          Section 1.21(c) continued:

      1.    Bidders are expected to examine the site and the
            subsurface investigation reports and then decide
            for themselves the character of the materials to be
            encountered.

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     2.   The Owner, Architect and Construction Manager
          disclaim any responsibility for the accuracy, true
          location and extent of the soils investigation that
          has been prepared by others. They further disclaim
          responsibility for interpretation of that data by
          Bidders, as in projecting soil-bearing values, rock
          profiles, soil stability and the presence, level
          and extent of underground water.

     On January 10 and 11, 1979, Millgard's officials met in Dallas

with McKee/Mays's officials and discussed the project, including

subsurface conditions.   McKee/Mays's officials gave them a copy of

the soil report written by Mason-Johnston.    Millgard's officials

visually inspected the site, examined soil samples, and spoke with

Bill Howard, one of the authors of the soil report.       Millgard

interpreted the data to indicate no problem water in the soil, and

Howard concurred.   At the scheduled pre-bid conference on January

11, Howard told bidders that the driller would encounter dry,

cohesive soil that was probably clay, except in the fill and shale

layers.   He stated that there was no reason to anticipate problem

water, and told bidders to look at the soil report and samples.

Though one other bidder drilled its own test hole, Millgard did not

do so.

     On January 18, 1979, Millgard submitted a winning bid of

$2,987,000.   Millgard then submitted proposed drilling plans to

McKee/Mays for approval.    Millgard proposed to insert temporary

casings through the fill layer.   These casings would clear the way

for drilling through the dry clay until the drill reached the sand

and gravel layer above the shale, at which point Millgard would

insert another casing. The plan reiterated Howard's statement that

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"problem volumes of water would not be expected."                   McKee/Mays,

Dallas County, and Mason-Johnston reviewed and approved the plans.

       McKee/Mays signed the subcontract with Millgard on March 6,

1979.        Section   12.2.1   of   the   subcontract    contained      a   clause

entitled "CONCEALED CONDITIONS":

            Should concealed conditions encountered in the
       performance of the Work below the surface . . . be at
       variance with the conditions indicated by the Contract
       Documents, or should unknown physical conditions below
       the surface of the ground . . . differing materially from
       those ordinarily encountered . . . be encountered, the
       Contract Sum shall be equitably adjusted by Change Order
       . . . .

       Millgard began work in late June 1979. It encountered a layer

of quicksand-like material, between five and fifteen feet thick,

between the fill area and the sand and gravel layer.                          These

conditions affected seventy-four percent of the holes drilled and

made the drilling plans impractical.               Millgard spent more money

than it expected, completing the work in early January 1980.

Millgard sought its additional costs, and McKee/Mays forwarded its

claim to Dallas County.         Dallas County decided that the conditions

were not materially different from those indicated by the contract

documents and refused to adjust the contract price.

       Millgard brought this diversity suit in federal district court

to recover its additional costs.               McKee/Mays filed a third-party

claim for indemnity from Dallas County.               A jury trial followed.

The district court redacted section 1.21(b)(3) of the instructions

to bidders in the version of the contract that was introduced into

evidence.      The deleted language read: "nor is [the soil report] a

part    of    the   Contract    Documents."         The   court   also       excised

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section 1.21(c)(2), which stated that the owner, architect, and

McKee/Mays "disclaim any responsibility for the accuracy . . . of

the soils investigation [and] interpretation of that data."                   The

court forbade McKee/Mays and Dallas County to mention this language

or to elicit it at trial.          The jury was asked whether Millgard

"reasonably relied on the subsurface information furnished to it in

its preparation of its bid" and whether conditions "differed

materially   from    those   conditions      indicated    by   the   subsurface

information."      The jury answered "yes" to both questions.                 The

court denied defendants' motions to set aside the verdict and for

judgment as a matter of law, entered judgment for Millgard, and

ordered Dallas County to indemnify McKee/Mays for the full amount

of the judgment. McKee/Mays and Dallas County appeal, and Millgard

cross-appeals the rate of prejudgment interest.

                                       II.

     The district court reasoned that all of the parties "relied on

the accuracy of the soil report" and that the disclaimers did not

"preclude,   for     all   purposes,    reliance    on   the   soil    report."

Instead, the court interpreted the disclaimers as insuring "that

any inaccuracies in the soil report would be inadequate grounds to

rescind, or excuse nonperformance of, [Millgard's] contractual

obligation   to     construct    the   caissons."        The   district     court

therefore    redacted      the   disclaimers       and   phrased      the   jury

instructions to allow Millgard to recover an equitable adjustment

based on its reliance on the soil reports.

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      Millgard does not rely upon the second half of the concealed

conditions    clause,      dealing   with   conditions    not    "ordinarily

encountered." Its sole theory of liability is a breach of contract

claim resting on the first half of the clause, which permits a

price adjustment if conditions are "at variance with the conditions

indicated by the Contract Documents."

      One problem with this contention is that section 1.21(c)(2)

"disclaim[s] any responsibility for the accuracy, true location and

extent of the soils investigation," including data concerning "the

presence,    level   and    extent   of   underground    water."       Section

1.21(b)(3) is even more explicit: "The [soil] report is not a

warranty of subsurface conditions, nor is it a part of the Contract

Documents."      If the soil report is not part of the contract

documents, it cannot form the basis of a claim that conditions were

"at   variance   with   the    conditions   indicated    by     the   Contract

Documents."      The district court's gossamer distinction between

grounds for escaping the contract and grounds for claiming an

equitable adjustment finds no anchor in the blunt contract language

disavowing "any responsibility." Part 1.05 of the project manual's

earthwork specifications underscores this point: "No allowance or

extra payments will be made by reason of variation in types of soil

encountered or variations in their moisture contents."

      Nor do we find persuasive case law holding that "conditions

indicated by the Contract Documents" can embrace soil reports that

are not themselves part of the contract documents.                    City of

Columbia v. Paul N. Howard Co., 707 F.2d 338, 340 (8th Cir.), cert.

                                      6
denied, 464 U.S. 893 (1983); Fattore Co. v. Metropolitan Sewerage

Comm'n, 454 F.2d 537, 542 (7th Cir. 1971), cert. denied, 406 U.S.
921 (1972).       Either the soil report is part of the contract

documents or it is not.        Whatever be the force of trade customs in

the absence of controlling contract language, the plain language of

section 1.21 "disclaim[s] any responsibility" and excludes the soil

report from the contract documents.

      Millgard and the district court argue that giving effect to

the literal wording of the disclaimers would gut the concealed

conditions clause.       See Foster Constr. C.A. & Williams Bros. Co. v.

United States, 435 F.2d 873, 888 (Ct. Cl. 1970) (collecting cases).

But the converse holds true--allowing reliance on the soil reports

under   the     concealed     conditions      clause    would     eviscerate      the

disclaimers.      Nor is it true that the concealed conditions clause

would lack meaning if the disclaimers are given effect.                           The

concealed      conditions     clause    would   still    allow     for    equitable

adjustment      based    on    subterranean      conditions       that     are    not

"ordinarily encountered."              It would also allow for equitable

adjustment based on variances from any contract documents, such as

the blueprints and specifications.              These contract provisions do

not   clash.      Even   if    they    did    clash,    we    would    enforce    the

disclaimers      because      they      specifically         mention     the     soils

investigation while the concealed conditions clause does not.                      It

is a maxim of interpretation that when two provisions of a contract

conflict, the specific trumps the general.                   United States Postal

                                          7
Serv. v. American Postal Workers Union, 922 F.2d 256, 260 (5th

Cir.), cert. denied, 112 S. Ct. 297 (1991).

       In short, the disclaimers and the language of the project

manual show that the parties placed the risk of underground water

on Millgard.      Millgard took its chances by not boring its own hole

and instead relying on the soil reports.                The bargain struck by the

parties allocated the risk and there it ends.                       We enforce the

contract.

                                       III.

       Because the disclaimers were effective as a matter of law to

disavow   all     responsibility       for     the   soils    investigation,          the

district court erred in redacting the contract, limiting argument

and testimony, and phrasing the jury instructions.                         The district

court should instead have granted the motions for judgment as a

matter of law.         The district court was correct, however, in

rejecting       McKee/Mays's      claim        against       Dallas        County     for

reimbursement of its attorney's fees.                   Texas law grants Dallas

County governmental immunity from such awards. See Tex. Loc. Gov't

Code   Ann.   §   5.904      (Vernon   Supp.     1995);      City     of    Terrell    v.

McFarland, 766 S.W.2d 809, 813 (Tex. App.--Dallas 1988, writ

denied). We need not reach the other issues presented on appeal or

cross-appeal.      We REVERSE the judgment of the district court on

Millgard's claims and RENDER judgment for McKee/Mays.                        We AFFIRM

the    portion    of   the    district        court's    judgment      that     rejects

McKee/Mays's claim against Dallas County for its attorney's fees

                                          8
and VACATE the judgment against Dallas County and in favor of

McKee/Mays, there now being no award against McKee/Mays.

     AFFIRMED IN PART, VACATED IN PART, AND REVERSED IN PART.

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