Court Opinion

ID: 1028854
Source: CourtListenerOpinion
Date Created: 2013-07-05 07:47:32.866095+00
Date Added: 2024-06-11T09:19:50.538471
License: Public Domain

UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                             No. 08-1746

PENNSYLVANIA ELECTRIC COIL, LIMITED,

                Plaintiff - Appellant,

           v.

CITY OF DANVILLE,

                Defendant - Appellee.

Appeal from the United States District Court for the Western
District of Virginia, at Danville.    Jackson L. Kiser, Senior
District Judge. (4:06-cv-00080-jlk-mfu)

Argued:   March 27, 2009                      Decided:   May 11, 2009

Before NIEMEYER, KING, and DUNCAN, Circuit Judges.

Affirmed by unpublished per curiam opinion.

ARGUED: Chauncey Reynolds Keller, Jr., ULMER & BERNE, Cleveland,
Ohio, for Appellant. Jeremy E. Carroll, GLENN, FELDMANN, DARBY
& GOODLATTE, Roanoke, Virginia, for Appellee. ON BRIEF: Neil W.
Gurney, ULMER & BERNE, Cleveland, Ohio; Glenn W. Pulley, Amanda
M.   Morgan,  CLEMENT  &   WHEATLEY,  Danville,   Virginia,  for
Appellant.

Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:

      This appeal arises out of a dispute over the responsibility

for costs exceeding the contract price for work done on three

hydroelectric generating units, which supply power to the City

of Danville, Virginia (“the City”).          Pennsylvania Electric Coil,

Ltd. (“PEC”) and the City entered into a contract under which

PEC   would   disassemble,   rewind,     refurbish,   and       reassemble   the

units.    PEC incurred extra costs to complete the work, which the

City ultimately refused to pay.            PEC sought recovery, alleging

claims for breach of contract and quantum meruit.                 The district

court granted summary judgment in favor of the City, and PEC now

appeals on its quantum meruit claim.           Because the parties have

an    express,   valid   contract   that    prescribes      a    change   order

procedure to obtain approval and payment for extra work, PEC’s

quantum meruit claim fails under Virginia law.                    We therefore

affirm the judgment of the district court.

                                    I.

      In March 2003, the City of Danville issued an Invitation

for Bids (“IFB”) on a project to disassemble, rewind, refurbish,

and reassemble three hydroelectric units (“Units 1, 2, and 3”),

which supply power to the City as part of the Pinnacles Hydro

Dam on the Dan River.        The City hosted a prebid meeting at the

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dam in April 2003 and allowed six potential bidders to tour and

inspect the facility, ask questions, and seek modifications to

the proposed contract.         PEC submitted a bid in May 2003 in which

it affirmed that it had “visited the site and become familiar

with and [was] satisfied as to the general location and site

conditions that may affect cost, progress, and performance or

furnishing of the Work.”         J.A. 282.

      The   City     ultimately       awarded    the       contract    to     PEC    for

$882,000    in   August   2003.        The    parties’      fixed-price       contract

consisted      of,   among     other     things,       a    four-page        agreement

describing the work to be done, the City’s IFB, and the City of

Danville    Procurement       Code.      These   documents         outlined    several

constraints on the contract price and the manner in which the

parties could agree on any increases to that price.                         Article 7

of the contract stated:

      Notwithstanding any other provision of this contract
      to the contrary, the total obligation of the City
      shall not exceed $882,000.00 and no increase shall be
      made to this amount except by a written amendment
      executed by officials of the City and [PEC] who are
      authorized by law to execute agreements.

J.A. 14.     In addition, article 8.e of the contract stated that

PEC   “shall     bear   all     losses    resulting         from    the     amount   or

character of the work being different, or because the nature of

the premises on which the work is done is different from what

                                          3
was expected or on account of the weather, or similar causes.”

Id.    Further, section 15.1 of the IFB stated:

       The   City,   without  invalidating any    construction
       contract, and without notice to any surety, may order
       changes in the work within the general scope of the
       contract consisting of additions, deletions, or other
       revisions,   providing  the   total amount    added  or
       eliminated does not exceed twenty-five   percent (25%)
       of the total contract price, or $10,000, whichever is
       greater.    All such changes in the work shall be
       authorized by change order, and shall be executed
       under the applicable conditions of the contract
       documents.

J.A.   206.      This    25%   cap    on    price      increases     is   mandated    by

Virginia state law, Va. Code § 2.2-4309, and is restated in

section 30-13 the Danville Procurement Code, J.A. 398.

       PEC    began     working      on     the    project      in    October    2003.

Significantly for purposes of the issue before us, the project

required      cost    adjustments     for       work   beyond   the   scope     of   the

contract.       PEC submitted written requests for and was granted

authorization to conduct such work on several occasions at the

outset of the project.            For example, on October 14, 2003, PEC

submitted a written proposal to perform a heat run test on Unit

1, suggesting that “it would be in the best interest of all

concerned if a heat run test was performed on one of the units

at the City of Danville Pinnacles Hydro Station while it was in

service.”      J.A. 436.       Noting that “[t]his heat run test . . .

was not specified and, if opted for, would be an extra charge,”

                                            4
(emphasis     added),      the   proposal       included       a    suggested      testing

schedule and stated that the price for such a test would be

$17,500.      Id. at 436-37.       The City approved the heat run test in

December 2003 and issued a Purchase Order signed by Gary Via,

the City’s Director of Purchasing.                Id. at 439–40.

      Also,    after      performing     the     heat    run   test    and    an    uprate

study required by the parties’ contract, PEC submitted a written

proposal in March 2004 recommending additional work and design

changes for all three units.              J.A. 442–43.         The written proposal

noted   that      these     changes      “will     require         additional      actions

outside of the existing work scope;” laid out PEC’s “pricing to

complete    the    [required]      actions;”       and    “request[ed]           that    the

contract    between       Pennsylvania      Electric      Coil      and    The    City    of

Danville . . . be revised to include the above workscope and

associated costs.”             Id. (emphasis added). The City ultimately

approved two of the recommended changes and issued a Purchase

Order signed by Gary Via in June 2004.                  J.A. 447.

      PEC subsequently began working on the disassembly of Unit 1

and   determined     that      certain    parts     required        repairs      that    the

parties had not originally anticipated.                        In August 2004, PEC

submitted     a   list    of    prices    for    these    repairs,        which    totaled

$23,065.      J.A. 449–50, 52.           The City approved these repairs and

issued a Purchase Order signed by Gary Via in September 2004.

                                           5
J.A.       454.       Work   on    Unit     1,    including     the       reassembly   and

alignment, proceeded into early 2005.                     PEC also began work on

Units 2 and 3 in March or April 2005.

       This lawsuit primarily arises out of alignment and plumb

work related to all three units, as well as additional repair

work performed on Units 2 and 3 (together, “the disputed work”).

During the course of PEC’s performance, the parties disagreed on

whether       PEC’s    alignment      work       fell   under    the      scope   of   the

contract.          Although the contract called for “shaft alignment”

after the units were reassembled, J.A. 236, it also required

each unit to “be assembled to the existing alignment and plumb

condition,” id. at 233 (emphasis added).                        PEC discovered that

the units were out of alignment at the outset of the project, a

circumstance that the contract did not anticipate. 1                          The record

contains          correspondence      and        documentation       of     conversations

between      the     parties      through    the     spring     of    2005,    discussing

alignment problems for all three units as well as PEC’s concern

that the contract failed to address the fact that units were

already out of alignment.

       1
      PEC also asserts that the contract did not accurately
describe   the  necessary methods for  the  disassembly  and
reassembly work, and in some cases required “methods and
procedures which were contrary to known industry standards.”
Petr.’s Br. at 12.
                              6
       For example, a January 11, 2005 e-mail from Tim Jablonski,

a     City   engineer,     noted   that        PEC    and    City     employees      had

“discussed     the   alignment     and    bearings”         and   that    PEC’s     field

supervisor     had   pointed   out     that     “the    contract      does    not   have

provisions to correct the plumb if [it is] out of tolerance.”

J.A. 639.      The e-mail further stated that “Penn Coil would like

to submit an adder if they have to adjust plumb or make any

alignment moves.”        Id.   An April 7, 2005 letter from PEC to Phil

Slate, the Pinnacles Hydro Dam supervisor, quotes a $2,000 price

for adjusting the alignment for Unit 3’s sole plate, which “is

out of flat by .033 in[ches].”                   J.A. 477.          The record also

contains a June 24, 2005 e-mail from David Summers, another City

engineer,      memorializing       a     phone       conversation        between     PEC

employees and City engineers.                  J.A. 522-23.         In the e-mail,

Summers noted that PEC’s field supervisor, Mark Wenckus, “felt

there was additional work performed on alignment” for all three

units and that Wenckus had “submitted a spreadsheet on 2/11/05

to Brad Child [PEC’s General Manager] with his estimate” of the

extra cost for this additional alignment work.                           Id. at 522.

Summers further noted that Brad Child had received Wenckus’s

spreadsheet, “but had never forwarded it to [the Pinnacles Hydro

Dam    supervisor]    or    requested      a     Change      Order”      or   otherwise

“provided any written notification that a potential Change Order

                                          7
issue existed.”          Id.     Summers indicated that he “encouraged” PEC

to contact the City “immediately in writing if [PEC] intended to

request additional compensation regarding field work they felt

was   out    of    scope.”        Id.    at    523.         Significantly,           he     noted

stressing     to   Brad       Child    “that       the   City    is     not    obligated      to

[make]      any    additional         payment       since       no    change        order    was

requested or approved in advance of the work being completed.”

Id.

      Notwithstanding PEC’s concerns during the spring of 2005

about “field work they felt was out of scope,” J.A. 523, and

reminders from the City about the need for change orders, the

record contains only three written price increase proposals from

PEC in 2005: two submitted in April 2005 for concrete repairs to

Unit 3’s sole plate and for alignment work on Unit 3’s stator

and sole plate; and one submitted in May 2005 for modifications

to the Unit 2 turbine housing.                     J.A. 475, 477, 485.                  The City

did   not    issue       a    Purchase   Order       to     authorize         any    of     these

proposed changes.             The only change that the City did approve in

2005,    through     a       letter   written       by    Gary       Via,   was     a    written

request from Mark Wenckus on May 6, 2005 to extend the contract

completion deadline for two weeks because Wenckus had discovered

that Unit 2’s “vertical centerline was out of industry standard

tolerance for a hydraulic turbine and generator of its type.”

                                               8
J.A.       641.         During   the      course    of    the    parties’      discussions

concerning the alignment work and additional repairs, work on

all three units steadily progressed.                        All work on Unit 1 was

completed          by    February      2005,     while    work     on    Units      2   and    3

continued through June 2005.

       PEC completed work on Units 2 and 3 in June 2005 and the

units       were     restarted       that    month.        On    July    29,       2005,     PEC

presented the City with three final invoices for “additional

work” on the units.              J.A. 498–501.           PEC billed $60,785 for Unit

1,   $110,387           for   Unit   2,    and   $107,875    for    Unit    3. 2        Of    the

original invoiced amounts, the City ultimately paid PEC a total

of $52,902. 3            The City left unpaid a balance of $226,145, which

included costs relating to the alignment work that totaled at

least $216,785.

       PEC filed an action against the City, alleging claims for

breach      of     contract      and      quantum   meruit.        The    district       court

       2
       These invoices represent bills for amounts in addition to
the contract price.
     3
       The parties dispute whether this amount reflects work that
a City official had approved in advance under the terms of the
contract.    PEC asserts that $30,620 of this sum reflects work
for which the City had never issued a purchase order.     Petr.’s
Br. at 23.      However, the City asserts that it “made these
payments because it determined, in good faith, that the amounts
were outside the scope of the Contract, PEC had provided prices
in advance of the work, and the work had been approved in
advance by the proper City official.” Respt.’s Br. at 18.
                                 9
granted summary judgment in favor of the City, and this appeal

of the quantum meruit claim followed.

                                    II.

     We review de novo the district court’s grant of summary

judgment.     Jennings v. Univ. of N.C., 482 F.3d 686, 694 (4th

Cir. 2007) (en banc) (citing Hill v. Lockheed Martin Logistics

Mgmt., Inc., 354 F.3d 277, 283 (4th Cir. 2004) (en banc)).

                                   III.

     The    district   court   exercised   diversity     jurisdiction    over

this case under 28 U.S.C. § 1332, and we now have jurisdiction

over PEC’s appeal under 28 U.S.C. § 1291.                 A federal court

exercising diversity jurisdiction must apply the substantive law

of the state in which it sits.           See Erie R.R. Co. v. Tompkins,

204 U.S. 64, 79 (1938); see also Volvo Const. Equip. N. Am.,

Inc. v. CLM Equip. Co., Inc., 386 F.3d 581, 599–600 (4th Cir.

2004).     Because this appeal is taken from a federal district

court in Virginia, we apply Virginia state law.

     The    Virginia    Supreme   Court     has   held    that   “when    one

furnishes labor to another under a contract which, for reasons

not prejudicial to the former, is void and of no effect, he may

recover the value of his services on a quantum meruit.”              Marine

                                    10
Dev’t Corp. v. Rodak, 300 S.E.2d 763, 765 (Va. 1983) (quoting

Hendrickson v. Meredith, 170 S.E. 602, 604 (1933)).                             “It is a

general rule of law that he who gains the labor of another must

make reasonable compensation for the same.”                           Id. (punctuation

and citation omitted).               However, the Virginia Supreme Court has

also    held    that      “where     there   is   an    express       and     enforceable

contract in existence which governs the rights of the parties,

the law will not imply a contract in contravention thereof.”

Royer    v.    Bd.   of    County      Supervisors      of       Albemarle    County,   10

S.E.2d 876, 881 (Va. 1940).

       PEC bases its quantum meruit claim on the district court’s

holding that the parties’ contract did not cover the disputed

work, such that there was no contract to govern the parties’

rights as to that work.              PEC contends that in aligning the units

it rendered a benefit to the City that the City accepted, and

that the City had reasonable notice that PEC expected to be paid

for the alignment work.               Relying on Main v. Dep’t of Highways,

142    S.E.2d   524,      531   (Va.    1965),    the    City       responds    that    the

parties’ contract forecloses any recovery under a quantum meruit

theory    because      the      contract     contains        a    provision    requiring

written change orders for price increases.

       Main controls the outcome of this case and compels us to

affirm    the    judgment       of    the    district    court.         In     Main,    the

                                             11
Virginia Supreme Court noted that change order provisions “are

frequently embodied in building and construction contracts and

are   generally      upheld.”      142    S.E.2d         at    529.     Like      PEC,    the

plaintiff     in     Main    entered      into       a        construction        contract,

performed extra work while satisfying its obligations under the

contract, and sought to recover the cost of that extra work

under a quantum meruit theory.                 The Main court found that “the

written contract which the plaintiffs executed clearly provided

the method by which they could insure the recovery of the cost

of    such   extra   work,   and   not     having         followed      the    prescribed

method, they are not entitled to such recovery.”                        Id. at 530–31.

       Under Main, quantum meruit relief is not available to PEC

because there is a valid, enforceable contract that governs the

parties’ rights and lays out a change order procedure requiring

PEC to obtain approval from a designated person with authority

to execute agreements on behalf of the City.                          PEC’s own actions

regarding the heat test run on Unit 1 and the ensuing proposed

design   changes     demonstrate     that       it   knew       of    and   was    able   to

follow this change order procedure.                  The record shows that City

employees reminded PEC about the change order procedure, and

that PEC was aware of the change order procedure, while work

continued on Units 2 and 3.              See J.A. 522–23, 639.                PEC has not

disputed the validity of the change order provision.                           Nor has it

                                          12
supplied a reason for its failure to continue complying with the

provision as work on the units progressed.            Like the plaintiffs

in Main, PEC failed to follow the prescribed method outlined in

the parties’ contract to obtain approval and payment for extra

work -- a method with which it was not only familiar, but which

it had in fact utilized.

     Although   we   are   not   unsympathetic   to   the   fact   that   our

decision likely allows the City to reap a substantial windfall,

while sitting in diversity we are constrained to apply Virginia

law as articulated by the Virginia Supreme Court.             Virginia law

forecloses PEC’s quantum meruit claim.

                                    IV.

     For the foregoing reasons, the judgment of the district

court is

                                                                   AFFIRMED.

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