Court Opinion

ID: 4562547
Source: CourtListenerOpinion
Date Created: 2020-09-03 00:00:23.281938+00
Date Added: 2024-06-11T08:46:26.561312
License: Public Domain

Case: 19-40745      Document: 00515550522         Page: 1    Date Filed: 09/02/2020

         United States Court of Appeals
              for the Fifth Circuit
                                                                      United States Court of Appeals
                                                                               Fifth Circuit

                                                                             FILED
                                                                     September 2, 2020
                                 No. 19-40745                           Lyle W. Cayce
                                                                             Clerk

 D2 Excavating, Incorporated,
                                                            Plaintiff—Appellee,

                                     versus

 Thompson Thrift Construction, Incorporated; Fidelity
 and Deposit Company of Maryland,

                                                      Defendants—Appellants.

                 Appeal from the United States District Court
                     for the Southern District of Texas
                           USDC No. 2:16-CV-538

 Before Stewart, Clement, and Costa, Circuit Judges.
 Gregg Costa, Circuit Judge:
        Contracts do not always turn out the way a party expects. Sometimes
 it takes less time or money to perform than anticipated; other times it takes
 more. This case is of the latter variety. A subcontractor doing excavation
 work ended up having to remove a lot more dirt from the construction site
 than the parties anticipated. The resulting lawsuit over this “excess dirt” led
 to a judgment for the subcontractor exceeding half a million dollars. The
 principal issue on appeal is whether the subcontractor was entitled to
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                                        No. 19-40745

 additional money for the “excess dirt” removal or whether it was stuck with
 the price the parties agreed to.
                                                I.
        Thompson Thrift Construction, Inc. was the general contractor for a
 new apartment complex in Corpus Christi. 1 It solicited a bid from D2
 Excavating, Inc. for site grading and excavation work. Thompson sent D2
 documents which included proposed contract terms, a topographical survey
 of the site, and the planned final elevations.
        The proposed terms included the following language:
        Execution of this Agreement by the Subcontractor is a
        representation that the Subcontractor has visited the Project
        site, become familiar with local conditions under which the
        Work is to be performed and correlated personal observations
        with requirements of the Contract Documents. The
        Subcontractor shall evaluate and satisfy itself as to the
        conditions and limitations under which the Work is to be
        performed, including without limitation: (1) the location,
        condition, layout, and nature of the Project site and
        surrounding          areas;    (2)    generally     prevailing      climactic
        conditions; (3) anticipated labor supply and costs; (4)
        availability and cost of materials, tools, and equipment; and (5)
        other similar issues. Accordingly, Subcontractor shall not be
        entitled to an adjustment in the Contract Price or an extension
        of time resulting from Subcontractor’s failure to fully comply
        with this paragraph.

        1
            These facts come from the findings the district court entered after the bench trial.

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        ...
        This is a balanced site. It shall be this subcontractor’s
        responsibility to balance site. Change orders for import/export
        will not be accepted. Consider all spoils from other trades, and
        create berms where necessary.
 A site is “balanced” if the work will not require importing or exporting dirt
 to achieve the planned elevations. In that case, the dirt need only be
 transferred within the site.
        Despite its representation, Thompson did not actually determine
 whether the site was balanced. The proposed terms were its standard
 template for all excavation projects. D2 also declined to investigate the site—
 two months of heavy rain limited its ability to physically examine the site, and
 Thompson was eager to begin construction as soon as the rain ceased.
 Instead, D2 used a software program to determine the site was balanced, after
 accounting for dirt that other contractors would produce. The inputs for this
 analysis came from the topographical survey Thompson provided.
        After performing its simulations, D2 agreed to do the excavation.
 Under the final contract, Thompson was to pay D2 $630,000. The parties
 included the proposed terms that Thompson originally provided to D2 in the
 contract as an exhibit with slight modifications. The final agreement also
 anticipated the possibility of modifying the scope of the work and included
 unit pricing for additional tasks that would be executed as written change
 orders.
        About one month after D2 began excavating, it became clear that the
 site was not balanced. Excavation was producing a lot more dirt than
 expected and some would need to be removed from the site. D2 and
 Thompson disagreed about whose fault the excess dirt was. Thompson
 argued that the imbalance was due to D2’s inaccurate computer analysis,

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 D2’s excess import of fill, or D2’s overexcavation of the site; D2 countered
 that the topographical survey was flawed. Regardless of who was responsible
 for the misestimate, D2 promptly notified Thompson that there was
 unanticipated dirt that needed to be removed. The parties negotiated and
 decided that Thompson would cover D2’s costs for the additional work.
 Thompson told D2 it would issue a written change order for the additional
 work once it was finished so that it would be easier to calculate what it owed.
        With Thompson’s promise to pay for unanticipated exporting work in
 hand, D2 continued excavating. In addition to the unexpected exporting of
 excess dirt, Thompson repeatedly asked D2 to re-excavate and regrade areas
 that other subcontractors’ activity had disturbed. In one case, Thompson’s
 mismanagement of other subcontractors required D2 to excavate the same
 area six times.
        D2 became concerned that Thompson would not actually pay for this
 work. It began sending fewer employees to the site, which prompted
 negotiations with Thompson about D2’s compensation. Those negotiations
 were ultimately unfruitful, and Thompson never provided a change order.
 When it became clear that Thompson was not going to pay additional
 amounts for the removal of dirt, D2 stopped working. At that point, 98.6% of
 the excavation was complete.
        D2 then sued for breach of contract, quantum meruit, violations of the
 Texas prompt pay statute, and to foreclose on a statutory and constitutional
 lien. 2 Thompson, in turn, argued that D2 breached the contract. Thompson
 filed an unsuccessful motion for summary judgment, which argued that D2
 bore the risk that the site might be unbalanced. At the conclusion of a bench

        2
          D2 sued both Thompson and Fidelity and Deposit Company of Maryland, which
 had issued an indemnity bond. Fidelity’s damages are limited to its bond of $581,605.50.

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 trial, the district court held in D2’s favor on all claims. It ordered Thompson
 to pay D2 $81,068.00 for unpaid work under the contract and $257,588.53
 for “excess” excavating work. Interest of 1.5%/month was added to those
 awards starting in May 2016, when payment became due under the Texas
 prompt payment law. The biggest award of all was for attorneys’ fees:
 $356,080.91.
                                             II.
         We review the district court’s findings of fact for clear error, but this
 appeal largely turns on legal issues of contract interpretation, which we
 review de novo. Lyda Swinerton Builders, Inc. v. Okla. Sur. Co., 903 F.3d 435,
 450 (5th Cir. 2018).
         One of those questions of law is the focus of the appeal: whether D2
 could recover beyond the contract price for “excavation of unanticipated
 excess soil.” 3 The district court concluded D2 could recover under either a
 contract or quantum meruit theory.
                                             A.
         Thompson challenges the contract ruling on the ground that D2 bore
 the risk that the site might be unbalanced and thus cannot recover beyond the
 contract price for any “excess” excavation work. A party to a Texas

         3  Texas courts use the term “extra work” to mean work “which, by definition is
 work ‘arising outside and independent of the contract, something not required in its
 performance.’” Joe F. Canterbury, Jr. & Robert J. Shapiro, Texas
 Construction Law Manual § 1:28 (3d ed. 2019) (quoting Brown-McKee, Inc. v.
 Western Beef, Inc., 538 S.W.2d 840, 844 (Tex. Civ. App.—Amarillo 1976, writ refused
 n.r.e.). In contrast, “additional work” is “that required in the performance of the contract
 and without which it could not be carried out.” Id. § 8:8 (quoting City of Houston v. L.J.
 Fuller, Inc., 311 S.W.2d 285, 290 (Tex. Civ. App.—Houston 1958, no writ)). We use the
 different term “excess,” as that is how the district court and the parties describe the
 excavation work for the unanticipated dirt removal. In the Texas parlance, we conclude
 that this was “additional work” because it was required under the contract.

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 construction project is liable for breach of contract when it provides
 inadequate construction plans and the contract allocates to that party the risk
 of inaccurate plans. See Interstate Contracting Corp. v. City of Dallas, 407 F.3d
708, 720–21 (5th Cir. 2005). Thompson asserted the site was balanced,
 which the district court rightly found was not true. 4
        The remaining question is which party bore the risk that the site might
 be unbalanced. The default rule in Texas, dating back to a case interpreting
 an 1899 contract to construct a building in San Antonio, is that the party
 doing the work bears the risk that it will end up being more difficult than
 anticipated unless the contract shifts that risk to the buyer of the services.
 Lonergan v. San Antonio Loan & Tr. Co., 104 S.W. 1061, 1065–66 (Tex. 1907);
 see also Interstate Contracting, 407 F.3d at 720–21 (“In order for an owner to
 breach a contract by supplying inadequate plans to a contractor, [Texas law]
 require[s] that the contract evidence an intent to shift the burden of risk of
 inadequate plans to the owner.”). This default rule flows from the basic
 contract principle that “where one agrees to do, for a fixed sum, a thing
 possible to be performed, he will not be excused or become entitled to
 additional compensation, because unforeseen difficulties are encountered.”
 El Paso Field Servs., L.P. v. MasTec N. Am., Inc., 389 S.W.3d 802, 811 (Tex.
 2012) (citation omitted). If a factory agrees to manufacture 100 widgets for
 $500, it cannot later charge $600 if it ends up taking more labor or materials
 to produce the widgets than expected.
        The default rule applies here because the excavation contract does not
 allocate to Thompson the risk that the site would be unbalanced. If anything,
 it placed that risk on D2. D2 agreed that it had “visited the Project site,
 become familiar with local conditions under which the Work is to be

        4
         D2 did not, however, bring claims for breach of warranty or fraudulent
 inducement based on misrepresentation.

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 performed and correlated personal observations with requirements of the
 Contract Documents.” It further represented that it would “evaluate and
 satisfy itself” about a number of conditions, including “the location,
 condition, layout, and nature of the Project site and surrounding areas.” As
 a result, D2 would not be “entitled to an adjustment in the Contract Price or
 an extension of time resulting from [its] failure to fully comply” with those
 conditions. That agreement to verify the topography of the site put the risk
 on D2. “Someone has to bear the loss of additional costs,” id. at 811, and the
 excavation contract did not shift those costs to Thompson.             Compare
 Dall./Fort Worth Int’l Airport Bd. v. INET Airport Sys., Inc., 819 F.3d 245, 252
 (5th Cir. 2016) (contractor did not assume all risks when the contract
 contained no provision on point and a mixture of provisions allocating risks
 of defects to both parties), with Interstate Contracting, 407 F.3d at 721–23
 (contractor assumed risk when the written instrument obligated contractor
 to independently investigate work site and explicitly allocated “[a]ll risks of
 differing subsurface conditions” to the contractor).
        D2’s attempt to distinguish MasTec and Interstate Contracting because
 they involved different contractual language fails on two levels. First, there
 must be language shifting the burden to Thompson. So even if the language
 we just cited does not assign the risk to D2, the contract must say that
 Thompson assumed the risk that the project would require removing more
 dirt than the plans predicted. It does not. Second, the difference in language
 is only a matter of degree. To be sure, the language in MasTec was about as
 clear an assumption of risk as possible: “[MasTec] assumes full and complete
 responsibility for any such conditions pertaining to the Work, the site of the
 Work or its surroundings and all risks in connection therewith.” 389 S.W.3d
 at 806 (alteration in original). The contract in Interstate Contracting similarly
 stated: “All risks of differing subsurface conditions shall be borne solely by
 the [contractor].” 407 F.3d at 721. But just because stronger language

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 existed in other cases does not mean that “the parties’ intentions as
 expressed in [this] writing” are different. MasTec, 389 S.W.3d at 805. D2
 knew it had an obligation to confirm the site’s topography because it tried to
 do so—but gave up—when Thompson resisted further delay. See Granite
 Constr. Co. v. Tex. Dep’t of Transp., 2012 WL 5974085, at *8 (Tex. App.—
 Austin Nov. 20, 2012, no pet.) (discussing contractual language obligating a
 party to examine a work site and stating that “[c]ourts interpreting similar
 contractual provisions have consistently held that this type of language
 precludes a contractor from maintaining a claim for varying site
 conditions.”).
           Although all along its contract claim has relied on the notion that
 Thompson mispresented that the site was balanced, D2 now tries to
 distinguish Interstate Contracting and Lonergan by arguing this is not a
 “defective plans and specifications case.” Metaphysically distinguishing
 between “defective plans and specifications” on the one hand and a mere
 representation that a site is balanced on the other is inconsistent with Texas
 law, as Texas cases largely reason that “plans and specifications . . .
 constitute an affirmative representation on which a contractor could rely.”
 Interstate Contracting, 407 F.3d at 718; see also id. at 716–720 (collecting
 cases).
           Of course, a valid modification of the contract via a change order could
 render Thompson liable. But change orders, like any modification, must
 satisfy the normal requirements of a contract: “a meeting of the minds
 supported by consideration.” Hathaway v. Gen. Mills, Inc., 711 S.W.2d 227,
 228 (Tex. 1986); see also INET, 819 F.3d at 252 (“[A]ny change order to
 adjust for the defects discovered by INET required the assent of both
 parties.”). Critically, “[a] promise to fulfill a pre-existing obligation cannot
 serve as new consideration for an amendment to a contract.” In re OSG Ship
 Mgmt., 514 S.W.3d 331, 338 (Tex. App.—Houston [14th Dist.] 2016, no pet.).

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 The oral change order lacked that consideration. D2 acknowledges that the
 alleged consideration was its exporting excess soil. The original contract
 already obligated D2 to do so without any compensation beyond the contract
 price. Hauling the dirt, therefore, cannot serve as consideration. The oral
 change order is void.
        If the contract had required less excavation work than the parties
 expected, Thompson would not be able to get a refund on the $630,000 it
 agreed to pay. Likewise, when the work turned out to involve more work
 than the parties expected, D2 cannot recover more than the $630,000.
 Thompson did not breach its contract with D2 when the site turned out to be
 unbalanced. Accordingly, we vacate the $257,588.53 breach-of-contract
 award for “excavation of unanticipated excess soil.”
                                      B.
        The district court concluded that quantum meruit was an alternative
 remedy “[i]n the event that the extra excavation work associated with the
 excess soil falls outside the scope of the contract.” We have just held that
 the contract required excavation of all the soil, however much it turned out
 to be. So by its own terms, the quantum meruit ruling does not stand because
 this work was within, not outside, the contract.
        The district court properly understood that quantum meruit was
 available only if the excess soil work was not covered by the contract. Black
 Lake Pipe Line Co. v. Union Constr. Co., 538 S.W.2d 80, 86 (Tex. 1976)
 (recognizing that contractor could recover quantum meruit “for the
 reasonable value of services rendered and accepted which are not covered by
 the contract” (emphasis added)), overruled on other grounds by Sterner v.
 Marathon Oil Co., 767 S.W.2d 686 (Tex. 1989). “Quantum meruit is an
 equitable theory of recovery which is based on an implied agreement to pay
 for benefits received.” Heldenfels Bros., Inc. v. City of Corpus Christi, 832

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  S.W.2d 39, 41 (Tex. 1992). It is generally unavailable if a valid contract
  covers the goods or services a plaintiff furnished. In re Kellogg Brown & Root,
  Inc., 166 S.W.3d 732, 740 (Tex. 2005). Quantum meruit corrects an injustice
  when a promise to pay was implied. If the parties reached an express
  agreement allocating payments, services, and risks—that is, a contract—then
  a court should not step in and impose its view of what would constitute an
  equitable arrangement.
         Texas recognizes an exception to this general rule in the construction
  context. A plaintiff that does not substantially perform a construction
  contract, and thus cannot “recover[] under the express contract,” may
  pursue quantum meruit for the value of its services. See Murray v. Crest
  Constr., Inc., 900 S.W.2d 342, 345 (Tex. 1995). Unlike the goods or services
  provided under many contracts, partial work done on a construction project
  cannot be transferred to another buyer. So it would be unjust to allow the
  party receiving the partial construction to not pay anything for it. See Vortt
  Exploration Co. v. Chevron U.S.A., Inc., 787 S.W.2d 942, 944 (Tex. 1990)
  (noting that “quantum meruit is founded on unjust enrichment”). If there
  is no free lunch, then certainly there is no free house. As a result, when a
  breaching contractor cannot recover the contract price, it nonetheless may
  be able to recover in quantum meruit. Murray, 900 S.W.2d at 345; cf. WARD
  FARNSWORTH, RESTITUTION: CIVIL LIABILITY FOR UNJUST
  ENRICHMENT 89–90 (2014) (recognizing that the related equitable claim of
  restitution may be available when a breaching party no longer has a contract
  claim but should recover for benefits conferred).
         That “partial performance” exception does not fit this case. D2 seeks
  a quantum meruit recovery despite having substantially performed its
  contractual duties and, therefore, being able to collect on the contract. In
  other words, D2 wants quantum meruit plus the contract price. That is not
  allowed. See Balfour Beatty Rail, Inc. v. Kan. City S. Ry. Co., 173 F. Supp. 3d
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  363, 451 (N.D. Tex. 2016) (denying quantum meruit when the work was
  within the scope of the contract); Bright Excavation, Inc. v. Pogue Constr. Co.,
  2020 WL 1921681, at *7 (Tex. App.—Dallas April 21, 2020, no pet.) (same);
  see also FARNSWORTH, supra, at 90 (explaining that the contract price
  remains “a ceiling” on what a breaching party can recover from the
  defendant on an equitable claim). It would override the parties’ agreement
  to allow the plaintiff to recover more than the contract price for work the
  contract required. Excess Underwriters at Lloyd’s, London v. Frank’s Casing
  Crew & Rental Tools, Inc., 246 S.W.3d 42, 50 (Tex. 2008) (“[W]hen a valid
  agreement already addresses the matter, recovery under an equitable theory
  is generally inconsistent with the express agreement.” (quoting Fortune Prod.
  Co. v. Conoco, Inc., 52 S.W.3d 671, 684 (Tex. 2000))).            Because the
  unanticipated excavation work was D2’s responsibility under the contract,
  quantum meruit is not a vehicle for recovering more than the contract price.
         Neither breach of contract nor quantum meruit allows D2 to recover
  for “excavation of unanticipated excess soil.”
                                        III.
         We have emphasized the sanctity of the agreement the parties reached
  in rejecting any remedy beyond the contract price. Recall, though, that the
  district court awarded $81,068 to ensure that Thompson paid that full
  contract price. That figure included the unpaid amounts to D2, reduced by
  the $20,000 it cost Thompson to complete the work once D2 stopped
  performing.
         Thompson also challenges this award. This argument is part of its
  appeal of the district court’s rejection of its counterclaim for breach of
  contract. Thompson contends that, because D2 stopped performing before
  it completed the work, Thompson does not owe the $81,068 in outstanding
  charges to D2 and instead should have received damages from D2 for the

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  costs of completing the work. D2 argues that Thompson did not adequately
  brief this issue. Forfeiture presents a close call, which we avoid making
  because the deference we owe the district court’s findings allows us to readily
  reject the argument on the merits.
         The district court found that D2 did not breach the contract, and even
  if it did, Thompson’s prior breach and its failure to manage the construction
  site excused D2’s failure to perform.         The district court found that
  management of the site was so deficient that D2 had to regrade the same areas
  as many as six times and was unable to complete its work in other parts of the
  site, justifying D2’s cessation of work. That finding is not clear error. It is a
  bedrock principle of contract law that “the conduct of one party to a contract
  which prevents the other from performing his part is an excuse for non-
  performance.” United States v. Peck, 102 U.S. 64, 65 (1880); see also Hearne
  v. Garrett, 49 Tex. 619, 624–25 (1878) (“Where one is employed to perform
  some stipulated work . . . and, after part performance of the contract on his
  part, he is wrongfully prevented from completing the work contracted for, or
  laboring for the full period of time stipulated, it seems fully settled that the
  employee may treat the contract as abandoned . . . .”). As a result, we affirm
  the damage award for $81,068 and the rejection of Thompson’s
  counterclaim.
                                        IV.
         Thompson also challenges the rulings that it violated the Texas
  prompt pay statute, which results in annual interest of 18% on the unpaid
  claims, and that D2 could foreclose on statutory and constitutional liens to
  recover its judgment. Its only argument is that these remedies require an
  underlying breach of contract and that it has no contractual liability. We
  agreed in part with Thompson’s appeal of the contract claims, so it also
  enjoys only partial success on these claims. For the contractual recovery we

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  have reversed, obviously there can be no interest or lien. But for the
  contractual recovery we affirmed, these other remedies still attach.
                                      ***
         We AFFIRM the judgment for the $81,068 in unpaid work and the
  related prompt payment statute and lien remedies for that breach of contract.
  We REVERSE the judgment of $257,588.53 for the “excavation of
  unanticipated excess soil” and RENDER judgment for Thompson on those
  breach of contract and quantum meruit claims.           We REMAND for
  modification of the judgment consistent with this opinion.

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