219 F.2d 328 (4th Cir. 1955), 6852, E. I. Du Pont De Nemours & Co. v. Lyles & Lang Const. Co.

Docket Nº:6852.
Citation:219 F.2d 328
Party Name:E. I. DU PONT DE NEMOURS & COMPANY, and UNITED STATES of America, Appellants, v. LYLES & LANG CONSTRUCTION COMPANY, Appellee.
Case Date:February 02, 1955
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit
 
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Page 328

219 F.2d 328 (4th Cir. 1955)

E. I. DU PONT DE NEMOURS & COMPANY, and UNITED STATES of America, Appellants,

v.

LYLES & LANG CONSTRUCTION COMPANY, Appellee.

No. 6852.

United States Court of Appeals, Fourth Circuit.

February 2, 1955

Argued Oct. 18, 1954.

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[Copyrighted Material Omitted]

Page 330

James L. Morrisson, Attorney, U.S. Atomic Energy Commission, Washington, D.C. (Warren E. Burger, Asst. Atty. Gen., Washington, D.C., N. Welch Morrisette, U.S. Atty., Columbia, S.C., Paul A. Sweeney and Morton Liftin, Attorneys, Department of Justice, Washington, D.C., and William Mitchell, Gen. Counsel, U.S. Atomic Energy Commission, Winston Salem, N.C., on brief), for appellants.

James F. Dreher, Columbia, S.C. (David W. Robinson, and Robinson, Robinson & Dreher, Columbia, S.C., on brief), for appellee.

Before PARKER, Chief Judge, and SOPER and DOBIE, Circuit Judges.

PARKER, Chief Judge.

This is an appeal from a judgment for plaintiff in an action to recover agreed compensation under the terms of a contract and damages for an alleged breach. The contract was one entered into by the plaintiff, Lyles & Lang Construction Company, as a subcontractor, with the defendant, E. I. du Pont de Nemours & Company, the holder of a contract with the United States Atomic Energy Commission for the construction of the Savannah River project. Under the contract sued on plaintiff agreed with defendant to construct 75 dormitory buildings to house 7, 500 workers on the project, and defendant agreed that it would guarantee 100% occupancy of the buildings so constructed at an agreed rental rate for a period of two years after completion and acceptance, with provision that defendant might terminate the contract upon payment of certain stipulated amounts if after the first year of occupancy or upon a cost plus basis if prior to the end of the first year. The contract was terminated before the end of the first year of occupancy and before the commencement of construction at one of the sites where 30 of the dormitory buildings were to be constructed. The action was to recover compensation on the cost plus basis provided by the contract with damages for breach as to the 30 buildings which had not been constructed.

The defendant filed answer and counterclaim in which it joined issue with plaintiff on the allegations of the complaint, denied all liability under the contract on the ground that plaintiff had entered into a joint venture agreement in violation of its provisions, pleaded the disputes clause of the contract in bar of the right to maintain the action and, by way of counterclaim, asked recovery of the full amount of $1, 900, 832.17 theretofore paid plaintiff or, in the alternative, the amount by which plaintiff had been

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overpaid on account of the termination of the contract, this amount to be determined by audit. Plaintiff filed reply to the answer and counterclaim denying that the joint venture was a violation of the contract or that defendant was entitled to recover anything under its counterclaim, at the same time filing a motion to strike the defense based on the disputes clause. Subsequently defendant moved for judgment on the pleadings and a month or so later moved to eliminate from the trial of the case all issues of fact. Defendant moved subsequently that the United States be substituted for defendant as a party in the case and, when this was denied, that the United States be brought in as an additional party.

The trial judge denied the motion to make the United States a party and held that neither the joint venture agreement nor the disputes clause in the contract barred the plaintiff of the right to maintain the action. The case was then heard before the judge without a jury, a full hearing was had on all the issues involved and the judge held that plaintiff was entitled to recover under the contract the costs incurred in the construction of the buildings accepted for occupancy, together with the 20% provided by the contract for profit and overhead, less the value of the land, the salvage of the buildings and rental accruals prior to termination. In costs and not overhead he included items such as architects', and engineering fees, legal costs and interest charges applying to the project as a whole and not individual buildings, and refused to exclude items representing services rendered by corporations controlled by persons interested in the joint venture. He held, also, that there was no right to terminate the contract with respect to the buildings which had not been constructed and accepted and that the attempted termination with respect to these constituted a breach of contract for which plaintiff was entitled to recover the profit that would have been realized if they had been constructed and accepted. He allowed interest at the legal rate of 7% on all items, beginning as to each item thirty days after notice of termination of the contract with respect to the site to which it related. 1 He found the facts in a comprehensive opinion which dealt fully with all matters in dispute. Those relating to the questions raised on this appeal will be stated at greater length in the sections of the opinion dealing with those questions.

Eight questions are raised by the appeal, viz.: (1) Was there error in refusing to make the United States a party to the action? (2) Was there error in holding that plaintiff was not barred by the disputes clause of the contract from maintaining the action? (3) Was there error in holding that plaintiff was not barred from maintaining the action by reason of the joint venture agreement? (4) Was there error in including as costs the charges for services rendered by corporations controlled by persons who were parties to the joint venture agreement or services rendered by such persons themselves? (5) Was there error in applying the 20% allowed by the contract for overhead and profit to the gross costs of construction before the deduction for land, salvage and rent accruals? (6) Was there error in including in cost such items as engineering and architectural and legal fees, which applied to the project as a whole and not to individual buildings? (7) Was there error in holding that there was no right of termination with respect to buildings not

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constructed and accepted for occupancy and awarding damages for breach of contract with respect to such buildings? And (8) Was there error in awarding interest at the legal rate prior to judgment? With respect to the first six questions, we think that the action of the lower court was correct and should be sustained. We think there was error in holding that there was no right to terminate the contract as to the buildings not constructed and in awarding damages for breach of contract with respect thereto. As to the award of interest we think that interest should be allowed prior to judgment but not necessarily at the legal rate. We shall discuss the questions stated in the order heretofore set forth.

1. The Question of Joinder.

The contract between defendant and the United States acting through the Atomic Energy Commission provided that the government would indemnify and hold the defendant harmless against all expense, loss or damage arising out of or connected with the work to be done thereunder, and would assume and carry on the defense of all 'claims, suits or legal proceedings' asserted or instituted against the defendant on account of acts or omissions in the performance of the work, and would pay and discharge all final judgments obtained against the defendant in such litigation. Under this provision, attorneys of the Department of Justice handled this litigation for the defendant from its inception. A provision of the contract between plaintiff and defendant provided that that contract might be assigned by defendant to the United States; had on July 3, 1953, after all pleadings had been filed and the cause had been at issue for several months and a number of hearings had been held, counsel for the government representing the defendant caused an assignment of the contract to be made to the United States and moved under Rule 25(c) of the Federal Rules of Civil Procedure, 28 U.S.C., that the United States be substituted for the du Pont Company as party defendant. This motion was denied, as was a motion then made that the United States be allowed to intervene. At the opening of the trial a motion was made to dismiss the action on the ground that du Pont no longer had any liability under the contract.

We think that all of these motions were properly denied. The contract of plaintiff was with defendant, not with the United States, and defendant in making it was acting as an independent contractor, not as an agent of the government. Cf. Carson v. Roane-Anderson Company, 342 U.S. 232, 236, 72 S.Ct. 257, 96 L.Ed. 257; Continental Illinois Nat. Bank & Trust Co. of Chicago v. United States, Ct. Claims, 81 F.Supp. 596, 112 Ct.Cl. 563. Before the assignment had been made the contract had been terminated by the defendant, plaintiff's right to recover under its provisions had become fixed, suit had been instituted for recovery, hearings had been held and the case was ready for trial. Substitution of the United States as a defendant might well have ousted the court of jurisdiction, since the amount sued for was greater than allowed by the Tucker Act, 28 U.S.C. 1346; and, although defendant denies that there was any intent to affect jurisdiction, it is well settled that the parties could not by consent confer jurisdiction on the court. Under such circumstances, the court was acting well within the limits of the sound discretion contemplated by Rule 25(c) in refusing to allow the substitution asked.

We think, also, that the court was acting well within the limits of the sound discretion reposed by Rule 24(b) in refusing to allow intervention by the United States. Assuming that such...

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