U.S. Steel v. M. Dematteo Const. Co.

• Decision Date: 30 December 2002
• Docket Number: No. 02-1040.,No. 02-1588.,02-1040.,02-1588.
• Citation: 315 F.3d 43
• Parties: UNITED STATES STEEL, a/k/a USX Corporation, Plaintiff, Appellant, v. M. DEMATTEO CONSTRUCTION CO. and M. DeMatteo Construction Co./Flatiron Constructors, a Joint Venture, Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

315 F.3d 43

UNITED STATES STEEL, a/k/a USX Corporation, Plaintiff, Appellant, v. M. DEMATTEO CONSTRUCTION CO. and M. DeMatteo Construction Co./Flatiron Constructors, a Joint Venture, Defendants, Appellees.

No. 02-1040.

No. 02-1588.

United States Court of Appeals, First Circuit.

Heard October 8, 2002.

Decided December 30, 2002.

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Marc Redlich, with whom Merle Ruth Hass, Howard Burger, and Berman, Paley, Goldstein, & Kannry, L.L.P., were on brief for appellant.

Hugh J. Gorman, III, with whom Joel Lewin, Michael D. Healan and Hinckley, Allen & Snyder, L.L.P., were on brief for appellees.

Before LYNCH, Circuit Judge, CYR, Senior Circuit Judge and LIPEZ, Circuit Judge.

LIPEZ, Circuit Judge.

This case requires us to consider the rights, if any, of a subcontractor who did not substantially perform under his contract, to recover payment from a general contractor for work performed by the subcontractor who abandoned the job because of financial problems which soon led to bankruptcy proceedings. The case is brought by United States Steel ("USS"),¹ a secured creditor of the bankrupt subcontractor, Cyclone, Inc. ("Cyclone"). USS seeks to recover from the general contractor, M. DeMatteo Construction Co., and M. DeMatteo Construction Co. and Flatiron Constructors, a Joint Venture (collectively "DeMatteo"), all accounts receivable due the subcontractor. The district court entered summary judgment for DeMatteo on the ground that, as a matter of well-established Massachusetts law, the subcontractor is not entitled to any recovery under the contract at issue.² Though our analysis differs from that of the district court, we affirm.

I.

DeMatteo is the general contractor at various public construction projects associated with the "Big Dig," a massive undertaking that will submerge a section of interstate highway below the streets of Boston. Between September 1996 and October 1999, DeMatteo entered into three separate contracts with Cyclone, whereby Cyclone was to provide and install temporary and permanent fencing at construction sites. On or about October 8, 1999, Cyclone ceased its operations and stopped working on the projects. On December 3, 1999, Cyclone filed a voluntary chapter 11 petition in the United States Bankruptcy Court for the District of Maryland, during which proceeding USS was acknowledged as a secured creditor and authorized to collect accounts receivable due Cyclone.

On April 4, 2001, USS brought this lawsuit in an attempt to collect amounts it believes may be due Cyclone under the contracts between Cyclone and DeMatteo. USS does not dispute that Cyclone had not substantially completed its work under the contracts when it terminated its operations. However, it contends that under the terms of the contracts, if the costs to DeMatteo of completion were less than the amount by which DeMatteo was enriched by Cyclone's work performed and materials supplied, then USS, as Cyclone's secured creditor, is entitled to the balance.³

On June 8, 2001, DeMatteo moved for summary judgment. USS opposed this motion and filed two motions of its own, one pursuant to Fed.R.Civ.P. 56(f), seeking additional discovery, and the second seeking certification to the Supreme Judicial Court of Massachusetts of several questions of Massachusetts law. The district court granted summary judgment for DeMatteo on November 28, 2001, holding that a fair reading of the contract provisions is consistent with Massachusetts common law which prohibits recovery for the subcontractor under the contract or under a theory of quantum meruit absent substantial performance. The court denied the Fed.R.Civ.P. 56(f) Motion for Additional Discovery and the request for certification, and dismissed the case. On December 28, 2001, USS filed a timely notice of appeal. Thereafter, on March 26, 2002, USS filed a Fed.R.Civ.P. 60(b) Motion for Relief from Judgment. The district court denied the Rule 60(b) Motion on May 13, 2002, and USS's second appeal followed. On May 21, 2002, we entered an order consolidating these appeals for briefing and argument.

II.

We review the district court's grant of summary judgment for DeMatteo de novo, examining the record in the light most favorable to USS and drawing all reasonable inferences in its favor. We affirm the district court's decision only if "there is no genuine issue of material fact" and DeMatteo "is entitled to judgment as a matter of law." Rochester Ford Sales, Inc. v. Ford Motor Co., 287 F.3d 32, 38 (1st Cir.2002)(quoting Fed.R.Civ.P. 56(c)). Here we focus on the contracts between Cyclone and DeMatteo to determine the rights accruing to each party in case of abandonment of work by the subcontractor without substantial performance.

It is well established under Massachusetts law that a contractor "cannot recover on the contract itself without showing complete and strict performance of all its terms." Peabody N.E., Inc. v. Town of Marshfield, 426 Mass. 436, 689 N.E.2d 774, 779 (1998) (quoting Andre v. Maguire, 305 Mass. 515, 26 N.E.2d 347 (1940)). Failing complete performance, a contractor "who in good faith substantially performs a contract may recover in quantum meruit." J.A. Sullivan Corp. v. Commonwealth, 397 Mass. 789, 494 N.E.2d 374, 378 (1986)(citing Andre, 26 N.E.2d at 348). "It is equally well established that `an intentional departure from the terms of the contract without justification or excuse in matters other than those so trifling as to be properly regarded as falling within the rule of de minimis will bar all recovery for materials supplied and work performed.'" Hayeck Bldg. & Realty Co. v. Turcotte, 361 Mass. 785, 282 N.E.2d 907, 910 (1972)(quoting Russo v. Charles I. Hosmer, Inc., 312 Mass. 231, 44 N.E.2d 641, 643 (1942)).

On the present record, USS does not dispute that Cyclone neither completely nor substantially performed the work contracted for, and that this failure to perform was not excused. Therefore, as a matter of Massachusetts common law, Cyclone is not entitled to recover any amount from DeMatteo either under the contract or under a theory of quantum meruit. However, USS contends that the terms of the contract between Cyclone and DeMatteo alter the common law, permitting Cyclone to recover sums due under the contract from DeMatteo, even if Cyclone breached the contract. This alteration by contract of the common law rule requiring complete and strict performance as a condition of compensation under the contract is a legal possibility. See Walsh v. Atlantic Research Assoc., 321 Mass. 57, 71 N.E.2d 580 (1947) (finding that parties can provide by the terms of the contract that a breaching party is entitled to damages).

USS relies on Article XV of the 1996 contract (Article XVI of the 1999 contracts)⁴ to support its claim that the contract alters the common law rule. Article XV states in relevant part as follows.

Article XV — REMEDIES OF GENERAL CONTRACTOR

The Subcontractor stipulates and agrees that each of the agreements and covenants herein contained, and by it made constitutes a material condition of this Subcontract. In the event of any breach by the Subcontractor of any condition of this Agreement or of the General Contract Documents herein incorporated by reference, then and in that event the Contractor may:

(1) Deduct from any payment otherwise due or becoming due all sums chargeable to Subcontractor and damages due from said breach; and

(2) Terminate the Subcontract for default in the following manner ...

Upon such termination for default the General Contractor may take immediate possession of all equipment, materials, tools, and appliances at the site or sites of the Subcontract work and may complete said work either with its own forces or by the employment of any other person, firm, or corporation. No further payment shall be or become due the Subcontractor following such termination for default. When the work is wholly complete, the Subcontractor shall pay General Contractor all costs of completing the work and all damages of every kind or nature caused by said termination less the amount of any balances due the Subcontractor.

(emphasis added).

USS argues that a fair reading of these contract provisions requires that the general contractor pay the subcontractor for work performed despite the subcontractor's breach, and that this amounts to an agreement to modify the subcontractor's common law rights of recovery. We disagree.⁵

In using the clause "the contractor may ..." before the specification of two remedies, Article XV sets forth elective rights of the general contractor in case of breach by the subcontractor. Under Massachusetts law, if a contract does not specify that the remedies identified are exclusive, or that they abrogate the common law remedies available, the common law remedies still apply. Global Software, Inc. v. DTS Software Brasil, LTDA, No. Civ. A.00-10033-GAO, 2002 WL 73819, at *2 (D.Mass. Jan. 15, 2002)("[U]nder Massachusetts law, expressly stated remedies are not automatically exclusive."); Finkelstein v. Sneierson, 273 Mass. 424, 173 N.E. 703, 704 (1930) ("[T]he remedy provided [in the agreement] was not exclusive of the plaintiff's right to maintain an action for damages for breach of the agreement."); 17A Am.Jur.2d Contracts § 748 (2002) (collecting cases) ("Where, however, there is no express or implied limitation in the contract making the stated remedy exclusive, the prevailing view seems to be that a party may at his election pursue either the prescribed remedy or any other remedy the law gives."). Therefore, the general contractor may elect not to exercise any of its options under Article XV when the subcontractor breaches the contract, relying instead on the applicable common law rule to defend itself against any claims for relief brought by the breaching subcontractor.

Due to Cyclone's admitted material breach by abandonment of the contract, DeMatteo was discharged from its...