Wenzel & Henoch Const. Co. v. Metropolitan Water Dist.
Decision Date | 24 March 1937 |
Docket Number | No. 7883.,7883. |
Court | U.S. District Court — Southern District of California |
Parties | WENZEL & HENOCH CONST. CO. v. METROPOLITAN WATER DIST. OF SOUTHERN CALIFORNIA. |
E. R. Young, W. H. Wadsworth, and John H. Mathews, all of Los Angeles, Cal., for plaintiff.
James S. Bennett, Charles C. Cooper, Frank G. Finlayson, James H. Howard, H. T. Morrow, and Arthur A. Weber, all of Los Angeles, Cal., for defendant.
On March 17, 1933, at Los Angeles, Cal., the plaintiff, Wenzel & Henoch Construction Company, a Wisconsin corporation, qualified to do business in California, to be referred to as "the contractor," entered into a contract in writing with the defendant, the Metropolitan Water District of Southern California, a California municipal corporation, to be referred to as "the district," to do certain work described as the construction of the district's San Jacinto tunnel in Riverside County, Cal. This diversity of citizenship gives us jurisdiction.
In the performance of the contract, the contractor, on the same day, took possession of the rights of way for the works to be constructed, and paid out $919,009.34, for the purchase of materials, plants and equipment, supplies, and the like, and for labor for their installation. In addition, it paid to the district $150,000 cash in lieu of a faithful performance bond. On January 15, 1935, F. E. Weymouth, general manager and chief engineer of the district, to be referred to as "the engineer," gave notice to the plaintiff to discontinue all work upon the ground that he was of the opinion that the contract had been "unnecessarily and unreasonably delayed."
Attacking this opinion, which led to the discontinuance of the work and termination of the contract, the contractor, in the first cause of action of its complaint at law, seeks damages in the sum of $5,713,929.95, $3,839,481.68 of which is for loss of profits and the remainder for other damages suffered.
The ground of attack is that the opinion of the engineer was so grossly erroneous as to amount to a fraud on the contractor, and that it was arrived at capriciously, arbitrarily, unreasonably, and fraudulently.
In amplification, it is alleged: Illness prevented the engineer from attending to his duties and supervising construction in the field. This was done by other engineers and subordinates who were without experience in the excavation and construction of tunnels where large flows of water had been encountered. For this reason, they were not qualified, and were unable, to arrive at a correct opinion as to the performance of the work. The engineer failed to make an adequate personal investigation on the ground, for the purpose of arriving at his final opinion, but relied on the inexpert opinion of others.
The following additional facts are pleaded:
In December, 1934, the district, as a part of its scheme to deprive the contractor of its contract and property, advertised for bids for deep-well pumping machinery for Cabazon shaft of San Jacinto tunnel and circulated reports among different material houses at Los Angeles, which were supplying the contractor with materials and equipment, that it was taking over the construction of the tunnel. Pursuant to the same scheme, the engineer notified the contractor of his intention to withhold the amount of the last estimate for work performed on San Jacinto tunnel, due for the period from November 25, 1934, to December 25, 1934, and payable on January 10, 1935. The estimate was not paid on that day. The contractor notified the district that such failure was a breach of contract on its part. On February 10, 1935, the district withheld the estimate due the contractor for the work performed during the period from December 25, 1934, to January 25, 1935. Any temporary delay in the sinking of Potrero Shaft and in the construction of the tunnel, it is explained, was due not to the fault of the contractor, or to lack of men or equipment, but to the enormous quantities of water encountered by the contractor in the construction of San Jacinto tunnel and to bad and faulty ground encountered, which necessitated the timbering of the greater part of the tunnel.
On January 15, 1935, the district, through its agents, demanded possession of the properties, which was refused. Certain legal proceedings were had which were dismissed. On February 12, 1935, the district took possession of all the rights of way of San Jacinto tunnel.
After alleging that it has performed all the terms of the contract, from the 17th day of March, 1933, to the 12th day of February, 1935, when the district took forceable possession of the rights of way, the plaintiff asks damages in the amounts already given.
In a second count, the plaintiff seeks to recover $1,346,720.75 on a quantum meruit for work, labor, and materials. In a third count, it seeks to recover $150,000 deposited with the district. And finally, a fourth count seeks to recover $161,306.53 on a quantum meruit for extra work.
The provision of the contract, under which the suspension took place, reads:
The defendant has moved that either the entire cause or the equitable cause of action contained in the first count, in so far as it charges fraud on the part of the engineer, be removed to the equity docket, and that the court determine there the suit of the plaintiff to vacate and set aside the opinion, notice, and order of the engineer, which form the basis for the termination of the contract.
It is apparent from the motion that the defendant treats the first cause of action as if it sought to rescind and cancel the opinion and notice. There is no prayer in the complaint to that effect.
The assumption of the defendant is based upon the fact that the plaintiff seeks to impugn the opinion, so as to deprive the consequent termination of the contract of factual or legal basis.
Back of the motion lies the contention that there can be no recovery until this opinion is set aside, and that it cannot be set aside except for fraud, because it is in the nature of the award of an arbitrator which can be assailed only for fraud, duress, mistake, and the like. See Dugan v. Phillips (1926) 77 Cal.App. 268, 246 P. 566. The law of California does not seem to consider the determination by an engineer of matters as to which a construction contract makes his decision final as being in the nature of an arbitration award. See Foster v. Carr (1901) 135 Cal. 83, 86, 67 P. 43; American-Hawaiian, etc., Co. v. Butler (1913) 165 Cal. 497, 133 P. 280, Ann.Cas.1916C, 44. But it considers it conclusive in the absence of fraud, bad faith, or mistake. The federal decisions accord. See Martinsburg & Potomac R. R. Co. v. March (1885) 114 U.S. 549, 5 S.Ct. 1035, 29 L. Ed. 255; Chicago, Santa Fe & California R. R. Co. v. Price (1890) 138 U.S. 185, 11 S.Ct. 290, 34 L.Ed. 917; United States v. Gleason (1899) 175 U.S. 588, 20 S.Ct. 228, 44 L.Ed. 284; United States v. Hurley (C.C.A.8, 1910) 182 F. 776; Rialto Construction Co. v. Reed (1911) ...
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