McGovney & McKee, Inc. v. City of Berea, Ky.

• Decision Date: 20 March 1978
• Docket Number: Civ. A No. 2158.
• Citation: 448 F. Supp. 1049
• Parties: McGOVNEY & McKEE, INC., Plaintiff, v. CITY OF BEREA, KENTUCKY, Defendant and Third-Party Plaintiff, v. UNITED STATES FIDELITY & GUARANTY CO., Third-Party Defendant.
• Court: U.S. District Court — Eastern District of Kentucky

448 F. Supp. 1049

McGOVNEY & McKEE, INC., Plaintiff, v. CITY OF BEREA, KENTUCKY, Defendant and Third-Party Plaintiff, v. UNITED STATES FIDELITY & GUARANTY CO., Third-Party Defendant.

Civ. A No. 2158.

United States District Court, E. D. Kentucky, Lexington Division.

March 20, 1978.

COPYRIGHT MATERIAL OMITTED

David T. Enlow, Murphy, King, Enlow & Dunn, Lexington, Ky., for McGovney & McKee, plaintiff.

James T. Gilbert, Duerson & Gilbert, Berea, Ky., for City of Berea, Ky., defendant and third-party plaintiff.

Frank G. Dickey, Jr., Landrum, Patterson & Dickey, Lexington, Ky., for U. S. Fidelity & Guaranty Co., third-party defendant.

MEMORANDUM OPINION

SILER, District Judge.

After trial without a jury, the Court has made the following Findings of Facts and Conclusions of Law, pursuant to Rule 52, Fed.R.Civ.P. The case began on July 2, 1970, as a suit for declaratory relief, under 28 U.S.C. §§ 2201, 2202 by McGovney & McKee, Inc. (hereinafter "Contractor") against the City of Berea, Kentucky (hereinafter "Berea"), to determine if Berea was allowed to terminate the contract involved or if it was the duty of Berea to furnish drawings and specifications to Contractor to complete its contract. Berea filed a counterclaim demanding damages against Contractor for breach of contract in filing a third-party complaint against United States Fidelity & Guaranty Co. (hereinafter "Surety") as the surety on the construction contract. By the time this came to trial in 1976, the declaration of rights issue was subverted to the counterclaim and third-party claim, as Berea had hired another contractor, Nash & Stewart (hereinafter "N&S"), to finish the project. The Court does not know why it took so long for this case to be set for trial, but it is noted that Contractor's original counsel, Frank S. Ginoccio, is now dead, and the Judge to whom this case was originally assigned, Honorable Mac Swinford, died in 1975. It was subsequently assigned to Chief Judge Bernard T. Moynahan, Jr., and then to the undersigned Judge. In the meantime, between the fiscal years from the date the case was filed until the trial, the civil case load of this Court increased 179.5% (from 913 pending cases to 2926) without a commensurate increase in the number of Judges. (An additional Judge took office in 1972, but the position had been authorized in 1970.) Perhaps that, to some extent, was a contributing factor to the delay in arriving at a legal solution. An additional problem has arisen in this Court deciding this case once submitted. As it is a diversity case with no priority over criminal and certain other types of cases, it has lain on the docket for about one year from the date submitted. This illustrates the problems of handling diversity cases in federal courts. Cf. Arrow-Hart, Inc. v. Philip Carey Co., 552 F.2d 711 (6th Cir. 1977). This is digressing from the essential facts and legal questions to be decided, but it was thought necessary to explain why there was such a delay in this matter. Had Contractor not chosen the federal forum, and had filed the matter in a state court, or had this Court been able to get to the case immediately, Contractor could have determined its rights before the contract was let to N&S, and much of this litigation could have been avoided.

FINDINGS OF FACTS

Berea is a municipal corporation located in Madison County, Kentucky, and is a citizen of the Commonwealth of Kentucky. Contractor is a corporation incorporated in Ohio with its principal place of business in Portsmouth, Ohio, and is, therefore, a citizen of the State of Ohio. Surety is a corporation incorporated in the State of Maryland, with its principal place of business in Baltimore, Maryland, and is, therefore, a citizen of Maryland. The amount in controversy exceeds $10,000.00, exclusive of interest and costs.

Berea entered into a contract, which is the subject of this controversy, with Contractor for the construction of a sewage treatment plant. The work was to be done according to the plans and specifications provided by Theodore Strunk, an engineer, who died before this case came to trial. The project was bid according to law and Contractor was the low bidder to complete the project at an overall cost of $217,375.00. The contract was entered into on April 24, 1969, and work commenced on July 7, 1969, to be completed by September 11, 1970, or else be subject to liquidated damages in the amount of $100.00 per day until the project was completed. Surety was on the performance bond, the terms of which will be discussed post.

During the construction period, after a concrete aeration tank eighty-eight feet in diameter had been poured and was sitting on the ground in place, there was an accumulation of ground or surface water in the area of the tank, causing it to float out of its original position and to lodge on a rock at a tilt. No one was at the job site when this occurred, but it was discovered sometime between December 29, 1969, and January 22, 1970. At that time, River City Construction Co., a subcontractor, whose superintendent was John Clifford, was doing this phase of the work for Contractor. As the water was rising just before the tank floated, Strunk had gone to the job site, and had told Clifford he could shut down the construction work because of bad weather. He further told Clifford that water was flowing into the aeration tank from another tank in the project and the water in the aeration tank was equalizing the pressure on the outside so that the tank would not float. The work was then shut down by Contractor. Shortly thereafter, Strunk told Clifford by telephone that the tank had floated and Clifford the following day went to the job site where he and Strunk took certain measurements on the elevation and alignment, preparatory to placing the tank back into its proper position. As the weather was too bad to allow work at the time, the actual movement of the tank was postponed until later when the weather cleared.

It was not until April, 1970, that Contractor took some action concerning the tank, when it dewatered the tank and cleaned up the debris in the vicinity. It was discovered that the tank was sitting on a rock ledge and the tank floor was damaged to the extent that it would have to be repoured. Several meetings were held in April and May, 1970, with Clifford, Strunk and Berea officials in attendance to determine what steps to take to rectify the situation and to complete the contract. Contractor asserted it was ready, willing and able to complete the contract but desired advice from Strunk or Berea as to what it needed to do to complete the project, pursuant to section 3 of the contract, which provided:

The contractor will be furnished additional instructions and detailed drawings as necessary to carry out the work included in the contract.

In April, 1970, Berea accepted the work of Contractor as having been performed up to that time according to the contract. As no work had actually been done after the tank floated, it apparently was approval of the work up to December, 1969. However, in one of the meetings in May, Contractor presented to Berea a study made by another engineering firm, M&W Engineers, as to how the tank could be set back in place and the work continued. Contractor indicated a desire to complete the contract with additional plans and more compensation. Neither Berea nor Strunk gave any consent for Contractor to proceed under any different set of plans nor did either provide additional plans or specifications. Consequently, there was an impasse and no work was being done to complete the job.

Strunk subsequently notified Berea on June 24, 1970, that Contractor was in violation of its contract, and Berea on June 26, 1970, notified Contractor and Surety pursuant to section 23 of the contract that because of certain breaches of the contract, unless Contractor rectified the situation within ten days, the contract should terminate and Berea reserved the right to take over the work and complete it by another contract. Then, on July 2, 1970, Contractor brought this declaratory action to determine if Berea could terminate the contract.

Although Berea and its sewer commission never directed the contract to be terminated, on July 20, 1970, Berea's city council authorized the mayor and sewer commission to take the necessary steps to complete the project by "working with surety" and "by whatever means they deem necessary." Then, on July 23, 1970, by letter with a copy to Contractor, Berea notified Surety that the contract had terminated and Surety had the right to take over the work and commence performance within ten days from that date.

Surety took no action, so, on March 2, 1971, Berea signed the contract with N&S to complete the project under the same plans and specifications with certain agreed costs plus fifteen percent profit, not to exceed $17,000.00. The project was completed on October 1, 1971, for operation, although the aeration tank was still slightly off level, which did not affect its operation. The parking lot, required in the plans and specifications, was never completed.

Before Contractor ceased working on this project, it had been paid a total of $110,774.44 for the work done up to that time, with the remainder of the $217,375.00 to be paid upon completion of the entire project. Berea paid or had estimates for expenditures in the amount of $191,223.70 to finish the project. It now asserts that Contractor owes it $84,593.14 as the difference between the contract price of $217,375.00 and the amount it cost or will eventually cost Berea to construct the project, $301,968.14 ($110,744.44 plus $191,223.70). It has also demanded liquidated damages, as provided in the contract in the amount of $100.00 per day for three hundred eighty-five days between September 11, 1970, the date the project was due to have been completed, until October 1, 1971, the actual date of completion by N&S, or a total of $38,500.00...