Aetna Cas. & Sur. v. Butte-Meade Sanitary Water

• Decision Date: 05 November 1980
• Docket Number: No. CIV 77-5034.,CIV 77-5034.
• Citation: 500 F. Supp. 193
• Parties: AETNA CASUALTY AND SURETY CO., a Corporation, v. BUTTE-MEADE SANITARY WATER DISTRICT, a South Dakota Corporation.
• Court: U.S. District Court — District of South Dakota

500 F. Supp. 193

AETNA CASUALTY AND SURETY CO., a Corporation, v. BUTTE-MEADE SANITARY WATER DISTRICT, a South Dakota Corporation.

No. CIV 77-5034.

United States District Court, D. South Dakota.

November 5, 1980.

Francis M. Smith, Sioux Falls, S. D., for plaintiff.

Gregory Eiesland, Rapid City, S. D., Terence R. Quinn, Belle Fourche, S. D., for defendant.

MEMORANDUM OPINION

BOGUE, Chief Judge.

This is an action brought by Aetna Casualty and Surety Company, Inc. (Plaintiff), the bonding agent for J. F. Brunken and Sons, Inc. (Brunken), against Butte-Meade Sanitary Water District (Defendant) to recover payments retained by Defendant under two construction contracts entered into between Defendant and Brunken on August 14, 1968. Defendant has counterclaimed asking for judgment against Plaintiff in the amount of $56,900 as liquidated damages under one of the contracts and $65,050 as liquidated damages under the other contract. Defendant has also counterclaimed for punitive damages in the amount of $3.9 million plus attorney's fees as a result of Plaintiff's allegedly bad faith investigation regarding Defendant's liquidated damages claim.

In regard to Plaintiff's claim, Defendant has agreed that it owes Plaintiff the money requested and has so stipulated. The records indicate that the retainages amounted to $67,330.46 (Ex. 2354) and thus, this Court will enter judgment in Plaintiff's favor for this amount. As a result of this stipulation, the only issues remaining to be decided concern Defendant's counterclaim.

The bulk of the Court's findings will be reflected in the Findings of Fact and Conclusions of Law. But first, a couple of legal issues must be discussed in this memorandum opinion.

Defendant contracted with Brunken to complete two contracts. One was called the water mains contract and the other was called the pump house and reservoir foundations contract. Plaintiff was procured by Brunken as the surety on its bond. Under the contracts, Brunken was allowed 550 days plus extensions to complete the water mains contract and 360 days plus extensions to complete the pump house contract. Liquidated damages were set at $50 per day on each contract. Defendant claims the completion of the water mains contract was delayed 1,138 days for a total of $56,900, and the completion of the pump house contract was delayed 1,301 days for a total of $65,050.

Defendant claims that various acts by both Brunken and Plaintiff combined to cause the delay in completing the project. Plaintiff, on the other hand, alleges that a substantial amount of delay was caused by the actions of Defendant. As such, Plaintiff argues that Defendant is barred from recovering liquidated damages. Plaintiff cites the following rule:

By the weight of authority, where the contractee has caused a substantial delay in the beginning or progress of the work, without any agreement for an extension of time to offset the delay, the time limit fixed in the contract, and any provision for liquidated damages based thereon, are entirely abrogated, leaving the contractor responsible only for the completion of the work within a reasonable time. Anno. 152 A.L.R. 1349, 1359.

Not all courts have agreed with this rule. In Nomellini Construction Co. v. Department of Water Resources, 19 Cal.App.3d 240, 96 Cal.Rptr. 682, 686 (1971), the court held:

Categorical statements that where delays are caused on both sides there is no way to "apportion damages" are an absurdity. Damages are not being apportioned. Damages are liquidated. Quantum of delay in terms of time is all that is being apportioned. That is an uncomplicated fact finding process. That is what courts are for.

This Court must determine whether it should attempt to apportion the causes for delay among the Defendant, the Contractor, and the Plaintiff, and assess damages on the basis of this apportionment or simply deny Defendant liquidated damages if it is found that Defendant substantially contributed to the delay in completing the project. There is a split of authority regarding this issue. South Dakota apparently has not addressed the issue. It has, however, been addressed by the United States Supreme Court on a couple of occasions. The first Supreme Court case to consider the issue was United States v. United Engineering & Construction Co., 234 U.S. 236, 34 S.Ct. 843, 58 L.Ed. 1294 (1914). In that case, the Plaintiff claimed liquidated damages for the delay in the completion of a contract. The evidence indicated that a good portion of the delay was caused by Plaintiff's actions. The court adopted the following reasoning:

We think the better rule is that when the contractor has agreed to do a piece of work within a given time, and the parties have stipulated a fixed sum as liquidated damages, not wholly disproportionate to the loss for each day's delay, in order to enforce such payment the other party must not prevent the performance of the contract within the stipulated time; and that where such is the case, and thereafter the work is completed, though delayed by the fault of the contractor, the rule of the original contract cannot be insisted upon, and liquidated damages measured thereby are waived. Id. at 242.

A somewhat similar situation arose in the case of Robinson v. United States, 261 U.S. 486, 43 S.Ct. 420, 67 L.Ed. 760 (1923). In that case, the contract was completed 121 days after the scheduled completion date. The Defendant asserted that it was entitled to liquidated damages. Plaintiff contended that since Defendant had caused some of the delay, the provision for liquidated damages became inapplicable and was unenforceable. The trial court found the Defendant chargeable for 61 days' delay and assessed liquidated damages on that basis.

The Supreme Court upheld the trial court stating:

The fact that the government's action caused some of the delay presents no legal ground for denying it compensation for loss suffered wholly through the fault of the contractor. Since the contractor agreed to pay at a specified rate for each day's delay not caused by the government, it was clearly the intention that it should pay for some days' delay at that rate, even if it were relieved from paying for other days, because of the government's action. If it had appeared that the first 61 days' delay had been due wholly to the contractor's fault, and the government had caused the last 60 days' delay, there could hardly be a contention that the provision for liquidated damages should not apply. Here the fault of the respective parties was not so clearly distributed in time, and it may have been difficult to determine, as a matter of fact, how much of the delay was attributable to each. But the Court of Claims has done so in this case. Its findings are specific and conclusive. Id. at 488-89, 43 S.Ct. at 400.

The United Engineering case, supra, was distinguished on the following basis:

The case is wholly unlike United States v. United Engineering Co., ... upon which claimant relies. The question there was one of construction. The lower court found, as a fact that, but for the government's action, the work would have been completed within the contract period, and this court construed the provision for liquidated damages as not applicable to such a case. Here the question is not properly one of construction. Id. at 489, 43 S.Ct. at 400.

The Robinson case appears to stand for the proposition that where the causes for delay can be apportioned, the court is free to assess liquidated damages on this basis, unless the court finds that the contract would have been completed on time but for the delays caused by the party claiming liquidated damages. Plaintiff, however, cites a number of cases where courts have disapproved of an attempt to apportion causes for delay. See, e. g. United States v. Kanter, 137 F.2d 828 (8th Cir. 1943); Acme Process Equipment Co. v. United States, 347 F.2d 509 (Ct.Cl.1965); Glassman Construction Co., Inc. v. Maryland City Plaza, Inc., 371 F.Supp. 1154 (D.Md.1974); Fruin-Colnon Internation, S.A. v. Concreto, S.A., 231 F.Supp. 14 (D.Canal Zone 1964); Haggerty v. Selsco, 166 Mont. 492, 534 P.2d 874 (Mont.1975); General Insurance Co. of America v. Commerce Hyatt House, 5 Cal. App.3d 460, 85 Cal.Rptr. 317 (1970); Lee Turzillo Contracting Co. v. Frank Messer & Sons, Inc., 23 Ohio App.2d 179, 261 N.E.2d 675 (1969); State v. Jack B. Parson Construction, 93 Idaho 118, 456 P.2d 762 (1969); L. A. Reynolds Co. v. State Highway Commission, 271 N.C. 40, 155 S.E.2d 473 (1967).

In Kanter, supra, at 830, the Eighth Circuit Court of Appeals stated:

Where one seeking to enforce a provision for liquidated damages is responsible for the failure of performance, or has contributed in part to it, the provision will not be enforced. Where both parties are in default, courts will not attempt to apportion the delay due to each party in the absence of a contract provision requiring such apportionment.

Without specifically mentioning Kanter, the Eighth Circuit backed away from this position in the case of Southwest Engineering Co. v. United States, 341 F.2d 998 (8th Cir. 1965). In that case, the Plaintiff claimed the Defendant was not entitled to liquidated damages because it had caused or contributed to the delay in completing the contract. Citing Robinson, supra, the Eighth Circuit rejected...