Anthony P. Miller, Inc. v. Wilmington Housing Authority

• Decision Date: 03 November 1959
• Docket Number: Civ. A. No. 1739.
• Citation: 179 F. Supp. 199
• Parties: ANTHONY P. MILLER, INC., a New Jersey Corporation, Plaintiff, v. WILMINGTON HOUSING AUTHORITY, a Public Authority of the State of Delaware, Defendant.
• Court: U.S. District Court — District of Delaware

179 F. Supp. 199

ANTHONY P. MILLER, INC., a New Jersey Corporation, Plaintiff, v. WILMINGTON HOUSING AUTHORITY, a Public Authority of the State of Delaware, Defendant.

Civ. A. No. 1739.

United States District Court D. Delaware.

November 3, 1959.

John Van Brunt, Jr., and Courtney H. Cummings, Jr. (of Killoran & Van Brunt), Wilmington, for plaintiff.

Thomas Herlihy, Jr., and Morris Cohen, Wilmington, for defendant.

LAYTON, District Judge.

These are cross motions for summary judgment arising out of an action¹ to recover monies allegedly wrongfully withheld under a certain construction contract between Anthony P. Miller, Inc. (Miller), plaintiff, and Wilmington Housing Authority, the defendant.²

Miller, the successful bidder on the prime contract, commenced construction of a low rent housing project in this area on or about May 26, 1952. However, the course of the work was plagued by numerous delays including inclement weather and, particularly, strikes, and was not finished until long after the specified completion date.

Part II, Section B, Paragraph 2 of the Contract authorized the defendant to withhold $148 daily as liquidated damages for failure to complete the contract on time.

Sec. 13(a) of the Contract reads as follows:

"13. Delays—Damages

"a. * * * Provided, That the right of the Contractor to proceed shall not be terminated or the Contractor charged with liquidated damages because of any delays in the completion of the work due to unforeseeable causes beyond the control and without the fault or negligence of the Contractor, including but not restricted to acts of God, or of the public enemy, acts of the Government, acts of the Local Authority, acts of another contractor in the performance of a contract with the Local Authority, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, and unusually severe weather or delays of subcontractors due to such causes, if the Contractor shall within 10 days from the beginning of any such delay (unless the Local Authority, with the approval of the PHA, shall grant a further period of time prior to the date of final settlement of the Contract) notify the Contracting Officer in writing of the causes of delay, who shall ascertain the facts and the extent of delay, and the Local Authority shall, subject to prior approval of the PHA, extend the time for completing the work when in its judgment the findings of fact of the Contracting Officer justify such an extension, and his findings of fact thereon shall be final and conclusive upon the parties hereto." (My emphasis.)

The plaintiff filed written notices as to the causes of the several delays with the contracting officer who, in accordance with the provisions of paragraph 13 quoted above, proceeded to "ascertain the facts and the extent of delay." He determined that of 713³ days' delay for which extensions were requested by the plaintiff, only 304 were justifiable as having occurred without his fault or negligence.⁴ Subtracting this 304 days from the actual overrun of 465 days, the contracting officer determined that 161 days of the overrun constituted inexcusable delay, which, when multiplied by the per diem penalty of $148, resulted in a proper withholding by defendant from monies due plaintiff under the Contract of $23,828 as liquidated damages.⁵ The defendant Local Authority ratified this determination by resolution pursuant to the provisions in Sec. 13 quoted above.

Plaintiff alleges that defendant is wrongfully withholding this sum of $23,828, arguing that no such damages for delay are lawfully chargeable to plaintiff because the contracting officer, in making his determinations of excusable delay attributable to labor shortages, applied a formula which was entirely inappropriate and erroneous for such calculation, the result of which amounts to such gross error as to constitute constructive fraud.

Also sought to be recovered is the sum of $3,626.96, allegedly improperly retained by the defendant resulting from a dispute between the parties as to whether or not this represented work required by the Contract. The plaintiff takes the position that the work was not specified in the Contract and should be regarded as a compensable extra.

Defendant's Motion for Summary Judgment.

The plaintiff's first argument is predicated upon the settled principle of law which forbids the construction of a Contract by a contracting officer. United States v. L. P. & J. A. Smith, 256 U.S. 11, 41 S.Ct. 413, 65 L.Ed. 808. The second argument rests upon an interpretation of one of the provisions of the Contract itself which in so many words limits the power of the contracting officer to the making of fact findings and nothing more. Theoretically, therefore, if the contracting officer, in making any of his determinations, did something which amounted to a construction of the Contract itself, such a determination would have to be set aside because forbidden by the rule of law above referred to or because, by the very terms of the Contract itself, he had exceeded his authority. However, as a practical matter, the controversy arises, not from the fact that the contracting officer construed the Contract, but rather, made determinations (whether amounting to fact findings or a construction of the Contract) which were so unfair as to injure the plaintiff. Accordingly, I express no opinion on either of the first two contentions and will confine this discussion to the third point, namely, regardless of whether the contracting officer made a finding of fact or a construction of the Contract, was what he did so palpably erroneous as to be regarded in law as a constructive fraud?

It is a familiar principle that where parties to a building contract agree to be bound by the conclusions or decisions of an arbiter, contracting officer, engineer or architect, the Courts will not entertain jurisdiction over disputes arising from such a determination. Corbin on Contracts, Vol. 3, Sec. 652, P. 600. Mundy v. Louisville & N. R. R. Co., 6 Cir., 67 F. 633; Terminal Construction Co. v. Bergen County, Errors & Appeals, 18 N.J. 294, 113 A.2d 787; Annotation in 54 A.L.R. 1255 and 110 A.L.R. 137; Restatement of the Law, Contracts, Sec. 303. It is an equally familiar principle that Courts will entertain jurisdiction of such a dispute when it is alleged that the findings of an arbiter, contracting officer, etc., were based upon fraud and, if fraud is found, then set aside such findings. Thus, in 110 A.L.R. at page 143, it is said:

"As stated in an earlier annotation, notwithstanding a contract makes the certificate, report, opinion, or decision of an engineer or architect conclusive on the parties, the law writes into this provision that the conduct of the arbiter must be free from fraud. Fraud on his part destroys the effect of the provision."

See also Wagner Whirler & Derrick Corp. v. U. S., 1954, 121 F.Supp. 664, 128 Ct.Cl. 382; United States v. Lennox Metal Mfg. Co., 2 Cir., 1955, 225 F.2d 302. The law of this State is in accord with this proposition. Crumlish v. Wilmington & Western R. Co., 5 Del.Ch. 270.⁶

Nor is it necessary, in order for the Courts to set aside such a decision, opinion or finding, that the conduct of the arbiter amount to actual fraud. A finding of constructive fraud is sufficient. Thus, the finding or decision will be set aside if the decision was fraudulent or was induced by such inattention or indifference as to imply bad faith, American Surety Co. v. Kinnear Mfg. Co., 185 Ark. 959, 50 S.W.2d 586; or the decision was so arbitrary and grossly erroneous as to constitute bad faith, Levering & Garrigues Co. v. United States, 71 Ct.Cl. 739; or, there is proof of constructive fraud or gross mistake of such a character as to amount to a palpable and substantial wrong, Edward Edinger Co. v. Willis, 260 Ill.App. 106.

With these principles in mind, let us proceed to an examination of the questioned findings of the defendant's contracting officer in this case. In making his findings and estimating the extent of the delay attributable to shortages of labor, he devised a six-step calculation to be applied in respect of each trade. Plaintiff objects particularly to his findings in the case of plumbers, contending that if the findings had been correctly made, the period of shortage of plumbers would be the proper measure of all delays due to labor shortages. Accordingly, I shall confine my discussion to this calculation. The contracting officer

(1) Determined the period of time during which there existed a shortage of plumbers, i. e., 573 days (365 plus 208).⁷

(2) Determined that during that period there were 209.17 days during which delays had occurred for other reasons (strikes, weather, change orders).

(3) Deducted this concurrent period of delay from 573, leaving 363.83 days, which is the period of shortage of plumbers.

(4) Determined there was a percentage of shortage of 50%.

(5) Determined that since the contractor had only ½ his plumbing force, he must have necessarily taken twice as long to do the job and, therefore, dividing 363.83 days in half, the contract was delayed 181.92 days because of plumbers' shortage.

(6) Reduced the figure of 181.92 days to 15.19 days by multiplying 181.92 by 8.35%.

The figure of 8.35% was arrived at by the contracting officer by taking the ratio of the cost of the plumbing Contract to the cost of the entire Contract. It is to the application of this formula against the number of days of delay in the entire Contract attributable to a shortage of plumbers that the plaintiff strenuously objects.

This objection appears to be well founded. The application of the so-called formula, which I shall sometimes refer to as the sixth step, was, in my judgment, a clear non sequitur because what the contracting officer was attempting to do was to relate the cost of performance of the delayed work to the time for performance.⁸ Such a procedure seems to be clearly irrelevant, the...