City of Neb. v. Baseline Eng'g Corp., 16-1949

• Decision Date: 11 August 2017
• Docket Number: No. 16-1949,16-1949
• Citation: 867 F.3d 875
• Parties: CITY OF BENKELMAN, NEBRASKA, A Political Subdivision, Plaintiff-Appellant v. BASELINE ENGINEERING CORPORATION, A Colorado Corporation, Defendant-Appellee Layne Christensen Company, a Delaware Corporation, Defendant
• Court: U.S. Court of Appeals — Eighth Circuit

867 F.3d 875

CITY OF BENKELMAN, NEBRASKA, A Political Subdivision, Plaintiff-Appellant

v.BASELINE ENGINEERING CORPORATION, A Colorado Corporation, Defendant-Appellee

Layne Christensen Company, a Delaware Corporation, Defendant

No. 16-1949

United States Court of Appeals, Eighth Circuit.

Submitted: August 1, 2017

Filed: August 11, 2017

Ryan C. Carson, Daniel L. Lindstrom, Nicholas R. Norton, JACOBSEN & ORR, Kearney, NE, for Plaintiff-Appellant.

Randall L. Goyette, BAYLOR & EVNEN, Lincoln, NE, Linwood Tyrone Holt, Kevin D. Poyner, Kevin Patrick Walsh, THE HOLT GROUP, Denver, CO, for Defendant-Appellee.

Before RILEY, BEAM, and SHEPHERD, Circuit Judges.

SHEPHERD, Circuit Judge.

A rural Nebraska community seeks federal review of its multi-million dollar claims against a Colorado corporation. A United States District Court in Nebraska determined that it lacked jurisdiction over the claims and issued a final judgment¹ ordering the parties to proceed to arbitration in Colorado. With jurisdiction under 28 U.S.C. § 1291, we reverse and remand for further proceedings.

I.

The City of Benkelman is a community of less than one thousand residents located in Dundy County, Nebraska. In 2005, the state health and human services department ordered the City to address the excessive amounts of uranium, arsenic, and other contaminants in the City's drinking water supply. The City subsequently contracted with Baseline Engineering Corporation, a Colorado organization, to assist with the permitting, design, and construction of a water treatment plant for the City. The City obtained partial funding for the project from the United States Department of Agriculture–Rural Development ("USDA-RD").

The project began in July 2009 and the plant was operating by May 2012. In June 2012, however, laboratory tests of treated water samples showed that the uranium levels still did not comply with federal drinking water standards. Around five months later, the state denied final approval of the plant for failure to effectively treat the City's water supply.

The City sued Baseline² in federal court in Nebraska, alleging breach of contract, negligence and professional malpractice, fraud, and negligent misrepresentation. Seeking damages in excess of $5.5 million, the complaint averred that Baseline failed to properly design the treatment plant, misrepresented itself as a water engineering expert, and gave false information about how to bring the City's water supply into compliance with state and federal laws.

Baseline moved to dismiss the complaint. Citing generally Federal Rule of Civil Procedure 12(b), Baseline argued that the district court lacked jurisdiction due to a dispute resolution provision in a contract that both parties signed on or about July 21, 2009 (the "July 2009 Contract"). Under the July 2009 Contract, if the parties cannot resolve a dispute through a "a face-to-face meeting," the dispute must be "submitted to binding arbitration ... conducted at a suitable location within 15 miles of [Baseline's] then existing principal office. The arbitration shall be completed pursuant to the Uniform Arbitration Act, C.R.S. § 13-22-201, et seq. , and governed by the provisions of the Colorado Rules of Civil Procedure, before a single arbiter." The July 2009 Contract further provides that, if the parties waive arbitration or if the arbitration provision is invalidated or does not apply, "venue for any court proceeding will be the District Court for Jefferson County, State of Colorado."³

The City opposed Baseline's motion, arguing that the July 2009 Contract does not control because it was superseded by a second contract that the parties signed on or slightly before August 27, 2009⁴ (the "August EJCDC Agreement"). The August EJCDC Agreement, comprised of thirteen pages and ten exhibits, is a standard form contract prepared by the Engineers Joint Contract Documents Committee (the "EJCDC"). The City claims that, because the treatment plant was funded in part by USDA-RD, the parties were required to execute the EJCDC agreement and have it approved by USDA-RD. Indeed, in a letter dated August 28, 2009, Baseline submitted the parties' signed August EJCDC Agreement to the USDA-RD, and the Agreement was approved on October 5, 2009. Because paragraph 6.01K of the August EJCDC Agreement states that "[a]ll [c]ontract [d]ocuments ... shall be subject to [a]gency concurrence," the City argues that the July 2009 Contract (which was not sent to USDA-RD for approval) simply memorialized the parties' initial agreement but was later replaced as the governing document by the agency-approved August EJCDC Agreement.

The August EJCDC Agreement has its own arbitration provision, although the provision is not mandatory and is triggered only if a dispute survives the parties' good faith negotiation and mediation. In such an event the August EJCDC Agreement states that "either party may seek to have the [d]ispute resolved by a court of competent jurisdiction." Alternatively, if less than $200,000 is in controversy, the dispute may be resolved by a method mutually agreed upon by the parties, "including but not limited to arbitration."

In addition to conflicting arbitration and forum selection clauses, the July and August contracts contain the following terms relevant to Baseline's motion to dismiss:

(1) Incorporation by reference. Though the August EJCDC Agreement was signed around a month after the July 2009 Contract, it is twice incorporated by reference as "Exhibit B" to the July 2009 Contract. First, page 1 of the July 2009 Contract contains a box titled "Job Description" followed by an instruction to "[s]ee Exhibit B hereto—for accompanying EJCDC agreement." Second, a provision on page 3 titled "Entire Contract" states, "Exhibits A and B hereto are incorporated into this Agreement as fully set forth herein."

(2) Choice-of-law. The July 2009 Contract contains a choice-of-law provision stating that the parties' agreement "shall be governed by the laws of the State of Colorado." Under the August EJCDC Agreement, however, "the law of the state in which the Project is located"—Nebraska—controls.

(3) Merger clauses. Each contract purports to represent the entire agreement between the parties and to trump any prior or inconsistent agreements. The July 2009 Contract states:

This Agreement and the documents set forth in Exhibits A and B hereto shall supersede any other contract between [the City] and [Baseline], relating to the subject matter thereof. This is a fully integrated Contract. Any previous statements, representations, agreements, negotiations or discussions are null and void, and are fully merged herein. In case of a conflict or inconsistency between this Agreement and any other contract documents, this Agreement shall control. [Baseline] makes no promises or agreements written or oral except for the provisions herein set forth.

The August EJCDC Agreement likewise states:

This Agreement (consisting of pages 1 to 13, inclusive, together with the exhibits identified above) constitutes the entire agreement between [the City] and [Baseline] for the Project and supersedes all prior written or oral understandings.

In considering Baseline's motion to dismiss, the district court first determined that, although the motion cited only generally Rule 12(b), it should be construed as a Rule 12(b)(1) motion to dismiss for lack of jurisdiction. The court looked beyond the motion's caption to its content, which argued that the court "lacks jurisdiction" and that "this [c]ourt's jurisdiction is limited to enforcing the valid and enforceable forum selection clause in the [c]ontract." (internal quotation marks omitted).

Next, applying Rule 12(b)(1), the court characterized the motion as a factual challenge to subject matter jurisdiction (as opposed to a facial challenge) because Baseline accompanied the motion with exhibits that offered factual information not appearing in the City's complaint. See Branson Label, Inc. v. City of Branson , 793 F.3d 910, 914-15 (8th Cir. 2015) (discussing the difference in factual and facial challenges to subject matter jurisdiction). This led the court to decide that, as the nonmoving party in a Rule 12(b)(1) factual challenge, the City (1) has "the burden of proof that jurisdiction does in fact exist," and (2) is afforded "no presumptive truthfulness" with respect to its allegations. See Osborn v. United States , 918 F.2d 724, 730 (8th Cir. 1990) (internal quotation marks omitted).

The district court then considered which contract governs the parties' dispute. Applying state-law principles of contract interpretation, the court concluded that "[t]he contracts in this case must be construed as one because they involve the same parties and same transaction, and because the July 2009 Contract expressly states that it incorporates the EJCDC Agreement into it as ‘Exhibit B.’ " The court noted, however, that construing the two documents as one contract brings to light the inconsistencies between the various provisions. Citing Colorado and Nebraska law,⁵ the court concluded that (1) the inconsistent provisions render the contract ambiguous and (2) extrinsic evidence may therefore be considered in order to discern the parties' intent.

The only extrinsic evidence was presented for the first time with Baseline's reply brief supporting the motion to dismiss. The affidavit of Baseline President John McLain and attachment revealed that in June 2011—two years into the project—the parties executed three orders expanding their initial agreement to include additional engineering services (the "2011 Change Orders"). Each order (1) specifically references and quotes the "Additional Work" clause set forth in the July 2009 Contract and (2) states that "[a]ll [a]dditional [w]ork will be performed under and considered an extension of the above mentioned Agreement." The district court held that the 2011 Change Orders are extrinsic evidence indicating that the parties intended "that the July 2009...