Dave's Excavating, Inc. v. City of New Castle

• Decision Date: 13 March 2012
• Docket Number: No. 33A04–1104–PL–199.,33A04–1104–PL–199.
• Citation: 959 N.E.2d 369
• Parties: DAVE'S EXCAVATING, INC., and Liberty Mutual Insurance Co., Appellants–Defendants, v. CITY OF NEW CASTLE, Indiana, Appellee–Plaintiff.
• Court: Indiana Appellate Court

959 N.E.2d 369

DAVE'S EXCAVATING, INC., and Liberty Mutual Insurance Co., Appellants–Defendants,

v.CITY OF NEW CASTLE, Indiana, Appellee–Plaintiff.

No. 33A04–1104–PL–199.

Court of Appeals of Indiana.

Jan. 11, 2012.Rehearing Denied March 13, 2012.

Michael L. Einterz, Michael L. Einterz, Jr., Einterz & Einterz, Zionsville, IN, Attorneys for Appellants.

David K. Herzog, Jon Laramore, April E. Sellers, Baker & Daniels LLP, Indianapolis, IN, Attorneys for Appellee.

OPINION

NAJAM, Judge.

STATEMENT OF THE CASE

Liberty Mutual Insurance Company (“Liberty Mutual”) appeals two orders entered by the trial court granting summary judgment in favor of the City of New Castle (“the City”) in its suit against Dave's Excavating, Inc. (“Dave's”) on a construction contract and against Liberty Mutual under a performance bond. Liberty Mutual presents four issues for review, which we restate as:

1. Whether the trial court erred when it granted summary judgment in favor of the City on the issue of Dave's' liability under the construction contract.

2. Whether the trial court erred when it granted summary judgment in favor of the City on the issue of Liberty Mutual's liability under the performance bond.

3. Whether the trial court erred when it granted summary judgment in favor of the City and awarded attorney's fees.

We affirm.

FACTS AND PROCEDURAL HISTORY

On February 9, 2004, the City accepted bids for a sanitation project in the recently annexed McGrew Sanitation Area for a sanitary sewer and watermain extension (“the Project”). The bidders were informed that the engineer's estimated cost was $1,319,279. Dave's was the lowest bidder at $983,737.61. ¹ On March 5, 2004, the City and Dave's executed a construction contract for the Project (“the contract”) ² Liberty Mutual guarantied Dave's performance with its performance bond (“the performance bond” or “the bond”).

After the Project was underway, Dave's requested change orders. In one instance, the City allowed Dave's to use excavated materials as backfill to reduce additional costs arising from the nature of subsurface conditions. Then, on June 17, 2004, Dave's sent a letter to the engineer “declaring ‘Differing Subsurface Conditions' in accordance with Section 4.03 of the General Conditions[.]” Appellant's App. at 140. Dave's also stated that it was “stop[ping] Work until direction has been received by [sic] the Engineer.” Id. Section 4.03 of the General Conditions provides:

4.03 Differing Subsurface or Physical Conditions

A. Notice: If CONTRACTOR [Dave's] believes that any subsurface or physical condition at or contiguous to the Site that is uncovered or revealed either:

1. is of such a nature as to establish that any “technical data” on which CONTRACTOR is entitled to rely as provided in paragraph 4.02 is materially inaccurate; or

2. is of such a nature as to require a change in the Contract Documents; or

3. differs materially from that shown or indicated in the Contract Documents; or

4. is of an unusual nature, and differs materially from conditions ordinarily encountered and generally recognized as inherent in work of the character provided for in the Contract Documents; then CONTRACTOR shall, promptly after becoming aware thereof and before further disturbing the subsurface or physical condition or perform any Work in connection therewith ... notify OWNER and ENGINEER in writing about such condition. CONTRACTOR shall not further disturb such condition or perform any Work in connection therewith ... until receipt of written order to do so.

B. ENGINEER'S Review: After receipt of written notice as required by paragraph 4.03.A, ENGINEER will promptly review the pertinent condition, determine the necessity of OWNER'S obtaining additional exploration or tests with respect thereto, and advise OWNER in writing (with a copy to CONTRACTOR) of ENGINEER'S findings and conclusions.

Appellant's App. at 490. Dave's followed its June 17 letter with another letter on June 22, requesting a contract price increase to $1,807,960.73, an eighty-four percent increase, to complete work under the construction contract due to the alleged differing subsurface conditions at part of the Project site.

The Project's engineer replied by letter dated July 6, informing Dave's that the engineer was reviewing the claim of differing subsurface or physical conditions. The letter also referred Dave's to Article 6, Paragraph 18 of the General Conditions, which provides in relevant part that

CONTRACTOR shall carry on the Work and adhere to the progress schedule during all disputes or disagreements with OWNER. No Work shall be delayed or postponed pending resolution of any disputes or disagreements, except as permitted by paragraph 15.04 or as OWNER and CONTRACTOR may otherwise agree in writing.

Appellant's App. at 503. The engineer's letter stated further that it was “to serve as [Dave's] written notice that in accordance with the Contract Documents, Dave's is not to delay or postpone work on the Project during resolution of [the] claim. Please recommence work immediately.” Id. at 347. Counsel for Dave's replied on July 7 that “it is not possible for the work to be recommenced until the differing condition issue ha[d] been resolved.” Id. at 348. Dave's also stated that the engineer's failure to investigate and propose a change order “renders the City in default of the contract, and allows Dave's Excavating, Inc. the opportunity to rescind the contract, cease work, and avoid any further liability.” Id. at 348.

The engineer replied on July 9, stating in part:

Please be aware that [neither] we nor the City agree with the interpretation of your legal council [sic] that you can refuse to re-commence work on the project on Monday[,] July 12 as previously agreed. There will be no additional tests or other subsurface investigation provided by the Owner as such investigation was otherwise your responsibility if deemed necessary prior to committing to the Contract Price and Time.

... The City has also advised our office to inform you that they [sic] will consider you in breach of this Contract if you are not present and working on the project at 8:00 a.m. local time on July 12, 2004[,] and will be pursuing your bond as well as other available legal remedies that may be appropriate.

Id. at 146 (emphasis added). Dave's completed work on the Project in all areas except those related to the change order requests, but the City and Dave's could not reach an agreement about the change orders based on the differing subsurface conditions claim.

On July 15, the engineer sent notice to Dave's and Liberty Mutual that the City was considering declaring Dave's in default on the construction contract. That letter also requested a meeting within fifteen days in accordance with paragraph 3.1 of the performance bond. On July 19, the City's Board of Works and Safety voted to declare the Project an emergency and to solicit bids from other contractors to complete the Project.³ The City accepted bids in late July and, on July 29, the City held a pre-quotation meeting with four potential bidders (“the completion bidders”). The materials provided to the completion bidders stated that the “existence of sand and gravel is anticipated in the project[,]” Appellant's App. at 788, information that had not been provided in the previous bidding process. The material provided to the completion bidders also included revised estimates that considered the allegedly unexpected conditions Dave's had encountered on the Project, id. at 853–58.

On July 22, Liberty Mutual replied to the engineer's July 15 letter, requesting a meeting between August 3 and August 6, outside of the fifteen-day time limit. The following day the engineer replied, setting the meeting for August 4. At that meeting, the City informed Dave's and Liberty Mutual of its intention to declare Dave's to be in default. On August 9, following a vote by the Board of Works and Safety, the City gave Dave's written notice that it had “declared a Contractor Default and formally terminated [Dave's] right to complete the contract.” Id. at 569.

Also on August 9, the City sent a copy of the termination notice to Liberty Mutual. That correspondence informed Liberty Mutual that the City had declared the Project an emergency, that the City was scheduled to receive bids from completion bidders on August 11, and that the City “demand[ed] that [Liberty Mutual] perform its obligations as required by Paragraph 4 of the [performance b]ond.” Id. at 108. In a letter dated August 10, Liberty Mutual informed the City that it was investigating the City's claim on the performance bond “under a strict reservation of all rights and defenses under the bond and common law [.]” Id. at 210. Liberty Mutual also “call[ed] on [the City] to mitigate [its] damages[.]” Id. The City replied on August 11 stating, among other things, that it “has and will further demand [Liberty Mutual] to [sic] perform its Bond obligations[.]” Id. at 580. Then, on August 31, the City wrote to remind Liberty Mutual that the surety was obligated to act with reasonable promptness and “demand[ed] that the Surety perform its obligations under this Bond[.]” to it. Id. at 588. The City noted that it had received no official correspondence from Liberty Mutual since August 10.

Meanwhile, on August 16, the City's Board of Works and Safety awarded the completion contract to Eagle Valley, Inc. at a contract price of $1,215,000. Eagle Valley immediately began work on the Project and completed the same on December 16, 2004, more than five months ahead of schedule and weeks in advance of the statutory deadline. Eagle Valley completed the work at a rate nearly 100 feet per day faster than Dave's had performed.

On March 25, 2005, the City gave written demand to Liberty Mutual for payment under the performance bond because the City's costs in completing the Project had exceeded the contract price with Dave's. Specifically, the City sought $427,524.54, the...