Fiedler v. McKea Corp.

• Decision Date: 13 September 1979
• Docket Number: Nos. 77-1218,77-1219,s. 77-1218
• Parties: William FIEDLER, Plaintiff-Appellee and Cross-Appellant, v. The McKEA CORPORATION, a corporation, and M. E. Karsten, Defendants-Appellants and Cross-Appellees, and Naturita Supply Company, Inc., a corporation, and Robert O. Wenzel, an Individual, Additional Defendants-Appellants and Cross-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 542

605 F.2d 542

William FIEDLER, Plaintiff-Appellee and Cross-Appellant, v. The McKEA CORPORATION, a corporation, and M. E. Karsten Defendants-Appellants and Cross-Appellees and Naturita Supply Company, Inc., a corporation, and Robert O Wenzel, an Individual, Additional Defendants-Appellants and Cross-Appellees.

Nos. 77-1218, 77-1219.

United States Court of Appeals Tenth Circuit.

Submitted Jan. 24, 1979.

Decided Sept. 13, 1979.

Max A. Wilson, Sterling, Colo., for defendants-appellants and cross-appellees.

Jim Neil Harkins, of Holcomb, Holcomb & Harkins, Buffalo, Okl., and Michael C. Stewart, of Cooper, Stewart, Elder & Abowitz, Oklahoma City, Okl., for plaintiff-appellee and cross-appellant.

Before McWILLIAMS, DOYLE and McKAY, Circuit Judges.

McKAY, Circuit Judge.

William Fiedler brought this suit for misrepresentation and breach of contract against the McKea Corporation, Naturita Supply Company, Inc., M. E. Karsten, and Robert O. Wenzel. Fiedler was successful in his suit, and the defendants now appeal.

Robert Wenzel was the owner and manager of Naturita Supply Company, a Farmington, New Mexico, concern engaged in the business of supplying pipe. In addition, Wenzel was the president and principal shareholder of the McKea Corporation, which was originally formed to operate a pipeline in Colorado. According to Fiedler, in December 1974 he was told by Wenzel of some potentially profitable work in Oklahoma. At this time Fiedler was the superintendent for J & B Construction Company, and was working on a pipeline owned by Wenzel. Subsequently Wenzel informed Fiedler that he intended to sell a pipeline in Kansas and Oklahoma "with a deal for (Fiedler) to take it up." Record, vol. 6, at 15.

The intended sale did not materialize. Wenzel then asked Fiedler, who was preparing to enter the pipeline construction business, if he knew of potential buyers. Fiedler supplied the name of one company. During the course of conversations with his friend Lane, who was helping him get his business started, Fiedler referred to the pipeline owned by McKea Corporation, which Wenzel desired to sell. Lane expressed his interest as a potential buyer. Discussions concerning the pipeline took place between Wenzel, Lane, and Fiedler. The three of them conducted inspections of the pipeline in Kansas and Oklahoma.

The pipeline was ultimately sold to M. E. Karsten, one of the defendants. Based on his understanding regarding the nature of the project, Fiedler agreed to remove the pipeline. A contract was executed in which Fiedler promised to remove, straighten, bevel, and stockpile the pipe for twenty-five cents per foot. The contract provided that Karsten and the McKea Corporation were joint venturers, whose responsibilities included paying for all damages sustained by landowners as a result of the project.

Fiedler obtained equipment for the project and began to remove the pipeline in July of 1975. He encountered serious obstacles. Instead of the rather shallow depth he expected, he found that the pipe was much deeper sometimes between six and nine feet, according to his testimony, and as deep as twelve feet, according to the testimony of his foreman. He also found that the line contained oil and other materials. He had expected to find it clear. In addition, Fiedler experienced delays in pipe removal due to resistance by various landowners. Ultimately, Fiedler abandoned his work in February of 1976, having removed 120,540 feet of pipe. ¹

Fiedler brought suit for fraud and breach of contract. He claimed that misrepresentations had been made regarding the depth of the pipeline and whether it contained oil or other substances. He also contended that the contract was breached by defendants' failure to pay damages to landowners who had permitted Fiedler to operate on their lands. He alleged that this failure induced other landowners to resist entry onto their property and resulted in delays.

Following trial, a general jury verdict was returned in Fiedler's favor for actual damages in the amount of $100,000. Judgment was then entered against the defendants.

The defendants raise several arguments on appeal. The first is that the evidence at trial was insufficient to support a verdict of fraud or misrepresentation. In effect, defendants contend that the court should have directed a verdict in their favor on this issue. Defendants argue that reasonable persons could have reached but one conclusion as to the verdict. See Taylor v. National Trailer Convoy, Inc., 433 F.2d 569, 571-72 (10th Cir. 1970). Our review of the record reveals that a directed verdict would have been improper.

Without attempting an exhaustive discussion of the record, we note that the evidence justified inferences of misrepresentation in several respects. Fiedler testified that Wenzel had told him that the pipeline had been purged of material, that it was less than three feet in depth, and that its removal would be easily accomplished. Fiedler's actual job experience demonstrated otherwise, and there was evidence that Wenzel knew at the time of his representations that it would be so. There was testimony that Wenzel had hired individuals to inspect the pipelines. A witness called by defendants testified that Wenzel had informed him that the pipeline reached a depth of six feet in certain places. There was also evidence from which the jury could have concluded that the pipeline inspection expedition, conducted for the benefit of Lane and Fiedler, was fraudulently conducted. Specifically, there was testimony indicating that a length of pipeline "discovered" on this inspection had been temporarily planted in a shallow position to divert attention from the fact that the actual pipeline was considerably deeper. These evidentiary indications of misrepresentation, although not uncontradicted in the record, were sufficient to justify the jury's verdict of fraud.

Defendants make several additional arguments in connection with their claims of insufficient evidence to support a verdict of misrepresentation. The most plausible contentions are that Fiedler had a duty to determine for himself the nature of the pipeline and that Fiedler waived misrepresentation claims by continuing to work on the project once he had ascertained the actual character of the pipeline.

We do not agree that Fiedler had an independent duty to examine the pipeline. Wenzel represented to Fiedler that the pipeline was of a certain nature; the inspection conducted under Wenzel's supervision confirmed those representations. The fact that Fiedler could have conducted an independent investigation does not mean that the law required it of him. See Greene v. Humphrey, 274 P.2d 535, 537-38 (Okl.1954). We do not think it was unreasonable for Fiedler to have relied on representations concerning the pipeline that were confirmed by a guided inspection.

More troublesome is the contention that Fiedler should have been barred from asserting his claims by his continued work in the face of evidence that conditions were other than as represented. Whatever may be the rule when evidence of fraud is discovered at the executory stage of a contract but the obligor nonetheless opts to perform, a party who discovers fraud only After contract performance has begun is entitled to affirm the contract and sue for fraud, absent some expressed intention to waive the fraud. See Woodmont, Inc. v. Daniels, 274 F.2d 132, 139 (10th Cir. 1959), Cert. denied, 362 U.S. 968, 80 S.Ct. 955, 4 L.Ed.2d 900 (1960); Automobile Ins. Co. v. Barnes-Manley Wet Wash Laundry Co., 168 F.2d 381, 384-85 (10th Cir.), Cert. denied, 335 U.S. 859, 69 S.Ct. 132, 93 L.Ed. 406 (1948); Holcomb & Hoke Mfg. Co. v. Jones, 102 Okl. 175, 228 P. 968, 971 (1924); Annot., 13 A.L.R.2d 807, 846-50 (1950). We believe sufficient performance on the contract had been accomplished before fraud was discovered to bring Fiedler within the scope of the latter doctrine. Fiedler aggregated equipment and employees and had begun the work of taking up the pipe before encountering what he clearly would have understood to be evidence of misrepresentation. Such evidence came in piecemeal fashion. When Fiedler complained about the unexpected difficulties he was encountering, he was informed that he would receive additional compensation. In these circumstances, we are unable to agree that, as a matter of law, Fiedler waived the opportunity to sue for fraud.

Defendants next contend that Fiedler is not entitled to recover amounts beyond those provided in the contract due to unexpected difficulties. Reliance is placed on the principle that

(w)here one agrees to do, for a fixed sum, a thing possible to be performed, he will not be excused or become entitled to additional compensation, because unforeseen difficulties are encountered.

United States v. Spearin, 248 U.S. 132, 136, 39 S.Ct. 59, 61, 63 L.Ed. 166 (1918). Defendants contend that Fiedler should have protected himself against unexpected occurrences by inserting appropriate provisions in the contract. In the absence of such provisions, it is urged, Fiedler cannot obtain damages for the difficulties encountered.

We believe the doctrine cited by defendants is inapplicable to the case before us. This is not a simple case of unanticipated inconveniences, the risks of which a contracting party may be found to have assumed. Rather, Fiedler complained of fraud. He alleged that he was induced to enter a contract by Wenzel's misrepresentations, and that Wenzel knew the true state of affairs. In short, Fiedler's theory was that the difficulties he encountered, although unforeseen by him, were Not unforeseen by the defendants. A party does not assume the risk of fraud. Inasmuch as there was sufficient evidence to support the jury's acceptance of Fiedler's theory of fraud, we do not agree that Fiedler can be said to have simply assumed a normal contract risk of unanticipated difficulties.

Defendants next assert that the evidence was...