Goodwin v. JACKSONVILLE GAS CORPORATION

• Decision Date: 19 April 1962
• Docket Number: No. 18759.,18759.
• Citation: 302 F.2d 355
• Parties: J. W. GOODWIN et al., Appellants, v. JACKSONVILLE GAS CORPORATION, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

302 F.2d 355 (1962)

J. W. GOODWIN et al., Appellants, v. JACKSONVILLE GAS CORPORATION, Appellee.

No. 18759.

United States Court of Appeals Fifth Circuit.

April 19, 1962.

Delbridge L. Gibbs, Jacksonville, Fla., Lawrence Dumas, Jr., Birmingham, Ala., for appellants.

Elliott Adams, Edward McCarthy, Jacksonville, Fla., McCarthy, Adams & Foote, Jacksonville, Fla., of counsel, for appellee.

Before TUTTLE, Chief Judge, and JONES and WISDOM, Circuit Judges.

JONES, Circuit Judge.

The appellants brought an action against the appellee in the District Court for the Southern District of Florida, basing jurisdiction solely on diversity of citizenship, and claiming $500,000.00 for breach of contract. The appellants are a firm of engineers. The appellee was, at the time of the making of the contract upon which suit was brought, engaged in the production and distribution of manufactured gas for fuel in the City of Jacksonville, Florida. On September 5, 1952, the parties entered into a lengthy written contract for the performance of specified services by the engineers. The agreement required the engineers to make preliminary surveys, studies, investigations, designs, and estimates of costs, and to make recommendations as to the facilities that would be required and the advisability of financing a natural gas pipeline to serve the company's gas distribution system. The engineers undertook by the contract to present engineering data to the Federal Power Commission. It was recited that the purpose of such studies was to determine a feasible method of bringing natural gas to the Jacksonville area. For the preliminary studies and recommendations the engineers were to be paid $25,000.00. This amount was paid and is not involved in the present controversy.

There are two portions of the agreement upon which the engineers base their claims, one of which is called the pipeline portion and the other is referred to as the distribution system portion. The pipeline portion of the agreement provided that when the supply of natural gas had been assured to the Jacksonville area, the engineers would furnish plans, specifications, estimates, proposals, notice to bidders and contract documents, for the construction of a pipeline which the company agreed to construct with diligence and dispatch under the supervision of the engineers who were to be paid a fee of 3% of the estimated cost on delivery of the plans and specifications, and a further fee of 3% of the construction cost for the supervision of the work. In paragraph 7 of the agreement¹ it was provided that if "the proposed plan" called for the formation of a new company or the construction of a pipeline by an existing company, the Jacksonville Gas Corporation would assign the contract to the pipeline company and would make no agreement to buy natural gas from any pipeline company unless it would assume the obligations for the payment of the engineers, with a provision that if the plan proposed by the engineers was not successful, the company could buy natural gas from any pipeline company which would make it available to the Jacksonville area.

The so-called distribution system portion is in paragraph 8 of the agreement,² in which the company agreed that, when a supply of natural gas had been obtained for the Jacksonville area, it would employ the appellants as the engineers for the design and construction of the expansion of the company's distribution system with a proviso that no detailed plans should be prepared unless specifically authorized by the company. The company agreed to pay $25,000.00 on delivery of preliminary plans, and a fee of 3% of the estimated cost on delivery of detailed plans, less the $25,000.00 payable for preliminary plans.

In January of 1953 the engineers submitted to the company an "Engineering Report" of "Various Plans for Bringing Natural Gas" to Jacksonville. Eight plans were included, some of which were only slightly different from one or more of the others. All of these contemplated bringing gas from a pipeline source either north or northwest of Jacksonville. The activities of the engineers became more and centered, as time went by, upon a modification of the number 2 plan for acquiring natural gas from South Georgia Natural Gas Company which had negotiated for a supply of gas from Southern Natural Gas Company. This plan contemplated an extension to Jacksonville of South Georgia's projected pipeline to Ellaville, Florida. This extension, the engineers represented, might be built by South Georgia or by some other company. It was indicated that this project would provide for delivery of gas to the company at city gate of Jacksonville. The Houston Texas Gas and Oil Corporation entered the picture and applied to the Federal Power Commission for a certificate to authorize the bringing of natural gas from Louisiana to Florida. Its plan, ultimately consummated, provided for bringing gas to the Tampa area, Central Florida, and the Lower East Coast of Florida, as well as to Jacksonville. The company became interested in this program as it had been in others. The engineers continued to urge consideration of South Georgia and to discourage consideration of Houston. They referred to a Houston letter as "very cleverly written." They expressed doubts that Houston had a supply of natural gas or customers to use it. A proposed rate quoted by Houston was designated by the engineers as a promotional rate. The engineers commented that Houston was doing its best to make its information look good. The company suggests that the attitudes of the engineers with respect to South Georgia and Houston may have resulted from the fact that J. W. Goodwin, the managing partner of the engineers, owned 10% of the stock of South Georgia with an option to purchase 5% more, was one of its engineers, and had been on its board of directors. We are not required to consider this question.

In 1954 the engineers represented to the company that if South Georgia could get an additional supply of gas, and if it could finance the construction of an extension of its pipeline it would be possible for South Georgia to bring natural gas to Jacksonville by 1956, depending, however, upon cooperation of Southern Natural and other factors which the engineers did not specify. Early in 1956 the company intervened in the proceedings of Houston before the Federal Power Commission. Conferences were held between representatives of the company and representatives of Houston, some of which were attended by one of the engineers. During these and other conferences Houston negotiated for the purchase of the control of the company's stock. The company requested the engineers to revise and bring down to date their preliminary studies with respect to the five areas which had been previously designated. At the company's request one of the engineers testified at the hearing of the Houston application before the Federal Power Commission. On December 28, 1956, the Commission issued its opinion and order granting the certificate. 16 F.P.C. 118. The order was modified on February 21, 1957. 17 F.P. C. 303. The Court of Appeals for the District of Columbia affirmed the Commission. Florida Economic Advisory Council v. Federal Power Commission, 102 U.S.App.D.C. 152, 251 F.2d 643. Certiorari was denied on May 19, 1958. 356 U.S. 959, 78 S.Ct. 996, 2 L.Ed.2d 1066. The securities for the financing by Houston of its pipeline were registered with the Securities and Exchange Commission on August 19, 1958.

In June of 1957 and again in June of 1958, the engineers billed the company for the $25,000.00 for the preliminary plans for the extension of the company's distribution system pursuant to paragraph 8 of the contract. The company rejected these demands on the ground that the payment was not due until a supply of gas was assured. The engineers were reminded, in a letter to them from counsel for the company dated June 9, 1958, of the contract provision that no detailed plans and specifications should be prepared for any area unless specifically authorized by the company. The engineers proceeded to prepare detailed plans and specifications for the extension of the company's distribution system in the five designated areas, and this was done despite the reminder in the letter of the company's counsel and without any advice to or consultation with the company as to the preparation of the detailed plans and specifications. To a considerable extent the 1956 data had not been rechecked or revised. On October 17, 1958, less than two months after a supply of gas had been assured by the registration of Houston's securities, the engineers sent to the company detailed plans and specifications, which were followed on October 20, 1958, by a letter with which the engineers enclosed a bill with one item of $25,000.00 covering the preliminary plans, and another of $133,469.30 representing 3% of the engineers' estimated cost of the extensions as proposed in their plans and specifications, less a credit for the $25,000.00. In the letter the engineers announced, "In the event we do not receive check to cover this invoice on or before Monday November 10, 1958, this is to advise that we intend to instigate legal proceedings to collect the full amount due under this contract, including such damages to which we may be entitled." On January 20, 1959, suit was instigated.

The suit of the engineers is for breach of contract. Federal jurisdiction is based upon diversity of citizenship. A claim was asserted for $25,000.00 in payment for the preliminary plans for an expansion of the company's distribution...