Little Susitna Const. Co. v. Soil Processing, Inc.

• Decision Date: 01 August 1997
• Docket Number: No. S-7451,S-7451
• Citation: 944 P.2d 20
• Parties: LITTLE SUSITNA CONSTRUCTION COMPANY, INC., Appellant, v. SOIL PROCESSING, INC., Appellee.
• Court: Alaska Supreme Court

Page 20

944 P.2d 20

LITTLE SUSITNA CONSTRUCTION COMPANY, INC., Appellant, v. SOIL PROCESSING, INC., Appellee.

No. S-7451.

Supreme Court of Alaska.

Aug. 1, 1997.

Roger E. Holl, Anchorage, for Appellant.

M. Gregory Oczkus, Anchorage, for Appellee.

Before COMPTON, C.J., and MATTHEWS, EASTAUGH, FABE and BRYNER, JJ.

OPINION

BRYNER, Justice.

This appeal arises from a dispute centering on a "turn-key" provision in an equipment lease.

I. FACTS AND PROCEEDINGS BELOW

In September of 1992, Little Susitna Construction Company, Inc. (LSC) negotiated with the United States Army Corps of Engineers and the Small Business Administration (SBA) for the award of a contract to remediate fuel-contaminated soil at Fort Richardson. On September 4, 1992, in contemplation of being awarded the contract, LSC entered into a "turn-key" lease agreement with Soil Processing, Inc. (SPI).

The agreement called for SPI to provide LSC with thermal soil-remediation equipment on-site at Fort Richardson "at the turn key price of $44.00 per ton" of soil processed. SPI was also to receive $5,500.00 for mobilizing its equipment and an equal sum for demobilizing. In addition, the agreement provided that LSC would pay SPI $3,000.00 for each day of stopped production. ¹

LSC originally planned to begin processing soil in mid-October and to complete the project in the first week of December. On September 28, 1992, the Corps of Engineers and SBA formally awarded LSC the Fort Richardson contract. On October 5, LSC notified SPI to proceed with mobilization. SPI had its equipment on-site by October 15.

Before actually getting underway, however, the project encountered significant delay. LSC did not begin remediating soil until the first week of January 1993. This delay forced operations to be carried out in adverse conditions. Freezing weather led to numerous equipment breakdowns and reduced the productivity of the workforce; the soil became much more difficult to process when frozen. Repairs and a five-month extension in the period of operation significantly increased LSC's costs on the project.

As a result, LSC withheld payments from SPI. LSC claimed that SPI was responsible for the delays, repairs, and all related costs. LSC also claimed that SPI failed to provide equipment and services it had contracted to supply. LSC eventually received contract payments of $681,647.99 but paid SPI nothing.

SPI sued LSC for breach of contract, seeking damages of $189,692.92 under the terms of the lease agreement. LSC counterclaimed for negligence and breach of contract, seeking damages of $312,843.00. The case came to trial before a jury in Anchorage. Upon conclusion of the evidence, the trial court entered a directed verdict for SPI on its equipment lease claim, determining that, at the contract rate of $44.00 per ton of soil processed, SPI was due $178,200. The court submitted all remaining issues to the jury. The jury returned a special verdict finding in SPI's favor and rejecting all but a minor portion of LSC's counterclaim. The trial court entered judgment for SPI in the principal amount of $176,133, to which it added pre-judgment interest of $47,275 and attorney's fees of $24,840.81. LSC appealed.

II. DISCUSSION

A. Meaning of Agreement's "Turn-Key" Provision

On appeal, LSC focuses initially on the "turn-key" provision of the September 4, 1992, lease agreement.

At trial, LSC requested a jury instruction defining the term "turn-key" to require SPI to assume all risks arising from weather-related and other job-site problems. The trial court declined to define turn-key, instead leaving the jury to decide the term's meaning:

In order to find for [LSC] on this claim, you must find that it is more likely than not that both parties understood and intended, or reasonably should have understood and intended, that "turn key" as used in this lease meant that SPI would pay for all damages to [LSC] resulting from weather or other problems on the job.

The jury's special verdict concluded that SPI did not breach its contract by failing to pay for labor costs incurred by LSC as a result of job-site equipment problems.

LSC challenges the trial court's failure to define turn-key, arguing that "turn-key is a legal term of art and a legal term with legal meaning." In LSC's view, " 'a turn-key job' is any job or contract in which a contractor agrees to complete the work to a specified point and to assume all risks." LSC maintains that by agreeing to furnish thermal remediation equipment to LSC "at the turn key price of $44.00 per ton," SPI bound itself as a matter of law to absorb all added costs resulting from equipment breakdowns or freezing weather throughout the course of the soil remediation project. LSC insists that the trial court should have determined that this is what turn-key meant, that the court should have instructed the jury accordingly, and that there was no evidence to support the jury's verdict declining to find a turn-key breach.

Interpreting a written contract is generally a task for the trial court; however, interpretation becomes a task for the trier of fact when the parties present extrinsic evidence to clarify a contract's meaning, when this evidence points toward conflicting interpretations of the contract, and when the contract itself is reasonably susceptible of either meaning. Alaska Diversified Contrs., Inc. v. Lower Kuskokwim Sch. Dist., 778 P.2d 581, 584 (Alaska 1989); Restatement (Second) of Contracts § 212(2). In such cases, the trial court initially determines whether the extrinsic evidence meets the criteria to create a jury question; when the court finds that the extrinsic evidence does not conflict or is incompatible with the terms of the written contract, interpretation remains a question of law for the court's determination. Alaska Diversified, 778 P.2d at 584; Alaska N. Dev., Inc. v. Alyeska Pipeline Serv. Co., 666 P.2d 33, 39 (Alaska 1983).

This court exercises its independent judgment when reviewing a trial court's decision to leave interpretation of a contract to the jury. Cf. Alyeska Pipeline Serv. Co. v. O'Kelley, 645 P.2d 767, 771 (Alaska 1982). In contrast, we give deferential review to the jury's verdict interpreting the contract: we do not reweigh the evidence but ask only whether it creates room for diversity of opinion among reasonable people. Municipality of Anchorage v. Baugh Constr. & Eng'g. Co., 722 P.2d 919, 927 (Alaska 1986). We must affirm the verdict unless the evidence to support it is completely lacking or so slight and unconvincing as to make it manifestly unreasonable and unjust. United Bonding Ins. Co. v. Castle, 444 P.2d 454, 455 (Alaska 1968).

We first consider whether the evidence at trial pointed toward conflicting interpretations of the lease agreement's turn-key provision. The President of SPI testified that the turn-key provision meant nothing more than, "I supply the equipment, they turn the key on and it starts." SPI also presented evidence that, after the project was already underway, LSC sought a contract modification imposing all risks of operation on SPI; LSC's actions implied that the original contract did not impose these risks on SPI. LSC, on the other hand, claimed that it included the turn-key provision in the lease agreement for the express purpose of ensuring that SPI would bear all risks of operation. LSC claimed that the originally proposed price of the contract had been increased as a result of its insistence on adding the turn-key provision. ² This evidence unquestionably presented conflicting interpretations of the lease agreement's turn-key provision.

We next consider whether SPI's proposed interpretation of the turn-key provision is necessarily inconsistent with the express terms of the lease agreement. ³ LSC contends that SPI's proposed interpretation of "turn-key" is incompatible with the accepted legal definition of the term. To support this contention, LSC relies on case law and Black's Law Dictionary. However, the cases LSC relies on all deal with either building contracts or oil drilling contracts. ⁴ Likewise, while Black's Law Dictionary does define a turn-key contract as one requiring "all risks to be assumed by [the] contractor," Black's does not purport to define this term generally, but only as "used in [the] building trade" and "[i]n [the] oil drilling industry." ⁵ Neither the case law nor the dictionary attaches a fixed meaning to "turn-key" when the term is used in other types of contracts.

LSC has thus failed to establish that turn-key has any settled legal meaning in the context of an equipment lease agreement. Use of the term in this unfamiliar setting almost inevitably generates uncertainty as to its intended meaning.

Notably, even as commonly applied in oil drilling and construction contracts, the term could arguably support allocating all operational risks to LSC. In the oil industry, for example, the turn-key driller bears all responsibility for difficulties encountered while drilling a well (but is not responsible for problems that arise after the well's delivery to the owner); in fact, the driller does not even guarantee a producing well. Totah Drilling Co. v. Abraham, 64 N.M. 380, 328 P.2d 1083, 1091 (1958). This allocation of risk would seemingly favor SPI's argument that it only bargained to furnish a functioning soil decontamination machine, with LSC to bear all risks during operation.

Moreover, courts encountering turn-key provisions in novel contexts have not hesitated to look beyond the definition typically applied to the term in construction and oil drilling cases. For example, in explaining its willingness to go beyond the term's usual meaning, the court in Smithco Eng'g., Inc. v. International Fabricators, Inc., 775 P.2d 1011 (Wyo.1989), quoting Justice Holmes, stated:

"A word is not a crystal, transparent, and unchanged, it is the skin of a living thought and may vary greatly in color and content according to the circumstances and...