Meadow Valley Contractors, Inc. v. State Dep't of Transp.

• Decision Date: 19 September 2011
• Docket Number: No. 20090025.,20090025.
• Citation: 686 Utah Adv. Rep. 32,2011 UT 35,266 P.3d 671
• Parties: MEADOW VALLEY CONTRACTORS, INC., Plaintiff, Appellee and Cross–Appellant, v. STATE of Utah DEPARTMENT OF TRANSPORTATION, Defendant, Appellant and Cross–Appellee.
• Court: Utah Supreme Court

2011 UT 35

266 P.3d 671

686 Utah Adv. Rep. 32

MEADOW VALLEY CONTRACTORS, INC., Plaintiff, Appellee and Cross–Appellant,

v.STATE of Utah DEPARTMENT OF TRANSPORTATION, Defendant, Appellant and Cross–Appellee.

No. 20090025.

Supreme Court of Utah.

July 12, 2011.Rehearing Denied Sept. 19, 2011.

Kent B. Scott, Justin E. Scott, Cody W. Wilson, Salt Lake City, for plaintiff.

Mark L. Shurtleff, Att'y Gen., Randy S. Hunter, Asst. Att'y Gen., Dan R. Larsen, Troy L. Booher, Salt Lake City, for defendant.

Justice NEHRING, opinion of the Court:

INTRODUCTION

¶ 1 This appeal comes to us following a bench trial in a breach of contract action. The trial court concluded that the Utah Department of Transportation (UDOT) breached its contract with Meadow Valley Contractors (MVC) when UDOT's project engineer told MVC and its subcontractor, Southwest Asphalt Paving (Southwest), that they could not use “ribbon paving” on portions of an Interstate 215 freeway construction project (the I–215 Project). The trial court reasoned that the contract permitted ribbon paving, that MVC suffered damages from not being able to use ribbon paving, and that UDOT had actual notice that the damages would accrue. UDOT appeals this decision. Because we conclude that the contract allowed UDOT to significantly alter the I–215 Project, we hold that UDOT did not breach its contract with MVC. And because MVC did not give UDOT timely written notice of the alleged ribbon-paving change as required by the contract, we hold that MVC waived any right to additional compensation arising from the ribbon-paving change. We therefore reverse the decision of the trial court.

¶ 2 The trial court also denied MVC's claim that UDOT had erroneously imposed a paving-thickness penalty. MVC cross-appeals this decision. Because there is sufficient evidence to support the trial court's conclusion that UDOT's interpretation of the contract was more reasonable than MVC's interpretation, we affirm the trial court's decision.

BACKGROUND

¶ 3 UDOT contracted with MVC to serve as the general contractor for a highway construction project on I–215. MVC subcontracted the paving work to Southwest. Southwest bid the job based on its belief that the general contract permitted “ribbon paving,” the most cost-effective and widely used method of paving.

¶ 4 At a pre-pave meeting in June 2003, UDOT's project engineer, Brandon Squire, informed MVC and Southwest that ribbon paving would not be permitted in areas where it would result in a greater-than-two-inch vertical grade separation between traffic lanes because the contract's paving specifications did not allow traffic to traverse a vertical grade separation greater than two inches. In response, Southwest's project manager, David Olson, informed Mr. Squire that Southwest could mitigate the greater-than-two-inch vertical grade separation by using a 5:1 or flatter taper on the vertical edges between traffic lanes, a practice that Southwest had successfully performed on other projects and that Mr. Olson claimed was permitted by the contract. Mr. Squire rejected this suggestion, believing that Southwest would be unable to achieve adequate compaction with anything flatter than a 3:1 slope. Mr. Olson then verbally informed Mr. Squire that a ban on ribbon paving would result in increased costs, production inefficiencies, and scheduling problems. Presented with this information, Mr. Squire reiterated his position that the contract did not allow ribbon paving where it would result in a greater-than-two-inch vertical grade separation.

¶ 5 The general contract contained provisions designed to resolve such “alleged changes to the [c]ontract.” Under Section 1.7 of the contract, MVC was instructed to “ not perform further work or incur further contract item expense[s] relating to the claimed change.” MVC was also required to notify Mr. Squire of the “alleged changes to the [c]ontract ... in writing within 5 calendar days of the date the change or action was noted.” Section 1.7 stated that “ [t]he failure to provide required notice ... constitutes a waiver of any and all claims that may arise as a result of the alleged change.” Despite these clearly worded contractual provisions, neither MVC nor Southwest stopped working or gave Mr. Squire written notice of the alleged ribbon-paving change.

¶ 6 Approximately three weeks later, at another pre-pave meeting, the ribbon-paving issue reared its head again. This time, Ken Schmidt, Southwest's project superintendent, verbally informed Mr. Squire that not permitting ribbon paving would negatively affect Southwest's production output and scheduling. Mr. Squire simply reiterated his position that ribbon paving was not allowed where it would result in a greater-than-two-inch vertical grade separation. Again, neither MVC nor Southwest provided UDOT with written notice of the “alleged change” as required by the contract.

¶ 7 Over the next two months, various Southwest representatives verbally informed Mr. Squire and other UDOT personnel that not being allowed to use ribbon paving was adversely affecting Southwest's work. As before, Mr. Squire simply responded that the contract did not permit ribbon paving and directed Southwest to continue paving using another method. Having been expressly forbidden to utilize ribbon paving, Southwest turned to a more expensive method of paving known as “block paving” on a significant portion of the I–215 Project.¹

¶ 8 The contract also contained provisions that governed the thickness of the pavement. The contract required UDOT to accept the thickness of the pavement if “[t]he average thickness of all sublots is not more than 1/2 inch greater nor 1/4 inch less than the total thickness specified” and “[n]o individual sublot shows a deficient thickness of more than 3/8 inch.” The parties agreed that the pavement would be five inches thick and would be laid in two lifts, or applications, on two days: the first lift was to be three inches thick, and the second lift, two inches thick. After most of the paving was complete, UDOT informed MVC and Southwest that several areas had a deviation of more than 3/8 inches as to the total five inches of pavement laid and assessed MVC a $166,416 thickness penalty. MVC contested the penalty; it argued that the contract permitted a 3/8–inch thickness deficiency on each of the two layers laid, not just the total five inches of pavement. UDOT refused to withdraw the paving-thickness penalty.

¶ 9 These two conflicts led MVC to file a formal claim against UDOT. MVC alleged that (1) it incurred costs not contemplated by the contract as a result of UDOT's prohibition on ribbon paving and (2) the thickness penalty assessed by UDOT was unwarranted. The UDOT Claims Board of Review ² unanimously recommended that MVC's claims be denied. As recommended, UDOT's deputy director denied MVC's claims.

¶ 10 When UDOT denied MVC's claims, MVC passed the losses along to Southwest because its subcontract only obligated MVC to give Southwest payments that MVC received from UDOT. Southwest, however, could not sue UDOT directly because Southwest did not have privity of contract with UDOT. So rather than having Southwest sue MVC, and then MVC sue UDOT, Southwest and MVC entered into a “Claims Prosecution and Tolling Agreement” whereby MVC assigned and granted to Southwest the right to prosecute MVC's claims against UDOT in MVC's name. In exchange for the assignment, Southwest agreed that MVC would not be liable to Southwest on any of the paving claims.

¶ 11 Southwest then filed a complaint in district court in MVC's name that alleged UDOT breached its contract with MVC when UDOT (1) prohibited ribbon paving and (2) assessed the $166,416 pavement-thickness penalty. A bench trial ensued. As to the ribbon-paving claim, the trial court held that UDOT breached its contract with MVC when UDOT directed MVC and Southwest to not use ribbon paving on the I–215 Project. The court reasoned that the contract allowed ribbon paving on the entire I–215 Project and that Mr. Squire's misinterpretation of the contract “interfered with the methods and means by which the asphalt paving should have been allowed.” In the alternative, the trial court ruled that even though MVC did not strictly comply with the contract's notice provisions, it was nonetheless entitled to additional compensation because (1) UDOT had actual notice that a ban on ribbon paving would result in additional costs and other problems, (2) UDOT and MVC orally modified the contract's notice provisions, and (3) UDOT waived and was estopped from asserting that MVC and Southwest must strictly comply with the contract's notification provisions. Accordingly, the trial court awarded MVC $548,832.52 in damages and $225,247.06 in prejudgment interest. UDOT appeals this ruling.

¶ 12 In addition, the trial court denied MVC's paving-thickness claim. The trial court held that UDOT's position that the 3/8–inch deviation applied to the total five inches of pavement, rather than each individual layer of pavement, was “the more reasonable interpretation as otherwise the potential total deviation in thickness could be multiplied by the number of layers or lifts that could result in a substantial deviation from the contract requirements.” MVC cross-appeals this ruling. We have jurisdiction under Utah Code section 78A–3–102(3)(j) (Supp.2010).

STANDARD OF REVIEW

¶ 13 “The interpretation of a contract is a question of law, which we review for correctness, giving no deference to the ruling of the district court.” ³ “[W]hether the [district] court employed the proper standard of [contractual] waiver presents a legal question which is reviewed for correctness, but the actions or events allegedly supporting waiver are factual in nature and should be reviewed as factual determinations, to which we give a district court deference.” ⁴ Similarly, “equitable estoppel is a mixed question of fact and law. Consequently, we review questions of fact...