Morrison Knudsen Corp. v. Fireman's Fund Ins. Co.

• Decision Date: 11 May 1999
• Docket Number: Nos. 97-1095,97-1247,MK-F,s. 97-1095
• Parties: MORRISON KNUDSEN CORPORATION, dbaerguson Company, an Ohio corporation, Plaintiff-Counter-Defendant- Appellant/Cross-Appellee, v. FIREMAN'S FUND INSURANCE COMPANY, a California corporation, Defendant-Appellee, and Ground Improvement Techniques, Inc., a Florida corporation, Defendant-Counter-Claimant-Appellee/Cross-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1221

175 F.3d 1221

MORRISON KNUDSEN CORPORATION, dba MK-Ferguson Company, an Ohio corporation, Plaintiff-Counter-Defendant- Appellant/Cross-Appellee, v. FIREMAN'S FUND INSURANCE COMPANY, a California corporation,

Defendant-Appellee,

and

Ground Improvement Techniques, Inc., a Florida corporation,

Defendant-Counter-Claimant-Appellee/Cross-Appellant.

Nos. 97-1095, 97-1247.

United States Court of Appeals, Tenth Circuit.

May 11, 1999.

Daniel R. Frost, of Fairfield and Woods, P.C., Denver, Colorado, (Neil T. Duggan and Brian D. Wallace, of Fairfield and Woods, P.C., with him on the brief) for Appellant/Cross-Appellee.

Frederick Huff, Law Offices of Frederick Huff, Denver, Colorado, for Appellee, Fireman's Fund Insurance Company.

Steven Roger Schooley, of Holland & Knight, LLP, Orlando, Florida, for Appellee-Cross-Appellant, Ground Improvement Techniques, Inc.

Before SEYMOUR, Chief Judge, LUCERO, and MURPHY, Circuit Judges.

MURPHY, Circuit Judge.

Morrison-Knudsen Corporation (MK), a federal contractor, terminated its subcontractor, Ground Improvement Techniques (GIT), for an alleged default, and sued GIT for damages. ¹ GIT counterclaimed for wrongful termination. GIT's claimed damages included payment for completed work under the subcontract, equitable adjustments to the subcontract price for increased costs caused by MK, damages claimed by lower-tier subcontractors, and attorney's fees. MK unsuccessfully moved for judgment as a matter of law, claiming insufficiencies in GIT's evidence of damages and of MK's liability. A jury found the termination wrongful and awarded GIT roughly half the damages claimed.

On appeal, this court rejects MK's challenge to the liability verdict but reverses the damage award. GIT's evidence of several of its categories of damages was insufficient, and its claims on behalf of its lower-tier subcontractors were premature, as GIT had not yet itself settled with all of its subcontractors. Because the jury returned a general verdict, this court cannot determine whether any parts of the jury's award were for allowable categories of damages supported by sufficient evidence. We thus vacate the judgment and remand for a new trial limited to the issue of damages.

I. FACTUAL AND PROCEDURAL BACKGROUND

The United States Department of Energy hired MK in 1983 to manage its Uranium Mill Tailing Remedial Action (UMTRA) project, a cleanup of radioactive mill tailings at sites around the country. MK subcontracted with GIT in March 1995 to clean up the Slick Rock, Colorado, site. GIT hired several lower-tier subcontractors ("subs"), including R.N. Robinson & Son, for excavation; Bogue Construction, for trucks; Keers Environmental, for asbestos abatement; and GA Western, for bridge work.

The MK-GIT Subcontract ("the contract") obligated GIT to complete the project by December 1996. The contract price was roughly $9.3 million. The contract incorporated almost verbatim several standard federal clauses for fixed-price construction contracts, including clauses governing terminations for default and convenience. It also incorporated by reference the federal regulations governing the compensability of contractors' costs in the event of a termination for convenience. The contract provided that the law applicable to government procurement would govern all substantive issues in any litigation.

The project did not go well. GIT and its subs encountered delays, difficulties, and increased costs. GIT attributed these to MK's defective specifications, failure to timely secure permits, rigid interpretation of specifications and safety requirements, and propensity to reject proposed work plans. During the contract's performance, GIT requested extra compensation and extensions of time because of delays to, changes in, and increased costs of the work which GIT attributed to MK. GIT's central theory is that its plan to complete the project before the deadline displeased MK, who could not then earn the maximum possible fees from DOE. MK, in GIT's view, thus sought to hinder and delay the work. MK, on the other hand, attributed the delays and increased costs to errors, omissions, and delinquencies by GIT and its subs.

In September 1995 MK terminated GIT for default. The contract allowed MK to do so if GIT was not prosecuting the work with a diligence that would ensure its timely completion. MK simultaneously sued GIT for damages caused by its alleged default. While requiring GIT to cease work and vacate the site, MK also directed it to perform certain cleanup work and leave certain equipment behind. MK allegedly retained and used that equipment during the ensuing litigation. After the termination, MK denied almost all of GIT's requests for change orders to increase its compensation under the contract. MK also failed to pay GIT for various parts of the completed work and for the post-termination work and retention of equipment.

GIT protested the termination and urged MK to let it complete the project or bid on the reprocurement of the work. MK ignored these requests. In February 1996 GIT counterclaimed for wrongful termination, seeking damages in the form of payment for completed work under the contract and compensation for additional costs occasioned by MK and not contemplated by the contract.

Contemporaneously, the subs were demanding payment from GIT. After Keers filed suit, GIT settled its claims. At the time of the GIT-MK trial, however, GIT was still involved in litigation with Robinson and had not settled with or paid Bogue or GA Western. In its counterclaim, GIT also sought damages on behalf of the subs.

The district court eventually set trial for November 1996. In October 1996 GIT supplemented its pretrial damages disclosure, increasing the amount claimed from roughly $8.4 to $11.4 million and increasing the number of categories of damages. MK repeatedly but unsuccessfully challenged the supplementation, arguing that GIT had changed its damage theory just weeks before trial and was using previously undisclosed documentation.

Twelve days before trial, the court assigned the case to a new judge. That judge presided over a three-week trial, which focused on whether MK's termination of GIT had been wrongful. GIT presented one witness, its secretary/treasurer, Kip Cooper, to explain its damage exhibits and claims.

Before the court submitted the case to the jury, MK filed several motions for judgment as a matter of law under Federal Rule of Civil Procedure 50(a). MK made several challenges to GIT's damage evidence. It argued, inter alia, that GIT had not presented evidence of the types of damages allowed by the contract, or of causation, or of its attorney's fees. The court denied MK's motions. MK also argued in a jury-instruction conference that the contract barred GIT from recovering on behalf of subs whose claims GIT had not settled and paid. The court rejected MK's proposed jury instruction to that effect.

The jury found the termination wrongful and awarded GIT $5.6 million. MK then renewed most of its motions for judgment as a matter of law under Rule 50(b), and the court denied them again.

II. DISCUSSION

A. GIT's Alleged Discovery Violation

MK argues that GIT's supplemental damage disclosure was subject to mandatory exclusion under Federal Rule of Civil Procedure 37(c)(1). ² On appeal, MK makes three arguments based on this alleged discovery violation. Most broadly, MK asserts that GIT's untimely change in damage theory so prejudiced MK's ability to conduct the trial as to require a new trial on all issues. MK also argues that the trial court abused its discretion in denying MK's motion to continue the trial to allow it time to respond to GIT's disclosure. Finally, MK argues that the court abused its discretion in not striking GIT's revised damages claim, thereby suggesting a need to remand for a new trial on damages.

MK has not adequately developed its first two arguments, which seek a new trial on all issues based on the prejudice of GIT's disclosure ³ or on the trial court's denial of a continuance. ⁴ As for its third argument, MK has consistently emphasized the prejudice that it suffered in having to assimilate GIT's allegedly new theory and documentation of damages mere weeks before trial. As discussed below, however, this court has determined that it is necessary to vacate the award of damages and remand for a new trial on that issue. This appeal has thus eliminated any time-based prejudice and has essentially mooted any abuse in the court's ruling. ⁵ Cf. Wylie v. Ford Motor Co., 502 F.2d 1292, 1295 (10th Cir.1974) (holding that remand for new trial obviated need to decide whether court had abused discretion in failing to impose discovery sanction). Even if GIT did untimely change its theory or disclose documents, this appeal and remand will have afforded MK ample time to investigate and rebut GIT's damage claims before the retrial.

B. Liability

MK makes but one argument which, if accepted, would require reversal of the liability portion of the judgment. It asserts that the court erred in denying a proposed jury instruction. The proposed instruction specified that, in order to prove a delay "excusable" under the contract, GIT had to show both that something beyond its control delayed part of its work, and that the problem would have delayed completion of the entire project.

1. The Applicable Law and the Instruction Given

The contract's default-termination clause, GP 56, incorporated essentially verbatim the standard federal Default clause for fixed-price construction contracts. See 48 C.F.R. § 52.249-10 (1997). That clause is part of the Federal Acquisition Regulation System (FAR). See 48 C.F.R. pts. 1-99. As incorporated in the contract, the clause allowed MK to terminate GIT if the work had been delayed, not for excusable reasons, but by GIT's lack of diligence:

A. If [GIT] refuses or fails to prosecute the work ... with the diligence that will ensure its completion within...