Nello L. Teer Co. v. Washington Metropolitan Area Transit Authority

• Decision Date: 02 January 1991
• Docket Number: Nos. 89-7274,89-7282,s. 89-7274
• Parties: NELLO L. TEER COMPANY v. WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY, Appellant.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 300

921 F.2d 300

287 U.S.App.D.C. 260

NELLO L. TEER COMPANY v. WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY, Appellant.

Nos. 89-7274, 89-7282.

United States Court of Appeals District of Columbia Circuit.

Argued Oct. 16, 1990.

Decided Dec. 11, 1990.

As Amended Jan. 2, 1991.

Appeal from the United States District Court for the District of Columbia.

Roy T. Englert, Jr., with whom Kenneth S. Geller, Robert L. Polk, Arnold I. Melnick and Thomas B. Dorrier, Washington, D.C. were on the brief, for Washington Metropolitan Area Transit Authority, appellant in 89-7274 and cross-appellee in 89-7282.

Richard G. Mann, Jr., with whom John B. Tieder, Jr. and Robert K. Cox, McLean, Va. were on the brief, for Nello L. Teer Co., appellee in 89-7274, and cross-appellant, in 89-7282.

Before EDWARDS, D.H. GINSBURG and SENTELLE, Circuit Judges.

Opinion for the Court filed by Circuit Judge HARRY T. EDWARDS.

HARRY T. EDWARDS, Circuit Judge:

This appeal raises the issue whether, under the law of the District of Columbia, there can be an implied contractual duty arising under a 1974 construction contract obligating the Washington Metropolitan Area Transit Authority ("WMATA") to avoid unreasonable delays in processing "equitable adjustment" claims, the breach of which would entitle an aggrieved contractor to an award of prejudgment interest. Because this issue raises an unresolved question of local law, and because "[a] federal court ... should normally decline to speculate on such a question of local doctrine," Delahanty v. Hinckley, 845 F.2d 1069, 1070 (D.C.Cir.1988), we hereby certify the question to the District of Columbia Court of Appeals pursuant to section 11-723 of the D.C.Code.

I. BACKGROUND

In accordance with the certification procedures of the District of Columbia, we will set forth the facts relevant to the questions certified and the nature of the controversy in which the questions arose. See D.C.CODE ANN. Sec. 11-723(c) (1981). We recognize that this Background section is somewhat unusual in its length; this is because the antecedent case law, from the District of Columbia and from this court, is both extensive and confused. In the end, however, the certified questions are straightforward.

A. The Nature of the Controversy

WMATA, the appellant in this case, challenges an award of prejudgment interest to the appellee, Nello L. Teer Company ("Teer"), a construction contractor formerly doing business with WMATA; Teer cross-appeals the amount of that award. This action stems from a 1974 contract between WMATA and Teer for construction of the Clarendon Metrorail Station in Arlington, Virginia. The contract contains a standard "Changes" ("equitable adjustment") clause, which provides in part:

If any [contract] change ... [attributable to WMATA] causes an increase or decrease in the Contractor's cost of, or the time required for, the performance of any part of the work under this contract, whether or not changed by any order, an equitable adjustment shall be made and the contract modified in writing accordingly....

On December 1, 1976, Teer submitted a claim for an "equitable adjustment," contending that WMATA's delay in obtaining easements necessary for Teer to perform some of its work had caused Teer to incur more than $8 million in additional costs. On November 16, 1979, WMATA unilaterally adjusted the contract price by $592,814 to compensate Teer for those costs that it found properly attributable to WMATA's delay, but determined that any other additional costs Teer may have incurred were due to its own "inefficient operation" rather than to WMATA's actions. On December 4, 1979, Teer appealed this decision to the Board of Contract Appeals of the Army Corps of Engineers ("Board"). ¹

Nearly seven years later, the Board issued its advisory opinion. See Nello L. Teer Co., 86-3 B.C.A. (CCH) p 19,326 (1986). The Board rejected the majority of Teer's claims, which had grown to more than $12 million. However, finding that the Contracting Officer's unilateral adjustment had underestimated some of Teer's additional costs resulting from WMATA's delays, the Board increased the adjustment by $138,937. Citing the "unusually long" interval between the time Teer filed the administrative appeal and its disposition, the Board also awarded Teer $58,870 in prejudgment interest (which the Board termed "additional profit") on its incremental award, calculated at 6% per annum from the date the appeal was filed until the date of the Board's decision. In recommending prejudgment interest, the Board expressed the view that an equitable adjustment should "reflect the length of time that Teer has had to bear the burden of costs incurred for the Authority's account," and speculated that "a reviewing court would award prejudgment interest under these circumstances." Id at 97,770.

On July 20, 1987, the General Manager of WMATA issued a final decision on Teer's claim, accepting the Board's proposed increment for Teer's increased costs, but rejecting the recommendation of prejudgment interest on that amount. In reaching this decision, the General Manager stated that, as an interstate agency, WMATA was immune from an award of prejudgment interest "unless such interest is specifically provided for by statute or by contract." Finding neither a statutory nor a contractual provision that specifically authorized an award of prejudgment interest in this case, the General Manager rejected the Board's proposal as ill-founded as a matter of law.

Teer sought judicial review of the General Manager's decision in the District Court of the District of Columbia, challenging both the adequacy of the equitable adjustment award and the General Manager's refusal to pay prejudgment interest on the Board's increase to the award. The District Court upheld the adequacy of the award as a whole, a ruling which Teer does not challenge. However, the trial court initially deferred judgment as to whether an equitable adjustment provision in a construction contract is sufficient to waive WMATA's sovereign immunity from an award of prejudgment interest, pending this court's resolution of that issue in General Ry. Signal Co. v. WMATA, 875 F.2d 320 (D.C.Cir.1989) (per curiam) ("GRS II"), cert. denied, --- U.S. ----, 110 S.Ct. 1524, 108 L.Ed.2d 764 (1990). ²

B. The Antecedent Case Law on Prejudgment Interest

On May 12, 1989, a panel of this court issued its decision in GRS II. The court found that an equitable adjustment clause "imports into the contract a doctrine mandating a make-whole remedy that will restore a contractor to the contractor's pre-change circumstances," and declared that an award of prejudgment interest on sums expended by a contractor because of WMATA's changes to a contract was necessary to restore the contractor to its status quo ante. 875 F.2d at 327. Accordingly, the court in GRS II held that WMATA had waived its sovereign immunity from prejudgment interest by including an equitable adjustment clause in its construction contract and upheld a District Court award of such interest. Id.

Only five days later, however, the District of Columbia Court of Appeals held that, as a matter of District contract law, an equitable adjustment clause in a 1968 construction contract did not authorize an award of prejudgment interest against the District. District of Columbia v. C.J. Langenfelder & Son, Inc., 558 A.2d 1155 (D.C.1989). The Court of Appeals emphasized the "fundamental principle" that contract provisions be construed so as to honor the parties' reasonable expectations at the time they executed the contract. Id. at 1159. The court then reviewed pre-1968 case law and Contract Appeals Board decisions interpreting equitable adjustment terms in Government contracts, since contracting parties are presumed to be aware of the customary and common usage of their contract terms. Id. The court concluded that Langenfelder and the District had "executed their contract against a background of judicial and administrative interpretations which held that a contractor could not recover interest for delays in the resolution of contract disputes with the government." Id. ³ The court in Langenfedler therefore found that the parties did not intend their 1968 contract to provide for prejudgment interest as part of a contractor's equitable adjustment. Id.

The Langenfelder court expressly rejected this court's analysis in GRS II. Id. at 1163. The Court of Appeals suggested that the GRS II court, in awarding a contractor prejudgment interest based on 1989 notions of equitable adjustments, had improperly reformed a contract negotiated by the parties years earlier against an entirely different legal background. See id. Langenfelder thus left no doubt that GRS II, as a matter of District law, incorrectly construed the scope of equitable adjustment terms in Government contracts executed in the early 1970s.

Teer claims that GRS II is still controlling precedent in this case--notwithstanding the D.C. Court of Appeals decision in Langenfelder--because the WMATA/Teer contract was executed in 1974, rather than in 1971, when the contract at issue in GRS II was signed. Teer argues that Langenfelder's rejection of GRS II merely indicated the D.C. Court of Appeals' disapproval of this court's interpretation of "equitable adjustment" clauses in 1971 contracts. Between 1971 and 1974, Teer maintains, the meaning of the term "equitable adjustment" had evolved to encompass prejudgment interest. We find this argument unpersuasive.

The rule that prejudgment interest on capital was not available to a Government contractor was apparently alive and well when WMATA and Teer entered into their contract. As the D.C. Court of Appeals observed in Langenfelder:

The [no-interest] rule was so engrained in the law of this jurisdiction that the D.C. Circuit noted that as of 1974, "not a single court or board of contract appeals had allowed recovery of interest foregone on equity capital as a ...