Paul N. Howard Co. v. Puerto Rico Aqueduct Sewer Authority

• Decision Date: 11 October 1984
• Docket Number: No. 83-1824,83-1824
• Citation: 744 F.2d 880
• Parties: PAUL N. HOWARD COMPANY, Plaintiff, Appellee, v. PUERTO RICO AQUEDUCT SEWER AUTHORITY, Defendant, Appellant, v. INSURANCE COMPANY OF NORTH AMERICA, Third-Party Defendant, Appellee.
• Court: U.S. Court of Appeals — First Circuit

Page 880

744 F.2d 880

PAUL N. HOWARD COMPANY, Plaintiff, Appellee, v. PUERTO RICO AQUEDUCT SEWER AUTHORITY, Defendant, Appellant, v. INSURANCE COMPANY OF NORTH AMERICA, Third-Party Defendant, Appellee.

No. 83-1824.

United States Court of Appeals First Circuit.

Argued May 10, 1984.

Decided Aug. 29, 1984.

Rehearing Denied Oct. 11, 1984.

Paul A. Lenzini, Washington, D.C., with whom Luis Guinot, Jr., William A. Hutchins, Washington, D.C., Hernando A. Rivera and Chapman, Duff & Paul, Hato Rey, P.R., were on brief, for defendant, appellant.

Steven C. Lausell, Hato Rey, P.R., with whom Jimenez & Fuste, Hato Rey, P.R., was on brief, for appellees.

Before COFFIN, BOWNES and BREYER, Circuit Judges.

COFFIN, Circuit Judge.

This dispute arises out of an unsuccessful attempt to lay a 66-inch diameter concrete sewer pipe along a route almost two miles long in Mayaguez, Puerto Rico. The plaintiff, Paul N. Howard Company ("Howard") was hired by the defendant, the Puerto Rico Aqueduct and Sewer Authority ("PRASA"), to construct the pipeline. Howard claims that due to an unexpected site condition it was impossible to build the sewer in compliance with contract specifications. Howard brought this suit seeking partial rescission of the contract and compensation for extra costs incurred as a result of design changes ordered by PRASA after construction began.

The district court for the District of Puerto Rico entered a judgment in favor of Howard in the amount of about $4 million. The district court also awarded Howard attorney's fees "in view of the temerity and obstinacy displayed by [the] defendant".

PRASA appeals, arguing that the district court erred in holding that the terrain at the foot of the embankment of P.R. Highway No. 2 constituted a differing site condition and in holding that it was impossible to lay the sewer along the straight line specified in the contract. PRASA also challenges the district court's award of costs incurred by Howard as a result of PRASA's decision to increase the required load capacity of the sewer's supporting piles and argues that the district court abused its authority in awarding attorney's fees. Finally, PRASA argues that as an instrumentality of the government of Puerto Rico it is immune from a suit for damages in federal court under the Eleventh Amendment. We reject each of these claims and affirm the judgment of the district court.

Differing Site Condition

The original contract called for Howard to lay the sewer line parallel to P.R. Highway No. 2 for a distance of over 500 meters. Howard was expected to dig a ditch about forty feet deep at the toe of the highway embankment, drive piles to support the pipeline, place the pipeline on top of the piles at the bottom of the ditch, and then backfill the ditch with earth, burying the pipeline. It was Howard's obligation under the contract to design and use a sheet piling system which would support the wall of the excavation during construction. Howard did design and use such a system, but shortly after Howard began excavation at the toe of the highway embankment it settled, pushing the sheet piling system into the excavation and causing the highway itself to settle. Howard then backfilled the trench to prevent further damage to the highway, and notified PRASA that it had encountered a "differing site condition" ¹, requiring modification of the contract terms. PRASA ordered Howard to further backfill the excavation to an elevation higher than the surrounding ground level, but disputed Howard's claim that the tendency of the highway embankment to slide constituted a differing site condition.

Both parties retained soil experts to investigate the cause of the settlement of the highway embankment. In their discussions PRASA insisted that the settlement was caused by Howard's use of an inadequate sheet piling system, while Howard argued that given the structure of the highway embankment and the nature of the soil conditions at the site, it would be impossible to lay the pipeline as planned without causing some settlement of the highway and displacement of the pipeline.

After an impasse of more than four months, PRASA and Howard agreed that Howard would make another attempt to lay the pipeline along the highway. This time Howard limited its excavation, removing only enough earth to allow it to install one section of pipe at a time. Howard's soil consultant was at the site and directed a significant portion of this second excavation. Between February 18, 1980 and March 3, 1980, Howard installed nine sections of pipe without experiencing any lateral displacement. Highway settlement was limited to a maximum of 4 1/8" during that period. But after the sheet piling was removed, as required by the contract, the highway settled 15" and the pipeline was displaced laterally. At the time the parties believed that the pipeline was 14" off center. More recent measurements indicate that the lateral displacement did not exceed 7".

PRASA did not consider this deviation from the design specifications acceptable and refused to approve or pay for Howard's work in this area of the project. Howard abandoned the construction site in December, 1980 after having spent more than five months in an unsuccessful attempt to obtain a change order from PRASA. This lawsuit followed.

The district court held in Howard's favor, concluding that it was not possible for Howard to construct the pipeline along the route designated by PRASA in the manner specified in the contract without causing settlement of the highway embankment and displacement of the pipeline. The district court found that the instability of the highway embankment constituted a differing site condition justifying rescission of that part of the contract that required Howard to lay the pipeline along the highway embankment and rejected PRASA's contention that it was the design of Howard's sheet piling system that was responsible for Howard's difficulties. In coming to this conclusion, the district court relied on expert testimony that the tendency of the highway embankment to slide was unusual and unpredictable, and that only by changing the course of the pipeline or leaving the sheet piling in place could lateral displacement of the pipeline be prevented. The court also relied on testimony describing the difficulties another construction company encountered when it attempted to lay this section of the pipeline several years after Howard had abandoned its attempt.

On appeal PRASA attacks the district court's conclusion that the conditions encountered by Howard were unusual and unpredictable and that construction of the pipeline according to the design plans was impossible. After reviewing the record, we reject PRASA's contentions. It is not our task to reweigh the evidence presented to the district court. We may alter that court's judgment only if it applied an erroneous legal standard or committed a clear error in its findings of fact. We have not been referred to, nor have we found, any evidence indicating that the district court made either of these errors.

As noted by the trial judge in his findings of fact, there was expert testimony to the effect that the instability of the highway embankment was unusual and unexpected:

"It is my opinion that the designers of this project did not anticipate the events which we have observed. And I do not mean that to be critical because I do not think they should be severely faulted for that. The condition which we find is not common. I do not think that the contractor anticipated the occurrences which we observed. I do not think that the soil consultant anticipated the conditions which we observed. In short, I don't [think] anybody anticipated what we have observed.

"[I]n October of 1979, we all suddenly learned a lesson." Testimony of Sydney M. Johnson, VI Joint Appendix 1736-37.

Given this and other testimony describing the uncommon instability of the highway embankment, we believe that the requisite elements of a differing site claim were established. See William A. Smith Contracting Company v. United States, 188 Ct.Cl. 1062, 412 F.2d 1325, 1338 (1969) ("[A] changed condition is encountered when the condition could not have been reasonably anticipated from an examination of the site or from a study of the contract drawings and specifications.").

We must also reject PRASA's claim that it was Howard's sheet piling system, rather than the nature of the embankment, that caused the construction difficulties. Although there was testimony indicating that different sheet piling systems might have prevented the highway from settling and the pipeline from shifting, other experts indicated that these other systems would have been impractical or ineffective and that only changing the route of the pipeline or leaving the sheet piling in place could ensure the success of the project. Under these circumstances we have no hesitation in affirming the district court's conclusion that Howard's sheet piling system was not the cause of the settling and shifting.

Finally, we reject PRASA's contention that the district court improperly based its finding of impossibility on an "insignificant defect"--the 7" lateral deviation in the pipeline. Inasmuch as PRASA refused to accept the pipeline with that deviation, and inasmuch as PRASA ordered Howard not to proceed unless it could prevent the embankment from sliding, we think the district court was justified in concluding that it was impossible to lay the pipeline within the tolerances deemed acceptable by PRASA.

Accordingly, we find no error in the district court's award of costs incurred by Howard as a result of the differing site condition encountered.

Change in Pile Capacity

The second group of claims raised in this appeal challenge the district court's award to Howard of the extra costs it incurred as a result of PRASA's instruction that some of the piles used to support the pipeline be a higher "ultimate capacity" ²...