Performance Contracting, Inc. v. Seaboard Sur. Co.

• Decision Date: 16 December 1998
• Docket Number: No. 97-2142,97-2142
• Citation: 163 F.3d 366
• Parties: PERFORMANCE CONTRACTING, INC., Plaintiff-Appellant, v. SEABOARD SURETY COMPANY; St. Paul Fire and Marine Insurance Company; University Mechanical and Engineering Contractors, Inc., d/b/a JWP Mechanical Services; Emcor Group, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 366

163 F.3d 366

PERFORMANCE CONTRACTING, INC., Plaintiff-Appellant, v. SEABOARD SURETY COMPANY; St. Paul Fire and Marine Insurance Company; University Mechanical and Engineering Contractors, Inc., d/b/a JWP Mechanical Services; Emcor Group, Inc. Defendants-Appellees.

No. 97-2142.

United States Court of Appeals Sixth Circuit.

Argued Oct. 27, 1998.

Decided Dec. 16, 1998.

Ronald J. Garber (argued and briefed), Shapiro, Fussell, Wedge, Smotherman & Martin, LLP, Atlanta, GA, Kevin M. O'Connell, Novi, MI, for Plaintiff-Appellant.

E. Peter Drolet (briefed), Drolet, Freeman, Cotton & Norris, Bloomfield Hills, MI, Michael Loulakis (argued), Wickwire & Gavin, Vienna, VA, for Defendants-Appellees.

Before: BOGGS, SUHRHEINRICH, and SILER, Circuit Judges.

OPINION

BOGGS, Circuit Judge.

Performance Contracting, Inc. appeals the dismissal of its contract action without prejudice. The court below ruled that Performance Contracting's subcontract with JWP Mechanical Services required the company to exhaust administrative remedies by certifying to the Contracting Officer of the United States Department of Veterans Affairs any unresolved claims it had related to a construction project. Based on a straightforward reading of the contract, we find no such requirement and reverse and remand for further proceedings.

I

This action arose out of the construction contract to build the 500-bed Veterans Affairs Medical Center (hereinafter "VA Hospital") in Detroit, Michigan. The VA Hospital construction contract is the largest single contract ever issued by the United States Department of Veterans Affairs ("VA").

In December 1991, the VA entered into a construction contract (hereinafter "Prime Contract") with Bateson-Dailey ("B-D") for approximately $230,000,000 to construct the VA Hospital and to do related work in the Detroit area. The dispute resolution clause of this contract required B-D to submit all claims arising under or related to the Prime Contract to the Contracting Officer of the VA for a written decision before bringing suit, pursuant to the Contract Disputes Act of 1978, 41 U.S.C. §§ 601-613 (1998).

On January 22, 1992, B-D subcontracted the mechanical work at the site to defendant-appellee JWP Mechanical Services ("JWP") for approximately $55,000,000 (hereinafter "JWP Subcontract"). This subcontract read, in pertinent part:

1. GENERAL SCOPE.... The Subcontractor, as to this subcontract work, is bound to the Contractor by the terms and requirements of the above referred to Contract Documents and assumes toward the Contractor all the obligations and responsibilities that the Contractor, by those documents, assumes towards the Owner, and the Subcontractor shall have all the benefits of the obligations and responsibilities that the Owner, by those documents, assumes toward the Contractor....

....

9. DISPUTES.

(a) If any controversy ... shall arise between the Contractor and the Subcontractor as to interpretation of the requirements of this subcontract, ... the Subcontractor shall proceed so as to not delay the work and shall file with the Contractor within twenty-one (21) days ... its written itemized estimate for the cost of performing the disputed work.... If the parties hereto are unable to resolve the controversy, each shall retain its full legal rights.

(b) If the Subcontractor makes a claim in connection with changes ordered by the Owner or any dispute arising out of the Owner's or its authorized representative's interpretation of the Contract Documents or any dispute arising out of inaccuracies, deficiencies, discrepancies or ambiguities in the plans and specifications, the Subcontractor shall proceed in accordance with the administrative remedies provided for in the Contract Documents and shall exhaust its administrative remedies thereunder prior to commencing any legal action in connection therewith.

On April 24, 1992, JWP subcontracted the insulation work at the hospital to plaintiff-appellant Performance Contracting, Inc. ("PCI") for approximately $3,100,000 (hereinafter "PCI Subcontract"). This subcontract read, in pertinent part:

1. General Scope. The Subcontractor shall furnish for the contract price set forth hereafter all plant, labor, material and equipment required to perform the work described herein in accordance with the contract between the Owner and the General Contractor as well as the contract between the General Contractor and the Mechanical Contractor. The Subcontractor assumes toward the Mechanical Contractor all of the obligations and responsibilities that the Mechanical Contractor has assumed toward the General Contractor and the Owner.

....

9. Disputes. If any controversy or dispute shall arise between the Mechanical Contractor and the Subcontractor as to the interpretation of the requirements of this Subcontract, such dispute shall not be an excuse for the Subcontractor to delay the work. The Subcontractor shall proceed with the work and file with the Mechanical Contractor within ten (10) days of the notice of such dispute, any claim by the Subcontractor arising out of such dispute. The Mechanical Contractor and the Subcontractor shall attempt to resolve the dispute. If the parties are unable to resolve the controversy, each shall retain its full legal rights.

The PCI Subcontract did not have a clause similar to JWP Subcontract clause 9(b) that would require PCI to proceed in accordance with the administrative remedies provided for in the Prime Contract.

In November 1995, PCI met with JWP to complain that JWP, B-D, and the VA were directly responsible to PCI for damages caused by actions that increased its construction costs by more than $2,000,000. The VA Hospital was substantially completed in May 1996, ten months after the original date required under the contract documents. In June 1996, PCI submitted claims to JWP alleging increased costs totaling in excess of $3,000,000. PCI met several additional times with representatives of JWP in an attempt to resolve its claims, but the meetings were not fruitful.

In March 1997, PCI filed this suit against defendant-appellees alleging breach of contract, breach of express and implied duties, and unjust enrichment. PCI also requested payment pursuant to a payment bond issued to JWP that promised to indemnify any claimants under the JWP Subcontract for damages caused by B-D or the VA. Two of the other named defendants in the suit, Seaboard Surety Company and St. Paul Fire and Marine Insurance Company, are the bonding companies that issued the payment bond. The other defendant-appellee, EMCOR Group, Inc., is a holding company and a shareholder in several companies, including JWP.

On April 28, 1997, appellees filed a Motion to Dismiss or in the Alternative to Stay Proceedings. Attached to this motion was an affidavit by B-D's Project Director stating that most or all of the claims PCI submitted to JWP in February 1997 were "potentially attributable to the VA." The affidavit also stated that "Bateson-Dailey will submit an omnibus Claim to the VA that will include a claim from JWP which, in turn, will include PCI's claim to JWP as it has been presented." ¹

The trial court granted appellees' motion, ruling that the PCI "subcontract mandates that [PCI] exhaust the contractual remedies for claims against the VA before bringing suit against JWP." The court rejected PCI's argument that the remedy before the VA "is futile because its claims against JWP and B-D will be left unresolved" on the ground that "[a]ny determination of futility by this Court before [the claim is presented to the VA] is speculative." PCI now appeals.

II

We review de novo a district court's dismissal of a complaint under FED .R. CIV. P. 12(b)(6). ² Taxpayers United for Assessment Cuts v. Austin, 994 F.2d 291, 296 (6th Cir.1993). We must read all well-pleaded allegations of the complaint as true. Bower v. Federal Express Corp., 96 F.3d 200, 203 (6th Cir.1996). "Our review is essentially the same as the district court's; we 'take the plaintiff's factual allegations as true and if it appears beyond doubt that the plaintiff can prove no set of facts in support of its claims that would entitle it to relief, then ... dismissal is proper.' " Forest v. United States Postal Serv., 97 F.3d 137, 139 (6th Cir.1996) (quoting American Eagle Credit Corp. v. Gaskins, 920 F.2d 352, 353 (6th Cir.1990)). A complaint must contain either direct or inferential allegations with respect to all material elements necessary to sustain a recovery under some viable legal theory. Allard v. Weitzman (In re DeLorean Motor Co.), 991 F.2d 1236, 1240 (6th Cir.1993). ³

Appellees believe that we should consider the question of whether PCI is contractually obligated to resolve its claims administratively by evaluating and applying the jurisprudence that has arisen under the Contract Disputes Act of 1978, 41 U.S.C. §§ 601-613 (1998). The Act requires that all disputes arising under a contract entered into by an executive agency for "the procurement of construction, alteration, repair or maintenance of real property" first be resolved by the executive agency's contracting officer. 41 U.S.C. §§ 602, 605 (1998).

We disagree. The Act only requires that contracts "entered into by an executive agency " be brought before a contracting officer. 41 U.S.C. § 602 (1998) (emphasis added). On their face, PCI's claims are being brought against private entities pursuant to a contract (the PCI Subcontract) to which the government is not a party. Thus, before we examine the impact the Contact Disputes Act might have on this case, we must first consider whether PCI is required by the PCI Subcontract to arbitrate its claims before the VA. If none of the obligations to exhaust administrative remedies in the Prime Contract or the JWP Subcontract are applicable to PCI under established rules of contract interpretation, the Contract Disputes Act is irrelevant.

Clause 9 ("Disputes") of the PCI Subcontract provides: ...