Shaw Constructors v. Icf Kaiser Engineers, Inc.

• Decision Date: 30 December 2004
• Docket Number: No. 02-30183.,02-30183.
• Parties: SHAW CONSTRUCTORS, Plaintiff-Appellant, Cross-Appellee, v. ICF KAISER ENGINEERS, INC., et al., Defendants, PCS Nitrogen Fertilizer, L.P., Defendant-Appellee, Cross-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 533

395 F.3d 533

SHAW CONSTRUCTORS, Plaintiff-Appellant, Cross-Appellee, v. ICF KAISER ENGINEERS, INC., et al., Defendants, PCS Nitrogen Fertilizer, L.P., Defendant-Appellee, Cross-Appellant.

No. 02-30183.

United States Court of Appeals, Fifth Circuit.

December 30, 2004.

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Eric A. Kracht (argued), Kracht & Associates, Baton Rouge, LA, for Shaw Constructors.

Eugene R. Preaus (argued), Edward C. Gleason, Preaus, Roddy & Associates, New Orleans, LA, for PCS Nitrogen Fertilizer L.P.

Appeals from the United States District Court for the Middle District of Louisiana.

Before HIGGINBOTHAM, GARZA and DENNIS, Circuit Judges.

DENNIS, Circuit Judge:

This is an action based on the Louisiana Private Works Act that requires the interpretation and application of the Louisiana Civil Code articles in the chapters on Third Party Beneficiary and Dissolution of Contracts.

A subcontractor performed its part of the work in constructing a $38 million Nitric Acid Facility for the owner of an industrial plant. In the subcontract with the general contractor, the subcontractor "agrees to and does waive" its right to file claims or liens against the owner's property. When the general contractor materially breached its primary obligation to pay the subcontractor the $5.3 million balance due for work on the owner's facility, the subcontractor filed claims and privileges or liens against the owner's property and brought suit against the owner under the Louisiana Private Works Act ("LPWA").¹ The owner filed a counter-claim, as third party beneficiary of the subcontract's lien waiver provision, seeking the enforcement of that provision, the cancellation of the claims and liens filed, and the award of damages and attorneys' fees. Applying Louisiana law in this diversity jurisdiction suit, we reverse the magistrate judge's holding that the subcontractor may not raise against the owner-third party beneficiary's demand the defenses it could have raised against the general contractor. Instead, we enter summary judgment sustaining the subcontractor's right to regard the subcontract as dissolved and the parties restored to their pre-contract positions when it became evident that the general contractor would not perform and had materially breached the subcontract.² Because dissolution and restoration operate retroactively to have effect as of the day the subcontract was entered into, and because the subcontractor did not explicitly waive its right to dissolution, the dissolved lien waiver provision of the rescinded subcontract could not be invoked to preempt or bar the exercise of the subcontractor's right to file claims and liens under the LPWA and seek to enforce them against the owner and its property.

I.

On September 17, 1997, PCS Nitrogen Fertilizer, L.P. ("PCS"), owner of an industrial plant near Geismar, Louisiana, entered into a $38 million contract ("Prime Contract") with general contractor ICF Kaiser Engineering, Inc. ("Kaiser") for design and construction of a structure named the "1265 STPD NITRIC ACID FACILITY." The facility was built at the PCS plant straddling the boundary line between Iberville and Ascension Parishes.

Under the Prime Contract, PCS authorized Kaiser to subcontract portions of the work but specified that Kaiser would be responsible for the actions of subcontractors. The Prime Contract also provided that Kaiser would pay and discharge any lien that may be filed, and indemnify, defend, and hold PCS harmless from liens on its property.³ In addition, the Prime Contract provided that Kaiser would reimburse PCS whatever costs PCS incurred in discharging any liens. Although the LPWA authorized PCS to protect itself against personal liability and privileges on its property under the Act by filing a notice of the contract and having Kaiser file a bond to protect subcontractors,⁴ PCS chose not to do so.

In January 1998, Kaiser subcontracted a portion of its work to Shaw Constructors, Inc. ("Shaw").⁵ The subcontract states that Shaw agrees to provide labor, equipment, materials, and other construction services for the 1265 STPD NITRIC ACID FACILITY project and "agrees to and does waive its right to file any mechanic's lien or claims of any sort or kind against [PCS's] premises or any part thereof."⁶ In exchange, Kaiser obligated itself in the subcontract to make payments to Shaw, based on its monthly progress, within 45 days after receiving each of Shaw's invoices.

As Shaw's work progressed, Kaiser failed to make timely payments, and Shaw contemplated stopping work. Instead, on January 12, 1999, Shaw agreed to continue work in exchange for Kaiser making specifically scheduled payments and obtaining a payment bond for the remainder of the work on the project.

Nevertheless, Kaiser still failed to perform its obligation under the subcontract to pay for Shaw's work. Instead, on January 26, 1999, Kaiser notified Shaw that it could or would not make any further payment under the subcontract. Shaw, which essentially had completed its work, wound up its portion of the project on February 1, 1999. At the time of Kaiser's complete, material breach of the subcontract, it had failed to pay Shaw over $5.2 million for Shaw's construction work on the PCS nitric acid facility. On January 27, 1999, Shaw filed and recorded statements of claim and privilege asserting its rights under the LPWA against PCS and its property for Shaw's uncompensated work on the PCS facility.

On February 23, 1999, Shaw filed suit against PCS and Kaiser in state court in Iberville Parish. PCS and Kaiser removed the case to federal court. On April 8, 1999, Shaw and Kaiser entered into an agreement ("Compromise Agreement") that: (1) Kaiser would pay off $5,238,217.90 owed to Shaw for work on the PCS facility in 20 monthly installments; (2) a default judgment would be entered to that effect; (3) Shaw's liens on PCS's property would not be cancelled unless Kaiser filed a bond or other security in conformity with the requirements of the LPWA or furnished a $5,300,000 letter of credit; and (4) Shaw would not dismiss its claims and lawsuit against PCS unless Kaiser furnished replacement security or Kaiser's monthly installment payment obligations to Shaw were satisfied. Pursuant to the Compromise Agreement, Kaiser confessed to the allegations in Shaw's petition in its Answer and Confession of Judgment, admitting its default under the subcontract, its debt to Shaw, and the validity of Shaw's claim and privilege against PCS. PCS did not participate in the negotiations and agreements between Shaw and Kaiser, and Shaw reserved all of its rights against PCS. After a default judgment was entered, Kaiser made installment payments to Shaw totaling $3,201,133.21, but never provided replacement security. Thereafter, Kaiser defaulted on the remaining amount, leaving an unpaid principal balance of $2,037,084.77 due Shaw. On June 9, 2000, Kaiser filed a petition in bankruptcy. On October 20, 2000 PCS demanded that, within ten days thereof, Shaw cancel the claim, privilege or lien and dismiss this lawsuit against PCS with prejudice, and on October 26, 2000 Shaw refused.

After the foregoing events, Shaw moved for partial summary judgment on liability only to the effect that, under the LPWA, PCS was personally liable and its nitric acid facility was subject to a privilege for Shaw's uncompensated work on the project. PCS moved for partial summary judgment dismissing Shaw's demands and canceling Shaw's statements of claim and privilege filed on PCS's property. The parties consented to adjudication before a magistrate judge. On August 3, 2001, the magistrate judge ruled in favor of PCS on both of the cross-motions for summary judgment, dismissing Shaw's claims and ordering Shaw's lien removed from the public records. Thereafter, Shaw and PCS filed a second set of motions for summary judgment concerning attorneys' fees and damages. On December 21, 2001, the magistrate granted summary judgment in favor of PCS and awarded it $61,614.68 in attorneys' fees and damages under La. R.S. § 9:4833 of the LPWA. Both Shaw and PCS appealed.

Shaw argues that the magistrate judge erred by holding that PCS was a third party beneficiary of the subcontract and therefore able to demand specific enforcement of Shaw's obligation to comply with the lien waiver provision. Alternatively, Shaw charges that, if PCS was a third party beneficiary, under Louisiana Civil Code article 1982 Shaw had the right to raise against PCS, as third party beneficiary, defenses based on the contract that it could have raised against Kaiser, had Kaiser made the same demand against Shaw. Specifically, Shaw contends that, when Kaiser materially breached the subcontract, Shaw had the right to refuse to perform its file-no-lien obligation, to employ all rights and defenses against PCS that it may have raised against Kaiser, and to enforce its claim and privilege or lien against PCS and its property under the LPWA.

PCS argues that the magistrate judge correctly ruled that Shaw could not raise against PCS the defenses it could have raised against Kaiser, and that, in any event, Kaiser's material breach of the subcontract had no effect upon the lien waiver provision of the subcontract. PCS contends that the magistrate judge correctly held that it may as third party beneficiary enforce the lien waiver provision against Shaw, that Shaw's claim and privilege or lien therefore were filed in violation of the lien waiver provision, that Shaw's claim and privilege or lien were improperly filed under the LPWA for the same reason and others, that Shaw therefore cannot hold PCS personally liable or enforce a lien or privilege against PCS's property under the LPWA, that Shaw did not have reasonable cause to refuse to cancel its lien upon PCS's demand, and that Shaw should be taxed with attorney's fees and damages pursuant to the LPWA.

Both Shaw and PCS appealed.

We review rulings on motions for summary...