Shook of West Virginia, Inc. v. York City Sewer Auth., No. CV-90-1718.

• Decision Date: 08 February 1991
• Docket Number: No. CV-90-1718.
• Citation: 756 F. Supp. 848
• Parties: SHOOK OF WEST VIRGINIA, INC., Plaintiff, v. YORK CITY SEWER AUTHORITY, Defendant.
• Court: U.S. District Court — Middle District of Pennsylvania

756 F. Supp. 848

SHOOK OF WEST VIRGINIA, INC., Plaintiff, v. YORK CITY SEWER AUTHORITY, Defendant.

No. CV-90-1718.

United States District Court, M.D. Pennsylvania.

February 8, 1991.

John Havas, Larry L. Miller, Foulkrod, Reynolds & Havas, Harrisburg, Pa., Donald G. Gavin, J. Kent Holland, Jr., Owen J. Shean, Wickwire Gavin, P.C., Vienna, Va., for plaintiff.

William R. Scullion, David Wm. Bupp, Blakey, Yost, Bupp & Schaumann, York, Pa., Harold I. Rosen, Dorn C. McGrath, III, Jeffrey E. Weinstein, Christopher Louis Rissetto, Mark W. Pritchard, Zorc, Rissetto, Weaver & Rosen, Washington, D.C., for defendant.

MEMORANDUM

RAMBO, District Judge.

Before the court is the motion of York City Sewer Authority ("York"), to dismiss this action on the grounds that plaintiff, Shook of West Virginia, Inc. ("Shook") has not exhausted the dispute remedy provided in the construction contract between the parties. York refers to the motion as one to dismiss under Fed.R.Civ.P. 12(b)(1) and 12(b)(6). The parties' briefs, however, only address grounds for a 12(b)(1) dismissal for failure to exhaust contractual remedies and the motion will be treated accordingly.¹ Because there is a dearth of case precedent involving the precise issue in this factual context, the court will set forth the background to the action in detail.

THE CONTRACT

In 1987, York was awarded a federal Environmental Protection Agency ("EPA") construction assistance grant for the purpose of modifying York's wastewater treatment plant. Thereafter, on November 12, 1987, York and Shook entered into a contract whereby Shook would perform construction required to renovate two sewage treatment "trains," and perform certain piping and mechanical work. The contract called for Shook's work to progress in three phases, so as to accommodate continuous operation of the existing facilities. The Phase I work was scheduled for completion by January 15, 1989, Phase II work by June 20, 1990, and Phase III work by February 20, 1991. Phase I and Phase II are now completed² and Phase III is in progress. During the performance of Shook's work, there have been other contractors performing work on the project under separate contracts with York.

York hired Buchart-Horn, Inc. ("B-H") to serve as Project Engineer and construction manager for the project. Under the contract between York and Shook, B-H was given a wide range of responsibilities. For example, as project engineer, B-H must process applications and make recommendations for payment, review and approve shop drawings, certifications, or samples required by the contract documents, approve change orders, observe work in progress and, when necessary, reject defective work in progress or demand special inspections or testing. What is significant to the instant motion is that the contract also gives B-H authority to make initial decisions on disputes between the parties. A review of the relevant contract language is critical to the determination of how far B-H's authority extends in the dispute resolution process.

ARTICLE 9-ENGINEER'S STATUS DURING CONSTRUCTION

Owner's Representative:

9.1 The ENGINEER shall be the OWNER'S representative during the construction period. The duties and responsibilities and the limitations of authority of the ENGINEER as the OWNER'S representative during construction are set forth in Articles 1 through 19 of these General Conditions and shall not be extended without written consent of the OWNER and ENGINEER.

Clarifications and Interpretations:

9.3 The ENGINEER will issue with reasonable promptness such written clarifications or interpretations of the Contract Documents (in the form of drawings or otherwise) as he may determine necessary, which shall be consistent with or reasonably inferable from the overall intent of the Contract Documents. If the CONTRACTOR believes that a written clarification and interpretation entitles him to an increase in the Contract Price, he may make a claim therefor as provided in Article 11.

Decisions and Disagreements:

9.9 The ENGINEER will be the initial interpreter of the terms and conditions of the Contract Documents and the judge of the performance thereunder. In his capacity as interpreter and judge he will exercise his best efforts to ensure faithful performance by both the OWNER and the CONTRACTOR. He will not show partiality to either and shall not be liable for the result of any interpretation or decision rendered in good faith. Claims, disputes and other matters relating to the execution and progress of the Work or the interpretation of or performance under the Contract Documents shall be referred initially to the ENGINEER for decision, which he shall render in writing within a reasonable time.

ARTICLE 10-CHANGES IN THE WORK

10.2 The ENGINEER may authorize minor changes or alterations in the Work not involving extra cost and not inconsistent with the overall intent of the Contract Documents. These may be accomplished by a Field Order. If the CONTRACTOR believes that any minor change or alteration authorized by the ENGINEER entitles him to an increase in the Contract Price, he may make a claim therefor as provided in Article 11.

ARTICLE 11-CHANGE OF CONTRACT PRICE

11.2 The Contract Price may only be changed by a Change Order. Any claim for an increase in the Contract Price, shall be in writing delivered to the OWNER and the ENGINEER within fifteen days of the occurrence of the event giving rise to the claim.³ Any change in the Contract Price resulting from any such claim shall be incorporated in a Change Order.

11.3. The value of any Work covered by a Change Order or of any claim for an increase or decrease in the Contract Price shall be determined in one of the following ways:

11.3.1 Where the Work involved is covered by unit prices contained in the Contract Documents, by application of unit prices to the quantities of the items involved.

11.3.2 By mutual acceptance of a lump sum.

11.3.3 By cost and a mutually acceptable fixed amount for overhead and profit.

11.3.4 If none of the above methods is agreed upon, the value shall be determined by the ENGINEER on the basis of costs and a percentage for overhead and profit. Costs shall only include labor (payroll, payroll taxes, fringe benefits, workmen's compensation, etc.), materials, equipment, and other incidentals directly related to the Work involved.... In such case and also under paragraph 11.3.3 the CONTRACTOR will submit in form prescribed by the ENGINEER an itemized cost breakdown together with supporting data. (emphasis added).

The mandatory EPA supplemental conditions, which supersede any conflicting provisions in the contract, contain the following disputes provision:

Except as may be otherwise provided in this subagreement, all claims, counterclaims, disputes, and other matters in question between the recipient and the contractor arising out of or relating to this subagreement or the breach thereof will be decided by arbitration if the parties mutually agree, or in a court of competent jurisdiction within the State in which the recipient is located.

EPA Supplemental Conditions, Paragraph 7.

THE COMPLAINT

Shook has alleged that it sustained and will continue to sustain increased, uncompensated costs over the life of the project, all as a result of obstacles and events outside of Shook's control. Shook lists obstacles such as delay by other contractors on the job, differing site conditions, extreme weather conditions, and design errors and changes. The majority of Shook's allegations, however, pertain to the actions of B-H, who, as stated, is York's Project Engineer and is the party to whom York claims these disputes now must be referred. Examples of alleged harmful actions by B-H include: unjustified interference, disruptions, and stoppages of Shook's work; extensive revisions to the project plans during construction and concomitant refusals to grant added time and compensation for work by Shook related to such revisions; undue refusals to allow substitute materials; baseless insistence upon the use of equipment and materials from certain sources; refusals to issue change orders for extra work B-H demanded or for extra work and delay generated by B-H; and undue refusal to certify substantial completion for separable phases of the project.

Shook claims that B-H's multiple roles as York's design engineer, resident project engineer, and contract administrator caused a conflict of interest and kept B-H from exercising its authority as project engineer impartially, as required by the contract. Shook asserts that it tendered valid and timely change order requests for added time and compensation but York, acting through B-H, refused to grant many of them. Shook requests as relief an equitable adjustment of the contract price, added time for completion, and recovery of approximately $1,350,000.00, which B-H allegedly wrongfully withheld from periodic payments over the life of the project.

THE MOTION TO DISMISS

York asserts that Section 9.9 of the General Conditions requires Shook to permit B-H to render a decision on the claim prior to bringing suit. York concedes that Shook has submitted the claims to B-H initially but argues that Shook has not provided requested additional documentation, which York urges is required by the contract. Shook counters that it submitted timely change order requests between 1988 and 1990 as problems arose but B-H denied many of the requests. Shook then combined all claims into a three-part Request for Equitable Adjustment, which contained many claims already presented to B-H. The parties agree that Shook submitted Part I in May, 1990, Part II in July, 1990 and Part III in September, 1990 and that B-H has rendered no final decision on any part at this time.

Shook argues that York, through B-H, rejected most of Parts I and II but suggested, nonetheless, that Shook provide additional documentation before a final decision would be given. Shook urges that B-H's...