U.S. Industries, Inc. v. Blake Const. Co., Inc.

• Decision Date: 23 March 1982
• Docket Number: 80-1644,Nos. 80-1581,s. 80-1581
• Citation: U.S. Industries, Inc. v. Blake Const. Co., Inc., 671 F.2d 539, 217 U.S. App. D.C. 33 (D.C. Cir. 1982)
• Parties: U. S. INDUSTRIES, INC. v. BLAKE CONSTRUCTION CO., INC., Appellant. U. S. INDUSTRIES, INC., Appellant, v. BLAKE CONSTRUCTION CO., INC.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 539

671 F.2d 539

217 U.S.App.D.C. 33

U. S. INDUSTRIES, INC. v. BLAKE CONSTRUCTION CO., INC., Appellant.

U. S. INDUSTRIES, INC., Appellant, v. BLAKE CONSTRUCTION CO., INC.

Nos. 80-1581, 80-1644.

United States Court of Appeals District of Columbia Circuit.

Argued Sept. 17, 1981.

Decided Jan. 26, 1982.

Rehearing Denied March 23, 1982.

David V. Anthony, Washington, D. C., for Blake Construction Co., Inc., appellant in No. 80-1581 and cross-appellee in No. 80-1644.

Peter Barnes, Washington, D. C., with whom Michael B. Sheppard and E. Donald Elliott, Washington, D. C., were on the brief for U.S. Industries, Inc., appellee in No. 80-1581 and cross-appellant in No. 80-1644.

Before GINSBURG, Circuit Judge, McGOWAN, Senior Circuit Judge, and FRIEDMAN, ^* Chief Judge, United States Court of Claims.

Opinion for the Court filed by Chief Judge FRIEDMAN.

FRIEDMAN, Chief Judge:

These cross-appeals challenge (1) a jury award of.$9.2 million in favor of U.S. Industries, Inc. ("USI"), against Blake Construction Co., Inc. ("Blake"), in a suit for breach of contract, (2) the district court's grant of judgment n. o. v. in favor of Blake on an additional $400,000 the jury awarded USI on another claim, and (3) the district court's grant of summary judgment for USI on an additional claim and its dismissal of two other claims of USI. We uphold the jury verdict, the grant of judgment n.o.v. on the $400,000 award, and the grant of summary judgment for USI on its additional claim. We reverse the dismissal of USI's two other claims.

I.

A. This case arises out of the construction of the new Walter Reed General Hospital in Washington, D. C. Blake wanted to become the prime contractor on the project, but its assets were insufficient to enable it to obtain the substantial performance and payment bonds of more than $50 million that the Miller Act, 40 U.S.C. § 270a (1976 & Supp. III 1979), required. It turned to USI, a much larger firm, and suggested that they form a joint venture that would become the prime contractor for the construction of the hospital.

In June 1972, USI and Blake entered into a joint venture agreement, under which (1) the joint venture would submit a bid for the contract and the parties would become joint principals on the performance and payment bonds, (2) Blake would assume responsibility for and control of the construction of the hospital and represent the joint venture in its dealings with the United States, (3) Blake would pay USI one percent of the contract price, and (4) Blake would award the mechanical subcontract for the project to one of USI's unincorporated subsidiaries, Federal Sheet Metal. Blake and its three principals (the Benders) also entered into a contract of indemnity by which they agreed to indemnify USI for any losses it might suffer in connection with the project.

On the same day, the United States Army Corps of Engineers awarded the contract to the joint venture. The initial contract price was approximately $102 million, which was increased to more than $135 million by the time the hospital was completed. Blake subcontracted approximately 75 percent of the work, including the subcontract for the mechanical work to Federal Sheet Metal. The original price under this subcontract was approximately $20 million, which rose to more than $35 million before the project was completed.

The construction contract provided that the hospital was to be completed within 1,260 days (approximately three-and-a-half years), by January 1976. The project actually was not completed until 1978, more than two years after its scheduled completion date. The responsibility and liability for these delays are the crux of the dispute in this case.

B. During the performance of the contract, the government, as it has a right to do, issued a large number of orders to the joint venture changing in various ways the work to be done. Under the contract the joint venture was entitled to extra compensation for the additional work resulting from the change orders. During the work, USI received extra compensation from the government for the additional direct costs it incurred as a result of the change orders.

In late 1977, the Corps of Engineers entered into an agreement with the joint venture (represented by Blake) under which the determination of (1) the additional time for performance to which the joint venture was entitled as a result of the change orders and (2) the compensation for the additional indirect costs attributable to the change orders would be made in a single agreement to be negotiated subsequently.

In January 1978, Blake stopped making payments to USI under the mechanical subcontract. The parties stipulated that Blake owed USI $2,611,455.62 under the contract.

After extensive negotiations between Blake (representing the joint venture) and the Corps of Engineers, they agreed in January 1980 to (1) an extension of the completion date under the contract to the date upon which the hospital was beneficially occupied (February 15, 1978), and (2) an equitable adjustment of $4.4 million as compensation for the additional indirect costs the change orders had caused the joint venture.

C. In August 1978, USI filed in the United States District Court for the District of Columbia a complaint against Blake and the Benders. It sought actual damages of $16,532,000 and punitive damages of $5 million. The complaint charged that Blake had breached the joint venture agreement and the mechanical subcontract by, among other things, failing timely and properly (1) to schedule work under the prime contract, (2) to perform its part of the work, (3) to furnish necessary materials and information, and (4) to make prompt payment to USI. One of the items for which USI sought recovery was its cost of obtaining builder's risk insurance. The complaint contained a claim against Blake and the Benders under the indemnity contract. The suit included claims of more than.$1.2 million on behalf of two of USI's subcontractors under the mechanical work subcontract.

The defendant filed an answer denying any liability. Blake also filed a counterclaim that USI was indebted to it for what it termed "backcharges," i.e., work that was USI's responsibility but that Blake had performed. By the time of trial, the backcharges allegedly exceeded $700,000.

On cross-motions for summary judgment, the district court granted judgment for USI on its claim for the cost of builder's risk insurance. The court granted summary judgment for Blake on USI's claim on behalf of its subcontractors, on the ground that these claims were not properly in the case. The court denied the motions for summary judgment in all other respects.

D. At Blake's request, the case was tried to a jury. Blake twice moved for a directed verdict. The court granted the first motion to the extent of dismissing without prejudice the claim based upon the indemnity agreement. It denied the first motion in all other respects, and totally denied the second motion. After a six-week trial, the court submitted the case to the jury under detailed instructions, and provided a special verdict form for the jury.

The jury awarded USI damages of $9.6 million, held against Blake on its counterclaim for backcharges, and determined that USI was entitled to interest at 12 percent on the amounts Blake had withheld under the mechanical work subcontract. The $9.6 million consisted of.$9.2 million for the extra cost USI had incurred as a result of Blake's defaults in scheduling, coordination and/or disruption of the work, and $400,000 as extra indirect costs USI had incurred as the result of change orders issued by the government.

On Blake's motion for judgment n. o. v., the court granted it with respect to the $400,000 award for the extra indirect costs resulting from the change orders, and denied the motion in all other respects. The court also denied Blake's motion for a new trial, in which Blake contended the verdict was contrary to the weight of the evidence.

II. BLAKE'S APPEAL (No. 80-1581)

The major issue on Blake's appeal is the validity of the jury award against it of.$9.2 million. The principal elements of this award were: $3.3 million for the damage USI suffered from the delays for which Blake was responsible and $4.8 million for the damage USI suffered because of Blake's disruption of USI's work.

A. Delay Damages. Under the contract, Blake was responsible for erecting the steel structure of the building and its outer shell. USI could not begin to work under the mechanical subcontract until Blake had completed that work. Because of the delays in delivering to the job site the steel Blake needed for its work, USI's subsequent mechanical work was significantly delayed. USI contended that it was Blake's failure to order and erect the steel on time that was responsible for the delay. Blake, on the other hand, attributed the delay to other causes: government change orders, strikes, and bad weather.

1. Blake argues that article 2(b) of the mechanical work subcontract precludes any recovery by USI for the delay. That provision states in pertinent part:

Contractor shall not be liable for any damages that may occur from delays or other causes on the part of other contractors or subcontractors involved in work, or the furnishing of materials, pertaining to this project.

Blake contends that the delay in furnishing steel was the fault of Blake's supplier, and that this provision immunizes it from liability for delay from that cause. It made this argument in its second motion for partial summary judgment. The district court rejected the contention, ruling that this provision "does not exculpate Blake for delays in FSM's subcontract performance caused by Blake's suppliers and vendors if those suppliers and vendors did not perform significant labor on the job site."

We affirm that ruling. The contract exculpated Blake from liability for delays "on the part of other contractors or subcontractors involved...