UltraFog, Ltd. v. ORR Prot. Sys.

• Decision Date: 11 August 2022
• Docket Number: 21-5909
• Parties: ULTRAFOG, LTD., Plaintiff - Appellant, v. ORR PROTECTION SYSTEMS, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

ULTRAFOG, LTD., Plaintiff - Appellant, v. ORR PROTECTION SYSTEMS, INC., Defendant-Appellee.

No. 21-5909

United States Court of Appeals, Sixth Circuit

August 11, 2022

NOT RECOMMENDED FOR PUBLICATION

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF KENTUCKY

Before: CLAY, GRIFFIN, and WHITE, Circuit Judges.

WHITE J., announced the judgment and delivered the opinion of the court in which CLAY and GRIFFIN, JJ., joined in different parts. CLAY, J. (pp. 17-23), delivered a separate opinion concurring in Section II.D. and dissenting from the remainder of the lead opinion. GRIFFIN, J. (pp. 24-27), delivered a separate opinion concurring in the lead opinion except as to the introductory paragraph, Section II.D., and Section III.

OPINION

HELENE N. WHITE, Circuit Judge.

In this breach-of-contract action, Plaintiff-Appellant Ultrafog Ltd. ("Ultrafog") appeals the grant of judgment on the pleadings to Defendant-Appellee Orr Protection Systems Inc. ("ORR"), arguing that it adequately stated a claim for breach of contract and that the existence of material issues of fact rendered the district court's judgment premature. We AFFIRM in part, REVERSE in part, and REMAND for further proceedings.

I.

This dispute concerns a project to rehabilitate the Hugh L. Carey Tunnel (formerly known as the Brooklyn-Battery Tunnel) in New York City. Navillus was hired by the New York Triborough Bridge and Tunnel Authority as the primary contractor for the project, which included updating the tunnel's fire suppression system. Around July 2018, Navillus invited ORR to submit a proposal to provide design-build services related to the tunnel's ventilation and fire suppression systems. The next month, Navillus and ORR engaged in preliminary discussions to the effect that, if Navillus retained ORR as a subcontractor, ORR would retain Ultrafog as a sub-subcontractor. On March 22, 2019, Ultrafog submitted a formal proposal to ORR. On April 9, 2019, Navillus issued a letter of intent to retain ORR as a subcontractor for the project. On April 11, 2019, before ORR and Navillus formalized their relationship, ORR submitted a purchase order to Ultrafog. In that purchase order, Ultrafog agreed to provide design drawings, calculations, and tunnel test engineering support for the project. In June 2019, Navillus and ORR executed a subcontract agreement (the "Prime Contract"). On July 2, 2019, ORR submitted a second purchase order to Ultrafog for the "remaining balance" of the fire-suppression system for the project. R.1, PID 4 (¶ 16).^[1]

Each purchase order stated that it was subject to ORR's Terms and Conditions. The Terms and Conditions apply to "all Work (as defined below) purchased by [ORR] and performed by any recipient of an ORR Purchase Order ("Subcontractor")." R.1-7, PID 303 (¶ 1). The Terms and Conditions define "Work" as follows:

2. Work. Subcontractor shall perform the services as detailed in the Purchase Order and as provided herein, including any fire detection/suppression or related activity (collectively the "Work"), in a good, timely and workmanlike manner. It shall be the responsibility of Subcontractor to examine, review and understand the Purchase Order relating to the Work (including the services and materials to be provided by Subcontractor), and it shall further be the responsibility of Subcontractor to familiarize itself with all conditions which may affect the Work. In performing the Work and as applicable to the Work, Subcontractor agrees to assume and be bound to ORR by the same duties, obligations and responsibilities as ORR is to the general contractor and owner (collectively "Owner") under the agreement between ORR and the Owner (the "Prime Contract") of the applicable site where the Work will be performed (the "Work Site"). In the event of a conflict between this Subcontract and the Prime Contract, the provisions imposing the greater duty, obligation and responsibility on Subcontractor shall govern in all respects. Accordingly, Subcontractor agrees to be bound to ORR to perform the Work under the terms and conditions of the Prime Contract.

Id., PID 303-04 (¶ 2).

The Terms and Conditions also contain the following provisions regarding default and early termination, the meaning and applicability of which the parties dispute on appeal:

16. Default of Subcontractor. Should Subcontractor at any time (a) breach this Agreement, a Purchase Order or its obligations pursuant to the Prime Contract; (b) cause stoppage or delay of or interference with the Project, or any portion thereof; or (c) become insolvent, then, in any such event, each of which shall constitute a default hereunder by Subcontractor, ORR shall, after giving Subcontractor written notice of default and fortyeight (48) hours within which to cure such default, have the right to exercise any one or more of the following remedies: a. Require that Subcontractor utilize, at its own expense, overtime labor (including Saturday and Sunday work), in additional shifts as necessary to overcome the consequences of any delay attributable to Subcontractor's default; and/or b. Attempt to remedy the default by whatever means ORR may deem necessary or appropriate, including, without limitation, correcting, furnishing, performing or otherwise completing the Work, or any portion thereof, by itself or through others (utilizing where appropriate any materials and equipment previously purchased for that purpose by Subcontractor) and deducting the cost thereof (plus an allowance for administrative costs equal to twenty percent (20%) of such costs) from any monies due or that become due to Subcontractor hereunder.

17. Early Termination. Either party may immediately terminate this Agreement if the other party fails to cure any material breach of this Agreement within thirty (30) days after receipt of written notice of such breach from the other party. B. If Owner terminates the Prime Contract, or stops the Work for a reason other than the sole default of ORR, ORR may immediately terminate this Agreement or stop the Work for the same reason, and Subcontractor's rights and remedies, including payment of any unpaid and earned portion of the Price, shall be limited to the corresponding rights and remedies available to ORR under the Prime Contract.

Id., PID 307-08 (¶¶ 16-17).

Ultrafog ordered equipment and performed services to satisfy the requirements of the purchase orders. During this time, employees from Navillus, ORR, and Ultrafog participated in weekly meetings via telephone. ORR did not object to Ultrafog's work and made a partial payment of $459,600 for the services Ultrafog performed toward the purchase orders.

On February 20, 2020, Navillus sent a letter to ORR "request[ing] ORR to terminate Ultrafog from the Project with immediate effect." R.1-10, PID 346. In its letter, Navillus asserted that Ultrafog had "caused the design process on the Project to become inefficient &inadequate" for a number of reasons, including inadequate staffing, failure to follow schedules, and fire testing and certification issues. Id., PID 345-46. It further stated that "should Navillus incur any additional cost as a result of this termination and/or Ultrafog's failure to perform on the Project as required," ORR would be responsible to Navillus for such costs. Id., PID 346. On March 3, 2020, ORR notified Ultrafog in writing that Navillus had decided to terminate Ultrafog from the project. It invoked Section 17 of the Terms and Conditions and requested that Ultrafog stop all work related to the purchase orders and cancel any pending purchase orders.

Ultrafog sued ORR, asserting a single claim for breach of contract. It alleged that ORR "breached Section 17 of the Terms and Conditions by improperly and immediately terminating Ultrafog from the Project and cancelling all outstanding Purchase Orders." R.1, PID 9. ORR moved for judgment on the pleadings, arguing that Section 17b explicitly permitted it to immediately terminate the purchase orders upon Navillus's termination of the Prime Contract or its stoppage of the "Work" as defined in the Terms and Conditions.

Ultrafog argued in response that ORR was not entitled to invoke Section 17b because the parties' dispute concerned an alleged default by Ultrafog. Instead, it asserted, Section 16 and the first clause of Section 17, which provide for notice and an opportunity to cure after an alleged breach or default, governed the parties' dispute. It further argued that Navillus had not actually stopped the Work, having only requested that ORR terminate Ultrafog from the project. And, even if Navillus had stopped the Work, because ORR was ultimately responsible for Ultrafog's work under the Prime Contract and the Terms and Conditions, the alleged Work stoppage was due to the "sole" default of ORR, making Section 17b inapplicable. At the very least, Ultrafog contended, the district court should grant discovery to "determine the reasoning for any purported order to stop the Work," noting that "the facts suggest that ORR's default was the true reason" for the stoppage of the Work. R.11, PID 409.

The district court granted ORR's motion for judgment on the pleadings. It held that ORR had properly invoked Section 17b's early termination provision. It also rejected Ultrafog's contention that Navillus had not stopped the Work, finding that Navillus was not required to "order" a stop to the Work, as Ultrafog had suggested. The district court reasoned that Navillus had stopped the Work by requesting that Ultrafog be terminated from the project. Finally, the district court rejected Ultrafog's argument that any stoppage of the Work was due to the sole default of ORR because ORR was responsible for Ultrafog's work under the Prime Contract,...