Western Contracting Corp. v. Bechtel Corp.
| Decision Date | 18 September 1989 |
| Docket Number | Nos. 86-1056,88-1139,s. 86-1056 |
| Citation | 885 F.2d 1196 |
| Parties | WESTERN CONTRACTING CORPORATION, Plaintiff-Appellant, v. BECHTEL CORPORATION, now known as, a corporation; Baltimore Gas & Electric Company, a corporation, Defendants-Appellees, v. L. Garland EVERIST; H. Hubert Everist, Jr.; Neil E. Dawson, Third-Party Defendants-Appellants. WESTERN CONTRACTING CORPORATION, Plaintiff-Appellant, v. BECHTEL CORPORATION, now known as, a corporation; Baltimore Gas & Electric Company, a corporation, Defendants-Appellees, v. L. Garland EVERIST; H. Hubert Everist, Jr.; Neil E. Dawson, Third Party Defendants-Appellants. |
| Court | U.S. Court of Appeals — Fourth Circuit |
George Cochran Doub, Jr. (Benjamin R. Civiletti, Venable, Baetjer and Howard, on brief), for third-party defendants-appellants.
Robert Morley Wright (Wilbur D. Preston, Jr., Jeffrey M. Glosser, Whiteford, Taylor & Preston, David A. Brune, Henry R. Miller, Baltimore Gas and Elec. Co., H. Roger McPike, Thelen, Marrin, Johnson & Bridges, on brief), for defendants-appellees.
Before RUSSELL, PHILLIPS and SPROUSE, Circuit Judges.
In this diversity action on a contract for dredging a channel in the Chesapeake Bay, Western Contracting Corporation (hereafter Western), L. Garland Everist, Hubert Everist, Jr., and Neil E. Dawson appeal from a district court judgment in favor of Bechtel Corporation and Baltimore Gas & Electric Company (hereafter referred to as Bechtel) and from the district court's denial of their motion for a partial new trial. Western initiated this action by filing a claim against Bechtel for amounts due under the dredging contract. Twenty-one months after they filed timely answers, Bechtel obtained the district court's permission to amend their answers to allege fraud and assert counterclaims against Western, seeking rescission of the contract and damages, and join three of Western's employees as additional parties. After a bench trial, the district court held that Western had acted fraudulently in negotiating two clauses in the contract and a change order for modification of the disposal basin in which the dredged material was deposited. The court entered judgment in favor of Western on its contract claim in the amount of $149,126 and in favor of Bechtel on counterclaims for $3,095,670.48. We hold that the claim against the individual employees did not relate back to the filing of the answer under rule 15 of the Federal Rules of Civil Procedure, and remand that part of the judgment relating to those defendants to allow the district court to determine whether Maryland's three-year statute of limitations for actions alleging fraud had expired prior to the filing of the counterclaims. We also hold that insufficient evidence supported the district court's award of damages with regard to the modification of the disposal area and reverse that part of the award. We affirm the remainder of the judgment.
Beginning in 1967, Bechtel acted as Baltimore Gas & Electric Company's agent to manage the design and construction of a nuclear power plant at Calvert Cliffs, Maryland. The dredging of two channels in the Chesapeake Bay for intake and release of water to cool the plant was on the "critical path" in the construction and had to be completed before work on other parts of the plant could begin. Of the five bids submitted on July 13, 1970 to Bechtel for the dredging subcontract, Western's bid of $4,066,195 was the lowest. Due to delays in obtaining a dredging permit from the U.S. Army Corps of Engineers, however, Bechtel began the work on July 9, 1971 and completed it on schedule on June 29, 1972. Bechtel paid Western a total of $5,627,450. Prior to beginning the dredging covered by the contract, the parties agreed on changes in Western's bid package. Several of these changes are at issue in this appeal.
The district court found that the prestart standby clause 1 and the escalator clause 2 of the final contract had been obtained by fraud. These clauses were negotiated by two employees of Bechtel, John DeVaughn, subcontracts administrator at Calvert Cliffs, and Erston Magis, project buyer, and three employees of Western, L. Garland Everist, president, Hubert H. Everist, Jr., vice-president and treasurer, and Neil E. Dawson, resident project manager at Calvert Cliffs. During negotiations, DeVaughn and Magis demanded and received Western's promise to pay them two cents per cubic yard of material dredged during the entire contract and ten percent of amounts received under the prestart standby clause. According to Bechtel, as a result of this promise, Western obtained escalation and prestart clauses in the contract far more favorable than it could have bargained for absent the fraudulent payments. Western, on the other hand, while admitting it made payments to DeVaughn (allegedly in response to DeVaughn's threats to harass it using his supervisory power over subcontractors), contends that neither the payments nor the contract clauses damaged Bechtel in any way.
The district court also found that Bechtel had proven fraud with respect to Western's performance of part of the contract. The contract called for Western to dispose of the dredged material in a valley behind the power plant and to construct various dikes and weirs to allow the water to drain back into the Chesapeake Bay. Soon after it began dredging, however, Western reported to Bechtel that the original design for the disposal area was inadequate because the effluent could not be stacked at the 10:1 slope called for by the contract and had a swell factor 3 greater than had been projected. It proposed to expand the disposal area at a cost of $2,515,000, which was later reduced to $1,118,000. DeVaughn, Bechtel's subcontracts administrator, backed Western's proposal but was transferred from the Calvert Cliffs project before Bechtel acted.
After protracted negotiations, Bechtel agreed to Change Order 4, which provided for an additional payment to Western of $567,200 to make certain modifications in the disposal area. Western later paid DeVaughn a five cents per cubic yard "finders' fee" for recommending to Western a subcontractor to perform the modifications. At trial, Bechtel alleged that Western had deliberately pumped the effluent into the disposal area in a manner calculated to prevent proper drainage and, by failing to construct transverse dikes, had created the inadequacy of the disposal area in order to extract additional payments. They also alleged that DeVaughn was paid to allow Western to perform in a way which created the inadequacy. Western denies that its performance caused the inadequacy and, while conceding it made payments to DeVaughn, denies that he had anything to do with the inadequacy of the disposal area.
The district court concluded that neither the escalation clause nor the prestart standby clause would have appeared as written in the contract without Western's prior agreement to pay Magis and DeVaughn considerable sums. The court found "the funds received by Western pursuant to the escalation clause ... are windfall profits to Western resulting from fraud and are traceable directly to its secret arrangement to pay substantial sums to Magis and DeVaughn," and calculated the damages as the full amount of the payments minus certain valid increases in labor costs. Further, the district court concluded that Western's prestart costs had been no more than $13,975 and that the contract clause which had set a flat fee of $2,500 a day had "worked a fraud on Bechtel and BG & E for which they are entitled to recover back the monies they paid out in the sum of $267,500." With respect to the disposal area, the district court concluded that Bechtel would not have approved Change Order 4 if they had been aware of the true circumstances and therefore had "been damaged to the extent of monies paid on account of Change Order 4 to the extent of $567,200." Finally, the district court awarded to Bechtel as damages the amount of $96,500 that Western had paid to DeVaughn and Magis.
Before proceeding to the merits, we address three important procedural issues. First, L. Garland Everist, Hubert Everist, Jr., and Neil E. Dawson, the individual counter-defendants, assert that the district court lacked personal jurisdiction over them. These nonresident counter-defendants were served with process under the Maryland long-arm statute. Md.Cts. & Jud.Proc.Code Ann. Sec. 6-103 (1984). They contend the statute is inapplicable to them because Maryland recognizes the "fiduciary shield" rule that "the acts of a corporate officer or employee taken in his corporate capacity within the jurisdiction generally do not form the predicate for jurisdiction over him in his individual capacity." Bulova Watch Co. v. K. Hattori & Co., 508 F.Supp. 1322, 1347 (E.D.N.Y.1981). The district court, however, found it had jurisdiction under two sections of Maryland's long-arm statute, Secs. 6-103(b)(1) & (b)(3), and that the fiduciary shield rule did not operate to shield actions not in the best interest of the corporation.
Although the Maryland Court of Special Appeals has applied the fiduciary shield exception in one case, Umans v. PWP Services, 50 Md.App. 414, 420, 439 A.2d 21 (1982) (), a recent decision by the Maryland court and a decision in this court bearing on these general principles has called the decision in Umans into question.
In Columbia Briargate Co. v. First Nat'l Bank, 713 F.2d 1052, 1064 (4th Cir.1983), cert. denied, 465 U.S. 1007, 104 S.Ct. 1001, 79 L.Ed.2d 233 (1984), we stated:
[W]hen a non-resident corporate agent is sued for a tort committed by him in his corporate capacity in the forum state in which service is made upon him without the forum under the applicable long-arm statute ..., he is properly subject to the jurisdiction of the forum cour...
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