Opinion
Civil Action No. 1:05-cv-101-GET.
June 28, 2006
ORDER
The above-styled matter is presently before the court on:
(1) defendant's motion for summary judgment [docket no. 26];
(2) plaintiffs' motion for summary judgment [docket no. 28];
(3) defendant's motion for leave to file supplemental brief in support of motion for summary judgment [docket no. 41];
(4) plaintiffs' motion for leave to file responsive pleading [docket no. 43].
Plaintiffs, representatives of Superior Directional Drilling, Inc. ("Superior"), a sub contractor, filed this breach of contract action against the general contractor, MasTec North America, Inc. ("MasTec"), to recover the unpaid portion of the contract price. Plaintiffs allege that Superior performed drilling services on a fiber optic cable project in Western Texas in 2000 and 2001 but was not paid for the work.
Defendant contends that the contract contains a "pay when paid" clause which excuses it from liability to Superior because MasTec was not paid by PathNet Operations, Inc. ("PathNet"), the owner of the project, for Superior's work Both parties filed motions for summary judgment.
Motion for leave to supplement
On February 14, 2006, defendant filed a motion for leave to file a supplemental brief in support of its motion for summary judgment to bring to the court's attention a newly decided case from the Tenth Circuit Court of Appeals addressing a contract and issues similar to those presently before this court. Plaintiffs do not oppose this motion but request the opportunity to file their own supplemental brief. Having considered the motions of the parties, the court hereby GRANTS defendant's motion for leave to file a supplemental brief [docket no. 41] and plaintiffs' cross-motion for leave to file a responsive pleading [docket no. 43]. The court has reviewed these briefs when considering the parties' motions for summary judgment.
Motions for Summary Judgment
Standard
Courts should grant summary judgment when "there is no genuine issue as to any material fact . . . and the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party must "always bear the initial responsibility of informing the district court of the basis of its motion, and identifying those portions of `the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). That burden is `discharged by `showing' that is, pointing out to the district court — that there is an absence of evidence to support the nonmoving party's case." Id. at 325; see also U.S. v. Four Parcels of Real Property, 941 F.2d 1428, 1437 (11th Cir. 1991).Once the movant has met this burden, the opposing party must then present evidence establishing that there is a genuine issue of material fact. Celotex, 477 U.S. at 325. The nonmoving party must go beyond the pleadings and submit evidence such as affidavits, depositions and admissions that are sufficient to demonstrate that if allowed to proceed to trial, a jury might return a verdict in his favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257 (1986). If he does so, there is a genuine issue of fact that requires a trial. In making a determination of whether there is a material issue of fact, the evidence of the non-movant is to be believed and all justifiable inferences are to be drawn in his favor. Id. at 255; Rollins v. TechSouth, Inc., 833 F.2d 1525, 1529 (11th Cir. 1987). However, an issue is not genuine if it is unsupported by evidence or if it is created by evidence that is "merely colorable" or is "not significantly probative."Anderson, 477 U.S. at 249-50. Similarly, a fact is not material unless it is identified by the controlling substantive law as an essential element of the nonmoving party's case. Id. at 248. Thus, to create a genuine issue of material fact for trial, the party opposing the summary judgment must come forward with specific evidence of every element essential to his case with respect to which (1) he has the burden of proof, and (2) the summary judgment movant has made a plausible showing of the absence of evidence of the necessary element. Celotex, 477 U.S, at 323.
Facts
In light of the foregoing standard, the court finds the following facts for the purpose of resolving these summary judgment motions only. Plaintiffs are the former directors for Superior Directional Drilling, Inc. ("Superior"), a Nevada corporation which was voluntarily dissolved on or about September 17, 2004. Plaintiffs bring this action in their capacities as statutory Trustees of Superior to collect a debt they allege is owed to Superior by MasTec.
An entity known as Renegade of Idaho, Inc. ("Renegade") entered into a "Fiber Optic Cable Engineering and Construction Agreement" (Primary Contract") with PathNet Operations, inc. dated April 12, 2000. Renegade was acquired by MasTec in late July 2000, and MasTec succeeded to Renegade's rights and obligations under the PathNet Contract. The PathNet project involved the burying of conduit to carry fiber optic cable from Albuquerque, New Mexico to El Paso, Texas.
In late November 2000, Superior entered into a Subcontract Agreement with MasTec on the PathNet Project. At the time, Superior was in the directional drilling business, which involved horizontal directional boring, primarily for the installation of fiber optic cable, natural gas lines, water and sewer lines, etc. No party can locate a fully executed copy of the Subcontract Agreement but the plaintiffs agree for the purpose of these motions that the parties' agreement included the terms set forth in exhibit 3 to the Dayley Deposition, with the exception of the language interlineated in numbered paragraph 12 and excluding the one page document entitled "Attachment to Contract." With the exception of the interlineations and the one page "Attachment to Contract," Exhibit 3 to the Dayley deposition was a form contract created by MasTec and used with all the boring subcontractors on the PathNet job.
The Primary Contract between PathNet and MasTec provides, in park
2. Price and Payment for Work. . . . Payment shall be made only for work properly performed and completed in accordance with this Agreement . . . Contractor must furnish with each Application for Payment a statement that any Contractor's subcontractor or vendors performing services or supplying materials in connection with the Work have been fully paid. . . . Failure to submit requested evidence of payment to subcontractors and vendors will delay the release of any Contractor payment until such time as the required documentation is produced. . . .
The MasTec form subcontract refers to the Primary Contract between MasTec and Superior, including the following paragraphs — "Subcontractor will perform the Work in accordance with the terms of this Agreement and the Primary Contract, the terms of which are incorporated into this Agreement by reference to the extent not inconsistent with the terms of this Agreement." Paragraph 11 of the Subcontract states:
Upon final acceptance of the work by Contractor and Owner, Contractor will pay Subcontractor for the Work at the prices and schedule and in the manner described on the work Orders); provided that, all payments to Subcontractor by Contractor are expressly contingent upon and subject to receipt of payment for the Work by Contractor from Owner, even if (a) Contractor has posted a payment bond with Owner or (2) the Primary Contract is on a "cost plus" or other reimbursement basis requiring the Contractor to pay subcontractors prior to being reimbursed by Owner.
Although MasTec originally drafted the Subcontract Agreement, Superior's president, Stephen Tolliver, made several changes to certain of the provisions of the Subcontract that he had concerns about. Tolliver made no changes to Paragraph 11 and accepted it as written.
MasTec's agreement with its subcontractors on the PathNet Project was that 10% of each subcontractor's billings would be held as retainage until the end of the job. Superior began work on the PathNet project in December 2000. On or about December 22, 2000, Superior submitted Payment Application No. 1 to MasTec for the work it had done on the PathNet Project through December 22, 2000 in the net amount of $177,987.60, representing gross billings of $197,764.00, less 10% retainage.
By check dated January 17, 2001, MasTec paid Superior pursuant to Payment Application No. I in the net amount billed of $177,987.60. MasTec had not been paid by the owner of the Project, PathNet, for any of the work Superior had done at the time MasTec issued its January 17, 2001 check to Superior for, Payment Application No. 1.
On February 2, 2001, Superior submitted Payment Application No. 2 to MasTec for the work it had done on the PathNet Project through February 1, 2001, in the net amount of $389,493.00, representing gross billings of $630,534.00, less 10% retainage of $63,053.40, less previous payments of $177,987.60.
By check dated February 20, 2001, MasTec paid Superior pursuant to Payment Application No. 2 in the net amount billed of $389,493.00. MasTec had not been paid by PathNet for any of the work Superior had done at the time MasTec issued its February 2, 2001 check to Superior for Payment Application No. 2.
On March 1, 2001, Superior submitted Payment Application No. 3 to MasTec for the work it had done on the Path Net Project through February 28, 2001, in the net amount of $332,375.40, representing gross billings of $999,840.00, less 10% retainage of $99,984.00, less previous payments of $567,480.60. By check dated March 21, 2001, MasTec paid Superior pursuant to Payment Application No. 3 in the net amount billed of $332,375.40. MasTec had not been paid by PathNet for any of the work Superior had done at the time MasTec issued its March 21, 2001 check to Superior for Payment Application No. 3.
On March 31, 2001, Superior submitted Payment Application No. 4 to MasTec for the work it had done on the PathNet Project through March 27, 2001, in the net amount of $317,846.70, representing gross billings of $1,353,003.00, less 10% retainage of $135,300.30, less previous payments of $899,856.00. Superior did not work on the PathNet Project after March 27, 2001.
Richelle Tierney handled Payment Applications from subcontractors on the PathNet Project for Renegade/MasTec during 2000 and early 2001. Ms. Tierney reported to Renegade's President, Dennis Dayley, who was aware of the procedures she followed and approved of them. Part of Ms. Tierney's job was to make sure that the work that was being billed for had been properly inspected and that a subcontractor's invoice matched up with the supporting documentation submitted with it. If it did, her practice, and that of her successor, was to send the invoice to Renegade/MasTec's offices in Idaho for entry into the accounts payable system and also to send a copy of the invoice to MasTec's offices in Miami, Florida where the decision whether to pay all or any part of it was made. Ms. Tierney's job responsibilities also included preparing MasTec's bills to PathNet, and keeping track of whether PathNet had paid MasTec for a particular subcontractor's work; however, it was not part of her responsibilities to hold a subcontractor's invoice until PathNet had paid MasTec for that work and she did not do so. Dennis Dayley was ultimately responsible for monitoring the receipt of payments from PathNet on the project. Dayley expected subcontractors on the PathNet project to bill MasTec on a monthly basis.
In early April 2001, PathNet filed for bankruptcy and shut down the PathNet Project. MasTec notified its subcontractors to cease work on or about April 4, 2001. Although PathNet paid MasTec more than $9.5 million for its work, PathNet never paid MasTec for any of the work done by Superior on the PathNet Project.
On May 2, 2001, Superior submitted its final pay application to MasTec covering all the work Superior had done on the PathNet Project as set forth in Payment Applications 1-4, including retainage, in the net amount of $453,147.00. MasTec never paid Superior for the work covered by Payment Application No. 4 or for the 10% retainage on the entirety of its work on the PathNet Project. Over the course of the project, Superior was paid $899,856.00 of its total billings of $1,353,003.00, roughly 67% of its billings.
Dayley testified that he has no knowledge of any problems with Superior's work on the PathNet Project. Dayley stated that the reason MasTec did not pay Superior the remaining $453,147.00 was that "they felt like that until they were paid they shouldn't pay [Superior]" and that he doesn't know of any other reason why MasTec doesn't owe Superior that amount.
At the time of the PathNet Project, MasTec paid some subcontractors with "pay when paid" clauses in their contracts before MasTec received payment from the Owner of their work based on "business reasons." These included maintaining the flow of work and keeping the work going on the project.
All of the work performed by Superior for MasTec on the Path Net Project was performed within the State of Texas. The subcontract Agreement provides that "This Agreement . . . is governed by the laws of the state where the Work is/was performed."
Discussion
It is undisputed that Superior has not been paid the money plaintiffs seek for work Superior claims to have done under the contract. Defendant moves for summary judgment, however, arguing that "the condition precedent to MasTec's obligation to pay has not occurred" and because "the termination clause bars Superior's claims against it." Plaintiffs also move for summary judgment arguing that defendant "waived any protections of the "pay when paid' clause" and that in any event, the "pay when paid clause" is simply a covenant rather than a condition precedent.
The parties agree that Texas law applies under the terms of the contract. There do not appear to be any issues of Georgia public policy implicated in this action which would prevent the court from honoring the parties' choice of law. See e.g. Converavs Corp. v. Keener, 276 Ga. 808, 810-11 (2003) (Georgia law honors parties' choice of law expressed in contract unless enforcement is contrary to public policy or prejudicial to interests of Georgia); Hulcher Svcs, Inc. v. R.J. Corman RR Co., LLC, 247 Ga. App. 486, 489 (2000) (refusing to enforce parties choice of Texas law in covenant not to compete case where Texas law flagrantly contravened Georgia public policy).
Condition precedent
A condition precedent is a fact, other than the lapse of time, which must exist or occur before a duty of immediate performance of a promise arises. See Perry v. Little, 377 S.W.2d 765, 768 (Tex.Civ.App. 1964). A condition creates no right or duty in and of itself, but is merely a limiting or modifying factor. If it is breached or does not occur, the promisee acquires no right to enforce the promise. Id. at 769; Toland v. Kaliff, 435 S.W.2d 260, 262 (Tex.Civ.App. 1968).
Under Texas law,
A condition precedent may be either a condition to the formation of a contract or to an obligation to perform an existing agreement. Conditions may, therefore, relate either to the formation of contracts or liability under them. Conditions precedent to an obligation to perform are those acts or events, which occur subsequently to the making of the contract, that must occur before there is a right to immediate performance and before there is a breach of contractual duty. While no particular words are necessary for the existence of a condition, such terms as "if," "provided that," "on condition that," or some other phrase that conditions performance, usually connote an intent for a condition rather than a promise. . . . . [W]here the intent of the parties is doubtful or where a condition would impose an absurd or impossible result, then the agreement should be interpreted as creating a covenant rather than a condition. Also, it is a rule of construction that a forfeiture, by finding a condition precedent, is to be avoided when possible under another reasonable reading of the contract . . .,Gulf Construction Co. v. Self, 676 S.W.2d 624, 627 (Tex.Civ.App. 1984) (internal citations omitted).
In the instant action, Paragraph 11 of the Subcontract provides that "all payments to Subcontractor by Contractor are expressly contingent upon and subject to receipt of payment for the Work by Contractor from Owner, even if . . . the Primary Contract is on a `cost plus' or other reimbursement basis requiring the Contractor to pay subcontractors prior to being reimbursed by Owner." The court finds that the language of Paragraph 11 is sufficiently conditional to make PathNet's payment to defendant a condition precedent to defendant's obligation to pay plaintiffs. See e.g. MidAmerica Construction Management Inc, v. MasTec North America, Inc., 436 F.3d 1257, 1265 (10th Cir. 2006) (interpreting identical contractual language and finding it to be condition precedent under Texas law).
Waiver
Plaintiffs argue, however, that even if Paragraph 11 constitutes a condition precedent, defendant waived any protections from liability it provided by making three progress payments to Superior even though defendant had not been paid by PathNet. Plaintiffs assert two bases for waiver: (1) waiver of necessity and (2) waiver by payment.
Waiver of necessity
Plaintiffs contend that MasTec's own contract with PathNet made it impossible for MasTec to enforce any "pay when paid" clause in its agreement with subcontractors because the Primary Contract required MasTec to "furnish with each Application for Payment a statement that any Contractor's subcontractor or vendors performing services or supplying materials in connection with the Work have been fully paid." Therefore, according to plaintiffs, "[t]he very contracts MasTec agreed to on this project created a situation where MasTec had to waive any `pay when paid' provisions in its agreements with its subcontractors."
Plaintiffs fail to cite the court to any law from Texas, or otherwise, establishing a "waiver of necessity." To the extent there is a real conflict between the Primary Contract and the Subcontract, however, the Subcontract expressly provides the means of resolving the conflict stating that Paragraph 11 is in force "even if . . . the Primary Contract is on a . . ., reimbursement basis requiring the Contractor to pay subcontractors prior to being reimbursed by Owner. . . ." Plaintiffs also fail to cite any Texas law which prevents such a shift in the risk of nonpayment to the subcontractor from the contractor when done expressly and in writing. Cf. Gulf Constr., 676 S.W.2d at 529-30 (noting risk of nonpayment by owner on construction contract is not shifted from contractor to subcontractor unless there is clear unequivocal and expressed agreement to do so).
Waiver by payment
Plaintiffs essentially argue that there was an implied waiver of the condition precedent because defendant made certain payments to Superior on the first three Payment Applications submitted by Superior even though defendant had not been paid by PathNet for Superior's work. Plaintiffs make no argument and present no evidence regarding any express waiver of the condition precedent.
Waiver is an intentional relinquishment of a known right or intentional conduct inconsistent with claiming that right.Massachusetts Bond Ins. Co, v. Orkin Exterm. Co., 416 S.W.2d 396, 401 (Tex. 1967). A condition precedent may be waived,Kennedy v. McMullen, 39 S.W.2d 168, 174 (Tex.Civ.App. 1931), and the waiver of a condition precedent may be inferred from a party's conduct.Ames v. Great Southern Bank, 672 S.W.2d 447, 449 (Tex. 1984).
In order to establish a waiver of rights under a contract, there must be proof of an intent to relinquish a known right.Huffington v. Upchurch, 532 S.W.2d 576, 580 (Tex. 1976);Horton v. Robinson, 776 S.W.2d 260, 264 (Tex.App. 1989). The Texas courts have held that "waiver by implication should not be inferred contrary to the intention of the party whose rights would be injuriously affected thereby, unless the opposite party has been misled to his or her prejudice." Cecil Pond Const. Co. v. Ed Bell Investments, Inc., 864 S.W.2d 211, 215 (Tex.App. 1993); Vessels v. Anochutz Corp., 823 S.W,2d 762, 765 (Tex.App. 1992); Cox v. Bancoklahoma Agri-Serv. Corp., 641 S.W.2d 400, 404 (Tex.App. 1982). See Enserch Corp. v. Rebich, 925 S.W.2d 75, 82 (Tex.App. 1996).
While there is evidence that supports a finding that defendant knew it was making payments to Superior even though defendant had not been paid by PathNet for the work, there is no evidence that defendant intended to waive the condition precedent by doing so. Furthermore, there is insufficient evidence to create a genuine issue of material fact as to whether Superior was misled to its prejudice because defendant made payments on the first three applications. Although plaintiffs contend that Superior would have stopped work had it been told that payment on its First Pay Application was going to be withheld until defendant received payment from PathNet, it appears from the record that Superior, in fact, would have lost more money by withdrawing at that time than what plaintiffs claim it is now entitled to under the contract.
Having found that Paragraph 11 is a condition precedent to defendant's obligation to pay Superior under the contract and that this condition has not been waived, the court also finds that defendant has not breached the contract. Because the court has resolved these motions for summary judgment in defendant's favor on the condition precedent, the court need not address defendant's arguments regarding the termination clause of the contract. Accordingly, plaintiffs' motion for summary judgment [docket no. 28] is DENIED. Defendant's motion for summary judgment [docket no. 26] is GRANTED.
Summary
(1) Defendant's motion for summary judgment [docket no. 26] is GRANTED
(2) Plaintiffs' motion for summary judgment [docket no. 28] is DENIED;
(3) Defendant's motion for leave to file supplemental brief in support of motion for summary judgment [docket no. 41] is GRANTED;
(4) Plaintiff's motion for leave to file responsive pleading [docket no. 43] is GRANTED.
SO ORDERED.