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Durham Stabilization Inc. v. SBBI Inc.

United States District Court, D. Arizona

March 3, 2017

Durham Stabilization Incorporated, Plaintiff,
v.
SBBI Incorporated, et al., Defendants.

          ORDER

          James A. Teilborg Senior United States District Judge.

         Pending before the Court are Plaintiff United States of America, for the use and benefit of Durham Stabilization, Inc.'s Motion for Partial Summary Judgment on the First and Second Claims for Relief, (“Plaintiff's Motion, ” Doc. 23), and Defendants SBBI, Inc. and Hartford Fire Insurance Company's Motion for Summary Judgment, (“Defendants' Motion, ” Doc. 25). The Court now rules on both Motions.

         I.BACKGROUND[1]

         This case arises out of the Three Forks Road Project (the “Project”) for the United States government located in Apache County, Arizona. Defendant SBBI was the prime contractor on the Project. SBBI subcontracted with Plaintiff Durham Stabilization.

         In May 2014, SBBI entered into a construction contract with the Federal Highway Administration (“FHA”) involving the Project. (Separate Statement of Facts in Support of Plaintiff['s] Motion for Partial Summary Judgment, Doc. 24 (“PSOF”) at ¶¶ 1, 2; Defendants['] Statement of Facts, Doc. 26 (“DSOF”) at ¶ 1). SBBI obtained a Miller Act payment bond from Defendant Hartford Fire Insurance Company in relation to the Project. (PSOF at ¶ 3; Defendants['] Controverting Statement of Facts, Doc. 29 at 3-17 (“DCSOF”) at ¶ 3).

         SBBI subcontracted with Plaintiff to provide materials in the estimated quantities as follows:

Item Description

Est. Quantity (tons)

Unit Price

Total Amount

Emulsified Asphalt Grade CSS-1

1, 310.00

$700.00

$917, 000.00

Emulsified Asphalt Treated Aggregate Base

66, 800.00

$10.54

$704, 072.00

Total

$1, 621, 072.00

         (Doc. 1-1 at 11). Plaintiff also agreed to provide two types of bond allocation.[2] (Id.). The subcontract was a unit price contract, which obligated SBBI to pay Plaintiff for all items actually supplied by Plaintiff, even if those amounts were above the estimates provided in the subcontract. (DSOF at ¶ 4; Plaintiff[‘s] Objection to Defendant[']s Separate Statement of Facts, Doc. 28 (“PODSOF”) at ¶ 4; Doc. 1-1 at 3).

         SBBI grew concerned over “potential negative effects of rain on paving conditions” and wanted to change the materials it had contracted with FHA to provide. (Doc. 37 at 2; see also Doc. 24-2 at 18). As a result, after SBBI and Plaintiff entered into the subcontract but before Plaintiff commenced work, SBBI and Plaintiff agreed to a “no- cost change order” but failed to define this term during their negotiations.[3] (Docs. 24-1 at 17; 24-2 at 14; 23 at 3; 29 at 6). SBBI and Plaintiff agreed to replace the emulsified asphalt grade CSS-1 with two separate items: foamed asphalt grade oil (“FAGO”) and cement type II/V. The two parties agreed to price the cement at $400 per ton, but it is unclear whether the parties agreed to a specific unit price for the FAGO. (PSOF at ¶ 7; DCSOF at ¶ 7). Maintaining a price of $10.54 per ton, SBBI and Plaintiff also agreed to replace the emulsified asphalt treated aggregate base with foamed asphalt and cement treated aggregate base. (PSOF at ¶ 7; DCSOF at ¶ 7). While the subcontract included a procedure for the parties to follow in implementing a written change order, (Doc. 1-1 at 4), the parties ignored this provision and agreed to the change order orally, (Docs. 24-1 at 17; 24-2 at 14; DSOF at ¶ 18; PODSOF at ¶ 18).

         In June 2014, SBBI submitted to FHA an informal, written proposal to change the contract specifications, reflecting the change of materials described above. (DSOF at ¶ 9; PODSOF at ¶ 9; Doc. 24-2 at 98-99). In the proposal, SBBI stated that the change “would not affect the cost to [FHA], ” and “SBBI will absorb the additional cost for this method of installation since the current specification will be very difficult to meet this time of year owing to anticipated monsoonal activity for the area.” (Doc. 24-2 at 98). FHA did not return the “final Amendment of Solicitation/Modification of Contract, ” reflecting the aforementioned changes, to SBBI until December 2014. (DSOF at ¶ 31; PODSOF at ¶ 31).

         In August 2014, FHA acknowledged that it would approve the changes pending receipt of “certified cost and pricing data” and notified SBBI that it could proceed with the proposed contract change. (Doc. 24-2 at 56-57, 167-68; PSOF at ¶ 13; DCSOF at ¶ 13). Shortly thereafter, SBBI communicated this approval to commence work to Plaintiff. (PSOF at ¶ 13; DCSOF at ¶ 13; Doc. 24-2 at 59). Plaintiff then completed the work pursuant to the changed specifications in a “timely and workmanlike manner.” (PSOF at ¶ 15; DCSOF at ¶ 15; Doc. 24-3 at 3).

         Plaintiff submitted two invoices to SBBI for the project: one based on estimated quantities and the second based on actual quantities delivered for the Project. (PSOF at ¶ 16; DCSOF at ¶ 16). Plaintiff's second invoice-based on actual quantities delivered-included the following quantities and unit prices:

Item Description

Quantity (tons)

Unit Price

Total Amount

Foamed Asphalt Grade Oil

1, 014.44

$700.00

$710, 108.00

Cement Type II/V

605.35

$400.00

$242, 140.00

Foamed Asphalt and Cement Treated Aggregate Base

61, 428.36

$10.54

$647, 454.91

Total

$1, 599, 702.91

         (Doc. 24-2 at 184). Following receipt of the two invoices, SBBI paid Plaintiff a total of $1, 357, 562.92, (Doc. 34 at 2), which represented payment for both the FAGO and foamed asphalt and cement treated aggregate base.[4] (DCSOF at ¶¶ 17-19; PSOF at ¶¶ 17-19). SBBI rejected “any charges for cement at $400 per ton” because FHA “had not yet approved the change order[, ] and it was therefore impossible to invoice the cement component.” (DSOF at ¶ 17; Doc. 24-2 at 183). SBBI finally received FHA's approval of the change order in December 2014. (DSOF at ¶ 31; PODSOF at ¶ 31).

         In January 2015, SBBI reconciled Plaintiff's two invoices and FHA's Amendment of Solicitation/Modification of Contract. (DSOF at ¶ 32; PODSOF at ¶ 32). Specifically:

1) SBBI replaced FHA's estimates under the contract with FHA's “new specifications, ” or esti5mates, for material quantities under the change order.[5] (DSOF at ¶ 33). Specifically, FHA estimated the Project would require:
(a) 66, 800 tons of foamed asphalt and cement treated aggregate base; (b) 1, 230 tons of FAGO; and (c) 835 tons of cement type II/V. (Doc. 24-4 at 139-40; DSOF at ¶ 33).
2) SBBI then used unit prices of $10.54 for the foamed asphalt and cement treated aggregate base and $400 for the cement type II/V to calculate a $473.98 FAGO unit price. In other words, setting the FAGO unit price at $473.98 ensured that the total contract price using the FHA estimates for the change order materials would be nearly identical to the original subcontract's total price ($1, 621, 067.40 for the changed specifications and $1, 621, 072.00 for the original specifications-a $4.60 difference). (DSOF at ¶¶ 33-36). These calculations are depicted below:

Item Description

FHA Est. Quantity (tons)

Unit Price

Total Amount

Foamed Asphalt Grade Oil

1, 230.00

$473.98

$582, 995.40

Cement Type II/V

835.00

$400.00

$334, 000.00

Foamed Asphalt and Cement Treated Aggregate Base

66, 800.00

$10.54

$704, 072.00

Total

$1, 621, 067.40

         3) Finally, SBBI replaced FHA's estimated quantities with the quantities Plaintiff actually supplied. (Id. at ¶ 35). Thus, SBBI calcula6ted that it owed Plaintiff $1, 370, 419.18. (Doc. 34 at 2).[6] These calculations are reflected below:

Item Description

Actual Quantity (tons)

Unit Price

Total Amount

Foamed Asphalt Grade Oil

1, 014.44

$473.98

$480, 824.27

Cement Type II/V

605.35

$400.00

$242, 140.00

Foamed Asphalt and Cement Treated Aggregate Base

61, 428.36

$10.54

$647, 454.91

Total

$1, 370, 419.18

         SBBI believes that the term “no-cost change order” implied the performance of these reconciliation calculations. (DSOF at ¶ 19). Thus, after completing the reconciliation, SBBI determined that it had paid Plaintiff in full. (Id. at ¶ 38).

         On the other hand, Plaintiff believes that the term “no-cost change order” meant that the total price of the original contract ($1, 621, 072.00) would be greater than or equal to the total price of the subcontract reflecting the changed specifications and actual quantities ($1, 599, 702.91). (Doc. 23 at 3). Plaintiff states this is a “no-cost change order” because “the changed product would require [Plaintiff] to use less oil so the tonnage quantity was going to be reduced and the difference was going to pay for the cement component.” (Id.).

         Plaintiff filed this suit against SBBI and SBBI's surety, Hartford Fire Insurance Company, under the Miller Act, which requires contractors doing construction contract work for the United States government to obtain performance and payment bonds to ensure the work is completed and that all persons supplying labor and material for the project are paid. See 40 U.S.C. §§ 3131-34 (2012). Plaintiff also sued Defendants under breach of contract and promissory estoppel theories. (See Doc. 1).

         II. LEGAL STANDARD

         Summary judgment is appropriate when “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A party asserting that a fact cannot be or is genuinely disputed must support that assertion by “citing to particular parts of materials in the record, ” including depositions, affidavits, interrogatory answers or other materials, or by “showing that materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact.” Id. 56(c)(1). Thus, summary judgment is mandated “against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

         Initially, the movant bears the burden of pointing out to the Court the basis for the motion and the elements of the causes of action upon which the non-movant will be unable to establish a genuine issue of material fact. Id. at 323. The burden then shifts to the non-movant to establish the existence of material fact. Id. A material fact is any factual issue that might affect the outcome of the case under the governing substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The non-movant “must do more than simply show that there is some metaphysical doubt as to the material facts” by “com[ing] forward with ‘specific facts showing that there is a genuine issue for trial.'” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986) (quoting Fed.R.Civ.P. 56(e)). A dispute about a fact is “genuine” if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Liberty Lobby, Inc., 477 U.S. at 248. The non-movant's bare assertions, standing alone, are insufficient ...


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