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Pro-Spec Corp. v. Chester Water Authority

United States District Court, E.D. Pennsylvania

June 28, 2017

PRO-SPEC CORPORATION
v.
CHESTER WATER AUTHORITY, et al.

          MEMORANDUM

          KEARNEY, J.

         Citizens may expect contractors awarded work from our water authorities following a competitive bid process will perform their contract obligations, including through subcontractors hoping to work for the contractor who won the bid from the water authority. We also expect the water authority and contractors act in accordance with their contract and commercial expectations just like a party to any contract. When the water authority, contractor and subcontractor each claim a failure in performance and ascribe a wide variety of disputed reasons, we cannot enter summary judgment on disputed issues of fact. After review of substantial discovery relating to the water authority's and a contractor's motion for summary judgment, we find certain claims must be dismissed as a matter of law. We cannot draw the same legal conclusions based on disputed facts relating principally to competing contract claims. Ferreting through several genuine issues of material fact, we need the adversarial process at trial to understand if there is a breach of contract and by whom.

         I. Background[1]

         Chester Water Authority (the “Authority”) delivers potable water to customers in Delaware and Chester Counties.[2] It owns and operates the Village Green Tank Farm. Water tanks at the Tank Farm require periodic maintenance, and in the past, the Authority contracted with DN Tanks to work on the tanks.[3]

         In December 2014, the Authority solicited bids for a contract relating to the “Rehabilitation of Village Green Tanks No. 2 and No. 9” (referred to as the “Tanks Contract”).[4]Pro-Spec Corporation submitted the lowest bid for the Tanks Contract, and DN Tanks submitted the second lowest bid.[5]

         On March 16, 2015, the Authority and Pro-Spec agreed to the Tanks Contract, which the parties agree is enforceable and governed by Pennsylvania law.[6] The underlying project is a public works project requiring Pro-Spec to recoat the exterior of Tank No. 9, install a line stop and two manholes at Tank No. 2, and apply an elastomeric coating membrane to areas within both tanks' interiors.[7] The Tanks Contract required DN Tanks or Preload install manholes.[8]

         A. Before Pro-Spec agrees to the Tanks Contract, it begins negotiating a subcontractor agreement with DN Tanks.

         On January 9, 2015, DN Tanks sent an initial subcontractor proposal to Pro-Spec to install manholes and perform other work on the project.[9] Pro-Spec did not accept this proposal in writing and proceeded to agree to the Tanks Contract with the Authority on March 16, 2015 even though it lacked a subcontractor agreement with DN Tanks.[10]

         Pro-Spec responded to DN Tanks' initial proposal on April 8, 2015 by sending a draft subcontractor agreement to DN Tanks, which contradicted many terms in DN Tank's initial proposal.[11] DN Tanks did not agree to these terms, and instead returned the draft subcontractor agreement with “proposed modifications” on April 29, 2015.[12] For example, DN Tanks proposed delaying the manhole installation start date by approximately three and a half months.[13]DN Tanks also demanded the agreement incorporate DN Tanks' initial proposal by reference.[14] Pro-Spec responded it would never incorporate DN Tanks' initial proposal into a subcontractor agreement, calling this term a “deal breaker.”[15]

         During Pro-Spec's negotiations with DN Tanks, project engineer Gannett Flemming issued Pro-Spec a “Notice to Proceed” requiring Pro-Spec commence work on May 4, 2015.[16] The Tanks Contract required Pro-Spec to achieve substantial completion of all work by December 30, 2015, and final completion by January 29, 2016.[17] Pro-Spec admittedly did not complete the work by these deadlines, but the parties dispute whether Pro-Spec is responsible for not meeting the deadlines.[18]

         B. Pro-Spec and DN Tanks continue to negotiate the terms of the subcontractor agreement.

         On April 30, 2015, Pro-Spec requested design submittals from DN Tanks.[19] DN Tanks responded it would not provide design submittals until the parties agreed to a subcontract.[20] On May 5, 2015, Pro-Spec sent DN Tanks a Letter of Intent requesting design submittals.[21] The cover email enclosing the Letter of Intent stated “issue[s] related to the Subcontract will proceed but should not delay the non-site work.”[22] Pro-Spec President Ron Yarbrough acknowledged the parties were still negotiating “issues” concerning the subcontract.[23]

         Pro-Spec's Letter of Intent did not include all of DN Tanks' proposed terms.[24] For example, the Letter of Intent did not incorporate by reference DN Tanks' initial proposal, and it required DN Tanks dispose of waste rather than Pro-Spec.[25]

         On May 7, 2015, DN Tanks returned a marked-up copy of the Letter of Intent, which re-proposed DN Tanks' requested incorporation of the initial proposal and Pro-Spec's disposal of waste.[26] On May 11, 2015, Pro-Spec rejected DN Tanks' marked-up Letter of Intent, stating “I trust that an amicable subcontract will include any concerns of both parties and an amicable subcontract will be agreed to.”[27]

         On May 19, 2015, DN Tanks emailed Pro-Spec asking if it would send a revised Letter of Intent soon.[28] On June 18, 2015, Pro-Spec asked DN Tanks if it would provide an executed subcontractor agreement.[29] The following day, DN Tanks asked Pro-Spec to include its requirements into an acceptable subcontract, and DN Tanks reminded Pro-Spec they did not have an agreement.[30] DN Tanks also worried the delayed start date would push DN Tanks' work into cold weather and Pro-Spec would need to make provisions to protect DN Tanks' work.[31]

         As of June 19, 2015, DN Tanks and Pro-Spec still disagreed about incorporating DN Tanks' initial proposal by reference in the subcontractor agreement.[32] On July 1, 2015, Pro-Spec sent DN Tanks a revised subcontractor agreement, but the proposed agreement failed to address many of DN Tanks' concerns and incorporate many of DN Tanks' material terms, including DN Tanks' initial proposal and its work schedule.[33] DN Tanks responded by returning a list of its material terms to Pro-Spec on July 15, 2015.[34] These terms included:

• Pro-Spec had not agreed to exempt DN Tanks from providing “permits, fees and inspections”;
• Pro-Spec had not updated the schedule to match DN Tanks' most recent schedule;
• Pro-Spec had not incorporated DN Tanks' initial proposal by reference;
• Pro-Spec had not incorporated DN Tanks' most recent schedule by reference; and,
• Pro-Spec had not agreed it would bear the costs associated with protection of winter work.[35]

         On July 23, 2015, Pro-Spec sent DN Tanks another proposed subcontract.[36] On July 27, 2015, DN Tanks responded by calling the proposed subcontractor agreement unacceptable and again requested DN Tanks' material revisions be incorporated into the proposed subcontractor agreement.[37]

         On July 28, 2015, Pro-Spec purported to send DN Tanks a Notice to Proceed even though it had not revised the subcontractor agreement to address DN Tanks' concerns.[38] The same day, DN Tanks responded by reminding Pro-Spec it did not agree to a subcontractor agreement and requested Pro-Spec correct several unacceptable provisions in the proposed agreement.[39]

         C. Pro-Spec claims to reach a subcontractor agreement with Preload.

         On August 19, 2015, Pro-Spec wrote a letter to Gannett Fleming admitting it “just couldn't get a fair agreement with [DN Tanks] as a Subcontractor.”[40] The same day, Pro-Spec informed Gannet Fleming it terminated its purported agreement with DN Tanks and issued a subcontractor agreement to Preload.[41]

         On September 18, 2015, the Authority sent Pro-Spec a letter regarding Pro-Spec's delays, reminding them the Tanks Contract allows the owner to assess liquidated damages against Pro-Spec for late completion.[42] Pro-Spec forwarded this letter to Preload, threatening it would hold Preload responsible for all damages resulting from the delay.[43] Preload ultimately declined to enter a subcontractor agreement with Pro-Spec.[44]

         D. Pro-Spec reaches out to DN Tanks to reinstitute negotiations.

         In October 2015, Pro-Spec approached DN Tanks regarding a subcontractor agreement.[45]On October 27, 2015, DN Tanks and Pro-Spec discussed necessary revisions to the subcontractor agreement.[46] On November 2, 2015, Pro-Spec sent DN Tanks another proposed subcontractor agreement.[47] The following day, DN Tanks responded by advising Pro-Spec certain agreed-upon revisions were not included in the recent draft subcontract.[48]

         During November 2015, DN Tanks and Pro-Spec participated in several conference calls and exchanged several emails regarding the revisions to the subcontractor agreement.[49] On November 20, 2015, Pro-Spec and DN Tanks agreed to a subcontractor agreement.[50]

         DN Tanks did not perform work or provide any deliverables to Pro-Spec before signing the agreement on November 20, 2015.[51] DN Tanks and Pro-Spec did not have a course of dealing before this project because they did not work together in the past.[52]

         E. DN Tanks performs under the subcontractor agreement.

         On November 30, 2015, DN Tanks began work on the project.[53] The November 20, 2015 subcontractor agreement between DN Tanks and Pro-Spec defined the scope of the work in Article 8, which refers to Schedule A and Schedule D.[54] These Schedules explain the scope of the work is contained in “Bid Item B6.”[55] Despite this clear language, Pro-Spec president Ron Yarbrough testified DN Tanks' responsibilities are not limited to Bid Item B6, but are also found in the bid forms.[56] Pro-Spec does not point to any contract language directing DN Tanks' responsibilities are included in the bid forms or elsewhere. Nor does Pro-Spec identify DN Tanks' specific responsibilities encompassed in these documents.

         DN Tanks' subcontract price for performing work under Contract Item B6 is $475, 000.[57]DN Tanks invoiced Pro-Spec for this amount, but Pro-Spec paid only $137, 250.[58] On June 23, 2016, Pro-Spec submitted its Payment Application No. 11.[59] Mr. Yarbrough signed Payment Application No. 11, and by doing so he represented to the owner, to the best of his knowledge, the work for each line item had been completed.[60] Nevertheless, Pro-Spec submitted the expert report of Coatings Consultants, Inc., which found defects in DN Tanks' work.[61]

         F. The Authority terminates the Tanks Contract with Pro-Spec.

         On June 30, 2016, the Authority sent Pro-Spec a Termination Notice stating the Authority would end its agreement with Pro-Spec so the Authority could “correct the deficiencies of [Pro-Spec] and complete the work set forth in the Contract, including remediation or corrective action required by the misapplication of the coating to the interior surfaces of Tank No. 2 by [Pro-Spec].”[62]

         II. Analysis

         Pro-Spec sued DN Tanks and the Authority for breach of contract and civil conspiracy, and brought an alternative claim against the Authority for unjust enrichment. The Authority counterclaimed for breach of contract and set-off. DN Tanks counterclaimed for, among other claims, breach of contract and set-off.[63]

         DN Tanks and the Authority move for summary judgment, arguing Pro-Spec's claims fail as a matter of law.[64] DN Tanks also argues it is entitled to summary judgment on its breach of contract claim against Pro-Spec. We grant in part Defendants' motions, but find genuine issues of material fact preclude the entry of judgment on Pro-Spec's breach of contract claim against the Authority and DN Tanks' breach of contract claim against Pro-Spec.

         A. Pro-Spec's breach of contract claim against the Authority must be resolved at trial.

         The Authority is not entitled to summary judgment on Pro-Spec's claim for breach of contract. To succeed on its claim for breach of contract against the Authority, Pro-Spec must prove: “(1) the existence of a contract, including its essential terms, (2) a breach of the contract; and, (3) resultant damages.”[65] To prove damages, Pro-Spec “must give a factfinder evidence from which damages may be calculated to a ‘reasonable certainty.'”[66] This standard requires at least “a rough calculation that is not ‘too speculative, vague or contingent' upon some unknown factor.”[67]

         The Authority argues Pro-Spec cannot prove damages to a reasonable certainty. We disagree. Pro-Spec's expert Mr. Versaw identified damages resulting from the alleged breach amounting to over $1.1 million.[68] We do not consider Mr. Versaw's testimony or expert report because Pro-Spec failed to timely provide expert disclosures, and its belated disclosure is not substantially justified or harmless under Federal Rule of Civil Procedure 37(c)(1). Upon reviewing facts underlying Mr. Versaw's report demonstrating damages based on unpaid bills, we find Mr. Yarbrough may be competent to testify about breach of contract damages. Pro-Spec may proceed on its breach of contract claim against the Authority.

         B. We dismiss Pro-Spec's breach of contract claim against DN Tanks.

         We grant summary judgment on Pro-Spec's claim against DN Tanks for breach of contract. The ordinary elements of offer, acceptance, and consideration apply in the context of a construction contract.[69] An acceptance of an offer “must be absolute and identical with the terms of the offer.”[70] A purported acceptance “which adds qualifications or requires performance of conditions, is not an acceptance but is a counter-offer.”[71]

         Pro-Spec argues its breach of contract claim against DN Tanks arises from “DN [Tanks'] bad faith conduct in refusing to execute a subcontract, ” “demanding additional contract terms, ” and not working during the summer 2015 timeframe.[72] Its argument presupposes the existence of a subcontractor agreement requiring performance in the summer of 2015. Pro-Spec, however, provides no evidence it agreed with DN Tanks to a subcontractor agreement before November 20, 2015.

         During the time period leading up to November 20, 2015, DN Tanks and Pro-Spec exchanged a series of offers and counteroffers. After DN Tanks submitted its initial proposal, Pro-Spec responded with a draft subcontractor agreement contradicting many of the initial proposal's terms. The parties continued this back-and-forth negotiation process for several months until they finally agreed to a subcontractor agreement on November 20, 2015. Even though the Authority required Pro-Spec sign a subcontractor agreement with DN Tanks or Preload, DN Tanks had no contractual obligations until it agreed to the subcontractor agreement in November 2015. As Pro-Spec's breach of contract claim against DN Tanks is based on DN Tanks' conduct preceding November 20, 2015, we must grant summary judgment on this claim for lack of an agreement.

         Pro-Spec abandoned its claim to the extent it could be based on alleged breaches of the November 20, 2015 subcontractor agreement occurring after November 20, 2015, as Pro-Spec fails to address these alleged breaches in its response.[73]

         C. We dismiss Pro-Spec's unjust enrichment claim.

         We grant the Authority's motion for summary judgment on Pro-Spec's claim against the Authority for unjust enrichment. The “doctrine of unjust enrichment is inapplicable when the relationship between parties is founded on a written agreement or express contract.”[74] As the Authority and Pro-Spec do not dispute a valid contract governs their relationship, we dismiss this claim.

         D. We dismiss Pro-Spec's civil conspiracy claim.

         To prove a civil conspiracy, Pro-Spec must demonstrate (1) a combination of two or more persons acting with a common purpose to do an unlawful act or to do a lawful act by unlawful means or for an unlawful purpose, (2) an overt act done in pursuance of the common purpose, and (3) actual legal damage.”[75] Pro-Spec must also prove “malice, i.e. an intent to injure.”[76] Pro-Spec may prove a conspiracy through circumstantial evidence provided such evidence is “full, clear and satisfactory.”[77] “Mere suspicion or the possibility of guilty connection is not sufficient, nor proof of acts which are equally consistent with innocence.”[78]

         “Absent a civil cause of action for a particular act, there can be no cause of action for civil conspiracy to commit that act.”[79] Stated another way, a conspiracy claim cannot be based on dismissed claim, but instead must be based on a predicate cause of action in the lawsuit.[80] For example, courts have dismissed ...


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