Summary
explaining that “[c]ourts that have enforced [pay-if-paid] provisions do so when the provisions explicitly provide that payment to the contractor by the owner is a condition precedent to payment to the subcontractor by the contractor”
Summary of this case from BMD Contractors, Inc. v. Fid. & Deposit Co. of Md.Opinion
Cause No. IP99-1575-C-T/G
October 25, 2000
ENTRY ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND ORDER FOR PLAINTIFF TO SHOW JUSTIFICATION FOR AND AMOUNT OF INTEREST
Plaintiff, Envirocorp Well Services, Inc. ("Envirocorp"), sued Defendant, Camp Dresser McKee, Inc. ("CDM"), alleging that CDM failed to pay Envirocorp for work completed on a written subcontract. Envirocorp moved for summary judgment on its claim against CDM. For the following reasons, Envirocorp's motion is granted.
I. Facts
In March 1996, CDM entered into an agreement with the State of Indiana, acting by and through the Indiana Department of Environmental Management ("IDEM"), to assist IDEM by providing certain remedial investigations, site characterizations and corrective action services. On or before May 21, 1998, CDM received Supplement No. 15 to the agreement. Pursuant to Supplement No. 15, CDM agreed to provide a number of services for a deep well injection system and contaminated soil remediation or removal system to remedy salt contamination of groundwater near the Indiana Department of Transportation's ("INDOT") Valparaiso facility. Mark Burgess was CDM's project manager and project engineer on the Valparaiso project.
On or about June 26, 1998, CDM entered into a subcontract with Envirocorp under which Envirocorp agreed to perform a number of services for the deep well injection system in connection with Supplement No. 15. CDM agreed to compensate Envirocorp for these services. The provisions of the subcontract that are relevant to the current dispute were drafted by CDM. Exhibit C to the subcontract listed 15 "milestones" and the itemized cost of each milestone. Upon completion of each milestone, the subcontract instructed Envirocorp to submit an invoice to CDM for the cost of the milestone.
By letter dated June 25, 1998, CDM authorized Envirocorp to proceed with Phase I of the project, specifically including milestones 1 through 8. Envirocorp completed milestones 1 through 6 and received the payments due for completing those tasks. Under milestone 7, Envirocorp was to complete the evaluation of bids and selection of preferred subcontractors. Under milestone 8, Envirocorp was to complete the preparation of sample purchase orders. On or before March 17, 1999, Envirocorp completed the tasks described by milestones 7 and 8, but has not received payment for the services performed in connection with those milestones. The cost listed in Exhibit C for completion of milestone 7 is $60,000 and for completion of milestone 8, $30,000.
CDM does not dispute that Envirocorp completed the tasks described by milestones 7 and 8, nor does it dispute that Envirocorp was not paid for such work. Rather, CDM asserts that while Envirocorp may have done the work described by milestone 7, it did not do that work for the purpose of completing milestone 7, and that Envirocorp's work on milestone 8 was deficient.
Envirocorp submitted an invoice, dated March 17, 1999, to CDM for payment of $60,000 due on milestone 7. The description section of the invoice reads, "Completion of Milestone Task No. 7 Complete Evaluation of bids and selection of preferred Subcontractors." On or about May 13, 1999, Mr. Burgess made an approval notation on the invoice, and on or about June 4, 1999, CDM submitted the invoice to IDEM for payment. Envirocorp submitted another invoice, also dated March 17, 1999, to CDM for $30,000, the cost of milestone 8. That invoice stated, "Completion of Milestone Task No. 8 Complete Preparation of sample Purchase Orders." On or about March 31, 1999, Mr. Burgess made an approval notation on this invoice, and on or about April 13, 1999, CDM submitted this invoice to IDEM for payment. In a letter dated August 31, 1999, IDEM rejected both invoices, noting that "CDM in subcontracting with Envirocorp apparently acted independently and in direct contradiction to both the oral and written direction of the IDEM staff." (Letter from Mary Beth Tuohy to Mr. Burgess). CDM has not paid Envirocorp for the invoices relating to milestones 7 and 8.
Envirocorp's Material Fact No. 28 states that the CDM submitted this invoice to IDEM on "June 4, 1000." (Pl.'s Statement of Material Facts No. 28). CDM does not object. The court assumes that this was a typographical error and the correct date is June 4, 1999.
Mr. Burgess maintains that the approval notations on the payment invoices for the work performed under milestones 7 and 8 were merely internal notes to the CDM accounting department to include the invoices on CDM's next invoice to IDEM. Mr Burgess maintains that he did not approve the invoices for payment or approve the work reflected in the invoices.
The subcontract states:
5.3.1 Upon completion of each of the fifteen (15) milestones described on Exhibit `C' attached hereto, but not more frequently than once a month, SUBCONTRACTOR shall submit an invoice to Engineer [sic] in the amount of the corresponding dollar value opposite the milestone on Exhibit `C'. Any Additional Services authorized in writing by the ENGINEER and undertaken by the SUBCONTRACTOR shall be billed monthly at the rates set forth on Schedule I to Exhibit `A' or as otherwise approved by ENGINEER. If ENGINEER objects to any statement submitted by SUBCONTRACTOR, ENGINEER shall so advise SUBCONTRACTOR in writing giving reasons therefor within fourteen (14) days of receipt of such statement. If no such objection is made, the statement will be considered acceptable by ENGINEER.
(Subcontract ¶ 5.3.1). CDM did not advise Envirocorp in writing within fourteen days of receiving the invoices that it objected to either invoice, nor did CDM advise Envirocorp of any reasons it may have had for objecting to the invoices.
CDM responds to these facts, as set forth by Envirocorp, with the following:
CDM structured the subcontract agreement so that there would not be anything to object to on Envirocorp's invoices. The subcontract agreement was structured so that Envirocorp would not be required to submit backup or supporting documentation with its pay requests for each milestone. This was specifically done to facilitate processing of the CDM, and consequently Envirocorp, invoices by IDEM. Immediately upon receiving IDEM's rejection of Envirocorp's Invoices [for milestones 7 and 8], CDM notified Envirocorp.
(Def.'s Resp. to Pl.'s Statement of Material Facts Nos. 30 31). This response is not an objection to the facts set forth by Envirocorp. While the response may set forth a reason for CDM's lack of written objection, it does not dispute the facts as set forth by Envirocorp. Therefore, these facts are deemed admitted.
The final invoice, dated June 11, 1999, that is subject to this dispute was submitted to CDM for additional services rendered by Envirocorp. While it is disputed whether these services were authorized as additional services, it is not disputed that Mr. Burgess made some sort of approval notation on the invoice. CDM did not advise Envirocorp in writing that it objected to the invoice within the requisite fourteen days from CDM's receipt of the invoice. The invoice was forwarded to IDEM for payment.
Again, Mr. Burgess asserts that the approval notation was merely an internal note to the CDM accounting department to include the Envirocorp invoice on CDM's next invoice to IDEM, not an approval of the invoice for payment nor an approval of the work reflected in the invoice.
Although CDM, in its response to Envirocorp's Material Fact No. 45, states, "CDM objected to the change order request and invoice," CDM presents no evidence that it objected in writing to the invoice. (Def.'s Resp. to Pl.'s Statement of Material Facts No. 45). In fact, CDM concedes that it made a notation of approval on the invoice. (Burgess Aff. ¶ 30).
On March 15, 2000, CDM received a check from IDEM for $42,000. The check referenced CDM's invoice to IDEM that included Envirocorp's additional services invoice to CDM. The subcontract provides that CDM shall pay Envirocorp within fifteen days of the time CDM receives payment from IDEM for Envirocorp's services. (See Subcontract ¶ 5.3.2). CDM has not paid Envirocorp for the work reflected on the invoice.
Envirocorp has outstanding payment invoices to CDM in the amount of $132,000.
II. Discussion
Summary judgment is appropriate only when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. See, e.g., Liu v. T H Mach., Inc., 191 F.3d 790, 794 (7th Cir. 1999) (citations omitted); FED. R. CIV. P. 56(c). "The burden is on the party moving for summary judgment to demonstrate the absence of a `genuine issue as to any material fact.'" Filipovic v. K R Express Sys., Inc., 176 F.3d 390, 395 (7th Cir. 1999) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). "The non-moving party may not rest only upon the allegations set forth in the pleadings, but must come forward with specific facts sufficient to raise a genuine issue for trial." Liu, 191 F.3d at 794-95 (citation omitted). "However, neither presenting a scintilla of evidence, nor the mere existence of some alleged factual dispute between the parties or some metaphysical doubt as to the material facts, is sufficient to oppose a motion for summary judgment." Robin v. Espo Eng'g Corp., 200 F.3d 1081, 1088 (7th Cir. 2000) (citations omitted). The evidence must be considered in light most favorable to the non-moving party, and all inferences are to be drawn in favor of the non-movant. See Doherty v. Davy Songer, Inc., 195 F.3d 919, 925 (7th Cir. 1999) (citations omitted).
CDM sets forth a number of arguments in its attempt to defeat Envirocorp's summary judgment motion. However, the majority of these arguments need not be addressed. Fatal to CDM's opposition to Envirocorp's motion is CDM's failure to present any evidence that it complied with section 5.3.1 of the subcontract. That section, as discussed above, requires CDM to notify Envirocorp in writing within fourteen days of receipt of an invoice if CDM objects to the invoice. CDM does not argue that it did so notify Envirocorp.
Under Indiana law, when contract language is clear and unambiguous, the words contained therein should be given their plain, usual and ordinary meaning; no words, phrases or terms are to be rendered ineffective or meaningless. See Crawford County Cmty. Sch. Corp. v. Enlow, 734 N.E.2d 685, 690 (Ind.Ct.App. 2000) (citations omitted).
The test to determine whether a contract is ambiguous "is whether reasonable men would differ as to the meaning of its terms." Boswell Grain Elevator, Inc. v. Kentland Elevator Supply, Inc., 593 N.E.2d 1224, 1227 (Ind.Ct.App. 1992). If no ambiguities exist, a court is to apply the contractual provisions; the terms of the contract are conclusive and a court is not to construe the contract nor look at extrinsic evidence. See Crawford County, 734 N.E.2d at 690.
CDM concedes that the subcontract provides that failure to object to an invoice means that the invoice is "acceptable" to CDM. CDM argues, however, that whether an acceptable invoice means that CDM has approved the work listed on the invoice and is thus obligated to pay the invoice is a genuine issue of material fact. CDM further asserts that it did not "approve" the invoice for payment, but rather that the approval notation on the invoice was an internal note to CDM's accounting department, the purpose of which was to notify the accounting department to include the Envirocorp invoice on CDM's next invoice to IDEM.
CDM cites City of Indianapolis v. Twin Lake Enterprises, Inc., 568 N.E.2d 1073, 1079 (Ind.Ct.App. 1991), for the proposition that, "The interpretation of the meaning of subcontract agreement language as to the meaning of the term `acceptable' is a question of fact to be determined by the jury." (Def.'s Br. in Resp. at 28). That case provides that when determining whether a contract exists, the intention of the parties is a factual matter to be determined by the trier of fact. Twin Lake, 568 N.E.2d at 1079. Here, there is no question that a contract in fact exists, nor, as discussed below, is there a question concerning the parties' intent as the subcontract is not ambiguous. Twin Lake, therefore, does not support CDM's proposition.
Note that if this case were to proceed to trial, the meaning of the term "acceptable" would be determined by the court, not by a jury as CDM suggests, as neither party has requested a jury.
In any event, the language of the subcontract is not ambiguous. The subcontract states if no objection to an invoice is made in writing within fourteen days of receipt of the invoice by CDM, the invoice "will be considered acceptable by [CDM]." (Subcontract ¶ 5.3.1). Reasonable people cannot differ on the meaning of these terms. Therefore, the terms must be given their plain, usual and ordinary meanings and this court must conclusively apply those terms.
CDM seems to suggest that "considered acceptable" means only that the invoice could be submitted to IDEM for payment. The court interprets this to mean that CDM is arguing that by accepting the invoice and submitting it to IDEM for payment, CDM accepted the form of the invoice but not its substance. This, however, is not a reasonable interpretation of the phrase "considered acceptable." In fact, it borders on the absurd. From even a cursory reading of paragraph 5.3.1 of the subcontract, it is entirely clear that "considered acceptable" means that CDM accepted the "statements" contained in the invoice and not merely the form of the invoice.
CDM does not set forth a definition of "acceptable." Webster's II New College Dictionary lists three definitions for "acceptable": 1. "Worthy of acceptance."; 2. "Adequate: satisfactory"; and 3. "Designating an amount or level that can be allowed or endured." WESTER'S II NEW COLLEGE DICTIONARY 6 (1999). Those definitions adequately state the plain, usual and ordinary meaning of "acceptable." Applying the plain meaning of this term, it is clear that under the subcontract the invoices are considered satisfactory to CDM because CDM did not object to any of the invoices within fourteen days of receiving them.
CDM has thus forfeited its right to object to any of the three invoices and, under the subcontract, is obligated to pay those invoices.
CDM seems to suggest that just because the invoice is acceptable to CDM, it does not follow that CDM is precluded from asserting defenses to Envirocorp's demand for payment. However, that is exactly what it means. If it did not, the term "acceptable" would be rendered totally ineffective and meaningless which, as stated above, is not permissible under Indiana law.
There is another reason for which there is no genuine issue of material fact here.
Under Indiana law, if there exists an ambiguity in a contract "because of the language used in the contract and not because of extrinsic facts, its construction is purely a question of law[.]" Boswell, 593 N.E.2d at 1227. CDM argues that the term "acceptable" creates an ambiguity in the contract. Therefore, even if CDM were correct and an ambiguity did exist here, the ambiguity would be resolved by the court, as it would be a matter of law.
Moreover, "[a]n ambiguous contract will be construed against the party who drafted it."
Because CDM drafted the contract, any ambiguity in the term "acceptable" would be construed against it and in favor of Envirocorp. Under such circumstances, the term "acceptable" would be interpreted to mean that the invoice was satisfactory, and thus not objectionable, to CDM.
Because this court has determined that Envirocorp is entitled to payment, it is appropriate at this time to examine Envirocorp's "pay when paid" argument relating to section 5.3.2 of the subcontract. Section 5.3.2 provides:
5.3.2 ENGINEER shall bill OWNER monthly on account of SUBCONTRACTOR's services and expenses and shall pay SUBCONTRACTOR within fifteen (15) days of the time ENGINEER receives payment from OWNER on account thereof. It is intended that payments to SUBCONTRACTOR will be made as ENGINEER is paid by OWNER under the Prime Agreement and that ENGINEER shall exert reasonable and diligent efforts to collect prompt payment from OWNER.
(Subcontract ¶ 5.3.2). Envirocorp argues that this provision does not permanently relieve CDM of its obligation to pay Envirocorp should IDEM refuse to pay CDM, but is merely a provision that governs the timing of payments. For support of its argument, Envirocorp relies upon section 5.3's heading which reads, "Times of Payment. Payments to SUBCONTRACTOR shall be made in accordance with this paragraph 5.3.", and a number of cases, including Midland Engineering Co. v. John A. Hall Construction Co., 398 F. Supp. 981 (N.D.Ind. 1975). (Subcontract ¶ 5.3). CDM does not directly respond to Envirocorp's argument, but rather contends that such an argument is premature until it has been determined that Envirocorp is entitled to payment. As stated above, because it has been determined that Envirocorp is entitled to payment on all invoices subject to this dispute, Envirocorp's argument is now ripe for examination.
Although no Indiana state court has directly addressed the issue, it is very likely that an Indiana court would conclude that the pay when paid provision at issue here does not permanently deprive Envirocorp of its right to payment from CDM if IDEM refuses to pay CDM. Support for this conclusion is considerable. First, in Midland, 398 F. Supp. at 993, a diversity jurisdiction case, the Northern District of Indiana held that a provision providing that final payment from the contractor to the subcontractor shall be paid immediately after the subcontractor's work was completed and approved and final payment was received by the contractor, did not "provide the contractor with an eternal excuse for nonpayment." The court reasoned that such provisions "have been construed by the courts on several occasions to simply provide the contractor with a reasonable time within which to obtain payment from the owner before he is contractually bound to the subcontractors for immediate payment." Id. (citing Thom. J. Dyer Co. v. Bishop Int'l Eng'g. Co., 303 F.2d 655 (6th Cir. 1962); Byler v. Great Am. Ins. Co., 395 F.2d 373 (10th Cir. 1968)).
Significantly, the Seventh Circuit found support for its opinion in Culligan Corp. v. Transamerica Insurance Co., 580 F.2d 251, 254 (7th Cir. 1978), by relying upon the reasoning articulated in Midland and discussed above. Furthermore, the Indiana Court of Appeals sitting en banc in Stolkine v. Abrams, 12 N.E.2d 377, 378 (Ind.Ct.App. 1938), held, "[I]t is well settled that, if there was a debt in existence and payment is merely postponed until the happening of a contingency which does not happen, the law requires payment to be made within a reasonable time." Although the facts of that case are slightly different from the facts in the present case, the principal of law is sound and is equally applicable to the facts here. And, finally, the majority of courts that have addressed this issue have refused to "construe the pay when paid contingency clause as a valid defense to non-payment." William M. Hill Donna M. Evans, Pay When Paid Provisions: Still a Conundrum, 18-APR CONSTR. LAW 16, 16 (1998). Courts that have enforced such provisions do so when the provisions explicitly provide that payment to the contractor by the owner is a condition precedent to payment to the subcontractor by the contractor. See id. (discussing Architectural Sys., Inc. v. Gilbane Bldg. Co., 760 F. Supp. 79 (D.Md. 1991); A.J. Wolfe Co. v. Baltimore Contractors, Inc., 355 Mass. 361 (1969)). Here, the provision is not so explicit.
Without a doubt, more than a reasonable period of time has passed for CDM to pay the invoices in question.
Section 5.3.2 contains no language that would support an assertion that the section contemplates payment from IDEM to CDM as a condition precedent of payment from CDM to Envirocorp. The language used in section 6.7 is most telling concerning the intent of the meaning of the language in section 5.3.2. Section 6.7 provides in part, "As a condition precedent of payment to SUBCONTRACTOR, ENGINEER may require complete waivers and releases of any and all claims of any person, firm or corporation." (Subcontract ¶ 6.7) (emphasis added). From the language used in section 6.7 it is clear that the parties did contemplate conditions precedent of payment to Envirocorp. The absence of language to that effect in section 5.3.2 speaks volumes.
Moreover, the plain language of section 5.3.2, including its heading, is strong evidence that the section is merely a payment timing provision and not a provision erecting a condition precedent for payment from CDM to Envirocorp. As Envirocorp points out, the heading of section of 5.3 reads, "Times of Payment." (Subcontract ¶ 5.3). This is a strong indication that section 5.3.2 contemplates only the timing of payments from CDM to Envirocorp and not the requirements for payment. Also, the language of section 5.3.2 demonstrates the parties' intent that this section be a timing provision. The plain meaning of the unambiguous terms of that section is that CDM shall make reasonable and timely efforts to collect payments due from IDEM. When (not if) CDM collects those payments it shall not retain the payments for a lengthy period of time, nor shall it use those payments, collected for Envirocorp's work, to pay a person or entity other than Envirocorp.
Furthermore, there is no evidence whatsoever that indicates any intent by either party to shift the risk of IDEM non-payment from CDM to Envirocorp. For all of these reasons, this court agrees with Envirocorp that section 5.3.2 does not permanently relieve CDM of its obligation to pay Envirocorp when IDEM refuses to pay CDM. To hold otherwise, this court would be required to construe 5.3.2 in a manner that is inapposite to the plain meaning of its terms, and to read language into that section that simply does not exist.
For the foregoing reasons, Envirocorp Well Services, Inc.'s motion for summary judgment will be GRANTED. The court will enter final judgment in favor of Envirocorp Well Services, Inc., awarding Envirocorp Well Services, Inc. the sum of $132,000.00 for which Camp Dresser McKee, Inc. shall be liable.
As noted, because the court concludes that CDM accepted all of Envirocorp's invoices subject to this dispute and thus forfeited its right to object to those invoices, the court need not reach the majority of arguments set forth by CDM in opposition to summary judgment. These arguments include: that the subcontract was orally modified and the work described by milestones 7 and 8 deleted, that the work described in the milestone 7 invoice was not completed for the purpose of satisfying that milestone, that Envirocorp's work under milestone 8 was deficient, that CDM did not authorize the work described in the invoice submitted for additional services rendered, and that Envirocorp is not entitled to the entire $42,000 reflected in the additional services invoice because CDM incurred expenses for which it is entitled to recover in negotiating for payment from IDEM on Envirocorp's behalf. Two of these contentions bear brief comment, though. As for CDM's claim of oral modification, this is based on the assertion by Burgess that he notified Envirocorp by telephone on February 9, 1999, that INDOT had decided to advertise the construction of the project work and award it under an emergency procurement. Even if that call would be considered enough to constitute CDM's effort to modify the contract by deleting the 7th and 8th milestones, CDM has produced no evidence whatsoever that Envirocorp agreed to or accepted such a modification. CDM also failed to produce evidence of consideration for the purported modification. Thus, this argument would be doomed if it were to be reached.
With respect to CDM's assertion that it is entitled to some credit for expenses incurred in obtaining payment from IDEM for the additional services change, CDM has identified no provision of the contract (or any theory of law for that matter) which would entitle it to such an offset. Consequently, that argument would also fail if it were to be reached. The others would fare no better, either.
But, Envirocorp Well Services, Inc. also seeks interest on this sum. Envirocorp Well Services, Inc. has fifteen days from the date of this order to file a statement concerning the rate, amount and manner of computation of interest for which it claims that it is entitled and the justification and authority upon which it relies for its claim for interest. Camp Dresser McKee, Inc. will have fifteen days from the date of Envirocorp Well Services, Inc.'s statement to respond. Envirocorp Well Services, Inc. will then have seven days from the date of Camp Dresser McKee, Inc.'s response to reply.
The Bench Trial date of December 4, 2000, and the Telephone Pretrial Conference date of November 2, 2000, are VACATED.
ALL OF WHICH IS ORDERED this 25th day of October 2000.