Fru-Con Construction Corp. v. Sacramento Municipal Utility District

Full title: FRU-CON CONSTRUCTION CORPORATION, a Missouri corporation, Plaintiff, v…

Court: United States District Court, E.D. California

Date published: Mar 28, 2008

NO. CIV. S-05-583 LKK/GGH (E.D. Cal. Mar. 28, 2008)

Opinion

NO. CIV. S-05-583 LKK/GGH.

March 28, 2008

ORDER

LAWRENCE KARLTON, Senior District Judge

The case centers around a contract dispute between Fru-Con Construction Corporation ("Fru-Con") and Sacramento Municipal Utility District ("SMUD"). Fru-Con brought suit against SMUD for breach of a construction contract; SMUD counterclaimed against Fru-Con for the same. Travelers Casualty and Surety Company ("Travelers") has also sued SMUD, seeking a declaratory judgment of Travelers' non-liability. SMUD counterclaimed against Travelers for the same and also asserts a breach of contract cause of action.

SMUD has moved for partial summary judgment against Fru-Con for the declaratory relief SMUD seeks against Fru-Con in SMUD's counterclaim, and for two portions of Fru-Con's claims against SMUD. SMUD has also moved for partial summary judgment against Travelers for Travelers' claim against SMUD and on the claim for declaratory relief in SMUD's counterclaim against Travelers.

The court resolves the motions on the papers and after oral argument.

I. FACTS ¹

1 The facts are undisputed unless otherwise noted. Each party objects to various pieces of evidence that the opposing party has presented. Some of the evidence to which the parties object is irrelevant to the court's analysis of the summary judgment motion. To the extent that the evidence is relevant, the objections are OVERRULED.

A. SMUD's Counterclaim: Section C Concrete Issue

In its counterclaim against Fru-Con, SMUD seeks a declaratory judgment that its termination of Fru-Con was proper due to defendant's failure to replace a certain portion of concrete in the construction project. SMUD seeks summary judgment on that issue.

In August 2003, SMUD entered into a written contract with Fru-Con by which the latter was to construct the Cosumnes Power Plant. The Power Plant was to include a cooling water tower, which itself includes a foundation/basin that holds the cooled water. The foundation/basin is made of slabs of steel reinforced concrete, adjacent to one another and surrounded by a concrete wall. Each slab was designated by a different letter, resulting in Sections A-G. Section C is the subject of one of the disputes between SMUD and Fru-Con.

The Power Plant, including the cooling water tower, was to be constructed according to the specifications of SMUD's design engineer, Utility Engineering Corporation (UEC). UEC required specific standards be met for the foundation/basin concrete, including that it have a minimum compressive strength of 5,000 psi at 28 days after having been poured and that it have an air entrapment of 4-6 percent by volume.

1. Problems With Section C Concrete

On May 3, 2004, Fru-Con notified SMUD that the air entrapment in Section C did not meet UEC's standards, as it was only 2.25 percent by volume. On June 8, 2004, Fru-Con notified SMUD that the Section C concrete was "not making" the 5,000 psi requirement at twenty-eight days. Fru-Con had run the test with twelve samples of concrete and all failed. On June 29, 2004, Fru-Con's Project Engineer recommended the Section C concrete not be replaced if its compression strength was found to be adequate at 56 days. On July 27, 2004, six concrete samples were taken from Section C and tested at Kleinfelder lab. The lab reported to Fru-Con that none of the samples had a compressive strength of 5,000 psi, but rather fell in the range of 3100-4530 psi. These results were reported to SMUD.

2. Contract Terms

By the terms of the contract, Fru-Con was required to construct the Power Plant in accordance with UEC's specifications. No deviation from UEC's design was permitted without prior approval by UEC's Design Engineer or SMUD's Project Director. The Engineer had the right to reject defective material and work. Rejected material was to be replaced to the satisfaction of the Engineer and without charge to SMUD. If Fru-Con failed to do so, SMUD could replace the material at the expense of Fru-Con or could terminate Fru-Con's right to proceed with the construction. Specifically, General Condition 36 stated, in pertinent part:

If the Contractor refuses or fails to prosecute the work, or any separable part thereof, with such diligence as will ensure its completion within the time specified in this Contract, or any extension thereof, or fails to complete said work within such time, the Contracting Officer may, by written notice to the Contractor terminate Contractor's right to proceed with the work or such part of the work to which there has been delay. In such event, the District may take over the work and prosecute the same to completion, by contract or otherwise, and the Contractor and Contractor's sureties shall be liable to the District for any excess cost occasioned the District thereby, and for liquidated damages for delay, as fixed by the Contractor, until such reasonable time as may be required for final completion of the work.

The contract also provided Fru-Con a right of protest if it believed SMUD demanded work that was outside the scope of the contract, per General Condition 32. In that situation, Fru-Con was to "within 10 calendar days after such demand, instruction, ruling or decision [was] given, file a written protest with the Engineer," which stated Fru-Con's objections and reasons. If there was no resolution of the dispute, the Engineer was required to forward the protest to the Contracting Officer for a final decision. Pending the final decision, Fru-Con was to continue with the work demanded by the Engineer. "The Contracting Officer [was to] notify the Contractor of the decision in writing. The Contractor [was required to] promptly comply with the decision, but [retained] the right to have the dispute resolved by a court. . . ." Fru-Con's failure to follow this process for protest constituted a waiver of "all claims for extra work, damages, and extensions of time on account of demands, instructions, rulings, and decisions" of SMUD.

Under Special Condition 14.5, if Fru-Con failed to perform in any material respect, SMUD could withhold all payments at any time.

Finally, the contract stated that time was of the essence.

3. Communications Between Fru-Con and SMUD Regarding Problems With Section C Concrete

On September 9, 2004, Kevin Disney, SMUD's Project Director's authorized representative, sent a letter to Brett McPherson, Fru-Con's Project Director, stating that the Section C concrete samples taken on July 27 and July 29, 2004 did not meet the compressive strength requirements of the project specifications. It stated that "testing . . . has not shown acceptable concrete" and that the concrete was "not acceptable to SMUD." He requested that Fru-Con replace the unacceptable concrete.²

2 Fru-Con disputes the contents of the letter to the extent that SMUD suggests the concrete was unacceptable.

On September 29, 2004, Mr. Disney of SMUD sent a letter to Brett McPherson of Fru-Con reiterating that UEC recommended removal and replacement of Section C and that SMUD concurs. Mr. Disney requested Fru-Con "provide a schedule for demolition and replacement of the concrete." Attached to this letter was a copy of a September 27, 2004 letter from Tim Pillsbury, the UEC Engineer, to Chris Moffit, SMUD's Engineer, recommending that Section C be removed and replaced because the concrete samples showed their compressive strength was 25 percent less than the required minimum.

Evidence submitted by Fru-Con shows that on October 20, 2004, Lucas Mallory, Mechanical Engineer of Fru-Con, sent an email to Anis Sury of SMUD as a "follow-up to the conversation" the two had the previous day. In the email, Mr. Mallory suggested that Section C could be repaired rather than replaced and indicated that he had posed this to Tim Pillsbury of UEC. Declaration of Lucas Mallory In Support of Fru-Con's Opposition to SMUD's Motions for Partial Summary Judgment and Summary Adjudication ("Mallory Decl.") ¶ 13, Exh. L. On October 28, 2004, Chris Moffitt of SMUD emailed Tim Pillsbury to inquire about the possibility of using epoxy to repair Section C, in lieu of replacement. Declaration of Michael Gandee In Support of Fru-Con's Opposition to SMUD's Motions for Partial Summary Judgment and Summary Adjudication ("Gandee Decl.") ¶ 36, Exh. FFF. On December 10, 2004 Mr. Pillsbury sent a letter to Mr. Moffitt stating that no sample of the Section C concrete met the 28-day strength requirement and that he "still recommend[ed] Cooling Tower Section C be removed and replaced." Moffitt Decl. ¶ 25, Exh. 6.

On December 10, 2004, Bob Nelson, SMUD's Project Director's authorized representative, sent a letter to Earle Hardgrave, Project Director of Fru-Con. The letter was titled "Notice of Default." It stated that SMUD has not received a schedule for demolition of Section C by Fru-Con. Furthermore, "all discussions of substitute remedies have been unsatisfactory." Because the Engineer of Record would not grant an exception to the design specifications, "no further options remain[ed]" other than removal and replacement. It also stated that the letter was providing notice to Fru-Con of default for the purposes of Special Condition 14.5. This provision allowed SMUD to suspend payments to Fru-Con if Fru-Con did not remedy the work as directed within fifteen days. Attached to this letter were the September 27, 2004 and December 10, 2004 letters from Mr. Pillsbury and the original notices by Fru-Con to SMUD of the defectiveness of the concrete.³

3 Fru-Con disputes this fact to the extent that it suggests Fru-Con was in default of the contract.

On December 22, 2004, Mr. Hardgrave responded by letter to Mr. Nelson. He stated that Fru-Con refused to remove the Section C concrete because SMUD's demand that it be done was "inconsistent with the prior course of conduct with the parties," referencing prior conversations about alternative remedies. He also stated that Mr. Pillsbury's December 10 letter was based on incomplete information, in that it was not based on 56-day stress tests.⁴

4 Given the specification requiring testing in 28 days, Fru-Con's contention appears unjustified.

On January 20, 2005, SMUD sent Fru-Con a debit memo. It included a debit against Fru-Con representing the liquidated damages for Fru-Con's failure to achieve certain contract milestones and suspended payment to Fru-Con because of Fru-Con's failure to remove the Section C concrete. On January 24, 2005, Mr. Hardgrave of Fru-Con sent a letter to Mr. Nelson of SMUD, objecting to the liquidated damages in the debit memo as untimely. On February 1, 2005, SMUD issued another debit memo to Fru-Con, in which payments continued to be suspended.

On February 2, 2005, Mr. Hardgrave of Fru-Con sent Mr. Nelson of SMUD a letter in which he stated that Fru-Con was prepared to repair Section C. Nelson Decl. ¶ 8, Exh. 19. He attached a letter from a Fru-Con engineer describing remedial treatment and an information sheet on the epoxy that would be used. This was apparently passed on to Mr. Pillsbury of UEC, who in a February 4, 2005 letter to Mr. Moffitt of SMUD, described Fru-Con's repair proposal as "the first solid proposal" from Fru-Con. Moffitt Decl. ¶ 27, Exh. 7. Mr. Pillsbury nevertheless concluded that the proposed repairs would be less effective and more expensive than replacing Section C, and reiterated his recommendation that Section C be removed and replaced. Id.

In a February 4, 2005 letter to Mr. Hardgrave, Mr. Nelson called Fru-Con's repair plan "belated" and stated that Mr. Pillsbury found the plan inferior to replacing the concrete. Nelson Decl. ¶ 9, Exh. 20. He reiterated that UEC would not grant Fru-Con an exception to the design specifications for the Section C concrete. He stated that Fru-Con was in default of its contractual obligations, "as previously noticed in my [December 10, 2004] letter, in accordance with SC-14.5." Mr. Nelson stated that all payments to Fru-Con were suspended. Id.

Fru-Con tenders evidence that on February 10, 2005, Matti Jaekel, CEO of Fru-Con, had a conversation with James Shetler of SMUD, who promised to look into the Section C concrete issue "again." Gandee Decl. ¶ 55, Exh. VVV. On the same day, Mr. Hardgrave of Fru-Con sent Mr. Nelson of SMUD a letter objecting to the debit memo and requesting payment. He referred Mr. Nelson to his letters from December 22, 2004 and February 2, 2005.

On February 11, 2005, Mr. Shetler of SMUD sent Mr. Jackel and Mr. Hardgrave of Fru-Con a letter terminating Fru-Con, citing General Condition 36 of the contract. The letter listed twelve grounds for Fru-Con's termination, including failure to remove the Section C concrete.

B. Weather Delays Issue

In its complaint against SMUD, Fru-Con alleges that SMUD breached the construction contract in part because SMUD failed to grant extentions for completing the project due to weather delays. SMUD seeks summary judgment against Fru-Con on this portion of that cause of action.

1. Relevant Contract Provisions

General Condition 19,⁵ titled "Time for Performance of the Work" states, in relevant part:

5 General Condition 6 stated that General Conditions of the contract controlled over Special Conditions.

The time for performance of the contract work shall commence with the date of the Notice to Proceed. The Contractor shall complete the work, or any specified portion of the work, within the time limitations set forth in the SPECIAL CONDITIONS. Unless otherwise stated in the SPECIAL CONDITIONS, time shall be measured in working days.

A working day is defined as any day, except: . . .

D. Days on which the Contractor is prevented from working at least 60 percent of the time on the current controlling operation, due to inclement weather or its residual effects, or as otherwise determined by the Field Representative of the Engineer.

The term "current controlling operation" refers to any part of the work that, if postponed will delay the completion of the entire Contract work.

The determination of each non-working day . . . shall be made daily by the Field Representative of the Engineer. . . .

Except when working days are not being charged due to specified or written "temporary suspension of work", the Field Representative of the Engineer will furnish the Contractor a weekly statement showing:

A. The number of working days charged for the preceding week.

B. Approved time extension.

C. The number of days originally specified for the completion of the work.

D. The number of working days remaining to complete the work.

E. The revised Contract completion date.

If the Contractor disagrees with the working day determination, Contractor must submit a written request for review to the Engineer within seven (7) days of receiving the Field Representative's statement. This request must state the reasons Contractor disagrees with the Field Representative's determination. The Engineer will issue a decision promptly, and it shall be final unless the Contractor files a written protest in accordance with GC — 32 PROCEDURE FOR PROTEST.⁶

6 General Condition 32 is described in section I.A.2, supra.

Special Condition 10 of the contract is entitled "Commencement, Completion Time Liquidated Damages." It states in relevant part:

The contract will involve a schedule of bonus payments as defined in Exhibit G, Schedule of Liquidated Damages and Incentives. In addition to bonuses, the contract will involve a schedule of liquidated damages as defined in Exhibit G, Schedule of Liquidated Damages and Incentives that will not exceed ten (10) percent of the total contract price (as it may be adjusted from time to time). The Contractor agrees to pay said liquidated damages as herein provided, and in case the same are not paid, agrees that the District Project Director may deduct the amount thereof from any moneys due, or that may become due, the Contractor under the Contract.

Appendix G (referenced as "Exhibit G" in Special Condition 10) is titled "CPP Project Liquidated Damage Calculations." It contains a table of "intermediate milestones" of specific parts of the construction project to be completed, the date by which that milestone was to be reached, and the liquidated damages to which SMUD would be entitled if the milestone was not reached. The date by which the milestone should be reached is measured in calendar days from the issuance of the Final Notice to Proceed.

General Condition 27 described when extensions of time would be given to Fru-Con. It stated:

If the Contractor is delayed in the progress of the work due to abnormal or unforeseeable causes beyond the control of the Contractor, the Contractor may file a written request, with the Engineer, for an extension of time for completion of that portion of the affected work. Such delays may be caused by acts of God, acts of public enemy, strikes, fires, floods, quarantine restrictions, shortage of materials, or failure of the District to acquire right of way.

It also provided that if Fru-Con sought a time extension under General Condition 27, it shall "state specifically the reasons for and the extent of the delay and shall include full substantiating evidence thereof." The request must be made within seven calendar days of the date of the delay, but only one request was necessary for a "continuing delay." The Engineer would then determine the reasonableness of the request and make a recommendation to the Contracting Officer.

In Special Condition 31, the contract stated that "Events such as high winds, unexpected rain, hail, lightning, and other hazards . . . present risks to . . . work progress. The Contractor shall assume such risks except as provided in GC-27."

2. Communications Between SMUD and Fru-Con Regarding Weather Delays

From September 23, 2003 to at least January 7, 2005, Fru-Con sent Daily General Reports to SMUD. Declaration of Ronald Funk in Support of Fru-Con's Opposition to SMUD's Motions for Partial Summary Judgment and Summary Adjudication ("Funk Decl.") ¶¶ 8-10. In several of these, Fru-Con reported inclement weather on particular days and Fru-Con's resultant inability to complete work on that date. Id. ¶¶ 15-38. Of the reports that described inclement weather, most indicated rain was the reason for the inability to complete work; some gave high winds or muddy conditions as the reason. These weather delays were reiterated in letters from Fru-Con's Earle Hardgrave to SMUD's Bob Nelson during these months, as well. These letters were characterized as notices under General Condition 19 that weather conditions had prevented work at least 60 percent of the time. Funk Decl. ¶¶ 44-45, Exh. AAAAA-BBBBB.

On January 1, 2004, Thom Childress, Project Director of Fru-Con, sent a letter to Bob Nelson of SMUD notifying him of the "extreme" weather conditions presently occurring at the project site. He stated that the letter served as a "request for an extension of time for all affected work in accordance with SC-31 and GC-27 of the Contract." Declaration of Robert Moore in Support of Fru-Con's Opposition to SMUD's Motions for Partial Summary Judgment and Summary Adjudication ("Moore Decl.") ¶ 50, Exh. 48.

On February 23, 2004, Thom Childress sent a letter to Chris Moffit of SMUD. In it, Mr. Childress stated that "per GC-19," Fru-Con had lost eighteen working days from November 3, 2003 to February 19, 2004 date, as a result of "inclement weather." The letter listed the specific days on which Fru-Con was prevented from working due to poor weather. These correspond to days for which Fru-Con had reported in its Daily General Reports that work could not be completed on that day due to inclement weather. Mr. Childress requested that the Field Representative of the Engineer grant an extension on the project completion deadline for each day that was lost due to weather. Mr. Childress also stated that Fru-Con had never received the weekly reports from the Field Representative of the Engineer, as described in General Condition 19. Mr. Childress asked for "this process" to begin as soon as possible.

On March 10, 2004, Mr. McPherson sent another letter to Mr. Moffitt, reiterating this request. Bob Nelson of SMUD replied by letter dated March 22, 2004. In it, he directed Mr. McPherson to General Conditions 19 and 27 and asked Mr. McPherson to submit documents in conformity with these conditions, upon which SMUD could make a determination as to whether an extension was warranted. Moore Decl. ¶ 52, Exh. 50. On April 1, 2004, Mr. McPherson replied by letter, explaining that Fru-Con's position was that only GC-19 applied to the extensions sought. He agreed to provide copies of the relevant Daily General Reports per SMUD's request.

Bob Nelson of SMUD responded by letter on April 8, 2004. In his letter, he stated that SMUD did not need to provide Fru-Con with weekly reports of working days (as described in General Condition 19) because the completion time for the project was measured in calendar days, as described in Special Condition 10. As a result, "no working days need to be charged under this Contract because the time for performance is specified in calendar days. . . ."

On April 12, 2004, Mr. McPherson replied by letter, stating that Fru-Con agreed that the Special Conditions controlled when there was a conflict between them and the General Conditions. He stated, "This would apply to the measurement of time and therefore we agree with you that the determination under GC-19 should be in calendar days and not working days." Nevertheless, he contended that SMUD was required to provide the weekly reports to Fru-Con as described in GC-19 and that failure to do so was a material breach of the contract.

From April through September 2004, the parties exchanged letters reiterating their respective positions. See Nelson Decl. ¶ 22-26, Exh. 30-34; Declaration of Steven Cohn In Support of SMUD's Motions for Summary Judgment and Summary Adjudication ("Cohn Decl.") ¶¶ 3-5, Exh. 13-15. Fru-Con has presented evidence that SMUD directed it to omit from monthly schedules any requests for time extensions, any delays noticed but not quantified, and any potential claims for delay. Moore Decl. ¶¶ 44-45, Exh. 42-43; Declaration of Matthew Ellis in Support of Fru-Con's Opposition to SMUD's Motions for Partial Summary Judgment and Summary Adjudication ("Ellis Decl.") ¶¶ 19, 21-22, Exh. X. Fru-Con has also presented evidence from experts that weather data from the period at issue would support its assertion of inclement weather. Declaration of Paul Stynchcomb in Support of Fru-Con's Opposition to SMUD's Motions for Partial Summary Judgment and Summary Adjudication ("Stynchcomb Decl.") ¶¶ 6, 8-9, Exh. YYY.

C. Accord and Satisfaction Related to Change Order 3

Under General Condition 29 of the contract, changes to the contract terms could only be made with a change order. If either Fru-Con or SMUD believed a change in the contract should be made because of an event or an action, that party could request a change within seven days of the event. If the parties agreed to the change, SMUD would issue a change order. Per General Condition 30, change orders could be used to alter the scope of Fru-Con's work.

In June and July 2004, Fru-Con made fourteen requests for change orders, based on SMUD's issuance of design drawings after the execution of the contract. Specifically, Fru-Con sought an increase of the contract price. Fru-Con and SMUD negotiated three change orders to accommodate Fru-Con's request. The third ("Change Order 3") lists thirty changes to the contract and the corresponding change in the contract price for each. Each of the thirty changes explicitly references a document by number and, where applicable, by date. The nineteenth item states

All costs/impacts related to Contract drawing changes through 4/1/04 (Reference Fru-Con Documents #00209 dated 6/12/04, #00210 dated 6/21/04, #00211 dated 6/21/04, #00212 dated 6/21/04, #00213 dated 6/21/04, #00214 dated 6/21/04, #00215 dated 6/21/04, #00216 dated 6/21/04, #00217 dated 6/21/04, #00227 dated 6/29/04, #00228 dated 6/29/04, #00229 dated 6/29/04, #00230 dated 6/29/04, #00237 dated 7/7/04): $1,050,000.000

Change Order 3 states that the parties agree that the changes included therein would be made to the original contract. The documents also states, "The parties agree that this Contract Change fully resolves all cost and scheduling issues regarding the referenced Fru-Con Change Order Requests, Field Directives, or other items referenced herein, and that there will be no Contract schedule changes or impacts as a result of this Contract Change." The change order also gives a revised total contract amount, based on the original contract price and the three change orders agreed upon up to that date. Change Order 3 was signed by representatives from SMUD and Fru-Con, on September 23 and 24, 2004, respectively.

D. Travelers' Performance Bond

SMUD and Travelers' claims against each other center around whether each party acted in accordance with the terms of the performance bond. SMUD seeks summary judgment on several of the sub-issues comprising this determination.

Pursuant to the terms of the contract between Fru-Con and SMUD, Fru-Con obtained a performance bond from Travelers by which Travelers would compensate SMUD for the cost of completing the construction project and for liquidated damages, if Fru-Con did not perform as promised. The bond stated that if SMUD declared Fru-Con in default of the construction contract, Travelers "may promptly remedy the default in any manner acceptable to the District." See Travelers' First Amended Complaint for Declaratory Relief, Exh. A.

After Fru-Con was terminated on February 11, 2005, Travelers sent SMUD a letter on February 28, 2005. In it, Travelers recommended that Fru-Con be reinstated. Travelers also requested a meeting between it and SMUD in order to discuss "issues and proposed solutions." SMUD, however, was unwilling to reinstate Fru-Con. According to Travelers, SMUD never agreed to participate in the meeting that Travelers proposed. Declaration of Kevin Lybeck In Support of Travelers' Opposition to SMUD's Motion for Partial Summary Judgment and Summary Adjudication ("Lybeck Decl.") ¶¶ 6-8. SMUD and Travelers dispute whether Travelers conducted any investigation prior to or after contacting SMUD on February 28. See Declaration of Philip Warden In Support of SMUD's Motion for Partial Summary Judgment and Summary Adjudication Against Travelers ("Warden Decl.") ¶ 16, Exh. M; Declaration of Bennett Lee In Support of Travelers' Opposition to SMUD's Motion for Partial Summary Judgment and Summary Adjudication ("Lee Decl.") ¶¶ 24-30, Exh. W-CC. Travelers asserts that SMUD hired a new contractor on February 13, 2005, less that one business day after terminating Fru-Con, without notifying Travelers. Lybeck Decl. ¶ 6; Lee Decl. ¶¶ 13-14, Exh. L, M.

E. Procedural History

Fru-Con brought suit against SMUD on March 24, 2005.⁷ The complaint alleged causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, breach of implied warranty, professional negligence, and breach of the California Prompt Payment Act. On April 18, 2005 SMUD filed an answer and counterclaim against Fru-Con. SMUD's counterclaim alleged causes of action for declaratory relief, breach of contract, violation of the California False Claims Act, negligence and equitable indemnity.

7 SMUD originally filed suit against Fru-Con in state court. Fru-Con sought removal to this court based on a claim of fraudulent joinder, but the case was remanded on May 31, 2005. Soon thereafter, SMUD filed a motion to stay in favor of the state court action pursuant to Colorado River Water Conservation Dist v. United States, 424 U.S. 800 (1976). The court denied SMUD's motion on August 11, 2005.

Travelers filed its First Amended Complaint seeking a declaratory judgment on its liability under the terms of the performance bond, on December 30, 2005. SMUD filed its answer, including a counterclaim also seeking declaratory judgment and asserting a cause of action for breach of contract, on January 6, 2006.

On February 18, 2007, Fru-Con moved for summary judgment on Counts I (Breach of Contract) and II (Breach of the Implied Covenant of Good Faith and Fair Dealing) of its complaint, and on Count I (Declaratory Relief on the Propriety of the Default Termination) of SMUD's Amended Counterclaim. Fru-Con based its motion on three theories: that SMUD failed to provide Fru-Con with an opportunity to cure scheduling delays; that SMUD waived its objections to Fru-Con's schedule; and that SMUD's termination of Fru-Con was wrongful under the terms of their contract. The court denied the motion, except to the extent that SMUD's counterclaim was based on the False Claims Act.

II. STANDARD FOR MOTION FOR SUMMARY JUDGMENT UNDER FEDERAL RULE OF CIVIL PROCEDURE 56

Summary judgment is appropriate when it is demonstrated that there exists no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); see also Adickes v. S.H. Kress Co., 398 U.S. 144, 157 (1970); Secor Ltd. v. Cetus Corp., 51 F.3d 848, 853 (9th Cir. 1995).

Under summary judgment practice, the moving party [A]lways bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any," which it believes demonstrate the absence of a genuine issue of material fact.

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). "[W]here the nonmoving party will bear the burden of proof at trial on a dispositive issue, a summary judgment motion may properly be made in reliance solely on the `pleadings, depositions, answers to interrogatories, and admissions on file.'" Id. Indeed, summary judgment should be entered, after adequate time for discovery and upon motion, 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. See id. at 322. "[A] complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Id. In such a circumstance, summary judgment should be granted, "so long as whatever is before the district court demonstrates that the standard for entry of summary judgment, as set forth in Rule 56(c), is satisfied." Id. at 323.

If the moving party meets its initial responsibility, the burden then shifts to the opposing party to establish that a genuine issue as to any material fact actually does exist.Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986); see also First Nat'l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 288-89 (1968); Secor Ltd., 51 F.3d at 853.

In attempting to establish the existence of this factual dispute, the opposing party may not rely upon the denials of its pleadings, but is required to tender evidence of specific facts in the form of affidavits, and/or admissible discovery material, in support of its contention that the dispute exists. Fed.R.Civ.P. 56(e); Matsushita, 475 U.S. at 586 n. 11; see also First Nat'l Bank, 391 U.S. at 289; Rand v. Rowland, 154 F.3d 952, 954 (9th Cir. 1998). The opposing party must demonstrate that the fact in contention is material, i.e., a fact that might affect the outcome of the suit under the governing law, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Owens v. Local No. 169, Ass'n of Western Pulp and Paper Workers, 971 F.2d 347, 355 (9th Cir. 1992) (quoting T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987)), and that the dispute is genuine, i.e., the evidence is such that a reasonable jury could return a verdict for the nonmoving party,Anderson, 477 U.S. 248-49; see also Cline v. Indus. Maint. Eng'g Contracting Co., 200 F.3d 1223, 1228 (9th Cir. 1999).

In the endeavor to establish the existence of a factual dispute, the opposing party need not establish a material issue of fact conclusively in its favor. It is sufficient that "the claimed factual dispute be shown to require a jury or judge to resolve the parties' differing versions of the truth at trial."First Nat'l Bank, 391 U.S. at 290; see also T.W. Elec. Serv., 809 F.2d at 631. Thus, the "purpose of summary judgment is to `pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial.'" Matsushita, 475 U.S. at 587 (quoting Fed.R.Civ.P. 56(e) advisory committee's note on 1963 amendments); see also Int'l Union of Bricklayers Allied Craftsman Local Union No. 20 v. Martin Jaska, Inc., 752 F.2d 1401, 1405 (9th Cir. 1985).

In resolving the summary judgment motion, the court examines the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any. Rule 56(c); see also In re Citric Acid Litigation, 191 F.3d 1090, 1093 (9th Cir. 1999). The evidence of the opposing party is to be believed, see Anderson, 477 U.S. at 255, and all reasonable inferences that may be drawn from the facts placed before the court must be drawn in favor of the opposing party, see Matsushita, 475 U.S. at 587 (citing United States v. Diebold, Inc., 369 U.S. 654, 655 (1962) (per curiam)); See also Headwaters Forest Def. v. County of Humboldt, 211 F.3d 1121, 1132 (9th Cir. 2000). Nevertheless, inferences are not drawn out of the air, and it is the opposing party's obligation to produce a factual predicate from which the inference may be drawn. See Richards v. Nielsen Freight Lines, 602 F. Supp. 1224, 1244-45 (E.D. Cal. 1985), aff'd, 810 F.2d 898, 902 (9th Cir. 1987).

Finally, to demonstrate a genuine issue, the opposing party "must do more than simply show that there is some metaphysical doubt as to the material facts. . . . Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no `genuine issue for trial.'"Matsushita, 475 U.S. at 587 (citation omitted).

III. ANALYSIS

SMUD has brought a motion for summary judgment against Fru-Con on three issues and a motion for summary judgment against Travelers on its sole cause of action and on several of Travelers' affirmative defenses to SMUD's counterclaim. The court considers each in turn. For the reasons discussed herein, the court grants each motion in part.

A. SMUD's Motion for Summary Judgment Against Fru-Con

SMUD has moved for summary judgment against Fru-Con on three grounds. First, SMUD seeks summary judgment on its first cause of action of its First Amended Counterclaim, in which SMUD seeks a declaratory judgment that SMUD properly terminated Fru-Con based on the latter's breach of contract. Second, SMUD seeks summary judgment on Fru-Con's breach of contract claim based on SMUD's failure to extend the contract completion date due to weather delays. Third, SMUD seeks summary judgment on Fru-Con's breach of contract claim, to the extent that that claim alleges disputes for which an accord and satisfaction had been reached.

1. SMUD'S First Cause of Action: Termination For Fru-Con's Breach of Contract

In its first cause of action in its First Amended Counterclaim, SMUD seeks a declaratory judgment that, inter alia, Fru-Con had breached the parties' contract and that SMUD properly terminated Fru-Con as a result. For the reasons provided herein, the court denies SMUD's motion as to this issue.

As the court stated in its June 15, 2007 order, under California law, "[i]f contractual language is clear and explicit, it governs." Bank of the West v. Superior Court, 2 Cal. 4th 1254, 1264 (1992). Contracts should be interpreted by their plain language, unless doing so would result in an absurd construction. Cal. Civ. Code § 1638. The entire contract should be read together as a whole, giving effect to every part. Id. § 1641. If there is an apparent contradiction in the contract, the contract should be interpreted to give some effect to repugnant portions, in light of the contract's overall purpose and intent. Id. § 1652. When a contract has been reduced to writing, the intent of the parties should be ascertained by the writing alone. Id. § 1639. A court may turn to extrinsic evidence to construe the contract, if the evidence shows the intent of the contracting parties and offers a meaning to which the contract is reasonably susceptible. Pacific Gas Elec. Co. v. G. W. Thomas Drayage Rigging Co., Inc., 69 Cal. 2d 33 (1968).

One of the grounds SMUD cited in its notice of termination was Fru-Con's failure to remove and replace the Section C concrete. I turn first to the propriety of invocation of SMUD's termination right under General Condition 36.

a. The Termination Was Premised On SMUD's Reasonable Understanding That the Concrete Was Faulty

Although Fru-Con now disputes it, at the time of Fru-Con's termination there was no dispute that Section C's concrete did not meet the plan specifications. It remains undisputed that Fru-Con reported to SMUD on May 3, 2004 (in "Non-Conformance Report No. 72"), June 8, 2004 (in "Non-Conformance Report No. 97"), and July 27, 2004, that the samples of Section C concrete did not meet the plan requirements for air entrapment and compression strength. The undisputed evidence shows that SMUD based its conclusion that Section C concrete should be replaced in substantial part on the test results that Fru-Con provided to SMUD. See Disney Decl. ¶¶ 3-4, Exh. 10-11; Moffitt Decl. ¶ 25, Exh. 6; Nelson Decl. ¶¶ 5, 9, Exh. 17, 20.

Moreover, although Fru-Con now offers evidence that the concrete was not defective or that the prior test results could be read in a way that would permit the conclusion that the plan specifications had been met, there is no evidence that Fru-Con presented either of these facts to SMUD during any of their communications about the Section C concrete.⁸

8 The fact is, of course, that Fru-Con reported the concrete did not meet contract specifications. Its attempt to now contradict the deficiency simply will not lie.

Moreover, evidence that the concrete was not faulty would not defeat SMUD's motion. The issue before the court is whether SMUD lawfully terminated Fru-Con under General Condition 36 of the contract. That condition allows SMUD to terminate Fru-Con if Fru-Con "refuses or fails to prosecute the work" as demanded by SMUD. General Condition 36 contains no requirement that SMUD's work demands be based on a certain type or amount of concrete testing.

Here, there is no dispute that SMUD demanded that Fru-Con remove and replace Section C. If that demand was based on SMUD's mistaken belief that the concrete should be replaced, Fru-Con's recourse was to protest under General Condition 32. It does not follow, however, that SMUD could not invoke General Condition 36.⁹ Therefore, even if there is a genuine issue of fact as to whether the concrete was faulty, this fact is not material and therefore could not defeat SMUD's motion for summary judgment.See Fed.R.Civ.P. 56(c).

9 Fru-Con also argues that SMUD could not have terminated Fru-Con under General Condition 36 if doing so was not in good faith. Under California law, a party does not breach the duty of good faith and fair dealing by invoking an express contractual right.Carma Developers. Inc. v. Marathon Development California, Inc., 2 Cal. 4th 342, 374 (1992). The case Fru-Con cites, Call v. Alcan Pacific Co., 251 Cal. App. 2d 442 (1967) does not contradict this. There, the court held that where a contract provides that the performance of one party be done to the personal satisfaction of the other party, the latter could not withhold their satisfaction in bad faith. General Condition 36 in the contract at issue here is not discretionary in that sense.

b. There Is No Evidence That SMUD Waived Fru-Con's Compliance With General Condition 32

As noted, if Fru-Con believed SMUD was in error in concluding that the Section C concrete should be replaced, the contract provided a procedure for protest in General Condition 32. Under the multi-step procedure created there, Fru-Con could file a written protest with the Engineer within ten days of receiving an instruction or decision. Specifically, Fru-Con could protest if it "consider[ed] any work demanded of it to be outside of the requirements of the Contract, or if [Fru-Con] consider[ed] any instruction, ruling, or decision of the Engineer, or Engineer's authorized representative, to be incorrect." After filing the protest, Fru-Con was to attempt to resolve the dispute with the Engineer. If no resolution occurred, the next step was that the Engineer would forward the protest to the Contracting Officer for a final decision. While the final decision was pending, Fru-Con was required to proceed with the work as demanded by the Engineer. Once the Contracting Officer reached a final decision, he would notify Fru-Con of it in writing. Fru-Con was required to comply with that decision, but retained the right to have the dispute resolved by a court.

It is undisputed that SMUD's Engineer was Chris Moffitt. Moffitt Decl. ¶ 1. SMUD's "Contracting Officer" was Jan Shori. Nelson Decl. ¶ 3. The Contracting Officer's authorized representative was James Shetler. Shetler Decl. ¶ 1. SMUD's "Project Director," for purposes of the contract, was Colin Taylor and his authorized representatives included Bob Nelson and Kevin Disney. Nelson Decl. ¶ 3; Disney Decl. ¶ 1.

Fru-Con argues that there is a genuine issue of material fact as to whether General Condition 32 was implicated by SMUD's acts, whether SMUD waived compliance with General Condition 32, and whether SMUD executed its duties under General Condition 32. These contentions will not lie.

First, the actions by SMUD's representatives in directing Fru-Con to remove and replace the Section C concrete would have allowed Fru-Con to protest under General Condition 32. Fru-Con asserts that it could only invoke its protest rights under this provision upon a directive of the Engineer of the project, Chris Moffitt. Fru-Con points out that the only directives it received were from Kevin Disney and Bob Nelson. Fru-Con misreads General Condition 32, however. The provision states that Fru-Con may file a written protest "[i]f [it] considers any work demanded of it to be outside the requirements of the Contract. . . ." Construing the contract in accordance with its plain meaning, see Bank of the West, 2 Cal. 4th at 1264, Fru-Con could protest "any work demanded of it," even if the demand was not made by the Engineer. Therefore, under General Condition 32, Fru-Con could have protested the demands in Kevin Disney's September 9, 2004 or September 27, 2004 letters or Bob Nelson's December 10, 2004 or February 4, 2005 letters.¹⁰ A reasonable jury could not conclude that under the plain language of the contract Fru-Con could not protest SMUD's decisions because those decisions were not expressed by Chris Moffitt.

10 Viewing each of these letters as separate demands by SMUD is the interpretation that is the most favorable to Fru-Con. One could, however, also view Kevin Disney's September 9, 2004 letter as the only demand made of Fru-Con for purposes of General Condition 32, and subsequent letters as merely reiterations of this demand.

Fru-Con has presented no evidence that would permit a jury to reasonably conclude that it filed a written protest with the Engineer within ten calendar days of having received a directive from SMUD. Although Fru-Con alludes to on-going discussions about repairing Section C, there is simply no evidence that Fru-Con complied with General Condition 32's requirement for filing a protest. On September 9, 2004, Kevin Disney informed Bruce McPherson by letter that the Section C concrete was unacceptable and demanded a plan for replacement. There is no evidence that Fru-Con filed anything in writing, whether it was fashioned as a protest or not, to Engineer Chris Moffitt or to any other of SMUD's project staff within ten calendar days of this letter. Similarly, after Kevin Disney's September 29, 2004 letter demanding that Fru-Con provide a schedule for demolition and replacement of Section C, there is no evidence that Fru-Con filed anything in writing, protest or not, with Chris Moffitt or anyone else within ten calendar days.

Fru-Con did respond in writing after Bob Nelson's December 10, 2004 letter. Its response may be characterized as a protest, as in it Earle Hardgrave stated that Fru-Con would not replace the concrete because the concrete could be repaired. The letter is dated December 22, 2004, indicating that it was not lodged within ten calendar days of the December 10, 2004 directives. Accordingly, this letter cannot be considered compliant with the requirements of General Condition 32.

Finally, the closest Fru-Con came to complying with General Condition 32 occurred on February 10, 2005. On February 4, 2005, Bob Nelson sent a letter to Earle Hardgrave reiterating that repair of the Section C concrete was not an acceptable course of action. On February 10, Mr. Hardgrave responded to Mr. Nelson by letter, stating "See Fru-Con letter . . . of December 22, 2004 and letter . . . of February 2, 2005." In each of these referenced letters, Fru-Con had stated that repairing the concrete was more appropriate than replacing it. Even if the February 10 letter can be correctly construed as a "protest" within the meaning of General Condition 32, it was not filed with the Engineer, Chris Moffitt, as required by the contract.

Fru-Con also argues SMUD waived Fru-Con's compliance with General Condition 32 through its conduct. The only possible evidence to support this argument is: (1) a "global change order" dated January 28, 2005, and (2) a note written by Matti Jaekel on February 10, 2005, in which he recorded a conversation with James Shetler of SMUD. Neither of these suffice to establish that there is a genuine issue of material fact as to whether SMUD waived compliance with General Condition 32's terms.

The "global change order," as Fru-Con describes it, is titled a "Global Settlement Between Fru-Con and SMUD," which Jim Shetler of SMUD and Matti Jaekel of Fru-Con had been drafting in January 2005.¹¹ See Gandee Decl. ¶ 37, Exh. GGG. The first paragraph of the document states, "SMUD and Fru-Con believe it to be in their best interest to settle their differences now through a global settlement" and the third paragraph states, "Fru-Con and SMUD hereby agree to the following procedures . . . to settle all claims pending. . . ." The court has already observed that the parties were engaged in settlement negotiations in January 2005. Order Denying Motion Fru-Con's Motion Summary Judgment In Part and Granting It In Part, June 15, 2007, at 22. It is apparent, therefore, that this "global change order" was generated for the purpose of negotiating a settlement, which was never achieved. Because it is offered to show Fru-Con's non-liability on the theory of SMUD's waiver, it fails its offered purpose. See Fed.R.Civ.P. 408.

11 It appears that this document did not result in a settlement agreement that supercedes the construction contract, as neither party seeks to enforce it as such.

The second piece of evidence offered to support Fru-Con's waiver argument is the February 10, 2005 note recording the conversation that allegedly occurred between Matti Jaekel and Jim Shetler. Matti Jaekel has not testified as to his recollection of the conversation; the note itself and the testimony authenticating it are the only evidence before the court.¹² The pertinent contents of the note are: "Cooling tower concrete, Jim [Shetler] promised to look at the issue again. I asked that the proposed technical conference take place on-site between UE and FCEI." Even assuming this evidence is admissible, it fails to demonstrate a genuine issue of material fact as to SMUD's waiver of its right to termination based on SMUD's acceptance of the faulty concrete. At most, it indicates that Jim Shetler represented that SMUD may consider accepting the defective concrete. However, the statement that "Jim promised to look into the issue again" as the only admissible evidence of waiver could not permit a reasonable jury to conclude that SMUD's intention to commit a waiver was clearly expressed by the declaration of its agent or by undisputed conduct "so inconsistent with a purpose to stand upon the contractual right allegedly waived as to leave no possibility of any reasonable inference to the contrary." Order Denying Motion Fru-Con's Motion Summary Judgment In Part and Granting It In Part, June 15, 2007, at 19-20. Fru-Con has not shown that SMUD's motion for summary judgment should be denied because of evidence of waiver.

12 Although, as observed above, settlement negotiations were occurring between the parties at this time, it is not possible for the court to discern whether this communication occurred within the context of that negotiation.

Consequently, the court concludes that there is no evidence to permit a jury to reasonably determine that SMUD's actions prevented Fru-Con from pursuing protest procedures under General Condition 32. As explained previously, the plain language of a contract controls; a court will not read ambiguity into a contract where there is none. Bank of the West, 2 Cal. 4th at 1264. Parties are bound by the terms of the contract for which they bargained. Id.; Cal. Civ. Code § 1636. Here, the parties agreed on a particular procedure for filing a protest, and Fru-Con has presented no evidence that it complied with that procedure.

c. Whether SMUD Could Properly Invoke General Condition 36 and Terminate Fru-Con

Nonetheless, the court concludes that SMUD's motion must be denied on this issue because there is a genuine issue of material fact as to whether SMUD's demand of work by Fru-Con was in accordance with General Condition 24 and therefore whether SMUD could properly terminate Fru-Con for failing to perform that work.

General Condition 24 permits the "Engineer or the Field Representative of the Engineer" to reject defective work. Once the work was rejected, SMUD could require Fru-Con to replace it and could terminate Fru-Con under General Condition 36 if Fru-Con did not replace the defective work "at once."¹³

13 The court has reviewed the supplemental briefing on the issue of whether SMUD could have terminated Fru-Con simply for having deviated from the plan specifications, in violation of Special Condition 35. It appears that SMUD could not. Of course, as a matter of ordinary contract law, material failure to provide what is contracted for is a breach of contract. In the instant case, however, the parties provided an elaborate mode of proceeding in case of a breach. It is those provisions which give rise to the complex analysis which the court must undertake. In construing the contract the court cannot ignore that the parties chose to employ language in General Condition 24 that directs SMUD to the remedy of invoking General Condition 36. The absence of this language in Special Condition 35 indicates that the parties did not contemplate such a remedy for violation of SC-35. See Vazquez v. Cargill, Inc., 509 F. Supp. 2d 903 (C.D. Cal. 2007).

From September 9, 2004 to February 4, 2005, SMUD unfalteringly demanded that Fru-Con remove and replace the Section C concrete.See Disney Decl. ¶¶ 3-4, Exh. 10-11; Nelson Decl. ¶¶ 5, 9, Exh. 17, 20. Fru-Con's unfaltering reply was that it would not do so.¹⁴ See Nelson Decl. ¶¶ 6, 8, 15, Exh. 18-19, 26. Nevertheless, under General Condition 24 SMUD could only make demands of Fru-Con to remove and replace work if the work had been rejected by the "Engineer or Field Representative of the Engineer." Nelson Decl. ¶ 3, Exh. 16. The Engineer was Chris Moffitt. Moffitt Decl. ¶ 1. Neither party has presented any evidence that Chris Moffitt rejected Fru-Con's work, either expressly or constructively. SMUD has presented evidence that Kevin Disney and Bob Nelson sent letters to Fru-Con, demanding that the Section C concrete be removed and replaced. Neither Mr. Disney nor Mr. Nelson were the Engineers or Field Representatives of the Engineer. See Disney Decl. ¶ 1; Nelson Decl. ¶ 1. In several of these letters, Mr. Disney and Mr. Nelson included letters from Tim Pillsbury, UE's engineer, to Chris Moffitt, recommending replacement of the concrete. See Disney Decl. ¶ 4, Exh. 11; Nelson Decl. ¶ 5, Exh. 17. Although Mr. Pillsbury was the "Engineer of Record" for the purposes of California's statutory requirements, see SMUD's Motions for Partial Summary Judgment or Summary Adjudication at 15, there is no evidence tendered that he was the "Engineer" for the purposes of the contract. See Moffitt Decl. ¶ 1.¹⁵ Consequently, SMUD has not met its burden to show that there is no genuine issue that SMUD properly terminated Fru-Con upon Fru-Con's refusal to execute work as required under General Condition 24.

14 Although Fru-Con characterizes the communications during this time as inconclusive discussions as to whether Section C should be repaired or should be replaced, the evidence does not support such a characterization. The court also finds unmeritorious Fru-Con's assertion that SMUD's December 10, 2004 letter in which SMUD notified Fru-Con that it would withhold payment under Special Condition 14.5 precluded SMUD's later invocation of its remedies under General Condition 36. See Mansfield v. Pickwick Stages, Northern Division, 191 Cal. 129, 131 (1923) (election of one remedy only precludes later election of another remedy when "the assertion of one [is] necessarily repugnant to or a repudiation of the other").

15 Again, given the elaborate contract between the parties, what might otherwise seem plain is made obscure.

2. Fru-Con's Breach of Contract Claim Based on SMUD's Failure to Extend the Contract Completion Date Due to Weather Delays

SMUD moves for summary judgment on Fru-Con's breach of contract claim, in which Fru-Con alleged that SMUD breached the terms of the construction contract by not granting time extensions for the completion of the work. The court denies this motion.

a. The Time For Performance Under the Contract Was Measured in Calendar Days, Not Workdays

The parties dispute to what extent General Condition 19 governed the computation of work time under the contract. The court concludes that the plain language of the contract supports SMUD's position, that much of General Condition 19's provisions were rendered irrelevant by the parties' agreement that the time for performance under the contract was to be measured in calendar days, not workdays.

General Condition 19 provides that, unless otherwise stated in the Special Conditions of the contract, the time for performance would be measured in working days rather than calendar days. Then, General Condition 19 explains how working days are to be calculated. This includes adjustments for inclement weather and imposes a duty on SMUD to generate statements of the working days charged each week.

The provisions of General Condition 19 that describe this process of computing working days, however, are rendered irrelevant by Special Condition 10, which integrates Appendix G. As General Condition 19 states, completion time would be measured in working days unless otherwise specified by a Special Condition. Special Condition 10, titled "Commencement, Completion Time Liquidated Damages," provides a schedule of liquidated damages as defined in Appendix G. Appendix G contains a chart of intermediate milestones for the completion of the construction project as well as days for the full (or "substantial") completion of the entire project.

It appears that the only fair reading of Appendix G, Special Condition 10, and General Condition 19 are that the former two provisions establish that the time for performance would be measured in calendar days.¹⁶ Although Appendix G is fashioned as a table of liquidated damage calculations, liquidated damages are available only for a breach of the contract. See Cal. Civ. Code § 1671. Appendix G, therefore, provides the dates at which the contract would be breached if Fru-Con did not complete parts of its performance. It is possible to read this table as indicating that SMUD had condoned these breaches so long as Fru-Con paid the stated liquidated damages amount, but that Fru-Con's failure to achieve the specified milestones would not be grounds for SMUD's termination of Fru-Con. The court is reluctant to enforce such a construction without language in the contract that indicates this was the parties' intent. There is no such language, and instead the contract appears to be written so that Appendix G, via Special Condition 10, establishes the method for calculating the performance dates in the contract. This is the possibility for which General Condition 19 expressly provides.

16 Moreover, if there is ambiguity, it would be resolved by the fact that both parties expressed their understanding that contract performance would be measured in calendar days. Nelson Decl. ¶ 20-21, Exh. 29.

Interpreting the contract this way renders General Condition 19's requirements for how working days would be computed inapplicable. That the parties wrote a contract so that the majority of General Condition 19 is irrelevant is, in the least, odd. Nevertheless, this appears to be the case. Other than their contract, neither party has presented any extrinsic evidence of what the parties' intent was at the time of the contract formation that would indicate that a different construction better comports with that intent. See Pacific Gas Elec., 69 Cal. 2d at 39-40. As such, the contract could not reasonably be interpreted to permit Fru-Con to measure its performance in working days.

b. There Is a Genuine Issue of Material Fact As to Whether SMUD Acted Improperly In Failing to Grant Fru-Con a Time Extension

Given that the time for performance of the contract was measured in calendar days, General Condition 27 described the basis for an extension and the process by which a request would be considered. Under that provision, Fru-Con could request a time extension from the Engineer, for "acts of God, acts of public enemy, strikes, fires, floods, quarantine restrictions, shortage of materials, or failure of the District to acquire right of way."

Here, Fru-Con has presented some evidence that the basis for their requests for extensions might have entitled them to some extension under General Condition 27, though the amount of extension has not been the subject of this motion. The evidence before the court, which had been presented to SMUD in the requests for extensions, alleged that weather disturbances had prevented work from being done on certain days. Funk Decl. ¶¶ 15-38, 44-45. Most of these appear to be fairly mild and therefore would not fall under the ambit of General Condition 27. For example, on several of the days, Fru-Con reported "light rain," or "muddy conditions;" on most of the days for which rain is listed as a condition preventing work, Fru-Con reported less than one inch of rain on that day. See id.

On some occasions, however, Fru-Con reported weather problems that a jury might conclude were "floods" or other "abnormal and unforeseeable causes." On January 2, 2004, Fru-Con reported the inability to work due to "overflowing of sediment basin." Funk Decl. ¶ 26. On February 18, 2004, Fru-Con reported "heavy rain." Id. ¶ 31. On several other days, Fru-Con reported high winds that prevented work from being completed. See id. ¶¶ 32-33, 38. High winds, however, was a weather condition, the risk of which was specifically assumed by Fru-Con. See Special Condition 31. In sum, however, Fru-Con has tendered evidence that could permit a reasonable jury to find that Fru-Con had a factual basis upon which to invoke a time extension under General Condition 27 for at least some of the delay.

If Fru-Con sought to obtain an extension, General Condition 27 described the process to be employed. Fru-Con was to file a written request with the Engineer that "state[d] specifically the reasons for and the extent of the delay and shall include full substantiating evidence thereof." The request must be made within seven calendar days of the date of the delay, but only one request was necessary for a "continuing delay." The Engineer would then determine the reasonableness of the request and make a recommendation to the Contracting Officer.

There is no evidence before the court that Fru-Con complied with this process. The communications that Fru-Con did have with SMUD on this issue were not tendered in the manner required by General Condition 27. See Moffitt Decl. ¶ 32, Exh. 9 (letter to SMUD Engineer Chris Moffitt, but not requesting an extension under General Condition 27 nor including "full substantiating evidence thereof"); Moore Decl. ¶¶ 6, 60, Exh. 5, 58 (describing an oral presentation by Fru-Con to SMUD describing weather delays).

Nevertheless, Fru-Con has presented evidence that SMUD confounded Fru-Con's ability to properly request an extension of time under General Condition 27. It appears from several pieces of deposition testimony and declarations that SMUD staff directed Fru-Con to omit mentions of weather delays from Fru-Con's scheduling reports.¹⁷ Moore Decl. ¶¶ 44-45, Exh. 42-43; Ellis Decl. ¶¶ 19, 21-22, Exh. X. For example, according to one Fru-Con staff member, "[M]embers of Fru-Con team had been directed by SMUD staff to not show any impact to the project completion milestone." Moore Decl. ¶ 45, Exh. 43. While it is far from clear that such directions somehow modified the contractual obligations, they serve to create a genuine issue of material fact as to whether SMUD acted in a manner that prevented Fru-Con's performance in accordance with General Condition 27 and whether the acts constituted SMUD's breach or repudiation of the contract in part. See Bomberger, 35 Cal. 2d at 613; Orton, 91 Cal. App. 2d at 438-39. As such, summary judgment must be denied on this issue. See Fed.R.Civ.P. 56(c)

17 The evidence before the court shows that Fru-Con requested an extension of time, invoking General Condition 27, on January 1, 2004. Moore Decl. ¶ 50, Exh. 48. This letter was directed to Bob Nelson, not the Engineer as required by General Condition 27. There is no evidence that SMUD responded to this request. At oral argument, Fru-Con's counsel advised the court that this letter does not show that Fru-Con attempted to seek an extension under General Condition 27 and was frustrated by SMUD's inaction, but that Fru-Con's personnel understood the distinction between General Condition 27 and Special Condition 31. The court therefore does not rely on this for its above analysis.

3. Accord and Satisfaction For Claims Relating to Change Order 3

In Fru-Con's first cause of action for breach of contract, it alleges that SMUD failed to provide design specifications and failed to issue change orders as requested by Fru-Con. SMUD moves for summary judgment on this claim to the extent that it is based on issues that were resolved in Change Order 3. The court grants the motion as to this issue.

An accord is an agreement between the parties to a contract whereby a party releases something to which it is entitled under the contract in exchange for something different. Cal. Civ. Code § 1521. Acceptance of the accord by the entitled party constitutes satisfaction of the original contract obligation. Id. § 1523. Put plainly, "accord and satisfaction" is the process whereby the parties to a contract substitute a new agreement in satisfaction of the original contract. See In re Marriage of Thompson, 41 Cal. App. 4th 1049 (1996); Huber, Hunt Nichols, Inc. v. Moore, 67 Cal. App. 3d 278, 302 (1977).

Here, there is no genuine issue of material fact as to the accord and satisfaction represented by Change Order 3. Change Order 3 provides that it was a full resolution of the items described therein and that it served to change the terms of the original contract. Specific to SMUD's motion, item nineteen provides that Fru-Con would receive $1,050,000 for "[a]ll costs/impacts related to Contract drawing changes through 4/1/04" and specifically references relevant documents of Fru-Con. In interpreting the change order, the court is guided by its plain language and will only consider extrinsic evidence to resolve ambiguity. Cal. Civ. Code §§ 1638, 1639. Here there is no ambiguity.¹⁸ Change Order 3 resolved Fru-Con's claims as to costs and delays stemming from project drawing changes through April 1, 2004. As a matter of law, Fru-Con's breach of contract claim cannot rely on those particular drawing changes, unless Fru-Con attacks the accord as void on some unarticulated ground, such as fraud, misrepresentation, or mistake. See Cal. Civil Code § 1567.

18 Fru-Con presents evidence in the form of deposition testimony that some Fru-Con staff believed that Change Order 3 only disposed of Fru-Con's claims for an increased contract price and not time extensions. The source of such belief is not explained, and in any event, this is belied by the express language of Change Order 3, which states "The parties agree that this Contract Change fully resolves all cost and scheduling issues regarding the referenced Fru-Con Change Order Requests, Field Directives, or other items referenced herein . . ." (italics added). Fru-Con has presented nothing to the court to show why the language of Change Order 3 should not govern, as it is clear and explicit and would not result in absurdity. See Cal. Civ. Code §§ 1638, 1639.

Fru-Con does not attack Change Order 3 for these or any other creditable reason. Aside from asserting that Change Order 3 is ambiguous in its terms, Fru-Con emphasizes that item nineteen of Change Order 3 only applies to project drawing changes through April 1, 2004 but not afterwards. This is not disputed by SMUD and is apparent upon reading Change Order 3.

Because Change Order 3 plainly and unambiguously constitutes accord and satisfaction for a dispute between SMUD and Fru-Con for contract drawing changes through April 1, 2004 and because Fru-Con has adduced no evidence by which a reasonable jury could attack the validity of the accord, the court grants SMUD's motion as to this issue.

B. SMUD's Motion for Summary Judgment Against Travelers

In its sole cause of action against SMUD, Travelers seeks a declaratory judgment that SMUD materially breached the contract between Travelers and SMUD by wrongfully terminating Fru-Con and therefore that Travelers has no obligation to SMUD under the performance bond. SMUD counterclaimed against Travelers seeking a declaratory judgment that SMUD properly performed under the terms of its contracts. SMUD also alleges breach of contract by Travelers in failing to fulfill its obligations under the performance bond.

In its motion, SMUD seeks summary judgment on several grounds. First, it asks the court to find as a matter of law that the performance bond is valid and enforceable pursuant to its terms. Second, it seeks summary judgment on the issue that Fru-Con was in default of its contractual obligations at the time of its termination. Third, SMUD seeks summary judgment on the issue of the adequacy of Travelers' cure of Fru-Con's default. Finally, SMUD seeks summary judgment on Travelers' affirmative defenses, to the extent that they rely on a theory that the performance bond had been exonerated, and also seeks summary judgment on those elements of Travelers' claim for declaratory relief that rest on the same theories as the affirmative defenses.

For the reasons described herein, the court denies the motion in part.

1. Validity of the Performance Bond

SMUD asserts that the performance bond was valid on its face and therefore enforceable. Travelers disputes this on the basis that SMUD withheld material facts at the time of the creation of the performance bond, which renders the bond null and void. As explained below, the court denies SMUD's motion as to this issue.

A creditor has a duty to disclose material facts to a surety where (1) the creditor knows the facts and the surety does not, (2) the creditor has the opportunity to disclose these facts to the surety, and (3) the creditor knows or has reason to know that the surety is being deceived or misled or that the surety is being induced to enter into a contract in ignorance of facts materially increasing the surety's risks. Sumitomo Bank of Cal. v. Iwasaki, 70 Cal. 2d 81, 90 (1968). If these factors have been met, the surety has a complete defense to the enforcement of the contract. Id.

Here, Travelers alleges that the bond is unenforceable because SMUD failed to disclose that SMUD anticipated litigation against Fru-Con prior to the issuance of the performance bond and because SMUD failed to disclose that the construction project design was less than 70 percent complete at the time of the issuance of the bond. Travelers asserts that each of these facts, had they been known to Travelers at the time of the bond's issuance, would have caused Travelers not to issue the bond.

To substantiate its contention that Sumitomo compels non-enforcement of the bond on the basis of SMUD's contemplation of litigation against Fru-Con, Travelers offers the deposition testimony of Steven Cohn, SMUD's in-house counsel. Lee Decl. ¶¶ 2-7, Exh. A-F. In his testimony, Mr. Cohn stated that he had a "growing feeling" that there might be litigation between Fru-Con and SMUD, owing to Fru-Con's conduct during the contract negotiations. Id. ¶ 3, Exh. B. This led to Mr. Cohn's recommendation that outside counsel be retained. Id.

Mr. Cohn's "feelings," impressions, beliefs, and instincts about the possibility of litigation with Fru-Con do no constitute "facts" within the meaning of Sumitomo. Even if SMUD's retention of outside counsel is a fact in this sense, Travelers has offered no evidence at all that SMUD misrepresented or concealed this fact from or deceived Travelers in any way. See Sumitomo, 70 Cal. 2d at 90. Travelers has adduced no facts that would permit a reasonable jury to conclude that this element of the Sumitomo rule has been met.

With regards to its contention that the bond is unenforceable under Sumitomo due to SMUD's misrepresentations as to the completeness of the project design, Travelers first offers evidence that SMUD informed it that "all significant portions of the Project design were complete (except for minor engineering changes)" at the time of the issuance of the bond. Lee Decl. ¶ 8; DuPont Decl. ¶¶ 9-10. Travelers also presents evidence that at the time of the issuance of the bond, the design was less than 80 percent complete. Lee Decl. ¶¶ 11, 22-23. SMUD counters with evidence that Travelers did know of the level of completeness of the design at the time of the issuance of the bond. Declaration of John Poulos in Reply to Travlers' Opposition ("Poulos Decl.") ¶¶ 2, 4, Exh. A, C.

Travelers has adduced sufficient evidence to show that there is a genuine issue of material fact as to whether the contract is unenforceable because SMUD withheld facts regarding the completeness of the project design. Travelers has presented evidence that SMUD knew of the completeness of the design and Travelers did not, that the design completeness was material to the issuance of the performance bond, that SMUD could have disclosed this fact to Travelers, and that SMUD misrepresented the level of completeness by assuring Travelers that the design was more complete than it was.¹⁹ A reasonable factfinder could credit this evidence and find in Travelers' favor on this issue. Therefore, the court denies SMUD's motion on the issue of whether Travelers may assert that the bond is unenforceable because of SMUD's concealment of material facts, per Sumitomo.

19 The case cited by SMUD, National Steel Corp. v. Golden Eagle Ins. Co., 121 F.3d 496, 502 (9th Cir. 1997), permits the court to disregard declarations containing conclusory legal allegations. Here, the declarations Travelers has offered contain the declarants' recitations of what SMUD represented to them, not legal conclusions. See Dupont Decl. ¶¶ 9-10; Lybeck Decl. ¶ 21. It would not be improper for a factfinder to rely on them.

2. Fru-Con's Default Under the Contract

SMUD seeks summary judgment on the issue of whether Fru-Con was in default under the terms of its contract with SMUD. This issue is relevant to both Travelers' claim against SMUD and SMUD's counterclaim. See Travelers' First Amended Complaint for Declaratory Relief ¶ 54(1); Answer to First Amended Complaint for Declaratory Relief and First Amended Counterclaim of SMUD ¶ 45(a)-(b). Just as the court denied SMUD's motion against Fru-Con on this issue, see sections III.A.1-2, supra, the court similarly cannot conclude that SMUD has met its burden to show that summary judgment should be entered in its favor here. As to this issue, therefore, the court denies SMUD's motion against Travelers.

3. Travelers' Failure to Acceptably Cure Fru-Con's Default

Under California law, surety contracts are to be interpreted in the same manner as all other contracts. Cal. Civ. Code § 2837. A court first turns to the plain language of the contract to interpret its meaning. Id. § 1638. The terms of a surety contract should be read and interpreted in light of the underlying contract between the principal and obligee (here, Fru-Con and SMUD, respectively). See Pacific Employers Ins. Co. v. City of Berkeley, 158 Cal. App. 3d 145, 152 (1984).

A contract granting discretion to one party that would affect the rights of the other does not grant unfettered discretion.Mission Ins. Group, Inc. v. Merco Constr., 147 Cal. App. 3d 1059, 1065 (1983); Call, 251 Cal. App. 2d 442. Instead, the party granted discretion must exercise it in good faith and in accordance with fair dealing. Mission Ins. Group, 147 Cal. App. 3d at 1065.

Here, there is a genuine issue of material fact as to whether SMUD properly exercised its rights under the performance bond. The performance bond provides that if SMUD declared Fru-Con to be in default under the contract, "the Surety may promptly remedy the default in any manner acceptable to the obligee." General Condition 36 of the contract between SMUD and Fru-Con also provides that, in the event of Fru-Con's default, SMUD could "take over the work and prosecute the same to completion, by contract or otherwise." By the plain terms of the contract between Fru-Con and SMUD, and by reading that performance bond in light of SMUD's rights under its contract with Fru-Con, SMUD did not per se violate the terms of the performance bond by hiring another contractor to complete the work upon Fru-Con's termination.²⁰ General Condition 36 expressly granted SMUD this right and the terms of the performance bond state nothing that abrogated this.

20 This assumes that the factfinder concludes that Fru-Con was properly terminated under the terms of the construction contract.

There remains a genuine issue of material fact, however, as to whether SMUD's actions violated the implied covenant of good faith and fair dealing towards Travelers. The performance bond grants SMUD discretion to determine the acceptability of Traveler's remedy of Fru-Con's default. Travelers has presented evidence that SMUD gave Travelers no opportunity to remedy the default, did not notify it of the retention of new contractors immediately after Fru-Con's termination, and would not meet with Travelers' staff to discuss possible remedies. Lybeck Decl. ¶¶ 5-9, Exh. C-D; Lee Decl. ¶¶ 13-14, Exh. L-M. Although SMUD asserts now that Travelers had suggested the remedy of reinstatement of Fru-Con, which would have been unacceptable to SMUD, Travelers' evidence shows that it made this recommendation after — unbeknownst to Travelers — SMUD had already elected its own remedy for Fru-Con's default. Lybeck Decl. ¶ 5; Lee Decl. ¶¶ 13-14. This evidence would permit a reasonable jury to conclude that, though the performance bond granted SMUD discretion, SMUD did not act in good faith and in accordance with fair dealing when it exercised this discretion.²¹ See Mission Ins. Group, 147 Cal. App. 3d at 1065.

21 As SMUD points out, California law provides that a surety may not make demands under the terms of the bond without having implicitly accepted its own responsibilities under the bond. As the California Court of Appeals explains,

[I]mplicit in such a demand is recognition by the surety of its obligation under the bond and, in effect, its admission of liability to the creditor. Here, there was no such demand, and in fact [the surety] denied any liability to [the obligee] under the bonds. [The surety] elected to resist the claim, and denied liability at trial.

Sukut-Coulson, Inc. v. Allied Canon Co., 85 Cal. App. 3d 648, 655 (1978) (emphasis in original). Having chosen to assert that the bond created no obligation for it, the surety could not later attack the obligee for alleged failures to perform under the bond. Id. If Travelers wishes to proceed with its defense that the bond itself is unenforceable, it must abandon its argument that SMUD did not act in accordance with the bond's requirements.

4. Travelers' Exoneration From Liability Due To SMUD's Actions

As a preliminary matter, Travelers waives its third (statute of limitations), sixteenth (laches), and eighteenth (lack of properly formed bond claim) defenses. The court grants SMUD's motion on these defenses.

SMUD seeks summary judgment on those of Travelers' affirmative defenses that allege, at least in part, that SMUD did not complete its obligations under the performance bond. SMUD also seeks summary judgment on those portions of Traveler's request for declaratory relief that rely on the same theory.²² As discussed in sections III.A.1-2 and III.B.3.b, supra, there remain genuine issues of material fact as to whether SMUD repudiated or breached its construction contract with Fru-Con and whether SMUD acted in good faith and in accordance with fair dealing in exercising its rights under the performance bond. For these reasons, SMUD's motion for summary judgment on the issue of exoneration — as it relates to Travelers' cause of action for declaratory relief and its affirmative defenses — is denied.

22 See Travelers' First Amended Complaint for Declaratory Relief ¶ 54(1), (3)-(6).

Moreover, Travelers asserts that several of its defenses do not rely on an exoneration theory. Travelers is correct that its sixth, eleventh, fourteenth, and seventeenth defenses need not rely on a theory that SMUD failed to fulfill its obligations under the bond in order to remain viable. See Valle de Oro Bank v. Gamboa, 26 Cal. App. 4th 1686, 1691 (1994) (duty to mitigate damages); Ware Supply Co. v. Sacramento Sav. Loan Ass'n, 246 Cal. App. 2d 398, 406-408 (1966) (estoppel); McDougall v. O'Hara, 129 Cal. App. 2d 12, 14 (1954) (unclean hands); 20th Century Lites, Inc. v. Goodman, 64 Cal. App. 2d Supp. 938, 944-45 (1944) (frustration of purpose or, as Travelers describes it, "prior performance"). Therefore, even if SMUD were correct in its argument that, as a matter of law, it performed all of its obligations under the performance bond, these defenses would remain viable.

SMUD has not borne its burden to show that a reasonable jury could not find in Travelers' favor as to these defenses, except those that have been waived as noted above. See Fed.R.Civ.P. 56(c). Therefore, the court denies SMUD's motion as to Travelers' first, second, fourth, fifth, sixth, seventh, tenth, eleventh, twelfth, thirteenth, fourteenth, seventeenth, and nineteenth affirmative defenses.

IV. CONCLUSION

As provided herein, the court ORDERS as follows:

1. SMUD's motion for summary judgment against Fru-Con is GRANTED as to Fru-Con's first cause of action for breach of contract, to the extent that this claim is based on elements of the contract for which there has been accord and satisfaction. The motion is DENIED as to all other issues.

2. SMUD's motion for summary judgment against Travelers is GRANTED as to Travelers' third (statute of limitations), sixteenth (laches) and eighteenth (lack of a properly formed bond claim) defenses. The motion is DENIED as to all other issues.

IT IS SO ORDERED.