Opinion
Case No. 3:19-cv-811-JGC
07-15-2020
WALBRIDGE INDUSTRIAL PROCESS, LLC, Plaintiff v. VAUGHN INDUSTRIES, LLC, Defendant
James R. Carnes, Shumaker, Loop & Kendrick, Toledo, OH, Keefe A. Brooks, Alexandra Stan, Brooks, Wilkins, Sharkey & Turco, Birmingham, MI, for Plaintiff. Adam M. Borgman, David R. Hudson, Reminger Co., Toledo, OH, David T. Andrews, Law Office of David T. Andrews, Twinsburg, OH, for Defendant.
James R. Carnes, Shumaker, Loop & Kendrick, Toledo, OH, Keefe A. Brooks, Alexandra Stan, Brooks, Wilkins, Sharkey & Turco, Birmingham, MI, for Plaintiff.
Adam M. Borgman, David R. Hudson, Reminger Co., Toledo, OH, David T. Andrews, Law Office of David T. Andrews, Twinsburg, OH, for Defendant.
ORDER
James G. Carr, Sr. U.S. District Judge
This is a breach of contract action between a contractor, plaintiff Walbridge Industrial Process, LLC ("Walbridge"), and its subcontractor, defendant Vaughn Industries, LLC ("Vaughn"). Walbridge was the prime contractor for a project to build two data halls for VaData, Inc. (a/k/a "Amazon") ("Amazon"). Walbridge claims that Vaughn breached two subcontract agreements for the electrical work for what Walbridge designated as "Phase II" and "Phase III" of the project. Vaughn filed a motion seeking partial summary judgment (Doc. 23) on counts II (breach of contract) and III (promissory estoppel) of Walbridge's amended complaint. (Doc. 20). Walbridge has filed a counter-motion seeking partial summary judgment on liability on counts II and III. (Doc. 24).
Those counts relate to the Phase III subcontract. Count I, which relates to the Phase II contract, is not at issue in this motion.
Although Walbridge titled its motion as seeking summary judgment on counts II and III, the relief that it seeks is only to establish liability for those two counts. See (Doc. 24, pgID 140).
For the reasons discussed below, I will deny Vaughn's motion and grant Walbridge's motion.
Background
In 2018, Amazon selected Walbridge as general contractor to build the data halls in New Albany, Ohio. (Doc. No. 24-2, pgID 145) (Scott Penrod Decl.). Walbridge contracted with Vaughn to perform the electrical work on Phase II of that project. (Id., pgID 146). Vaughn's president, Matthew Potts, executed a standard Walbridge form subcontract for the electrical work for Phase II of the Amazon project on November 28, 2018. Id.
Vaughn does not contest either the facts asserted in the Penrod Declaration or the authenticity of its attached documents. Instead, it argues that I cannot consider anything outside the four corners of the Notice of Award and Limited Notice to Proceed as to Phase III of the Amazon project. See (Doc. 23, pgID 239-44).
Vaughn also was the low bidder on the electrical work for Phase III of the Amazon project. Id.
Vaughn's work included certain "early release" items, which are items that require a long lead-time between order and delivery to the worksite. Id. The contract referred to items that do not require such a lead-time as "full release" items. Id.
While Vaughn's work on Phase II was underway, Walbridge asked Vaughn to provide refreshed pricing for the early-release work to account for any market changes that occurred since Vaughn had submitted the earlier bid for the work. Id. Vaughn responded with an updated proposal for completing the Phase III early release work on January 4, 2019. (Id., pgID 146, 166-67). The introductory paragraph to the updated pricing proposal stated that the proposal was "based on the drawings and specifications by Ryan Fleming dated 05/16/2018." (Id. , pgID 166).
The total updated price for the early release work was $617,485. Id. On the same day, Walbridge communicated to Amazon the total price for all the early release items for the Phase III project, including Vaughn's updated price for the early-release electrical work and revisions that Vaugh had proposed. (Id. , pgID 146, 171-72).
Vaughn provided updated pricing on the full-release work for the project on January 11, 2019. (Id. , pgID 147, 176-83). On that same day, representatives of Walbridge and Vaughn met telephonically to go over the updated pricing for the full-release work on Phase III. (Id. , pgID 147). Walbridge refers to such meetings as "subcontractor proposal review" ("SPR") meetings. It uses a standard SPR form to memorialize the participants’ concurrence in certain differing or more specific terms than those in the original bid. (Id. , pgID 147, 206-11).
The SPR form included a section entitled "Scope Review," which contained yes/no boxes to record whether the subcontractor had "read and included certain documents in their proposal." (Id. , pgID 207). The parties checked the boxes incorporating: "General Conditions," "Special Conditions," "All drawings and specifications," "Addenda," and "Scope of Work." Id. The SPR form also included a checked box indicating that Vaughn accepted "Walbridge's subcontractor and Customer Contract Requirements." (Id. , pgID 206).
Walbridge and Vaughn representatives signed the SPR form indicating their agreement to its terms. (Id. ). The SPR document stated the base bid price for the remainder of the electrical work on Phase III as $3,733,526.
Stamped manually next to the base bid price is a notation reading "[p]lease see revised pricing and adjust accordingly." (Doc. 24-2, pgID 207). The Penrod Declaration states that the parties had agreed to a fixed price of $3,786,577. (Id., pgID 147). Walbridge has not explained the discrepancy; however, that discrepancy has no effect on the present motion seeking partial summary judgment only as to liability.
On February 12, 2020, Walbridge received notice from Amazon to proceed with the early release items for Phase III. (Id., pgID 148). The same day, it sent Vaughn a document entitled, in relevant part, "Notice of Award and Limited Notice to Proceed" (the "notice"). (Id. , pgID 217-18).
The notice stated that Vaughn "ha[d] been selected to perform all necessary work required to complete the Electrical work for [the Amazon project]." (Id. , pgID 117). The work was to "include but not be limited to all required Electrical work ... as per the referenced Construction Schedule Drawings and Specifications and the Subcontractor's Proposal Review dated February 11, 2019." (Id. ). The notice further provided that "Walbridge shall forward you a standard subcontract for execution." (Id. ).
The notice provided that Walbridge "ha[d] the right to accept pending Alternates that have been submitted to the Owner for consideration." (Id. ). It did not, however, provide a definition of the term "Alternates."
As to the early release items included in the subcontract, the notice stated: "[a]t this time, Walbridge is issuing you a Limited Notice to Proceed, per the owner's instructions, for the following Early Release Work ... not to exceed $617,485.00 . Subcontractor is NOT authorized to proceed with any work associated with this subcontract exceeding this amount until he receives written direction to proceed from an authorized Walbridge representative." (Id. ) (boldface in original).
Vaughn signed the notice as "Accepted and Agreed" and returned it to Walbridge. (Id. , pgID 218).
On February 14, 2020, Walbridge provided Amazon with its final pricing for the full scope of work on Phase III of the project. (Id. , pgID 148-49). That pricing incorporated Vaughn's bid for the electrical work. (Id., pgID 148-49, 220-24).
On March 10, 2019, Amazon issued a purchase order for completion of the electrical work on Phase III. (Id. , pgID 149); (id. , pgID 226-28).
On March 22, 2019, Vaughn sent an email to Walbridge that stated:
It is not Vaughn Industries’ intent to sign a subcontract with Walbridge to do the electrical work for Phase 3. We will honor our commitment to provide the busway under the February 12, 2019 Limited Notice to Proceed and cooperate fully with the electrical contractor.
(Id. , pgID 230).
On receiving that email, Walbridge obtained five bids for the remaining electrical work and selected the lowest bidder, The Superior Group. (Id. , pgID 149). That bid, which was for completing the remaining full-release electrical work and did not include the early-release work, was $4,047,803. (Id. ). Walbridge asserts that bid, when adjusted to include the amount already paid for the early-release work, was $931,762 higher than Vaughn's combined bids for the early-release work and the full work. (Id. ).
Standard of Review
Summary judgment is appropriate under Fed. R. Civ. P. 56 where the opposing party fails to show the existence of an essential element for which that party bears the burden of proof. Celotex Corp. v. Catrett , 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
The movant must initially show the absence of a genuine issue of material fact. Id. at 323, 106 S.Ct. 2548. Once the movant carries its burden, the burden shifts to the nonmoving party to "set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Rule 56 "requires the nonmoving party to go beyond the [unverified] pleadings" and submit admissible evidence supporting its position. Celotex, supra , 477 U.S. at 324, 106 S.Ct. 2548.
"Where, as here, parties have filed cross-motions for summary judgment, the Court grants or denies each motion for summary judgment on its own merit, applying the standards described in Fed. R. Civ. P. 56." Williams v. Ohio Dep't of Rehab. & Corrs. , 2018 WL 500167, *1 (S.D. Ohio 2018).
Discussion
1. The Parties’ Arguments
Walbridge contends that the parties entered into a binding contract for Vaughn to perform the full scope of the electrical work necessary for Phase III of Amazon's project. In the alternative, Walbridge argues that it is entitled to recover under the doctrine of promissory estoppel.
Vaughn contends that: 1) the notice is not a binding contract but merely an agreement to agree; 2) if the notice is a contract, it is an illusory one because Walbridge had the ability to withdraw from it at will; and 3) the notice cannot support a promissory estoppel claim because its promises were conditioned on the future execution of a final contract document.
A. The Enforceability of the Parties’ Agreement
Vaughn contends that the notice was not a binding contract because it reflects the parties’ intent to execute another written agreement and the parties intended the terms of that later agreement to be binding. (Doc. 23, pgID 103-09).
The enforceability of agreements that the parties contemplate will lead to the execution of another agreement turns " ‘on whether the parties have manifested an intention to be bound by its terms and whether those intentions are sufficiently definite to be specifically enforced.’ " Champion Gym & Fitness, Inc. v. Crotty , 178 Ohio App.3d 739, 744, 900 N.E.2d 231, 235 (Ohio Ct. Ap. 2008) (quoting Normandy Place Assoc. v. Beyer , 2 Ohio St.3d 102, 443 N.E.2d 161 (1982) ).
Thus, "where all the substantial terms of a contract have been agreed on and there is nothing left for future settlement, the fact alone that it was the understanding that the contract should be formally drawn up and put in writing does not leave the transaction incomplete and without binding force, in the absence of a positive agreement that it should not be binding until so reduced to writing and formally executed. " Turoczy Bonding Co. v. Mitchell , 118 N.E.3d 439, 445 (Ohio Ct. App. 2018) (emphasis in original) (quoting Charvat v. Oasis Mtge. , 2003 WL 21291046, at *2 (Ohio Ct. App.) ) (emphasis in original). "However, courts will give effect to the manifest intent of the parties where there is clear evidence demonstrating that the parties did not intend to be bound until the terms of the agreement are formalized in a signed written document." Olympic Holding Co., LLC v. ACE Ltd. , 2007 WL 4340276, at *8 (Ohio Ct. App. 2007), rev'd on other grounds , 122 Ohio St.3d 89, 909 N.E.2d 93 (2009).
In determining the parties’ intentions, "the entire document and relevant circumstances surrounding its adoption must be considered....." Arnold Palmer Golf Co. v. Fuqua Indus., Inc. , 541 F.2d 584, 589 (6th Cir. 1976).
Ohio law recognizes that contracts based on bids, like the one at issue here, generally fall into the former category.
"[G]enerally, a contract is formed when a party soliciting bids accepts a proposed bid and gives the bidder notice of the acceptance ... The sole purpose of a later agreement to execute a formal written contract is to evidence the contract terms to which the parties previously agreed.
White Hat Mgmt. L.L.C. v. Ohio Farmers Ins. Co. , 167 Ohio App.3d 663, 856 N.E.2d 991, 995 (2016) (quoting Highland Cnty. Comm'rs v. Rhoades , 1875 WL 75, 26 Ohio St. 411 (1875) ).
Vaughn first argues that this general rule does not apply here because the notice contained a provision stating: "Walbridge shall forward you a standard subcontract for execution," (Doc 24-2, pgID 116). That the notice required execution of a future contract does not, itself, provide any answer to the question whether the parties intended the notice to be a binding agreement.
The fact that the future agreement was to be a standard form agreement that Vaughn had executed before for its work on Phase II of the Amazon project, however, is highly significant. It meant that when Vaughn agreed in the notice to execute Walbridge's standard form subcontract, it knew precisely the terms to which it was agreeing.
Moreover, the notice did not contemplate further negotiations regarding the terms of the standard form contract but, instead, meant that Vaughn bound itself to the same terms to which it had agreed in executing the same standard form contract for the Phase II project. The fact the terms of the future contract document were known to both parties when they signed the notice and were not subject to further negotiation reflects an intention that the subsequent document was only to memorialize the terms of the agreement they already had reached. Turoczy Bonding, supra, 118 N.E.3d at 445.
Vaughn attempts to support its argument with citations to authority that is entirely inapposite. Each involved an agreement that provided expressly that the agreement would not be binding until the parties executed a formal contractual document. (Doc. 23, pgID 105-08) (citing Faurecia Auto. Seating v. Toledo Tool & Die Co. , 579 F. Supp. 2d 967 (N.D. Ohio 2008) (Carr, J.) and Capital Equity Grp. v. Ripken Sports Inc. , 2017 WL 4155766 (N.D. Ohio Sept. 19, 2017) (Pearson, J.), aff'd , 744 F. App'x. 260 (6th Cir. 2018) ).
Vaughn argues next that the notice lacked sufficient specificity to constitute a binding agreement. It asserts that "[t]he [notice] is a bare-bones, two-page document with no exhibits—either attached or incorporated by reference ...." (Doc. 23, pgID 101). That claim simply is not true. The notice specified that the work Walbridge was awarding to Vaughn "shall include but not be limited to all required Electrical work ... as per the referenced Construction Schedule, Drawings and Specifications and the Subtractor's Proposal Review dated February 11, 2019. " (Doc. 24-2, pgID 116) (emphasis added). Those documents described the work to be done in granular detail. See, e.g. , (Id. , pgID 206-11).
Not only does the SPR provide detailed information about several specific terms, but by executing the SPR, Vaughn agreed that it had "read and included the following in their proposal." (Doc. 24-2, pgID 207) (emphasis added). "[T]he following" included, inter alia , the "General Conditions," "Special Conditions," "All drawings and specifications," "Addenda," and "Scope of Work." Id.
B. Alternates
Vaughn argues that if the notice is a contract, it is illusory because it gave Walbridge the right to choose an alternate bidder and withdraw the work from Vaughn. (Doc. 23, pgID 104-11). Vaughn's argument relies entirely on one sentence in the notice, namely: "Walbridge has the right to accept pending Alternates that have been submitted to the owner." (Id. , pgID 108) (quoting Doc 24-2, pgID 217).
In addition, Vaughn claims that the notice unambiguously supports its interpretation, so that I may not look beyond its four corners in interpreting the term. (Id. , pgID 239-41). The argument is meritless.
The quoted statement contains the only mention of "Alternates" in the notice. See (id. , pgID 217-18). The document does not further explain the term. The capitalization of the term "Alternates" reflects that it has a defined meaning understood by the parties. The limitation to "pending Alternates that have been submitted to the owner" reflects that the parties were referring to a specific set of "pending Alternates" but does not, when read only within the four corners of the notice, explain the term's meaning. Thus, the term is ambiguous and necessarily requires resort to extrinsic evidence for clarification.
The custom and usage of the construction industry supplies the necessary clarification. As one Ohio appellate court has explained:
Evidence of a custom or usage existing at the time of a contract is frequently admitted for the purpose of explaining the contract or ascertaining the understanding of the parties to it, interpreting the otherwise indeterminate intention and acts of the parties, explaining words or technical terms, or showing that the mode in which the contract has been performed is the one customarily followed by others engaged in the same calling or trade."
Dana Partners, L.L.C. v. Koivisto Constrs. & Erectors, Inc. , 2012 WL 6783637, at *5 (Ohio Ct. App.) (quoting Marisay v. Perrysburg Mach. & Tool Co. , 37 Ohio App.3d 35, 523 N.E.2d 329 (1987) ).
"In order to qualify as a ‘usage of trade,’ the use of the dispute contractual language must occur so regularly within a vocation or trade ‘as to justify an expectation that it will be observed with respect to a particular agreement.’ " Id. (quoting Fidelity Mortg. Corp. v. Bruno Indus., Inc. , 1981 WL 5370, at *3 (Ohio Ct. App.) ).
When the term "Alternates" is interpreted in context and in accordance with the custom and usage of the construction industry, its meaning is unambiguously clear. " ‘Alternates are specific construction or renovation components of the Project that are not included in the base price of a bid but are bid separately and funded solely by the [governmental entity], at [its] option.’ " Monarch Constr. Co. v. Ohio Sch. Facilities Comm. , 771 N.E.2d 902, 915 (Ohio Ct. Com. Pl.), rev'd on other grounds , 150 Ohio App.3d 134, 779 N.E.2d 844 (2002).
As the authors of one treatise have explained:
Specification of bid alternates is intended to give owners budgetary flexibility by establishing a procedure for assuring that the price of a contract, when awarded, will not exceed established spending limits. This flexibility is created by segregation of work elements into "must have" and "could do without" categories and by including them in the invitation as separate bid line items for required "base work," and for additive and deductive "alternate work" to be priced separately by each bidder. After opening of bids, the owner then can decide whether to award a contract on the "base work" plus or minus selected items of "alternate work" necessary to keep the contract price within budget. For instance, an invitation for construction of a high school could require separate additive line item bids for the school building as "base work," and a hockey rink, swimming pool, and fine arts auditorium as "alternate work" which, after tallying of bids, could be included in the award to the extent of available funds.
1 Bruner & O'Connor Construction Law § 2:57 (footnote omitted).
Use of the term "alternates" for this purpose is so ubiquitous in the construction industry that the Ohio Facilities Contracting Commission incorporates the term in its standard form construction contract for public works. https://ofcc.ohio.gov/Portals/0/Documents/AgrmntsStdRqrmnts/ProfServices/M160-00_71_00-Contracting_Definitions_GC.pdf. Thus, the term is used "so regularly within a vocation or trade as to justify an expectation that it will be observed with respect to a particular agreement," Dana Partners , 2012 WL 6783637, at *5 (internal quotation marks omitted).
Vaughn's contention that the notice and its incorporated documents did not form a binding agreement fails. Accordingly, I award partial summary judgment to Walbridge as to liability on Count II of its First Amended Complaint.
Vaughn also argues that, if the notice is a binding agreement it is only an agreement on the early-release work because it only provides a "Limited Notice to Proceed" and states that Vaughn was "NOT authorized to proceed with any work associated with this subcontract" that exceeded the cost agreed to for the early-release work until Walbridge provided it with written authorization to proceed. (Doc. 23, pgID 101-02) (boldface omitted). The contention is meritless. Both parties agree that it was necessary to preorder the early-release work to ensure the materials it called for Vaughn to procure would be available when needed. (Id., pgID 102; Doc. 24, pgID 124-25). The notice expressly stated that Vaughn "ha[d] been selected to perform all necessary work required to complete the Electrical work for [Phase III]" and set the price for that work at $3,733,526. (Doc. 24, pgID 217). Thus, Walbridge awarded Vaughn "all" of that work but only gave it limited notice to proceed to preorder the early-release items. The notice to proceed necessarily was limited to obtaining materials that had a long lead time; Vaughn could hardly proceed with the full electrical work for Amazon's data halls before the basic structure of the buildings had been erected.
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C. Promissory Estoppel
Walbridge also asserts, in Count III of its Amended Complaint, that it is entitled to recover under the doctrine of promissory estoppel. (Doc. 24, pgID 137-40).
"The elements necessary to establish a claim for promissory estoppel are a (1) promise, (2) clear and unambiguous in its terms, (3) reliance that is reasonable and foreseeable, and (4) injury caused by such reliance." Patel v. Univ. of Toledo , 95 N.E.3d 979, 986 (Ohio Ct. App. 2017).
The evidence that Walbridge has submitted—the Declaration of Scott Penrod and its exhibits—establishes each of those elements. As discussed above, the notice and the documents that it incorporated, agreed to and accepted by Vaughn, constituted a binding agreement. The SPR, plans and specifications, and other documents incorporated in the notice stated clear and unambiguous terms. Reliance was not only reasonable and foreseeable, it was the very purpose of the agreement.
As a subcontractor, Vaughn knew and intended that Walbridge rely on the agreement by incorporating it into its own bid on the general contract. And, the Penrod Declaration establishes that obtaining a new subcontractor to perform the electrical work that Walbridge had contracted with Amazon to have performed required Walbridge to pay a substantially larger amount to the replacement subcontractor than the price which Vaughn had agreed to charge.
Vaughn's only response to the promissory estoppel claim is the same meritless argument it raised against the breach of contract claim: namely, that its promise to Walbridge was not a clear and unambiguous promise. (Doc. 23, pgID 109-11).
Thus, Walbridge also is entitled to partial summary judgment on liability on Count III of its Complaint.
Accordingly, it is hereby
ORDERED that
1. The counter-motion by Walbridge Industrial Process, LLC as to liability on Counts II and III of its complaint (Doc. 24) be, and the same hereby is, granted; and
2. The motion of Vaughn Industries LLC for partial summary judgment on Counts II and III of the complaint (Doc. 23) be, and the same hereby is, denied.
So ordered.