Opinion
No. 37592-3-II.
September 15, 2009.
Appeal from the Superior Court, Pierce County, No. 07-2-05330-7, Beverly G. Grant, J., entered March 14, 2008.
Reversed and remanded by unpublished opinion per Quinn-Brintnall, J., concurred in by Van Deren, C.J., and Penoyar, J.
Waldner Consulting, Inc. appeals the trial court's grant of summary judgment in favor of Miller Contracting, Inc., in which the trial court found that the subcontract between Waldner and Miller contained a "flow-down" provision that incorporated, by reference, a 180-day claim limitation provision in Miller's prime contract with its general contractor, Glenn Springs Holdings, Inc. Because the subcontract did not clearly and unequivocally incorporate the prime contract in a general and unlimited manner, we agree with Waldner and reverse the trial court's grant of summary judgment and remand for trial.
FACTS
Factual Background
A. The Hylebos Waterway Project
This matter arises from the Hylebos Waterway cleanup project, specifically the construction of the Blair Waterway, Slip 1 facility at the Port of Tacoma. Pursuant to a consent decree between the United States Environmental Protection Agency, the Port, and Occidental Chemical Corporation, Occidental agreed to clean up contaminated sediments in the Hylebos Waterway at the Port. A portion of the overall clean up of the Hylebos Waterway was the construction of the Blair Waterway, Slip 1 facility. Slip 1 is an approximately 13-acre waterway between the Port's piers 1 and 2. The project required construction of a large containment cell to hold the contaminated sediment from the Hylebos Waterway, which is then covered by clean capping material made from dirt, sand, and gravel. The purpose of the containment cell is to prevent the contaminated sediment from leaching back into the waterway.
B. The Prime Contract Between Glenn Springs and Miller
On September 30, 2004, Glenn Springs, an affiliate of Occidental, and Miller executed a contract for the construction of the Blair Waterway, Slip 1 Facility. This "prime contract" addressed the placement of contaminated sediment as well as the procurement, transportation, and placement of the clean capping material. Miller specializes in sediment removal, excavation, and placement of contaminated and non-contaminated materials. The prime contract included project specifications, project plans, and other terms and conditions for the parties.
Contract No. 026-8068.
The prime contract required Miller to supply, transport, and place the clean capping material. Of particular interest here, Item D of the prime contract stated Miller must "Supply, Transport Place Clean Fraser River Sand in Slip [1]," with an estimated quantity of 204,080 tons of fill. 1 Clerk's Papers (CP) at 68. Glenn Springs agreed to pay Miller $5.50 per ton to supply and transport the capping material and $3.00 per ton to place it.
The terms of the prime contract allowed Glenn Springs to increase or decrease the quantity of capping material it required Miller to supply. If such changes resulted in the quantity of the unit price work falling below 80 percent of the estimated quantity of 204,080 tons, the prime contract provided a process by which Miller could request an adjustment in the unit price.
The prime contract provided:
If the quantity of an item or unit price Work actually performed or to be performed is less than 80 percent of the bid quantity for that item, [Miller] or [Glenn Springs] may request a Change Order revising the unit price for the item. Such request shall be accompanied by evidence to support the requested revision. The proposed revision will be evaluated by [Glenn Springs] considering such factors as the changes in actual costs to [Miller] of the item, and the share, if any, of fixed expenses properly chargeable to the change in quantity of that item.
2 CP at 250.
The prime contract also stated that if the parties agreed to specific changes to the quantity of the unit price work, they would mutually execute a change order; but if the parties did not agree, Glenn Springs would issue a change order directing the change in the work, and Miller would proceed and implement the changes without prejudicing its right to pursue a claim at a later date.
In addition, the prime contract set forth a procedure by which Miller could protest an unsatisfactory change order. Specifically, the prime contract stated:
If [Miller] disagrees with any of the terms of a change order issued by [Glenn Springs], [Miller] shall give immediate oral notice of protest to [Glenn Springs] prior to performing the Work and shall submit a written protest to [Glenn Springs] within ten (10) calendar days of [Miller's] receipt of the change order. The protest shall identify the point of disagreement, those portion[s] of the Contract believed to be applicable, and an estimate of quantities and costs involved in the change.
2 CP at 253.
The prime contract further provided that any legal claims arising from such an objection be "instituted within 180 days following substantial completion of the Work." 2 CP at 254. The prime contract specifically defined "Work" to include the supply and transport of capping material, identified as the Item D material. The prime contract does not define "substantial completion."
C. The Subcontract Between Miller and Waldner
Waldner is a sand and gravel broker for construction sites. On November 15, 2004, Miller and Waldner executed a subcontract in which Waldner agreed to supply and transport the Item D capping material at a unit price of $4.25 per ton. Waldner agreed to enter into the subcontract after Miller agreed that it would "deal exclusively with . . . Waldner for supply and delivery of the product" for the project. 3 CP at 423. But before executing the subcontract, Waldner arranged to purchase the capping materials from Wm. Dickson Company, a gravel pit company, for $1.63 per ton. Dickson based its price on "a quantity of plus or minus 200,000 tons" and it agreed to delivery by the end of February 2005, the deadline laid out in the prime contract. 3 CP at 419.
Subcontract No. 516-02(B).
Waldner's subcontract is a supply contract under which Waldner received a unit price for every ton of capping material delivered to the Blair Waterway project site.
The Miller/Waldner subcontract does not provide an estimated quantity of material for Waldner to supply to Miller; instead, the subcontract references the estimated quantity term in Item D of the prime contract between Glenn Springs and Miller. The extent and nature of the incorporation of the prime contract into the subcontract is the central issue on appeal.
The beginning of the subcontract provided:
WHEREAS the Contractor has entered into a written Contract with [Glenn Springs], which Contract, conditions, specifications, schedules and addenda are incorporated herein and referred to as the "Prime Contract", to construct, install and complete [the] 2004/2005 Construction Contract No. 026-8068 Hylebos Waterway Segment 3 4, Clean-Up Project (Blair Slip 1 — Completion).
3 CP at 424 (emphasis added).
The subcontract went on to define the "work" Waldner was required to perform as follows:
1. WORK TO BE PERFORMED: [Waldner] shall, under the direction and to the satisfaction of [Miller], provide that portion of the labour and materials and perform that portion of the work set out in the Prime Contract, namely:
Item D Supply, Transport and Place Clean Fraser River Sand in Slip One Up to Plus 16 Foot Elevation
[Waldner's] Scope:
— Supply and Transport (F.O.B. Site) Only — Supply Approved Alternate Pitrun Gravel from Dickson Pit
3 CP at 424.
The subcontract again references the prime contract, stating:
5. PRIME CONTRACT: [Waldner] agrees to perform and comply with all of the covenants, obligations, terms and conditions binding on the Contractor under the Prime Contract, in respect of the Work, together with any changes thereto, and hereby expressly declares that he has fully informed himself of all such covenants, obligations, terms and conditions by reference to the Prime Contract. For the purposes of incorporation of the Prime Contract and the interpretation of these contract documents, "Contractor" shall be deemed to mean "Sub-Contractor" in the Prime Contract.
3 CP at 425 (emphasis added).
The subcontract also provided that because the project was time sensitive, Waldner would be "entitled to any extensions of time granted by [Glenn Springs] under the Prime Contract which affect the Work." 3 CP at 425 (emphasis added). The subcontract's final reference to the prime contract required that Waldner maintain insurance continuously during the term of its work in an amount Miller deemed acceptable, which "shall not be less than the amount which [Miller is required to provide] under the Prime Contract." 3 CP at 426.
In the event of a controversy between Miller and Waldner, the parties to the subcontract agreed to "endeavour to . . . negotiate and settle the dispute or controversy." 3 CP at 426. Waldner also agreed that in the event of a pass-through claim, it would provide Miller with all of the information and assistance necessary for Miller to present the claim and, if it failed to provide the necessary information, it would release Miller from any liability. Specifically, the contract provided that if Miller failed to "collect any amounts owing or claimed owing to [Waldner]" as a result of Waldner's failure to comply with the terms of the subcontract, "including any documents incorporated herein," it would fully release Miller from any liabilities for such claims. 2 CP at 364.
D. Changes in the Quantity of Capping Material
In November 2004, Waldner began delivering the capping material to the project. In early 2005, Glenn Springs and the Port realized that they could achieve substantial savings on the project if they substituted capping materials available through another construction project on the Port property. Glenn Springs required that Miller accept this capping material and, in accord with the terms of the prime contract, Glenn Springs systematically deducted the Port supplied amount from the estimated quantity of capping material in the prime contract starting with a first change order on January 24, 2005. Miller likewise reduced the amount of capping material Waldner was to provide. In a letter dated February 7, 2005, Waldner objected that Miller's use of another supplier was a breach of the subcontract. Waldner also stated that he had not been informed of the substitution of capping material and that reducing the amount of material supplied from the Dickson pit would lead to negative cost impacts for Waldner. Miller immediately informed Glenn Springs of Waldner's concerns. On February 9, 2005, Glenn Springs issued a second change order reducing the amount of capping material Miller was to supply and Miller informed Waldner of this change order. On March 15, 2005, Waldner formally notified Miller and Glenn Springs that it intended to file a claim against the contractor's bond and retainage funds for the losses sustained as a result of the change orders. On March 17, 2005, Glenn Springs issued a third change order reducing the amount of capping material Miller was to supply and Miller informed Waldner of this change order. Procedural History
On February 15, 2007, Waldner filed its complaint against Miller. Miller answered and, on October 15, 2007, cross-claimed against Glenn Springs. Glenn Springs moved for summary judgment against Miller. Miller, in turn, moved for summary judgment against Waldner. The trial court granted both motions. In addition, the trial court reasoned that the 180-day suit limitation period in the prime contract "flowed down" to the subcontract between Miller and Waldner and, as a result, the trial court determined that Waldner's claim was time-barred.
Miller notes that although it indicated that it was notified by its registered agent about Waldner's complaint on April 25, 2007, the record does not contain proof of service. Miller also notes that it asserted the affirmative defense of "[i]nsufficiency of process and/or service of process" in its answer. Br. of Resp't at 22. It is unclear why Miller points out this defect, as it never references this possible issue again in its brief on appeal.
Miller cross-appealed with respect to the trial court's grant of summary judgment in favor of Glenn Springs. Miller supported Glenn Springs' motion to dismiss that appeal when it discovered that Waldner's appeal was limited to issues specific to the Miller/Waldner subcontract. We dismissed that appeal.
ANALYSIS
Waldner argues that the trial court erred when it granted summary judgment in Miller's favor because, although the subcontract specifically incorporated "Item D" and the definition of the "Work" from the prime contract, it did not clearly and unequivocally incorporate the 180-day claim limitation provision in the prime contract. We agree. Standard of Review
We review an order on summary judgment de novo, engaging in the same inquiry as the trial court. Hisle v. Todd Pac. Shipyards Corp., 151 Wn.2d 853, 860, 93 P.3d 108 (2004). Summary judgment is appropriate only if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." CR 56(c). We view all facts in the light most favorable to the nonmoving party. Vallandigham v. Clover Park Sch. Dist. No. 400, 154 Wn.2d 16, 26, 109 P.3d 805 (2005). Summary judgment is appropriate only if reasonable persons could reach but one conclusion from all the evidence. Vallandigham, 154 Wn.2d at 26.
Incorporation by Reference Incorporation by reference allows the parties to a contract to incorporate contractual terms by reference to a separate agreement to which they are not parties. W. Wash. Corp. of Seventh-Day Adventists v. Ferrellgas, Inc., 102 Wn. App. 488, 494, 7 P.3d 861 (2000) (quoting 11 Williston on Contracts § 30:25, at 233-34 (4th ed. 1999)), review denied, 143 Wn.2d 1003 (2001). The burden of proving incorporation by reference is on the party claiming it. State v. Ferro, 64 Wn. App. 195, 198, 824 P.2d 500 (1992) (citing Baarslag v. Hawkins, 12 Wn. App. 756, 760, 531 P.2d 1283 (1975), review denied, 86 Wn.2d 1008 (1976)).
In order for incorporation by reference to be effective, it must be clear and unequivocal. Adventists, 102 Wn. App. at 494 (citing Santos v. Sinclair, 76 Wn. App. 320, 325, 884 P.2d 941 (1994)); see also Williston, at 234). It must be clear that the parties to the contract had knowledge of and assented to the incorporated terms. Adventists, 102 Wn. App. at 494-95 (citing Williston, at 234). Although a subcontract may incorporate by reference the terms of the prime contract generally, a subcontract may also limit the incorporation to a special purpose. Sime Constr. Co. v. Wash. Pub. Power Supply Sys., 28 Wn. App. 10, 15, 621 P.2d 1299 (1980) (citing Guerini Stone Co. v. P.J. Carlin Constr. Co., 240 U.S. 264, 277, 36 S. Ct. 300, 60 L. Ed. 636 (1916)), review denied, 95 Wn.2d 1012 (1981). If a subcontract incorporates the prime contract in a general and unlimited manner, it incorporates both the prime contract's work specifications as well as the prime contract's procedural provisions. See Sime Constr., 28 Wn. App. at 14-15 (a subcontract's general and unlimited incorporation of a prime contract incorporated the procedural notice requirement in the prime contract).
Here, Miller and Waldner agree that the subcontract incorporated those portions of the prime contract regarding the Work specification laid out in Item D. At issue is whether any of the references in the subcontract to the prime contract incorporate the 180-day claim limitation provision. Miller contends that the language of the subcontract, taken as a whole, demonstrates that the subcontract incorporated the prime contract in its entirety.
Waldner suggests that Miller's "totality of the contract" analysis is novel and authority does not support such an analysis. But Waldner's assertion ignores the long-standing holding in Berg v. Hudesman, 115 Wn.2d 657, 666-68, 801 P.2d 222 (1990) (in an effort to discern the intent of the parties, this court may look to "'the contract as a whole'") (quoting Stender v. Twin City Foods, Inc., 82 Wn.2d 250, 254, 510 P.2d 221 (1973)).
Miller relies on Sime Construction to support its proposition that its subcontract with Waldner incorporated Miller's prime contract with Glenn Springs in its entirety. But Miller's reliance is misplaced. In Sime Construction, the parties executed a sub-subcontract for excavation and construction of concrete foundations for nuclear reactor cooling towers. The subcontract in Sime Construction incorporated the prime contract with the following pertinent language:
A. Subcontract documents include all the below listed items, all of which are incorporated herein and made part hereof by reference thereto.
1. The Contract between the Owner and the Contractor dated [date omitted] and the conditions thereof (general, supplementary and other conditions).
Sime Constr., 28 Wn. App. at 14.
The second-tier subcontractor sought to avoid application of the prime contract's notice procedures for a "change order," relying on the general rule that "where one contract is incorporated by reference into another for a special purpose, the incorporation is limited to that purpose." Sime Constr., 28 Wn. App at 15 (citing Guerini, 240 U.S. at 277). The second-tier subcontractor contended that the purpose of the incorporation by reference was to define the scope of the subcontractor's work and to make it clear that the subcontractor had to perform its work according to the applicable specifications. Sime Constr., 28 Wn. App at 15. But the Sime Construction court disagreed. It held the incorporation clause at issue in Sime Construction was "general and unlimited" and, "[i]n that situation, both the contract specifications and procedural provisions of the prime contract [were] incorporated by reference." 28 Wn. App. at 16.
Here, the opening section of the subcontract states that the prime contract is "incorporated herein." 3 CP at 424. Section one of the subcontract defines the work as laid out in the prime contract, and it is clear that the subcontract does not stand alone because it does not contain a quantity term or a price term. On the other hand, section five of the subcontract only obligates Waldner to comply with the "Work" provisions from the prime contract, including change orders. And the subcontract also contains section 18, a special "controversies" provision that mandates negotiation and settlement. It provides:
The opening section of the subcontract states:
WHEREAS the Contractor has entered into a written Contract with [Glenn Springs], which Contract, conditions, specifications, schedules and addenda are incorporated herein and referred to as the "Prime Contract," to construct, install and complete [the Hylebos Waterway Blair Slip 1 project].
3 CP at 424 (emphasis added).
The Contractor and Sub-Contractor agree that if any controversy or dispute arises between the Sub-Contractor and Contractor pertaining in any way to this SubContract or the Work herein described, the parties shall endeavour to forthwith negotiate and settle the dispute or controversy: PROVIDED, HOWEVER, that if the dispute or controversy involves any claim advanced by a third party or the liability of any third party, which third party has a contractual relationship with the Contractor but not with the Sub-Contractor, the Sub-Contractor agrees to supply to the Contractor all information and assistance required by the Contractor for the purpose of negotiating and settling the third party claim or liability, and the Contractor agrees to be bound by the settlement reached whether by way of negotiation or action between the Contractor and the third party. If the Contractor shall fail to collect any amounts owing or claimed owing to the Sub-Contractor as a result of the failure of the Sub-Contractor to comply with the terms of this Agreement, including any documents incorporated herein, the Contractor shall be fully released from any liabilities for such claims. In no event, however, shall the Sub-Contractor cease or disrupt the Work.
3 CP at 426.
If, as Miller contends, the prime contract's 180-day claim limitation is incorporated into the subcontract, then the two provisions would be inconsistent. Reading the two clauses together would require the parties to negotiate and attempt to settle for 179 days and then require the filing of a lawsuit on the 180th day if there is no agreement. Such a reading is inconsistent with the subcontract's controversies provision when good faith resolution of construction contract disputes often take far longer than six months.
Read together, the prime contract and the subcontract provide no clear intent to incorporate all the provisions of the prime contract, and the specific controversies provision of the subcontract is inconsistent with the 180-day claim limitation in the prime contract. Miller drafted the subcontract and we construe any ambiguity in the contract against it. See King v. Rice, 146 Wn. App. 662, 671, 191 P.3d 946 (2008) (if extrinsic evidence does not resolve an ambiguity, the contract will be construed against the drafter) (citing Queen City Sav. Loan Ass'n v. Mannhalt, 111 Wn.2d 503, 513, 760 P.2d 350 (1988)), review denied, 165 Wn.2d 1049 (2009).
We hold that the subcontract did not clearly or unequivocally incorporate the prime contract in its entirety and that there is no extrinsic evidence that demonstrates the parties intended to incorporate the prime contract's 180-day claim provision. We reverse the trial court's grant of summary judgment in Miller's favor and remand for trial.
A majority of the panel having determined that this opinion will not be printed in the Washington Appellate Reports, but will be filed for public record pursuant to RCW 2.06.040, it is so ordered.
VAN DEREN, C.J. and PENOYAR, J., Concur.