James Julian, Inc. v. State Highway Administration

ALPERT, Judge. It is axiomatic that, within reasonable limits, parties to a contract may mutually select their remedies for breaches or differences arising out of the performance of the contract. In this appeal, we must decide whether the choice of words used by sophisticated parties in selecting the remedies ⁷⁶ precluded the parties from litigation before exhausting the procedures provided in the contract. The sophisticated parties are James Julian, Inc., appellant (“Julian”), the Mayor and City Council of Baltimore (“the City”) and allegedly the State Highway Administration, Department of Transportation of Maryland (“SHA”). 1 We note with regret and a sense of ennui that even sophisticated parties occasionally disagree as to the meaning of the words they choose.

The contractual language delineated to settle future differences is set forth at length later in this opinion. As things came to pass, Julian sued the City and SHA for breach of contract, alleging over $12,000,000.00 in damages and, additionally, sought declaratory relief. The Circuit Court for Baltimore City granted motions raising preliminary objection filed by the City and SHA and dismissed Julian’s amended declaration, finding in pertinent part that: [ 1 ] the contract upon which Plaintiff alleges a breach is a City of Baltimore contract and the contract provisions require that the remedies under the contract must be exhausted ... [and] [ 2 ] that the State Highway Administration was not a party to the contract, because this Court has found that the Interstate Division for Baltimore City is an agency of Baltimore City. We agree with the trial court “that the remedies under the contract must be exhausted.” We also agree “that the State Highway Administration was not a party to the contract” but not for the same reason assigned by the trial judge.

FACTS AND PROCEEDINGS Julian brought suit against the City and SHA for breach of contract. The contract at issue concerned the construction of the Martin Luther King, Jr. Boulevard, formerly ⁷⁷ known as the Harbor City Boulevard. The primary factual allegations of appellant-plaintiff’s suit are contained within Paragraphs 17 and 18 of the Declaration, which provide: 17. During performance of the work, Defendants breached the Contract.

(Unless otherwise indicated, the term ‘Defendants’ means both State and City Defendants, jointly or severally.) They wrongfully failed to compensate the Plaintiff where, as set forth below, the Defendants were obligated to do so. Among other things: (a) Defendants directed Plaintiff to perform extra work, beyond the requirements of the Contract. (b) Defendants hindered Plaintiff’s performance of the work. (c) Plaintiff encountered differing site conditions from those indicated in the Contract documents.

(d) Defendants forced Plaintiff to accelerate the performance of the work. (e) Defendants failed to coordinate the work between Plaintiff and other parties, especially utility companies such as Baltimore Gas and Electric Company. (f) Defendants constructively changed the contract requirements. (g) Defendants’ actions and inactions delayed and disrupted Plaintiff’s work.

(h) Plaintiff encountered variations in the estimated quantities of major pay items, which justified an equitable adjustment of the contract prices. 18. In the following circumstances, among others, the Defendant failed to comply with its duty to provide extra compensation and more details of the claims were formally filed with the IDBC on October 7, 1983: (a) With respect to the utilities, the plans and specifications were defective. The plans called for installation of new utilities in the same place where the plans called for existing utilities to be maintained. Insofar as the plans contained numerous utilities conflicts, the Defendants breached the implied war ⁷⁸ ranty that the specifications are adequate for the intended purpose.

Defendants 5 directed Plaintiff to perforan certain relocation and rearrangement of utilities and this was beyond the Contract requirements. The directives caused an increase in the cost and time for performance of the work for which Defendants are obligated to compensate Plaintiff. (b) The Contract called for a 30" — 36" watermain running approximately 65% of the length of the boulevard. Beginning shortly after notice to proceed, Defendants spent one year revising the specifications of this watermain.

During this time, it was unreasonable and impracticable to construct the boulevard along the affected area. This caused a major shift in the construction sequence as well as a delay in completion of work. This caused an increase in the cost and time for performance of the work, for which Defendants are obligated to compensate Plaintiff. (c) The Contract required Plaintiff to excavate for the box culvert.

With respect to the material removed from excavation for box culvert, the contract called for Plaintiff to waste the material and to use borrow excavation as fill. Defendants changed the Contract requirements by directing that Plaintiff stockpile the material moved in excavation for box culvert for later use as tile. This hindered Plaintiffs work. It caused an increase in the cost and time for performance of the work, for which Defendants are obligated to compensate Plaintiff.

(d) The Contract indicated a certain quantity of topsoil for landscaping. Plaintiffs unit price bid was based on spreading certain costs over this quantity. This quantity turned out to have been negligently overestimated by Defendants’ design consultant. During performance, the actual amount of topsoil required underran the quantity indicated by approximately 50%.

This obligated Defendants to make an adjust ⁷⁹ ment in the unit price in order to compensate Plaintiff for the reduction in quantity. (e) Plaintiff is entitled to extra compensation for Defendants’ action taken with regard to work performed by subcontractors including, but not limited to: (1) Taylor Topsoil, and (2) HSC Engineering Corp. The City and SHA filed Motions Raising Preliminary Objections. As we mentioned earlier, both motions were granted by the Circuit Court for Baltimore City. As to the City, the trial judge found that Julian had failed to exhaust its remedies under the contract.

As to SHA, the trial judge also granted its motion, finding it was not a party to the contract because the Interstate Division for Baltimore City was a city agency. The controlling provisions of the contract to construct the Boulevard are contained, in pertinent part, within Article 10.05 of the contract: ARTICLE 10.05 CONTROL OF THE WORK Section 10.05-1 Authority of the Engineer 1. To prevent misunderstanding and litigation, the Engineer shall decide any and all questions which may arise as to the quality and acceptability of materials furnished and work performed and as to the manner of performance and rate of progress of said work, and shall decide all questions which may arise as to the interpretation of any or all plans relating to the work and of the Specifications, and all questions as to the acceptable fulfillment of the Contract on the part of the Contractor; and the Engineer shall determine the amount and quantity of the several kinds of work performed and materials which are to be paid for under the Contract, and such decision and estimate shall be final and conclusive, and such estimate, in case any question shall arise, shall be a condition precedent to the right of the Contractor to receive any money due under the Contract____ ⁸⁰ 2. The decision of the Engineer shall be final and he shall have executive authority to enforce and make effective such decisions and orders as the Contractor fails to carry out promptly. 3.

The Contractor doing work under the control of the Interstate Division for Baltimore City may, when disputes or litigations arise, request the Chief, Interstate Division for Baltimore City and the Director of Public Works of Baltimore City to referee, only in the case of questions that cannot be settled by their authorized representative on the project. The decision, determination and/or estimate will be final and conclusive upon the Contractor. Section 10.05-16 Disputed Work and Claims Provision is made elsewhere in these Specifications to establish appropriate adjustments to quantities, prices and/or time allowances when necessary____ [I]t shall be the responsibility of the Contractor to promptly notify the Engineer of the existence of conditions which he feels differ materially from those described by the Plans and/or Specification. Where such notification has been given or where the Engineer finds it necessary to initiate changes as described in Section 10.04-3, the Engineer and the Contractor will negotiate appropriate adjustments.

If and when the Contractor concludes that the negotiations with the Engineer cannot yield what he considers to be an acceptable solution, he shall advise the Engineer that he is requesting a review by the Chief, Interstate Division for Baltimore City and the Director of Public Works, Baltimore City. His intention to file a claim for additional compensation and/or time allowance should be directed to the Engineer in writing. Complete documentation of the claim including supporting data shall be submitted____ The Chief, Interstate Division for Baltimore City and the Director of Public Works, Baltimore City shall jointly advise the Contractor of their finding or call for such ⁸¹ conference and/or additional written presentation as he considers necessary to make a judgment to the matter. In the latter case, their finding will be made within thirty (30) days of receipt of such verbal or written presentation.

The Chief, Interstate Division for Baltimore City and the Director of Public Works, Baltimore City findings will set forth, as appropriate, stipulation of additional time allowances, method of measurement and basis of payment for the work involved. The joint decision of the Chief, Interstate Division for Baltimore City and the Director of Public Works, Baltimore City will be final. There may be no further appeal under the terms of this contract. Section 10.05-17 Promptness in Submission of Claims (a) Should the Contractor be of the opinion, at any time or times, that he is entitled to any additional compensation whatsoever (over and above the compensation stipulated in the Contract Documents or for quantities and/or amounts over and above the quantities and/or amounts allowed or approved by the Engineer) for damages, losses, costs and/or expenses alleged to have been sustained, suffered or incurred by him in connection with the project contemplated, he shall, in each instance, within five (5) days after such alleged damages, losses, costs and/or expenses shall have been sustained, suffered or incurred, make a written claim therefor to the Engineer____ (b) The provisions of the Section shall be held and taken to constitute a condition precedent to the right of the Contractor to recover; they shall also apply to all claims by the Contractor in any way relating to the complete project, and even though claims and/or work involved may be regarded as ‘outside the Contract.’ (c) It is understood and agreed, however, that nothing in this Section shall be held or taken to enlarge in any way the rights of the Contractor or the obligations of the City under the Contract Documents. ⁸² Julian, obviously preferring the formalities of a judicial determination over the informality of the remedies under the contract, noted a timely appeal from the Order of Dismissal and seeks reversal asserting that: I. The lower court erroneously barred this action for breach of contract until exhaustion of certain contract remedies.

II

In the absence of an evidentiary hearing, the lower court improperly granted the State’s motion based on a finding of fact that the Interstate Division for Baltimore City is a City, rather than a State agency.

III

The Interstate Division for Baltimore City is a State agency. I. EXHAUSTION OF CONTRACTUAL REMEDIES A. The Claims — Do They “Arise Under” The Contract? Julian contends that the remedies under the contract only govern claims “arising under” the contract and therefore do not apply herein because its cause of action is for breach of the contract. 2 The City, although seemingly addressing the same issue of contractual remedies, responds that Julian’s claims must be “arbitrated” in accordance with the contract provisions. The City, citing Southern Maryland Hospital Center v. Edward M. Crough, Inc., 48 Md.App. 401, 406 , 427 A.2d 1051 , cert. denied, 290 Md. 721 (1981), argues further “that when the arbitration agreement is ‘clear and precise’[,] ... any controversy arising out of the agreement ⁸³ or breach thereof shall be settled by the arbitration procedure ____” How ever we view the remedies provided by Article 10.05 of the agreement, we must first determine whether the thirteen items claimed by Julian were indeed intended to be decided by the engineer or other referee, or if they are outside of the purview of the contractual remedies.

If the disputed items are outside the purview of the contractual remedies, then there are no pre-litigation remedies to be exhausted. Conversely, if the items clearly fall, as we believe they do, within the four corners of the contractual remedies, then they must, at the very least, initially be determined in a non-judicial proceeding, be it styled arbitration or otherwise. Julian contends that there is a significant distinction between a claim “arising under” a contract and a judicial action for breach of contract. We do not disagree with this assertion and, in fact, recognize that the underlying principles must be applied to the allegations in this case for if any alleged breach did not “arise under” the contract, then the lower court would have erred.

Provisions for remedy (disputes clauses) have come under scrutiny with some degree of frequency in the federal courts because of contract disputes with the United States governmental agencies. As the United States Court of Claims recognized in Morrison-Knudsen Co., Inc. v. United States, 345 F.2d 833 , 170 Ct.Cl. 757 (1965): “In the broad sense, every failure by the government to comply with its contractual obligations is a breach of contract____ But we know that this is not so.” The Court of Claims went on to note that if “complete relief is available to the contractor under the provisions of the contract ..., the action is not one for ... breach of contract.” Id. 345 F.2d at 837 (citations omitted). See also United States v. Utah Construction & Mining Co., 384 U.S. 394 , 404 n. 6, 86 S.Ct. 1545 , 1551 n. 6, 16 L.Ed.2d 642 , 651 n. 6 (1966) (“When the contract makes provision for equitable adjustment of particular claims, such claims may be regarded as converted from breach of contract claims to ⁸⁴ claims for relief under the contract.”) (citing Morrison-Knudsen with approval). Morrison-Knudsen arose out of a contract between that company and the Alaska Road Commission of the Department of the Interior for the grading and draining of a section of highway in Alaska.

The plaintiff-contractor filed a claim for the increased costs of finishing the subgrade of the road, seeking an equitable adjustment under the changes clause or damages for breach of contract. It also made claim for increased costs resulting from “the shut down for the winter of 1954-1955.” Id. 345 F.2d at 835 . All of the claims at issue were initially presented to the contracting officer, and later appealed to the Interior [Department] Board of Contract Appeals (“IBCA”) after the contracting officer granted partial relief to the contractor. The IBCA granted relief on two claims.

As to a third claim for increased costs, the IBCA noted that it lacked jurisdiction to decide the claim but nevertheless included detailed findings of fact on the issue. 345 F.2d at 835 . The issue on appeal was whether the contractor was entitled to a de novo trial as to those facts found by the IBCA on the third claim, the claim it found to be beyond its authority. Id. at 836 . The court held that the findings of fact were “gratuitous and such findings do not preclude or limit a trial de novo on the merits of the claim.” Id. at 838 .

Following the rationale of Morrison-Knudsen, if complete relief is available to Julian under the provisions of the contract, then there can be no collateral action for breach of contract. This principle was succinctly stated in another case before the United States Court of Claims, Bird & Sons, Inc. v. United States, 420 F.2d 1051, 1055 , 190 Ct.Cl. 426 (1970) (emphasis in original): To the extent that complete relief is available under a specific provision — i.e., the claim is both cognizable under and adjustable by the terms of the contract — such as the currently standard ‘Changes’, ‘Changed Conditions’, or ‘Inspection’ clauses, the controversy arises under the ⁸⁵ contract and is subject to initial administrative resolution as provided in the normal 'Disputes’ article. But if a fair reading of the particular contract shows that the specific dispute has not been committed to agency decision, the claims are then for a ‘pure’ breach of contract and are considered de novo in this court. Applying the formula in Bird & Sons to the case sub judice, the “agency decision” would be that of either the engineer, the Department of Public Works, or another administrative official designated to decide the disputes under Article 10.05.

Reviewing each of the thirteen alleged breaches of contract, we hold that relief clearly can be obtained under the provisions of Article 10.05. Breach alleged by Appellant: Corresponding provision of Article 10.05: Paragraph 17: 3 a. Extra work completed by appellant at appellees’ direction a. § 10.05 — (17) (additional compensation generally) b. Hindrance of appellant’s work b. § 10.05-(17) (additional compensation generally) c.

Encountering site conditions differing from plans. e. § 10.05-(16) (additional compensation for differing site conditions) d. Forced acceleration of work performance. d. § 10.05-(1) (rate of progress determined by Engineer) e. Appellees’ failure to coordinate work between various companies at site. e. § 10.05-(1) (amount and quantity of several kinds of work determined by Engineer) f. “Constructive” change of contract requirements by appellees. f. § 10.05-(1) (interpretation of plans by Engineer) g. Delay caused by actions and inactions of appellees. g. § 10.05 — (1) (rate of progress determined by Engineer) h.

Variations in estimated quantities of major pay items. h. § 10.05-(1) (quantity of materials determined by Engineer) ⁸⁶ Breach alleged by Appellant: Corresponding provision of Article 10.05: Paragraph 18: a. Defective plans and specifications as to on-site utilities. a. § 10.05-0.) (interpretation of plans) and 10.05-07) (additional compensation generally) b. Delays caused by defective specifications as to the watermain. b. § 10.05 — (17) (additional compensation generally) c. Change in contract requirements as to materials excavated for box culvert. c. § 10.05-07) (additional compensation generally) and § 10.05 — (16) (additional compensation for differing conditions) 4 d.

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