Opinion
No. C 03-3534 CW.
November 17, 2004
ORDER ADJUDICATING CONTRACT INTERPRETATION ISSUE RAISED IN PARTIES' MOTIONS FOR PARTIAL SUMMARY JUDGMENT
This case involves a contract dispute between the City of Oakland and MACTEC Engineering Consulting, Inc. (MACTEC). Defendant MACTEC has filed a motion for partial summary judgment pursuant to Federal Rule of Civil Procedure 56. Plaintiff City of Oakland cross-moves. The matter was heard on October 29, 2004. After the hearing, at the Court's invitation, the parties stipulated to allow the Court to interpret the extrinsic evidence submitted to the Court as part of the parties' cross motions, if the Court determines that the disputed contract terms are reasonably susceptible of two interpretations. Having considered all of the papers filed by the parties and oral argument, the Court DENIES both parties' motions for partial summary judgment and adjudicates the meaning of the disputed contract terms as set forth below.
A company called Harding Lawson Associates was the original party to the contract. It assigned the contract to Harding ESE, Inc., which then changed its name to MACTEC. This Order refers to all three companies as MACTEC.
BACKGROUND
The basic facts are undisputed. This case involves a plot of land in the City of Oakland (City) that has undergone numerous transformations over the years. The land began as a mudflat adjacent to the San Francisco Bay. Sabey Dec. Ex. E. From the 1930s to the 1950s, the City used it as a dump, primarily for construction demolition debris. Id. In the mid-1960s, the dump was leveled, covered with a layer of soil and converted into the Lew F. Galbraith Municipal Golf Course. In the mid-1990s, the City began dredging the Port of Oakland to make it deeper. It closed the old golf course and used it to store the mud produced by the dredging.
In February, 2000, the City decided to transform this land into a new golf course, and approved a project Plan and Specifications. Betterton Dec. Ex. A. The Plan is composed of over forty pages of maps, diagrams, drawings and notes. Id. Ex. L. The Specifications consist of over two hundred pages of text.
Because the site contained remnants of its previous incarnations, its conversion into a modern golf course required various tasks. The Specifications divided the tasks into sixteen categories, called Bid Items. Each Item indicated whether the task it encompassed was compensable at a lump sum, or at a unit rate. Id. Ex. J. The relevant Items provide as follows:
ITEM 1: All Contract Work Other than Work Separately Provided for Under Other Bid Items. The lump sum price to be paid under this Item shall be full compensation for performing all Work shown on the Plans or specified herein or in the Contract Documents, but not to be paid for under other bid items.
ITEM 5: Site Preparation. The lump sum price to be paid under this Item shall be full compensation for preparing the site as shown on the Plans and as specified herein. This Item includes . . . preparing the site areas to receive clay cover and geosynthetic clay liner . . . The work of this bid item shall also include placing up to one foot of site fill in low areas to bring the existing golf course grade up to `old golf course grade' shown on the Plans.
ITEM 9: Install Site Fill will be measured by the cubic yard of site fill actually installed in the designated locations. The unit price to be paid under this Item shall be full compensation for excavating the site fill from on-site areas and stockpiles; and moisture conditioning, transporting, placing, grading and compacting the site fill, all as shown on the Plans and as specified herein. Approximately 200,000 cubic yards of the material to be installed under this item is in-situ material, which shall be excavated and moisture conditioned to the specified moisture content before installation at no extra cost to the Port. Quantities to be paid under this item will be determined as the differential volume based on surveys taken before and after placement of the site fill.
ITEM 11: Furnish and Install HDPE Geomembrane Liner in Lakes will be measured by the square yard of the area actually covered by HDPE geomembrane liner. The unit price to be paid under this Item shall be full compensation for furnishing and installing the HDPE geomembrane liner in the ornamental lake areas as shown on the Plans . . . This item also includes the related anchoring, excavation, backfilling and protective gravel layer.
HDPE is an abbreviation for High Density Polyethylene.
Betterton Dec. Ex. J at GAL013793.
Also relevant is Item 12, which is substantially equivalent to Item 11, except that it discusses geomembrane liner in basins and ponds instead of lakes.
In order to solicit bids from contractors, the City prepared a bid form, which listed all sixteen Items. The City asked that contractors project their cost to complete each Item by filling in a blank next to each Item. For unit rate Items, the City's bid form included an estimated quantity of material. The estimated quantity of site fill for Item 9 was 580,000 cubic yards. Sabey Dec. Ex. C. Next to this quantity, MACTEC indicated that its unit price would be $4.24 per cubic yard, for a total of $2,459,200.00. Betterton Dec. Ex. E. MACTEC'S total bid to complete all sixteen Items was $5.89 million, which underbid the next lowest bidder by $1.38 million. In March, 2000, the City awarded the project to MACTEC. They entered into an agreement which included the Plan and Specifications as contract documents. Id. Ex. F.
After MACTEC began work on the project, unanticipated conditions at the site required MACTEC to excavate, moisture condition and install more site fill than the amount on which it had based its bid. It submitted monthly invoices, and received payment from the City without consequence from July, 2000 to August, 2001. By November, 2001, the City had already paid MACTEC its estimated bid price. Sabey Dec. Ex. N. In 2002, MACTEC submitted four claims, seeking over six million dollars in compensation. The City denied these claims. This action ensued. The City filed its complaint on June 19, 2003. MACTEC filed its answer and counterclaims on August 5, 2003.
The instant motions address a single issue: the scope of Item 9. MACTEC moves for summary adjudication that all excavation, moisture conditioning and installation of site fill is to be compensated at the Item 9 unit rate. The City cross-moves for summary adjudication that certain fill-related work is outside the scope of Item 9, and is included in the lump sum compensation paid pursuant to Items 1, 5, 11 and 12.
LEGAL STANDARD
Summary judgment is properly granted when no genuine and disputed issues of material fact remain, and when, viewing the evidence most favorably to the non-moving party, the movant is clearly entitled to prevail as a matter of law. Fed.R.Civ.P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Eisenberg v. Ins. Co. of N. Am., 815 F.2d 1285, 1288-89 (9th Cir. 1987).
The moving party bears the burden of showing that there is no material factual dispute. Therefore, the court must regard as true the opposing party's evidence, if supported by affidavits or other evidentiary material. Celotex, 477 U.S. at 324; Eisenberg, 815 F.2d at 1289. The court must draw all reasonable inferences in favor of the party against whom summary judgment is sought. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Intel Corp. v. Hartford Accident Indem. Co., 952 F.2d 1551, 1558 (9th Cir. 1991).
Material facts which would preclude entry of summary judgment are those which, under applicable substantive law, may affect the outcome of the case. The substantive law will identify which facts are material.Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
Where the moving party does not bear the burden of proof on an issue at trial, the moving party may discharge its burden of showing that no genuine issue of material fact remains by demonstrating that "there is an absence of evidence to support the nonmoving party's case." Celotex, 477 U.S. at 325. The moving party is not required to produce evidence showing the absence of a material fact on such issues, nor must the moving party support its motion with evidence negating the non-moving party's claim. Id.; Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 885 (1990); Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1409 (9th Cir. 1991),cert. denied, 502 U.S. 994 (1991). If the moving party shows an absence of evidence to support the non-moving party's case, the burden then shifts to the opposing party to produce "specific evidence, through affidavits or admissible discovery material, to show that the dispute exists." Bhan, 929 F.2d at 1409. A complete failure of proof concerning an essential element of the non-moving party's case necessarily renders all other facts immaterial. Celotex, 477 U.S. at 323.
Where the moving party bears the burden of proof on an issue at trial, it must, in order to discharge its burden of showing that no genuine issue of material fact remains, make a prima facie showing in support of its position on that issue. UA Local 343 v. Nor-Cal Plumbing, Inc., 48 F.3d 1465, 1471 (9th Cir. 1994). That is, the moving party must present evidence that, if uncontroverted at trial, would entitle it to prevail on that issue. Id.; Int'l Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1264-65 (5th Cir. 1991). Once it has done so, the non-moving party must set forth specific facts controverting the moving party's prima facie case. UA Local 343, 48 F.3d at 1471. The non-moving party's "burden of contradicting [the moving party's] evidence is not negligible." Id. This standard does not change merely because resolution of the relevant issue is "highly fact specific." Id.
DISCUSSION
Applying California law, the Court may not interpret any contract without first considering extrinsic parol evidence of the parties' contractual intent, even if the language of the contract is unambiguous.Trident Center v. Conn. Gen. Life. Ins. Co., 847 F.2d 564, 565 (9th Cir. 1988).The seminal California case discussing the role of extrinsic evidence in contract interpretation is Pacific Gas and Electric Company v. G.W. Thomas Drayage Rigging Co., 96 Cal. 2d 33 (1968). Pacific Gas instructs that
Rational [contract] interpretation requires at least a preliminary consideration of all credible evidence offered to prove the intention of the parties . . . If the court decides, after considering this evidence, that the language of a contract, in light of all the circumstances, is fairly susceptible of either one of the two interpretations contended for . . . extrinsic evidence relevant to prove either of such meanings is admissible. Pacific Gas, 96 Cal. 2d at 39-40.
The Ninth Circuit has interpreted Pacific Gas as holding that no contract is
impervious to attack by parol evidence. If one side is willing to claim that the parties intended one thing but the agreement provides for another, the court must consider extrinsic evidence of possible ambiguity. If that evidence raises a specter of ambiguity where there was none before, the contract language is displaced . . .
and the court must interpret the intention of the parties. Trident Center, 847 F.2d at 569.
Thus, the applicable law is best summarized as a two-step process. First, the Court must "engage in a preliminary consideration of credible evidence offered to prove the intention of the parties." U.S. Cellular Inv. Co. v. GTE Mobilnet, Inc., 281 F.3d 929, 939 (9th Cir. 2002). The Court may consider subsequent conduct of the parties in order to determine their contractual intent. Id. at 937. Second, if the Court decides that the evidence makes the contract "fairly susceptible" to an interpretation contrary to its plain meaning, extrinsic evidence of that contrary meaning is admissible in determining the parties' contractual intent. Id. at 939. "Where the interpretation of contractual language turns on a question of credibility of conflicting extrinsic evidence, interpretation of the language is not solely a judicial function." Morey v. Vannucci, 64 Cal. App. 4th 904, 912-13 (1998) (emphasis in original.) It is the responsibility of the trier of fact to resolve this conflict. Id. As noted, the parties have agreed that if the Court reaches this stage, it may interpret the extrinsic evidence and resolve this issue.
A. Conflicting Contract Interpretations Claimed
MACTEC contends that all of its work to excavate, haul, condition and install site fill should be compensated at a unit rate, pursuant to Item 9. The City disputes this interpretation of the contract. Instead, it argues that some work to excavate, haul, condition and install site fill is included in the compensation paid for Items 1, 5, 11 and 12. The City contends that the placement of up to one foot of site fill in low areas to bring the existing golf course grade up to the old golf course grade, as well as fill-related work necessary for the construction of hauling and access roads, the placement of cushion or foundation soil under the HDPE in lakes, basins and ponds, the placement of the protective layer over the HDPE in the lakes, basins and ponds and the construction of a cutoff wall around the lakes is included in a lump sum compensation.
Because the parties offer conflicting interpretations of the contract language, California law requires the Court to engage in a preliminary consideration of extrinsic evidence in order to determine whether the language is susceptible to both interpretations.
Item 9 addresses installation of "site fill" in "designated locations." The Specifications define fill as "soil materials placed to raise the existing grade of the site or to backfill excavations." Betterton Dec. Ex. J at GAL 013947. First, MACTEC must excavate the fill material. Then it must perform moisture conditioning "by either 1) aerating the material if it is too wet; or 2) spraying the material with water if it is too dry." After conditioning, MACTEC must mix the fill "to ensure a uniform distribution of water content," and then compact it. Betterton Dec. Ex. J at GAL 013952. So site fill is material conditioned and compacted and installed in designated locations in order to raise the surface elevation of the land.
Each party proffers a conflicting definition of the term "designated locations" in Item 9.
The City contends that "designated locations" means any location not covered by other Items. The City then interprets the scope of Item 5 broadly, contending that "preparing the site areas to receive clay cover and geosynthetic clay liner" includes processing and installing site fill. The City cites the Specifications, which indicate that preparation for clay cover and liner includes "soil subgrade preparation . . . and all incidental work necessary to complete the work to conform to the required lines and grades." The Specifications also indicate that Item 5 includes constructing and maintaining access roads at the site. Id. at GAL 013926.
Further, the City points to Item 5's provision that the lump sum compensation for site preparation "shall also include placing up to one foot of site fill in low areas to bring the existing golf course grade up to the `old golf course grade' shown on the Plans." Under this interpretation, if fill is installed in a location as site preparation to raise the grade, the first foot of that fill is compensated in Item 5's lump sum. Site fill exceeding one foot, or installed in an area for purposes other than raising the grade is installed in a "designated location," and is compensated at Item 9's unit rate.
Regarding lakes, basins and ponds, the City contends that Items 11 and 12 include the compensation for the foundation soil under and the protective layer above the HDPE liner. The Specifications for lakes, ponds and basins indicate that MACTEC must "excavate and/or fill to the lines and grades required to construct" the lakes, ponds or basins before installing the HDPE liner. Betterton Dec. Ex. J at GAL 013987, 013988. The Specifications also instruct MACTEC, before installing the geomembrane liner, to prepare and compact the surface in the same manner as surface must be prepared for clay cover. Id.
MACTEC proffers a different definition of "designated locations:" any place that the Plan drawings and Specifications explicitly call for "site fill." Under this interpretation, Item 5 site preparation does not include processing or installing site fill because subgrade is not "site fill." Similarly, MACTEC contends that creating access roads does not necessarily require site fill, but if the material used to create access roads is eventually used as site fill, it is compensable as site fill.
In interpreting Item 5, MACTEC relies on Note 6 on drawing G-1. Note 6 provides explicit instructions which address the same situation as Item 5: "As a result of areal settlement caused by placement of the dredged material, the actual surface of the old golf course grade may be lower than the grades shown on this plan." Rather than the lump sum compensation of Item 5, Note 6 instructs that the "placement and compaction of site fill to reach the old golf course grade shall be paid for at the unit price of site fill."
MACTEC advances a similar interpretation of Items 11 and 12. It argues that these Items discuss lake, pond and basin lining, not raising the grade to prepare for lining. Accordingly, MACTEC contends that Items 11 and 12 do not include the work to excavate, condition and install fill beneath the lakes, basins and ponds to raise the sunken site to grade and replace unsuitable material.
The parties agree that construction of the cut-off wall around lakes is not included in Item 9. The City argues that this work is included in Item 1. MACTEC contends it is included in Item 6. Because the parties limit their motions to the scope of Item 9, and they agree that construction of the cut-off wall is outside the scope of Item 9, the Court does not decide which Item addresses this work.
Thus, the parties proffer conflicting interpretations of the scope of Item 9. The Court must consider the extrinsic evidence proffered as evidence of the parties' contractual intent to determine whether the contract is susceptible of both interpretations.
B. Preliminary Consideration of Evidence
MACTEC offers evidence that, in some places, the soil layer was thinner than expected, such that the actual elevation of the land was one to two feet below the old golf course grade depicted in the Plan drawings. Id. Ex. H, Q. This meant that MACTEC had to add site fill material to raise the grade to the old golf course elevation indicated on the Plan.
The evidence indicates that the parties had contemplated that the actual site conditions might differ from the conditions depicted in the Plan, and that they intended the contract to instruct how MACTEC would be compensated for certain work in this situation. In response to a July, 2000 Request for Information, the City instructed MACTEC to raise the elevation of the land to the old golf course grade as it was depicted in the drawings. The City indicated that this work was mandated by Note 6 to sheet G-1 of the Plan. Id. Ex. Q. Note 6 states that if MACTEC had to prepare and install site fill to raise the elevation of the land to the old golf course grade, "placement and compaction of site fill to reach the old golf course grade shall be paid for at the unit price of site fill." Id. Ex. R.; Betterton Dec. Ex. L.
On May 18, 2000 MACTEC sent a Letter of Understanding to the City. The letter stated that MACTEC needed to raise the grade of a particular area of the site, that MACTEC would "use site material to adjust base grade to match the specifications," and that this work would be compensated as "a Site fill line item." Lamb Dec. Ex. B. The City did not indicate disagreement with the statements in this letter.
At a December 5, 2001 meeting, the parties discussed site fill. Sabey Dec. Ex. L. Because of the unanticipated composition of the on-site materials, MACTEC had to process a larger volume of material than it had originally estimated in order to create site fill. Although the parties did not reach agreement on the exact quantity of site fill, they agreed that because "site fill was a unit price item in the bid, this warrants additional compensation to be paid to [MACTEC]." Id.
On December 7, 2001, the City approved change order 6T. Pursuant to this order, the City paid MACTEC the unit rate for processing and installing 100,000 cubic yards of soil that was imported to the project site from another project. Id. Exs. S, X. Upon this preliminary review of the contract language and the extrinsic evidence, the Court concludes that the contract is reasonably susceptible to either party's interpretation.
C. Extrinsic Evidence of Contractual Intent
Because the contract is reasonably susceptible to either party's interpretation, extrinsic evidence is admissible to determine the parties' intent. The extrinsic evidence consists largely of undisputed facts. Assuming without deciding that these facts could raise differing inferences, pursuant to the parties' stipulation, the Court finds from these facts that the parties intended to compensate all installation of site fill at the Item 9 unit rate.
Although Item 5 could be read to include excavation, moisture conditioning and installation of up to one foot of site fill over the entire site as part of the lump sum, the Court finds that the parties' contractual intent, as demonstrated by the course of performance, was to compensate at the Item 9 unit rate any and all excavation, moisture conditioning and installation of site fill in order to raise the elevation to the old golf course grade. Contrary to the City's proffered meaning of Item 5, there is no evidence that the parties intended a "first-foot-free" rule. The parties intended that MACTEC be compensated at the unit rate for all site fill actually processed and installed to raise the grade to old golf course grade.
Further, MACTEC is entitled to receive compensation under Item 9 for site fill that was ultimately installed, even if the site fill initially was processed in order to construct access roads.
In addition, the parties intended Item 9 to include site fill to raise the elevation of lakes, basins and ponds. While Items 11 and 12 include the installation of certain materials one foot below and one foot above the HDPE liner, the Specifications indicate that if the existing grade is below the grade depicted in the Plan, MACTEC "shall excavate below the grades shown to remove unsuitable soil, and shall backfill with site fill compacted as specified. Such excavation below grade to remove unsuitable soil, if required, will be paid as extra work." Betterton Dec. Ex. J at GAL 013989. There is no evidence indicating that the parties intended otherwise.
The City offers evidence which is irrelevant to the scope of Item 9. For example, City Environmental Professional Len Cardoza states that he has not previously seen various meeting notes offered by MACTEC. However, Cardoza does not offer testimony questioning the accuracy of the meeting notes. Cardoza Dec. ¶ 4. The City's evidence does create a factual question as to the accuracy of MACTEC's calculations of the quantity of site fill it processed and installed. The City offers evidence that MACTEC processed more site fill than called for in the contract documents, LaBasco Dec. ¶ 3, and that MACTEC did not perform all of the work it claimed to have performed. Jimenez Corrected Dec. ¶ 3, Ex. A. However, this evidence goes to the quantity of site fill processed or the method of measuring the quantity of site fill. That is not the issue here. The issue is whether the parties intended for all site-fill to be compensated at the Item 9 Unit rate. The Court finds that they did.
CONCLUSION
For the foregoing reasons, the parties' cross motions for partial summary judgment are DENIED. (Docket no. 25 and 34). However, pursuant to the parties' stipulation, the Court adjudicates the meaning of the contract as set forth above. To the extent that the Court relies on evidence to which Plaintiff objects, the objections are OVERRULED. (Docket nos. 33, 41). To the extent that the Court does not rely on this evidence, Plaintiff's objections are moot. A Case Management Conference will be held on January 21, 2005 at 1:30 pm, with a joint Case Management Conference statement due one week before the conference. In the interim, the parties shall attempt to settle the case.
IT IS SO ORDERED.