Opinion
Case No. 2:02CV1238
December 22, 2003
ORDER AND OPINION
INTRODUCTION
Before the Court are Envirocare of Utah, Inc.'s Motion for Summary Judgment and Bechtel National, Inc.'s Cross Motion for Summary Judgment. The parties' dispute originates from a Subcontract Agreement entered into between the parties. The Subcontract Agreement required Envirocare to secure its work by obtaining performance and payment bonds. Once obtained, the Subcontract Agreement required Bechtel to pay Envirocare for obtaining the bonds. Envirocare performed two types of work for Bechtel, base work and optional work. Envirocare obtained bonding for the base work and was paid pursuant to the written Subcontract Agreement. For the optional work the parties agreed in a separate written contract that Envirocare would be allowed to provide an alternative source of financial security rather than payment and performance bonds, which would constitute full satisfaction of the bonding requirements. Envirocare provided the alternative source of security but Bechtel refused to compensate Envirocare for providing the security. Envirocare then brought this action, seeking compensation pursuant to the Subcontract Agreement's formula, The Court having considered oral argument by both parties, the parties' briefs and the relevant law, issues the following Opinion and Order.
BACKGROUND
Envirocare and Bechtel entered into a subcontract agreement on July 21, 1995, which required Envirocare to perform radioactive and chemically contaminated waste disposal services at a site in the township of Wayne, New Jersey. According to the Subcontract Agreement, Envirocare was to perform "base work," which included packaging, transporting, storing and disposing of contaminated waste, Under the Subcontract Agreement Envirocare also agreed to perform "optional work" at the same site which included the removal of sub-terrain contaminated waste.
Pursuant to the Subcontract Agreement, Envirocare was to secure its performance of the base and optional work by obtaining performance and payment bonds. The Subcontract Agreement addressed Envirocare's bonding obligations as follows:
The Subcontractor [Envirocare] shall obtain 100% performance and 100% payment bonds, and the cost of the bonds will be reimbursed. The payment will be based on the actual value of the work performed under this Subcontract multiplied by the established rate in this section. Payment under this pay item constitutes compensation for both performance and payment bonds.
The Subcontract Agreement contained two separate formulas to compute Bechtel's payment obligation for base work and optional work. The base work formula required Bechtel to pay Envirocare thirty-five dollars ($35.00) for every thousand dollars of work performed. The optional work formula required Bechtel to pay Envirocare twenty-five dollars ($25.00) for every thousand dollars of work performed, Envirocare obtained performance and payment bonds for the base work and was paid by Bechtel in accordance with the formula. The total amount of the base work had a fixed price value of $15,360,600.00. Accordingly, the fee paid to Envirocare for fulfilling its obligation to provide payment and performance bonds was $537,621.00 ($35,00 × 15,360.60-$537,621.00),
According to information presented by Envirocare, the actual cost of the bonds was $115,668.00.
Subsequent to performing the base work Envirocare performed optional work. With respect to its obligation to provide performance and payment bonds, Envirocare sought in lieu thereof to provide a third-party collateral pledge in the amount of $6,000,000.00. The collateral was to be provided by the owner of Envirocare, Khosrow B. Semnani. Bechtel agreed to this substitution. To memorialize the terms of the third-party collateral pledge Bechtel, Envirocare and Mr. Semnani entered into a Security Agreement giving Bechtel a security interest in the pledged assets. The Security Agreement acknowledged Bechtel's acceptance of the third-party collateral pledge as full satisfaction of Envirocare's bonding obligation, as follows:
2. Security for Obligations: Acceptance by Assignee.
(a) The pledge and security interest granted hereunder is made to secure the obligations of Subcontractor [Envirocare] under the Subcontract Agreement to perform the Work in accordance with the terms and conditions thereof.
(b) Assignee [Bechtel] hereby accepts the pledge and security agreement granted by Assignor [Mr. Semnani] hereunder as full satisfaction of all of the Bonding Requirements of Subcontractor under the Subcontract Agreement.
Once Bechtel agreed to the third-party collateral pledge in lieu of performance and payment bonds, Envirocare performed the optional work. Bechtel placed a fixed price value of $10,529,056.00 for the optional work. The optional work payment formula when applied to the fixed price value of $10,529,056.00 produces a total of $263,226.00. ($25.00 × 10,529.056 = $263,226.00) Envirocare alleges that it is owed this amount for fulfilling the requirements of the Security Agreement and the Subcontract Agreement. Bechtel alleges that it has no obligation to compensate Envirocare because Envirocare failed to obtain performance and payment bonds. Alternatively, Bechtel argues that even if it were required to pay, the proper amount owed is $150,000.00 based on Envirocare's assertion in the Release and Certificate of Final Payment that it is owed $150,000.00 for providing the pledged collateral. Envirocare claims that the reference to the $150,000,00 figure was only a settlement offer, which was rejected by Bechtel, and is now moot.
Bechtel disagrees that the optional work total price was $10,529,056.00, contending instead that the total price was $9,777,505.47 as reflected in a Release and Certificate of Final Payment signed by Envirocare.
DISCUSSION
Both parties have moved for summary judgment. Summary judgment is proper "[i]f 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." See FED. R. OF Civ. P. 56(c). In considering whether genuine issues of material fact exist, the Court determines whether a reasonable jury could return a verdict for the nonmoving party in the face of all the evidence presented. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986); Clifton v. Craig, 924 F.2d 182, 183 (10th Cir. 1991), The moving party need not negate the nonmoving party's claims, but need only point out that "there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
In making its determination the Court finds that there are no genuine issues as to any material facts. The Court is faced solely with a question of contract interpretation, which presents a question of law appropriate for resolution by the Court on summary judgment. Snow Flower Homeowners Assoc. v. Snow Flower, Ltd., 31 P.3d 576, 579 (Utah Ct.App. 2001).
The issue before the Court is whether Bechtel retains the obligation to compensate Envirocare for its alternative method of complying with the bonding requirements for the optional work it performed. Envirocare argues that the alternative method of providing security did not eliminate Bechtel's obligation to compensate Envirocare. Bechtel's obligation remains because Bechtel accepted the pledged collateral as full satisfaction for the required financial security in lieu of the bonding requirements. Envirocare further argues that the Security Agreement did not remove Bechtel's obligation to compensate Envirocare because the Security Agreement related solely to the bonding requirements and did not modify any other provision including the compensation provisions, Envirocare also argues that the Security Agreement did not eliminate the payment provisions found in the Subcontract Agreement because Bechtel received the security it bargained for through the collateral pledge. Envirocare accordingly asks the Court to find that Bechtel has breached the Subcontract Agreement by failing to compensate Envirocare for having complied with its bonding requirements. To prove breach of contract a party must show the following elements: (1) existence of a contract; (2) performance by the party seeking recovery; (3) breach of the contract by the opposite party; and (4) damages. Campbell Maack Sessions v. Debry, 38 P.3d 984, 991 (Utah Ct.App. 2001),
(1) Existence of a Contract
Neither party disputes that a Subcontract Agreement and Security Agreement existed between the parties.
(2) Performance by the Party Seeking Recovery
Bechtel disputes Envirocare's argument that it fully complied with the bonding requirements through the third-party collateral pledge and accompanying Security Agreement. Bechtel argues that the Subcontract Agreement unambiguously states that the Subcontractor [Envirocare] was to obtain 100% performance and 100% payment bonds and that the cost of the bonds would be reimbursed. Because Envirocare did not obtain performance and payment bonds there was no cost to be reimbursed, Bechtel next argues that the terms of the Security Agreement superceded the Subcontract Agreement, which thereby eliminated Bechtel's payment obligation. Bechtel finally argues that in any event Envirocare's claim for payment must be limited to the costs actually incurred to secure the pledged collateral and Security Agreement,
Bechtel's first argument, that Envirocare must actually obtain performance and payment bonds in order to be paid stems from the language of the Subcontract Agreement, which reads as follows:
The Subcontractor [Envirocare] shall obtain 100% performance and 100% payment bonds, the cost of the bonds will be reimbursed. The payment will be based on the actual value of the work performed under this Subcontract multiplied by the established rate in this section. Payment under this pay item constitutes compensation for both performance and payment bonds, (emphasis added)
In response to Bechtel's argument, Envirocare contends that the pledged collateral memorialized through the Security Agreement fully satisfied the bonding requirements found in the Subcontract Agreement. As support for its argument Envirocare offers the Security Agreement's language, as follows:
2. Security for Obligations: Acceptance by Assignee.
(b) Assignee [Bechtel] hereby accepts the pledge and security agreement granted by Assignor [Mr. Semnani] hereunder as full satisfaction of all of the Bonding Requirements of Subcontractor under the Subcontract Agreement. (emphasis added).
Envirocare contends that Bechtel's acceptance of the collateral pledge and security agreement as full satisfaction of all of the bonding requirements did not alter the bond compensation provision found in the Subcontract Agreement. The bond compensation language remains in force because Bechtel still received the financial security of Envirocare's performance it bargained for in the Subcontract Agreement, even though it took an alternative form.
The Court is faced with interpreting the Subcontract Agreement in light of the Security Agreement to determine if an ambiguity exists, In making its determination the Court finds that no extrinsic evidence is necessary. The issue is a matter of law appropriate for resolution by the Court, Zions First Nat'l Bank v. National Am. Title Ins. Co., 749 P.2d 651, 653 (Utah 1988). Determination whether a contract is ambiguous is also a question of law. Village Inn Apartments v. State Farm Fire Casualty Co., 790 P.2d 581, 582 (Utah App. 1990) (citing Faulkner v. Farnsworth, 665 P.2d 1292, 1293 (Utah 1983); Property Assistance Corp. v. Roberts, 768 P.2d 976, 977 (Utah App, 1989)).
It is clear that the parties amended the original Subcontract Agreement through the subsequent Security Agreement. It is also clear that pursuant to the Security Agreement the collateral pledge was accepted by Bechtel as "full satisfaction" of Envirocare's bonding requirements. The parties, however, did not address in the Security Agreement the matter of compensation for providing security through the collateral pledge. This failure combined with the language found in the Subcontract Agreement which states: "the Subcontractor [Envirocare] shall obtain 100% performance and 100% payment bonds, and the cost of the bonds will be reimbursed" (emphasis added) makes it somewhat unclear as to what the parties intended with respect to Envirocare's compensation for providing an alternative form of security.
It is clear, however, that Bechtel fully accepted the collateral pledge and that Envirocare performed the optional work based on Bechtel's acceptance. It is also clear that Bechtel received what it originally sought under the Subcontract Agreement, namely security for Envirocare's performance. The Court finds that because Bechtel received the benefit of its bargain, the only plausible interpretation of the Agreements between the parties is that the compensation obligation in the Subcontract Agreement remained binding, and Bechtel must compensate Envirocare for providing the alternative form of security.
To determine the amount of compensation the Court looks to the formula in the Subcontract Agreement. The Subcontract Agreement section relating to payment states that the payment will be based on the actual value of the work performed. The Subcontract Agreement provides the method to calculate the payment which, for optional work, was twenty-five dollars ($25.00) for every one thousand dollars of work performed.
It is true that no bonds were obtained by Envirocare, but an agreed-to alternative to the bonds was clearly provided. Under these circumstances, and without any indication whatsoever to the contrary, the Agreement between the parties must be interpreted to reflect a continuous obligation on Bechtel's part to compensate Envirocare pursuant to the formula set out in the Subcontract Agreement, Bechtel voluntarily and freely agreed to the substituted Security Agreement. It could have insisted on a strict construction of the original terms, (i.e. security must be provided only by performance and payment bonds) but it did not, Bechtel specifically in writing agreed to the substitute and agreed that the substitute would fully satisfy the original bonding requirements. Also, Bechtel was free to attempt to modify the payment obligations, but it did not make any attempt to do so. The payment obligation, therefore, remained the same. Bechtel received the security it was seeking and thereby received full performance. Payment must be based on the optional work formula provided in the Subcontract Agreement.
(3) Breach of the Contract
As explained above, the Court finds that Bechtel's obligation to compensate Envirocare for complying with the bonding requirements through an alternative method did not eliminate Bechtel's obligation to compensate Envirocare. Envirocare secured its performance and performed the optional work. When Envirocare was refused payment, Bechtel breached the agreement between the parties.
(4) Damages
The amount of damages owed by Bechtel is to be computed by using the formula provided in the Subcontract Agreement. The formula is $25.00 for every one thousand dollars of work performed.
Bechtel's argument that Envirocare agreed in the Release and Certificate of Final Payment that Bechtel's payment obligation is limited to a maximum of $150,000,00 is not supported by the record. The $150,000.00 figure listed by Envirocare was made in contemplation of settlement. Because the case was not settled this figure is no longer relevant.
CONCLUSION
The Court finds that Bechtel's obligation to compensate Envirocare was not eliminated by the parties' collateral pledge and Security Agreement amendment to the Subcontract Agreement. Bechtel received the benefit of its bargain through the collateral pledge. Because Bechtel received the security it bargained for its obligation to compensate Envirocare remained unchanged pursuant to the terms of the Subcontract Agreement, By failing to compensate Envirocare, Bechtel breached the parties' agreement. The Court GRANTS Envirocare's Motion for Summary Judgment. IT IS SO ORDERED.