EDVA: Jury must decide whether conduct waived non-waiver clause

In a contract dispute between a Dominion subsidiary and a pipeline-construction company, the court resolved some issues related to non-payment claims, but held that the scope of the parties’ contract and certain aspects of its performance could not be determined on summary judgment.

Background

In 2011, Defendant Dominion Transmission retained Plaintiff Precision Pipeline LLC to build a 55-mile stretch of natural gas pipeline through Pennsylvania and West Virginia.

During construction, Precision encountered many unexpected issues, making the project dramatically more difficult than planned. Precision says that Dominion not only failed to pay Precision for its work but also drastically changed the scope of the project by providing inaccurate information about the number of underground obstacles along the pipeline’s path.

Counterclaiming, Dominion withheld 10 percent of all payments to Precision for retainage, to ensure that Precision completed the work. Dominion claims it does not have to pay the retainage because of certain set-offs that reduce the amount Dominion owes. Not surprisingly, these total more than the amount Dominion retained, allowing it to keep all the money. Precision challenges three categories of set-offs and also asks the court to find that Dominion wrongfully failed to pay over $1.7 million on disputed invoices.

Retainage

The court will strike some of Dominion’s defenses to the retainage claim, but it is premature to grant summary judgment for the amount of retainage Precision seeks.

First, Dominion has withheld almost $7.5 million based on its costs to repair 55 small landslides that occurred after the pipeline’s completion. Dominion says that Precision is to blame for this problem, but has no evidence to support that claim. Set-off is an affirmative defense, and Dominion bears the burden to establish it.

What Dominion calls “slips” are actually a geological phenomenon known as “slump.” It happens when the force of gravity becomes stronger than the horizontal forces holding the material to the hillside. Slumps can happen if artificially-made hills are too steep, but they can also occur naturally. To prove that Precision caused the slumps in this case, Dominion would need expert testimony, which it does not have. Thus, the court will grant Precision’s motion for summary judgment as to this set-off claim.

Second, Precision contends that Dominion must pay what Precision has charged for erosion control fabric, regardless of whether the fabric was installed or not. Precision argues for this absurd result because Dominion signed off on work as the job went along. This argument is like Precision sticking its tongue out at Dominion, saying, “Maybe we put it in and maybe not, but you’re stuck with the bill.” If that were the case, Precision could bill Dominion for building the Golden Gate Bridge and, unless Dominion complained immediately, it would just be too bad.

A jury can analyze Dominion’s erosion fabric audit at trial.

Finally, the court cannot decide as a matter of law that Dominion was wrong to withhold a set-off for “base lay” costs. Base lay work includes clearing and grading rights of way, cutting and replacing sections of pipeline, testing pipeline, and hauling and storing pipe and other materials. Under the parties’ contract, base lay work is priced at $256 per foot.

The contract’s pricing terms don’t clarify whether Precision is entitled to this price for the entire pipeline distance, with so-called “special work” costs added to that total; or whether each foot of special work supplants a foot of base lay. However, the parties originally estimated base lay feet at less than the total pipeline distance, which immediately suggests that the parties did not intend to pay the base-lay price for the entire pipeline.

Dominion has withheld $838,058 because it says it already paid Precision the base lay price for the entire pipeline length. On top of that, it paid for over 5,000 feet of special work. Since Precision shouldn’t collect the base lay cost for this special work, Dominion is entitled to summary judgment on this set-off.

Obviously, the parties have not settled their accounts, so it is premature for the court to enter summary judgment for the amount of retainage.

Quasi-contract claims

The written contract in this case does not preclude Precision’s quasi-contract claims.

In arguing otherwise, Dominion ignores Precision’s theory of the case. Precision says that Dominion’s description of the pipeline work differed so dramatically from what it wound up doing that Precision’s work falls outside the scope of the contract. The determination of these issues – what Precision did, how the work matched up with the contract, and how far it exceeded what the contract described – involves detailed factual analysis that can occur only upon a full evidentiary record. Such a record could prove that Precision has only contractual remedies, but the court lacks sufficient evidence to decide the issue at this time.

Further, the court’s order in the prior case requiring mediation before the court would hear Dominion’s claims tolled the limitations period for Precision’s current quasi-contract claims.

The court has already determined that Precision’s position in the prior case concerning the scope of mediation does not estop it from bringing its current quasi-contract claims. Although not a contract remedy, the quasi-contract claims find their birth in the contract. The alternative dispute resolution provision required mediation of claims “arising” from the contracts, encompassing both contract and non-contractual disputes.

No pre-emption

The federal Pipeline Safety Improvement Act does not pre-empt the state pipeline safety law (Pennsylvania’s One-Call Act). States may adopt rules for intrastate pipelines only if those standards are compatible with the federal Act. States may not adopt or enforce safety standards for interstate pipelines unless the program meets the requirements for on-call notification programs.

Dominion doesn’t explain how Pennsylvania’s rules differ from the federal rules; it merely says that Pennsylvania’s one-call statute must violate the federal Act because the Pennsylvania legislature has tried to amend its law to be compliant. While this court holds deep respect for the Keystone State’s legislative bodies, a state legislature’s desire to change a statute is scant evidence of its compliance with federal mandates.

No waiver by typo

During discovery, Precision’s counsel told Dominion’s lawyers that it would no longer pursue Count 3. By mistake, Precision’s discovery responses said that it wouldn’t pursue damages for Count 4, breach of contract. Citing this error, Dominion now moves for summary judgment, crying in a loud voice, “Gotcha!”

If every typo resulted in summary judgment, lawyers would not be able to afford malpractice insurance. Dominion knew the contract claim was alive and well. The court will not dismiss it based on a typo.

Waiver of non-waiver?

The court also rejects Dominion’s argument that it did not breach the contracts based on Precision’s untimely submission of change orders. The facts show that Dominion may have waived full compliance with the deadlines, and a jury must decide this issue.

The contracts lay out a change-order process in which Dominion could require additional work or Precision could request approval of such work. Precision was required to submit a change order within five days.

Despite the contracts’ non-waiver provision, waiver of express terms can occur. For example, a party’s continued payment under the contract in spite of the other party’s breach could lead a jury to determine that the first party intended to waive the change-order process and the non-waiver clause.

Here, Precision points to nine instances where Dominion approved a change order out of time. The construction project in this case is enormously complicated. In such projects, the change-order process often – if not typically – is unworkable. The parties on the ground have to keep working to get the job done. If the parties here had stopped to debate change orders every time something new came up in the work, they would still be somewhere in Pennsylvania arguing about how to cross streams and rivers. The practicalities of the project almost required a waiver of the change-order process and the draconian anti-waiver clause. A jury should decide this issue.

Precision Pipeline LLC v. Dominion Transmission Inc., Case No. 3:16cv180, Aug. 7, 2018. EDVA at Richmond (Gibney). VLW No. 018-3-330, 18 pp.