Galin Corp. v. MCI Telecommunications Corp.

• Court: Court of Appeals for the Fifth Circuit
• Decided: January 11, 1994
• Docket: 92-02649
• Status: Published

Opinion

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 92-2649

GALIN CORPORATION and PETROPAK, INC., Plaintiffs-Appellants,

versus

MCI TELECOMMUNICATIONS CORPORATION, Defendant-Appellee.

Appeal from the United States District Court for the Southern District of Texas

( January 14, 1994 )

Before WISDOM, HIGGINBOTHAM, and SMITH, Circuit Judges.

HIGGINBOTHAM, Circuit Judge:

This is a diversity suit for breach of a construction

contract. The district court granted judgment denying relief to

plaintiffs at the outset of trial, but without allowing the parties

to present evidence to the jury. We agree with the district court

that plaintiffs' claims are barred by the terms of the release and

notice of claim provisions of the construction contract. We also

conclude that the district court's unusual grant of judgment at the

outset of trial was effectively a grant of summary judgment that

had been argued earlier. We affirm. I

In March 1987, MCI Telecommunications Corporation invited bids

on a fiber optic cable installation route comprising eight sections

to extend through Georgia, Alabama and Tennessee. Galin

Corporation and Petropak, Inc., met with MCI personnel, made

extensive visits to various future work sites, and analyzed MCI's

plans, specifications, and bid instructions. Galin and Petropak

then submitted bids on six of the eight sections. MCI accepted no

bids on the project. In late August of the same year, MCI issued

new instructions for the installation of a shorter version of the

same fiber optic cable route. Before requesting a second set of

bids, MCI released to the prospective contractors an estimate of

the amount of subsurface rock that lay along the cable route.

Galin and Petropak again submitted a bid, this time at a lower

price, which MCI accepted. The parties executed a written

contract.

Galin and Petropak commenced work in early November. During

the project, MCI complained to Galin and Petropak of their lack of

timely progress and, on December 18, MCI gave Galin and Petropak

notice of termination by default for failure to meet the contract

schedule. On December 30, MCI eliminated the last seven miles of

the cable route from the contract.

Galin and Petropak say that they completed the installation of

the cable on or about February 21, 1988, "except for areas where

MCI had failed to obtain necessary permits or easements and where

2 MCI had misrepresented the existence of rocks"; and that they then

commenced cleaning up their work sites.

On April 22, 1988, MCI issued a proposed Final Modification of

Contract, which Galin and Petropak did not sign. As the project

had progressed, however, Galin and Petropak had signed a series of

releases in exchange for incremental payments from MCI. They

signed the last of these releases on May 13, 1988. Finally, in

July of 1988, MCI terminated the contract for non-performance.

Settlement negotiations failed and Galin and Petropak filed

this suit in a Texas court seeking compensation from MCI for breach

of contract, in quantum meruit, and in tort. MCI removed to

federal district court invoking the court's diversity jurisdiction.

MCI and Galin and Petropak then both moved for summary judgment.

The district court granted judgment to MCI on Galin and Petropak's

claim for breach of a covenant of good faith and fair dealing, but

left the remaining issues for trial.

When the case was called for trial, MCI asserted that the

district court should render judgment. The district court granted

the requested relief treating it as a motion for judgment as a

matter of law under Federal Rule of Civil Procedure 50(a).

Applying New York law, the court dismissed the case before the

first witness was called. Galin and Petropak appeal.

3 II

Galin and Petropak pursue several claims.

Galin and Petropak allege that MCI deliberately underestimated

the amount of subsurface rock that lay along the route to decrease

the cost of construction. The subcontractor who performed the rock

probes, Galin and Petropak assert, did not work long enough to

produce the results that MCI released. Galin and Petropak argue

that MCI must have fabricated either some or all of the site

information. They claim to have relied on this falsely optimistic

information in their bid.

According to Galin and Petropak, MCI engaged in other

questionable business practices. They allege that MCI's designs

for installing the cable were faulty, that MCI failed to obtain

timely permission for them work on several stretches of the route,

that MCI interfered in their operations, that MCI forced them to

meet more exacting standards during the clean up process than the

contract required, and that MCI otherwise failed to support them.

Galin and Petropak sue for recovery on the contract, in

quantum meruit for extra-contractual work performed, for

compensation for MCI's wrongful interference with their contract

performance, and for compensation for MCI's breach of its duty of

good faith and fair dealing.1 The district court decided the case

1 Galin and Petropak wish to recover the balance owed on their contract with MCI, compensation for the work they performed outside the scope of their contract with MCI, and damages which they incurred as a result of delays, acts of interference, improper administration of the contract, misrepresentations, and other reckless, grossly negligent, arbitrary and capricious acts by MCI.

4 based on provisions in the contract that protect MCI from liability

and on the releases that Galin and Petropak signed. Galin and

Petropak argue that the protective provisions and releases are

inapplicable to their claims and, further, that MCI waived

application of the provisions. The parties agree that New York law

controls.

A.

At the outset, Galin and Petropak argue that the district

court improperly invoked Federal Rule of Civil Procedure 50(a) in

dismissing their case. First, they argue that Rule 50(a) required

that MCI move for judgment as a matter of law and that when the

court ruled MCI had not done so. Second, they argue that they had

not been fully heard by the court, as required by Rule 50(a),

before it rendered judgment. We need not address these contentions

as we construe the court's order as a grant of summary judgment and

affirm on that basis.

The district court early in the case denied MCI's motion for

summary judgment, to which Galin and Petropak had fully responded.

On reconsidering, the court concluded that the case did turn on the

notice and release provisions of the contract. This interpretation

presented no issues of fact and protected MCI from liability. The

court therefore ruled in MCI's favor, albeit under Federal Rule of

Civil Procedure 50(a).

Where a case does not require the resolution of material

facts, summary judgment is appropriate. See Seneca v. Phillips

Petroleum Co., 963 F.2d 762, 765 (5th Cir. 1992). We have in the

5 past affirmed summary judgment on grounds different than those

adopted by the trial court. Id. at 765; Church of Scientology v.

Cazares, 638 F.2d 1272, 1281 (5th Cir. 1981). Since both parties

had adequate opportunity to address the issues involved in summary

judgment prior to the district court's ruling, we see no impediment

to treating the judgment below as a grant of summary judgment.

Having so concluded, we consider the propriety of that judgment.

B. The Releases

Galin and Petropak signed several partial releases in exchange

for incremental payments from MCI, the last on May 13, 1988, after

installation of the cable route. They performed no work after

execution of this release other than cleaning the work sites.

The releases read in pertinent part:

Partial Release and Indemnity

In consideration of payments made heretofore, or to be made based upon this invoice for labor, material, equipment, subcontract work, and any and all costs incurred for the performance of the contract work invoiced thus far, the Contractor hereby unconditionally and without reservation releases and indemnifies MCI and their officers, agents, employees, assignees and heirs from any and all liens, claims, demands, penalties, losses, costs, damages and liability in any matter whatsoever.

Galin and Petropak interpret the releases narrowly in two

ways: first, as applying only to the work specified in the

invoices they submitted; and, second, as applying only to the

contract work, as opposed to the extra work, which they performed.

The language of the releases precludes this interpretation.

Under New York law, where the language of a release admits of

only one interpretation, the proper interpretation of the release

6 is a question of law. Janos v. Peck, 251 N.Y.S.2d 254, 258 (N.Y.

App. Div.), aff'd, 254 N.Y.S.2d 15 (N.Y. 1964) ("Where... there is

a question as to the construction of a written contract between

the parties and the determination of that question may be reached

by reference to and a consideration of the plain and unambiguous

wording of the contract, the question, as one of law, should be

then and there resolved.") See also Metz v. Metz, 572 N.Y.S.2d

813, 815 (N.Y. App. Div. 1991). The releases that Galin and

Petropak signed list as consideration all compensation that MCI

paid Galin and Petropak in the past as well as the compensation the

invoice required MCI to pay Galin and Petropak in the future. The

terms of the release, however, are broader. The form releases MCI

from "all liens, claims, demands, penalties, losses, costs, damages

and liability in any matter whatsoever." As Galin and Petropak

signed nine releases in exchange for incremental payments, the

court interpreted the language of each release to reach all claims

of Galin and Petropak against MCI that existed at the time Galin

and Petropak signed each one. This interpretation is appropriate

as, under New York law, a general release "will bar suit on any

cause of action arising prior to the date of its execution and

delivery, in the absence of fraud or other vitiating circumstances

in its inducement or execution." Metz, 572 N.Y.S.2d at 815

(citation and internal quotation marks omitted). See also Troy

News Co. v. Troy, 563 N.Y.S.2d 301, 303 (N.Y. App. Div. 1990)

(holding a release that so specifies applies to future claims but

in the absence of specification applies to all claims in existence

7 when it is given). But see Herman v. Malamed, 487 N.Y.S.2d 791,

793-94 (N.Y. App. Div. 1985) (holding that a specific release

followed by an omnibus clause may be limited to the specified

terms). Galin and Petropak do not claim that MCI fraudulently

induced them to sign the releases. With the exception of their

claim for cleaning the work sites, neither do Galin and Petropak

deny that the claims which they now pursue existed when they signed

the various partial releases. Thus, they offer no basis for

refusing enforcement of the releases.

Galin and Petropak fail in their attempt to "marshal" case law

for the proposition that we may modify or void these releases. In

De Costa v. Williams, 462 N.Y.S.2d 799 (Sup. Ct. 1983), a New York

court looked to the actual understandings of the parties in

limiting the scope of a release. In doing so, however, the court

noted, "A mistaken belief as to the nonexistence of presently

existing injury is a prerequisite to avoidance of a release." Id.

at 802 (citation omitted). Galin and Petropak do not claim that

they were unaware at the time they signed the releases of the

claims they now pursue. They insist instead that they were aware

of them but had a different intent. They argue that they would

have offered evidence to this effect at trial.

Where a written agreement is unambiguous, as in the present

case, New York law does not allow consideration of extrinsic

evidence of the parties' intentions. "It has long been the rule

that when a contract is clear in and of itself, circumstances

extrinsic to the document may not be considered and that where the

8 intention of the parties may be gathered from the four corners of

the instrument, interpretation of the contract is a question of law

and no trial is necessary to determine the legal effect of the

contract." Janos, 251 N.Y.S.2d at 259 (citations and internal

quotation marks omitted). See also Rice v. Cohen, 555 N.Y.S.2d

800, 801 (N.Y. App. Div. 1990) (holding that clear and unambiguous

language in a document precludes consideration of extrinsic

evidence to interpret its meaning). The releases are unambiguous.

They bar Galin and Petropak's claims except those arising from

cleaning the work sites. The cleaning, as we explained, occurred

after May 13, 1988, so the last release did not reach claims from

that work. Nevertheless, a provision in the construction contract

precludes them.

C. The Notice of Claims Provision

Paragraph 18 of the construction contract set a time frame for

claims arising from unexpected circumstances. The paragraph

required Galin and Petropak to notify MCI within five days of an

event that could give rise to a claim on their part or that might

extend the period of time in which they would complete the

contract. It then provided that Galin and Petropak should submit

to MCI within fourteen days a statement substantiating the change

in circumstances and estimating its impact. Upon request, Galin

and Petropak would have to document any claims submitted for extra

compensation or for an extension of time.

Galin and Petropak do not deny that they failed to meet the

terms of this provision in submitting their claims to MCI. They

9 argue instead that the provision applies to events that occurred

during the completion of the contract, not to work that Galin and

Petropak undertook on MCI's behalf that was unanticipated and,

therefore, beyond the scope of the contract. They describe the

latter as "extra" work.

The seminal case in New York defining "extra" work is Savin

Brothers, Inc. v. State, 405 N.Y.S.2d 516 (N.Y. App. Div. 1978),

aff'd, 393 N.E.2d 1041 (N.Y. 1979). In Savin Brothers, the court

held that a contractor who allegedly performed extra work could not

recover for that work. Id. at 521. In reaching that conclusion,

the court defined extra work as "something necessarily required in

the performance of the contract which arises from conditions which

could not be anticipated." Id. at 519 (citation omitted). The

contract determines which party assumes the costs of extra work.

Id.

Galin and Petropak note that paragraph 15 of the contract

addresses changes in the arrangement made at MCI's behest. These

changes would not seem to encompass extra work. Paragraph 18,

however, sets the time frame for reporting "the happening of any

event" which Galin and Petropak believed might give rise to a claim

"for an increase in contract price" or "the period of performance."

Paragraph 18 addresses precisely the sort of unanticipated event

that results in extra work and requires that Galin and Petropak

report such events in a timely fashion.

Galin and Petropak submitted none of their claims within the

period of time prescribed by paragraph 18. They submitted their

10 first claim for recovery in excess of the contract on May 16, 1988.

They had ceased performing any work on the installation of the

capable in February of 1988, three months earlier. Similarly, they

did not submit their claim for cleaning the construction sites

until August 8, 1988. They had completed cleaning the sites on May

1, 1988. Galin and Petropak did not comply with the provision in

paragraph 18 requiring written notice of the event within five days

and an estimate of its impact within fourteen days. Without such

notice MCI could not respond to Galin and Petropak's concerns in a

timely manner. Because Galin and Petropak delayed in making their

claims, paragraph 18 precludes them from recovering for any extra

work they performed.

D. Waiver

Galin and Petropak argue, in the alternative, that MCI waived

its various defenses. They base this argument on MCI's willingness

to consider their claims.

"Waiver is an intentional relinquishment of a known right and

should not be lightly presumed." Gilbert Frank Corp. v. Federal

Ins. Co., 520 N.E.2d 512, 514 (N.Y. 1988) (citations omitted). A

decision by MCI not to enforce its rights immediately, and instead

to pursue completion of a contract, does not amount to such waiver.

See Seven-Up Bottling Co. v. Pepsico, Inc., 686 F. Supp. 1015, 1023

(S.D.N.Y. 1988).

The New York Court of Appeals' treatment of waiver in a

summary judgment context in Gilbert is instructive. 520 N.E.2d at

513-14. First, of course, a defendant must produce evidence which,

11 if uncontroverted, would establish a defense. The unambiguous

language of the releases and the notice of claims provision

satisfies this requirement. See id. at 514 (finding that a

contractual limitation on the period of time in which a claim may

be asserted carries defendant's burden in moving for summary

judgment). Second, the plaintiff must have the opportunity to

offer evidence of waiver of defense. Id. Applying this standard,

the lower appellate court in Gilbert had held "that since defendant

had not offered satisfactory explanations regarding the necessity

for the intensive activity which was undertaken with regard to

plaintiff's claim after the expiration of the limitations period,

there were questions of fact . . . requiring further development."

514 N.Y.S.2d 215, 218 (N.Y. App. Div. 1987). Unwilling to draw an

inference from the defendant's conciliatory posture, the Court of

Appeals reversed. 520 N.E.2d at 514. The Court of Appeals

explained that a plaintiff must offer "evidence from which a clear

manifestation of intent by defendant to relinquish the protection

of the contractual limitations period could be reasonably

inferred." Id. Thus, as a matter of law, a defendant's apparent

willingness to honor a plaintiff's claim is insufficient to prove

waiver. See also Silverstein Properties, Inc. v. Webber, Jackson

& Curtis, Inc., 480 N.Y.S.2d 724, 726 (N.Y. App. Div. 1984), aff'd,

482 N.E.2d 906 (N.Y. 1985) (holding that evidence of landlord's

willingness to address merits of tenant's claim, after time allowed

for claim by contract had expired, is insufficient to support

reasonable inference of waiver).

12 Galin and Petropak allege only that they had reason to believe

that MCI would entertain their claims. The letters from MCI on

which Galin and Petropak rely are representative. In one of these

letters, MCI's agent, Richard Yeats, reminded Galin and Petropak,

"Timely submittal of claims and back-up will facilitate the

contract close out." Yeats noted in another letter that "MCI has

stressed making... changes [in the terms of the contract] as they

occur, not at the end of the contract which makes negotiations and

contract close laborious." While these letters suggest lenience in

enforcing the notice requirement, they offer no basis for inferring

that MCI deliberately waived that requirement. Because Galin and

Petropak offered nothing to support a finding of waiver, invoking

waiver was insufficient to defeat summary judgment.

E. Evidence of Settlement

Galin and Petropak also contest the ruling of the district

court that evidence of the settlement process was inadmissible.

Galin and Petropak wished to use MCI's attempt to settle as proof

of the limited scope of the releases Galin and Petropak signed and

as evidence that MCI waived the notice provision of the contract.

As we hold that the releases are unambiguous on their face,

evidence of any attempts by MCI to settle are not relevant. See

Gilbert Frank Corp., 520 N.E.2d at 514. We need not address the

issue of admissibility.

AFFIRMED.