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Neal & Company v. Dillingham (8/30/96), 923 P 2d 89
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NOTICE: This opinion is subject to before publication in the
Pacific Reporter. Readers are requested to bring errors to the
attention of the Clerk of the Appellate Courts, 303 K Street,
Anchorage, Alaska 99501; (907) 264-0607, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
NEAL & COMPANY, INC. an )
Alaska corporation, ) Supreme Court No. S-6525
)
Appellant, ) Superior Court No.
) 3AN-88-11488 CI
v. )
) O P I N I O N
CITY OF DILLINGHAM and )
CH2M HILL NORTHWEST, INC., ) [No. 4393 - August 30, 1996]
)
Appellees. )
______________________________)
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
Beverly J. Cutler, Judge.
Appearances: R.R. De Young, Wade & De Young,
Anchorage, for Appellant. R. Eldridge Hicks
and Jeffrey S. Moeller, Hicks, Boyd, Chandler
& Falconer, Anchorage, for Appellee City of
Dillingham. D.K. "Kirby"Wright, Jr., Hintze
& Wright, Anchorage, for Appellee CH2M Hill
Northwest, Inc.
Before: Rabinowitz, Matthews, Compton, and
Eastaugh, Justices. [Moore, Chief Justice,
not participating.]
RABINOWITZ, Justice.
I. INTRODUCTION
This appeal centers on the application of the notice
requirement of the Differing Site Conditions clause found in a
contract between appellant Neal & Company, Inc. (NCI) and appellee
City of Dillingham (City). Appellee CH2M Hill (Hill), the City's
engineer on the project, is involved in this appeal primarily
because it acted as the City's representative on the project.
NCI claims that it encountered difficulties in excavation
during the project because of unexpected soil conditions, that it
gave notice of these unexpected conditions to Hill (and thus
constructively to the City), and that therefore it is entitled to
assert a claim under the Differing Site Conditions clause. The
City and Hill claim that no notice of a differing site condition
was given. The superior court ruled on partial summary judgment
that NCI did not give adequate notice of a differing site
condition.
NCI also appeals the superior court's denial of its
motions for leave to amend its complaint, for continuance of the
trial, and for disqualification of the trial judge.
II. FACTS
In February 1987 the City solicited bids for the
construction of a sewerage facility. The project included two
lagoon ponds. The lagoons were to be dug into a bluff outside of
Dillingham. Interested bidders received a set of drawings and a
volume containing bidding requirements, contract forms, conditions
of the contract, and construction specifications, along with a
"Geotechnical Data Summary." The geological survey and the data
summary, as well as all technical specifications for the project,
were completed by Hill, the City's engineer and on-site
representative for the project.
The first dig in the construction of the lagoons was to
be a wedge-cut into the bluff from the surface down to an elevation
of forty-seven feet. After the first dig down to the forty-seven
foot level, the second dig would begin, consisting of the
excavation of two ponds down from the flat area created by the
first dig. The pools were to be eighteen feet deep, reaching an
elevation of twenty-nine feet at their lowest point.
The data summary stated that there was a layer of peat
containing some silt infilling extending four feet to eight feet
below the original ground surface. Below the peat was a layer of
sand and silty sand interbedded with layers of silt extending about
six to twelve feet below the peat zone. Below that, the data
summary described the remaining depth of the excavation as "fairly
uniform to the remaining depth of the borings, showing a layer of
stiff-to-hard clay having low-to-medium plasticity." Regarding the
clay layer, the data summary specified: "Occasional samples
contained clay with gravel and sand suspended in the clay matrix,
indicating that the clay unit may be a glacial till. No distinct
bedding or layers of coarse grained material were found in the clay
unit." The data summary went on to describe the process by which
the lagoons could be constructed:
The most attractive aspect of constructing the
lagoons in the lower clay zone of the bluff is
that they will not have to be lined. Also,
native materials will not have to be
recompacted to form the dikes, as the dikes
can be constructed by carving the lagoons out
of the bluff and leaving the clay intact
around them. Construction concerns for this
configuration are primarily slope protection
against seepage and removal and disposal of
the excavated material.
A set of contract documents was sent to NCI. On April 1,
1987, bids were opened and NCI was declared the low bidder at
$2,059,991. NCI began the excavation on June 6, 1987. Excavation
of the first dig, down to the forty-seven foot elevation of the
pond surface, was completed. Work was suspended in October 1987.
The second dig, excavation of the pond prisms, began when the
ground froze. Excavation was completed by April 20, 1988.
During the summer of 1987, while excavating the first
dig, NCI encountered water bubbling through sand lenses in the
excavation. Randy Mattoon, NCI's project superintendent, discussed
with Tony Neal, president of NCI, the possibility of the existence
of sand lenses impairing the integrity of the lagoon, which would
allow sewage to escape. Mattoon also discussed the issue of water
permeable sand lenses with Bob Richie, Hill's representative. Ken
Green, a Hill geotechnical engineer, was scheduled to visit the
project the week of July 27, 1987.
NCI contends that Green's visit was scheduled after and
because of the Mattoon-Richie conversation regarding the sand
lenses. The City and Hill contend that Green's visit had already
been scheduled.
During Green's visit, a test pit was dug in each of the
pond prisms, and a soil sample was taken from one of the pits.
Green's field notes, taken at the time the pits were dug, indicate
that at the level where the lagoons were to be dug, he saw "clayey
silt Slightly plastic Blue Gray Moist slightly Blocky structure.
stiff to n. stiff[.]" This level (two to nineteen feet down from
the forty-seven foot elevation of the surface of the lagoon) had
been described in the Data Summary as "a layer of stiff-to-hard
clay having low-to-medium plasticity."
During this time, the consistency of the soil was causing
difficulties in NCI's excavation. The soil in the lagoon area
turned into a sticky mud, creating problems with excavation and
transportation. The consistency of the soil, and the difficulty of
excavating it, form the basis of NCI's Differing Site Condition
claim.
During the 1988 phase of the excavation, water
infiltration continued to cause problems. In October 1988, NCI
advised Hill that it was considering legal action. NCI then filed
suit.
III. SUPERIOR COURT PROCEEDINGS
During the course of these proceedings, numerous claims
and cross-claims were filed. The following are relevant to this
appeal.
On March 29, 1990, NCI filed a second amended complaint,
which added NCI's Differing Site Condition claim to the lawsuit as
the sixth cause of action, and added what NCI interprets as a
defective specifications claim as the seventh cause of action. In
May, NCI filed a substitute second amended complaint. Judge
Beverly Cutler granted the motion to amend on August 6, 1990. In
January 1991, the City, seeking indemnity from NCI's claims, filed
a third-party complaint against Hill.
In November 1991, Hill filed a motion for partial summary
judgment based on the limitation of liability and indemnity clause
in its contract with the City. The superior court ruled for Hill.
The City filed a petition for review, which this court accepted and
has since decided in City of Dillingham v. CH2M Hill Northwest,
Inc., 873 P.2d 1271 (Alaska 1994).
In April 1993, NCI moved for partial summary judgment,
seeking to establish the sufficiency of its notice of differing
site conditions. The City moved for summary judgment against both
NCI and Hill. In October 1993 the superior court granted partial
summary judgment to the City and dismissed NCI's sixth and seventh
causes of action. The court subsequently denied NCI's motion for
reconsideration.
Meanwhile, in November 1993, NCI filed a motion for leave
to amend its complaint and a motion to continue the trial. The
superior court denied these motions. The superior court also
denied NCI's motion to reconsider the denial of its motion to
amend.
On January 26, 1994, NCI filed a motion to disqualify the
judge. The next day, Judge Cutler refused to recuse herself, and
referred the motion to the presiding judge for assignment. The
motion was assigned to Judge Peter A. Michalski, who denied the
motion for disqualification on January 31.
On February 3, 1994, the parties reached a settlement,
reserving to NCI the right to appeal the rulings which are now
before us: the dismissal of NCI's sixth and seventh causes of
action, the denial of NCI's motions for leave to file a third
amended complaint and for continuance of the trial, and the denial
of the motion to disqualify Judge Cutler.
IV. DISCUSSION
A. The Summary Judgment Dismissing NCI's Sixth and Seventh
Causes of Action (EN1)
Resolution of this summary judgment turns on the
interpretation and application of the Differing Site Conditions
clause which, at the time the contract for this project was made,
was required by the Environmental Protection Agency in contracts
for projects with EPA funding. 40 C.F.R.  33.1030 (1986). NCI
filed a motion seeking to establish that oral communications with
Hill constituted actual notice sufficient to meet the notice
requirements in the Differing Site Condition contract clause.
Paragraph 4(a) of the contract requires that the notice be in
writing. Though there is no claim that NCI provided timely written
notice of any differing site condition, case law establishes that
under certain circumstances timely actual notice, even in the
absence of written notice, will be considered sufficient notice
under the clause. See, e.g., Brechan Enter. v. United States, 12
Cl. Ct. 545 (1987) ("[N]otice does not need to be in any specific
format; it need only show the existence of the condition.").
Therefore, the appeal of this summary judgment requires
an interpretation of what qualifies as the minimum necessary notice
under the clause, and, secondly, of whether the acts alleged here
satisfy that minimum.
In Brinderson Corp. v. Hampton Rds. San. Dist., 825 F.2d
41 (4th Cir. 1987), a contractor had problems with wet soil
conditions which forced it to incur increased costs. The court
stated that "[g]enerally, when the owner has actual or constructive
notice of the conditions underlying the claim and an opportunity to
investigate, that is sufficient." Id. at 44. Similarly, NCI's
notice to the City, though not in writing, will be considered
sufficient if it was clear and it alerted or should have alerted
the City to the fact that NCI believed it had encountered differing
site conditions.
NCI claims that Green, and therefore Hill, was put on
notice when Green met with NCI representatives to talk about
problems with the composition of the soil and then actually took a
soil sample and noted that its composition differed from what the
data summary predicted. If Green knew upon looking at the soil
that the site condition was materially different from what was
expected, he was on notice even if the contractor continued to
labor ignorantly, having no idea why work was progressing so
slowly. (EN2)
NCI's position is that after concerns about sand lenses
were expressed to Richie, Green was specially brought in to test
the soil. When he looked at the pits he saw "clayey silt,"not
clay, at the elevation of the lagoon prisms (i.e., between
elevations forty-seven and twenty-nine). NCI asserts that the
clayey silt constituted a differing site condition, (EN3) and that
Green knew that it was.
But NCI's assertions and suppositions are not supported
by reasonable inferences from the evidence. When Green came to
inspect the soil -- even if he came in especially because of NCI's
concerns -- the reason for his visit was possible sand lenses in
the floor of the lagoon, not the consistency of the material to be
excavated. The notes he took were simply a recording of what he
saw at various levels, not the focus of his investigation.
Because of the concerns about sand lenses, Green came to
the site and took a soil sample in the presence of representatives
of NCI and Hill. The sample came from the twenty-seven foot
elevation, which was two feet below the level anticipated for the
lagoon floors. This again indicates that the concerns Richie and
Green were addressing related to the eventual integrity of the
lagoon floor, not to the difficulty of excavation. Green's log
notes describing the composition of the soil on the way down the
test pits were offhand assessments, not the focus of his attention.
NCI asserts that Mattoon's characterization of the
material within the lagoon prism as blue clay, and the level the
sample was taken, are both evidence that Green knew about the
differing site condition and attempted to mislead NCI into
believing there was none.
NCI speculates that Green, knowing that the presence of
clayey silt was a differing site condition, lied to Mattoon to
cover up the problem, telling him that they were looking at blue
clay. But there is no evidence in the record that Green told
Mattoon that the soil was blue clay, except for Mattoon's note
indicating that they had found blue clay. Mattoon's note nowhere
states that he received this classification from Green.
NCI also suggests that Green "used his superior knowledge
to select a single sample that aided in the deception." Because
the sample was taken from test pit 1, and not pit 2, and because it
was taken from below the lagoon floor, NCI concludes that Green was
taking the sample from a place he knew would be clay. But NCI's
June-July 1987 concern regarding the soil composition, which
Mattoon had expressed to Richie, was the integrity of the pond
floors, not the difficulty of excavation. None of NCI's
representatives found it remarkable at the time that Green took a
sample from below the bottom of the lagoon. The only reasonable
conclusion is that, since seepage in the lagoon floor was the
concern, Green took a sample from the material which would
eventually form the floor of the lagoon in order to test its
characteristics.
NCI's interpretation of the evidence is untenable. It
relies entirely on conjecture to convert concerns expressed about
the integrity of the pond floors into notice of unexpected
conditions within the pond prisms. There is no reasonable
interpretation of the facts which supports NCI's contention that it
gave clear non-written notice of a differing site condition. (EN4)
The superior court correctly dismissed NCI's sixth and seventh
causes of action. (EN5)
B. Denial of NCI's Motions to Amend Complaint and for
Continuance of Trial (EN6)
In November of 1993, NCI sought to amend its complaint.
It reworded its seventh cause of action to indicate that it was
intended to state a defective specifications claim rather than
simply repeat the sixth cause of action's claim of differing site
conditions. Also, NCI attempted for the first time to assert four
separate claims directly against Hill. To this point, NCI had made
all of its claims against the City, which then sought indemnity
from Hill; there had been no direct NCI claims against Hill.
Finally, NCI sought a continuance. The superior court denied all
of these motions.
NCI argues that the superior court's denial of leave to
amend was based on a failure to apply Civil Rule 15(a), which
provides that "leave shall be freely given when justice so
requires." The superior court stated that it
finds no manifest injustice in denying Neal
leave to amend its complaint at this late
date. Therefore the court finds that justice
does not require amendment. Neal has had
ample opportunity to pursue in a timely
fashion all of the claims listed in the
proposed Third Amended Complaint. . . .
[T]here is no manifest injustice in failing to
permit amendment on the eve of trial, after
five years of preparation and motions.
NCI claims that the superior court's application of the "manifest
injustice"standard was an error.
The superior court indicated in its order denying Neal's
motion to amend his complaint that its reason for applying the
"manifest injustice"standard was Civil Rule 16(e). While Civil
Rule 15(a) directs that leave be "freely granted"by the court
"when justice so requires,"Civil Rule 16(e) states that pretrial
orders following a final pretrial conference shall control unless
modified by the judge "to prevent manifest injustice."
NCI argues that the superior court was mistaken in its
belief that a Civil Rule 16(e) pretrial order had been issued, and,
therefore, that the superior court's application of Civil Rule
16(e) instead of Civil Rule 15 was an error. However, it is
unnecessary to determine whether the superior court had issued a
Civil Rule 16(e) pretrial order. If there was no Civil Rule 16(e)
pretrial order, and the superior court therefore erred in applying
the "manifest injustice"standard, that error was harmless. Even
under the "freely given when justice so requires"standard, it is
difficult to see why NCI should be allowed to amend its complaint
again. After five years of litigation, including two amendments to
its complaints, and after losing a major summary judgment motion,
NCI requested leave to rework its causes of action and to bring
four claims against Hill for the first time. Justice does not
require that such leave be granted.
The superior court carefully and accurately analyzed the
amendments which NCI was offering to its complaint. All of its
findings would sustain a denial of leave to amend under either the
Rule 15(a) or the Rule 16(e) standard.
Similarly, it was not an abuse of discretion for the
superior court, at that late point in the litigation, to deny a
continuance to NCI.
C. Denial of NCI's Motion for Disqualification (EN7)
During a conference involving Tony Neal, President of
NCI, NCI's counsel, and Hicks and Moeller, counsel for the City,
Hicks told Neal about some contact he had with Judge Cutler. Judge
Cutler had worked for Hicks approximately twenty years earlier, and
they had occasional social contact since. There are some minor
disputes as to some details.
However, there is no record support for NCI's assertion
of bias or lack of impartiality. In short, there is no merit in
NCI's claim that Judge Cutler should have been disqualified.
Judge Cutler and Judge Michalski did not err in denying
the motion to disqualify.
V. CONCLUSION
Review of the record shows that the superior court
correctly granted summary judgment against NCI on its Differing
Site Conditions claim. NCI's other points on appeal, regarding the
motions to amend, to continue the trial, and to recuse the trial
judge, are also without merit. The rulings of the superior court
and of Judge Michalski are AFFIRMED in all respects.
ENDNOTES:
1. In reviewing a grant of summary judgment, we "must determine
whether a genuine issue of material fact exists and whether the
moving party is entitled to judgment as a matter of law." Saddler
v. Alaska Marine Lines, 856 P.2d 784, 787 (Alaska 1993). All
reasonable factual inferences must be drawn in favor of the non-
moving party. Wright v. State, 824 P.2d 718, 720 (Alaska 1992).
When reviewing a trial court's interpretation of contract language,
based solely on documentary evidence, this court will use its
independent judgment. Klosterman v. Hickel Inv. Co., 821 P.2d 118,
122 (Alaska 1991).
2. The Brinderson court held that the resident engineers "were on
the site, and aware of the problems, and they had abundant
opportunity to inspect and investigate. This satisfied the notice
requirement." Brinderson, 825 F.2d at 45.
3. "A DSC exists if the actual conditions of the site differ
materially from what . . . a contractor would have expected based
on indications in the contract." Municipality of Anchorage v.
Frank Coluccio Constr. Co., 826 P.2d 316, 323 (Alaska 1992).
4. The superior court entered the following relevant
findings of fact regarding the differing site condition issue:
Here the court finds that, under the case
law cited by Neal & Co., in order for oral
notice to be sufficient to replace the written
notice specifically called for in the
contract, either the oral notice must have
given actual notice of differing site
conditions to CH2M Hill and/or the City, or
the oral notice must be oral notice that would
have given notice of differing site conditions
to CH2M Hill and/or the City except for
conditions beyond Neal & Co.'s control. The
court notes that in this case there is a
genuine dispute regarding to whom notice of a
differing site condition must be given. Given
the court's holding discussed below that Neal
& Co. did not give adequate notice to CH2M
Hill, the court does not reach this latter
issue.
The court finds that Neal & Co. failed to
give oral notice of differing soil conditions
in the lagoon excavation, sufficiently
forceful to anyone to replace the contractual
requirement of clear written notice. This
holding is based on the fact that Neal & Co.
merely suggested, once, that there might be a
differing soil condition, and when this
suggestion was rejected by CH2M Hill, Neal &
Co. dropped the subject. There was no appeal
to higher authority of this rejection by Neal
& Co., or specific or repeated oral notice
given, as occurred in W.C. Shepherd [v. United
States, 125 Cl. Ct. 724 (1953)] and
Brinderson.
The court also finds nothing in the
record indicating that CH2M Hill had any
actual knowledge of differing conditions.
There were no Field or Change Orders requested
by any party, or issued because of the alleged
sand lenses. Neal & Co. has not submitted any
evidence tending to show that any CH2M Hill
employee observed a changed condition. The
record does indicate that CH2M Hill examined
the site once for sand lenses, and did not
find any. The court holds that the mere fact
that CH2M Hill conducted such examination is
not evidence that CH2M Hill had actual
knowledge of a differing condition.
The court finds that, at best, Neal & Co.
gave a tentative and equivocal notice that
there may have been a differing site condition
at the lagoon site, and holds that this notice
was not sufficient to replace the written
notice requirement of E.P.A. Contract Clause
4(a), or to support a claim for equitable
adjustment of the contract price under 4(c).
See, Blankenship Const[r]. Co. v. N.C. State
Highway Comm'n, 222 S.E.2d 452, 461 (N.C. App.
1976).
. . . .
Based on the discussion above, the court
finds that there is no material fact dispute
regarding Neal & Co.'s purported notice to
CH2M Hill, and based on the facts noted, the
court holds as a matter of law that the City
is entitled to summary judgment that Neal &
Co.'s differing site condition claim is barred
for lack of adequate notice as required by
E.P.A. Contract Clause 4(c) and Contract
General Condition 58. Neal & Co.'s differing
site condition claim against the City of
Dillingham is hereby dismissed from this case.
In denying NCI's motion for reconsideration, the superior
court stated in part:
If Neal in fact encountered a differing site
condition for which contract adjustment and
written notice were required, Neal as the
contractor on a large public works project,
engaged in the actual earthwork that was the
primary focus of the project and doing the
actual encountering of differing conditions,
if such were truly encountered, had the
responsibility to give written notice or other
compelling notice.
5. The superior court read NCI's seventh
cause of action as a restatement of the sixth
cause of action, which was explicitly a
Differing Site Condition claim. NCI maintains
that the seventh cause of action was a
defective specifications claim, not a
Differing Site Condition claim. It is
unnecessary to determine whether NCI is
correct in this assertion, as a defective
specifications claim under the circumstances
of the case at bar would fall to the same
deficiency of notice which defeats the
Differing Site Condition claim.
NCI contends that the notice
requirement does not apply to defective
specifications claims. For this proposition,
NCI cites Paragraph 3(a)(4) of the standard
EPA specifications. But Paragraph 3 deals
with compensation for change orders issued by
the City or Hill, whereas Paragraph 4
addresses equitable adjustments due to site
conditions differing materially from those
contemplated in the contract. Compare 40
C.F.R.  33.1030  3 with 40 C.F.R.  33.1030
 4. Regardless of whether NCI's seventh
cause of action states a different claim from
its sixth cause of action, both are subject to
the notice requirement of Paragraph 4.
6. We apply an abuse of discretion standard
in reviewing a trial court's denial of a
motion for leave to amend. James v. State,
815 P.2d 352, 359 (Alaska 1991). A denial of
a motion for continuance is also reviewed
under an abuse of discretion standard. House
v. House, 779 P.2d 1204, 1206 (Alaska 1989).
7. A trial court's decision not to recuse
itself is reviewable on an abuse of discretion
standard, as is a decision by a reviewing
judge not to disqualify the trial judge.
Amidon v. State, 604 P.2d 575, 577 (Alaska
1979). The refusal to recuse the trial judge
will be reversed only when it is evident that
no fair-minded person could have come to the
same conclusion on the basis of the known
facts. Alaska Trams Corp. v. Alaska Elec.
Light & Power, 743 P.2d 350, 353 (Alaska
1987); Amidon, 604 P.2d at 577.
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