Court Resolves Conflicting Provisions in Term Sheets – Specific Trumps General
June 18th, 2018
W.C. English, Inc. v. Rummel, Klepper & Kahl, LLP, No. 6:17-CV-00018, 2017 U.S. Dist. LEXIS 74021, at *10-11 (W.D. Va. May 16, 2017).
The disputes in this case arose from a construction project involving improvements to Interstate 81 in Rockbridge County. English, the general contractor, had a prime contract with VDOT for the work which included: the construction of an additional “truck climbing” lane; improvements to the shoulder and median; and replacement of three bridges. Typically, VDOT projects involve quality assurance and quality construction inspections by VDOT or its inspectors. However, on this project, that QA/QC function was the responsibility of the general contractor.
W.C. English, Inc. (“English”) subcontracted with a design engineering firm (“RK&K”) to perform the QA/QC tasks required under the prime contract. During the project, VDOT rejected the work on one of the bridges as being non-compliant. Ultimately, VDOT required the removal and replacement of the deck on the bridge, costing English over $3 million. English then sued RK&K for breach of contract and indemnity, alleging that through the acts or omissions of its QA manager, it failed to correctly perform its duties by: (1) failing to conduct proper inspections; (2) approving non-compliant conditions; and (3) failing to comply with the requirements of the QA Manager for field changes. The suit, originally filed in state court, was later removed to the Western District of Virginia. RK&K filed a motion to dismiss for failure to state a claim arguing that RK&K had not, as a matter of law, obligated itself to compensate English for any alleged QA wrongdoing.
In ruling on the motion, the Court focused upon contract interpretation for the work to be completed for VDOT. At this early stage of the litigation, the court noted, it could only determine whether the contract was ambiguous, but could not resolve the ambiguity.
Regarding the subcontract, English and RK&K signed two different terms sheets that had conflicting terms. The English term sheet contained an indemnity provision purporting to obligate RK&K to compensate English for its losses involving claims by the Owner for the sufficiency of the work. RK&K’s term sheet, however, contained an exculpatory clause stating that it was not liable for the Contractor’s failure to perform in accordance with VDOT’s standards.
The Court began its analysis by noting that there was no clear way to reconcile the conflicting clauses, and therefore, “the construction of ambiguous contract provisions is a factual determination that precludes dismissal on a motion for failure to state a claim.” Martin Marietta Corp. v. Int’l Telecomms. Satellite Org., 991 F.2d 94, 97 (4th Cir. 1992). However, the court found that despite the ambiguity, it must still consider whether the ambiguous terms could be read reasonably to trigger contractual or indemnity liability. Drawing all inferences in favor of the plaintiff, the Court ruled in favor of English that it had sufficiently pled its contract and indemnity counts. In its ruling, the Court relied on canons of contract law that conflicting contract terms must be harmonized, read as a whole, and that “the specific governs the general.” Ultimately, the Court found that RK&K’s exculpatory provision was a general baseline rule of non-liability, while English’s indemnity clause was the exception to that rule.
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