N.D. SC: Contract language precludes lawsuit

Jessica M. Karmasek Nov. 23, 2010, 10:44am


BISMARCK, N.D. (Legal Newsline) - The North Dakota Supreme Court earlier this week ruled that the "plain" and "unambiguous" language of a construction contract between the City of Mandan and an excavating company precluded the company from recovering damages for delays allegedly caused by the city.

Markwed Excavating, Inc., had appealed orders granting summary judgment dismissal of its action against the city and Swenson, Hagen & Company for breach of contract and for negligence.

The Court, in its Nov. 15 opinion, affirmed the summary judgments.

After competitive bidding, the city and the excavating company entered into an Aug. 16, 2006, contract for a storm sewer improvement project requiring Markwed to bury more than 1,300 feet of 36-inch pipe from the Missouri River to a development west of Raging Rivers Water Park in Mandan.

The project also required Markwed to tunnel underneath three Mandan roads -- 46th Avenue Southeast, Bismarck Expressway and Marina Road.

Mandan employed Swenson, Hagen & Company as the engineer and manager for the project, and Swenson prepared a written "specification and proposal" for the project.

The Aug. 16, 2006, contract between the city and Markwed identified 12 component parts of the "contract documents."

The contract stated it and the component parts formed the contract between Mandan and Markwed and if "any provision in any of the component parts of the Contract conflicts with any provision of any other component part, the provision in the component part first enumerated herein shall govern, except as otherwise specifically stated."

According to the contract, Markwed was required to complete work on the project by May 1, 2007 and included language about delays and extensions of time.

The contract also incorporated Mandan's construction specifications, including language about delays and extensions of time in a "no damages for delay" clause.

The project plans required the pipeline west of Bismarck Expressway and east of 46th Avenue Southeast to be buried within an existing 75-foot permanent drainage easement.

Markwed claims a provision of the contract specifications and proposal prepared by Swenson authorized Markwed "to access across private property and to store materials on private property" owned by Steven McCormick and located north of the 75-foot drainage easement.

The company also claims that provision granted it a staging area for the project and during the bidding process Swenson's representatives orally told Markwed the land north of the drainage easement was available for a staging area.

Markwed contends Swenson and Mandan, acting through Swenson, were responsible for obtaining any required temporary construction easements for the staging area.

The company alleges the holder of an option to purchase McCormick's land north of the drainage easement advised Markwed in September 2006 that it could not use the land as a staging area for the project.

Because of it, the project was delayed for several weeks before Swenson obtained written temporary construction easements from McCormick.

Markwed claims it could not work on the project because of the delay; it was unable to perform any significant work on the project in 2006; and it was forced to complete work the following year after Mandan granted Markwed an extension of time until Dec. 31, 2007 to complete the project.

Markwed sued Mandan and Swenson, alleging both breached the contract by failing to obtain timely easements for the company to access land for a staging area, which precluded it from finishing the contract in a timely manner and resulted in more than $400,000 in damages to excavators.

Markwed also alleged Mandan and Swenson negligently engaged in conduct that caused the delay and proximately caused damage to the company. Markwed subsequently moved to amend its complaint to include a claim for negligent misrepresentation.

The district court granted summary judgment for Mandan and for Swenson, concluding the no damages for delay clause was unambiguous, was not unconscionable and precluded Markwed from recovering damages for work delays not contemplated by the parties.

The court also decided Markwed could not bring a tort claim against Mandan because any duty the city owed to Markwed was based on the contract. The court also decided Markwed's tort claim against Swenson was barred by the economic loss doctrine.

After further briefing, the court also decided Markwed could not recover on a claim against Mandan and Swenson for alleged negligent misrepresentations in the contract under North Dakota Pattern Jury Instruction because Markwed could not establish the requisite elements for that claim against Mandan.

The court determined Swenson was an "independent contractor" and not a party to the contract between Mandan and Markwed; thus, Markwed could not establish the elements of a misrepresentation claim against Swenson.

The court also denied the excavating company's motion to amend its complaint to include a claim for negligent misrepresentation.

Justice Daniel J. Crothers, who authored the opinion, wrote that the Court concluded "the no damages for delay clause is not repugnant to other provisions of the contract and, when harmonized with other provisions of the contract as required by North Dakota law, is not ambiguous and does not include an exception for uncontemplated delays."

The Court rejected Markwed's argument that the no damages for delay cause is "unconscionable," and concluded that the company is bound by the "plain" and "unambiguous" language of the clause.

"Markwed is a sophisticated contractor and could have protected itself against delays through a bid adjustment for the work," Crothers wrote for the Court.

The Court also concluded the alleged negligent misrepresentations by the city and Swenson -- if any -- do not prohibit enforcement of the plain and unambiguous language of the no damages for delay cause.

"Markwed sought to amend his complaint to include a claim for negligent misrepresentation, and we conclude the district court did not abuse its discretion in refusing to allow Markwed to amend its complaint because recovery under the requested amendment would be futile," it wrote.

The Court, pointing to its conclusions, said it wasn't necessary to consider whether the economic loss doctrine bars a tort claim against Swenson.

The Honorable Allan L. Schmalenberger sat in place of the disqualified Justice Dale V. Sandstrom.

From Legal Newsline: Reach Jessica Karmasek by e-mail at jessica@legalnewsline.com.

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