IN THE SUPREME COURT
STATE OF NORTH DAKOTA
| Gratech Company, Ltd. | ||||||||
| Claimant -Appellant, | ||||||||
| and | ||||||||
| Flickertail Paving and Supply, LLC., | ||||||||
| Supreme Court No. 20030203 | ||||||||
| Claimant, | ||||||||
| v. | ||||||||
| State of North Dakota, the North | ||||||||
| Dakota Department of Transportation, | ||||||||
| and its Director David A. Sprynczynatyk, | ||||||||
| Respondent -Appellee. | ||||||||
BRIEF OF APPELLANT
GRATECH COMPANY, LTD.
Appeal from June 25, 2003, Order for Judgment and Judgment,
including taxation of costs and disbursements
The Honorable Benny A. Graff
Burleigh County District Court
South Central Judicial District
Burleigh County Civil No. 03-C-1088
| Ronald G. Schmidt (Pro Hac Vice) SCHMIDT,SCHROYER, MORENO & LEE, P.C. P.C. P. O. Box 860 Rapid City, SD 57709 Telephone: (605) 341-0112 E-mail: rgschmidt@rushmore.com | Jack McDonald (N.D. ID#02972) WEELER WOLF LAW FIRM P O Box 2056 Bismarck, ND 58502-5300 Telephone:(701)-223-5300 E-mail: Jackmcdonald@wheelerwolf.com |
Attorneys for Plaintiff/Appellant Gratech Company, Ltd.
TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES iv, v, vi
STATEMENT OF ISSUES vii, viii, ix
STATEMENT OF THE CASE 1
STATEMENT OF FACTS 3
LEGAL ARGUMENT 8
I.
Whether the standard of review in an appeal to the court from a statutorily mandated arbitration award is de novo, or heightened as to questions of law, or the completely irrational standard? 8
Whether Gratech's claims for extra work caused by unanticipated unsuitable soil were "covered under the contract" and thus exempt from the notice of intent to file a claim as held by Byron's Constr. v. State Highway Dep't., 448 N.W.2d 630 (N.D. 1989), and the arbitrators' contrary conclusions erroneous as a matter of law and/or completely irrational? 13
III. Whether the arbitrators' conclusion, that a practice of paying common excavation prices for unsuitable material can override express Specification § 104.03D mandating the price for handling unsuitable material be negotiated as "extra work" is erroneous as a matter of law and/or completely irrational? 16
IV. Whether the arbitrators' affirmance of the NDDOT's classification and payment for unsuitable excavation as common excavation, Type A, is erroneous as a matter of law and/or completely irrational in light of the arbitrators' conclusions 17
(A) There is no price in the contract for "unsuitable material" and the price is to be negotiated as "extra work" according to Specification § 104.03D 18
The NDDOT's interpretation of the contract unfairly shifted the cost of performance to Gratech 18
If the NDDOT continues its practice of paying common excavation prices for unsuitable material it should revise the standard specifications and contract drawings to conform to its practice so that bidders are afforded the opportunity to price the work? 18
V. Whether the arbitrators' conclusion, that a notice of intent to file a claim is required in accordance with the contract specifications for tort claims, is erroneous as a matter of law and/or completely irrational? 25
to file a claim is required in accordance with the contract
specifications for breach of the implied warranty of
accuracy, is erroneous as a matter of law and/or completely
irrational? 32
VII. Whether the arbitrators' total denial of any compensationto Gratech on the Rolla project, and its limited compensation
to Gratech on the Belcourt project, solely for a small quantity
of "muck excavation" is erroneous as a matter of law and/or
completely irrational, in light of the arbitrators' conclusions
that: 35
(A) Both projects suffered from unplanned "subcutting" that resulted from conditions NDDOT failed to describe in its plans 35
Gratech was caused "extra work" due to the plan defects on both projects through no fault of either Flickertail or Gratech 35
This extra work was the sole cause of the delays pushing the project into the next construction season 35
Gratech incurred substantial uncompensated expense due to the resulting inefficiencies throughout the 30 days of unanticipated delays. 36
VIII. Whether the arbitrators' conclusion that accord and satisfaction applies is erroneous as a matter of law and/or completely irrational in light of the arbitrators' conclusions that: 39
(A) NDDOT paid for the unsuitable excavation as suitable common excavation, Type A, in the change orders 39
(B) The excavation of "unsuitable material" constitutes extra work for which a price must be negotiated according to Specification § 104.03D 39
(C) The NDDOT's interpretation to pay common excavation price for excavation of unsuitable material unfairly shifted the cost of performance to Gratech 39
The NDDOT should revise the standard specifications and contract drawings so that bidders such as Gratech are afforded the opportunity to price the work in their bids in the future 39
(E) There were 30 days of uncompensated
extra work 39
IX.
Whether the clerk erroneously taxed costs and disbursements pursuant to N.D.C.C. § 28-26-06(2), which provides for taxation of disbursements necessary for procuring evidence "used to obtain for use on the trial" as opposed to appeal. 41
CONCLUSION 42
TABLE OF AUTHORITIES
Cases Cited: Page(s)
North Dakota:
AllState Ins. Co. v. Nodak Mut. Ins. Co.,
540 N.W.2d 614 (N.D. 1995) 9, 10, 11,12, 30
Byron's Constr. v. State Highway Dep't.,
448 N.W.2d 630 (N.D. 1989) . .11 fn2, 13,14, 16, 26 fn 5, 28, 29, 30, 31,32, 34, 35
Carlson v. Farmers, Ins.,
492 N.W.2d 579, 581 (N.D. 1992) 9
O.& K. Glass Co. v. Innes Constr. Co.
2000 ND 56, 608 N.W.2d 236 8 fn 1
Eickhof Constr. Co. v. City of Grafton,
123 N.W.2d (N.D. 1963) 21
Jones v. Boeing Co.,
153 N.W.2d 897 (N.D. 1967) 26 fn 5, 31
Layman v. Braunschweigische Maschinenbauanstalt,
343 N.W.2d 334 (N.D. 1983) 26 fn 5, 31
Peoples Bank & Trust v. Reiff
256 N.W.2d 336 (N.D. 1977) 17
Sime v. Tvenge Assoc. Architects & Planners, P.C.,
488 N.W.2d 606 (N.D. 1992) 26 fn 5
State v. Stremick Constr. Co.
370 N.W. 2d 370 (N.D. 1985) 11 fn 2, 11
State v. Gratech Co.,
2003 ND 7, 655 N.W. 2d 417 9, 10, 11 fn 2
Other Jurisdictions:
American Universal, Ins. Co. v. Del Greco,
205 Conn. 178, 530 A.2d 171 (1987) 9, 11, 12
Ashbach & Sons v. State,
78 N.W.2d 446 (Minn. 1956) 23
Blattner & Sons v. Fireman's Ins.,
535 N.W.2d 671 (Minn. 1995) 27 fn 6
Detroit Auto. Inter-Ins. Exchange v. Gavin,
416 Mich. 407, 331 N.W. 2d 418 (Mich. 1982) 9, 12, 13
D. H. Knapp Co. v. State,
18 N.W.2d 421 (Mich. 1945) 27 fn 6
Dickens v. Pennsylvania Turnpike Comm'n.,
40 A.2d 421 (Pa. 1945) 24
Fernandez v. Farmers, Ins. Co. of Arizona,
115 N.M. 622, 857 P.2d 22 (1993) 9
Hash v. R. J. Sundling & Son, Inc.,
436 P.2d 83 (Mont. 1957) 27 fn 6
Hersey Gravel Co. v. State,
9 N.W.2d 567 (Mich. 1943) 33
Kensington Corp. v. State,
253 N.W.2d 781 (Mich. 1977) 27 fn 6
Kyburz v. State, 1
08 N.W.2d 645 (S.D. 1960) 21
Owens-Corning Fiberglass Corp. v. United States,
190 Ct. Cl. 211, 419 F.2d 439 (1969) 34, 35
Tomlinson v. Ashland Cnty.,
170 Wis. 58, 173 N.W. 300 (S.D. 1960) 22
Topco, Inc. v. State Dep't. of Highways,
912 P.2d 805 (Mont. 1996) 23
Wilson v. Security Ins. Group,
199 Conn. 630, 509 A. 2d 467 12
Other North Dakota Authorities:
Statutes Cited:
North Dakota Century Code:
Section 24-02-26 passim
Section 24-02-26.1 . . . passim
Section 24-02-31 . . .31 fn 3
Section 32-29.2-12(1)(c) . . . . . . . 8 fn 1, 13
Section 43-19.1-24.1 . . . .26 fn 5
NDDOT Standard Specification:
Section 104.02 26 fn 5
Section 104.03D 16, 17, 39
Section 203 passim
Section 203.02 A4 15, 19
Section 203.02B1 15
Section 203.01D 36
Section 203.02D passim
Section 203.02 G 18
American Arbitration Rules
R-46 25 fn 3
Other Authorities Cited:
Administrative Rule 5 3
21 A. Am. Jur. 2d, Customs and Usages § 25 17
74 Am. Jur. 2d Torts, §1 26
57 Am. Jur. 2d Negligence § 47 (1971) 31
65 C.J.S. Negligence §4(6) (1966) 31
STATEMENT OF THE ISSUES
I.
Whether the standard of review in an appeal to the court from a statutorily mandated arbitration award is de novo, or heightened as to questions of law, or the completely irrational standard?
II. Whether Gratech's claims for extra work caused by unanticipated unsuitable soil were "covered under the contract" and thus exempt from the notice of intent to file a claim as held by Byron's Constr. v. State Highway Dep't., 448 N.W.2d 630 (N.D. 1989), and the arbitrators' contrary conclusions erroneous as a matter of law and/or completely irrational?
III. Whether the arbitrators' conclusion, that a practice of paying
common excavation prices for unsuitable material can override express Specification § 104.03D mandating the price for handling unsuitable material be negotiated as "extra work" is erroneous as a matter of law and/or completely irrational?
the NDDOT's classification and payment for unsuitable excavation as common excavation, Type A, is erroneous as a matter of law and/or completely irrational in light of the arbitrators' conclusions:
(A) That there is no price in the contract for "unsuitable material" and the price is to be negotiated as "extra work" according to Specification § 104.03D;
V. Whether the arbitrators' conclusion, that a notice of intent to file a claim is required in accordance with the contract specifications for tort claims, is erroneous as a matter of law and/or completely irrational?
VI. Whether the arbitrators' conclusion, that a notice of intent to file a claim is required in accordance with the contract specifications for breach of the implied warranty of accuracy, is erroneous as a matter of law and/or completely irrational?
(A) Both projects suffered from unplanned "subcutting" that resulted from conditions NDDOT failed to describe in its plans;
(A) NDDOT paid for the unsuitable excavation as suitable common excavation, Type A, in the change orders;
(B) The excavation of "unsuitable material" constitutes extra work for which a price must be negotiated according to Specification § 104.03D;
(C) The NDDOT's interpretation to pay common excavation price for excavation of unsuitable material unfairly shifted the cost of performance to Gratech;
(E) There were 30 days of uncompensated extra work.
IX. Whether the clerk erroneously taxed costs and disbursements pursuant to N.D.C.C. § 28-26-06(2), which provides for taxation of disbursements necessary for procuring evidence "used to obtain for use on the trial" as opposed to appeal.
STATEMENT OF THE CASE
N.D.C.C. §§ 24-02-26 through 24-02-33, mandate all controversies arising out of any contract with the Department of Transportation for the construction or repair of highways be submitted to arbitration. N.D.C.C. § 24-02-26 incorporates the Uniform Arbitration Act codified as N.D.C.C. Ch. 32-29.2, by reference. Disputes arose between the parties on two separate construction projects. The parties submitted their respective claims against each other to arbitration conducted by the American Arbitration Association as provided by N.D.C.C. §§ 24-02-27 and 28. (Appendix "A" - Clerk's Register of Action hereinafter "CRA" followed by item no.)
On November 15, 2002 the American Arbitration Association transmitted the Arbitration Award. (Appendix "B" - Arbitration Award) (CRA Item -2) On January 15, 2003, Gratech applied to the District Court for the South Central Judicial Circuit, County of Burleigh, to vacate the Arbitrators' Award and order a rehearing before new Arbitrators pursuant to N.D.C.C. §§ 32-29.1-12(1)(e) and 32-29.2-12(3) . (Appendix "C"- Application ) (CRA Item-2) The arbitration proceedings were conducted in Bismarck, Burleigh County, North Dakota, providing venue pursuant to N.D.C.C. § 32-29.2-18.
On May 13, 2003, the District Court, the Honorable Benny A. Graff, presiding, after briefing and oral argument, filed its Memorandum Opinion denying Gratech's Application. (Appendix "D" - Memorandum Opinion) (CRA Item-24)
On June 25, 2003, the Court entered the Order for Judgment pursuant to the Court's May 13, 2003 Memorandum Opinion. (Appendix "E" - Order for Judgment)(CRA Item-24)
On June 25, 2003, the Clerk entered Judgment and assessed costs and disbursements in the amount of $3306 against Gratech. (Appendix "F" - Judgment) (CRA Item-27). Gratech had filed its objections to the costs. (Appendix "G" - Objection to Statement of Costs)(CRA Item-29)
On June 30, 2003, the NDDOT noticed entry of judgment. (Appendix "H" - Notice of Entry of Judgment)(CRA Item-30)
On July 1, 2003, Gratech filed and served its Notice of Appeal. (Appendix "I" - Notice of Appeal)(CRA Item-34)
On July 9, 2003, the Clerk gave Notice of Filing of the Notice of Appeal. (Appendix "J" - Notice of Filing of the Notice of Appeal) (CRA Item-35) The NDDOT waived the cost bond on appeal.
Gratech moved this Court for an extension of time within which to file its brief. On July 23, 2003, this Court's Clerk notified the parties pursuant to Administrative Rule 5, the requested extension was granted and this brief was due on or before September 17, 2003. This brief is filed accordingly.
STATEMENT OF FACTS
Gratech's appeal lies from errors of law appearing on the face of the Arbitration Award. The relevant factual conclusions of the Arbitrators are set forth with specificity in relationship to each of the issues in the succeeding sections of this Brief. Since the Arbitrators' fact findings are inherently tied to the alleged errors of law a separate detailed fact statement would be redundant. Nevertheless, the general background and setting of the dispute is appropriate.
The arbitration involved the consolidation of three separate arbitration claims arising out of contracts for two NDDOT construction projects. The first project was referenced in the arbitration proceedings as NDDOT "040 Project" (Rolla Project) and the second the "045 Project" (Belcourt Project). Flickertail Paving & Supply, LLC, was the prime contractor on both projects. Gratech, Appellant herein, was Flickertail's subcontractor on both projects.
A summary description of the two projects is as follows:
(1) O40 Rolla Project.
NDDOT Project NH-3-282(040) 232 was for paving 8.6 miles of rural U.S. Highway 281 including within the city of Rolla. NDDOT approved Gratech as subcontractor to do certain subgrade preparation and to tear out existing highway, regrade, and do aggregate base course preparation prior to the paving. Flickertail, as prime contractor retained the paving work which was to be performed upon completion of Gratech's work.
The NDDOT let the contract to Flickertail for the 040 Rolla Project in the fall of 1998 for a 1999 start date. The Arbitrators found due to the NDDOT's defective plans not disclosing unsuitable soil, and through no fault of either Flickertail or Gratech, the project was not completed until September 17, 2001. (Appendix "A" - Award - Explanation of Award at pp. 6-7)
The Arbitrators awarded Flickertail its increased costs of performance due
to the delay of the project into an additional construction year of $411,908 plus interest. Since its claim was satisfied and paid by NDDOT, Flickertail is not a party to this appeal.
Although the Arbitrators found the 30 days of liquidated damages assessed against Flickertail were unjustified since the delay resulted from the NDDOT's defective plans and non-disclosure of the unsuitable soil, the Arbitrators failed to award Gratech anything for this additional 30 days of extra work which the Arbitrators specifically found was not Gratech's fault but as mentioned was that of the NDDOT.
(2) 045 Belcourt Project.
NDDOT Project NH-3-281(045) 237 was identical to the 040 Rolla Project in requiring the tearing out of the existing highway, regrading, aggregate base course preparation, and paving of Highway 281 in the city of Belcourt. The construction contract for this project was also awarded to Flickertail as prime contractor. Flickertail retained the paving portion of the contract work and subcontracted the grading portion to Gratech. Again, it was conceded by the NDDOT, and concluded by the Arbitrators the plans for this project were defective for not disclosing the unsuitable soil known to the Department.
Flickertail did not make a claim on this project. Gratch's claim was for extra work caused by the defective plans. Gratech had estimated and bid both projects as having suitable soil.
The Arbitrators awarded Gratech the amount of $55,651 plus interest for a small amount of muck excavation on the Belcourt project.
The core of the proceedings heard by the Arbitrators concerned compensation sought by Gratech for extra work and increased cost proximately caused by defective plans furnished to, and justifiably relied upon by the bidders. The NDDOT conceded the plans represented suitable soil, and Gratech immediately and continuously encountered "unsuitable soil" throughout both projects.
In reliance on the plans' representation of suitable soil on both projects, Gratech estimated and priced the excavation and handling of such soil as common excavation, Type A, within the meaning of NDDOT's contract specifications. Immediately and continuously encountering "unsuitable soil" as defined by such specifications and classified by the NDDOT engineers on both projects, Gratech claimed compensation for resulting "extra work" including inefficiencies involved in digging out, disposing of and replacing the "unsuitable soils," and most often plowing, disking and attempting to dry the saturated organic material, all as determined, ordered and directed by the NDDOT's engineers.
Throughout both projects, the NDDOT's engineer examined and determined the dimensions of the "unsuitable soil" prior to Gratech's being able to manipulate and attempt to dry or dig out and replace the unsuitable soil with suitable material. Even though the NDDOT admitted digouts and replacements of the "unsuitable soil" were not shown on the original plans as bid for both projects, the NDDOT's engineer, as found by the Arbitrators, classified and paid for all such work as suitable soil as "common excavation, Type A".
The Arbitrators concluded even though the NDDOT erroneously interpreted the contract specifications by classifying and paying for unsuitable soil at the suitable soil price as bid for common excavation, Type A, the alleged practice of doing so overrode the express contractual requirement that the price for unsuitable soil be negotiated. The Arbitrators found this practice unfairly shifted the cost to Gratech, and if the NDDOT continued to rely on this "practice" it should amend its specifications and plan drawings so future bidders could properly price this type of unanticipated work.
The NDDOT, in its Arbitration Pre-Hearing Statement admits "the Department does not contest the fact unsuitable soil was encountered on both projects necessitating additional work, primarily in the form of unplanned subcuts." (Appendix "K" - NDDOT Arbitration Pre-Hearing Statement at p. 1)
Since Gratech's appeal is from the face of the Arbitrators' Award there is no transcript for purposes of this Appeal.
LEGAL ARGUMENT
I.
Whether the standard of review in an appeal to the court from a statutorily mandated arbitration award is de novo, or heightened as to questions of law, or the completely irrational standard?
Gratech Company, Ltd. (Gratech) is requesting this Court to adopt a
narrowly tailored de novo standard of review limited solely to statutorily mandated
arbitration. (1)
This Court invites the question of the appropriate
standard of review of legal questions in statutorily mandated arbitrations. In AllState Ins. Co. v. Nodak Mut. Ins. Co., 540 N.W.2d 614 (N.D. 1995) at fn 2, p. 620 it is stated as follows:
In Carlson v. Farmers, Ins., 492 N.W.2d 579, 581 (N.D. 1992), this court, in dicta, applied the 'completely irrational' standard of review to a legal question that had been submitted to arbitration under a provision in an insurance policy. See, also, Fernandez v. Farmers, Ins. Co. of Arizona, 115 N.M. 622, 857 P.2d 22, 28 (1993). However, some courts have taken a minority view and applied heightened review standards to questions of law when arbitration is compelled by statute. See, American Universal, Ins. Co. v. Del Greco, 205 Conn. 178, 530 A.2d 171, 179 (1987); Detroit Auto. Inter-Ins. Exchange v. Gavin, 416 Mich. 407, 331 N.W. 2d 418, 435 (1982) We leave that question for another day when the arbitrators have exercised their jurisdiction to decide legal questions in the first instance, and the parties have appealed and adequately raised the issue. (Emphasis added)
Such is presently the case. Gratech, as will be discussed, has adequately raised numerous material errors of law as disclosed on the face of the Arbitration Award.
The North Dakota Department of Transportation (NDDOT) has just recently urged this Court to adopt the de novo or heightened standard of review to fact questions in State v. Gratech Co., 2003 ND 7, 655 N.W. 2d 417, an unrelated appeal in an NDDOT arbitration dispute. In that case, different Arbitrators unanimously denied the NDDOT's motion to dismiss the arbitration proceedings as not having been timely filed. The District Court affirmed the Arbitrators and the NDDOT appealed. At p. 21 of its Supreme Court brief the NDDOT states:
This case is a good example of why there must be some bounds that are constrained by a 'de novo', or at least a more heightened standard of review. The Legislature has sought to impose certain reasonable limitations upon arbitrations in terms of what can and cannot be arbitrated and what steps must be taken before arbitration can be demanded. * * * Further, the problem compounds itself with each 'bad', but perhaps not 'totally irrational,' decision that is made by arbitrators and upheld by the courts because then these cases get cited as 'authority' in succeeding arbitrations for what is permissible.More broadly, this Court in a footnote to its opinion in Allstate Ins. Co. v. Nodak Mut. Ins. Co., 540 N.W.2d 614, 620 n.2 (N.D. 1995) left open the question of what standard of review should be applied to questions of law when arbitration is compelled by statute. The issue is extensively discussed in the two cases cited by the court in the footnote. Based on the discussion in those cases, a compelling argument can be made for adopting a 'de novo' or, at least, a more heightened standard of review to questions of law in statutory arbitration proceedings, and this course is urged upon the court here. (Emphasis added) (Appendix "A" - NDDOT"s Brief in Support of Petition for Stay Pending Appeal or for Supervised Writ, pp. 1 and 21)
This Court ultimately affirmed the trial court and applied the completely irrational standard. Id. at 422. State v. Gratech Co., supra is readily distinguishable since the Arbitrators decided a question of fact as opposed to questions of law as now before this Court.
Chief Justice VandeWalle, has long argued by dissents for the de novo or
heightened standard of review of questions of law in statutorily mandated arbitrations. See, Justice VandeWalle dissents in State v. Stremick Constr. Co., 370 N.W.2d (N.D. 1985) at 735; and Allstate Ins. Co. v. Nodak Mut. Ins. Co., supra at 620-
621. (2)
As noted by this court in Allstate Ins. Co. v. Nodak Mut. Ins., supra, this is a question of first impression in this jurisdiction. The issue is ripe for decision and Gratech joins NDDOT, and this Court is urged to adopt and apply the de novo standard of review to the legal questions in this statutorily mandated arbitration.
The in-depth analysis and conclusions of the courts in American Universal Ins. Co. v. DelGreco, supra and Detroit Automobile Inter-Ins. Exchange, supra cited by this Court in Allstate Ins. Co. v. Nodak Mut. Ins. Co., supra, are persuasive and should now be adopted by this Court.
In American Universal Ins. Co., the court adopted a de novo standard of review using the following rational:
The simple and ineradicable fact is voluntary arbitration and compulsory arbitration are fundamentally different if only because one may, under our system, consent to almost any restriction upon or deprivation of right, but similar restrictions or deprivations, if compelled by government, must accord with procedural and substantive due process. (Citations omitted) Parties to a contract calling for statutory arbitration are not free to agree, implicitly or explicitly, that their dispute will be resolved in disregard of controlling principals of constitutional, statutory, or judge made law, and expect the courts to approve and enforce the results. (Citation omitted) In Wilson v. Security Ins. Group, supra, 199 Conn. at 630, 509 A. 2d 467, this court acknowledged the complete insulation of statutorily mandated arbitration awards from judicial review for errors of law creates the anomaly that, without the consent of the parties, arbitrators are empowered to disregard the law in deciding issues affecting substantial rights. Therefore, we held a higher level of judicial review of an arbitration award is warranted where the arbitration is statutorily mandated.* * *
Accordingly, we hold, where judicial review of compulsory arbitration proceedings is required. . ., the reviewing court must conduct a de novo review of the interpretation and application of the law by the arbitrators. The court is not bound by the limitations contractually placed on the extent of its review as in voluntary arbitration proceedings. (Emphasis added)
In Detroit Auto. Inter-Insurance Exchange, the court states in relevant part
as follows:
Where it clearly appears on the face of the award or the reasons for the decision as stated, being substantially a part of the award, that the arbitrators through an error of law have been led to a wrong conclusion, and, but for such error, a substantially different award must have been made, the award and decision will be set aside.* * *
Nevertheless, just as a judge exceeds his power when he decides a case contrary to controlling principals of law, so does an arbitrator. (Emphasis added)
Although Arbitrators may generally judge the facts and the law, their decisions on questions of law are specifically subjected to judicial review pursuant to N.D.C.C. § 32-29.2-12(1)(c) for "exceeding their powers" when such legal decisions are contrary to controlling principles of law.
The Arbitrators acknowledge Gratech's argument it was not required to file a notice of intent to file a claim because, among other things, its claims were "covered under the contract" and exempt from such notice. Again, Byron's, is extremely important, relevant and was misconstrued by the Arbitrators as a matter of law. The Arbitrators concluded Gratech's claims were "not covered under the contract" and required a notice of intent to file a claim, and thus "barred" the claim from consideration. (Appendix " B" - Award) The Arbitrators erroneously relied upon Byron's Const. Co., as authority for this legal conclusion. Ibid.
In Byron's this Court dismissed a contractor's argument that its request for additional compensation was based upon work or materials "covered in the contract," and stated in exceedingly important language at pp. 633-634 as follows:
With one exception, the work and materials for which Byron seeks additional compensation were not part of the original contract language or a modification of the contract between the parties, nor the result of a change order or extra work ordered by the engineer. Consequently, Byron was required to give notice under N.D.C.C. § 24-02-26.1, as a prerequisite to claiming additional compensation . . . . (Emphasis added)
Presently, Gratech's work was very specifically "covered in the original contract language" as acknowledged by the Arbitrators. (Appellant App. "B" - Award)
Gratech bid both projects as suitable soil in pricing Common Excavation,
Type A. The NDDOT in its Prehearing Brief to the Arbitrators admitted "the
Department does not contest the fact unsuitable soil was encountered on both projects necessitating additional work".
The Arbitrators concluded Gratech encountered unanticipated "unsuitable excavation" and determined the NDDOT's interpretation of contract Specification § 203 was "incorrect and inconsistent with the contract provisions." The Arbitrators go on to discuss numerous specific provisions of contract Specification § 203 at length. Id. For example, the Arbitrators note Specification § 203.02D provides as follows:
203.02D. Excavated materials classed as waste or unsuitable shall be disposed of at a site selected by the contractor and acceptable to the engineer. * * * Payment will be made at negotiated prices according to Section 104.03 D. (Emphasis added)
The Arbitrators further conclude Section 203.02 A4 states unsuitable material encountered in the subgrade shall be removed as directed (by the engineer) and disposed of under Section 203.02 D.
Further, Specification § 203.02 B1 provides if the engineer directs manipulation and drying below the top six inches of the subgrade, payment will be made according to Specification § 104.03 D. Gratech was required by the engineer to plow, disc and attempt to dry material below the top six inches of the subgrade throughout both projects for which it received no compensation.
The Arbitrators concluded defective plans on both projects resulted in "extra work" and "unsuitable material," whether encountered in excavation or below the subgrade elevation is "extra work and the price should be negotiated according to Section 104.03 D, Extra Work."
It is clear from the Award the extra work required by the unsuitable material and defective plans is clearly covered by numerous contract specifications. This is readily distinguishable from the claims in "Byron's," where this Court held the work and material for which Byron sought compensation "were not part of the original contract language or a modification of the contract". Here, as clear from the Arbitrators' Award the "extra work" for which Gratech sought compensation was clearly "part of the original contract language" and is under the plain language of N.D.C.C. § 24-02-26.1, as interpreted by the Supreme Court in Byron's, exempt from the notice requirement. The statute and contract both clearly exempt work "covered in the contract" from the notice requirement.
The Arbitrators' decision that Gratech's work covered in the contract was subject to the notice requirement was erroneous as a matter of law and/or clearly irrational.
III. Whether the arbitrators' conclusion, that a practice of paying
common excavation prices for unsuitable material can override express Specification § 104.03D mandating the price for handling unsuitable material be negotiated as "extra work" is erroneous as a matter of law and/or completely irrational?
While the Arbitrators concluded the NDDOT's " . . . interpretation of Section 203 of the Standard Specifications, whether customary or not, is incorrect and inconsistent with the contract provisions" they affirmed the NDDOT's "practice of paying common excavation prices for unsuitable material" to Gratech. This is both inconsistent and legally wrong. This Court has held when a course of dealing or usage of trade bring about an unreasonable construction of the express terms of a written agreement, the express terms shall control over both the course of dealing and usage of trade. Peoples Bank & Trust v. Reiff, 256 N.W.2d 336 (N.D. 1977)
As stated in 21 A. Am. Jur. 2d, Customs and Usages § 25 at pp. 746-747:
* * * Custom and usage may explain what is ambiguous but cannot vary or contradict what is manifest and plain; and an express written contract embodying in clear and positive terms the intention of the parties cannot be varied by evidence of custom or usage which either expressly or by necessary implication contradicts the terms of the contract, since the parties may have chosen to ignore such usage or custom." (Emphasis added)
Presently, the Arbitrators found the NDDOT's "interpretation" of the contract to pay for unsuitable excavation from subcuts as common excavation, " . . . whether customary or not, is incorrect and inconsistent with the contract provisions." (Emphasis added). The Arbitrators nevertheless unjustifiably affirmed the NDDOT's payment to Gratech of unsuitable excavation as Common Excavation, Type A, in total disregard of the contract language. Such a conclusion is both erroneous as a matter of law and/or unjust and completely irrational.
the NDDOT's classification and payment for unsuitable excavation as common excavation, Type A, is erroneous as a matter of law and/or completely irrational in light of the arbitrators' conclusions that:
(A) There is no price in the contract for "unsuitable material" and the price is to be negotiated as "extra work" according to Specification §104.03D;
The Arbitrators' error of law on this issue clearly appears on the face of the Award. To facilitate this Court's consideration of this question the relevant section of the Arbitrators' Award as follows:
NDDOT's Payment for Unsuitable Excavation as Common Excavation, Type A.Although we denied most of Gratech's claims, it does not mean we agreed with all assertions made by NDDOT. In particular, NDDOT claimed it was its 'customary practice' to pay for unsuitable material as common excavation when the unsuitable material could be wasted in the right-of-way or used outside the 'core' embankment. Further, NDDOT field personnel testified it was their 'interpretation' of the contract to pay for unsuitable excavation from subcuts as Common Excavation consistent with the NDDOT's customary practice. This interpretation of Section 203 of the Standard Specifications, whether customary or not, is incorrect and inconsistent with the contract provisions. Common Excavation, Type A, is defined in Section 201.01 A. Three types of Common Excavation are listed. The first one, the type used in the instant contract, is 'Common Excavation and Compaction Control, Type A. Section 203.02 G.' Section 203.02 G requires moisture and density control and compaction control according to specific AASHTO test procedures. Therefore, Common Excavation, Type A, is only material suitable for placement in embankment, particularly 'core' embankment, and capable of being reasonably processed and compacted in conformance with the contract mandated moisture and density acceptance requirements.
Despite this, NDDOT field personnel testified they paid Common Excavation prices for material that was 'unsuitable' for 'core' embankment but was used in other embankments. 'Unsuitable' Materials' (Section 203.02 D) or in the case of unsuitable material encountered below the subgrade elevation, is 'Unsuitable Material' (Section 203.02 A.4).
Section 203.02 D, Disposal of Surplus and Unsuitable Material, states:
Excavated materials classed as waste or unsuitable shall be disposed of at sites selected by the Contractor and acceptable to the Engineer . . . . Payment will be made at negotiated prices according to Section 104.03 D.
Section 203.02 A.4, Unsuitable Material, states:
Unsuitable material encountered in the subgrade shall be removed to the depth directed and disposed of under Section 203.02 D. Construction operations shall be conducted so necessary measurements can be taken before replacing unsuitable material with satisfactory material.
Therefore 'unsuitable material', whether encountered in excavation or below the subgrade elevation, is extra work and the price should be negotiated according to Section 104.03 D, Extra Work.
NDDOT's interpretation to pay common excavation price for excavation of unsuitable material and to use it outside the core embankment unfairly shifts costs of performance to the contractor.
If the NDDOT continues the practice of paying common excavation prices for unsuitable material placed outside the roadway core, it should revise the Standard Specifications and contract drawings to conform to its practice so bidders are afforded the opportunity to price the work according to NDDOT"s customary practice." (Appendix " B" - Award ) (Emphasis added)
The Arbitrators actually rejected the NDDOT's interpretation of the contract to pay for unsuitable excavation from subcuts as common excavation. The Arbitrators as noted expressly state the erroneous interpretation of Section 203 of the Standard Specifications, "whether customary or not, is incorrect and inconsistent with the contract provisions." The Arbitrators next carefully analyze each of the relevant provisions of the contract specifications and conclude " . . . 'unsuitable material', whether encountered in excavation or below the subgrade elevation, is extra work and the price should be negotiated according to Section 104.03 D, Extra Work." (Emphasis added) The Arbitrators hold NDDOT's erroneous interpretation to pay common excavation prices for excavation of unsuitable material "unfairly shifts costs of performance to the contractor." Further, if the NDDOT continues "the practice of paying common excavation prices for unsuitable material," the Arbitrators conclude the NDDOT "should revise the Standard Specifications and contract (plans) drawings to conform to its practice so bidders are afforded the opportunity to price the work according to NDDOT's "customary practice."
NDDOT's plans for both projects represented suitable soil. Gratech bid and priced the suitable soil as "Common Excavation, Type A". The Arbitrators further found both projects "suffered from unplanned 'subcutting' that resulted from conditions NDDOT failed to describe in its plans." (Appendix "B" - Award) Additionally the defective plans resulted in "extra work". (Id.)
The Arbitrators under these circumstances determined Gratech, nevertheless was not entitled to any compensation for this extra work. Such a conclusion is unjust and erroneous as a matter of law.
This Court has clearly held the question of classification and payment for materials involves a construction of the contract rather than a definition of the intent and meaning of the specifications, and the construction of the contract is a matter for the court and not the engineer. Eickhof Constr. Co. v. City of Grafton, 123 N.W.2d 580, 584 (N.D. 1963) In that case the contractor claimed it was owed money for pit-run gravel it had furnished the City in connection with the construction of a water treatment and water distribution plan. The engineer claimed he had properly classified and paid for the material. The Supreme Court determined the engineer had made an improper classification for payment, and states at p. 584 as follows:
* * * Rather, we have found that his decision was in the nature of construing the contract instead of being merely an interpretation of the intent and meaning of the specifications."
This Court relies heavily on, and quotes from Kyburz v. State, 108 N.W.2d
645 (S.D. 1960) in relevant part at p. 584 as follows:
* * * The rule appears to be well established that parties to a building or construction contract may designate an engineer or other person to determine questions related to its execution and the parties are bound by his determination of matters within the scope of his authority and when made in good faith. (Citations omitted) However, this does not mean the engineer may change the terms of the contract. (Citation omitted)In Tomlinson v. Ashland Cnty., 170 Wis. 58, 173 N.W. 300, 303 the court had under consideration a building contract which gave an architect the power to make final decisions as to the true construction and meaning of the drawings and specifications. The court held the contractors were not bound to furnish at their own expense as a part of their contract obligation the sand and labor for necessary inside and outside filling. The court said: 'The power of the architect under the contract was unquestionably binding when deciding questions arising as to the meaning of the provisions of the plans and specifications concerning all work that was within the contract, but they were not given the power expressly, nor may we give it to them by implication, to either add to or take away from the contractual rights or liabilities of either party under the contract itself.'
The power to construe and define the intent and meaning of plans and specifications made a part of a contract is one thing, and may properly be, as it was in this instance, left to arbitrators selected by the parties; the power to construe the contract itself and to determine what is within and without such contract is a different and independent question, and belongs primarily to the courts." (Citation omitted) (Emphasis added)
This Court then held the engineer, in refusing to approve payment for pit- run gravel used as a bed for the pipe was going beyond his authority to define the intent and meaning of the specification and was attempting to construe the contract and did not have the authority to do so.
Presently, the Arbitrators concluded the NDDOT engineer incorrectly and inconsistently interpreted the applicable contract provisions. Having done so, they unjustly failed to follow through and grant any compensation. The Arbitrators through an error of law have been led to a wrong conclusion.
In Ashbach & Sons v. State, 78 N.W.2d 446 (Minn. 1956) the contractor sought recovery for a volume of excavation claimed due under the contract for highway construction. The State, as here, claimed it had properly classified and paid for all material. The Supreme Court affirmed the trial court's interpretation of the contract and determined the contractor was due payment for additional rock cut excavation. The trial court had found materials actually excavated by the contractor and which were classified as Class B Excavation under the contract consisted of materials meeting the definition of both Class B Excavation, as well as materials defined as Class A Excavation under the specifications. This is akin to the present Arbitrators admittedly affirming the misclassification and erroneous payment of the NDDOT of unsuitable material at suitable material prices in contravention of the contract specifications.
In Topco, Inc. v. State Dep't. of Highways, 912 P.2d 805 (Mont. 1996) the Highway Department paid the contractor for grubbing and clearing of the highway reconstruction site based on the subcontract price as opposed to the contract price. That Court held such classification and payment erroneous, and awarded the contractor damages. The court held it would be wrong for the State to gain a windfall if it were required to pay only the subcontract price of $1750 per acre as opposed to the contractual obligation of $3600 per acre. Why, presently should NDDOT receive such a windfall?
In Dickens v. Pennsylvania Turnpike Comm'n., 40 A.2d 421 (Pa. 1945) the court held the engineer had no power to change the terms and conditions of the contract. Such is presently the case. The NDDOT"s contract specifications clearly provide, as acknowledged by the Arbitrators the price for unanticipated unsuitable material is to be negotiated. The NDDOT was without authority to modify express contract agreement by custom or usage as set forth in the previous section of this Brief.
It was clear error of law and/or completely irrational for the Arbitrators (1) to determine the NDDOT's interpretation of Section 203 of the Standard Specifications, whether customary or not, is incorrect and inconsistent with the contract provisions; (2) to conclude the NDDOT's erroneous interpretation unfairly shifted the cost of performance to Gratech; (3) to conclude "unsuitable material" wherever encountered is "extra work and the price should be negotiated" according to Section 104.03 D, Extra Work, of the Specifications; (4) to conclude both projects suffered from "unplanned subcutting" resulting from conditions NDDOT failed to describe in its plan; to conclude these "plan defects" resulted in extra work to Gratech; (5) to conclude the NDDOT should revise its Standard Specifications and contract plan drawings so bidders such as Gratech are afforded the opportunity to price the work in the future (having held Gratech had not been given the opportunity to price the unsuitable material on this project); (6) and then to grant no compensation whatsoever to Gratech for all of this "extra work".(3) This is not only patent error of law and/or unjust and completely irrational but unconscionable requiring rehearing before new Arbitrators.(4)
V. Whether the arbitrators' conclusion, that a notice of intent to file a claim is required in accordance with the contract specifications for tort claims, is erroneous as a matter of law and/or completely irrational?
Tort claims by definition are not subject to notice provisions. A tort is
defined as a wrong independent of contract, or as a breach of duty which the law, as distinguished from a mere contract, has imposed. 74 Am. Jur. 2d, Torts,
§ 1. Further, a tort is a wrong to another in his rights created by law or existing in consequence of a relation established by contract, but it cannot be based upon the contract itself. Id. § 23.
The Arbitrators conclude as a matter of law the NDDOT's plans for both the Rolla and Belcourt projects were "defective and suffered from unplanned 'subcutting' due to conditions the NDDOT failed to describe in its plan." The Arbitrators further concluded there were at least 30 days of extra work resulting from the defects through no fault of either Flickertail or Gratech and held the 30 days of liquidated damages were not warranted as a matter of law. The failure to compensate Gratech for these 30 days of "extra work" is, again, unconscionable.
Defective plans" can only be the legal result of negligence(5)
; negligent misrepresentation(6) ; or breach of the implied warranty of accuracy(7). These legal theories were comprehensibly presented to the Arbitrators in the Prehearing Brief of Flickertail and Gratech. (Appendix "L") The Arbitrators concluded as a matter of law "tort claims" required a notice of intent to file a claim and thus "barred them from consideration".
Ironically, the Arbitrators solely rely upon Byron's Constr. Co. v. North Dakota State Highway Dep't., 448 N.W.2d 630 (N.D. 1989) for purposes of its notice of claim conclusions of law. (Appendix "A" - Explanation of the Award, p. 1) In Byron's the Arbitrators refused to consider a tort claim based on lack of jurisdiction. This Court in Byron's reversed the Arbitrators and remanded the tort claim holding it was not subject to the requirement of notice of intent to file a claim as a matter of law.
This Court in Byron's quotes the language of N.D.C.C. § 24-02-26.1 at p. 633 as follows:
N.D.C.C. § 24-02-26.1 provides in relevant part:
Full compliance by a contractor with the provisions of this section is a condition precedent to the contractor's right to demand arbitration. If the contractor believes the contractor is entitled to additional compensation for work or materials not covered in the contract or not ordered by the engineer as extra work or force account work in accordance with the contract specifications, the contractor shall, prior to beginning the work which the claim will be based upon, notify the engineer in writing of the intent to make claim for additional compensation. * * * " (Emphasis added)
This Court then determined the work for which Byron's sought compensation in its claims 1-4 was not "work covered by the contract," or work "ordered by the engineer as extra work" and Byron had a duty to give a timely written notice as a prerequisite to claiming additional compensation. The court states in relevant part at pp. 633-634 as follows:
We are unpersuaded Byron's request for additional compensation is based upon work or materials 'covered in the contract.' With one exception, the work and materials for which Byron seeks additional compensation were not part of the original contract language or a modification of the contract between the parties, nor the result of a change order or extra work order by the engineer. Consequently, Byron was required to give notice under N.D.C.C. § 24-02-26.1, as a prerequisite to claiming additional compensation beyond the contract price of $2,255,925.00. Byron's failure to give timely written notice constituted a waiver of its right to claim additional compensation and a failure of the condition precedent to demand arbitration of the matter. Consequently, with one exception, we conclude the arbitrators did not act irrationally in precluding Byron from arbitrating Claims 1 through 4 for failing to give timely statutory notice of the claims." (Emphasis added)
The one exception involved a sub-issue under Claim 2 wherein Byron asserted the Highway Department agreed to pay as "force account" work. The court held N.D.C.C. § 24-02-26.1 "unambiguously excepts 'force account work' from the notice requirement". The court held that issue was not waived by Byron's failure to give notice under the statute, and the Arbitrators contrary conclusion was completely irrational.
Having fully considered all of the arguments concerning contract related claims 1-4 and the duty to give notice of intent to file a claim concerning all such contract related claims, this Court in Byron's Constr. Co., considered the Arbitrators' determination that another issue in Claim 5 involved a "matter of tort, rather than contract," and the Arbitrators' dismissal of the claim for lack of jurisdiction. This Court held it was completely irrational for the Arbitrators to have dismissed the tort claim, notwithstanding there had been no notice of intent to file a claim as extensively discussed concerning all of the contract related claims, and remanded the tort claim to the Arbitrators.
This Court states in relevant part at p. 635 as follows:
* * * The arbitrators determined the issue involved a matter of tort, rather than contract, and dismissed the claim for lack of jurisdiction. Byron asserts the arbitrators erred in concluding they lack jurisdiction to resolve Claim 5.Pursuant to N.D.C.C. § 24-02-26, 'all controversies arising out of any contract for the construction or repair of highways' shall be submitted to arbitration. The Highway Department's sanctions against Byron were for violation of Special Provision 612 under the contract. Consequently, the controversy arose out of the contract, and under N.D.C.C. § 24-02-26, the issue is an appropriate subject for arbitration. We conclude, therefore, the arbitrators erred in dismissing Claim 5 (the tort claim) for lack of jurisdiction, and on remand this issue should be redetermined on its merits." (Emphasis added)
This Court affirms tort claims are to be arbitrated in statutorily mandated NDDOT arbitrations in Allstate Ins. Co. v. Nodak Mut. Ins. Co., 540 N.W.2d 614, 618 (N.D. 1995) as follows:
So too, in Byron's Constr. v. State Highway Dept., 448 N.W.2d 630-635 (N.D. 1989), another case involving statutorily compelled arbitration under NDCC § 24-02-26, we rejected the arbitrators' dismissal for lack of jurisdiction of a tort issue, concluding the statute made it 'an appropriate subject for arbitration.' * * * As in Stremick and Byron's Constr., arbitration in this case is the explicit choice of the Legislature rather than the result of an agreement between the parties. Because this arbitration panel's jurisdiction stems from a legislative grant, we focus on the extent of the power of the Legislature granted to the arbitration panel. . . . (Emphasis added)
As noted by this Court, N.D.C.C. § 24-02-31 provides the "Arbitrators shall determine all controversies between the parties growing out of the contract . . .". This Court in Layman v. Braunschweigische Maschinenbauanstalt, 343 N.W.2d 334 (N.D. 1983) states in relevant part at pp. 340-341 as follows:
The duty to protect another from injury, as an essential element of actionable negligence, may arise out of a relationship or state of facts created by contract, or by acts or omissions in performance of such a duty may be tortious. (Citations omitted) See, also, Jones v. Boeing Co., 153 N.W.2d 897, 904 (N.D. 1967) [contracting architect-engineer under duty to exercise ordinary care in the design and supervision of construction projects for the protection of persons who foreseeably and with reasonable certainty may be injured by the failure to do so]. See generally 57 Am. Jur. 2d Negligence § 47 (1971) The mere breach of a contract does not, by itself, furnish a basis for liability in tort for negligence; however, negligent conduct may be involved in the breach of a contract or, even if there has been no breach of contract, liability in tort for negligence may arise because of injury to persons resulting from negligence occurring in the course of performance of the contract. 65 C.J.S Negligence § 4(6) (1966) (Emphasis added)
In other words, as in Byron's a tort may "arise out of any contract for the construction or repair of highways" and shall be submitted to arbitration. The requirement of any notice of intent to file a claim does not apply to tort claims as clearly held by this Court in Byron's where the tort claim was remanded to the Arbitrators to be determined on its merit even though no notice of intent to claim had been filed.
The Arbitrators' conclusion of law that a notice of intent to file a claim is required for tort claims is erroneous as a matter of law and/or completely irrational.
VI. Whether the arbitrators' conclusion, that a notice of intent to file a claim is required in accordance with the contract specifications for breach of the implied warranty of accuracy, is erroneous as a matter of law and/or completely irrational?
The Arbitrators acknowledge Gratech's argument it was not required to give the notice of intent to file a claim because its plans were "for breach of warranty". (Appendix "A" - Explanation of the Award at p. 1) The Arbitrators held since Gratech's claim for breach of the implied warranty of accuracy required a notice of intent to file a claim, the claim was "barred" from consideration. (Id. at p. 2) Thus the Arbitrators never reached the claim on its merits. Gratech presented extensive authority on this issue to the Arbitrators in its Prehearing Brief. (Appendix "K" pp. 8-21)
Again, ironically, although the Arbitrators stated they would not consider Gratech's claim of breach of the implied warranty of accuracy of the plans and specifications due to their defectively not disclosing the unsuitable soil, the Arbitrators concluded as follows:
* * * Among other things, the projects all suffered from unplanned 'subcutting' that resulted from conditions NDDOT failed to describe in its plans. The extra work resulting from the plan defects was the primary reason the paving project was pushed into a new construction season. (Emphasis added) (Appellant App. "A" - Award)
The Arbitrator's decision is totally inconsistent in this respect. How can the Arbitrators determine the NDDOT's plans on both projects were defective because it failed to disclose the unsuitable soil in such plans which resulted in extra work and delays through no fault of either Flickertail or Gratech and yet provide no compensation to Gratech for this unanticipated extra work?
In Hersey Gravel Co. v. State, 9 N.W.2d 567 (Mich. 1943) the State Highway Department, as here, argued that the contractor's acceptance of payment of the contract price, its approval of the final estimate of extras, and acceptance of payment therefore constituted a waiver of its claims and barred any further recovery. The contractor, there as here, was claiming breach of the implied warranty of accuracy due to alleged misrepresentations of subsoil conditions in the specifications prepared by the State Department of Highways. There, as here, the evidence established that subsoil conditions encountered by the contractor in constructing the highway did not correspond with the subsoil conditions as represented in the plans prepared by the State in seeking bids, so as to authorize the contractor to recover damages for breach of warranty as to the subsoil conditions.
The Supreme Court of Michigan in distinguishing a claim for breach of the implied warranty of accuracy from claims for payments due under the contract such as extra work, states in relevant part at p. 571 as follows:
The State argues Plaintiff's acceptance of payment of the contract price, its approval of the final estimate of extras, and acceptance of payment therefore, constitute a waiver and bar further recovery. The instant action is not for payment due under the contract, or extras performed thereunder, but for damages for breach of an implied warranty. Acceptance of payments due under the contract and for extras does not constitute a waiver of damage suffered by reason of a breach of warranty . . . . (Emphasis added)
To hold a breach of warranty claim is exempt from the notice requirement is totally consistent with this Court's holding in Byron's that a tort claim is exempt from the notice requirements. Neither claim is under the contract or for extras performed under the contract.
Additionally, the courts hold breach of the implied warranty of accuracy of the plans and specifications occurs when the contract is issued. Owens-Corning Fiberglass Corp. v. United States, 190 Ct. Cl. 211, 419 F.2d 439 (1969). N.D.C.C. § 24-02-26.1 requires notice "prior to beginning the work upon which the claim will be based". In case of a breach of the warranty of implied accuracy, the claim actually accrues when the defective plans and specifications are issued and it is impossible for the contractor to give such notice.
The issuance of defective plans and specifications legally constitutes a "constructive change" due to the defective or misrepresented soil conditions. Owens-Corning Fiberglass Corp., supra The courts universally hold in cases of "constructive change" no written change order or other written order or direction from the government is required since the issuance of the contract is the event that constitutes the constructive change due to the defective or misrepresented soil conditions. (Id.) In such cases there is no requirement for any notice of intent to file a claim for obvious reasons.
In any event, under Byron's, the only time a notice of intent to file a claim is required is when the claim is for compensation allegedly not due under the contract. No such notice is required for tort claims or breach of warranty claims or claims for work due under the contract.
The Arbitrators' legal conclusion that a notice of intent is required for breach of contract claims is erroneous as a matter of law and/or completely irrational.
VII. Whether the arbitrators' total denial of any compensation to Gratech on the Rolla project, and its limited compensation to Gratech on the Belcourt project, solely for a small quantity of "muck excavation" is erroneous as a matter of law and/or completely irrational, in light of the arbitrators' conclusions that:
(A) Both projects suffered from unplanned "subcutting" resulting from conditions NDDOT failed to describe in its plans;
The Arbitrators compensated Gratech solely for a small quantity of "muck excavation" on the Belcourt project. Muck excavation is defined by Specification § 203.01 D. It is defined as follows:
D. Muck Excavation. Muck excavation consists of the removal and disposal of deposits of saturated or unsaturated mixtures of soils and organic matter unsuitable for use as embankment materials; and cannot be removed by use of conventional scrapers and dozers, but must be removed by equipment such as drag lines, shovels, excavators which operate outside the area being excavated.
Most of the work on the Belcourt project was done on unsuitable soil by scrapers in a highly inefficient manner due to the saturated, organic, unsuitable soils. There was some unsuitable muck excavation performed by excavator.
The Arbitrators state in relevant part as follows:
Here, we find the notice was not required for certain muck excavation on the Belcourt project. In letters dated May 25 and June 1, 1999, NDDOT, Flickertail and Gratech agreed muck excavation in subcut areas would be paid to Flickertail at the price of $5.61 per cubic yard, with a net pricing to Gratech of $5 per cubic yard. Despite this agreement, subcut material was apparently paid at Gratech's common excavation price of $3.40. In our opinion, this was "extra work" ordered by the engineer in accordance with the contract specifications and thus exempt from the notice requirements.Although the testimony and evidence to calculate this item was limited, it was sufficient for the Arbitrators to reasonably calculate the quantity excavation for the subcuts was either wasted or was excavation was determined by the NDDOT as unsuitable for use in embankment in the roadway "core" and was used in the non-core embankment. This quantity was approximately 34,100 cubic yards, and was paid to Gratech as common excavation at $3.40 per cubic yard. If this had been paid to Gratech as muck at $5 per cubic yard, an additional $54,560 was owed, plus TERO tax of $1091. (Emphasis added)
The Arbitrators concluded there was no price included in the contract for subcut excavation of muck. (Appendix "A" - Explanation of the Award p. 1, fn. 1) Muck, just as unsuitable, was to be paid at a negotiated price.
The Arbitrators estimated the quantity of "muck excavation" by subtracting the original engineer's estimate of "Common Excavation, Type A" as determined prior to the bidding, from the actual quantity of "Common Excavation, Type A" shown on the final estimate for the Belcourt project. (Arbitration Exhibit JB-9, NDDOT Belcourt Final Estimate)
The difference equals 34,107.39 cubic yards. (Id.) The Arbitrators' assumption was the difference between the original NDDOT engineer's estimate for Common Excavation, Type A and the actual excavation as shown on the Final Estimate constituted "muck excavation".
Even though the Arbitrators could have as easily ascertained the quantity of "digouts" ordered in writing by the engineer on both projects on the Pay Quantity Reports they failed to do so. The NDDOT readily ascertained the total quantity of unsuitable soil in the digouts by totaling the quantities on the PQRs for each project. The Arbitrators could have readily extrapolated or estimated a fair price for the unsuitable soil or noticed a supplemental hearing for that purpose.
It is unconscionable for the Arbitrators to have concluded, without compensation to Gratech, that the NDDOT incorrectly interpreted the Standard Specifications contrary to the contract provisions in paying Gratech for unsuitable excavation as suitable soil under Bid Item Common Excavation, Type A.(9) It is further unconscionable for the Arbitrators to have found without compensation; (1) that the NDDOT's plans for both projects were defective; (2) that the projects all suffered from unplanned "subcutting" that resulted from conditions NDDOT failed to describe in its plans; (3) that the unplanned "subcutting" of the unsuitable soil resulted in substantial delays pushing the Rolla project into a new construction season, and; (4) that the NDDOT's interpretation to pay common excavation price for excavation of unsuitable material unfairly shifted the cost of performance to Gratech.(10) Gratech, due to the defective plan, had no idea there would be unsuitable soil or muck and had no opportunity as a bidder to price either, and yet under all of these conclusions the Arbitrators did not afford Gratech any compensation whatsoever for the "unsuitable" soilon the Rolla or Belcourt projects, except the limited compensation for muck excavation.
The Arbitrators' total denial of any compensation to Gratech on the Rolla Project, and on the Belcourt project, except for the small amount of muck excavation is erroneous as a matter of law and/or unjust and completely irrational.
VIII. Whether the arbitrators' conclusion that accord and satisfaction applies is erroneous as a matter of law and/or completely irrational in light of the arbitrators' conclusions that:
(A) NDDOT paid for the unsuitable excavation as suitable common excavation, Type A, in the change orders;
(B) That excavation of "unsuitable material" constitutes extra work for which a price must be negotiated according to Specification §104.03D;
(C) The NDDOT's interpretation to pay common excavation price for excavation of unsuitable material unfairly shifted the cost of performance to Gratech;
(E) There were 30 days of uncompensated extra work.
It is particularly onerous for the Arbitrators to have concluded accord and satisfaction as a matter of law under these circumstances. The term "accord and satisfaction" is defined in Black's Law Dictionary, Revised 4th Ed., as follows:
Accord and Satisfaction. An agreement between two persons, one of whom has a right of action against the other, that the latter should do or give, and the former accept, something in satisfaction of the right of action different from, and usually less than, what might be legally enforced. When the agreement is executed, and satisfaction has been made, it is called 'accord and satisfaction.'
The Arbitrators in the Award take the legal position the Change Orders constituted an accord and satisfaction. The Change Orders on Rolla paid Gratech for a limited quantity of unsuitable excavation at the Gratech bid price for Common Excavation, Type A of $3.40 per cubic yard as suitable excavation. The Arbitrators concluded there were 30 days of extra work not included on the Rolla Change Orders. There were no relevant Change Orders on Belcourt.
The Arbitrators concluded the NDDOT's interpretation of Section 203 of the Standard Specifications, "whether customary or not, is incorrect and inconsistent with the contract provisions" for the payment of Common Excavation, Type A. (Appendix "A"- Award) The Arbitrators readily acknowledge "unsuitable material," whether encountered in excavation or below the subgrade elevation, "is extra work and the price should be negotiated according to Section 104.03 D, Extra Work." (Id.)
The Arbitrators' legal conclusion that accord and satisfaction applies is erroneous as a matter of law and/or completely irrational, especially in light of the Arbitrators' own inconsistent conclusions.
IX. Whether the clerk erroneously taxed costs and disbursements pursuant to N.D.C.C. § 28-26-06(2), which provides for taxation of disbursements necessary for procuring evidence "used to obtain for use on the trial" as opposed to appeal.
The NDDOT sought the taxation of transcript costs for purposes of the application to the District Court solely pursuant to N.D.C.C. § 28-26-06(2) (CRA Item-25) Gratech objected to NDDOT's statement of cost. (CRA Item -29)
Gratech objected to taxation of costs pursuant to N.D.C.C. § 28-26-06(2) on the grounds this section is limited to the necessary expenses of "taking depositions and of procuring evidence necessarily used or obtained for use on the trial." The $3,306 of transcript costs sought by NDDOT were neither used nor obtained for use for the arbitration proceedings as required by N.D.C.C. § 28-26-06(2). Rather, the NDDOT obtained the transcripts for use on Gratech's application to the District Court to vacate the arbitration award. NDDOT sought, and the Clerk taxed disbursements under a totally irrelevant and improper section of the Code.
In its objection, Gratech noted since the application related solely to questions of law appearing on the face of the Arbitration Award the transcripts were not necessary for the appeal. Because the disbursements requested by NDDOT, and taxed by the Clerk are not within the specific statutory section for which they were sought this Court should reverse the disbursements taxed by the Clerk as a matter of law.
CONCLUSION
For all of the above and foregoing reasons and authority, this Court is respectfully requested to reverse the District Court and order the Arbitrators Award vacated, and Gratech's claims reheard before new Arbitrators. Additionally, this Court is requested to reverse and vacate the Clerk's taxation of costs and disbursements.
DATED September 4 , 2003.
| SCHMIDT, SCHROYER, MORENO & LEE, P.C. | |||||
| By: /s/ | Ronald G. Schmidt | ||||
| 4200 Beach Drive, Suite #1 | |||||
| P. O. Box 860 | |||||
| Rapid City, SD 57709-0860 | |||||
| Telephone: (605) 341-0112 | |||||
| E-mail: rgschmidt@rushmore.com | |||||
| JACK MCDONALD | |||||
| WHEELER WOLF LAW FIRM | |||||
| P O BOX 2056 | |||||
| BISMARCK, ND 58502-5300 | |||||
| Telephone: 701-223-5300 | |||||
| E-mail: jackmcdonald@wheelerwolf.com | |||||
| Attorneys for Appellant Gratech Company, Ltd. | |||||
1. Gratech alternatively applies for relief under the "completely irrational" standard of review. This Court has established there are three separate specific grounds upon which to vacate an Arbitrator's award under the "completely irrational" standard of review. As stated in O.& K. Glass Co. v. Innes Constr. Co., 2000 N.D. 56, 608 N.W.2d 236.
N.D.C.C. § 32-29.2-12(1)(c), an arbitrators' award may be vacated if the arbitrators exceeded their powers; however we will vacate an arbitration award under this subsection if it is 'completely irrational.' (Citations omitted) '(A) decision is completely irrational only if it is either mistaken on its face or so mistaken as to result in real injustice or constructive fraud.' (Citations omitted) * * * . Id. ¶ 7 (Emphasis and parenthetical material added)
Thus, an Arbitrators' award is "completely irrational" if it is either (1) mistaken on its face, or (2) so mistaken as to result in real injustice or (3) constructive fraud. Gratech presently asserts the Arbitrators' award is "completely irrational" because it is (1) mistaken on its face with error of law, or (2) mistaken on its face as to result in real injustice. This Court's finding of either of these results is grounds for the Court to vacate the award under the "clearly irrational" standard of review. However, the adoption of the "de novo" or a heightened standard of review for mistakes of law apparent on the face of the Arbitrators' award is most appropriate in this statutorily mandated arbitration for the reasons hereafter set forth. While the Arbitrators are judges of both the law and the facts, Arbitrators are not free to resolve the matter . . . "in disregard of controlling principles of constitutional, statutory, or judge made law . . ." in a statutorily mandated arbitration where the parties are not free to voluntarily waive their right to have the dispute resolved consistent with the rule of law.
2. This Court has already held that special scrutiny is to be given NDDOT arbitrations under N.D.C.C. § 24-02-26, in Allstate Ins. Co. v. Nodak Mut. Ins. Co., supra, as legislatively mandated arbitrations at p. 618 as follows:
So too, in Byron's Constr. v. State Highway Dept., 448 N.W. 2d 630-635 (N.D. 1989) another case involving statutorily compelled arbitration under N.D.C.C. § 24-02-26, we rejected the Arbitrators' dismissal for lack of jurisdiction of a tort issue, concluding the statute made it 'an appropriate subject for arbitration.' * * * As in Stremick and Byron's Constr., arbitration in this case is the explicit choice of the legislature rather than the result of an agreement between the parties. Because this arbitration panel's jurisdiction stems from a legislative grant, we focus on the extent of the power of the legislature granted to the arbitration panel . . . . (Emphasis added)
3. The Arbitrators are charged with broad equitable powers under both North Dakota statute and the rules of the American Arbitration Association. N.D.C.C. §
24-02-31 provides in relevant part that the Arbitrators shall make a proper award for any extra work having due regard to what is just and equitable between the parties under the facts and circumstances of the case. N.D.C.C. §24-02-28, provides if the dispute is submitted to the American Arbitration Association its rules govern unless in conflict with North Dakota law. Rule R-46 of the American Arbitration Association provides the Arbitrators may grant any remedy or relief the Arbitrators deem just and equitable and within the scope of the agreement of the parties including, but not limited to, equitable relief and specific performance. Gratech asserts it was error of law and/or unjust for the Arbitrators not to have granted Gratech equitable relief under the admitted facts and conclusions appearing on the face of the Award.
4. See fn 3, supra
5. Byron's settles (1) N.D.C.C. § 24-02-26, which provides "all controversies arising out of any contract for the construction or repair of highways includes tort claims and (2) such tort claims are not subject to the notice provisions of N.D.C.C. §24.02.26.1. The present Arbitrators held the NDDOT plans for both the Rolla and Belcourt projects were defective." N.D.C.C.§ 43-19.1-24.1, provides engineers are liable for negligence, whether in design work or otherwise. The Department's engineers designed the defective plans for both projects. This Court has consistently held one who designs a structure has a duty to exercise ordinary care and skill to protect a person who foreseeably, or with reasonable anticipation may be injured by the failure to do so. Jones v. Boeing Co., 153 N.W.2d 897, 904 (N.D. 1967); Layman v. Braunschweigische Maschinenbauanstalt, 343 N.W.2d 334, 340-341 (N.D. 1983); and Sime v. Tvenge Assoc. Architects & Planners, P.C., 488 N.W.2d 606, 610 (N.D. 1992) for example. Gratech's justifiable reliance upon the plans for bidding purposes was reasonably foreseeable. Specification § 104.02 contemplates and authorizes subcontracting up to 70 percent of the total contract amount. The NDDOT gave written consent and approval of Gratech's subcontracts on both Rolla and Belcourt. (Arbitration Exhibits JR-7 and JB-7) The Arbitrators erred as a matter of law by not considering Gratech's tort claims on the Rolla and Belcourt projects.
6. Defective plans may also result from the tort of negligent misrepresentation. Misrepresentations as to soil conditions have been the basis of recovery by contractors for defective plans and specifications by numerous Supreme Courts. D. H. Knapp Co. v. State, 18 N.W.2d 421 (Mich. 1945) (The evidence showed the contractor when excavating the roadway for the State Department of Transportation encountered indurated material which should have been classified as rock, and by reason of such misclassification the contractor was entitled to recover compensation from the State. The contractor, as here was misled by misrepresentations as to the character of the soil); Kensington Corp. v. State, 253 N.W.2d 781 (Mich. 1977) (wherein the court held the State Highway Department misrepresented the type of soil present at a bridge reconstruction site causing additional expense to the contractor. The Michigan Supreme Court held factual inaccuracy of the State Highway's plans and specifications gave rise to a cause of action for misrepresentation); Blattner & Sons v. Fireman's Ins., 535 N.W.2d 671 (Minn. 1995) (contractor not liable for defects in plans and specifications provided by the owner); Hash v. R. J. Sundling & Son, Inc., 436 P.2d 83 (Mont. 1957) (the Montana Supreme Court held excessively wet and soft subsurface conditions were not shown on the Department of Transportation's plans and which required extensive dig-outs entitled the contractor to recover because the contractor ended up doing an entirely different project than bid). Presently, the Arbitrators must be deemed obligated to consider Gratech's claims for negligent misrepresentations. The Arbitrators concluded as a matter of law the NDDOT's plans were defective on both the Rolla and Belcourt projects.
7. A contractual notice of intent to file a claim is not required in an action for breach of the implied warranty of accuracy is covered under Issue 6, infra.
8. This Court holds that an arbitrators' award is "completely irrational" if it is either (1) mistaken on its face, or (2) so mistaken as to result in real injustice. (See fn 1 supra) Given the arbitrator's broad statutory and Triple AAA rule equitable powers, they acted "completely irrationally" by failing to compensate Gratech resulting in a "real injustice" under the totality of the circumstances.
9. See fn 3, supra
10. Id.