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June 1st, 2016
construction
THE FIFTH CIRCUIT COURT OF APPEALS REVERSES $1.29 MILLION JUDGMENT ENTERED IN FAVOR OF CONTRACTOR

In Dallas/Fort Worth International Airport Board v. INET Airport Systems, Incorp., et al., 2016 WL 1445205 (5th Cir. April 12, 2016), the Fifth Circuit Court of Appeals reversed a trial court’s $1.29 million judgment in favor of the contractor and against the owner.  The Fifth Circuit determined genuine issues of fact remained regarding whether the owner first breached the contract by failing to cooperate with the contractor to resolve change orders.  

 

In August, 2009, Dallas/Fort Worth International Airport (“DFW”) entered into a contract for INET to build and install air-conditioning units in Terminal E to service boarding bridges and aircrafts parked at terminal gates.  The contract required that INET create and install units that would use “30 percent ethylene glycol/water” supplied through DFW's existing piping system.  The contract also required that if anything in the agreed-upon plans needed to be changed, INET would alert DFW, and the entities would collaborate together to reach an agreement to fix the problem.  DFW would then issue a “change order” detailing the changes and associated costs.             

 

In October, 2009, INET informed DSW the plans needed to be adjusted because the rooftop units they agreed to install may freeze because the coolant supplied through the piping system was kept at sub-zero temperatures.  INET received no response from DSW and filed an RFI seeking guidance from DFW on how to proceed.  The parties discussed two (2) proposals to resolve the issue—control sequence proposal or revised piping proposal.  The record does not indicate that the parties ever reached an agreement on how to proceed.  

 

DFW informed INET that it had failed to meet the completion deadline and refused to pay at least two (2) invoices from INET.  DFW then filed a lawsuit for breach of contract against INET, its director and Hartford Fire Insurance Co., as the bonding agency.  INET counterclaimed for breach of contract, alleging it was owed money under the contract, as well as attorneys' fees and legal expenses.  Both DFW and INET filed motions for summary judgment on their claims.  The trial court granted summary judgment for INET on the basis that DFW first breached the contract by insufficiently cooperating with INET to resolve problems created by the defective plans.  After a bench trial on damages, the trial court awarded damages and attorneys’ fees to INET in the amount of $1.29 million.   

 

The Fifth Circuit Court of Appeals concluded it was error for the trial to grant summary judgment for INET because the record contains disputed facts regarding which party first prevented performance by failing to fully cooperate.  The Fifth Circuit recognized that while DFW bore the risk of defective plans and specifications, the contract required both parties to participate in resolving the defects.  The Court stated that, “[s]ifting through the evidence to determine whether the parties reached agreement on a contractual modification is a task ill-suited for summary judgment on this record. For these reasons, and because disputes of material fact remain regarding whether DFW or INET breached the contract by preventing an agreement about how to address defects in the contract’s plans and specifications, we reverse the district court’s grant of summary judgment for INET.” 

It is very important for the contractor to pay close attention to the requirements and responsibilities of each party under the construction contract.  It was not clear here whether INET ever agreed to a proposal to resolve the problem.  The Fifth Circuit, therefore, could not affirm summary judgment because there was an issue of fact regarding whether INET complied with its own obligations to collaborate with the owner or failed to comply, thus breaching the contract.

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