Otis Elevator Co. v. WG Yates & Sons Constr. Co.

OTIS ELEVATOR COMPANY, Plaintiff - Counter-Defendant - Appellee, v. WG YATES & SONS CONSTRUCTION COMPANY,a.k.a. Yates Construction, Defendant - Counter-Claimant - Appellant.

No. 13-14067

UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT

October 17, 2014

[DO NOT PUBLISH]

D.C. Docket No. 5:12-cv-01708-IPJ

Appeal from the United States District Court for the Northern District of Alabama

Before ED CARNES, Chief Judge, JORDAN and ROSENBAUM, Circuit Judges.

PER CURIAM:

This appeal arises from a three-day bench trial on a breach-of-contract claim. The district court determined that WG Yates & Sons Construction Company (Yates) breached its contract with Otis Elevator Company. Yates now appeals that judgment, contending that the district court committed six reversible errors.

I. BACKGROUND FACTS AND PROCEDURAL HISTORY

A. FACTS

In 2008 the Huntsville-Madison County Airport Authority (Airport) decided to expand the airport's baggage-claim area. It hired Chapman Sisson Architects to prepare the plans and specifications for the expansion. The expansion included installing four new escalators. Chapman Sisson drafted two documents to specify the details for the escalators: the "Master Spec" and "Drawing A180."¹ Drawing A180, which lays out a detailed blueprint of the escalators and other features of the expansion, clarified the step width for the escalators. The step width of an escalator is the width of the stair treads where passengers stand. Escalators come in three standard step widths: 24 inches, 32 inches, and 40 inches. Manufacturers often vary a half inch from those measurements. For example, the "40-inch" escalator that Otis makes actually has 39.37-inch-wide steps, and the "40-inch" escalator that Schindler Elevator makes actually has 39.5-inch-wide steps. So thestep width provided in drawings and other plans (24 inch, 32 inch, or 40 inch) is understood to be an approximation and is referred to as the "nominal step width."

In its details of both the exterior and interior sets of escalators, Drawing A180 used "tick marks" to indicate that the escalator steps were to be 39.5 inches wide. This case grew out of a misunderstanding about whether those tick marks indicated that the steps themselves were to be 39.5 inches wide, or that the distance from handrail to handrail (the "rated width") on the escalators was to be 39.5 inches wide. Chapman Sisson and Yates thought Drawing A180 called for a 40-inch nominal step width, while Otis thought it called for a 39.5-inch rated width.

1. The Bid Process

Yates decided to submit a bid on the general contract to handle the airport expansion project. To form its bid for the general contract, Yates solicited bids from subcontractors to handle various components of the expansion project, including the installation of the escalators. In soliciting bids for the escalator installation, Yates made Drawing A180 and the Master Spec available to all the bidders and instructed them that their bids had to conform to those requirements.

Otis was one of the companies that bid on the subcontract for the escalator installation. Trey Steber, Otis' new-equipment sales representative, prepared Otis' proposal. When Steber reviewed Drawing A180 and the Master Spec, he concluded that they were "unclear" as to the step width for the escalators. DespiteSteber noticing the ambiguity, neither he nor anyone else at Otis tried to clarify the step-width issue before submitting Otis' bid. Instead Otis assumed that 32-inch steps would be acceptable and submitted a proposal that used escalators with a 32-inch step width. Yates accepted Otis' bid because it was the lowest quote for the escalator installation. Yates then used Otis' bid as part of its own bid on the general contract. The Airport awarded the general contract to Yates because it was the lowest bidder.

2. The Prime Contract, the Shop Drawings, and the Subcontract

After Yates was awarded the general contract, it still had to formalize its contract with the Airport and its subcontracts with Otis and the other subcontractors. The "Prime Contract" between Yates and the Airport had three features relevant to this appeal. First, the Prime Contract expressly incorporated Drawing A180 as part of its terms² and required Yates "to complete the work in strict accordance with said plans, specifications, and Contract terms." Second, it established that Chapman Sisson "shall decide all questions that may arise as to the interpretation and/or clarification of the specifications or plans relating to the work, the fulfillment of the Contract on the part of the Contractor, and the rights of different contractors on the project." Third, the Prime Contract required both Yates and Chapman Sisson to, before work began, review and approve all "ShopDrawings . . . and similar submittals" from the subcontractors to ensure that they complied with the Prime Contract's requirement. However, the Prime Contract made clear that Chapman Sisson's "[r]eview of such submittals is not conducted for the purpose of determining the accuracy and completeness of other details such as dimensions and quantities."

With the Prime Contract signed, Yates and Chapman Sisson began the process of reviewing and approving shop drawings as required by the Prime Contract. Otis submitted shop drawings indicating that it would install escalators with a 32-inch step width. Otis did not include any disclaimer or other notice to Yates that called attention to the fact that the shop drawings used 32-inch steps. As is customary in the industry, Chapman Sisson did not conduct a "line item" review of the over 400 submittals it received from Yates' subcontractors. Similarly, in keeping with industry custom and the terms of the Prime Contract, it did not check the shop drawings to ensure that their dimensions matched the Prime Contract's specifications. When Chapman Sisson approved Otis' revised shop drawings,³ it used a stamp that specifically qualified its approval by stating: "This review is only for general conformance with the design concept of the project and general compliance with the information given in the Contract Documents."Yates also reviewed and approved the revised shop drawings. The stamp it placed on the shop drawings specified that Yates' review had been "for general compliance" and that the "[f]inal dimensions and quantities required for the project remain the responsibility of the subcontractor."

After the approval of Otis' shop drawings, Yates signed a separate contract with Otis (the Subcontract). Several of its provisions are relevant here. First, the Subcontract expressly incorporated "all terms and conditions of the Prime Contract," as well as "all drawings, specifications, details and standards." It provided that Otis had to complete the escalator installation "in strict accordance with this Subcontract and with the Prime Contract." Second, the Subcontract gave "the appropriate design professional" binding authority to resolve "any conflict, ambiguity, . . . or . . . difference in interpretation" of the Subcontract. Third, the Subcontract established that Yates' and Chapman Sisson's review and approval of shop drawings did not excuse Otis from performing its work in "strict accordance" with the project's plans and specifications. The Subcontract went on to emphasize that Yates had "no duty to discover any mistake, error, or deviation in any submittals from the Prime Contract requirements," and that Yates' and Chapman Sisson's approval of the submittals "shall not relieve [Otis] from responsibility or liability for any mistakes, error, or deviation, or of [Otis'] obligation to perform its work in strict accordance with the Prime Contract." Finally, the Subcontract had amerger clause that limited the terms of the agreement to those written in the Subcontract itself and the documents incorporated by reference in the Subcontract.

3. The Airport Protests

Nobody noticed a problem with the escalators' step width until March 14, 2012. Chris Waters from Chapman Sisson performed bi-weekly site visits to monitor the progress of the expansion project, and his visit on March 14 was his first since the escalators were operational. In earlier visits there had been "plastic" and "barricades" around the escalators. While riding the escalators, Waters realized that they were narrower than what the plans had shown. After comparing Drawing A180 with Otis' shop drawings, Waters realized that the escalator steps were 32 inches when they should have been 40 inches.

When the Airport learned of the issue the next day, it demanded that all four escalators be replaced with 40-inch-step escalators. It also threatened Yates with the prospect of liquidated damages — $5,000 a day beginning April 20, 2012, and $7,500 a day beginning June 17, 2012. The Airport's threats prompted an exchange of letters between Yates and Otis. Yates sent a letter on March 20, 2012, that (1) informed Otis that the Airport had deemed the 32-inch steps to be out of compliance with the Prime Contract, (2) directed Otis to remove the two interior escalators and replace them with 40-inch-step-width escalators, and (3) reminded Otis that it was responsible for the escalators' failure to conform with the PrimeContract. Otis responded in a letter on March 21, 2012, dismissing Yates' position as "ridiculous" and claiming that Drawing A180 and the specifications were "cryptic" as to step width. Otis also requested that Yates "work with us to persuade the [Airport] that such a step is unnecessary, time-consuming, an enormous waste of assets, and will certainly result in litigation." Yates believed that Otis' request triggered Yates' obligation under the Subcontract to present Otis' position to the Airport and Chapman Sisson. Yates responded on March 22, telling Otis it would "attempt to reach a resolution with the [Airport] but the onus rests on Otis to comply with the Contract Documents." Otis replied the next day, confirming that it would...