Free Reply to Response to Motion - District Court of Colorado - Colorado

Case 1:03-cv-02669-MSK-PAC

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Case No. 03-cv-2669-MSK-PAC LEPRINO FOODS COMPANY, Plaintiff, v. BIG-D CONSTRUCTION CORP. - CALIFORNIA, a Utah corporation; BIG-D CONSTRUCTION CORP., a Utah corporation; BIG-D CORPORATION, a Utah corporation; BIG-D CAPITAL CORP., a Wyoming corporation; and Does 1-100, inclusive, Defendants/Counterclaimants, BIG-D CONSTRUCTION CORP. - CALIFORNIA, a Utah corporation; BIG-D CONSTRUCTION CORP., a Utah corporation; and Does 1-100, inclusive, Third Party Plaintiffs, v. MARELICH MECHANICAL CO., INC. dba UNIVERSITY MARELICH MECHANICAL, a California corporation, Third Party Defendant. MARELICH MECHANICAL CO., INC. dba UNIVERSITY MARELICH MECHANICAL, a California corporation, Third Party Plaintiff/Counterclaimant, v. BIG-D CONSTRUCTION CORP. - CALIFORNIA, a Utah corporation; FEDERAL INSURANCE COMPANY, an Indiana corporation; and Roes 20 through 80, inclusive, Counterdefendant/Third Party Defendants.

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PLAINTIFF' REPLY TO "DEFENDANT BIG-D CONSTRUCTION CORPS CALIFORNIA, BIG-D CONSTRUCTION, BIG-D CORP., AND BIG-D CAPITAL CORP.' OPPOSITION TO LEPRINO FOOD (sic) COMPANY' MOTION IN LIMINE S S NO. 2 TO PRECLUDE PAROL EVIDENCE" (DOCUMENT 292) Plaintiff Leprino Foods Company ("LFC") states as follows for its reply in support of its Motion in Limine No. 2 ("Motion") to preclude the parties, their witnesses, and their attorneys from referring to, and/or presenting in the presence of the jury, parol evidence of pre-Contract communications or negotiations between LFC and Defendant Big-D Construction Corp.-California: I Introduction Big-D concedes that LFC was correct in its anticipation that, despite the Contract' s integration clause whereby any such pre-Contract communications are deemed merged into the Contract, Big-D will attempt to present evidence of the parties' preliminary discussions and communications with respect to projected milestone schedules, cost estimates and square footage estimates for the Project. Each argument Big-D presents in its Opposition to LFC' Motion in Limine s No. 2 ("Response") to allow the parol evidence fails, as explained below. II Argument A. Big-D fails to show that the Contract is ambiguous.

Big-D concedes, as it must, that no parol evidence will be allowed on the meaning of the Contract unless Big-D can prove the Contract is ambiguous. Overstating its argument, Big-D asserts that the Contract is ambiguous "as a matter of law," but fails to back up its sweepingly broad statement with any legal authority.

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Ambiguity of a contract necessarily turns on the facts of the case. The only way Big-D could show that the Contract is ambiguous "as a matter of law" would be to present legal authority that contracts for fast-track projects are "as a matter of law" unenforceable because of ambiguity regarding the scope and the cost of the project. Of course, Big-D cannot make such a showing. To the contrary, fast-track contracts are well-established in the construction industry, and courts recognize them as valid and enforceable because of their inclusion of provisions addressing built-in contingencies for post-Contract development of design and scope of work. For example, the Colorado Court of Appeals has defined fast-track construction as "a technique whereby plans and specifications are prepared after construction has begun and only as they become necessary in order to proceed with each of the various stages of the construction process, including contract bidding and both the preparatory and on-site work of contractors." E.B. Jones Constr. Co. v. City and County of Denver, 717 P.2d 1009, 1010 (Colo. App. 1986). The United States Court of Appeals has explained fast-track construction as follows: Under the fast track method, construction on a building begins before a final set of fully coordinated plans is completed. Rather, the architectural plans and specifications are designed and modified as the building's actual construction progresses. The advantage of the fast track method, as opposed to building from plans completed at the outset, is that it enables construction to begin at a much earlier stage in the project. The method's disadvantage results from increased difficulty in scheduling and coordinating the project since the construction progress schedule must be modified to account for constant plan changes. Marriott Corporation v. Dasta Construction Co., 26 F.3d 1057, 1060 (11th Cir. 1994). As an additional example, the court in Roberts & Schaefer Co. v. Hardaway Co., 152 F.3d 1283, 1296 (11th Cir. 1998), explained fast-track construction as follows: In the construction business, this means that construction commences under a schedule of simultaneous design, building, and construction. In other words, in this 3

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case, [the contractor] was to begin construction before it completed the design and finalized a set of fully coordinated plans. Big-D would have the Court construe the Contract as automatically ambiguous for the sole reason that "the Project scope and cost was not yet determined" when the Contract was executed. Big-D' Response, at 3. However, as shown above, fast-track contracts, by definition, anticipate s such contingencies and thus are not held to be inherently ambiguous. In fact, courts have held that contracts are not ambiguous if they specifically acknowledge and anticipate those contingencies and provide for how to deal with them. For example, rejecting an abandonment of contract argument similar to the one asserted by Big-D in this case, the Colorado Court of Appeals in Scott Co. v. MKFerguson Co., 832 P.2d 1000 (Colo. App. 1991), provided the following language on contract ambiguity that is instructive to the instant Motion: The first step in the analysis is for the trial court to decide whether the contract contains any ambiguity from which a trier of fact could reasonably find that the damages or changed conditions were contingencies not contemplated by the parties. If, by looking within the four corners of the document, the court can determine that the written contract unambiguously contemplates the changes or disruptions experienced by the complaining party, no issue of fact exists and the claims, other then [sic] those based on the express contract, must be dismissed. If, on the other hand, the provisions are ambiguous, issues of fact would exist, and the resolution of the question would be for the trier of fact. The focus of the inquiry should be whether the types of changes were covered by the contract, not the degree of variation in job conditions from what was originally relied upon in the bid. . . These provisions are unambiguous and cover the issues of errors in the drawings, acceleration of performance, and compensation of plaintiff for additional cost. Hence, these issues were contemplated by the parties, and therefore, the court erred in allowing plaintiff to proceed on theories of goods sold and delivered and services performed and promissory estoppel. Id. at 1003 (emphasis added; citations omitted).

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The Scott decision explains that variations or contingencies alone do not constitute ambiguities. Rather, it is unanticipated contingencies that may create ambiguities. In other words, a contractual ambiguity may arise where the Court cannot look to the contract to answer the question "How did the parties agree to do address this contingency?" But, a contingency is not an ambiguity in the situation in which the contract anticipates the contingency and provides the manner in which the contingency is to be addressed, as the Contract does here. Big-D cites to numerous Contract provisions and argues they are "inherently ambiguous." However, all of the Contract language cited by Big-D merely establishes that the Contract is a proper fast-track contract pursuant to which Big-D acknowledged and agreed that the scope of work and costs were yet to be determined. Big-D does not dispute that it agreed to the language in Article 1.2 stating that construction would begin before the design documents were completed, nor does Big-D dispute that it expressly agreed to the cost estimates ("Allowances") defined and incorporated into the terms of the Contract under Articles 1.2 and 5.4. Big-D tries to argue that it would be unfair to bind Big-D to a "to be determined" scope of work because the scope of work ultimately could be so outrageous as to be beyond any reasonable expectation of Big-D. Response, at 11. As an exaggerated example, Big-D argues that LFC could try to hold Big-D to an obligation to build a 5 million square foot project costing $1 billion when Big-D only expected to build a 475,000 square foot project at $60-80 million. Big-D makes it sound as if Big-D were entirely at the mercy of LFC with respect to the kind of Project Big-D would be required to build or the size of the Project because the Contract allegedly left the scope and magnitude of the Project completely open-ended.

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Contrary to Big-D' characterization, however, the Contract did place express limitations on s the scope of work and the cost of the Project. By way of example only, the Contract provides that the scope of the Project would be a "dairy and related products manufacturing, processing and storage facility." Contract at page 1. The Contract provides as a limitation that the Project would be "approximately 475,000 gross square feet." Id. By the terms of the Contract, Big-D had inspected and familiarized itself with the Project site. Contract, at General Conditions Section 2.1. The Contract limited individual "Components" of the Work to $25,000,000. Contract, Article 2.3. Big-D has presented no evidence, because there is none, that LFC got so carried away that Big-D ended up building a Project that unreasonably exceeded the anticipated scope stated in the Contract, much less the 5 million square foot, $1 billion project described in Big-D' hypothetical. s Big-D argues that it should be allowed to present parol evidence regarding pre-Contract negotiations to explain that Big-D based its General Conditions cost estimate on a representation by LFC that the total cost of the Project would be $60 to 80 million. However, as shown above with respect to the limitations on scope built into the Contract, Big-D fails to identify any ambiguity in the Contract that would open the door for parol evidence on this issue. Further, it defies credulity that Big-D, a contractor whose business includes assessing and determining its own costs to be charged for a project, would base its General Conditions costs on a cost assessment provided by LFC. The alleged $60 to 80 million estimate is precisely the sort of argument precluded by the Contract' s integration clause. Finally, Big-D' assertion that it relied upon LFC' estimate of scope and cost is s s meaningless, given that Big-D admits that it "based its General Conditions estimate on the general conditions it had previously incurred on an $80 million Project it had recently finished." See Response at 12. 6

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Big-D' final attempt to show an ambiguity is its argument that the Contract provided no s understanding of "when certain construction documents were to be provided by Leprino." Response at 12. However, Big-D itself disposes of this argument by conceding that "Big-D' understanding s was that the dates by which Leprino expected the Project to be completed were contingent upon Big-D receiving the design and construction documents by particular dates during the course of the Project. . . These dates . . . would be included in the "Project Schedule" that Leprino was supposed to have been provided under the Contract' Attachment G." Response at 12. Thus, Big-D admits that s the Contract expressly addressed the contingency of Big-D' receipt of design and construction s documents. As explained below in Section C, Big-D' allegation that LFC did not comply with those s procedures is an issue of breach of Contract, not an issue of ambiguity in the Contract. B. Big-D must concede that the Contract integration clause precludes parol evidence. Big-D misconstrues LFC' position as arguing that the Contract' integration clause s s automatically precludes a finding that the Contract is ambiguous. That is not LFC' argument. LFC s cites the integration clause to show that Big-D specifically agreed that all pre-Contract negotiations and estimates (such as those Big-D now seeks to introduce at trial) are not part of the Contract. Other than misconstruing LFC' argument, Big-D does not refute LFC' integration clause argument. s s Big-D does not deny that the integration clause exists or that it is valid and enforceable. Further, Big-D provides no argument or legal authority to refute the fact that the integration clause precludes Big-D' parol evidence. s C. Big-D mistakes a failure to perform a contractual duty for a contractual ambiguity. Big-D' breach of contract claim asserts, inter alia, that LFC breached the Contract by failing s to provide a Project Schedule. In a confusing and tenuous argument, Big-D suggests that LFC 7

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inserted an ambiguity into the Contract by failing to provide a "Project Schedule" called for by the Contract, because, Big-D reasons, none of the Contract provisions dependent upon the Project Schedule makes sense without the Project Schedule. Response at 6-7. Big-D' argument fails, s however, because Big-D does not identify any terms of the Contract that are ambiguous as written. Big-D cannot take an alleged post-Contract breach (failure to provide a Project Schedule) and transport it back in time to create an ambiguity in the Contract at the time the Contract was negotiated and executed. D. Disputed interpretations of Contract clauses do not create ambiguities. Big-D argues that the Contract must be ambiguous because the parties disagree on the interpretation of certain Contract provisions. See Big-D' Response, at 7, asserting that "the parties s disagree as to the meaning of the Contract' Attachment H, regarding Allowances" and explaining the s parties'dispute over the interpretation of Article 1.4.28, regarding general conditions claims. As a matter of black-letter law, however, "[m]erely because the parties have different opinions regarding the interpretation of the contract does not itself create an ambiguity in the contract." Atlantic Richfield Co. v. Farm Credit Bank of Wichita, 226 F.3d 1138, 1150 (10th Cir. 2000). See also Radiology Professional Corp. v. Trinidad Area Health Ass'n, 577 P.2d 748, 750 (Colo. 1978) ("The mere fact that there is a difference of opinion between the parties regarding the interpretation of an instrument does not of itself create an ambiguity"). Big-D has failed to establish that the identified Contract provisions are ambiguous as written. Big-D also asserts that there is an ambiguity in the Contract regarding whether LFC or Big-D had control over the Project. Response, at 8-9. As discussed above, a disagreement over the interpretation of the clauses cited by Big-D does not make an ambiguity. Further, the clauses Big-D 8

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cites are actually consistent with each other. They clearly establish that Big-D was to have control over what the industry refers to as "means and methods" of Big-D' construction Work, while LFC s was to have control over the Project in general. Big-D' argument appears to confuse "Project" and s "Work," both of which are defined terms in the Contract and which clearly are not synonymous. See Contract, at Article 1.4.35 and Article 1.4.54. E. Big-D cannot rely upon its abandonment theory to allow parol evidence. Big-D argues that a finding by the Court that LFC abandoned the Contract would open the door for parol evidence on the actual costs of the work. However, the argument is premature because the Court has not found that LFC abandoned the Contract. For the reasons explained in LFC' pending Motion for Summary Adjudication and in LFC' pending Motion in Limine No. 6: To s s Preclude Evidence Regarding a Contract "Abandonment" Theory, Big-D' abandonment theory is s fatally flawed. Further, even if the Court were to agree with Big-D' abandonment argument in s deciding LFC' pending Motion for Summary Adjudication, such a decision would not automatically s render parol evidence admissible. The issue of parol evidence still would have to be revisited and determined based on the specific holdings by the Court regarding the abandonment theory. III Conclusion Allowing any reference to pre-Contract negotiations and discussions that were, by agreement and by law, merged into the Contract, would be improper and prejudicial to LFC. Accordingly, the parties and their attorneys and witnesses should be ordered to refrain from making any reference, in the presence of the jury, to negotiations and/or communications between LFC and Big-D regarding

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the scope and cost of the Contract Work, and estimates thereof, that occurred prior to the parties' execution of the Contract. Respectfully submitted this 30th day of March 2006. LEPRINO FOODS COMPANY

By:

/s/ Michael G. Bohn Michael G. Bohn Bret M. Heidemann Campbell Bohn Killin Brittan & Ray, LLC 270 St. Paul Street, Suite 200 Denver, Colorado 80206 Telephone: (303) 322-3400 Facsimile: (303) 322-5800 [email protected] [email protected] Patrick T. Markham Jacobson & Markham 8880 Cal Center Drive, #100 Sacramento, California 95826 Telephone: (916) 854-5969 Facsimile: (916) 854-5965 [email protected]

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CERTIFICATE OF SERVICE I hereby certify that on the 30th day of March 2006, I electronically filed the foregoing PLAINTIFF' REPLY TO "DEFENDANT BIG-D CONSTRUCTION CORP-CALIFORNIA, S BIG-D CONSTRUCTION, BIG-D CORP., AND BIG-D CAPITAL CORP.' OPPOSITION S TO LEPRINO FOOD (sic) COMPANY' MOTION IN LIMINE NO. 2 TO PRECLUDE S PAROL EVIDENCE" (DOCUMENT 292) with the Clerk of Court using the CM/ECF system which will send notification of such filing to the following email addresses: Christopher J. Hersey of [email protected] Francis (Frank) J. Hughes of [email protected] Patrick Quinn Hustead of [email protected] Peter J. Ippolito of [email protected] Richard Carl Kaufman of [email protected] John David Mereness of [email protected] Daniel James Nevis of [email protected] Laurence R. Phillips of [email protected] C. Michael Montgomery of [email protected] N. Kathleen Strickland of [email protected]

/s/ Cori Atteberry Cori Atteberry, Legal Assistant

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