Hall Contracting v. Entergy Services

Entergy owns and operates the Remmel Dam on the Ouachita River near Hot
Springs, Arkansas. Constructed in 1923, the dam is an "Amberson-style" gravity dam
comprised of abutments on the north and south shores of the river and a spillway that
spans the river and connects the two abutments. In 1996, Entergy solicited bids for
a construction project designed to alleviate the Federal Energy Regulatory
Commission's concerns relating to the structural integrity of the dam. The project
involved removing debris from and cleaning "cells" in all three sections of the dam,
filling the hollow cells with rock and concrete, and placing "anchors" in the dam's
north abutment. Phase One of the project covered the debris removal and cleaning
of the twenty-three spillway cells.

In preparation for submitting a bid on the project, Hall representatives toured
and inspected the dam on at least two occasions. During those inspections, Entergy
informed Hall that each cell would need to be cleaned down to bedrock at
approximately 245.5 feet above mean sea level ("MSL"). Entergy also informed Hall
that the catwalk above the cells was 275.5 feet MSL. Thus, by measuring the distance
from the catwalk to the debris in each cell and then by subtracting that figure from the
height of the catwalk, one could estimate the amount of debris above 245.5 feet MSL.
According to Hall-representative Raleigh Jones, Entergy representatives estimated
that each cell probably contained two to three feet of water, mud, and silt. Jones
dropped a tape measure into approximately five of the twenty-three spillway cells
during one inspection, but did not inspect or measure the debris in the other eighteen
cells. Hall made no further inspection of the spillway cells.

Entergy invited bidders to bid on a time-and-materials basis for Phase One of
the project. This would allow a contractor to be compensated for its labor,
equipment, and material costs regardless of the actual amount of debris in the
spillway cells. Believing it could obtain a competitive advantage, however, and apparently relying on the rough figures and opinions supplied by Entergy regarding
the debris in the cells, Hall decided to submit a lump-sum bid for the entire project.
Entergy notified Hall that it was the successful bidder on October 3, 1996. On April
16, 1997, Entergy and Hall executed a contract for the Remmel Dam remedial
construction project.

Hall mobilized for construction in May 1997 and, shortly thereafter, hired
subcontractor Henderson Specialties, Inc. ("HSI") to perform Phase One. Hall and
HSI agreed that a hydraulic electric pump would be the most effective method for
removing the two to three feet of water, mud, and silt that they believed was in the
cells. Entergy's engineer, Keith Dickerson, approved this approach. But HSI's
removal operations revealed debris in much greater volume and of much bulkier
composition than anticipated. The bedrock was well below 245.5 feet MSL in some
places, and some cells apparently contained nearly ten vertical feet of debris that
included large rocks, boulders, wooden forming materials, and a small railroad car.
Instead of a hydraulic pump, HSI used backhoes and other heavy machinery to haul
the debris through eight-by-eight-foot holes that it cut into the downstream wall of
each cell.

The agreement provided that a contractor "waives all claims for . . . additional
compensation beyond that allowed in this Agreement . . . unless the claim is expressly
authorized . . . and is made in accordance with" specific procedures for submission,
approval, and payment. At various times during construction, Hall submitted written
change-order requests, and Entergy approved and paid for the changes, according to
the contract procedures. One such request related to the debris discovered below
245.5 feet MSL. Hall did not, however, submit change-order requests for debris
above 245.5 feet MSL or for the additional costs of removing the bulkier debris. HSI
completed Phase One, and Hall ultimately completed the project, but at substantially
greater cost than they originally contemplated in their respective bids. HSI then
brought an arbitration proceeding against Hall to recover the extra costs. Hall and HSI settled their dispute on December 2, 1999. Meanwhile, Entergy withheld
payment of Hall's final invoice, invoking a provision in the contract that required Hall
to provide "satisfactory evidence of no undischarged liens arising because of the
Work." According to Entergy, Hall had not produced such evidence.

Hall brought this action in the district court to recover its final payment (the
"retainage") and the additional costs associated with Phase One. Hall argues that any
conceivable "lien" within the meaning of the contract's retainage provision has been
effectively discharged by Arkansas statutes of limitation. Entergy counters that
"undischarged liens" should be read broadly to include the possibility of a judgment
lien resulting from this action. With respect to the Phase One costs, Hall asserted
breach of contract, mutual mistake, unjust enrichment, and fraudulent
misrepresentation. Entergy responded that the contract governs claims for additional
compensation and that, by failing to follow the contract's change-order procedures,
Hall waived any claims relating to Phase One. The district court granted Entergy's
motion for summary judgment on all counts. Hall appeals the district court's order
with respect to all but the fraud claim.

* * *

Section 8.5 of the contract provides: "Payment of Contractor's final invoice
under a particular Contract Order is conditioned upon final completion of the Work
described in the Contract Order, Owner's acceptance thereof, and receipt by Owner
of satisfactory evidence of no undischarged liens arising because of the Work."
Entergy does not allege that Hall did not complete the work it contracted to perform,
and there is no indication that Entergy did not accept Hall's work on the project.
Entergy asserts, however, that Hall failed to provide "satisfactory evidence of no
undischarged liens arising because of the Work." It has withheld Hall's final invoice
payment of $354,114 on that basis.

Hall argues that section 8.5 can only be read as referring to statutory
mechanic's or materialmen's liens designed to secure payment for work and materials
provided by construction contractors. Hall contends that the expiration of all
statutory limitation periods for filing such liens2 constitutes "satisfactory evidence of no undischarged liens" since, once the liens are time-barred, Entergy is no longer
exposed to any threat of lien liability.

Entergy argued in its motion for summary judgment that it was entitled to
withhold Hall's final payment "[u]ntil Hall can provide Entergy with proof that HSI's
claim has been resolved." Appellant's App. Vol. I, at 218. There is some indication
in the record that while Hall had, in fact, obtained lien-waiver certificates from other
subcontractors, it had not obtained a waiver from HSI. But in response to Hall's
contention that all potential liens have been "discharged" by statutes of limitation,
Entergy now argues on appeal that the possibility of a judgment lien resulting from
this litigation entitles it to continue withholding the retainage. The district court
apparently agreed with Entergy's new construction of section 8.5, and added that, in
any event, the res judicata effect of a judgment in favor of Entergy on all other counts
would then entitle Hall to the retainage, less litigation fees.

We reject Entergy's construction of section 8.5. It is difficult to see why the
res judicata effect of a judgment is any better evidence of "no undischarged liens"
than a statutory bar. We find that the plain and ordinary meaning of "liens arising out
of the Work" includes mechanic's and materialmen's liens, but does not include the
future possibility of a judgment lien. Under Entergy's view, a project owner, armed
with a similar retainage provision, could always withhold final payment for any
reason or for no reason at all for at least the period of a general contract statute of
limitations. In addition, the moment a contractor initiated legal proceedings to
recover the payment, the possibility of a resulting judgment lien would then justify
a continued withholding and entitle the owner to retain the payment until the absolute conclusion of the litigation in its favor. Hall correctly observes: "This is
bootstrapping of the first order." Appellant's Reply Brief at 3. Although Entergy may
have initially been authorized to withhold payment based on the course of conduct
between the parties relating to lien waivers, we agree with Hall that the expiration of
all statutory periods of limitation for mechanic's and materialmen's lien filings
constitutes "satisfactory evidence of no undischarged liens." Summary judgment in
favor of Entergy on count one was improper. We reverse and remand to the district
court with instructions to enter judgment in favor of Hall on count one with
imposition of maximum interest of any description and a corresponding reduction in
attorney's fees under Arkansas Code Annotated § 16-22-308.

* * *

Click the case caption above for the full text of the Court's opinion.

For the reasons set forth above, we reverse the district court's grant of summary
judgment as to count one and remand for disposition consistent with this opinion. We
affirm the district court with respect to the remaining counts.

Unknown

Unknown

None