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Rai Industrial Fabricators, LLC v. Federal Insurance Co.

United States District Court, N.D. California, San Jose Division

May 2, 2018





         Subcontractor Agate Steel, Inc. ("Agate") filed a First Amended Counterclaim ("FAC") against general contractor Sauer Incorporated ("Sauer") asserting claims for (1) breach of contract (extra work), (2) breach of contract (delay and disruption), (3) unjust enrichment, and (4) breach of the implied covenant of good faith and fair dealing. Sauer moves to dismiss the second through fourth claims pursuant to Rule 12(b)(6), Fed.R.Civ.P. Sauer also moves to strike allegations regarding the parties' "reasonable contemplation" and Agate Steel's demand for attorneys' fees in the unjust enrichment claim. The Court finds it appropriate to take the motions under submission for decision without oral argument pursuant to Civil Local Rule 7-1(b). For the reasons set forth below, Sauer's motion to dismiss is granted in part and denied in part, and Sauer's motion to strike is denied.


         Sauer entered into an agreement with the U.S. Army Engineer District, Louisville to design and construct the federally-owned project known as Operational Readiness Training Complex at Fort Hunter Liggett, California (the "Project"). Sauer entered into a Subcontract Agreement with Agate for the erection of structural and miscellaneous steel for the Project (the "Erection Subcontract" or "Subcontract"). The Subcontract Scope of Work provision provided as follows: "Subcontractor shall furnish all labor, materials, equipment, tools, supplies and all other things necessary to complete diligently and timely the work identified in the attached Schedule A ('Work') for STRUCTURAL AND MISCELLANEOUS STEEL (ERECTION ONLY)." Dkt. No. 40, p.23. The Subcontract included a "no damage for delay clause" providing in pertinent part as follows:

3. Delays. Sauer shall not be liable to [Agate] for any delay, disruption or interference to [Agate's] Work caused by (1) the act, omission, neglect or default of the Owner or its contractors, subcontractors, employees, servants, agents or consultants, (2) fire, earthquake, natural disaster or other casualty, (3) riots, strikes, or other combined action of the workmen or others, (4) unusually severe weather conditions, (5) changes ordered in the Work, (6) late delivery of the site to [Agate], (7) delay in receiving material or equipment supplied by Sauer, the Owner or others, (8) failure by Sauer or Owner to furnish change authorization, (9) defects in plans and specifications, (10) unexpected soil or other physical conditions, (11) suspension of work upon order of Sauer or the Owner, (12) any extraordinary conditions arising out of war or governmental regulations, (13) any other cause beyond Sauer's direct control; provided, however, Sauer will cooperate with [Agate] in submitting against the Owner any just claim arising from any such delay that is permitted by the General Contract. [Agate] agrees to give Sauer notice within the time required by the General Contract for such claims. [Agate] shall not be entitled to any time extension, cost reimbursement, compensation or damages for any delay, disruption or interference to the Work due to these causes, except to the extent that Sauer is entitled to and actually receives a corresponding time extension, cost reimbursement, compensation or damages from the Owner under the General Contract. [Agate] agrees to accept as its sole relief the relief, if any, that Sauer, on behalf of [Agate], actually receives from the Owner. The granting of such relief by the Owner for these matters shall be an express condition precedent to Sauer's duty of granting relief to [Agate] for such matters. [Agate] shall reimburse Sauer for all reasonable expenses incurred by Sauer in submitting any such claims on behalf of Subcontractor.
Should [Agate's] work be delayed, disrupted, or interfered with solely as a result of the acts or omissions of Sauer or anyone employed by Sauer on the Project, then [Agate] shall receive an extension of time equal to the actual delay to critical path activities caused by these delays, as determined by Sauer . . . . An extension of time, as determined by Sauer, or the decision that no extension of time shall be allowed, shall be [Agate's] sole remedy for delay. In exchange, [Agate] expressly waives the right to bring against Sauer any claim for damage or delay, inefficiency, disruption, acceleration, interference, extra work resulting from such delay, extended overhead, wage escalation, overtime wage provisions, lost opportunity or lost profit or financial impact on [Agate's] other projects.

Dkt. No. 40, p.24. The Subcontract also contained an integration clause. Id. at p.34.

         In the First Amended Counterclaim, Agate alleges that "[i]n the Erection Subcontract, the Parties contemplated that": Agate would perform its work consistent with the contract documents that Sauer provided for Agate's work which were enumerated in Schedule B; Agate would perform its work consistent with the Project Schedule, namely that the duration of the Project would be 121 days; Sauer and its fabrication subcontractor would provide structural steel consistent with the Project Drawings enumerated in Schedule B; the Contract Drawings would be reasonably accurate and complete; the steel stairs would be provided by Sauer and it subcontractors pre-assembled and ready for installation; and Sauer would grant extensions of time for Agate's performance consistent with the Erection Subcontract. Dkt. 72, p.3. Agate began its work on the Project on March 12, 2015. Id.

         Agate alleges that "in sharp contrast to the reasonable contemplation of the Parties, upon execution of the Erection Subcontract, " the Project Drawings were significantly changed by Sauer requiring material changes to structural steel fabrication and erection; Agate was required to labor on the Project for 422 days; Sauer's fabrication subcontract provided hundreds of nonconforming steel pieces to the Project, requiring Agate to field modify the nonconforming steel at Sauer's request; the Contract Drawings dramatically understated the number of steel clips required for the Project by 4, 000; the steel stairs were provided to Agate in multiple steel pieces that required onsite assembly; and Sauer failed and refused to grant any time extensions to Agate for the delay and extra work required of Agate. Dkt. No. 72, p.4. Agate further alleges that the "foregoing, cardinal changes to the Erection Subcontract and material departures from the reasonable expectations of the Parties, at the formation of the Erection Subcontract, constitute abandonment of the Erection Subcontract." Id.

         In the first claim for breach of contract, Agate seeks to recover the unpaid balance of the "Adjusted Subcontract Sum" ($212, 258) plus amounts owing for additional work for which Agate submitted change orders to Sauer ($437, 481), for a total outstanding balance of $649, 739. Id. at pp.5, 44. Agate also seeks attorneys' fees and costs pursuant to the terms of the Erection Subcontract. Id. at p.7.

         In the second claim for "breach of contract for delay and disruption" Agate alleges Sauer warranted and represented to Agate that it would not unreasonably hinder, delay, obstruct, or interfere with Agate's performance of its work on the Project. Id. at p.8. Agate alleges that Sauer breached the warranties and representations by, among other things, failing to properly schedule all trades, failing to follow the pertinent construction schedules, failing to properly process, act upon, or communicate with respect to change order work and requests for information, and making changes to the scope of work, the work flow efficiency, and the sequence of work, as well as other acts and omissions that were unanticipated. Id. Sauer also allegedly failed to properly manage, coordinate, schedule, supervise and oversee the Project. Id. As a result, Agate's work increased from 121 days to 422 days. Id. Agate alleges that the extraordinary delays in the Project constitute a "cardinal" change and/or abandonment of the Erection Subcontract that render the no damages for delay provision inapplicable and unenforceable, and that Sauer is estopped from asserting the no damages for delay provision because Sauer breached the Erection Subcontract. Id. Agate seeks to recover compensatory, consequential and incidental damages in the amount of $698, 253, which consists of $303, 040 in extended field overhead and $395, 213 in extended home office overhead, as well as attorneys' fees and costs. Id.

         The third claim is for unjust enrichment. Id. at p.10. Agate seeks to recover the reasonable value of the materials for which it has not been paid plus interest. Id. The fourth claim for breach of the implied covenant of good faith and fair dealing is predicated upon allegations that Agate lost revenue, profits and lost opportunities beyond the contract damages because of the extra work Sauer directed Agate to perform to correct the steel deficiencies created by others. Id.


         Under Federal Rule of Civil Procedure 12(b)(6), a complaint may be dismissed if it fails to state a claim upon which relief can be granted. In deciding whether to grant a motion to dismiss, the court generally "may not consider any material beyond the pleadings." Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n.19 (9th Cir. 1990). In considering a motion pursuant to Rule 12(b)(6), the court must accept as true all "well-pleaded factual allegations." Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1950 (2009). The court must also construe the alleged facts in the light most favorable to the plaintiff. Love v. United States, 915 F.2d 1242, 1245 (9th Cir. 1989). "[T]o survive a motion to dismiss, a complaint must contain sufficient factual ...

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