Aarow Equipment & Services, Inc. v. Travelers Casualty & Surety Co. of America

UNPUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 10-1375

AAROW EQUIPMENT & SERVICES, INCORPORATED, United States of
America for the use and benefit of,

Plaintiff - Appellant,

v.

TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA,

Defendant - Appellee.

Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Anthony J. Trenga,
District Judge. (1:09-cv-00861-AJT-TCB)

Argued: January 27, 2011 Decided: March 18, 2011

Before NIEMEYER, DAVIS, and KEENAN, Circuit Judges.

Vacated and remanded by unpublished per curiam opinion.

ARGUED: Michael Jacob Kalish, WALSH COLUCCI LUBELEY EMRICH &
WALSH, PC, Prince William, Virginia, for Appellant. James
Dennis Coleman, WATT, TIEDER, HOFFAR & FITZGERALD, LLP, McLean,
Virginia, for Appellee. ON BRIEF: Eugene Andrew Burcher, WALSH
COLUCCI LUBELEY EMRICH & WALSH, PC, Prince William, Virginia,
for Appellant.

Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:

This appeal concerns an action brought by a subcontractor

against a surety under the Miller Act (the Act), 40 U.S.C. §§

3131 through -3134. Under the Act, before a general contractor

is awarded a contract by the federal government in an amount

greater than $100,000, the general contractor is required to

obtain a “payment bond” “for the protection of all persons

supplying labor and material in carrying out the work provided

for in the contract.” 40 U.S.C. § 3131(b)(2). The Act provides

a cause of action, such as the one asserted here, permitting a

subcontractor to file suit seeking payment from a surety on a

payment bond when the subcontractor has not been paid by the

general contractor within 90 days of completing the

subcontractor’s work. 40 U.S.C. § 3133(b)(1). For the reasons

that follow, we vacate the district court’s award of summary

judgment in favor of the surety and remand the case for further

proceedings.

I.

We review the facts in the light most favorable to Aarow,

the non-moving party in the district court. Hooven-Lewis v.

Caldera, 249 F.3d 259, 265 (4th Cir. 2001). In 2007, Syska

Hennessy Group Construction, Inc. (Syska) was awarded a contract

(the prime contract) by the United States government (the

2
government) to construct a training facility for the District of

Columbia Army National Guard at Fort Belvoir, Virginia (the

project). Syska served as the general contractor on the project

and obtained a payment bond, as required by the Miller Act, from

Travelers Casualty and Surety Company of America (Travelers).

Syska awarded Aarow Equipment & Services, Inc. (Aarow) a

subcontract, which set forth the “work” that Aarow was required

to perform on the project.

Section 11.1 of the subcontract stated that Syska may “make

changes in the [w]ork covered by this [s]ubcontract,” and that

any changes must be made in writing. The subcontract also

provided that Aarow must submit in writing to Syska any claims

for changes in the price or payment due under the contract.

According to the subcontract, any such change in price or

payment to Arrow “shall be made” “only to the extent that” Syska

is entitled to relief from the government, and payment to Aarow

shall be equal to Aarow’s share of any adjustment to the prime

contract.

When changes to the “work” under the subcontract were made,

Aarow generally submitted the proposed cost of the change to

Syska, and Syska issued a “change order” to the subcontract.

Aarow’s “work” described in the subcontract included several

categories of responsibilities, including “earthwork” relating

to water distribution and drainage. During Aarow’s performance

3
of this “earthwork,” the government determined that the “erosion

control plan” Aarow was implementing was “not up to

standard[s].” Aarow ceased working until it received new

erosion plan “drawings,” which required the construction of

sedimentary ponds and other water management measures (the pond

work).

Aarow and Syska agreed that the pond work was not included

in the “work” defined in the subcontract. In September 2007,

Aarow submitted a proposal of $402,500 to Syska for the pond

work. Syska directed Aarow to perform the pond work, but did

not issue a “change order” for the pond work at that time.

Aarow completed the pond work, with the understanding that Syska

would issue a “change order” at some point in the future.

Upon Syska’s determination that the pond work was not

included in the scope of the prime contract, 1 Syska asked that

the government agree to a “modification” of the prime contract. 2

Syska requested that Aarow wait to submit its invoice for the

1
The record does not contain a copy of the prime contract,
and there were no depositions taken during discovery in this
case of the government officials involved with the prime
contract.
2
According to deposition testimony provided by a Syska
employee, a “modification” is essentially the same as a “change
order,” except that the prime contract was amended by a
“modification,” while the subcontract was amended by a “change
order.”

4
pond work until after the government issued a “modification” to

the prime contract and Syska issued a “change order” to the

subcontract.

Several months later, neither a “modification” nor a

“change order” had been issued. Nevertheless, Aarow submitted

an invoice to Syska for the completed pond work. Syska

instructed Aarow to use a billing procedure that would allow

Syska to pay Aarow for the pond work even though a “change

order” had not been issued. This billing procedure required

Aarow to list the pond work under a “line item” designated for

certain “finishing” work on the project that had not yet been

completed. 3 According to Syska, the government had authorized

this billing procedure while Syska’s “modification” request was

pending.

After Aarow complied with this different billing procedure

in accordance with Syska’s directions, Syska submitted a similar

invoice to the government identifying the pond work as

“finishing” for a “three-story building.” The government paid

Syska $484,980, which included the invoice in the amount of

$402,500 submitted by Aarow, plus a fee representing Syska’s

“normal markup.” Syska, in turn, paid Aarow $402,500 for the

3
The “finishing” work was included in the “work” described
by the subcontract.

5
pond work. Syska advised Aarow that after Syska received a

“modification” and issued a “change order,” Aarow could

reallocate the funds received for the pond work to the proper

“line item.” Shortly after the government paid Syska the

requested amount of $484,980, the government determined that the

pond work was included in the prime contract. Accordingly, the

government denied Syska’s request for a “modification” of the

prime contract based on the government’s construction of the

prime contract’s terms.

The government later withheld several payments to Syska to

recover the funds previously paid for the pond work. In

response, Syska withheld payment from Aarow for other work

completed by Aarow between May 2009 and June 2009.

On July 1, 2009, Aarow sent Syska a letter stating that

Syska had a “significant outstanding and past balance due,” and

that Aarow would stop work on the project at the end of the week

unless payment was made. When Syska did not submit payment to

Aarow under the terms of the demand, Aarow ceased work on the

project.

On July 17, 2009, Syska sent Aarow a letter notifying Aarow

that it was in default of the subcontract for failing “to

proceed with the work” according to the project schedule. In

that letter, Syska instructed Aarow to correct and complete

specific alleged defaults. Aarow did not return to work on the

6
project or otherwise attempt to cure the alleged defaults. On

July 23, 2009, Syska sent another letter to Aarow stating that

because Aarow had not cured the defaults, Syska was terminating

the subcontract as provided in Section 12.1 of that agreement.

Section 12.1 of the subcontract stated, in relevant part:

If, in the opinion of [Syska], [Aarow] shall at any
time . . . fail in any respect to prosecute the Work
according to the current schedule. . . then, after
serving three (3) days written notice, unless the
condition specified in such notice shall have been
eliminated within such three (3) days, [Syska] may at
its option . . . terminate the Subcontract for default
. . . . [Aarow] shall not be entitled to receive any
further payment until the Work shall be fully
completed and accepted by [the government].

Under Section 12.2 of the subcontract, however, if Syska

wrongfully terminated the subcontract, Syska would be liable for

“the reasonable value of [the] Work performed by [Aarow] prior

to [Syska’s] wrongful action.”

With regard to payment, the subcontract required that Syska

pay Aarow monthly, provided that Syska already had received

payment from the government. This “pay-when-paid” provision

stated, in relevant part:

Conditioned upon the satisfactory progress of [Aarow],
compliance with the documentation requirements of this
Subcontract, and [Syska] has received payment from the
[government] THEN [Syska] will make monthly payments
to [Aarow]. [Aarow] acknowledges and agrees that in
the event payment is not made to [Syska] for any
reason . . . [Aarow] shall look exclusively to [the
government] for payment of any and all funds due under
this Contract. [Aarow] further agrees that the delay
in payment or nonpayment by the [government] does not

7
 create any separate obligation of [Syska] to pay
regardless of the extent of the delay.

In its complaint filed against Travelers, the surety on

Syska’s payment bond, Aarow asserted that Syska breached the

subcontract by failing to pay Aarow for several months. Aarow

sought from Travelers the sum of Aarow’s past-due invoices to

Syska, in the amount of $484,870.71.

In response, Travelers filed an answer and a motion for

summary judgment. Aarow opposed the motion, and the parties

filed a series of briefs addressing numerous issues. In

December 2009, the district court held a hearing on the motion

for summary judgment.

In its pleadings and during the hearing, Travelers asserted

two primary arguments in support of its motion. Travelers first

maintained that because the terms of the “pay-when-paid”

provision in the subcontract were clear and the government did

not pay Syska for several months, Syska did not breach its

payment obligation to Aarow under the subcontract. Travelers

thus contended that Syska properly terminated the subcontract

under Section 12.1 based on Aarow’s failure to perform, and that

Aarow was not entitled to payment under the terms of Section

12.1. Travelers argued alternatively that even if Syska

wrongfully had terminated the subcontract, Syska paid Aarow more

8
than Aarow was due under the subcontract and, therefore, Aarow

was not entitled to additional payment.

Two months after the hearing, but before the district court

entered its judgment, Travelers requested leave to supplement

its motion for summary judgment to discuss a new decision issued

by this Court. In that supplemental pleading, Travelers argued

that under this Court’s decision in Universal Concrete v. Turner

Construction Co., 595 F.3d 527 (4th Cir. 2010), “pay-when-paid”

provisions are valid defenses in a breach of contract action

when the terms of such provisions are unambiguous.

Aarow filed a brief in response, arguing that the holding

in Universal Concrete did not establish a new principle of law.

(J.A. 649.) Aarow also cited in its supplemental brief the

“prevention doctrine,” a principle of contract law establishing

that one who prevents the performance or the happening of a

condition to his performance may not take advantage of that

condition. See Barnhill v. Veneman, 524 F.3d 458, 474 (4th Cir.

2008). Aarow contended that this doctrine barred Syska from

relying on the “pay-when-paid” provision of the contract because

Syska was partially at fault for the government’s failure to

make the requested payment to Syska. Aarow argued that Syska’s

fault was demonstrated by its failure to obtain the appropriate

“modification” to the prime contract, and by its failure to

issue a “change order” to the subcontract for the pond work.

9
The district court entered an order permitting both parties to

supplement the record with these pleadings.

Three weeks later, the district court entered an order

granting summary judgment in favor of Travelers. In its

memorandum opinion, the district court held that because the

subcontract contained an enforceable “pay-when-paid” provision,

and because it was undisputed that the government failed to pay

Syska for several months, Aarow was unable to “justify its

[w]ork stoppage based on Syska’s failure to pay Aarow.”

Notably, the district court did not address Aarow’s prevention

doctrine argument.

The district court concluded that Syska’s “termination for

default” was proper under Section 12.1 of the subcontract based

on Aarow’s failure to complete its work under the subcontract.

Accordingly, the district court held that Aarow was not owed

payment under the subcontract and that, therefore, Travelers had

“no payment obligation to Aarow.” Aarow filed a timely appeal

in this court.

II.

We review the district court’s award of summary judgment de

novo. See S.C. Green Party v. S.C. State Election Comm’n, 612

F.3d 752, 755 (4th Cir. 2010). Under Rule 56(a) of the Federal

Rules of Civil Procedure, summary judgment is appropriate when

10
the moving party “shows that there is no genuine dispute as to

any material fact” and when the moving party “is entitled to

judgment as a matter of law.” Fed. R. Civ. P. 56(a); see

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986)

(construing former Rule 56(c) of the Federal Rules of Civil

Procedure).

A.

Aarow argues on appeal that the district court erred in

failing to apply the prevention doctrine in determining whether

Travelers was entitled to judgment as a matter of law. Aarow

asserts that Syska was responsible for the government’s failure

to make the requested payment under the prime contract.

Therefore, according to Aarow, a jury should determine whether

Syska breached the terms of the subcontract by failing to pay

Aarow for the work it had completed.

In response, Travelers argues that the district court

properly granted summary judgment in its favor. Initially,

Travelers contends that Aarow’s prevention doctrine argument was

not asserted timely and should not be considered in the

resolution of this appeal. Addressing the merits of Aarow’s

argument, Travelers asserts that because the government withheld

payment from Syska, the terms of Syska’s subcontract with Aarow

permitted Syska to withhold the requested payment to Aarow.

11
Travelers therefore maintains that, as a matter of law,

Travelers did not owe any payment to Aarow under the bond

because Syska complied with the terms of the subcontract and

Aarow wrongfully abandoned the project. We disagree with

Travelers’ arguments.

We find no merit in Travelers’ assertion that Aarow failed

to preserve its prevention doctrine argument in the district

court. Although Aarow used the term “prevention doctrine” for

the first time in a later-filed supplemental pleading, the

district court accepted that supplemental pleading and included

it in the record three weeks before the court rendered its

judgment. Furthermore, in Aarow’s initial brief opposing

summary judgment, Aarow set forth the factual predicate for its

prevention doctrine argument by asserting that Syska directed

Aarow to complete the pond work before issuing a “change order”

for that work, and that Syska acted in bad faith by attempting

to “back charge” Aarow for the pond work. Thus, we conclude

that Aarow’s prevention doctrine argument was presented

adequately to the district court and was not, as Travelers

argues, articulated for the first time on appeal. See Evans v.

Metro. Life Ins. Co., 358 F.3d 307, 310 n.2 (4th Cir. 2004)

(explaining that although appellant’s argument was not raised in

district court until oral argument on the motion for summary

judgment, the argument was preserved for appellate review).

12
 B.

We turn to examine the present record to determine whether

Travelers was entitled to judgment as a matter of law at the

summary judgment stage of the proceedings. Based on Aarow’s

argument before the district court, we give particular

consideration to the evidence before the district court bearing

on the issue of the prevention doctrine.

Under the prevention doctrine, when a general contractor

materially contributes to the failure of a condition limiting

the duty to perform under a contract, the general contractor may

not rely on that failure as a defense to its performance of its

contractual obligations. See Moore Bros. Co. v. Brown & Root,

Inc., 207 F.3d 717, 725 (4th Cir. 2000). In Moore Brothers, we

applied the prevention doctrine in a dispute involving a “pay-

when-paid” provision in a subcontract. There, in response to

two subcontractors seeking payment for completed work, the

general contractor asserted as a defense the “pay-when-paid”

condition in the subcontract and the owner’s failure to pay the

general contractor. Id. at 724-25.

We affirmed the district court’s award of summary judgment

in favor of the subcontractors because the record established

that the general contractor materially contributed to the

owner’s failure to pay. Id. at 725-26. Thus, we concluded that

the general contractor was liable to its subcontractors for

13
payment notwithstanding the “pay-when-paid” provision in the

subcontract. Id. at 725. Applying our analysis in Moore

Brothers to the present case, we consider whether a jury

reasonably could find that Syska’s actions materially

contributed to the government’s failure to pay Syska under the

prime contract, thereby preventing Travelers from relying on the

“pay-when-paid” condition in the subcontract in defense of

Syska’s failure to pay Aarow.

Travelers maintains that the government directed the method

of billing for the pond work and that, therefore, Syska was not

responsible for the government’s refusal to pay Syska when the

government later determined that the billing for the pond work

was improper. In support of its position, Travelers relies on

the deposition testimony of Robert F. Geremia, Syska’s vice

president in charge of construction, who stated that the

government had “instructed my people in the field to bill for

some [finishing] work that actually wasn’t done.”

Aarow, however, asserts that Syska’s actions materially

contributed to the government’s failure to make the payment at

issue. Aarow points to evidence in the record that Syska

directed Aarow to perform the pond work even though Syska had

not issued a “change order” or received a “modification” to the

prime contract. The record also contains evidence that Aarow

completed the pond work, relying on Syska’s promise that a

14
“change order” was forthcoming. However, when Syska did not

obtain a “change order,” Syska directed Aarow to remove its

invoice references to “sediment ponds and associated work,” and

to categorize the pond work as “finishes” for a “three-story

building,” which had not yet been constructed.

Based on these facts, a jury reasonably could return a

verdict for Aarow if the jury concluded that Syska’s actions, in

directing Aarow to perform the pond work before issuing a

“change order,” and in agreeing to employ an arguably improper

billing procedure that obscured the expanded scope of the “work”

under the subcontract, materially contributed to the

government’s later decision to withhold certain payments to

Syska. If Syska’s actions materially contributed to the

government’s decision, Travelers could not rely on the “pay-

when-paid” provision of the subcontract to excuse Syska’s

failure to pay Aarow for its work performed under the

subcontract. See Moore Bros., 207 F.3d at 725.

We are not persuaded by Travelers’ assertion that it was

entitled to summary judgment based on Geremia’s testimony that

the government instructed Syska to employ the questionable

billing procedure. In essence, Travelers seeks to absolve Syska

of any responsibility for the arguably improper billing

procedure because “the project owner told us to do it.” The

allocation of responsibility for the billing practices, however,

15
raises credibility issues and other issues of fact that are

matters for a jury’s consideration. Therefore, we hold that

Travelers was not entitled to summary judgment on the issues

whether Syska breached the subcontract and whether Aarow was

entitled to payment from Travelers under the bond. 4

For these reasons, we conclude that the district court

erred in granting summary judgment in favor of Travelers.

Accordingly, we vacate the district court’s judgment and remand

the case for further proceedings consistent with this opinion.

VACATED AND REMANDED

4
Based on our holding, we do not address Aarow’s remaining
argument regarding the issue whether the district court erred in
relying on letters from Syska’s counsel to Aarow relating to
Syska’s termination of the subcontract. We also need not
address Aarow’s contention that the district court’s judgment
violated the policy underlying the Miller Act.

16