Reed & Reed, Inc. v. Weeks Marine, Inc.

United States Court of Appeals
For the First Circuit

Nos. 04-2365, 04-2366

REED & REED, INC.; ST. PAUL FIRE AND MARINE
INSURANCE COMPANY,

Plaintiffs, Appellees/Cross-Appellants,

v.

WEEKS MARINE, INC.,

Defendant, Appellant/Cross-Appellee.

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MAINE

[Hon. D. Brock Hornby, U.S. District Judge]

Before

Boudin, Chief Judge,
Torruella and Dyk,* Circuit Judges.

Leonard W. Langer with whom Marshall J. Tinkle and Tompkins,
Clough, Hirshon & Langer, P.A. were on brief for defendant.
David J. Perkins with whom Perkins Olson, P.A. was on brief
for plaintiffs.

December 19, 2005

*
Of the Federal Circuit, sitting by designation.
 BOUDIN, Chief Judge. During a construction project, a

barge owned by one project subcontractor, Weeks Marine, Inc.

("Weeks"), collided with underwater railways located on the

property of another project subcontractor, Reed & Reed, Inc.

("Reed"). The ultimate question on this appeal is whether a damage

claim against Weeks by Reed and its insurer is barred by a so-

called waiver-of-subrogation provision embedded in the complex

contractual scheme governing the project.

In 1998, Bath Iron Works ("BIW") and Clark Builders of

Maine ("Clark") entered into a construction contract ("BIW-Clark

contract") to build a land-level transfer facility for BIW on the

Kennebec River. Clark subcontracted with Atkinson Construction

("Atkinson"), which in turn subcontracted work separately to

Callahan Brothers ("Callahan") and Weeks. Callahan--a union-labor

affiliate of Reed--entered into a subcontract with Reed, engaging

Reed to construct marine railway tracks ("ways") in a riverside

yard owned by Reed across the river from the main BIW facility.

Callahan intended to use the Reed ways to move a number

of large concrete blocks (called "landing grids"), weighing about

400 tons each, into the Kennebec River for transport by Weeks to

the main construction site for use as dry-dock supports. Callahan

also separately leased from Reed the yard in which the ways were to

be built. Thus, Callahan could manufacture the grids at Reed's

yard and transport them to the river via the constructed ways.

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Weeks would then pick up the grids from the river end of the ways

and transport them across the river by barge.

After the ways were completed in the summer of 2000, the

barge transports commenced. During one of the transports,

occurring on October 11, 2000, the Weeks barge damaged the

submerged ways; the ways, although part of the leased yard,

remained Reed's property and were available for future use by Reed

in its own right. The damage was repaired, and the transfers

continued. In due course, the damage caused by Weeks to Reed's

ways was reimbursed by Reed's property insurer, St. Paul Fire and

Marine ("St. Paul").

Reed and St. Paul then brought suit in district court

against Weeks, and after a bench trial, the court found Weeks

liable for negligence, awarding Reed and St. Paul $298,100 in

damages--the amount the court found necessary to restore the ways

to their pre-collision condition. Weeks now appeals from the

judgment; Reed cross-appeals (an unnecessary step) to support the

judgment on alternative grounds not adopted by the district court.

In the district court, much of the controversy centered

around a waiver-of-subrogation clause invoked by Weeks as barring

recovery by Reed (and therefore by St. Paul as the subrogee

standing in Reed's shoes). The clause was contained in Exhibit E

to the Atkinson-Callahan contract and provided as follows:

10. Waiver of Subrogation - To the extent that
a loss is covered by insurance in force, and

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 recovery is made for such loss, the BIW and
Contractor and Subcontractor's [sic] hereby
mutually release each other from liability and
waive all rights of subrogation and all rights
of recovery against each other for any loss
insured against under their respective
policies (including extended coverage), no
matter how caused, it being understood that
the damaged party will look solely to its
insurer for reimbursement. BIW shall require
all Subcontractors to similarly waive their
rights of subrogation in each of their
respective construction contracts with respect
to the work.

Exhibit E, obscurely drafted in the tradition of

insurance policies and related documents, described a BIW-

controlled insurance regime for subcontractors on the project but

also contemplated that some subcontractors might not be covered by

this regime and imposed separate requirements upon them. It is

unclear whether the waiver provision, placed between provisions

directed at the two different groups, applied to both groups or

only the former.

Even greater confusion attended the question whether

Exhibit E, whatever its meaning as to covered parties, applied to

Reed at all. It was not attached to the Callahan-Reed contract,

nor was it specifically mentioned in that contract. Weeks,

however, asserted that Exhibit E bound Reed because of language in

the Callahan-Reed contract that stated, inter alia, that

the GENERAL CONTRACT documents are
incorporated in this agreement by this
reference, with the same force and effect as
if same were set forth at length herein; and
that the SUBCONTRACTOR will be bound by any

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 and all contract documents insofar as they
relate in any part or in any way, directly or
indirectly, to the work covered by this
agreement.1

Whether Exhibit E constituted one of the "general contract

documents" was disputed.

Following a bench trial, the district court made a number

of findings that strongly suggested that the waiver provision would

apply to Reed for any damage that occurred to Reed's property in

the course of its work under the Callahan-Reed contract. However,

the district court also concluded that the damage had occurred

after Reed had completed its basic work (construction of the ways),

and that the waiver provision had no effect on Reed's rights as a

property owner to collect from Weeks for damage later caused by

Weeks to Reed's property.

On appeal, Weeks urges that the district court read the

waiver provision too narrowly. Reed not only defends the district

court's rationale for deciding in Reed's favor, but also argues

that it (Reed) was never bound by Exhibit E at all, or, if it was,

that the waiver provision did not apply because Reed was not part

1
A companion provision in the Callahan-Reed contract stated:

Except as modified by this Subcontract, Subcontractor
agrees to adhere to and be bound to the Contractor by all
of the provisions of the General Contract and to the
contract documents affecting subcontractor's work
hereunder, and, insofar as its work is concerned, to
assume towards the Contractor all of the duties,
obligations and liabilities that the Contractor assumes
toward the Owner.

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of the BIW-controlled insurance program (and--Reed asserts--the

waiver applied only to such participants). Weeks contests these

propositions and, among other assertions, argues that Callahan and

Reed are alter egos.

It is uncertain whether this tangled dispute, with its

idiosyncratic documentation, has a "right" answer in any meaningful

sense, and given the litigation expenses, it is a mystery why it

was not settled. Still, it must now be decided. As to

construction of contract language, our review is plenary, Principal

Mut. Life Ins. Co. v. Racal-Datacom, Inc., 233 F.3d 1, 3 (1st Cir.

2000), but as to application, some deference is due to the

factfinder, Bolton v. Taylor, 367 F.3d 5, 7-8 (1st Cir. 2004).

In our view, the principle embodied in the district

court's reading of the waiver provision is correct and its

application to these facts, although a close call, should be

sustained. For the purposes of analysis, we assume arguendo that

Exhibit E was incorporated into the Callahan-Reed contract so far

as it might be applicable to the present dispute.2

2
The district court found that the "general contract" referred
to in the Callahan-Reed contract is the Atkinson-Callahan contract
(rather than the BIW-Clark contract), and that Exhibit E was
incorporated as a whole into this contract. The district court did
not address the separate Reed claim that even if Exhibit E does
apply, it applies only to subcontractors enrolled in the BIW-
sponsored insurance program--an issue not easily resolved on this
record.

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 Even if Exhibit E applied to Reed, however, it waived

Reed's rights against Weeks only insofar as they were within the

scope of the provision. In delineating the scope of the waiver

provision, the district court held that the waiver would apply only

to claims related to Reed's work under the Callahan-Reed contract.

It stressed that the contract by its explicit terms incorporated

provisions associated with the general contract only so far as they

"relate[d]" to or "affect[ed]" Reed's "work" for Callahan.

Weeks' broadest argument to the contrary is that the

waiver provision blocks any claims by Reed against Weeks (at least

so far as they are covered by insurance); but this ignores the

"related"/"affected" language. Weeks claims, in its reply brief,

that the "related to" language does not modify or delimit the

incorporation of the "general contract" to which Exhibit E is an

annex; but a careful reading of the Callahan-Reed contract

indicates otherwise.

Weeks' argument turns upon the fact that the

incorporation provisions quoted above (see note 1 above and

accompanying text) use the related/affected phrases to qualify

"contract documents," and Weeks says that this does not include the

"general contract" itself. Yet this distinction is debatable as

grammar and artificial in substance. Furthermore, the phrase

"insofar as its [Reed's] work is concerned" in the closing sentence

of the second incorporation provision (note 1, above) is clearly

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addressed to the "duties, obligations and liabilities" imposed

pursuant to the general contract.

Weeks' argument also proves too much. Suppose that two

years after Reed had finished all association with the BIW project,

a Weeks barge in the middle of the river slipped loose and

eventually drifted into Reed's ways, damaging them again. It could

hardly be thought that such an incident was covered by a waiver

clause framed to govern work that Reed had long completed. Thus,

at most, the waiver provision applies to claims by Reed related to

or arising out of the work that Reed contracted to perform under

the Callahan-Reed contract.

Even so narrowed, it is a close question whether the

incident is sufficiently tied to Reed's contracted-for work to come

within the waiver provision. The district court found as follows:

By October 11, 2000, Reed & Reed had
completed the ways and therefore completed the
work covered by its subcontract with Callahan.
Reed & Reed's claim in this lawsuit stems not
from any injury it suffered as a subcontractor
building the ways, but from an injury it
suffered as property owner.

After Reed completed its work, the district court stated, it was

merely a property owner renting its yard and ways to Callahan and

"Reed did not waive its right as a property owner to recover for

damage negligently inflicted upon its property" by Weeks.

In Weeks' favor is Maine case law supporting a generous

reading of waiver-of-subrogation clauses in the interest of

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avoiding litigation--a central aim of such clauses. See, e.g.,

Reliance Nat'l Indem. v. Knowles Indus. Servs., Corp., 868 A.2d

220, 225-27 (Me. 2005); Willis Realty Assocs. v. Cimino Constr.

Co., 623 A.2d 1287, 1288 (Me. 1993). This is reinforced by some

language in the incorporation clauses that extends all contract

provisions to Reed "insofar as they relate in any part or in any

way, directly or indirectly, to the work covered by" the Callahan-

Reed contract.

Yet what that "work" encompassed remains in dispute.

According to Reed, its work was to construct the ways. According

to Weeks, even though Reed had completed its basic task of building

the ways well before the October 11 accident, it had ongoing

ancillary duties (e.g., to repair defects in its work found within

one year), and--Weeks argues--Reed's own conduct after it had

completed construction shows that its "work" had not been completed

at the time of the accident.

The contract language itself is not especially helpful to

Weeks. Nearly all of the items listed in the scope of work clause

clearly deal with the construction and general setup of the ways;

none directly references any sort of post-construction duties. The

duty-to-repair-defects provision does extend beyond the completion

of the ways, but it is a limited, contingent obligation, and the

district court's findings as to the cause of the accident attribute

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it to Weeks' negligent operations, not to any defect in the

original construction.

This brings us to Weeks' claim that Reed's actual conduct

showed that its work extended beyond the completion of the ways.

"The parties to an agreement know best what they meant,"

Restatement (Second) of Contracts § 202 cmt. g (1981), and thus the

parties' subsequent course of performance may be instructive in

contract interpretation. Id. § 202(4). But much of Reed's post-

construction conduct, such as sending construction details to

Atkinson and permitting Atkinson to shorten one of the ways (both

completed prior to the October 11 incident), could as easily be

taken to demarcate the completion of Reed's own work.

Weeks argues that Reed was involved in more substantial

post-construction activities, such as monitoring the loading of the

grids and assisting Weeks in the loading process. The record is

far from clear as to whether Reed in fact took part in such

activities. Given the deference due to the factfinder, we accept

the district court's characterization.

In sum, by the time of the accident, Reed had completed

the ways and merely permitted the use of its ways for the launching

of the concrete blocks. This latter engagement was not done in the

performance of the Callahan-Reed contract; there is nothing

whatsoever in that contract about such an obligation. Reed's ways

were made available to Callahan for launching the grids or for any

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other purpose by virtue of Callahan's separate lease of the yard

from Reed--a lease that (as the district court pointed out)

contains no waiver-of-subrogation clause.

The outcome admittedly turns on formalities: the formal

corporate separation of two close affiliates--Callahan and Reed--

and the formal separation of Reed's construction work for Callahan

from its lease of its property to Callahan. These separations, in

turn, derived in part from the irrelevant fact that Reed was a non-

union contractor; otherwise, Reed might have contracted directly

with Atkinson to build the ways and launch the grids.

Weeks contests the respect given to the formal separation

between Callahan and Reed, arguing that two passages in its post-

trial brief to the district court raised a veil-piercing claim.

These passages--which contain only passing references to the

possibility that Reed and Callahan may not be independent entities-

-do not represent a developed argument. The veil-piercing argument

is thus unavailable on appeal. Daigle v. Me. Med. Ctr., Inc., 14

F.3d 684, 687 (1st Cir. 1994).

Finally, focusing upon the Callahan-Reed lease, Weeks

argues that the lease required Callahan, not Weeks, to indemnify

Reed for any damage to the yard (including the ways), and did not

give Reed a right of action against anyone other than Callahan. On

the contrary, Reed was not obliged to collect from Callahan, and

the lease did not surrender potential Reed claims against third

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parties. As the owner, Reed was free (so far as the lease was

concerned) to sue anyone who negligently damaged its yard or ways.

Affirmed.

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