United States Steel v. M. DeMatteo Construction Co.

United States Court of Appeals
For the First Circuit

Nos. 02-1040, 02-1588

UNITED STATES STEEL, a/k/a USX CORPORATION,

Plaintiff, Appellant,

v.

M. DEMATTEO CONSTRUCTION CO. and M. DEMATTEO CONSTRUCTION
CO./FLATIRON CONSTRUCTORS, a JOINT VENTURE,

Defendants, Appellees.

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Nancy Gertner, U.S. District Judge]

Before

Lynch, Circuit Judge,
Cyr, Senior Circuit Judge
and Lipez, Circuit Judge.

Marc Redlich, with whom Merle Ruth Hass, Howard Burger, and
Berman, Paley, Goldstein, & Kannry, L.L.P., were on brief for
appellant.
Hugh J. Gorman, III, with whom Joel Lewin, Michael D. Healan
and Hinckley, Allen & Snyder, L.L.P., were on brief for appellees.

December 30, 2002
 LIPEZ, Circuit Judge. This case requires us to consider

the rights, if any, of a subcontractor who did not substantially

perform under his contract, to recover payment from a general

contractor for work performed by the subcontractor who abandoned

the job because of financial problems which soon led to bankruptcy

proceedings. The case is brought by United States Steel ("USS"),1

a secured creditor of the bankrupt subcontractor, Cyclone, Inc.

("Cyclone"). USS seeks to recover from the general contractor, M.

DeMatteo Construction Co., and M. DeMatteo Construction Co. and

Flatiron Constructors, a Joint Venture (collectively "DeMatteo"),

all accounts receivable due the subcontractor. The district court

entered summary judgment for DeMatteo on the ground that, as a

matter of well-established Massachusetts law, the subcontractor is

not entitled to any recovery under the contract at issue.2 Though

our analysis differs from that of the district court, we affirm.

I.

DeMatteo is the general contractor at various public

construction projects associated with the "Big Dig," a massive

1
Plaintiff, formerly known as USX Corporation, changed its
name to United States Steel, L.L.C. in August 2001 and will be
referred to herein as such.
2
In this instance, the district judge accepted and adopted the
detailed report and recommendation of a magistrate judge. In the
interest of simplicity, we do not distinguish between the two
judicial officers. Rather, we refer to the determinations below as
those of the district court.

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undertaking that will submerge a section of interstate highway

below the streets of Boston. Between September 1996 and October

1999, DeMatteo entered into three separate contracts with Cyclone,

whereby Cyclone was to provide and install temporary and permanent

fencing at construction sites. On or about October 8, 1999,

Cyclone ceased its operations and stopped working on the projects.

On December 3, 1999, Cyclone filed a voluntary chapter 11 petition

in the United States Bankruptcy Court for the District of Maryland,

during which proceeding USS was acknowledged as a secured creditor

and authorized to collect accounts receivable due Cyclone.

On April 4, 2001, USS brought this lawsuit in an attempt

to collect amounts it believes may be due Cyclone under the

contracts between Cyclone and DeMatteo. USS does not dispute that

Cyclone had not substantially completed its work under the

contracts when it terminated its operations. However, it contends

that under the terms of the contracts, if the costs to DeMatteo of

completion were less than the amount by which DeMatteo was enriched

by Cyclone's work performed and materials supplied, then USS, as

Cyclone's secured creditor, is entitled to the balance.3

On June 8, 2001, DeMatteo moved for summary judgment.

USS opposed this motion and filed two motions of its own, one

pursuant to Fed. R. Civ. P. 56(f), seeking additional discovery,

3
The details of the work done, including the amounts paid or
owing Cyclone, are unknown to USS.

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and the second seeking certification to the Supreme Judicial Court

of Massachusetts of several questions of Massachusetts law. The

district court granted summary judgment for DeMatteo on November

28, 2001, holding that a fair reading of the contract provisions is

consistent with Massachusetts common law which prohibits recovery

for the subcontractor under the contract or under a theory of

quantum meruit absent substantial performance. The court denied

the Fed. R. Civ. P. 56(f) Motion for Additional Discovery and the

request for certification, and dismissed the case. On December 28,

2001, USS filed a timely notice of appeal. Thereafter, on March

26, 2002, USS filed a Fed. R. Civ. P. 60(b) Motion for Relief from

Judgment. The district court denied the Rule 60(b) Motion on May

13, 2002, and USS's second appeal followed. On May 21, 2002, we

entered an order consolidating these appeals for briefing and

argument.

II.

We review the district court's grant of summary judgment

for DeMatteo de novo, examining the record in the light most

favorable to USS and drawing all reasonable inferences in its

favor. We affirm the district court's decision only if "there is

no genuine issue of material fact" and DeMatteo "is entitled to

judgment as a matter of law." Rochester Ford Sales, Inc. v. Ford

Motor Co., 287 F.3d 32, 38 (1st Cir. 2002)(quoting Fed. R. Civ. P.

56(c)). Here we focus on the contracts between Cyclone and

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DeMatteo to determine the rights accruing to each party in case of

abandonment of work by the subcontractor without substantial

performance.

It is well established under Massachusetts law that a

contractor "cannot recover on the contract itself without showing

complete and strict performance of all its terms." Peabody N.E.,

Inc. v. Town of Marshfield, 689 N.E.2d 774, 779 (Mass. 1998)

(quoting Andre v. Maguire, 26 N.E.2d 347 (Mass. 1940)). Failing

complete performance, a contractor "who in good faith substantially

performs a contract may recover in quantum meruit." J.A. Sullivan

Corp. v. Commonwealth, 494 N.E.2d 374, 378 (Mass. 1986)(citing

Andre, 26 N.E.2d at 348). "It is equally well established that 'an

intentional departure from the terms of the contract without

justification or excuse in matters other than those so trifling as

to be properly regarded as falling within the rule of de minimis

will bar all recovery for materials supplied and work performed.'"

Hayeck Bldg. & Realty Co. v. Turcotte, 282 N.E.2d 907, 910 (Mass.

1972)(quoting Russo v. Charles I. Hosmer, Inc., 44 N.E.2d 641, 643

(Mass. 1942)).

On the present record, USS does not dispute that Cyclone

neither completely nor substantially performed the work contracted

for, and that this failure to perform was not excused. Therefore,

as a matter of Massachusetts common law, Cyclone is not entitled to

recover any amount from DeMatteo either under the contract or under

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a theory of quantum meruit. However, USS contends that the terms

of the contract between Cyclone and DeMatteo alter the common law,

permitting Cyclone to recover sums due under the contract from

DeMatteo, even if Cyclone breached the contract. This alteration

by contract of the common law rule requiring complete and strict

performance as a condition of compensation under the contract is a

legal possibility. See Walsh v. Atlantic Research Assoc., 71

N.E.2d 580 (Mass. 1947) (finding that parties can provide by the

terms of the contract that a breaching party is entitled to

damages).

USS relies on Article XV of the 1996 contract (Article

XVI of the 1999 contracts)4 to support its claim that the contract

alters the common law rule. Article XV states in relevant part as

follows.

Article XV - REMEDIES OF GENERAL CONTRACTOR

The Subcontractor stipulates and agrees that each of the
agreements and covenants herein contained, and by it
made, constitutes a material condition of this
Subcontract. In the event of any breach by the
Subcontractor of any condition of this Agreement or of
the General Contract Documents herein incorporated by
reference, then and in that event the Contractor may:

(1) Deduct from any payment otherwise due or becoming
due all sums chargeable to Subcontractor and
damages due from said breach; and

4
All three contracts contain substantially similar provisions
relating to the rights of the general contractor upon the
subcontractor's default. For the sake of simplicity, we refer to
the provisions at issue collectively as "Article XV".

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 (2) Terminate the Subcontract for default in the
following manner...

Upon such termination for default the General Contractor
may take immediate possession of all equipment,
materials, tools, and appliances at the site or sites of
the Subcontract work and may complete said work either
with its own forces or by the employment of any other
person, firm, or corporation. No further payment shall
be or become due the Subcontractor following such
termination for default. When the work is wholly
complete, the Subcontractor shall pay General Contractor
all costs of completing the work and all damages of every
kind or nature caused by said termination less the amount
of any balances due the Subcontractor.

(emphasis added).

USS argues that a fair reading of these contract provisions

requires that the general contractor pay the subcontractor for work

performed despite the subcontractor's breach, and that this amounts

to an agreement to modify the subcontractor's common law rights of

recovery. We disagree.5

In using the clause "the contractor may..." before the

specification of two remedies, Article XV sets forth elective

rights of the general contractor in case of breach by the

subcontractor. Under Massachusetts law, if a contract does not

5
In advancing its reading of the contract, USS relies on a
district court opinion interpreting a similar contract between
Cyclone and another general contractor in accordance with USS's
position. See USS v. Modern Cont'l Constr. Co, Inc., and Modern
Continental/Obayashi, No. Civ.A.01-10561-DPW, 2002 WL 1949223 (D.
Mass. Aug. 5, 2002). Notwithstanding the similarities in the
contract provisions, that case is not currently before us, and
there may be differences between Modern Continental and the instant
case which would only become evident upon closer scrutiny of Modern
Continental.

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specify that the remedies identified are exclusive, or that they

abrogate the common law remedies available, the common law remedies

still apply. Global Software, Inc. v. DTS Software Brasil, LTDA,

No. Civ.A.00-10033-GAO, 2002 WL 73819, at *2 (D. Mass. Jan. 15,

2002)("[U]nder Massachusetts law, expressly stated remedies are not

automatically exclusive."); Finkelstein v. Sneierson, 173 N.E. 703,

704 (Mass. 1930) ("[T]he remedy provided [in the agreement] was not

exclusive of the plaintiff's right to maintain an action for

damages for breach of the agreement."); 17A Am. Jur. 2d Contracts

§ 748 (2002) (collecting cases) ("Where, however, there is no

express or implied limitation in the contract making the stated

remedy exclusive, the prevailing view seems to be that a party may

at his election pursue either the prescribed remedy or any other

remedy the law gives."). Therefore, the general contractor may

elect not to exercise any of its options under Article XV when the

subcontractor breaches the contract, relying instead on the

applicable common law rule to defend itself against any claims for

relief brought by the breaching subcontractor.

Due to Cyclone's admitted material breach by abandonment

of the contract, DeMatteo was discharged from its obligations under

the contract, obviating, in this case, DeMatteo's need to

affirmatively terminate. The termination provision in a contract

is applicable "only in case the [contractor] terminates the

employment upon the conditions and in the manner specified in the

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contract .... The provision is not applicable to the case where the

[subcontractor] abandons the work under the contract." J. Alfred

Dolben v. Duncan Constr. Co., 177 N.E. 105, 111 (Mass. 1931).6 See

13 A.L. Corbin, Corbin on Contracts §1252 (Interim ed. 2002)

(breach of a contractual duty by one party to a bilateral contract

discharges the duty of performance on the part of the other.).

Unwilling to accept the legal implications of the

material breach of the contract by Cyclone through abandonment, USS

argues that it is owed money under Article XV(1) by reference to

Article IX of the contract. Article IX mandates payment by the

general contractor to the subcontractor for work performed during

the period of the contract when the general contractor receives

payment from the owner.7 USS argues that this payment constitutes

"payment otherwise due or becoming due" under Article XV(1) which

6
We recognize that the parties in J. Alfred Dolben were an
owner and a general contractor. We see no reason why the principle
would change when the parties are a general contractor and a
subcontractor.
7
Article IX provides in relevant part:

(1) If and when the General Contractor receives payment
from the Owner...it shall pay said sum to the
Subcontractor less an amount of five
percent....which shall be held as retainage.

(2) The amounts to be retained by the General
Contractor shall become due and payable upon
determination by the Owner's Engineer of the final
quantities hereunder...and, as a further condition
precedent to payment of any retainage,
Subcontractor must furnish...evidence that the
Subcontract work has been fully performed.

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DeMatteo must furnish to Cyclone before proceeding to terminate the

contract according to Article XV(2). We find this argument

unpersuasive.

Because Cyclone committed a material breach by abandoning

work under the contract, DeMatteo was discharged from its

contractual obligations, and the provisions of the contract

concerning payment, even assuming the meaning advanced by USS, were

no longer available to Cyclone as the basis for a lawsuit seeking

payment for work performed. According to well established

authority, "one guilty of wilful breach can maintain no suit on

that contract against the other party." Corbin, supra, §1254.

Indeed, the Massachusetts rule that a contractor "cannot recover on

the contract itself without showing complete and strict performance

of all its terms," Peabody N.E., Inc., 689 N.E.2d at 779, is akin

to this general principle of contract law.

Moreover, Article XV(1) is in the section of the contract

titled "Remedies of the General Contractor." Although this section

does not obligate DeMatteo to invoke the stipulated remedies,

neither does it authorize an affirmative claim by the subcontractor

against the general contractor in derogation of the common-law

rights of the general contractor. Since USS stands in the shoes of

Cyclone, USS has no greater rights than Cyclone would. Thus, there

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is no basis for USS to recover any amount from DeMatteo under

Article XV(1).8

III.

Subsequent to the district court's entry of summary

judgment for DeMatteo, USS filed an unsuccessful Fed. R. Civ. P.

Rule 60(b) Motion for Relief from Judgment. We review the district

court's denial of USS's Rule 60(b) Motion for abuse of discretion,

proceeding with "the understanding that relief under Rule 60(b) is

extraordinary in nature and that motions invoking that rule should

be granted sparingly." Karak v. Bursaw Oil Corp., 288 F.3d 15, 19

(1st Cir. 2002).

Rule 60(b) provides that "[o]n a motion and upon such

terms as are just, the court may relieve a party...from a final

judgment, order, or proceeding" for six enumerated grounds. USS

asserts three of those grounds: 60(b)(1) mistake, inadvertence,

surprise, or excusable neglect; 60(b)(2) newly discovered evidence

which by due diligence could not have been discovered in time to

move for a new trial under Rule 59(b), and; 60(b)(3) fraud,

misrepresentation, or other misconduct of an adverse party.

8
USS concedes in its reply brief that Article XV(2) does not
apply because DeMatteo did not formally terminate the contract:
"There is no evidence, and no claim, that DeMatteo terminated
Cyclone. Thus the termination provision, whatever it means, is not
at issue."

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A. Rule 60(b)(2)

We begin our analysis with Rule 60(b)(2), the ground

addressed most comprehensively by the district court. In arguing

"newly discovered" evidence, USS retracts its concession of

Cyclone's breach without substantial performance on one of the

contracts and alleges breach by DeMatteo due to chronically

delinquent payment under all three contracts, implying that this

delinquency caused Cyclone's breach by driving Cyclone into

bankruptcy.

In an affidavit dated March 25, 2002 (nearly four months

after the district court entered summary judgment for DeMatteo),

David Karr, an employee of USS, attests to the evidence indicating

substantial performance on one of the contracts, and attempts to

explain why this information was not presented at the September 5,

2001 hearing on summary judgment, despite the fact that the

materials were in the possession of USS prior to this date. He

explains that Cyclone forwarded nearly two hundred boxes of

materials concerning this matter and hundreds of other contracts,

and it took time to identify and assess information relevant to the

three Cyclone-DeMatteo contracts at issue. Because Karr "made

every effort to obtain and review all of the pertinent documents

and information," USS argues that the materials are "newly

discovered" and "could not by due diligence" have been discovered

sooner.

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 In light of this claim, we juxtapose a timeline of the

legal proceedings against USS's acquisition and review of evidence

pertinent to its lawsuit. On December 17, 1999, in the United

States Bankruptcy Court for the District of Maryland, USS was

determined to be a secured creditor of Cyclone and was authorized

to review Cyclone's records, thus triggering USS's interest in the

contractual relationship between Cyclone and DeMatteo and its right

of access to evidence pertaining to the DeMatteo contracts

contained in Cyclone's records. Although USS protests that it did

not actually receive Cyclone's records until July 26, 2001, it

filed its lawsuit against DeMatteo on April 4, 2001. Not

surprisingly, DeMatteo filed an answer on April 20, 2001, and

promptly moved for summary judgment on June 8, 2001. These acts of

DeMatteo cannot be impugned as unfair haste just because USS set

the lawsuit in motion prior to reviewing all of the evidence

available to it.

Even accepting that USS only had actual possession of

Cyclone's records on July 26, 2001, USS concedes that the evidence

pertaining to invoices, materials supplied and work performed on

the DeMatteo contracts found in Cyclone's records was in its

possession six weeks prior to the September 5, 2001 hearing on

DeMatteo's summary judgment motion. It also possessed the records

a full four months before the district court entered summary

judgment in favor of DeMatteo on November 28, 2001.

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 A party is entitled to relief, under Rule 60(b)(2), from

summary judgment where (1) the evidence has been discovered since

the trial;9 (2) the evidence could not by due diligence have been

discovered earlier by the movant; (3) the evidence is not merely

cumulative or impeaching; and (4) the evidence is of such a nature

that it would probably change the result were a new trial to be

granted. Mitchell v. United States, 141 F.3d 8, 18 (1st Cir.

1998). Although, as noted, the relevant records were in its

possession at least six weeks prior to the summary judgment hearing

on September 5, 2001, USS did not examine the relevant evidence

until after the hearing.

This failure to review the records prior to the hearing

falls short of the second criterion requiring that the evidence

could not by due diligence have been discovered earlier. A party

seeking relief from a judgment based on newly discovered evidence

must "at the very least, offer a convincing explanation as to why

he could not have proffered the crucial evidence at an earlier

stage of the proceedings." Karak, 288 F.3d at 20. Since USS could

have gained access to the records as early as December 1999 (when

the United States Bankruptcy Court for the District of Maryland

9
In this case, the "final judgment, order or proceeding" from
which the movant seeks relief is an order of summary judgment which
was entered subsequent to a hearing rather than a trial. Although
it refers to evidence "discovered since the trial," the Mitchell
standard for relief under Rule 60(b)(2) is equally applicable to
evidence discovered after a summary judgment hearing.

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granted USS the right to review Cyclone's records), USS's

protestations of inadequate time and overwhelming volume are

unavailing.

The moving party bears the burden of meeting each of the

four Mitchell criteria. Since USS fails to meet its burden with

respect to the second, the district court did not abuse its

discretion in denying the motion for relief from judgment under

Rule 60(b)(2).

B. Rule 60(b)(1) and (3)

Rule 60(b)(1) permits a court to relieve a party from a

final judgment due to "mistake, inadvertence, surprise, or

excusable neglect." Here, the same impediment that barred the Rule

60(b)(2) claim for relief applies. The district court found that,

if USS had acted with due diligence by either procuring the records

from Cyclone earlier or reviewing the records more quickly when

they were received, it could have brought the evidence to the

court's attention prior to the September 5, 2001 hearing.

Therefore, there is no element of surprise, inadvertence, or

excusable neglect in USS's failure to discover the evidence sooner.

As outlined above, USS has had access to Cyclone's records since

December 1999. The information therein, pertaining to invoices,

materials supplied and work performed, was foreseeably relevant to

the lawsuit that USS initiated. See Barrett v. Lombardi, 239 F.3d

23, 28 (1st Cir. 2001) ("[W]here the plaintiff should have been

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aware of the deficiencies in his case before the entry of judgment,

relief under Rule 60(b) would not have been justified.") (quoting

Mas Marques v. Digital Equip. Corp., 637 F.2d 24, 29 (1st Cir.

1980))(alteration in original)(internal quotations omitted).

To obtain relief from judgment under Rule 60(b)(3) due to

"fraud, misrepresentation or other misconduct of an adverse party,"

the movant must demonstrate misconduct by clear and convincing

evidence.10 Karak, 288 F.3d at 20-21 (citing Anderson v. Cryovac,

Inc., 862 F.2d 910, 923 (1st Cir. 1988)). USS alleges that

DeMatteo's failure to provide information regarding performance and

payment under the contract -- which it "knew or should have known

directly undermined the arguments it was making to the district

court" -- amounts to misconduct. However, USS offers no evidence

that it sought such information prior to filing its Rule 56(f)

motion11 and concedes that it did not seek formal discovery from

DeMatteo. On this record, the district court did not abuse its

discretion in determining that "claims that the defendants acted

fraudulently are groundless" and denying the motion for relief from

judgment under Rule 60(b)(3).

10
The movant must also show that the misconduct foreclosed full
and fair preparation or presentation of his case. However, since
USS failed to provide sufficient evidence of misconduct, we do not
reach this second criterion.
11
USS asserts that it "sought the relevant information from
DeMatteo long before it commenced this action" but makes no effort
to substantiate this statement.

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 IV.

USS also appeals the district court's denial of its Rule

56(f) Motion for Additional Discovery and its request for

certification to the Supreme Judicial Court of Massachusetts.

A. Rule 56(f) Motion for Additional Discovery

The management of pretrial discovery lies primarily

within the sound discretion of the district court. Faigin v.

Kelly, 184 F.3d 67, 84 (1st Cir. 1999). This court "will intervene

in such matters only upon a clear showing of manifest injustice,

that is, where the lower court's discovery order was plainly wrong

and resulted in substantial prejudice to the aggrieved party."

Filiatrault v. Comverse Tech. Inc., 275 F.3d 131, 137-38 (1st Cir.

2001) (quoting Mack v. Great Atl. & Pac. Tea Co., 871 F.2d 179, 186

(1st Cir. 1989)). USS does not satisfy this stringent test.

In its Rule 56(f) motion, USS conceded that there was no

substantial performance of the contracts, and it did not seek

evidence to prove otherwise. At the September 5, 2001 summary

judgment hearing, USS merely requested that the court "allow some

additional discovery into what the damages would be or are, would

be, if we are entitled to recover, because that might bring the

matter to an end." Thus, USS did not seek discovery on an issue of

material fact that could alter the outcome of DeMatteo's contention

on summary judgment that, as a matter of contract law, USS was not

entitled to any recovery. It was well within the district court's

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discretion to postpone discovery pertaining to calculation of

damages until after its decision on the dispositive legal issue.

B. Request for Certification

Certification of a question of Massachusetts law to the

Supreme Judicial Court is proper when the question is

"determinative of the cause then pending in the certifying court

and as to which it appears to the certifying court there is no

controlling precedent in the decisions of [the Supreme Judicial

Court]." Mass. S.J.C.R. 1:03. See Nett ex rel. Nett v. Bellucci,

269 F.3d 1, 8 (1st Cir. 2001).

The district court's decision as to whether or not to

certify is reviewed for abuse of discretion. As USS correctly

notes, the Supreme Court has observed that certification is

particularly appropriate where the question at issue is novel, and

the law unsettled. Lehman Bros. v. Schein, 416 U.S. 386, 391

(1974). However, there is nothing novel or unsettled about

Massachusetts law on the rights, if any, of a subcontractor who did

not substantially perform under his contract, to recover payment

from a general contractor for work performed by the subcontractor

before he walked off the job. In the recent case of Peabody N.E.,

Inc., 689 N.E.2d at 774, the Supreme Judicial Court affirmed the

well-established principle that contractors "cannot recover on the

contract itself without showing complete and strict performance of

all its terms," and that a contractor can recover under a theory of

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quantum meruit only "if he can prove both substantial performance

of the contract and an endeavor on his part in good faith to

perform fully." Id. at 779-80. This is a recent and unambiguous

statement of Massachusetts law. There was no abuse of discretion

in the district court's denial of USS's request for certification.

V.

For the reasons stated above, the decision of the

district court is affirmed.

So ordered.

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