Tenth Circuit Holds Flow Through of “Full Satisfaction” Clause of Prime Contract Does Not Override Limited Repair Clause of Subcontract

Larry Snyder & Co. v. Miller
648 F.3d 1156 (10th Cir. 2011)

The Tenth Circuit held a repair warranty in a subcontract (the “repair clause”) limited the subcontractor’s repair obligations for failed paving work notwithstanding the flow-through of the prime contract’s “full satisfaction” clause.

Snyder asserted a claim against Miller to recover costs incurred by Snyder to repair damage to a parking lot caused by the collapse of utility trenches installed by Miller under the lot. Miller did not dispute that it installed the utility trenches or that their collapse caused the damage to the parking lot. Rather, the issue in this case was the extent of Miller’s repair obligations under the terms of the its subcontract. Snyder argued that Miller was liable for the costs associated with repairing the entire parking lot. Miller countered that pursuant to the repair clause in the subcontract, it was only required to repair certain damaged areas where the trenches had settled.

In order to determine the extent of Miller’s repair obligations, the Tenth Circuit had to consider the relationship between three clauses in the Miller’s subcontract – 1) a “flow-through” clause, 2) a “full satisfaction” clause in the prime contract and 3) the repair clause. The flow-through clause obligated Miller to Snyder and the Owner “in the same manner and to the same extent” that Snyder was obligated to the Owner. The flow-through clause also bound Miller to “all decisions, directives, interpretations and rulings of the Owner or the Architect.” The full satisfaction clause obligated Miller to perform its work “to the full satisfaction of the Owner, Architect, and Contractor.” The repair clause stated that “[i]n the event that settlement or failure should occur under [the] parking lot … resulting in damage to other trades’ work, [Miller] is responsible to remove the damaged area, acquire proper compaction and replace [the] area at [Miller’s] expense.”

After the parking lot collapse, the Owner and Architect insisted that Miller repair the entire parking lot, not just the damaged areas. Citing the language of the flow-through and full satisfaction clauses, Snyder argued that Miller was bound by the Owner’s decision that the “damaged area” was the entire parking lot. Snyder asserted that any other interpretation of the subcontract would render these clauses meaningless.

Miller, on the other hand, argued that Snyder’s interpretation rendered the repair clause meaningless because Snyder was demanding repairs via the flow-through clause that exceeded those contemplated in the repair clause. Miller maintained that all of the clauses could be interpreted consistently while still limiting Miller’s repair obligations to the damaged areas where the trenches had settled. The Tenth Circuit agreed.

The Court found that the clauses at issue could be harmonized. First, the Court concluded that the repair clause constituted a manifestation of the parties’ intent concerning how Miller should repair damaged areas in the event of trench settlement. Second, the Court found that the full satisfaction clause simply ensured the repair work completed according to the repair clause was performed to the full satisfaction of the Snyder and the Owner. Third, the Court stated that the flow-through clause did not purport to abrogate other provisions of the contract. Although it bound Miller to the decisions of the Owner, such decisions had to be reasonable and faithful to the terms of the subcontract. As a result, the Court held that Miller was obligated only to fix the damaged areas where the trenches had settled, and the district court’s grant of summary judgment was affirmed.

Finally, the Court noted that its decision was consistent with general principles of contract interpretation. The parties’ intent was gathered from the language of the contract itself, and equal emphasis was placed on all three provisions. More importantly, the Court’s decision attributed a reasonable meaning to all three provisions instead of leaving one or some of the provisions without meaning or sense.

Click here for full text of decision courtesy of LexisNexis.

James K. Kwartnik, Jr.

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