GODBOLD, Circuit Judge:
This complex diversity case arises from a series of disputes concerning difficulties encountered during construction and renovation of a hospital at Mobile, Alabama. The parties are Ernst, an electrical subcontractor on the project; Providence Hospital, the owner; McCauley, the architect; Manhattan, the general contractor; and Fairbanks-Morse, Ernst's electrical supplier. After more than four years of proceedings and a 40-day bench trial, the district court entered its lengthy opinion, 387 F.Supp. 1001 (S.D.Ala.1974).
I. Ernst's claim for damages
Ernst's principal ground for appeal is the refusal of the district court to award it damages for delays on the job caused by the other four parties' breaches of their respective duties to Ernst. These other parties have paid Providence for delays. But they have not paid damages claimed by Ernst.
A. Ernst's claims against Manhattan
The district court held that Manhattan's failure properly to coordinate and supervise
Ernst claims that it is entitled to damages for these delays caused by Manhattan. Manhattan points to the following provision of its contract with Ernst:
This is a reformulation of the common "no damage" clause in construction contracts whereby one party contractually limits its own liability for delay damages. Although the Alabama
Manhattan's failure to grant Ernst a time extension was not the breach of a condition precedent to Manhattan's invoking the "no damage" clause. The clause makes no reference to any such requirement for formally granting an extension; the language "an extension of time . . is hereby granted" seems to suggest the opposite. The purpose for such a provision would be to assure Ernst that Manhattan (or those upstream from Manhattan) would not sue Ernst for Manhattan's own delays. No one in this case has charged Ernst for those delays; Manhattan has already been charged for them under the liquidated damage formula.
Ernst also claims that Manhattan's failure to comply with a separate contractual provision operates to negate the effect of the "no damage" clause. This separate clause appears to be an agreement by Manhattan to assert Ernst's claims for delay damage caused by Providence or any subcontractor, to the extent permissible under Manhattan's contracts with those parties. We are not persuaded that the consequences of breaching this obligation should include a waiver of the "no damage" defense, which concerns damages for Manhattan's delays.
B. Ernst's claims against Providence
Ernst claims damages for the results of several mistakes made by Providence on the job. The district court found that Providence could not recover liquidated damages for the entirety of the delay on the job because Providence had itself created some of the overall delay by an abortive attempt to change to a gravity sewage ejection system after Manhattan had begun work on a pump system (65 days delay) and by a refusal to accept Palco lighting fixtures in
In order to establish that these actions breached some duty to it established by Alabama law, see Twine v. Liberty National Life Insurance Co., 294 Ala. 43, 311 So.2d 299, 302 (1975), Ernst asserts a third-party beneficiary theory, citing cases imposing owner-general contractor duties and general contractor-subcontractor duties. None of these cases imposes a theory of owner-subcontractor duty. We turn elsewhere in the law of Alabama to determine the validity of third-party beneficiary liability on the facts of this case.
The Alabama courts have made it clear that one not a party to a contract cannot generally sue for its breach. Twine, supra; Watson v. Mills, 275 Ala. 176, 153 So.2d 612 (1963); Land Title Guaranty Co. v. Lynchburg Foundry Co., 80 So. 142 (Ala.App. 1918). The Alabama Supreme Court has indicated that the well-established judge-made requirement of vertical privity for manufacturers' liability should not be overturned except by legislative act. Compare Harnischfeger Corp. v. Harris, 280 Ala. 93, 190 So.2d 286, 290 (1966), with Bishop v. Faroy Sales, 336 So.2d 1340 (Ala.1976) (Alabama version of UCC 2-318 abolishes vertical privity).
Third parties may sue on the contract if the provision is intended for their direct, as opposed to incidental, benefit. See, e. g., Anderson v. Howard Hall Co., 278 Ala. 491, 179 So.2d 71 (1965); accord, Burgreen Contracting Co. v. Goodman, 55 Ala.App. 209, 314 So.2d 284, petition for cert. stricken, 294 Ala. 199, 314 So.2d 296 (1975). The duties to Manhattan that Providence breached (the provision for a sewage ejection pump and an agreement to accept electrical wall fixtures "of equal quality" to Sunbeam fixtures) were not intended for the direct benefit of the electrical subcontractor Ernst. In a large construction project each of the individual contracts is inevitably intertwined with many others, all devoted to the general goal of finishing all phases of the project according to the plans and specifications drawn up by the architect and within the time period established under the prime contract. See E. C. Ernst, Inc. v. General Motors Corp., 482 F.2d 1047, 1055 (CA5 1973). But this interrelationship by itself does not justify imposing third-party beneficiary duties, which flow not from the inevitable consequences of a breach but rather from the intent of the contracting parties.
Ernst's effort to proceed against Providence on a third-party beneficiary basis must fail.
C. Ernst's claim against McCauley
The district court found that McCauley, the architect for Providence, was responsible for (1) refusing to approve the Palco bedlight fixture application and (2) for the emergency generator system, (a) drawing faulty specifications
McCauley raises two different theories that it argues prevent Ernst from recovering. The first, and more broadsweeping, of these challenges Ernst's status as a third-party beneficiary to the owner-architect agreement. We have already described the general rule in Alabama concerning third-party rights under contracts (in denying Ernst any rights under the owner-contractor agreement). Ernst may sue under the contract only if the particular provision is intended for its direct, as opposed to incidental, benefit. The special role of an architect on a construction project may call for third-party beneficiary rights here, although recent cases have specifically rejected this idea. See, e. g., Detweiler Bros., Inc. v. John Graham & Co., 412 F.Supp. 416 (E.D.Wash.1976); A. R. Moyer, Inc. v. Graham, 285 So.2d 397 (Fla.1973).
As we have noted, the district court characterized McCauley's delays as "deficiencies." The court did not specify whether this meant that the firm had failed to perform adequately under its contract with Providence, that it had failed to satisfy an objective standard of care required under tort principles, or both. Having ruled in favor of a theory of recovery based upon negligence, we have no difficulty in clarifying the district court's findings by deciding that McCauley's activities regarding its arbitral responsibilities on the emergency generator submittals constituted negligence as a matter of law. They represent a pattern of procrastination
McCauley's second line of defense is more troublesome. It claims that it is protected from liability for at least some of its errors by the immunity granted to architects in performing their arbitral/quasi-judicial functions. McCauley makes this immunity argument despite already having been found liable to Providence below for the same errors and having taken no appeal from that general ruling.
The leading Alabama case on immunity of architects as arbitrators is Wilder v. Crook, 250 Ala. 424, 34 So.2d 832 (1948). The contractor sued the owner (the city) and the engineer hired by the owner to supervise the work, claiming that the engineer's ruling as to the contractor's responsibilities under the contract was incorrect. State law required that the contractor bring suit in the county in which a "material defendant" resided; thus, if the theory of recovery against the engineer failed, suing in the engineer's county of residence would
Id. at 834.
As in Wilder, the owner-contractor agreement here provides for the architect's ruling on questions of contract interpretation:
General Conditions ¶ 6(a). Two of McCauley's "deficiencies" fit into this arbitral/quasi-judicial category — its rejection of the acceptability of Palco bedlight fixtures and its long-term set of rulings on the acceptability of the Fairbanks emergency generator. However, with respect to both of these matters, the question is not the insulation of McCauley from suit because of a decision it made but, more accurately phrased, its immunity from suit for failing, or delaying, in making decisions.
The arbitrator's "quasi-judicial" immunity arises from his resemblance to a judge. The scope of his immunity should be no broader than this resemblance. The arbitrator serves as a private vehicle for the ordering of economic relationships. He is a creature of contract, paid by the parties to perform a duty, and his decision binds the parties because they make a specific, private decision to be bound. His decision is not socially momentous except to those who pay him to decide. The judge, however, is an official governmental instrumentality for resolving societal disputes. The parties submit their disputes to him through the structure of the judicial system, at mostly public expense. His decisions may be glossed with public policy considerations and fraught with the consequences of stare decisis. When in discharging his function the arbitrator resembles a judge, we protect the integrity of his decisionmaking by guarding against his fear of being mulcted in damages. Cf. Broom v. Douglass, 175 Ala. 268, 57 So. 860 (1912). But he should be immune from liability only to the extent that his action is functionally judge-like.
In his role as interpreter of the contract and as private decisionmaker, the arbitrator has a duty, express or implied, to make reasonably expeditious decisions. Where his action, or inaction, can fairly be characterized as delay or failure to decide rather than timely decisionmaking (good or bad), he loses his claim to immunity because he loses his resemblance to a judge. He has simply defaulted on a contractual duty to both parties.
We are mindful of the problems of characterization that may attend the distinction between delay in deciding and bad judgment in the decision itself. The idea of a misfeasance-nonfeasance dichotomy has been subject to question. See W. Prosser, Torts § 56, at 339-40 (4th ed. 1971).
The tone of McCauley's course of action was set by its first step. Fairbanks' initial application was met with the one-sentence equivocal response that the generator units were "approved providing that the requirements of the plans and specifications are met."
We next examine McCauley's claim of immunity with respect to its rejection of Palco bedlight fixtures.
Ernst's claim that defects in McCauley's generator plans and specifications also contributed to its delays challenges mistakes not even arguably made in the capacity of arbitrator. We read Broyles v. Brown Engineering Co., 275 Ala. 35, 151 So.2d 767 (1963), as imposing upon architects drawing up plans and specifications not "a contract of guaranty or insurance of favorable results," id. at 771, but "a guaranty of reasonable results," id. at 772. See Centraal Stikstof Verkoopkanter, N.V. v. Walsh Stevedoring Co., 380 F.2d 523, 529-31 (CA5 1967) (interpreting Broyles). We interpret this implied warranty under contract to be equally applicable under negligence claims. The facts of Broyles confirm this view. The plaintiffs in that case had failed to allege negligence, and the court's opinion sought to protect them by finding a similar duty implied under the contract:
151 So.2d at 772 (emphasis supplied).
D. Ernst's claims for damages from Fairbanks
The court awarded Ernst $61,626.12 actual damages against Fairbanks (in addition to a pass-through of liquidated damages to Providence). This figure represents the difference between Ernst's price to Manhattan for obtaining and installing the Fairbanks generator system and Manhattan's replacement cost in purchasing and installing the substitute Caterpillar-driven system. As such, it is simply an indemnity to Ernst for its payment of this same amount to Manhattan.
Despite objections by both parties to this figure, we uphold its propriety. Ernst claims, in effect, that Fairbanks should pay its installation fee. But Ernst never installed anything. Fairbanks claims that $12,764.59 of the $61,626.12 figure is a windfall to Ernst. The theory here is that Ernst should bear the loss represented by Manhattan's installation expenses, since Fairbanks never contracted to install a generator but only to supply one. This seems a simple case of requiring the breaching party in a contract for the sale of goods to pay consequential damages. Ala.Code tit. 7A, § 2-715(2)(a) (1966 Recomp.).
Ernst claims in addition that Fairbanks should pay its share of any damages for the delay sustained by Ernst as a result of the defective generator. We agree that Ernst has a contractual claim against Fairbanks for this consequence of the latter's breach. The district court should determine the extent of these delay damages actually caused by Fairbanks.
E. Problems of proof on remand
On remand the court will face the question of whether Ernst has satisfactorily proven that the extended time devoted by its personnel to this project has resulted in financial loss.
Unlike the plaintiff in Kershaw, Ernst faces four defendants all of whom together were in fact responsible for the great majority of its damages. Each seems to point its finger at the others. Fairbanks, for example, claims that its fraud caused no delays in the generator installation because other pre-existing delays were concurrent with its fraud. In this context, the district court can, as it did regarding Providence's claims, ascertain Ernst's total damages and then, where there exists a legal duty to Ernst as discussed above, allocate respective responsibilities for those damages based upon reasonable certainty.
F. Ernst's claim for attorney's fees
The district court refused to award Ernst attorney's fees on the basis of Fairbanks' agreement in its contract with Ernst to "indemnify [Buyer] against all liabilities for damages or injuries incurred by the Buyer, for Buyer's cost, resulting from Seller's failure to make timely delivery of the materials specified herein." (Emphasis supplied).
In Alabama attorney's fees are not recoverable unless provided for in the contract or by statute. State v. Alabama Public Service Commission, 307 So.2d 521, 540 (Ala.1975). The district court did not examine whether the above indemnity provision constituted such a contractual provision for fees but skirted this issue by ruling:
The Alabama courts have not squarely addressed the issue of whether or when indemnity agreements contemplate the payment of attorney's fees. Cf. Miller & Co. v. Louisville & Nashville R.R., 328 F.2d 73, 78 (CA5), cert. denied, 377 U.S. 966, 84 S.Ct. 1648, 12 L.Ed.2d 737 (1964) (Alabama law), holding that judgment against the indemnitee in a third party's suit would entitle it to "the costs of defending the claim" as well as the amount of liability. Miller at least suggests that Alabama would follow the generally held view that indemnification agreements contemplate payment for attorney's fees incurred in litigation with third parties concerning the matter indemnified against, regardless of whether they say so. See, e. g., Bagby v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 491 F.2d 192, 198 n. 9 (CA8 1974); Insurance Co. of North America v. King, 340 So.2d 1175 (Fla.D.Ct.App. 1976); cf. 5 A. Corbin, Contracts § 1037, at 225-26 (1964 & Supp.1971). Inclusion of attorney's fees is presumed to have been the intent of the drafter unless the agreement explicitly says otherwise.
The cases cited above limit the recovery of attorney's fees to the subject matter of the indemnity agreement and exclude fees expended in suing the indemnitor in order to recover under the agreement. Accordingly, Ernst may recover from Fairbanks only those fees that it can
In sum, Ernst may recover for attorney's fees expended only in connection with the generator litigation, excluding that part of such litigation involving Ernst's claims against Fairbanks. The district court ruled that such apportionment would be impossible, given the vast number of claims in this suit. But it did so without allowing any proof about attorney's fees at all, that matter being reserved for post-trial consideration. On remand, the court should consider evidence on this issue, with due regard to the reasonable certainty standard articulated above.
II. Ernst's challenge to Providence's liquidated damage recovery
At an early stage of this proceeding, the district court ordered Providence to pay over an added portion of the contract price (through Manhattan) despite the existence of various disputes concerning the work. The court then framed by a subsequent pre-trial order the question of Providence's entitlement to liquidated damages under its contract with Manhattan, at the rate of $250 per day of delay. As we have noted, the court then proceeded to the difficult task of ascertaining which parties were responsible for which parts of the delays. It ordered McCauley to pay its share and ordered the three other parties (through Manhattan) to pay their shares, deducting these from the balance of the contract price which Providence had yet to pay.
Liquidated damage provisions in contracts are enforceable under Alabama law as long as the contractual stipulation is reasonable and the measure of damages at the time of the contract was conjectural and uncertain. This rule has been applied to provisions against delay in performance on construction contracts. Otinger v. Water Works & Sanitary Sewer Board, 278 Ala. 213, 177 So.2d 320 (1965). None of the parties disputes the conjectural nature of delay damage in a case like this one or the lack of disproportion in the $250 per day damage formula.
However, Ernst seeks to avoid an assessment of liquidated damages by the so-called rule against apportionment.
Like the Alabama district judge, we believe that Alabama would permit apportionment of fault. The opposing rule is an old one whose underlying policies do not remain in full force. One of the dominant reasons underlying it is early judicial hostility to the use of privately agreed upon contract damage remedies. See, e. g., Mosler Safe
Today, given the increasing complexity of contractual relationships, liquidated damage provisions have obtained firm judicial and legislative support. See, e. g., Otinger, supra; Ala.Code tit. 7A, § 2-718 (1966 Recomp.). As long as the owner's own delay is not incurred in bad faith, it is not unjust to allow proportional fault to govern recovery. Generally, owners do not benefit from delays that they incur. Another reason cited in support of the rule is that proving apportionment is simply too difficult. We do not disagree with the difficulty of the task,
III. Ernst's appeal on the electrical receptacles
Ernst concedes that its workmen installed the receptacles improperly but claims that this caused no delay (i. e., no damage). The district court's findings of delay, 387 F.Supp. at 1014-15, are not clearly erroneous.
IV. Manhattan's claims for delay damages
Like Ernst, Manhattan claims actual damages for delays resulting from other parties' mistakes. Much of what we have said about Ernst's claims applies with equal force to Manhattan's, but we examine each party's potential liability to Manhattan separately.
A. Claims against Providence
Manhattan's claim here is stronger than that of Ernst, since Manhattan and Providence stood in privity of contract. Providence contends, however, that by failing to pursue the arbitration provisions of the general conditions in their contract,
This question is one of federal law, given the enactment of the United States Arbitration Act of 1925, 9 U.S.C. §§ 1 et seq.,
The first indication of the parties' attitude about arbitration is an April 7, 1970, telephone conversation to Manhattan from Providence's attorney, in which the attorney
The only other evidence of any pre-suit reference to arbitration is a September 17, 1970, letter to Manhattan from its own attorney. This letter asked Manhattan to date, sign, and complete an enclosed AIA Demand for Arbitration and file it with the AAA Regional Office, sending copies to Providence and McCauley.
Ernst's complaint initiated this suit on October 28, 1970. Providence's initial pleading, filed December 16, 1970, was captioned as a "motion to dismiss" Manhattan's claim and alternatively "to stay the action." The requested "stay" was not for purposes of resort to arbitration but to require Manhattan to finish construction first. Attached to the motion was a copy of the 20-page general conditions of the contract, paragraphs 6 and 7 of which concerned arbitration. Providence filed a supplemental brief which referred to arbitration but only as a ground for dismissing Manhattan's suit. For the next two and a half years Providence litigated — it engaged in discovery, presented cross-claims (trying to appeal to this court from dismissal of some of them), and filed various motions.
On remand the district court should find Manhattan's actual delay damages arising from Providence's mistakes on the sewage ejection and bedlight fixture problems.
B. Claims against McCauley
Manhattan's claims in this regard are similar to Ernst's. Manhattan's closer relationship to the architect makes an even more persuasive case for its inclusion within the scope of the risk created by the latter's actions. Manhattan may recover on remand for actual delay damages arising from McCauley's defective plans and specifications regarding the generator system (if such be found to constitute negligence) as well as the architect's procrastinations in ruling on Fairbanks' submittals for that system.
C. Claims against Ernst
The district court was not clearly erroneous in finding that although it was "an extremely close question," 387 F.Supp. at 1028, Manhattan did not make out a case of fraud by Ernst regarding the generator submittals.
The court also found that Ernst knowingly installed the explosion-proof receptacles in an improper and hazardous manner and then concealed this danger by using longer screws. But the court did not rule on the question whether this action constituted fraud under Alabama law. Manhattan raised this issue throughout the trial,
Manhattan's claims for damages against Ernst on this receptacle matter are complicated by a subcontract provision
D. Claims against Fairbanks
The district court found Fairbanks guilty by clear and convincing evidence of fraud in its representations concerning the generator's ability to comply with the specifications. It awarded Manhattan $20,000 in punitive damages for this fraud but did not grant compensatory damages, even though it found that "[t]he other parties did rely upon the misrepresentations with the result that the project was delayed and substantial losses were incurred." 387 F.Supp. at 1031. Alabama law allows recovery of compensatory damages in cases of statutory fraud. Ala.Code tit. 7, §§ 107 et seq. (1960
E. Claim for prejudgment interest
Manhattan claims prejudgment interest on any damage award that it may receive. Alabama law governs any award of interest, regardless of the existence of 28 U.S.C. § 1961. Degelos Bros. Grain Corp. v. Fireman's Fund Insurance Co., 498 F.2d 1238 (CA5 1974). In Alabama only liquidated claims generally justify prejudgment interest. Grand Bay Land Co. v. Simpson, 207 Ala. 303, 92 So. 789 (1922). The claims of Manhattan here are too uncertain in amount to qualify under any of the recognized exceptions to this rule. Roe v. Baggett Transportation Co., 326 F.2d 298 (CA5 1963) (Alabama law); accord, Belcher v. Birmingham Trust National Bank, 488 F.2d 474 (CA5 1973).
V. Manhattan's liability for liquidated damages
Manhattan claims that the district court was clearly erroneous in finding that it failed to coordinate work, leading to liquidated damages for delay to Providence. The only claim worthy of discussion here is that a general "flattening out" of work occurred after the generator delays had set in. The district court recognized this problem, 387 F.Supp. at 1027, but apparently found it to be no excuse to a party whose responsibility as general contractor included eliminating the effect of such occurrences, and we agree.
VI. Providence's claims
We agree with the district court that Providence's claim for damages from Fairbanks' proven fraud could not withstand a motion to dismiss. Providence has proven no damages other than delay, and for this it already has been compensated by Fairbanks (through Manhattan). Providence now has a Caterpillar-driven generator in place of the Dorman-powered one that never materialized. In addition, as noted above, the district court's refusal to find Ernst guilty of fraud in connection with the generator matter was not clearly erroneous.
1. Ernst may not recover from Manhattan, because of the "no damage" clause in their subcontract.
2. Ernst may not recover from Providence, since the Providence-Manhattan contract evidences an intention not to vest Ernst with third-party beneficiary rights.
3. The liquidated damages assessed against Fairbanks by the district court did not include delays caused by defective specifications for the emergency generator's engine housing. McCauley was properly assessed responsibility for this mistake.
4. Ernst may recover under a negligence theory for McCauley's procrastinations in rejecting the Fairbanks emergency generator units.
5. Ernst may recover under a negligence theory for McCauley's erroneous rejection of Palco bedlight fixtures and its defective plans and specifications if, on remand, the district court finds that these defects constitute negligence.
6. The district court's calculation of $61,626.12 as the indemnity due Ernst from Fairbanks for Ernst's upstream liability on the generator is correct.
7. Ernst may recover damages for delays caused by Fairbanks' breach of contract.
8. The district court's $20,000 award of punitive damages from Fairbanks to Manhattan was not an abuse of its discretion.
9. The district court's $20,000 award of punitive damages from Fairbanks to Ernst was not an abuse of its discretion. However, the court should reduce this figure on remand if it included some amount compensating Ernst for its attorney's fees.
10. Ernst may recover attorney's fees from Fairbanks based on their indemnity agreement. However, this recovery should
11. The district court did not err in allowing apportioned liquidated damages to Providence.
12. The district court did not err in finding that Ernst was responsible for delay arising from its installation of the explosion-proof receptacles.
13. Manhattan may recover for its actual delay damages arising from Providence's mistakes on the sewage system and Palco bedlight fixture matters.
14. Like Ernst, Manhattan may recover under a negligence theory for McCauley's procrastination in rejecting the Fairbanks emergency generator units.
15. Like Ernst, Manhattan may recover under a negligence theory for McCauley's erroneous rejection of Palco bedlight fixtures and its defective plans and specifications if, on remand, the district court finds that these defects constitute negligence.
16. The district court did not err in rejecting Manhattan's and Providence's claims of fraud by Ernst in counseling Fairbanks on its generator submittals.
17. Manhattan's claim for actual delay damages from Ernst on the explosion-proof receptacles matter is remanded for further consideration concerning the existence and effect of a provision in their subcontract. The district court should also make an explicit finding regarding the existence of fraud on Ernst's part in connection with the installation of the receptacles.
18. Manhattan may recover compensatory damages for Fairbanks' fraud.
19. Manhattan may not recover prejudgment interest on any damage award that it may receive.
20. The district court did not err in assessing liquidated damages for delay against Manhattan for its failure to coordinate the work on the job site.
21. Providence has proven no damages for which it has not already been compensated with respect to Fairbanks' fraud.
22. On remand, Ernst and Manhattan's recoveries will be predicated on their ability to show fact, amount, and apportionment of damage with reasonable certainty.
The district court's judgment is AFFIRMED in part, VACATED, in part, and REMANDED for further proceedings not inconsistent with this opinion.
This last finding is sufficient response to Fairbanks' claim that the district court charged it for delays in the emergency generator area actually caused by difficulties in housing the Caterpillar substitute. The court attributed this portion of the delay to McCauley's defective specifications and charged McCauley accordingly.
The second step, necessary only for the generator and the bedlight fixture problems, was apportioning fault for a given delay between its two contributors. The court split fault equally for both of these problems. Cf. United States v. Reliable Transfer Co., 421 U.S. 397, 407, 95 S.Ct. 1708, 44 L.Ed.2d 251, 260 (1975).
Reply Brief for Ernst 40 n. **.