Universal Concrete Products Corporation v. Turner Construction Company

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 UNIVERSAL CONCRETE PRODUCTS
CORPORATION,
Plaintiff-Appellant, No. 09-1569 v.
TURNER CONSTRUCTION COMPANY,
Defendant-Appellee. 
Appeal from the United States District Court
for the Eastern District of Virginia, at Norfolk.
Raymond A. Jackson, District Judge.
(2:08-cv-00298-RAJ-TEM)
Argued: January 26, 2010
Decided: February 19, 2010
Before GREGORY and DUNCAN, Circuit Judges,
and Catherine C. BLAKE, United States District Judge
for the District of Maryland, sitting by designation.
Affirmed by published opinion. Judge Gregory wrote the
opinion, in which Judge Duncan and Judge Blake joined.
COUNSEL
ARGUED: James T. Lang, PENDER & COWARD, PC, Vir-
ginia Beach, Virginia, for Appellant. Jeffrey Mitchell Hum-

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mel, SEYFARTH & SHAW, LLP, Washington, D.C., for
Appellee. ON BRIEF: Jack Rephan, PENDER & COWARD,
PC, Virginia Beach, Virginia, for Appellant. Daniel P.
Wierzba, SEYFARTH & SHAW, LLP, Washington, D.C., for
Appellee.
OPINION
GREGORY, Circuit Judge:
This appeal requires us to consider the applicability and
enforceability of a "pay-when-paid" clause agreed to by the
parties in this case. Specifically, we must decide whether cer-
tain provisions in a prime contract, which the general contrac-
tor and a subcontractor incorporated by reference into their
subcontract, render an otherwise unambiguous pay-when-paid
clause within that subcontract ambiguous. The district court
found that they did not. We affirm.
I.
In October 2007, Universal Concrete Products Corporation
("Universal"), a Pennsylvania corporation, entered into a writ-
ten agreement with Turner Construction Company ("Turner"),
a New York corporation, to install precast concrete on the
Granby Tower construction project in Norfolk, Virginia. Tur-
ner had earlier contracted with the project’s owner to provide
general construction work on the project. The subcontract
executed by Turner and Universal incorporated that prime
contract by reference.
Like countless other construction ventures since the col-
lapse of the real estate market, the Granby Tower project ulti-
mately fell through in March 2008 when the owner could no
longer finance it. By that point, Universal had substantially
completed all of its work on the project. Turner, however, had
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not paid Universal for any of the work performed, because
Turner had not yet been paid by the owner.1
When Universal sought payment of $885,507 from Turner
for the work it had performed, Turner refused, citing a pay-
when-paid provision in the subcontract. Universal then filed
suit in the Eastern District of Virginia pursuant to 28 U.S.C.
§ 1332 (2006), alleging breach of contract and several other
claims not germane to this appeal.
Before the district court, Universal alleged that the subcon-
tract, when read in light of Turner’s contract with the owner,
is "patently ambiguous" as to when Turner was required to
pay Universal. Turner, in turn, argued that the language in the
subcontract is unambiguous and that other terms in the prime
contract are consistent with or support the pay-when-paid
clause in the subcontract.
The district court agreed with Turner that the provision,
even when viewed in light of the prime contract, is unambigu-
ous and granted summary judgment to Turner on the breach
of contract claim. Universal appeals.
II.
The sole issue raised by Universal’s appeal is whether or
not the district court correctly found that Universal’s contract
with Turner contained an unambiguous pay-when-paid clause,
which conditioned any payments to Universal on Turner’s
first receiving payment from the owner. Universal asks us to
reverse the district court’s judgment in Turner’s favor and
asks us to follow two, out-of-jurisdiction cases, which support
its reading of the contract. We cannot do so, however,
because we believe that under Virginia law, the contract
1We are informed that Turner is currently involved in litigation against
the owner seeking payment totaling $13,648,845.00, which includes the
amount owed to Universal.
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unambiguously reflects both parties’ understanding that Uni-
versal would only be paid for its work after Turner was paid
by the owner. Consequently, we hold that the pay-when-paid
clause contained in the Turner-Universal subcontract is
enforceable and prevents Universal from demanding payment
from Turner unless and until Turner is first paid by the owner.
a.
We review de novo the district court’s granting summary
judgment to Turner. Long v. Dunlop Sports Group Ams., Inc.,
506 F.3d 299, 301 (4th Cir. 2007). Because this appeal
invokes our diversity jurisdiction, we must apply Virginia
state law, just as the forum would have done had the suit been
brought in state court. See Erie R.R. v. Tompkins, 304 U.S. 64,
78 (1938); St. Paul Fire & Marine Ins. Co. v. Jacobson, 48
F.3d 778, 783 (4th Cir. 1995).
b.
We begin by analyzing the contractual language in both the
Turner-Universal subcontract and the Turner-owner general
contract against the backdrop of Virginia law. Pay-when-paid
clauses are valid in Virginia2 "where the language of the con-
tract in question is clear on its face." Galloway Corp. v. S.B.
Ballard Constr. Co., 464 S.E.2d 349, 354 (Va. 1995). A con-
tractor and subcontractor may create a valid pay-when-paid
clause by including in their contract "an express condition
clearly showing that to be the intention of the parties." Id.
(internal quotation marks omitted). On the other hand, Vir-
ginia courts will not enforce pay-when-paid clauses if there is
an ambiguity in the contract, which "‘exists when language is
of doubtful import, admits of being understood in more than
one way, admits of two or more meanings, or refers to two or
2We have previously recognized pay-when-paid clauses’ validity under
Virginia law. See Moore Bros. Co. v. Brown & Root, Inc., 207 F.3d 717,
724 (4th Cir. 2000).
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more things at the same time.’" Id. at 355 (quoting Allen v.
Green, 331 S.E.2d 472, 475 (Va. 1985)).
The parties do not dispute that the pay-when-paid clause in
the Turner-Universal contract is facially unambiguous.
Indeed, it is hard to see how they could. Article IV of the
agreement states in relevant part:
The obligation of Turner to make a payment under
this Agreement, whether a progress or final payment,
or for extras or change orders or delays to the Work,
is subject to the express condition precedent of pay-
ment therefor by the Owner.
J.A. 67.3 The agreement further states that the amount paid to
Universal will be "out of funds received from the Owner." Id.
Finally, Article II of the subcontract states that the agreement
is intended to supplement the agreement between Turner and
the owner and that any conflict between the two agreements
will be read to impose the greater obligation on the subcon-
tractor. J.A. 66.
Universal argues, however, that the subcontract, which
incorporates Turner’s contract with the owner by reference, is
ambiguous when read as a whole. Universal claims that the
Turner-owner contract, which consists of the standard Ameri-
can Institute of Architects ("AIA") provisions, reflects an
understanding that Turner would pay Universal before being
paid by the owner. Specifically, Universal points to A121 sec-
tion 6.1.3, which states that the costs for which the owner will
reimburse Turner include "[p]ayments made by the Construc-
tion Manager to Subcontractors in accordance with the
requirements of the subcontracts." J.A. 240. Universal empha-
sizes the term "payments made," which it claims demonstrates
3Citations to J.A. __ refer to the Joint Appendix filed by the parties
upon appeal.
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that Turner and the owner contemplated Turner’s paying Uni-
versal before invoicing the owner.
As the district court noted, however, this interpretation
ignores the remainder of the clause, which indicates that "pay-
ments made" are those payments made "in accordance with
the requirements of the subcontracts." The district court was
therefore correct to find that this clause relates only to the
reimbursement amount, not to when those amounts would be
paid. This language does not render the pay-when-paid provi-
sion "of doubtful import" or make it capable "of being under-
stood in more than one way," Galloway, 464 S.E.2d at 355
(internal quotation marks omitted); rather, it clearly allows the
subcontracting parties freedom to contract for when those
payments will be made.
Likewise, the district court correctly found that other
clauses in the Turner-owner contract contemplate that Turner
could pay its subcontractors after first being paid by the
owner. AIA document A201 section 9.6.2 directs Turner to
pay its subcontractors "upon receipt of payment from the
Owner, out of the amount paid to the Contractor on account
of such Subcontractor’s portion of the Work," and section
9.3.1 requires Turner to submit "requisitions from Subcon-
tractors" with its invoices. Both provisions contemplate the
likelihood that the general contractor and subcontractor will
enter into a pay-when-paid contract. Though Universal argues
that the AIA provides that provisions in A121 should control
over provisions in A201 where the two conflict, whether one
of the two purportedly conflicting provisions controls is irrel-
evant where, as here, the two provisions can be comfortably
read together. See Galloway, 464 S.E.2d at 354 (courts should
not find ambiguity or conflict where none exists simply
because one party so claims).
c.
Despite the contract’s apparent clarity, Universal points to
two cases, one from Florida and the other from Missouri,
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which support its reading of the contract. In the first case,
OBS Co. v. Pace Constr. Corp., 558 So. 2d 404 (Fla. 1990),
superseded by statute in part, Fla. Stat. § 713.245 (2009), as
recognized in, WMS Constr., Inc. v. Palm Springs Mile
Assocs., Ltd., 762 So. 2d 973 (Fla. Ct. App. 2000), the Florida
Supreme Court held that almost-identical provisions in a sub-
contract and general contract were ambiguous enough not to
enforce the pay-when-paid provision. Id. at 406. Likewise, in
MECO Sys., Inc. v. Dancing Bear Entm’t, 42 S.W.3d 794
(Mo. Ct. App. 2001), the Missouri Court of Appeals followed
OBS’ reasoning to interpret another contract containing simi-
lar provisions. Id. at 807.
Universal contends on appeal that the contractual language
in OBS and MECO is identical to that at issue here and, there-
fore, that both cases should control the result. We agree that
on the record before us these precedents are not easily distin-
guishable. But because of how unambiguously the contractual
language reflects the parties’ intent that Turner pay Universal
only after being paid by the owner, we believe that the Vir-
ginia Supreme Court would not follow OBS or MECO’s rea-
soning.
This conclusion is reinforced by a recent Virginia-trial-
court opinion, W.O. Grubb Steel Erection, Inc. v. 515 Granby,
LLC, CL 08-3278 (Va. Cir. Ct. Oct. 16, 2009) (letter opinion),
which involves almost identical facts and contractual lan-
guage to that which we consider here. W.O. Grubb dealt with
a dispute between Turner and another subcontractor who, like
Universal, was not paid for work performed on the Granby
Tower project. Id. at 1. Like the district court here, the trial
court found the contract between Turner and the subcontrac-
tor, when viewed in light of Turner’s same contract with the
owner, to be unambiguous and enforced the pay-when-paid
provision. Id. at 5. Rather than attempt to distinguish OBS and
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MECO, the trial court simply opted not to follow their hold-
ings after questioning their reasoning. Id. at 3.4
Because we are bound to follow Virginia law, we must fol-
low the Virginia trial court’s lead in the absence of any indi-
cation that the Virginia Supreme Court would disagree with
its holding. And though we do not question OBS or MECO’s
reasoning, we note that both decisions appear to be based on
policy concerns that the Virginia Supreme Court likely does
not share.
The court in OBS made clear that its decision was largely
based on what it felt to be Florida’s desire to protect subcon-
tractors relative to general contractors. 558 So. 2d at 405-06.
MECO simply adopted OBS’ reasoning. 42 S.W. at 807.
There is no indication that Virginia or its supreme court
shares this policy preference. Quite the contrary. In Galloway,
the state’s supreme court emphasized that its decision to rec-
ognize pay-when-paid clauses was based on its policy prefer-
ence for "freedom to contract" — an interest which directly
conflicts with a paternalistic desire to protect one contracting
party over the other. 464 S.E.2d at 354.
Likewise, it is not even clear that the Florida legislature
really favored subcontractors’ rights to the extent the state
supreme court thought in OBS. Following that decision, the
Florida legislature passed a law making it easier for general
contractors to enforce pay-when-paid clauses, at least where
payment bonds were at stake. See WMS, 762 So. 2d at 977
(explaining application of Fla. Stat. § 713.245). Where the
purpose underlying one state’s precedent has been so under-
mined by subsequent legislation and caselaw, we certainly
4The trial court wrote, in part: "I have read OBS . . . and MECO . . . and
I do not find them at all persuasive. . . . There are some minor differences
among the terms of the owner-general contractor contracts in OBS,
MECO, and here upon which I could attempt to distinguish them, but the
differences would not justify a reasoned distinction." Id.
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cannot impute that purpose to another state whose cases and
policy statements are directly contrary.
III.
For the foregoing reasons, we affirm the district court’s
order granting summary judgment to Turner.
AFFIRMED
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