Unpublished Disposition, 923 F.2d 863 (9th Cir. 1987)

MEMORANDUM^** 

Plaintiff Power Constructors, Inc. (PCI) appeals from the grant of summary judgment in favor of defendants City of Ketchikan, Alaska, and Ketchikan Public Utilities (Ketchikan). PCI argues that the district court erred in determining that PCI's claims were barred for failure to give the required notice and that PCI waived its right to challenge the deletion of certain work from the contract. Ketchikan cross appeals, arguing that the district court erred in refusing to enforce the liquidated damages clause, and in applying federal rather than Alaska law to Ketchikan's request for costs.

We affirm on the issues of notice, waiver, and costs, and reverse on the issue of liquidated damages.

In 1983, Ketchikan embarked on a program to upgrade its telecommunications system, and called for competitive bids on twenty-five separate projects. PCI submitted a bid on Contract 7C¹  on February 16, 1984. PCI's bid was approximately $300,000 less than the next lowest bid. On February 20, PCI informed Ketchikan that there were errors in its bid. However, Ketchikan accepted PCI's bid on March 1, and informed PCI of the acceptance on March 2.

On March 9, PCI informed Ketchikan that it wished to withdraw its bid without forfeiture of its bid bond. During March 1984, representatives of Ketchikan and PCI met several times to discuss the possibility of deleting the work involving the relocation of power lines (power unit work) from the contract and having Ketchikan city employees perform that work.

On March 30, PCI signed a contract for the work on Contract 7C. This contract included the power unit work. Ketchikan signed the contract on April 25, after performance and payment bonds and insurance coverage had been received from PCI. Ketchikan returned a copy of the contract on the same date to PCI along with copies of a change order form deleting the power unit work from Contract 7C.²  PCI received these documents on April 30.

Ketchikan employees began the power unit work April 2, and completed it on May 25 at a cost of $241,000. PCI began work on the remainder of the contract May 7, and was required by the contract terms to complete the work on or before August 4; the work was not completed as of that date. Ketchikan began assessing liquidated damages on August 7. Ketchikan informed PCI by letter dated September 14 that it considered the contract substantially completed as of September 10. PCI requested final acceptance, a statement concerning claims, and an unexecuted release and waiver of liens on October 24. On November 1, Ketchikan advised PCI that no further payments would be made and that $285,000 in liquidated damages had accrued.

On November 30, 1984, PCI filed suit against Ketchikan for damages under several theories, including breach of contract and quantum meruit, as a result of the deletion of the power unit work from Contract 7C. Ketchikan counterclaimed for liquidated damages. PCI moved for partial summary judgment on the issue of whether Ketchikan breached the contract by deleting the power unit work. Ketchikan filed a cross-motion for partial summary judgment on the grounds of waiver, estoppel, and failure to comply with the notice provisions of Contract 7C, and later filed a motion for partial summary judgment as to PCI's other claims. An order denying PCI's motion and granting Ketchikan's cross-motions was filed on September 30, 1986.

Ketchikan and PCI filed cross-motions for summary judgment on the issue of Ketchikan's counterclaim for liquidated damages. An order denying Ketchikan's motion and granting PCI's cross-motion was filed June 18, 1987.

Contract 7C required written notice by the contractor of any claims arising under the contract within thirty days.³  PCI admits that it did not give formal, written notice as required under the contract. However, PCI claims that its letter of March 21, 1984, objecting to the proposed deletion of the power unit work satisfied the notice requirement, or at least raised a material issue of fact, precluding summary judgment on the issue. The district court rejected this assertion, finding that the letter was merely a part of the negotiations which were carried on by PCI and Ketchikan during March 1984.

Because no contract existed between PCI and Ketchikan until April 25, 1984, the letter of March 21 cannot be properly regarded as the fulfillment of the notice requirement. Further, the letter did not explicitly attempt to notify Ketchikan of PCI's claims. The letter proposed (1) that PCI be allowed to increase the bid price or that Ketchikan declare the bid nonresponsive, and (2) that Ketchikan award PCI two additional contracts if PCI agreed to perform Contract 7C with the power unit work deleted. On its face, the letter does not suggest that PCI wanted to perform the entirety of Contract 7C at the original price.

The terms of Contract 7C clearly make notice in the proper form and within the given time limits an absolute prerequisite to recovery. See supra note 3. There is no evidence that this term was oppressive or was inserted in the contract by Ketchikan in bad faith. When a contract makes formal written notice a condition precedent to any recovery, the plaintiff's failure to provide notice before filing suit bars recovery. Inman v. Clyde Hall Drilling Co., 369 P.2d 498, 501-02 (Alaska 1962).

" [C]ompetent parties are free to make contracts and ... they should be bound by their agreements." Inman, 369 P.2d at 500. The district court did not err in determining that PCI's recovery was barred by its failure to provide formal written notice to Ketchikan of its objection to the deletion of the power unit work.

The district court determined that the terms of the contract permitted Ketchikan to delete "any amount of unit work,"⁴  and that Ketchikan therefore did not breach the contract by deleting the power unit work. The court also found that any claim PCI might have had against Ketchikan was waived, and that estoppel prevented PCI from now recovering from Ketchikan.

Change orders were to be in writing and signed by both parties. It is undisputed that PCI never signed the change order deleting the power unit work; the project engineer signed on behalf of Ketchikan.⁵ 

The district court correctly found that the deletion of the power unit work was a reduction under Sec. 206.05(c) (3), and thus a valid change.

The court found that PCI's actions in failing to take exception to the absence of the written change order while Ketchikan performed the power work amounted to a waiver under Alaska law, citing Jackson v. Nangle, 677 P.2d 242, 249 (Alaska 1984), and Altman v. Alaska Truss & Manufacturing Co., 677 P.2d 1215, 1223 (Alaska 1983).

Waiver is generally defined as "the intentional relinquishment of a known right." ... A waiver can be accomplished either expressly or implicitly. An implied waiver arises where the course of conduct pursued evidences an intention to waive a right, or is inconsistent with any other intention than a waiver, or where neglect to insist upon the right results in prejudice to another party.... [T]o prove an implied waiver of a legal right, there must be direct, unequivocal conduct indicating a purpose to abandon or waive the legal right, or acts amounting to an estoppel by the party whose conduct is to be construed as a waiver.

Milne v. Anderson, 576 P.2d 109, 112 (Alaska 1978).⁶ 

The record before us indicates that PCI did indeed pursue a "course of conduct" that was inconsistent with its right to object to the deletion of the power unit work. PCI had actual notice of the deletion of the power unit work at least from April 30. On May 14, 1984, a preconstruction conference was held with regard to Contract 7C. At the conference, PCI's representatives were provided with revised construction drawings showing that all of the power unit work had been deleted from the contract. PCI did not object to the deletion. Also at the conference, PCI's communications manager, Edward Storonsky, stated:

Change Order on the power units it's a blank change order, I need it broke down by units exactly what units we blank off the contract. That is the one thing I need to take care of.

PCI regularly submitted daily work unit progress reports to Ketchikan between April and August; these reports contained no protest or objection to the deletion of the power unit work. Statements of PCI employees acknowledged the deletion of the work without protest. This evidence was more than sufficient to determine on summary judgment that PCI had waived its claims, and the district court did not err in so determining.

The district court also found that a case of estoppel was presented. Under Alaska law, the elements of estoppel are the assertion of a position by conduct or word, reasonable reliance thereon by the other party, and resulting prejudice. Municipality of Anchorage v. Schneider, 685 P.2d 94, 97 (Alaska 1984). The district court found that all three elements had been presented in this case.

The discussions between PCI and Ketchikan during March 1984 were continuing negotiations regarding Contract 7C. PCI's statements regarding the deletion of the power unit work during that time period were not specific objections to the proposed deletion. Ketchikan's reliance on PCI's lack of objection after the change order was received by PCI was justifiable. PCI never complained to Ketchikan with any specificity until long after Ketchikan had completed the work on the power units. The district court correctly found that PCI was estopped from raising its claims months later.

III.⁷ 

On August 4, 1984, PCI had not completed the work as required by the terms of Contract 7C. On August 7, Ketchikan began assessing liquidated damages of $3000 per day.⁸ 

The district court found that the liquidated damages clause in Contract 7C was reasonable and appropriate. Nevertheless, because the clause applied after substantial completion to "minor and inconsequential breaches of Contract 7C," the court determined that the entire clause was unenforceable as a penalty.

In Data Management, Inc. v. Greene, 757 P.2d 62 (Alaska 1988) the Alaska Supreme Court reversed the lower court's determination that a covenant not to compete was wholly unenforceable, adopting instead the rule that "if an overbroad covenant not to compete can be reasonably altered to render it enforceable, then the court shall do so unless it determines the covenant was not drafted in good faith." Id. at 64. This rule is in accord with the Restatement of Contracts⁹  the UCC, and Alaska statutory law.¹⁰  We believe that the law of the state of Alaska requires the enforcement of that portion of the liquidated damages clause that is not a penalty. We need not remand to the district court to make a specific finding as to Ketchikan's good faith, as this is inherent in the determination that the clause was reasonable and appropriate. We reverse the district court's order denying Ketchikan's motion for summary judgment on the issue of liquidated damages, and award Ketchikan liquidated damages of $3000 per day for the period August 7--September 10.

Ketchikan sought $42,397.07 in litigation costs, exclusive of attorney's fees, pursuant to Alaska R.Civ.P. 79(d). The district court concluded that federal law rather than state law controls the assessment of costs in a diversity action, and awarded Ketchikan $2,806.08 as a prevailing party, and $5,716.85 as sanctions and for costs allocated by agreement of the parties, pursuant to General Rule 21(B) of the Rules of the United States District Court for the District of Alaska.

Absent a showing of circumstances not here relevant, an award of costs is generally governed by federal law under Rule 54(d) of the Federal Rules of Civil Procedure. See In re Merrill Lynch Relocation Mgt., Inc., 812 F.2d 1116, 1120 n. 2 (9th Cir. 1987) (dictum). We find nothing in the record that would incline us to depart from this general proposition. Accordingly, the district court did not err on this point.

Ketchikan's request for attorney's fees on appeal is denied. Ketchikan failed "to include in its opening brief a short statement of the authority pursuant to which the request will be made," as required by Cir.R. 39-1.6.

Even if we were to overlook this procedural failure, PCI's appeal was not frivolous or wholly without merit. See In re Akros Installations, Inc., 834 F.2d 1526, 1533 (9th Cir. 1987).

AFFIRMED IN PART AND REVERSED IN PART.

EACH PARTY SHALL BEAR ITS OWN COSTS.