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MERGENTIME CORP. v. WASHINGTON METRO. AREA TRANSIT

October 4, 1991

MERGENTIME CORPORATION, et al., Plaintiffs,
v.
WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY, Defendant, v. INSURANCE COMPANY OF NORTH AMERICA, Counter-Defendant


George H. Revercomb, United States District Judge.


The opinion of the court was delivered by: REVERCOMB

GEORGE H. REVERCOMB, UNITED STATES DISTRICT JUDGE

 This summary judgment motion arises out of an ongoing action for breach of contract between Plaintiffs Mergentime Corporation and Perini Corporation ("Mergentime/Perini"), and Defendant/Counter-Plaintiff Washington Metropolitan Area Transit Authority ("WMATA"). Jurisdiction in the underlying action is based on diversity of citizenship, 28 U.S.C. § 1332, and D.C. Code § 1-2439. The facts of both the underlying action and the instant motion relate to the construction of the U Street and Shaw Street Metro Stations along the Green Line, as part of the expansion of the Washington, D.C. Metro system. Counter-Defendant Insurance Company of North America ("INA") stood as surety for Plaintiffs under performance and payment bonds with regard to the original construction contracts at issue in the underlying action. INA and

 WMATA do not dispute that INA is a compensated surety as regards those bonds.

 In August 1990, WMATA filed a supplemental counterclaim against INA in its capacity as surety under the original contracts, claiming that "INA is liable to WMATA under the performance bonds for any and all amounts which WMATA is entitled to recover against Mergentime and/or Perini." Def.'s Supplemental Countercl. Against Surety, at 3. INA served a timely answer denying its liability, and has filed a motion for summary judgment seeking dismissal of WMATA's counterclaim. It is this motion for summary judgment that is now before the Court. The parties have been heard at oral argument.

 The gist of INA's argument is that Mergentime/Perini and WMATA made material modifications, without INA's prior notice and consent, to the two original construction contracts in a "Memorandum of Agreement" dated August 25, 1989. See Memorandum of Agreement, Def.'s Ex. 6 [hereinafter "Memorandum of Agreement"]. INA contends that these modifications discharged it from all further obligations as surety under the bonds it signed in connection with those contracts. WMATA vigorously disputes this contention, pointing to language in the bonds and in the original contracts in which INA supposedly waived its rights to prior notification of contract modifications. WMATA also contends that there are material facts in dispute between it and INA, thus requiring denial of INA's motion.

 At issue, therefore, is whether the modifications that WMATA and Mergentime/Perini made to the original construction contracts materially increased INA's risk as surety so as to entitle it to a complete discharge as a matter of law under the suretyship law of the District of Columbia. For the reasons set forth below, the Court holds that INA is not entitled to a complete discharge and accordingly denies its motion for summary judgment.

 I. FACTS

 The factual circumstances giving rise to INA's motion are largely undisputed. On August 17, 1985, WMATA awarded a construction contract to Mergentime/Perini, as joint venturers, for construction of the Shaw Street Metro Station (Contract 1E0012). The amount of this contract was $ 50,895,000. Mergentime/Perini received a second, separate contract from WMATA on April 1, 1986, in the amount of $ 44,298,000, for construction of the U Street Metro Station. Each contract contained its own schedule of interim and final completion dates. The Shaw Street contract set a final completion date of March 6, 1989; the completion date under the U Street contract was August 2, 1989. See Pls.' Third Am. Compl. for Breach of Contract, Counter-Def.'s Ex. 4.

 Although these contracts were entirely separate agreements, they contained identical provisions derived from WMATA's "General Provisions and Standard Specifications for Construction Projects" of 1973. See Def.'s Ex. 2 [hereinafter "General Provisions"]. INA and WMATA are in dispute over the meaning of two of those provisions, one of which concerned change orders and the other payments procedures. Each contract contained the following provision pertaining to changes [hereinafter the "Changes clause"]:

 3. CHANGES

 
(a) The Contracting Officer may, at any time, without notice to the sureties, by written order designated or indicated to be a change order, make any change in the work within the general scope of the contract, including but not limited to changes:
 
(1) in the specifications (including drawings and designs);
 
(2) in the method or manner of performance of the work;
 
(3) in the Authority-furnished facilities, equipment, materials, services, or site; or
 
(4) directing acceleration in the performance of work.
 
(b) Any other written order or an oral order (which terms as used in this paragraph (b) shall include direction, instruction, interpretation or determination) from the Contracting Officer, which causes any such change, shall be treated as a change under this article, provided that the Contractor gives the Contracting Officer written notice stating the date, circumstances, and source of the order and that the Contractor regards the order as a change order.

 Def.'s Ex. 2, at GP-1.

 Each contract also contained the following payments clause provision [hereinafter the "Payments clause"]:

 7. PAYMENTS TO CONTRACTOR

 
(a) The Authority [WMATA] will pay the contract price as hereinafter provided.
 
(b) The Authority will make progress payments monthly as the work proceeds, or at more frequent intervals as determined by the Contracting Officer, on estimates ...

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