Opinion
No. 107,534.
2013-03-8
BUILDING CONSTRUCTION ENTERPRISES, INC., Appellee/Cross-appellant, v. PUBLIC BUILDING COMMISSION OF JOHNSON COUNTY, et al., Appellant/Cross-appellee.
Appeal from Johnson District Court; James Charles Droege, Judge. Roy Bash, Heber O. Gonzalez, and Miriam E.C. Bailey, of Polsinelli Shughart PC, of Kansas City, Missouri, for appellant/cross-appellee Public Building Commission of Johnson County. Ronald D. Montieth, Eric T. Swanson, and Theresa Shean Hall, of Manz Swanson & Mulhern, P.C., of Kansas City, Missouri, for cross-appellee Horst, Terrill & Karst, P.A.
Appeal from Johnson District Court; James Charles Droege, Judge.
Roy Bash, Heber O. Gonzalez, and Miriam E.C. Bailey, of Polsinelli Shughart PC, of Kansas City, Missouri, for appellant/cross-appellee Public Building Commission of Johnson County. Ronald D. Montieth, Eric T. Swanson, and Theresa Shean Hall, of Manz Swanson & Mulhern, P.C., of Kansas City, Missouri, for cross-appellee Horst, Terrill & Karst, P.A.
Scott C. Long and John R. Weist, of Long & Luder, P.A., of Overland Park, for appellee/cross-appellant Building Construction Enterprises, Inc.
Robert M. Pitkin, of Levy Craig Law Firm, P.C., of Kansas City, Missouri, for appellee/cross-appellant Hartford Fire Insurance Company.
Before ARNOLD–BURGER, P.J., GREEN, J., and HEBERT, S.J.
MEMORANDUM OPINION
ARNOLD–BURGER, J.
The Public Building Commission of Johnson County, et al. (the Commission), and Building Construction Enterprises, Inc. (BCE), entered into a contract where BCE would build two buildings. A fire occurred when one of the buildings was nearly complete, destroying almost the entire building. The Commission and BCE agreed that BCE would continue on the project and perform the fire rebuild work. After BCE began the fire rebuild work, the Commission's insurer decided that it would no longer pay for any fire rebuild work past a certain date. As a result, after working for 4 months without payment for any of the fire rebuild work performed after the cutoff date, BCE walked off the job and filed the current lawsuit for breach of contract. The Commission filed a counterclaim asserting that BCE breached the contract. The district court determined that the Commission adopted its insurer's unreasonable cutoff date and refused to pay for any additional fire rebuild work despite the fact that there were months of fire rebuild work left to perform. As such, the district court concluded that the Commission anticipatorily repudiated the contract for failing to pay BCE any fire rebuild work past the cutoff date. The district court also found that the Commission breached several provisions of the contract related to payment. The Commission appeals the district court's determination arguing that (1) it did not breach the contract; (2) BCE breached the contract; (3) it should have received a credit for payments made by its insurer according to the settlement agreement between the insurer and BCE; and (4) the prejudgment interest amount should be eliminated or reduced. In addition to the Commission's arguments, there is also a question as to whether this court has jurisdiction to hear this appeal based on the timeliness of the Commission's appeal. We find that we do have jurisdiction over the appeal and that the district court's findings should be affirmed, with the exception of its refusal to grant the Commission credits for payments received by BCE.
Factual and Procedural History
In 2004, the Commission, or owner, contracted with BCE to build two buildings—the Housing Building and the Programs Building—for the Johnson County Department of Corrections Adult Residential Center. The architect for the project was Horst, Terrill & Karst Architects, P.A. (HTK). According to the contract documents, HTK served as the owner's representative on the project and was required to “advise and consult with the Owner.” The Commission's representative was Georgia Gavito. She had the authority to speak on behalf of the Commission and was also considered the owner's representative. The Commission agreed to pay BCE just under $8.5 million for the project.
Hartford Fire Insurance Company (Hartford) entered into a performance bond with BCE, agreeing to remedy any possible default on BCE's part. If a default were to occur, Hartford promised to pay any funds associated with the default up to the amount of the contract price in order to insure completion of the project.
The relationship between the parties and the payment methods in place went very well until April 2005. At that time, when both buildings were nearly complete, a fire caused substantial damage in the Housing Building that required significant demolition and fire rebuild work. In conjunction with the fire rebuild, there were also some design changes made to the building.
The Commission filed a claim with its insurer, Factory Mutual Insurance Company (FM Global), to cover the costs of the fire rebuild work. There was no question that the damage caused by the fire was covered under FM Global's policy.
After the fire, the Commission chose BCE to perform the work necessary to rebuild the Housing Building. The Commission and BCE relied on construction change directives (CCDs) and change orders in order to pay for the fire rebuild work. The CCDs allowed BCE to bill for work on a time and materials (T & M) basis. BCE began filing T & M invoices in May 2005. The first five, TM–1 through TM–5, were paid without incident, pursuant to the agreed procedure. But starting in the fourth quarter of 2005, problems between the parties started to arise regarding payment of retainage on the Programs Building and payment of T & M invoices beginning with T & M invoice 317–06 (TM–6).
Although the fire damaged the Housing Building, it did not damage the Programs Building, which was 90% complete at the time of the fire. Shortly after the fire, the subcontractors became concerned that they would have to wait for any retainage on the contract until all the fire rebuild work was completed on the Housing Building. The contract did provide for release of retainage when a designated portion of the work had been sufficiently completed so that the owner could occupy or utilize it. Although there was conflicting evidence, there was evidence to support a finding that the Commission—through its representatives, Gavito and HTK—agreed to release the retainage, totaling approximately $370,000 on the Programs Building.
The Programs Building was substantially complete on September 14, 2005, and county employees moved in and occupied the building. HTK determined that $10,000 would need to be retained to address punch list items from the final walk through. After HTK issued a Certificate of Substantial Completion for the Programs Building, BCE asked the Commission to release retainage on the Programs Building. BCE submitted a pay application for retainage on the Programs Building and received a surety from Hartford to release retainage, and BCE submitted this surety to the Commission. But once all the required documents under the contract were submitted and the building occupied, the Commission reneged on its commitment. BCE viewed this as a breach of the agreement and on January 6, 2006, provided the Commission with its first 7–day notice that it was going to stop work unless the retainage was paid. The retainage was never paid.
During the time the dispute over retainage was brewing, on December 29, 2005, HTK sent a letter to BCE indicating that FM Global was questioning payments made under TM–1 through TM–6 to the tune of $290,000. In the letter, HTK indicated that until that was resolved “the Owner must limit their risk accordingly” and BCE would not be paid for the pending invoices. A dispute developed over payment of T & M invoices 1–9, and pay applications 27a and 27b, which will be more fully discussed later in this opinion. So on January 11, 2006, BCE sent a second 7–day letter notifying the Commission that unless the amounts owing were paid, it would stop work until payment was made. BCE did not stop work and it was not fully paid.
Finally, during the last quarter of 2005, rumors started to spread around the job site that the Commission was not going to pay for any additional fire rebuild work after December 31, 2005. BCE had not agreed to such a cutoff, and there was no provision in the contract to support such a cutoff. On December 2, 2005, the parties met and on December 6, 2005, BCE sent a letter to HTK, copying Gavito as the other Commission representative, outlining its objection to any December 31 payment cutoff. The letter outlined the timeline to date and referenced an updated construction schedule provided by WGK & Associates (WGK), who had been hired by the Commission to make a Fire Completion Schedule. The Fire Completion Schedule did not anticipate project completion until June 2006. BCE's letter clearly stated that any attempts to impose a unilateral December 31 payment cutoff would be viewed as a breach of the contract. BCE continued to perform fire rebuild work and letters continued to fly between the parties.
On March 30, 2006, BCE was advised by Gavito that its fears were correct; FM Global was refusing to pay for any fire rebuild work completed after December 31, 2005, with the exception of the costs of heating the building. Because BCE was no longer being paid for fire rebuild work, it was struggling to pay its own subcontractors. Correspondence continued and work continued until April 20, 2006, when BCE sent its third and final 7–day notice indicating that it would walk off the job on April 28, 2006, if it was not paid the amounts owed.
April 12, 2006, was the last day that the Commission made any payments to BCE for work performed, but it was not for the full amounts in dispute. BCE walked off the project on April 28, 2006.
BCE filed its lawsuit against the Commission on May 11, 2006. BCE asserted three allegations: (1) The Commission breached the contract by failing to make the monthly progress payments; (2) the Commission refused to reduce and release retainage on the Programs Building; and (3) quantum meruit (a claim for the reasonable value of services). BCE asserted an additional claim under the Kansas Prompt Payment Act.
On June 8, 2006, the Commission terminated BCE from the project for alleged default under the contract. Based on BCE's claims and defenses, Hartford did not complete the project following BCE's termination from the project.
In its counterclaim, the Commission asserted the following allegations: (1) BCE abandoned the project and failed to perform and complete its obligations as required by the contract; (2) BCE's work was defective; (3) BCE breached the express warranty contained in the contract; (4) BCE failed to perform the obligations under the implied warranty of workmanlike performance; (5) BCE is in default under the terms of the contract; and (5) Hartford failed to remedy BCE's default.
BCE filed a third-party petition against several parties including HTK. HTK filed a motion to dismiss BCE's third-party petition and an alternative motion for summary judgment. Hartford filed a third-party petition against HTK. HTK filed a motion to dismiss Hartford's third-party petition. The district court filed its journal entry granting HTK's summary judgment motion against BCE and Hartford for two reasons: (1) There was no contract between the three parties and (2) the economic loss doctrine barred any tort claim against HTK.
Several additional parties and third parties were added, and all filed numerous counterclaims, cross-claims, answers, and various other motions that are irrelevant to this appeal and will not be individually addressed unless specifically needed.
The parties agreed to bifurcate the trial into two phases. Phase I of the trial dealt with the liability of the parties, and phase II of the trial dealt with damages owed.
In April 2009, a 4–day bench trial was held to determine the liability portion of the case. Six months later, the district court filed its journal entry of judgment and memorandum on phase I of the trial proceedings. The district court ruled in favor of BCE on its claims against the Commission and ruled against the Commission on its claims against BCE and Hartford.
In February 2010, a 2–day bench trial was held to determine the amount of damages owed by the Commission. Seventeen months later, in July 2011, the district court filed its first journal entry of judgment and memorandum on phase II of the proceedings regarding damages owed.
Four months later, in November 2011, the Commission filed a Renewed Motion to Offset and to Reduce Plaintiff's Damages (motion for credits). In the motion, the Commission asked for a reduction in BCE's damages award due to several payments made by FM Global to BCE resulting from their settlement agreement.
The district court found that the Commission's motion for credits was really a motion to alter or amend the damages judgment and determined that because it was filed more than 28 days after the judgment, it was untimely; dismissing the motion. See K.S.A.2012 Supp. 60–259(f). Even though the district court dismissed the motion as untimely, it also denied the motion on the merits.
On January 3, 2012, the Commission filed a motion to reconsider the timeliness of its motion for credits. In its motion, the Commission made two separate arguments for the motion's timeliness. First, the issue regarding credits was specifically reserved by the district court in its pretrial order and orally at the pretrial hearing. Second, claims involving various other parties to the case had yet to be fully resolved, implying that there had yet to be a final judgment in the case.
On January 23, 2012, the district court granted and reviewed the Commission's motion. The district court made two important holdings. First, the district court found that the issue regarding credits was expressly reserved as an issue in the pretrial order and that the district court expressly reserved ruling on the issue until after the hearing on phase II of the trial. As such, the district court found that its determination that the Commission's motion to offset and to reduce plaintiff's damages as untimely was in error and vacated that decision. Second, the district court ruled that this journal entry was the final judgment pursuant to K.S.A.2012 Supp. 60–254(b) on claims between BCE, Hartford, and the Commission. The same day, the Commission filed its appeal.
BCE filed a cross-appeal regarding the timeliness of the Commission's motion for credits and contingently appealed the district court's decision to grant summary judgment in favor of HTK against BCE's claims. Hartford filed a contingent cross-appeal regarding the district court's decision to grant summary judgment in favor of HTK against Hartford's claims.
The Commission's Appeal Was Timely and, Accordingly, We Have Jurisdiction To Hear This Matter
Whether jurisdiction exists is a question of law over which this court's scope of review is unlimited. Associated Wholesale Grocers, Inc. v. Americold Corporation, 293 Kan. 633, 637, 270 P.3d 1074 (2011). The right to an appeal is purely statutory, and, if the record shows that the appellate court does not have jurisdiction, the appeal must be dismissed. Kansas Medical Mut. Ins. Co. v. Svaty, 291 Kan. 597, 609, 244 P.3d 642 (2010).
BCE and Hartford allege two reasons why this court lacks jurisdiction over the Commission's appeal. First, they contend that the Commission's appeal should be dismissed because the Commission failed to comply with this court's show cause order to brief the jurisdiction issue. We find this claim lacks merit as all parties sufficiently addressed the show cause order in their briefs.
Second, they argue that the district court's July 2011 judgment was a final judgment pursuant to K.S.A.2012 Supp. 60–2102(a)(4). As such, the Commission's November 2011, motion for credits was untimely filed in order to toll the time to file a notice of appeal. Because the motion for credits did not toll the time to file a notice of appeal, the Commission's notice of appeal was untimely filed, resulting in this court's lack of jurisdiction over the case.
We find this claim also lacks merit for the following reasons.
According to K.S.A.2012 Supp. 60–254(a), “[a] judgment is the final determination of the parties' rights in an action.” In addition, under K.S.A.2012 Supp. 60–254(b), when multiple parties and claims are presented to the court:
“[T]he court may direct entry of a final judgment as to one or more, but fewer than all, claims or parties only if the court expressly determines that there is no just reason for delay. Otherwise, any order or other decision, however designated, that adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties does not end the action as to any of the claims or parties and may be revised at any time before the entry of a judgment adjudicating all the claims and all of the parties' rights and liabilities.”
In this case, it is undisputed that three parties: Rickey E. Fielding, doing business as Links Steel Erectors (Links); Employers Mutual Casualty Company (EMCC); and Jim Plunkett, Inc. (JPI), were never formally dismissed from the action and none of their claims were decided.
BCE contends that because all three parties were omitted from the pretrial order, then the parties were dismissed. BCE cites to Riverside Drainage Dist. of Sedgwick County v. Hunt, 33 Kan.App.2d 225, 228, 99 P.3d 1135 (2004), for the proposition that when an issue or claim for relief is not contained in the pretrial order, then it is deemed abandoned and should not be considered by the court. This is clearly applicable to issues and claims for relief omitted from a pretrial order. However, BCE wants to broadly apply this legal conclusion to entire parties who have been left off of a pretrial order. BCE has failed to provide supporting authority for such a result, and research suggests there is no such authority in Kansas. However, another jurisdiction has dealt with a similar fact pattern and declined to allow the omission of a party from a pretrial order as sufficient to terminate the action against the omitted party. See GA American Ins. Co. v. Mills, 183 Ga.App. 707, 708–09, 359 S.E.2d 697 (1987), motion for reh. denied July 15, 1987. We agree.
In addition, the district court did not address the Commission's motion for credits in its July 2011 judgment determining damages owed. BCE equates the Commission's motion for credits with a motion filed under K.S.A.2012 Supp. 60–259(1). As such, BCE asserts that the Commission prematurely filed its motion for credits prior to trial, making the motion a nullity. Moreover, BCE argues that because the motion for credits was a nullity, then the Commission was required to file its renewed motion for credits within the required 28 days allotted to file such a K.S.A.2012 Supp. 60–259(f) motion. Because the Commission failed to timely file their renewed motion for credits, the time to file a notice of appeal was not tolled. BCE further argues because the time to file a notice of appeal was not tolled, the Commission's notice of appeal was untimely.
However, BCE neglects to discuss the meaning of a “final decision” in reference to the Commission's motion for credits. “The term ‘final decision’ has been construed to mean “ ‘one which finally decides and disposes of the entire merits of the controversy, and reserves no further questions or directions for the future or further action of the court.” ’ [Citation omitted.]” Svaty, 291 Kan. at 610.
In its supplemental pretrial order, the district court stated the following regarding the Commission's motion for credits:
“Prior to trial, the Court was asked to determine, as a matter of law, whether [the Commission] was entitled to a credit for the amount of BCE's claim for interest on the unpaid time and material invoices as a result of BCE's settlement with FM Global. The Court directed the parties to brief the issue and the issue was argued during the pretrial conference of February 21, 2010. At that time the Court, exercising its discretion and considering the equities of the matter, ruled that it will consider the issue post trial. Further the Court will consider at that time additional evidence regarding the equity of any award of interest on claims previously settled with FM Global.”
The Commission's motion for credits was presented before the phase II trial on damages. The district court expressly reserved ruling on the issue until after the phase II trial was conducted. The district court neglected to make a decision on the motion for credits until it was reminded by the Commission in its renewed motion for credits. Clearly, there were further issues and questions reserved by the district court and further action would have been required by the district court before the entire merits of the case could be disposed of.
Therefore, because at the time of the July 2011 judgment there were still multiple parties' claims remaining unresolved, including a ruling on the Commission's motion for credits which had been specifically reserved by the district court, the judgment was not a final judgment from which the Commission could appeal. It was not until January 2012, when the district court, under K.S.A.2012 Supp. 60–254(b), determined that all claims between BCE, Hartford, and the Commission had been resolved and appeal was proper. Accordingly, the Commission's appeal was timely, and we have jurisdiction over this action.
There Was Substantial Competent Evidence To Support The District Court's Finding That The Commission Breached Its Contract With BCE
The district court found that the Commission breached its contract with BCE in two ways. First, it breached the contract by anticipatory repudiation of the contract when it adopted FB Global's unreasonable deadline of December 31, 2005, for all fire rebuild work. And second, it breached the contract by failing to adhere to several of its obligations under the contract. Either basis would be sufficient, standing alone, to find the contract had been breached. We will address them in order after first examining our standard of review and the applicable legal standards for contract disputes.
Our standard of review given the conflicting testimony in this case is substantial competent evidence.
The Commission asserts that this issue is reviewable de novo because it can be decided based on the parties' joint stipulation of facts and interpretation of the contract. The Commission correctly states that the standard of appellate review is de novo for cases decided by the district court based upon documents and stipulated facts. See Stewart Title of the Midwest v. Reece & Nichols Realtors, 294 Kan. 553, 557, 276 P.3d 188 (2012). Where the controlling facts are based on written or documentary evidence from pleadings, admissions, depositions, and stipulations, an appellate court is in as good a position as the district court to examine and consider the evidence and to determine what the facts establish as a matter of law. Weber v. Board of Marshall County Comm'rs, 289 Kan. 1166, 1175, 221 P.3d 1094 (2009).
However, “[a] substantial competent evidence standard of review is used in cases with stipulated facts when the record includes conflicting testimony or when the case involves oral testimony that is conflicting.” State v. Brown, 272 Kan. 843, 845, 35 P.3d 910 (2001); see Giblin v. Giblin, 253 Kan. 240, 253–54, 854 P.2d 816 (1993) (de novo appellate review of facts is not permitted in a case involving oral testimony in that the appellate court does not weigh conflicting testimony); see also In re Hesston Corp., 254 Kan. 941, 987–88, 870 P.2d 17 (1994) (applying Giblin and holding that de novo review was not appropriate).
Because this case is wrought with conflicting testimony throughout two separate trials, it is difficult to see how this court's review could be de novo. Therefore, the substantial competent evidence standard will be used when addressing the district court's findings of fact. Substantial competent evidence is that which is both relevant and substantial and which furnishes a substantial basis of fact from which the issues can reasonably be resolved. In other words, substantial evidence is such legal and relevant evidence as a reasonable person might accept as being sufficient to support a conclusion. Venters v. Sellers, 293 Kan. 87, 93, 261 P.3d 538 (2011).
We do have de novo review over the district court's conclusions of law. See American Special Risk Management Corp. v. Cahow, 286 Kan. 1134, 1141, 192 P.3d 614 (2008).
And finally, to the extent that this case also requires the interpretation of a contract, the legal effect of a written instrument is a question of law. We may construe the contract and its legal effect regardless of the construction made by the district court. Osterhaus v. Toth, 291 Kan. 759, 768, 249 P.3d 888 (2011).
We review the legal maxims associated with a breach of contract claim.
There are five elements essential to satisfy a breach of contract claim: (1) a contract must exist between the parties; (2) there must have been sufficient consideration to support the contract; (3) a party's performance or willingness to perform the requirements of the contract; (4) a party must breach the contract; and (5) damages to the plaintiff caused by the breach of the contract. Commercial Credit Corporation v. Harris, 212 Kan. 310, Syl. 12, 510 P.2d 1322 (1973); City of Andover v. Southwestern Bell Telephone, 37 Kan.App.2d 358, 362, 153 P.3d 561 (2007). There is no dispute that there was a valid contract between the parties, supported by sufficient consideration. The key issues are whether the contract was breached, by whom, and what damages, if any, are due.
Whether a party breached the contract is a question of fact. Wichita Clinic v. Louis, 39 Kan.App.2d 848, 868, 185 P.3d 946,rev. denied 287 Kan. 769 (2008).
There was sufficient competent evidence to support the district court's finding that the Commission anticipatorily repudiated its contract with BCE.
The district court specifically found that the Commission anticipatorily repudiated its contract with BCE. The Commission argues that it did not anticipatorily repudiate the contract because it interpreted, in good faith, contract terms that were disputed and continued to act on undisputed contract terms.
In Kansas, anticipatory repudiation is considered a breach of contract. When a contract is anticipatorily repudiated, the nonbreaching party may bring an immediate cause of action. Hawkinson v. Bennett, 265 Kan. 564, 602, 962 P.2d 445 (1998).
“ ‘It is sometimes said that a contract is considered to remain in force until it is rescinded by mutual consent, or until the opposite party does some act inconsistent with the duty imposed upon him by the contract, which amounts to an abandonment, or that a contract will be treated as abandoned where the acts of one party, inconsistent with its existence, are acquiesced in by the other. Evidently what is meant by such statements is that one party may so wrongfully repudiate the contract as to authorize the other to renounce it and refuse to be longer bound thereby.” ’ Dickinson v. Lawrence Lodge, 135 Kan. 87, 90, 9 P.2d 985 (1932).
A party's refusal to perform under the contract can be inferred from the party's actions. See Chirm v. Bretches, 42 Kan. 316, 319, 22 P. 426 (1889).
The sole basis for the district court's finding of anticipatory repudiation was a combination of the Commission's statements and actions which indicated a clear intention not to make any payments to BCE for any work performed after December 31, 2005. Evidence was presented at trial that at least by March 30, 2006, the Commission had unequivocally announced, by letter and through its actions, its intention to adopt the position of FM Global and refuse to pay BCE for any fire rebuild work after December 31, 2005, even though there was fire rebuild work left to perform. By that time, BCE had been working for 4 months without any payment for the fire rebuild work.
There does not seem to be any dispute that there was no basis under the contract to stop payment on December 31. The representative of the Commission admitted this point at trial. In fact, there was compelling evidence that such an action was unreasonable given the fact that Commission's own scheduler, WGK, first anticipated in July 2005 that fire rebuild work would need to continue until April 2006 and later extended completion to the fall of 2006. In addition, Gavito testified that FM Global's scheduling consultant said “the 12–31 deadline should have been pushed out.”
There was evidence presented that payments were requested, but not paid, for work completed after December 31, 2005, which supported BCE's contention that the Commission was adopting the cutoff date and refusing to pay. The Commission did nothing to dispel BCE's concerns and appeared to drag its feet by requesting information it already had or by imposing conditions on payment that it had never enforced in the past. BCE expressed its concerns to the Commission on several occasions and received no assurances that the Commission was not adopting the December 31 cutoff date. As a result, although BCE continued to work for 4 more months, it was not paid for any work performed during that time.
The Commission, however, argues that a good-faith exception applies. “ ‘An offer to perform in accordance with the promisor's interpretation of the contract although erroneous, if made in good faith, is not such a clear and unequivocal refusal to perform as amounts to a renunciation giving rise to an anticipatory breach.’ [Citation omitted.]” Burcham v. Unison Bancorp, Inc., 276 Kan. 393, 408, 77 P.3d 130 (2003).
The Commission is requesting this court to reevaluate the evidence presented at trial in order to second guess the district court. The Commission points this court to evidence that it continued to pay BCE for work that had been incorporated into the contract through change orders. In addition, the Commission argues that it continued to abide by the contract when it terminated BCE by requesting a cause certification from HTK and by giving BCE the opportunity to cure.
The Commission focuses particularly on the things that it did do under the contract; however, what the Commission neglects to mention is that there is evidence that it adopted FM Global's unreasonable cutoff date at which point BCE would no longer be paid for its fire rebuild work despite the fact that there was undisputed evidence that the fire rebuild work would continue for several months after the cutoff date. Gavito testified that there was no contractual justification to adopt the cutoff date. Because BCE was no longer being paid for the fire rebuild work, it was struggling to pay its own subcontractors.
Because the Commission's own representative testified that there was no contractual basis to support the cutoff date and because the Commission's actions support a finding that it was refusing to pay with little justification, the Commission's good-faith argument necessarily fails.
The Commission further argues that because the amount of money requested by BCE for breaching the contract is minimal in comparison to the contract price as a whole the failure to pay was not substantial enough to constitute an anticipatory breach. Under Kansas law, however, the requirement to prove a substantial breach of the contract is only necessary when the plaintiff is seeking rescission of the contract. See Baker v. Tucker, 227 Kan. 86, 90–91, 605 P.2d 114 (1980); Shearson Hayden Stone, Inc. v. Perrier, 7 Kan.App.2d 89, 97, 638 P.2d 359 (1981). Even the cases cited by the Commission regarding substantial breach deal solely with the rescission of a contract and not anticipatory repudiation. See Stewart v. C & C Excavating & Const. Co., 877 F.2d 711, 714 (8th Cir.1989); Whiteley v. O'Dell, 219 Kan. 314, 316, 548 P.2d 798(916);Jinnings v. Amend, 101 Kan. 130, 133–34, 165 P. 845 (1917). Here, BCE does not request a rescission of the contract but merely asks for damages due to the Commission's breach of the contract.
Even so, although the amount of money that constituted the breach may have been smaller than the contract price as a whole, it does not minimize the fact that the Commission's refusal to pay for the fire rebuild work prevented BCE from paying its subcontractors for the work they performed. Moreover, the cutoff date not only applied to work that had already been performed by BCE, but it also applied to work that had yet to be performed that included necessary fire rebuild work. The amount of the breach may have been smaller than the actual contract price, but the amount of the breach had a major impact on BCE's ability to perform its part of the bargain. Therefore, the Commission's argument regarding substantial breach of the contract fails.
There was sufficient competent evidence to support the district court's finding that the Commission breached its contractual obligations to BCE.
The district court found that the Commission breached its agreement with BCE in several ways, each of which is contested by the Commission on appeal, so we will examine them individually. But first, we must examine a preliminary issue raised by the Commission regarding whether and how the fire rebuild work was included in the parties' contract.
There was sufficient evidence for the district court to find that the disputed fire rebuild work was included in the contract.
The underlying premise in finding that the Commission breached the contract by not paying for certain fire rebuild work is that the disputed fire rebuild work was covered by the existing or prefire contract between BCE and the Commission. The district court found that “certain charges for fire rebuild work were submitted through ‘time & materials' invoices ..., while other fire rebuild work was preformed through lump sum bids that were accepted by the County and made part of the Contract through change orders.” The Commission seems to argue that there was insufficient evidence to support this finding. With the exception of the claim by BCE that it was a breach of the contract for the Commission to refuse to pay it retainage on the completed Programs Building, the balance of the alleged breaches involve fire rebuild work. So if the Commission is correct and the disputed fire rebuild work was not part of the contract, the Commission could not have breached the contract for failing to pay for the disputed fire rebuild work.
Clearly when the contract was entered, the parties did not anticipate a subsequent fire. Once the fire destroyed the Housing Building, the Commission decided to allow BCE to do the fire rebuild work and incorporate the costs of the rebuild through either CCDs or change orders to the original contract. Both methods were allowed by the existing contract. A CCD is a communication from the project architect that asks the general contractor to alter or change the original scope of work under the contract. Consistent with the terms of the existing contract, the agreement provided that the CCDs were to be billed on a T & M basis. BCE would submit a T & M invoice for the work to the architect, who would sign it, and then convert it to a change order. The written direction to do the work came from the architect.
The other change order process involved the contractor receiving bids for work through a request for change order proposal (RCOP). Once the RCOP was approved, a change order would be generated. If the RCOP and subsequent change order were approved, it meant that the work described was in addition to the contract and the contractor would be entitled to additional compensation through a pay application. If the RCOP was denied, it meant that this work was part of the original scope of work and no additional compensation over the contract amount would be allowed.
All the fire rebuild work became part of the contract either through CCDs or RCOPs. These are two separate processes, both allowed by the contract. The advantage of using CCDs over RCOPs is expedience. Accordingly, it was the primary method used after the fire. According to the contract, once a CCD is signed by the contractor, the agreement as to the sum and time “shall be effective immediately and shall be recorded as a Change Order” and submitted for payment. (Emphasis added.) Even though the CCD process was the preferred method after the fire, neither the CCDs nor the RCOPs were required to be signed by FM Global to be effective.
So, although there may be some dispute about whether particular bills followed the proper path, which will be discussed in more detail where applicable below, the contract was amended by these two processes, and the district court did not err, based on the evidence presented and stipulations, in so finding.
We will next examine the district court's findings regarding the Commission's breach of particular provisions of the contract.
Failure to release retainage on the Programs Building.
A common condition of construction contracts is the retainage by the owner of a certain percentage of the contract price until the project, or portion thereof, has been substantially completed. According to testimony presented by BCE, contracts in Kansas generally include a 10% retainage. So even though bills may be submitted by the contractor for $100,000 worth of work, the owner would only pay $90,000 and keep $10,000 as retainage to be released once the project is substantially completed. In this case, the contract provided that the retainage was 10%, or $849,450.
The contract also gave the owner the discretion to accept a portion of the work separately and make payment of the proportionate amount of retainage. Under the section of the contract titled Substantial Completion, the contractor is required to notify the architect who then makes an inspection prior to issuing a Certificate of Substantial Completion. The contractor is required to get the consent of its surety. The architect can withhold retainage for any amount of work determined to be incomplete. Once all of this is complete, the Certificate of Substantial Completion for the designated portion of work along with the surety consent is submitted to the owner “for their written acceptance of responsibilities assigned to them in such Certificate.” These responsibilities are designated as responsibility for security, maintenance, heat, utilities, damage, and insurance for that portion of the work completed.
The district court found that the Commission breached the contract when it failed to release the retainage on the Programs Building to BCE. The Commission asserts that the contract required both the Programs and Housing Buildings to be certified as substantially complete before retainage had to be released. We next examine what evidence, if any, supports the court's finding.
There was conflicting testimony at trial regarding the early release of retainage on the Programs Building. Gavito testified that she never promised BCE that the Commission would release partial retainage for the Programs Building and that she did not have the authority to make such a promise. However, Gavito admitted that the Commission had the discretion to release retainage on the Programs Building before the entire project was complete but the Commission decided not to exercise its discretion because the architect did not approve the release. But Gavito was the owner's designated representative, so she could make commitments on behalf of the owner. In addition, there was evidence that BCE and its subcontractors were given several assurances and commitments by both Gavito and HTK—both owner representatives testified that they spoke with the authority of the Commission—that retainage on the Programs Building would be released upon the Programs Building's completion. HTK made notes at the meeting in which the release of retainage on the Programs Building was discussed. There was a note regarding a release of retainage on the Programs Building when the building was occupied which supported and corroborated BCE's position. Moreover, the Commission indicated that it would consider releasing retainage once BCE received consent from Hartford, BCE's surety, for release of retainage on the Programs Building.
The parties stipulated that HTK issued a Certificate of Substantial Completion for the Programs Building in September 2005. Shortly thereafter, also in September, the community corrections employees occupied the building after a certificate of occupancy was issued. In October 2005, BCE requested the Commission to release retainage on the Programs Building. In November 2005, BCE submitted a pay application for retainage on the Programs Building totaling approximately $370,000. BCE was asked to obtain consent from Hartford to release retainage. Hartford gave its consent, and BCE submitted the consent to the Commission. In January 2006, the Commission refused to release retainage on the Programs Building. But it did not do so because of a refusal to accept the responsibilities of the Certificate of Substantial Completion. It had, in fact, already assumed those responsibilities having occupied the building for over 3 months. Instead, it decided not to release the retainage primarily because of disputes regarding the Housing Building.
In sum, the evidence supports a finding that the Commission had the discretion to release partial retainage upon substantial completion of the Programs Building. Gavito told BCE, and HTK confirmed, that the Commission would release retainage for the Programs Building when it was substantially completed and the building was occupied. BCE did all that was required in order for retainage to be released on the Programs Building and the County's employees were able to occupy the building. However, the Commission refused to release retainage for reasons largely unrelated to the Programs Building. Therefore, there was substantial competent evidence to support the district court's conclusion that the Commission breached the contract when it refused to release retainage on the Programs Building.
Failure to pay BCE part or all of T & M invoices 1–9.
The district court found that the Commission breached the contract when it failed to pay BCE part or all of T & M invoices 1–9. The Commission disputes this finding on two independent grounds, based on the invoices challenged.
The Commission first takes issue with the district court's decision that T & M invoice 317–06 (TM–6) had only been partially paid and that T & M invoice 317–07 (TM–7) had not been paid at all in light of the fact that BCE stipulated that both invoices were paid. To fully understand the district court's order, some additional background is in order.
The first five T & M invoices (TM–1 through TM–5) submitted for fire rebuild work were signed, converted to change orders, and paid without incident. However, in December 2005, BCE was notified that the Commission was not going to pay TM–6, which had been submitted a month earlier, because of concerns stated by FM Global regarding the charges. Although TM–6 was for $173,000, the letter from the architect, who along with Gavito represented the Commission, indicated that the Commission was questioning charges on TM–1 through TM–6 for a total of $290,000. The plan was to recoup any charges that were not going to be reimbursed by its insurance carrier FM Global on TM–1 through TM–5, by withholding payment in a like amount on TM–6 and subsequent submissions to limit the Commission's risk of paying for something for which it would not be reimbursed by FM Global. FM Global believed that there were also some inappropriate charges on TM–6 and on the subsequently submitted TM–7, and those charges were deducted as well.
With that in mind, it is true that the district court found that TM–6 had only been partially paid and that TM–7 had not been paid at all. It is also true that the parties stipulated that both TM–6 and TM–7 had been paid. But there is no indication in the stipulation that the payments, which were finally made in April 2006, were full or partial.
Although the Commission relies on the parties' stipulation that TM–6 and TM–7 were paid, according to change order 33 deductions were taken for disputed items and overcharges on T & M invoices TM–1 through TM–6. Moreover, the original amount on TM–7 was far more than the amount on the corresponding change order. Therefore, the stipulation merely suggests that the change orders were paid, but not necessarily the full amount requested in the T & M invoices in question. Thus, the district court's finding that TM–6 and TM–7 were not fully paid was accurate, fully supported by the evidence presented at trial, and not contrary to the stipulations.
Next, the Commission asserts that T & M invoices 317–08 (TM–8) and 317–09 (TM–9) were never converted into changes orders. Because of this failure, the invoices could not have been incorporated into the contract and become due and owing by the Commission and, accordingly, the Commission could not be found to have breached the contract for not paying them.
According to the stipulated facts, it is true that TM–8 and TM–9 were never converted into change orders. Also, according to the stipulated facts, there appear to be two distinct ways that the Commission paid BCE for the fire rebuild work: either through CCDs or through change orders (the RCOP process described above). The district court, based on the stipulated facts, made the following finding:
“After the fire, in conjunction with the [Commission's] issuance of Construction Change Directives to BCE for fire rebuild work, certain charges for fire rebuild work were submitted through ‘time & materials' invoices (T & M invoices'), while other fire rebuild work was performed through lump sum bids that were accepted by the [Commission] and made part of the Contract through change orders.” (Emphasis added.)
This finding is supported by the evidence. BCE provided testimony that there were two payment submission options to follow in order to pay for the fire rebuild work: (1) through a CCD, based on a time and materials basis or (2) through bids that were solicited from subcontractors and then converted into change orders (the RCOP process). Gavito testified to the same. The Commission used both options.
The T & M invoices were BCE's verification for work completed as requested through the CCDs issued by the architect. In other words, BCE would receive a CCD, perform the work, and then submit a T & M invoice for payment. The T & M invoices were sent directly to Gavito, the Commission's representative on the project. It was BCE's belief that T & M invoices were not required to become change orders in order for BCE to be paid, even though many of them were.
Contrary to the Commission's position on appeal, there does not appear to be any solid evidence that a CCD accompanied by a T & M invoice is required to be converted into a change order before payment can be issued. In fact, based on the contract language, the process involved with a CCD is entirely different from a change order. There is no indication that a change order is required before payment can be issued. If this were so, the Commission could order BCE—through a CCD—to perform work, but then the Commission could neglect to convert the CCD into a change order after the work had already been performed (and approved by both the contractor and the architect) and refuse to pay BCE because a change order had never been issued. The signing of the CCD by the contractor and the architect (who served as the owner's representative) appears to be an acceptance of responsibility for payment of the attached T & M invoice.
If a conversion is required, the failure of the conversion of the CCDs and T & M invoices into change orders appears to be no fault of BCE. Through the testimony and evidence presented at trial, it appears that it was the Commission's task, through the architect, to convert the CCD and T & M invoices into change orders. There is nothing in the contract, insurance policy, or the record as a whole that excused the Commission for failing to proceed with the conversion of the CCDs and T & M invoices into change orders in order for BCE to receive payment for the work performed. According to the contract, once a CCD is signed by the contractor, the agreement as to the sum and time “shall be effective immediately and shall be recorded as a Change Order.” (Emphasis added.) Merely because the CCDs and T & M invoices were never converted to change orders does not remove the Commission's contractual duty to pay BCE for work performed, especially because it was the Commission's responsibility, through the architect, to process the CCDs and T & M invoices and convert them into change orders.
Instead, testimony supported an alternative reason for the nonpayment of TM–8 and TM–9. They were for fire rebuild work that occurred after December 31, 2005. FM Global indicated through a letter to BCE that it would no longer pay for any fire rebuild work that occurred after December 31, 2005, and the Commission adopted what FM Global decided to do regarding payments to BCE. The reason that FM Global decided not to pay BCE for fire rebuild work after December 31, 2005, was because it believed that all of the fire rebuild work should have been completed by that date. However, Gavito testified that there was nothing within the contract that allowed the Commission to impose the cutoff date on BCE.
Therefore, the district court did not err when it relied on the Commission's failure to pay TM–8 and TM–9 as reasons for the Commission's breach of the contract.
Failure to pay BCE for the work included in pay applications 27a and 27b.
The Commission argues that the district court erred when it relied on the Commission's failure to pay for the work included in pay applications 27a and 27b as a basis to find that the Commission breached or anticipatorily repudiated the contract. The Commission asserts that it was not required to pay the pay applications because they were not notarized or certified by HTK as required by the contract.
We first note that the district court did find that the Commission breached the contract for failing to pay for pay applications 27a and 27b, but it did not include this as a specific reason for finding an anticipatory breach. We find there was sufficient competent evidence to support the district court's finding.
The parties stipulated that pay applications 27a and 27b, which totaled approximately $140,000, were not certified by HTK and that BCE was never paid for these pay applications. The copies of pay applications 27a and 27b submitted as exhibits by the parties did not contain BCE's notarized signature or HTK's certification. However, there was evidence presented at trial that these particular copies of pay applications 27a and 27b were not the originals and that the originals would have been signed and notarized. In addition, failure to have a signed notarized pay application was not cited by HTK as a reason it was refusing payment, further supporting a finding that they were in fact appropriately signed.
Instead, according to the testimony, HTK refused to certify pay applications 27a and 27b because BCE failed to provide lien waivers from the subcontractors. But BCE had never been required, by Gavito or the architect, to provide lien waivers on the previous 33 pay applications before being paid. Moreover, Gavito testified that the only reason HTK refused to certify pay applications 27a and 27b was because she told HTK to require the lien waivers before certifying the pay applications. In fact, lien waivers have no effect on a public buildings contract because subcontractors are statutorily not permitted to place liens on public property. Instead, to address the possibility that subcontractors may not be paid, the contractor is required to obtain a public works bond, which BCE had in this case with Hartford. See K.S.A. 60–1111. There was evidence presented that Gavito was well aware that BCE was having trouble paying its subcontractors because of failure to receive payment from the Commission and that it would not be able to get lien waivers.
Other than the issue with the lien waivers, at the time the pay applications were submitted to the Commission there did not appear to be any other problem with the pay applications, including the fact that the pay applications were unsigned (if they were unsigned). For a payment to be disputed there must be some matter than can, in good faith, be disputed. Except for at-will employment contracts, every contract entered into in Kansas contains an implied covenant of good faith and fair dealing. See Morriss v. Coleman Co., 241 Kan. 501, 514–15, 518, 738 P.2d 841 (1987); Bank of America v. Narula, 46 Kan.App.2d 142, Syl. ¶ 11, 261 P.3d 898 (2011). The Commission's actions suggest otherwise. Moreover, the contract at section 9.7.1 allowed BCE to stop work upon 7 days notice for such failures to pay. Accordingly, the district court did not err when it found that the Commission breached the contract by failing to pay for the work submitted in pay applications 27a and 27b.
The Commission also brings into the question the district court's interpretation of the time requirements for paying these pay applications. However, this argument has little merit because, regardless of when the Commission was supposed to pay the pay applications, it never intended to pay for the work outlined in the pay applications because Gavito told HTK not certify the pay applications in order for BCE to be paid. Therefore, whether the Commission had 30 days after the architect received the application for payment or 30 days after it certified the pay applications is of little importance to the outcome. In addition, whether BCE relied on the Commission's failure to pay the pay applications for BCE's 7–day letter to stop work has minimal value because it has already been determined that the Commission was not going to pay the pay applications.
Failure of Commission to fulfill its obligation as fiduciary for BCE in adjusting fire loss damage.
The Commission asserts that the district court erred when it determined that the Commission breached its fiduciary duty to BCE. The Commission contends that this conclusion was erroneous for two reasons. First, Kansas law prohibits a public entity from paying costs that were never incorporated into a contract. Second, the disputed costs that accumulated after the cutoff date were eventually paid when they were incorporated into the contract.
According to the contract, under sections 11.4.8 and 11.4.10, the Commission agreed to maintain a fiduciary relationship with BCE and its subcontractors regarding any adjustment for insurance loss. A fiduciary relationship is a relationship where one party is bound to act in good faith and with due regard for the interests of another party. Linden Place v. Stanley Bank, 38 Kan.App.2d 504, 509, 167 P.3d 374 (2007). The district court found that the Commission breached its fiduciary duty for failing to contest, in a meaningful manner, FM Global's fire loss adjustments; in particular, the December 31, 2005, cutoff date. In support of its finding the risk manager for Johnson County testified that as part of the Commission's fiduciary duty the Commission should have required FM Global to provide a policy basis for its December 31, 2005, cutoff date. The Commission's representative on the project, Gavito, testified that there was no policy basis for the December 31, 2005, cutoff date. The Commission did not notify FM Global that the cutoff date was not acceptable and, in fact, accepted the cutoff date even though it was not supported by the contract. And finally, testimony was presented through Gavito that by failing to pay BCE TM–6 and TM–7 until FM Global had determined what it was going to pay on TM–1 through TM–6, the Commission, in contradiction of this fiduciary duty, was attempting to limit its risk and have BCE shoulder the burden of any adjustments made by FM Global. These facts provide sufficient competent evidence to support the district court's finding that the Commission breached its fiduciary duty to BCE. However, we will address the two concerns raised by the Commission regarding this finding.
Kansas law prohibits the Commission from paying all fire rebuild expenses not due under the contract.
The Commission argues that K.S.A. 19–242 prevents a public entity from making payments for costs that are not incorporated into a contract. As BCE points out in its appellate brief, this particular argument has no application to the district court's finding that the Commission breached its fiduciary duty to BCE. Moreover, even if the district court had relied on the Commission's failure to pay the T & M invoices and pay applications, as indicated in the previous subissues, there was sufficient evidence to support a finding that the T & M invoices and pay applications in question were incorporated into the contract and were due and owing to BCE. Therefore, K.S.A. 19–242 does not apply in this situation.
Payments for undisputed fire rebuild costs accumulated after December 31, 2005.
Next, the Commission argues that it did pay for certain fire rebuild costs that occurred after the cutoff date. The Commission solely relies on the stipulated fact that the change order involving TM–7 had been paid. Again, this argument has little to do with the district court's reason for determining that the Commission breached its fiduciary duty. Moreover, evidence was presented at trial that any fire rebuild work performed after December 31, 2005, and included on TM–7 was not paid for by the Commission. Therefore, the Commission's argument against the district court's conclusion regarding the Commission's breach of its fiduciary duty has no merit.
Failure to extend BCE's contractual performance deadline.
The Commission asserts that the district court erred when it found that the Commission breached the contract by refusing to extend the contract completion deadline. The Commission argues that both it and BCE were negotiating a completion date when BCE stopped work on the project. The Commission also alleges that it continued to pay for work on a good-faith basis in accordance with the work performed by BCE. A review of the trial testimony and documentary evidence reveals that there was substantial competent evidence to support the district court's finding.
The contract allowed for an extension of the project deadline for excusable delays, which included delays caused by fire damage. BCE requested numerous days for extensions due to the damage caused by the fire. It does not appear that the Commission granted BCE any days of extensions except for 9 days that were allowed due to weather. Moreover, according to the testimony at trial, the Commission informally threatened BCE with liquidated damages for the delay in completion of the project.
Based on the Commission's informal threat of liquidated damages for the delays in the project completion and the Commission's refusal to grant BCE's requested extensions of the completion date for excusable delays, the district court did not err when it determined that the Commission breached the contract by continually refusing to grant extensions of the completion date based on excusable delays caused by the fire.
The Commission Has Failed To Establish That The District Court Erred In Finding That The BCE Did Not Breach The Contract
The Commission contends that the district court erroneously found that BCE did not breach the contract when it stopped work on the project despite the contract's requirement that BCE continue working on the project while disputes between the Commission and BCE were resolved. The Commission presents three arguments in support of its assertion. First, the Commission claims that BCE's failure to continue working on the project during pending resolution of the disputed claims was a breach of the contract. Second, the Commission argues that there was no contractual exception that would allow BCE to stop work on the project. Third, the Commission contends that public policy requires that BCE should not be allowed to stop work while there is a pending resolution on the disputed claims.
As BCE suggests and contrary to the Commission's assertions, the standard of review relies on the district court's finding that the Commission failed to meet its burden of proof that BCE breached the contract. Finding a party did not meet its burden of proof is a negative factual finding. “Our standard of review for a negative finding of fact is that the party challenging the finding must prove arbitrary disregard of undisputed evidence or must prove some extrinsic consideration such as bias, passion, or prejudice.” Hall v. Dillon Companies, Inc., 286 Kan. 777, 781, 189 P.3d 508 (2008).
The Commission contends that BCE was required, under sections 4.3 .1, 4.3.2, and 4.3.3 of the contract, to continue working on the project while BCE's claims for unpaid moneys and extensions of time were being resolved. Because BCE walked off the project without justification under the contract, the Commission claims that BCE breached the contract.
The district court found that BCE was entitled to stop work on the project because of the Commission's numerous breaches of the contract. The district court further found that BCE did not breach its contractual obligations and did not abandon the project.
Regardless of whether the disputed claims were pending resolution, there was substantial evidence presented at trial that the Commission adopted FM Global's cutoff date in which BCE would no longer be paid for any fire rebuild work after that date. In addition, there was testimony that there was no contractual justification for adopting FM Global's cutoff date. As such, it would have been futile for BCE to continue waiting for a possible resolution when it was fully aware that it would not be paid for any fire rebuild work after December 31, 2005, and that there were several more months of fire rebuild work to complete after that date. In essence, the Commission asserts that BCE should have continued to work on the project despite the fact that it would not be paid for the work.
Moreover, as BCE points out, the section the Commission relies on—section 4.3.3—suggests that the continuation-of-work clause is a two-way street. While the clause requires the contractor to continue work during dispute resolutions, the owner must also continue paying the contractor for work in accordance with the contract documents. In this case, it has already been determined that the disputed claims—T & M invoices TM–1 through TM–9, pay applications 27a and 27b, and retainage on the Programs Building—were either made part of the contract or were unjustifiably denied. The Commission refused to pay for these claims. Therefore, the Commission clearly did not abide by section 4 .3.3.
Furthermore, because it has already been determined that the Commission anticipatorily breached the contract as discussed above, BCE was entitled to immediately sue for damages. There is nothing in the contract that prevented BCE from stopping work and suing for damages when the Commission breached the contract. The Commission's breaches were not just mere disputed claims as the Commission would like this court to believe. Therefore, the Commission has failed to show that the district court arbitrarily disregarded undisputed evidence or that the district court invoked bias, passion, or prejudice when it made its decision.
Accordingly, the Commission's second and third arguments fail for the same reasons.
The District Court Abused Its Discretion When It Denied The Commission's Motion For Credits
The Commission argues that the district court erred when it denied the Commission's motion for credits. The Commission presents two arguments to support its position. First, the Commission contends that the district court's denial of the motion for credits gives BCE a double recovery for certain alleged contract damages—the TM–8 through TM–1 Unvoices, plus disputed items contained in the T & M invoices and the payment reduction. Second, the settlement proceeds between FM Global and BCE were conceded to cover certain contract damages. As such, those contract damages are no longer due.
In Kansas, it is within the district court's discretion to allow a setoff. Appellate courts review the district court's decision under an abuse of discretion standard of review. Hayes Sight & Sound, Inc. v. ONEOK, Inc., 281 Kan. 1287, 1299, 136 P.3d 428 (2006).
A judicial action constitutes an abuse of discretion if the action (1) is arbitrary, fanciful, or unreasonable; (2) is based on an error of law; or (3) is based on an error of fact. Critchfield Physical Therapy v. The Taranto Group, Inc., 293 Kan. 285, 292, 263 P.3d 767 (2011).
The district court denied the motion on the merits holding that “[t]he Court is well familiar with the equities of this entire action, and with the damages claimed and recovered by BCE, and finds that a credit should not apply for essentially the reasons set forth in BCE's opposition brief.”
The Commission asserts that FM Global and BCE came to a settlement and that FM Global paid BCE the amount owed to BCE for T & M invoices TM–8 through TM–11, as well as other disputed items and the reduction taken for a duplicated invoice. Because FM Global paid the amounts owed, then the Commission should receive a credit for those payments. If the Commission does not receive a credit for those payments, then BCE receives a double recovery.
The Commission alleges, through a breakdown of what was paid by FM Global in the settlement agreement, that several of the disputed T & M invoices were actually paid through the settlement agreement. The Commission asserts that the breakdown of FM Global's payment exactly equals the T & M invoices and other charges at issue. Because of this, FM Global paid for the T & M invoices and the Commission should receive a credit for that payment. However, the Commission fails to direct this court's attention to the settlement agreement where FM Global supposedly paid for these particular T & M invoices and other charges. Apparently, at the hearing on the Commission's motion for credit, the parties were not allowed to admit the settlement agreement into evidence for confidentiality reasons.
On the other hand, in BCE's motion opposing the Commission's motion for credits, it stated: “BCE agrees that, following Phase II of trial, the Court may enter a credit against the judgment awarded to BCE equal to the amount of the Court's award to BCE for (and only for) the claimed unpaid T & M invoices.” In addition, BCE stated that” [t]heoretically, because BCE has settled with FM Global on its claim under the insurance contract for payment of the T & M invoices, the [Commission] would be entitled to receive a credit for those same amounts paid by FM Global.” BCE, however, continued to argue that the Commission was not entitled to a credit for any interest owed. Moreover, in its proposed supplemental pretrial order, BCE conceded:
“With regard to the [Commission's] claim for a credit to the extent of recovery by BCE from FM Global for sums that ‘should have been paid’ under the builders risk policy, BCE contends that [the Commission] is entitled to a credit in the amount equal to the amount of the Court's award to BCE for (and only for) time and material invoices and is not entitled to a credit for any interest claimed by BCE from the [Commission] that has accrued on the unpaid T & M invoices.”
Because the district court relied on BCE's opposition brief and because BCE conceded that the Commission deserved credit for FM Global's payment to BCE for the T & M invoices, then the district court acted arbitrarily and abused its discretion when it denied the Commission a credit for the amounts paid by FM Global for the T & M invoices and other charges at issue. Because this court does not have the exact amounts paid by FM Global to BCE for the T & M invoices, we are required to reverse the district court's decision in that regard and remand to the district court in order for a credit to be issued in the correct amount.
The District Court Did Not Abuse Its Discretion When It Awarded BCE Prejudgment Interest For The Elongated Amount Of Time It Took The District Court To Enter Its Judgment
The Commission's final argument relates to the district court's award of prejudgment interest to BCE. It should be noted that the Commission does not assert that BCE is not entitled to prejudgment interest (so long as this court determines that the Commission breached the contract and is liable for damages), but rather, the Commission complains of the length of time it took the district court to file its journal entries of judgment for both phases of the trial. Because of the length of time it took the district court to file its journal entries, prejudgment interest continued to unnecessarily accumulate and the Commission asserts that the amount of prejudgment interest should be partly, if not entirely, reversed.
Both parties acknowledge that the district court's award for prejudgment interest is subject to an abuse of discretion standard of review. Owen Lumber Co. v. Chartrand, 283 Kan. 911, 925, 157 P.3d 1109 (2007).
Phase I of the trial began on April 14, 2009. The district court handed down its decision for Phase I of the trial on October 6, 2009. Phase II of the trial began on February 23, 2010. The district court handed down its decision on phase II of the trial on July 18, 2011. However, the judgment did not become final until January 23, 2012, when the district court granted a K.S.A.2012 Supp. 60–254(b) certification.
The Commission relies on K.S.A.2012 Supp. 60–252a, which requires district courts to file their journal entries within 90 days of hearing. If the district court fails to file within 90 days, it must write to the Kansas Supreme Court indicating why a judgment has not been entered. This statute has nothing to do with prejudgment interest amounts or this court's ability to modify prejudgment interest amounts. Therefore, the Commission's reliance on this statute is misplaced.
The Commission fails to provide any citation to Kansas law that would give this court the power to reduce or eliminate an amount of prejudgment interest solely because of the district court's failure to quickly file its journal entry. After a thorough search, there does not appear to be any law in Kansas that would allow this court to make such a decision as the Commission requests. Accordingly, it has failed to persuade us that its claim has merit.
Moreover, as BCE suggests, the Commission not only agreed to bifurcate the trial—which would immediately lengthen the process—but was also the party that suggested that the trial be bifurcated into two phases. In addition, it took the Commission 4 months to realize the district court had not addressed the issue of credits, and neither party alerted the court to other unresolved claims. So, although a district court judge is required to promptly address cases taken under advisement, and the time taken here seems to be exceedingly long, we also recognize that time and resources are stretched in courthouses around the State and particularly in high volume urban courts. This was clearly a complex case with a significant amount of evidence to review and briefing to research. In light of these limitations, the parties bear some responsibility for not taking any action to timely inquire regarding the status of the case or the reason for the delay.
In addition, the Commission believes that the delay was egregious because the district court virtually adopted the entirety of BCE's proposed findings and conclusions. But merely because the district court chose to adopt BCE's proposed findings and conclusions does not suggest that the district court neglected to conduct its own research or critically think about the case before making its determination. As previously noted, it is obvious that this case had many difficult issues and numerous volumes of evidence and transcripts that the district court was required to sift through. So this claim also lacks merit.
Finally, because we find that the district court did not err in finding that the Commission breached the contract and BCE did not, we need not address Hartford's argument that it was not liable to the Commission under the performance bond, nor Hartford's and BCE's cross-appeals regarding the district court's decision to grant summary judgment in favor of HTK.
Affirmed in part, reversed in part, and remanded for a determination of credits to be given the Commission.