Opinion
Case No. 98-1390-JTM
May 22, 2001
MEMORANDUM AND ORDER
Having conducted a bench trial in this case from March 6, 2001 to March 8, 2001, the court's findings of fact and conclusions of law are set out below.
I. Findings of Fact
A. Background
1. Plaintiff Concrete Specialists of Omaha, Inc., d/b/a Concrete Specialists, Inc. ("Concrete") is a concrete finishing company based in Omaha, Nebraska. Brian Reiman is the president of Concrete. Lovering Johnson, Inc. ("LJI") is a Minnesota corporation and general contractor. Robert Johnson is the president and chief operating officer of LJI. Hartford Accident Indemnity Company ("Hartford") is LJI's surety, and its defenses are the same as LJI's.
2. LJI was the successful bidder on two projects for the Corps of Engineers at the McConnell Air Force Base near Wichita, Kansas. The projects are known as the New Family Housing Project ("Housing Project") and the Squadron Operations Project ("Squadron Project"). These projects gave rise to multiple delays and problems resulting in many lawsuits and claims against LJI and an equitable adjustment claim by LJI against the Corps of Engineers.
B. The Subcontracts
3. Concrete entered two subcontracts with LJI involving only the Housing Project. The first subcontract dealt with curb and gutter installation and the second involved concrete flatwork. LJI provided both standard form subcontracts. The subcontracts have identical boilerplate terms including subparagraph G which provides that the subcontractor may suspend all work upon the contractor's failure to make payments as provided in the subcontract. The scope of work provision in each subcontract was subject to handwritten modifications. The parties modified and signed both subcontracts on April 30, 1997.
4. In the curb and gutter subcontract, the scope of work provision states:
Scope: Provide all labor, material, equipment and forms necessary . . . to install all concrete curb and gutter. Work includes installation and compaction or aggregate base, setting forms, placing and finishing concrete, and installation of construction joints, expansion joints and control joints as required.
Def. Ex. 4. The subcontract is subject to the following handwritten modifications: 1) additional work of sawing six inches of existing asphalt curb and guttering is to be compensated at a rate of $1.50 per linear foot; 2) removal of existing curb and guttering is to be compensated at a rate of $3.50 per linear foot; 3) the original curb and gutter installation price was stricken and replaced by the price of $9.00 per linear foot; and 4) the original final contract amount was stricken and changed to $55,935 to account for the altered installation rate. Brian Reiman and LJI's project manager, Brian Bass, initialed and dated the modifications.
5. In the concrete flatwork subcontract, the scope of work provision states:
Provide all labor and equipment necessary for Concrete Flatwork per plans and specification Section 0330 including: spreading and grading cushion, installing vapor barrier, wire mesh, rebar where required, place and finish concrete, install expansion joints and construction joints where applicable, saw cut control joints and apply all curing compound.
Def. Ex. 3. The subcontract is subject to the following handwritten modifications: 1) the parties struck the following: "Work includes slabs on grade, trash enclosure pads, and driveway approaches"; 2) the contract amount was stricken; and 3) the parties added the following: "$.80 Driveways Walks/Patios" and "$.87 Slab on Grade (Basements/Garages)." Again, Reiman and Bass initialed and dated these modifications. The parties disagree as to the meaning of the flatwork subcontract. LJI argues that the subcontract reflects Concrete's obligation to complete all of the driveways, walks, patios, basements, and garages which had not been completed at the time Concrete arrived on the project. Concrete asserts that the flatwork subcontract merely established a unit price for any flatwork that plaintiff might perform.
C. Course of Performance
6. After entering the subcontracts on April 30, 1997, Concrete began work on the housing project in the first week of May 1997. By the time Concrete arrived on the project, LJI had already completed approximately one-half of the basement and garage concrete flatwork.
7. Every project and each portion of each project has a critical flow, or an order in which various tasks must be completed. The critical flow of the housing project's concrete work required garages to be completed first, then driveways, then curb and gutters, and then approaches to the driveways. Hence, Concrete started out pouring driveways since LJI's crew had already completed many of the garages. During the first two weeks of May 1997, Concrete poured 5,787 square feet of driveway concrete. At $.80 per square foot, Concrete was entitled to $4,629.60 less a 10% retainage, or $4,166.64. LJI paid that amount to Concrete on May 16, 1997.
8. Concrete completed a similar amount of driveway work in the last two weeks of May 1997. LJI paid $3,805.44 to Concrete for that work on May 30, 1997.
9. During the first week of June 1997, Concrete completed 900 square feet of driveway, 460 square feet of walks and stoops, and 437.5 square feet of trash enclosures. LJI paid Concrete $1,438, less 10% retainage, on June 18, 1997.
10. During the second week of June 1997, Concrete completed another 4,098 square feet of driveway, nine trash enclosures, nine stoops, and 258 square feet of walkway. LJI paid Concrete $2,924.57 for this work on June 18, 1997.
11. In the final weeks of June 1997, Concrete completed 4,272 square feet of driveway and began curb and gutter work by sawing 4,000 linear feet of the existing curb and gutter. This was done at the agreed-upon rate of $1.50 per linear foot for a total of $6,000. LJI made full payment for this work on June 26, 1997.
12. In the first week of July 1997, Concrete removed 1,084 linear feet of existing curb and guttering and poured 451 linear feet of curb and guttering. Additionally, Concrete undertook the process of removing some existing driveway approaches that it had discovered under a layer of soil. The subcontract did not contemplate this additional task. The parties agreed that Concrete would receive $2.00 per square foot for each square foot of existing approach removed. During this period, Concrete removed 522 square feet of existing approaches. LJI made prompt payment for this work on July 9, 1997 in the amount of $7,898.
13. Concrete submitted its next payment request on July 17, 1997. Concrete had poured 633 linear feet of curb and guttering, 1,190 square feet of driveway approaches, and removed an additional 370 linear feet of curb and guttering. Concrete's use of an LJI truck and 42 cubic yards of concrete reduced the amount due to Concrete by $2,202. This resulted in a gross amount due of $7,490, or a total amount due after retainage of $6,740. LJI paid only $3,000 and did not make payment until July 30, 1997.
14. As early as July 8, 1997, LJI's Quality Assurance Reports (QARs) indicate that LJI had its own crew of 10 persons working on flatwork concrete tasks. At some point in mid to late July, Brian Reiman met with representatives of LJI. At the meeting, Reiman indicated that Concrete was busy with driveway and curb and gutter work. Since the curb and gutter work could proceed, patios and sidewalks were no longer Concrete's priority. Reiman also noted that LJI's own crew was done with the basements and garages and that they would be free to work on other flatwork.
15. On July 21, 1997, LJI sent the following to Concrete:
Per discussions with my Project Superintendent, Joel Lundquist, I understand that you have informed us that you do not want to perform work as per your contract on the patios, sidewalks, stoops or trash enclosures. Should it cost us additional expense to hire another subcontractor to perform this work or to do it with our own forces, we will charge you the amount above what it would cost us per your contract.
The parties did not discuss this issue further until late October of 1997 when Concrete called LJI to seek information as to why payments were withheld and LJI responded by letter dated October 23, 1997.
16. Concrete submitted its next payment request on July 25, 1997, despite the fact that it had not yet received full payment on its previous request. The July 25 demand covered the following: 770 linear feet of curb removal, 1,140 linear feet of curb and gutter replacement, 2,215 linear feet of asphalt sawing, and 1,330 square feet of driveway approaches. Concrete again reduced its demand due to its use of an LJI truck and concrete purchased by LJI. Concrete's gross request was $16,425.25, less retainage for a total request for payment of $14,782.72. LJI paid Concrete $17,454.42 on August 21, 1997. This represents $2,696.70 more than Concrete's July 25 request, but the payment failed to make up LJI's unexplained deficit from Concrete's July 17 request.
17. Concrete submitted its next payment request on August 25, 1997. This request included the following work: 770 square feet of driveway approaches, 2,065 linear feet of curb and gutter removal, 1,060 linear feet of curb and gutter replacement, and 9,367 square feet of driveway. The gross request was thus $26,399, or $23,759 after retainage of 10%. See Def. Ex. 11. LJI assessed several back charges to this payment request. First, LJI assessed a charge of $331 to repair a sidewalk poured by Concrete which was sloping in the wrong direction. The court finds that this charge is supported by the evidence. Second, LJI assessed a miscellaneous charge of $1,587 against the August 25 request. However, LJI's handwritten notes explaining the charge (at Def Ex. 11) indicate the charge should have been $1,058, which includes: $414 for labor in installing nine sleeves in portions of the curb and gutter replaced by Concrete, $225 for equipment used in drilling for the sleeves, $384 for eight cubic yards of concrete, and $35 for a soil test. A charge of $1,058 is proper. Third, LJI assessed a charge of $2,554 for the rental expense of a smooth drum vibrating roller. Brian Reiman testified that LJI agreed to rent the roller because the project had originally called for a sand base, but LJI altered the plans to a rock composite underlay. Concrete came from Nebraska prepared to compact sand and the equipment it brought was inadequate for compacting rock. Hence, it is Concrete's position that LJI agreed to rent the roller at its expense in view of the unexpected plan alteration. Reiman further testified that Concrete could have retrieved an adequate roller on any of a number of trips back to its headquarters, but did not do so because LJI was covering the rental expense. LJI's position on the roller charge is that Concrete agreed to provide all equipment necessary for the project and that LJI was only fronting the rental cost until it could pass on the charge. The court finds the testimony of Reiman to be compelling on this issue and thus concludes that LJI's charge of $2,554 is inappropriate. Finally, LJI assessed a charge for concrete in the amount of $432, which the court finds appropriate. In conclusion, LJI's appropriate charges in the amount of $1,821 reduce Concrete's August 25, 1997 payment request of $23,759 to $21,938. On September 25, 1997, LJI paid Concrete $18,835, which results in a $3,103 deficit on Concrete's August 25 payment request.
18. Concrete continued work into September 1997 completing 7,494 square feet of driveway, 1,960 square feet of driveway approaches, 829 linear feet of curb and gutter removal, and 1,369 linear feet of curb and gutter replacement. Concrete submitted a bill for this work on September 30, 1997, in the net amount, after retainage and a charge for 94 cubic yards of concrete, of $19,948.50. LJI did not render any payment for the September period and did not provide any timely explanation for the lack of payment.
19. Concrete's last month of work was October 1997. During that month, Concrete poured 1,596 square feet of driveway, 1,195 square feet of approaches, and removed and replaced 810 linear feet of curb and gutter. After retainage and a charge for 60 cubic yards of concrete, Concrete's net request on October 31, 1997 was $10,970.10. See Plf. Ex. 90 (gross request was $12,189 before retainage). LJI did not pay for this work.
20. Considering all of the requests and payments, the evidence supports a total amount due Concrete of $35,064.90. Concrete also claims retainage which the court finds to be in the amount of $11,813.54. The court thus finds Concrete's claim is $46,878.44 plus interest and attorneys' fees.
21. LJI asserts a number of counterclaims. First, LJI asserts a claim of $374.80 for completing 24 linear feet of curb and gutter that Concrete left unfinished. Concrete does not dispute that it left the 24 linear feet uncompleted.
22. Next, LJI asserts a claim of $5,812 for repair of certain curb and guttering that allegedly failed. In an April 8, 1998 letter to Concrete, LJI states:
The Corps of Engineers has found various deficiencies in your curb installation at the [new family housing project]. Such deficiencies are delaying us from turning over such completed housing units to the Corps of Engineers and thus we are incurring liquidated damages on our contract for such housing units.
We hereby request that you begin repair work of such deficient curbs within 72 hours of receipt of this letter or we will repair such work ourselves and back charge the cost of such repairs and such liquidated damages to your contract.
Plf. Ex. 99, Letter from LJI to Concrete. Defendant's Exhibit 23 indicates that LJI paid Monahan Concrete Construction the $5,812 in order to replace 140 linear feet of curb and to saw cut and seal joints on approximately 144 square feet of sidewalk. While the claimed amount could represent damage caused by errors in Concrete's construction, LJI has not established that link. The Corps of Engineers quality assurance representative, Richard Sawyer, testified that the Corps had approved all of Concrete's work except for two driveways which were not squared. Sawyer testified that Concrete repaired the driveways before leaving the project and that the Corps did not object to any other of Concrete's work. The court finds that LJI did not prove that the claimed problems were the result of Concrete's actions. Additionally, the Corps and LJI had numerous difficulties establishing the appropriate curb and sidewalk elevations. If the Corps in fact required LJI to replace a portion of curb and guttering then such a requirement could have resulted from elevation disagreements rather than Concrete's performance. This explanation would be more consistent with Sawyer's testimony. In short, LJI has failed to prove its $5,812 counterclaim for curb replacement.
23. LJI also asserts a claim of $1,926 for the cleanup costs of debris left by Concrete. The court finds sufficient evidence that debris was in fact left on the project site by Concrete.
24. LJI claims damages in the amount of $18,500 for the repair of asphalt which it alleges Concrete damaged during curb and gutter installation. Concrete admits that some limited chipping of the asphalt did occur during sawing and removal of the existing curb. LJI engaged Holland Paving, Inc. to perform the asphalt repair. Mr. Johnson testified that all of the Holland Paving payments related to the repair of an eight-inch wide swath along the gutter in the area damaged by Concrete. However, the evidence does not support this conclusion. Holland Paving presented LJI with two initial invoices. One covered "asphalt paving" and the other dealt with "repairing and asphalt patching." Def. Ex. 21. The asphalt patching invoice amounted to only $4,000. The court considers correction of the damage caused by Concrete's curb removal to be "repairing and asphalt patching." Additionally, LJI issued a change order in the amount of $4,000 for the "sawing and patching of existing asphalt up to 18" wide." See Plf. Ex. 105. The court concludes that Holland Paving was engaged in paving work beyond simply repairing and patching the areas damaged by Concrete. Thus, LJI can attribute only the invoice dealing with repair and patching to Concrete. The court finds Concrete caused $4,000 damage to asphalt surfaces during its removal of the existing curb.
25. Finally, LJI claims breach of contract damages in the amount of $62,589. LJI asserts that these damages arise from Concrete's failure to complete the project's patios, sidewalks, and slab on grade work.
26. The court has considered LJI's miscellaneous claims in finding number seventeen and, where appropriate, the court has deducted the claims from Concrete's August 25, 1997 payment request.
II. Conclusions of Law
A. Subcontract Interpretation
1. The scope of the curb and gutter subcontract is clear on its face. The subcontract clearly states that Concrete must provide "all labor, material, equipment and forms necessary . . . to install all concrete curb and gutter." Def. Ex. 4 (emphasis added). Concrete did agree to complete all of the housing project's curb and guttering.
2. The scope of the concrete flatwork subcontract is not so clear. The subcontract as signed states that Concrete must provide "all labor and equipment necessary for Concrete Flatwork . . . including: spreading and grading cushion, [etc.]" Def. Ex. 3. However, while the original standard form contract stated that "work includes slabs on grade, trash enclosure pads, and driveway approaches," the parties struck this language entirely, leaving only the handwritten statements "$.80 Driveways Walks/Patios" and "$.87 Slab on Grade (Basements/Garages)." As noted above, LJI interprets the subcontract to bind Concrete to complete all driveways, walks, patios, basements, and garages. Concrete contends that the contract established a unit price that Concrete would receive if it did any flatwork.
3. Whether a contract is ambiguous is a question of law for the court to decide. The Kansas Supreme Court defines ambiguity in Wood v. Hatcher, 199 Kan. 238, 242, 428 P.2d 799, 803 (1967), as follows:
The language in a contract is ambiguous when the words used to express the meaning and intention of the parties are insufficient in a sense the contract may be understood to reach two or more possible meanings. . . . It arises when application of pertinent rules of interpretation to an instrument as a whole fails to make certain which one of two or more meanings is conveyed by the words employed by the parties.
By means of comparison, the curb and gutter subcontract clearly states that the subcontractor must complete all curbs and gutters on the project. The flatwork subcontract does not outline the scope of work in such clear terms. It does not specify what flatwork, if any, Concrete is committed to do. The terms of the flatwork subcontract relating to the scope of work are ambiguous.
4. The court must construe an ambiguous contract strictly against the drafter and liberally toward the other party. Crestview Bowl, Inc. v. Womer Constr. Co., 225 Kan. 335, 592 P.2d 74 (1979); Desbien v. Penokee Farmers Union Cooperative Association, 220 Kan. 358, 552 P.2d 917 (1976). In the present case, LJI provided the standard form subcontract. The court must interpret the contract as a whole to ascertain the intent of the parties and to achieve a reasonable construction. Crestview Bowl, Inc. v. Womer Constr. Co., 225 Kan. at 340, 592 P.2d 74. "Where ambiguity or uncertainty is involved the intention of the parties is not ascertained by resort to a literal interpretation of an isolated provision but by a consideration of the instrument as a whole, the object sought to be obtained and other circumstances, if any, which tend to clarify the real purpose and intent of the parties." Id.
5. Considering the flatwork subcontract as a whole does not resolve the ambiguity. The court thus must look to other circumstances to clarify the intent of the parties. As noted in the court's findings of fact, LJI had its own concrete crew working on the job as early as July 8, 1997. The LJI crew continued work well into November 1997 after Concrete had already left the project. Prior to Concrete's arrival at the project, LJI and other subcontractors had completed a large amount of the slab on grade work. The court finds that LJI's continuing willingness to utilize its own concrete crew is inconsistent with its position that Concrete was to perform all flatwork. LJI's crew began working before the July meeting leading to the July 21 letter to Concrete. The fact that the LJI crew was working on flatwork before Concrete stated that its priority was curb and gutter defeats any argument that LJI's crew was a response to Concrete's alleged repudiation. The court also notes that Concrete completed several trash enclosures and stoops. The subcontract mentioned neither of these items. These actions are consistent with Concrete's position that it was performing piece work at a pre-established unit price. Finally, Concrete arrived at the project with only four workmen and did not have the equipment necessary to perform slab on grade work. Given the size of the housing project, LJI could not have expected a four-man crew to complete all of the concrete flatwork on schedule. Yet, LJI never confronted Concrete about the size of its crew or its lack of equipment. Again, these facts support Concrete's position that the flatwork subcontract established a unit price for any flatwork that Concrete might perform. The court finds that the parties intended the flatwork subcontract to establish a unit price at which Concrete could perform the listed work. As such, Concrete was not bound to perform any concrete flatwork; instead, a new contract would arise whenever Concrete accepted by performance LJI's offer for compensation at the listed unit rates.
B. Damages and Interest
6. As noted above, LJI is entitled to an offset of $4,000 for asphalt damage Concrete caused during curb removal. Given the scope of the flatwork subcontract, Concrete is not liable for failure to complete patios, sidewalks, and slab on grade work. The court has found that Concrete failed to remove debris from the project site and failed to complete 24 linear feet of curb and gutter. However, the subcontract provides that "failure of the Contractor to make payments . . . shall, . . ., entitle the Subcontractor to suspend all work . . . during the continuance of such default . . ." Def. Ex. 3, at ¶ G. LJI first failed to make required payments to Concrete on July 30, 1997. LJI did not, at that time, offer any explanation for its failure to pay, and LJI remained in default from that point forward. As a result, Concrete was free to suspend its work. Because LJI remained in default on its payment obligations, Concrete was free to terminate the relationship and leave the project. LJI's complaint that Concrete failed to complete certain work before leaving the project on October 31, 1997 has no basis in either of the parties' contracts. The court thus denies LJI's claims of $374.80 and $1,926 for uncompleted curb work and cleanup costs, respectively.
7. The court found, as set forth above, the amount properly claimed by Concrete to be $46,878.44. LJI's claim for asphalt patching reduces this amount by $4,000, for a total actual damage amount of $42,878.44.
8. Concrete seeks prejudgment interest on its damages. "The decision whether . . . to allow prejudgment interest rests within the sound discretion of the trial court." U.S. Indus., Inc. v. Touche Ross Co., 854 F.2d 1223, 1255 n. 43 (10th Cir. 1988). Although courts ordinarily award prejudgment interest in federal cases, it is not recoverable as a matter of right. Here, the court allows an award of prejudgment interest in order to fairly compensate Concrete. The equities favor such an award. See Malloy v. Monahan, 73 F.3d 1012, 1019 (10th Cir. 1996). The court further finds that the allowance of prejudgment interest in cases arising under the Miller Act is a matter of federal law. See Towerridge, Inc. v. T.A.O., Inc., 111 F.3d 758, 764 (10th Cir. 1997). "Such a determination, however, merely leads [the court] back to state law. Neither the Miller Act nor any other applicable federal law provides standards for the allowance of prejudgment interest. It therefore [is] appropriate to look to state law `as a matter of convenience and practicality.'" Id. The court will apply the interest rate stated in the Kansas statute governing prejudgment interest at the time of this decision. See United States ex rel. C.J.C., Inc. v. Western States Mechanical Contractors, Inc., 834 F.2d 1533, 1544-45 (10th Cir. 1987). Concrete is entitled to prejudgment interest on $42,878.44 at a rate of 10 percent per annum as set forth in Kan. Stat. Ann. § 16-201. Prejudgment interest should accrue from July 1, 1998, which is the first day after which Holland Paving submitted its invoice to LJI for asphalt patching services. At that point, given the court's findings, LJI knew its full obligations to Concrete and all amounts became finally due at that point.
The court recognizes that K.S.A. § 16-201 applies to liquidated damages. However, the court need not consider the issue of liquidation because it finds that the ten percent per annum rate set forth in section 201 is a rate that would "fairly compensate the plaintiff for the delay in the receipt of payment." Western States, 834 F.2d at 1545. The court further notes that it is free to choose any such rate. Towerridge, Inc., 111 F.3d at 764.
C. Attorneys' Fees
9. Concrete also requests attorneys' fees. The longstanding "American Rule," adopted by the Supreme Court in Arcambel v. Wiseman, 3 U.S. (3 Dall.) 306, 1 L.Ed. 613 (1796), generally bars prevailing parties from recovering attorneys' fees in the absence of a statute or enforceable contract providing for such an award. However, "[t]he federal judiciary has recognized several exceptions to the general principle that each party should bear the costs of its own legal representation." F.D. Rich Co. v. United States ex rel. Industrial Lumber Co., 417 U.S. 116, 129, 94 S.Ct. 2157, 2165 (1974). The "bad faith" exception allows courts the inherent power to assess attorneys' fees when the losing party has "acted in bad faith, vexatiously, wantonly, or for oppressive reasons," Id. The exception derives from the inherent power of the federal courts to sanction conduct that abuses the judicial process. See Chambers v. NASCO, Inc., 501 U.S. 32, 44-46, 111 S.Ct. 2123, 2132-34 (1991). Thus, the exception reaches only bad-faith conduct arising during the course of litigation. "Where a party . . . defends an action through the assertion of a colorless defense, that constitutes bad faith which is grounds for an award of attorneys' fees." Towerridge, Inc., 111 F.3d at 768. Having considered the documentary evidence and the testimony and veracity of the various witnesses, the court finds that LJI did assert a "colorless defense" to Concrete's claims. LJI understood the meaning of the flatwork subcontract from the outset of the parties' relationship. LJI's asserting counterclaims based on that subcontract constitutes an oppressive litigation tactic. Similarly, the evidence indicates that LJI knew, or should have known, that the Holland Paving invoices represent work items significantly beyond the repair of damages caused by Concrete. LJI also asserted claims regarding improperly installed curb and gutter with little or no evidence to attribute the problems to Concrete. Because LJI raised these issues in bad faith as part of its litigation strategy, the court finds that LJI is responsible for Concrete's reasonable attorneys' fees. The court instructs plaintiff's counsel to share plaintiff's statement of attorneys' fees incurred with defense counsel in the interest of reaching an accord thereon. In the event no agreement results, the court instructs plaintiff's counsel to notify the court by motion for an order setting reasonable attorneys' fees.
IT IS THEREFORE ORDERED this ___ day of May, 2001 that defendants shall pay to plaintiff $42,878.44 plus prejudgment interest from July 1, 1998 at a rate of 10 percent per annum to the date of judgment.
IT IS FURTHER ORDERED that defendants shall pay to plaintiff's counsel reasonable attorneys' fees in an amount determined in accordance with the procedure outlined above.