Tuesday, September 10, 2013

Construction Conversion Conundrum

Birchwood Land Company, Inc. v. Ormand Bushey & Sons, Inc., 2013 VT 60

If this case were a play, it would begin something like this:

Developer: Contractor stole sand!  Burn Contractor alive!

Contractor: Developer owes money!  Burn Developer alive! 

Judge: Ugh.  Contractor, you owe Developer for the sand plus prejudgment interest.  Developer, you have to pay Contractor what you owe plus prejudgment interest on that amount.  Neither of you get attorney’s fees.  No punitive damages.  Now go home.

Contractor: I shall appeal this injustice to the SCOV!

Developer: As shall I!

SCOV: Uh, yeah, sorry, but we’re pretty much with Judge on this one.

Look—I never said I was a playwright.  Let’s fill in the blanks a bit, shall we? 

Developer is plaintiff, and Contractor is defendant and counter-claimant.  The parties had three written contracts all aimed toward developing some overgrown land.  Contractor’s responsibilities included clearing the land and installing sewer, roads, and utilities.  At some point, Developer learned that Contractor had removed sand from the building site. 

A legal tango of sorts ensued, with Contractor filing a contractor’s lien for withheld payments, and the parties coming to a tenuous resolution where Contractor withdrew the lien and Developer put the monies due to Contractor in an escrow account. 

Contractor was supposed to complete road paving under one of the contracts, but because of the sand dispute, and Contractor’s fear of nonpayment, Developer had to hire a third party to complete the paving.  So Developer sued for breach of contract and Contractor counterclaimed.  “Developer alleged breach of contract, slander of title and fraud and requested compensatory and punitive damages and attorney’s fees under the Prompt Pay Act (PPA) . . . .  Contractor counterclaimed for breach of contract, and violation of the PPA, requesting damages, penalties, and attorney’s fees.”  Some claims were resolved before trial.
There was a four-day trial and a site visit.  In summary, the trial court’s findings were:

·         The main dispute between the parties concerned the disposal and removal of excess sand from the construction site
·         At one point, Developer visited the construction site and observed a truck leaving with a load of sand.  He followed it and watched the truck deposit the load at a different construction site where Contractor was working 
·         Developer told Contractor to stop taking sand, but Contractor didn’t listen
·         The trial court found that Contractor was in the wrong for taking sand without permission
·         The trial court also ordered contractor to pay for the extra cost of paving performed by the third party
·         Developer was entitled to replacement cost for sand, but not transportation costs because those costs were too speculative
·         Contractor’s actions were not egregious enough to warrant punitive damages
·         Developer did not carry its burden on slander of title
·         Neither party was the “substantially  prevailing party” under the PPA
·         Both parties had a good-faith basis for their actions
·         Contractor gets paid for the money it’s due, minus the cost of the sand and prejudgment interest

Contractor appealed, and Developer cross-appealed.

The SCOV begins its analysis with Developer’s damages-calculation claim.  The SCOV explains that Contractor had to remove the sand from the property, and so that wasn’t a breach of the contract.  It was when Contractor hauled the sand away that the alleged breach occurred.  Developer argues that it was entitled to expectation damages: damages that provide the “benefit of the bargain” to make the party whole.  In this case, Developer argues that those damages include the costs of transportation and putting it back into the property.       

Though we don’t often include citations here, you should make a note of this case: French v. Freeman, 43 Vt. 93, 95 (1870).  This is a case cited in the opinion and deals with the classification of manure as real or personal property—in other words, a veritable goldmine for sarcastic citation.

The SCOV cannot find a theory to support Developer’s expectation damages claim.  Once the sand was removed from the land—as part of the agreement—it became personal property.  As such, the SCOV reasons that the “measure of developer’s damages is not for any damage to its real property, but for the unlawful taking of its personal property.”

The SCOV proceeds, then, on a conversion theory, concluding that the proper measure of damages is “the fair market value of the sand at the time it was improperly converted by contractor.”  Although this is a different damages than the trial court’s, the SCOV notes the correct-result-by-different-reasoning-ain’t-a-problem doctrine and concludes there was no abuse of discretion.  That’s not a “real” doctrine; I just made it up, but it conveys the idea behind this line of reasoning.         

The SCOV makes short work of Developer’s trial-court-should’ve-awarded-punitive-damages claim, noting that Contractor viewed the sand as excess material that needed to be removed for work to proceed, and that there was no apparent willful and wanton conduct that would support a punitive-damages award.

The SCOV next explores the parties’ competing claims under the Prompt Pay Act.  When payment is delayed, interest gets added to the amount due.  If payment is withheld unreasonably, then interest, a penalty, and attorney’s fees get awarded.  But if there’s a good-faith claim in relation to the amount due, then there’s no penalty.  Attorney’s fees are awarded to “the substantially prevailing party.”

The SCOV first reviews Developer’s claim that no prejudgment interest should have been awarded to Contractor.  The SCOV does not give much weight to Developer’s argument that the interest provisions of the PPA do not apply, noting that prejudgment interest is well-established “as a matter of right” under general principles of law.  The SCOV explains that prejudgment interest and penalty under the PPA, though calculated at the same percentage and timeframe, are two distinct avenues of recovery.  So the Contractor gets prejudgment interest and that’s final     

But wait.  Contractor argues it’s entitled to a penalty under the PPA, essentially because developer withheld more than it was due.  The SCOV makes short work of this claim also, reasoning that there was a reasonable relationship between the amount withheld and the Developer’s claims.  Accordingly, “there are no grounds to disturb the [trial] court’s denial of a penalty.”

Both parties claim a right to attorney’s fees under the PPA.  The SCOV notes that the question of whether either party “substantially prevailed” is left solely to the trial court’s discretion.  Though there is substantial—and somewhat interesting—argument from both sides on this issue, the essential point remains that the trial court did not abuse its discretion in determining that neither party “substantially prevailed.” 

Developer’s final claim is that the trial court erred in dismissing its slander-of-title claim.  Slander of title requires three elements: (1) a false statement concerning its title to land; (2) the statement caused special damages; and (3) the defendant acted with malice. 

The trial court found that Developer could not make a showing of elements one or three.  The SCOV reviews the claim in some depth—including Developer’s claims that the lien was overbroad and that the lien should’ve only extended to the value of the claim.  The SCOV reasons that the lien was based on work completed and not paid for and that the lien was not placed on lands not connected to Contractor’s work.  The SCOV concludes that “the evidence supports the court’s finding that contractor acted to protect its interest in being paid and not out of malice or ill will.”

And there you have it, folks.  At the end of the day, this is a case in which a judge tells the parties to “play nice” and “settle up.”  Is the SCOV really going to disturb such a decision? 


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