Fisher Sand & Gravel Co. v. State By and Through South Dakota Dept. of Transp., No. 19247

• Court: Supreme Court of South Dakota
• Writing for the Court: GILBERTSON; SABERS
• Citation: 558 N.W.2d 864,1997 SD 8
• Docket Number: No. 19247
• Decision Date: 14 February 1996
• Parties: FISHER SAND & GRAVEL CO., with its principal place of business at Dickinson, North Dakota, Plaintiff and Appellee, v. The STATE of South Dakota By and Through the SOUTH DAKOTA DEPARTMENT OF TRANSPORTATION, a state agency located in Pierre, South Dakota, Defendant and Appellant. . Considered on Briefs

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558 N.W.2d 864 1997 SD 8 FISHER SAND & GRAVEL CO., with its principal place of
business at Dickinson, North Dakota, Plaintiff and Appellee,
v.
The STATE of South Dakota By and Through the SOUTH DAKOTA
DEPARTMENT OF TRANSPORTATION, a state agency
located in Pierre, South Dakota,
Defendant and Appellant. No. 19247. Supreme Court of South Dakota. Considered on Briefs Feb. 14, 1996.
Reassigned Sept. 4, 1996.
Decided Feb. 12, 1997.
Rehearing Denied March 10, 1997.

Ronald G. Schmidt of Schmidt, Schroyer, Moreno, & DuPris, Pierre, for plaintiff and appellee.

Ronald W. Banks and Barton R. Banks of Banks, Johnson, Colbath, & Kerr, Rapid City, for defendant and appellant.

GILBERTSON, Justice (on reassignment).

¶1 The State of South Dakota through the Department of Transportation appeals a jury verdict in favor of Fisher Sand & Gravel Co. for negligence resulting from a highway construction contract. We reverse and remand with instruction.

FACTS & PROCEDURE

¶2 The State of South Dakota Department of Transportation (DOT) accepted bids for a concrete paving project to begin in June 1992 on twenty miles of U.S. Highway 12 between McIntosh and McLaughlin in Corson County, South Dakota. Bids were due June 25, 1991. Fisher Sand & Gravel Co. (Fisher), an aggregate supplier with offices in Mitchell and Spearfish, received notice of the project and ordered the proposal, planning to quote the sand and fine aggregate gravel products needed to mix the paving concrete. Prior to submitting its bid, Fisher received "Addendum No. 1," dated June 17, which stated:

All fine aggregate [sand] must have been tested by ASTM P 214 ¹ for Alkali-Silica

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Reactivity and shall have obtained a value of 0.225% expansion or less. SDDOT has tested all major commercial sources in SD and has the results on record. To obtain a copy of the results please contact the Division of Engineering, Project Development Engineer.

All sources not previously tested by SDDOT must be tested by SDDOT prior to performance of design mix work. The preparation of the sample and actual testing procedure ASTM P214 requires approximately 21 days to obtain results....

¶3 The State was in the process of examining the cracking and deterioration of its paving projects and wished to avoid similar problems on this project. Fisher received this addendum on June 20, 1991, before DOT's bid deadline. The following day, Fisher acquired the list of test results from the testing of twenty-one pits referenced in the addendum.

¶4 Fisher planned to use sand from its pit located at Fort Yates, North Dakota, which had not yet been tested by DOT. Harry Swank, chief estimator for Fisher, and Gene Fisher, its president, were not concerned about Fisher's ability to provide sand which met the specifications because, in their experience, there had never been a problem they could not remedy by blending sands or mixing additional material with the sand. Fisher, as subcontractor, submitted its proposal utilizing Fort Yates sand to Sundt Corporation. Sundt incorporated Fisher's proposal into its own bid and was awarded the paving contract for the project on July 5, 1991.

¶5 Independent testing by Twin Cities Testing in January 1992 and testing by the DOT in July 1991 of samples of the Fort Yates sand yielded the same results: the Fort Yates sand did not meet DOT's specifications unless fly ash was incorporated into the aggregate mixture. DOT advised Sundt this sand could not be used for the project because it did not meet specifications, which, according to DOT, required that the sand itself, without addition of fly ash, test for alkali-silica reactivity at .225 percent or less expansion. Following meetings with DOT and Sundt, and following failed attempts at a compromise using the Fort Yates sand, Fisher obtained an alternate source of sand from the Northern Con-Ag Rauville pit located near Watertown, South Dakota. This source was on DOT's list of tested sources provided to Fisher at the time of bidding and was obtained by Fisher at a total additional cost of $420,330.49, including transportation and testing.

¶6 On June 14, 1993, Fisher sued DOT alleging negligence, violation of reasonable construction standards, breach of contract and breach of good faith and fair dealing. Fisher claimed damages of $610,008.99, which included the additional cost of the sand, as well as "mark up" of $74,398.50 (17.7%) and "lost sales revenue" of by-products from the Fort Yates pit.

¶7 The jury returned a verdict for Fisher in the amount of $406,012.74 for negligence, but explicitly found no breach of contract by DOT. At a separate hearing, the trial court granted Fisher's motion for prejudgment interest. DOT appeals, raising the following issues:

1. Whether the jury should have been instructed on Fisher's negligence claims and whether the jury's verdict on negligence is supported by the evidence?

2. Whether Fisher's expert properly testified, over objection, about his opinion of what the defendant thought or intended with reference to Addendum # 1 and/or the use or incorporation of fly ash under the Addendum?

3. Whether DOT's proposed jury instructions Nos. 1, 2, and 3 were warranted under the facts and circumstances of this case?

4. Whether Fisher was entitled to prejudgment interest on the jury's award of damages on the negligence count?

ANALYSIS AND DECISION

Whether the jury should have been instructed on Fisher's negligence claims and whether the jury's verdict on negligence is supported by the evidence?

¶8 Fisher was a subcontractor who entered into a subcontract approved by DOT to provide the general contractor, Sundt, with aggregate. Fisher knew of DOT's specifications

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for aggregate prior to entering its bid and had acquired a list of test results of suppliers that met DOT's specifications. Notwithstanding this information, Fisher continued with its plan to use its own aggregate from Fort Yates, North Dakota which had not been tested nor approved by DOT. ² Prior to entering its bid, Fisher made no attempt to see if its North Dakota aggregate would meet DOT's specifications.

¶9 SDCL 31-2-34 is the jurisdictional statute which allows Fisher to sue DOT. That statute provides in part that Fisher may sue DOT "respecting any claim, right, or controversy arising out of the work performed, or by virtue of the provisions of any construction contract entered into by the South Dakota department of transportation." (emphasis added). Under this statute, if there is no contract or quasi-contract, there is no lawsuit.

¶10 In Sweetman Const. Co. v. State, 293 N.W.2d 457 (S.D.1980), we interpreted SDCL 31-2-34 to place a subcontractor in privity of contract with the State where the subcontract between the subcontractor and the general contractor had been approved by DOT. ³ In Candee Const. Co. v. Dep't of Transportation, 447 N.W.2d 339, 344 (S.D.1989), cert. denied, 494 U.S. 1067, 110 S.Ct. 1785, 108 L.Ed.2d 786 (1990), we held this interpretation of the statute did not limit the plaintiff to contract causes of actions, but also authorized recovery under a quantum meruit theory for extra work done and extra materials provided. However, to bring the suit under the statute one had to be a "contractor" with the State pursuant to a contract or subcontract. That is exactly what happened in the case now before us.

¶11 The jury explicitly found that DOT had not breached its subcontract with Fisher and awarded Fisher no damages on its contract. Fisher did not appeal this determination. Yet despite the fact the jury found DOT had fully complied with its contractual obligations to Fisher, we are now asked to determine whether DOT should pay Fisher $406,012.74 in damages for negligence concerning DOT's interpretation of and conduct under the contract DOT did not breach.

¶12 In order to prevail in a suit based on negligence, a plaintiff must prove duty, breach of that duty, proximate and factual causation, and actual injury. Lien v. McGladrey & Pullen, 509 N.W.2d 421, 423 (S.D.1993). Whether a duty exists is a question of law, fully reviewable by this Court on appeal. Tipton v. Town of Tabor, 538 N.W.2d 783, 785 (S.D.1995). We therefore consider the existence of a duty under the de novo standard. Bland v. Davison County, 507 N.W.2d 80, 81 (S.D.1993) ("[W]e must determine if a relationship exists between the parties such that the law will impose upon the defendant a legal obligation or reasonable conduct for the benefit of the plaintiff.").

¶13 What duty did DOT owe Fisher? Outside of the contract there was no relationship between them. Thus, the facts here can be distinguished from those presented in Mid-Western Elec. Inc. v. DeWild Grant Reckert & Assoc., 500 N.W.2d 250, 253 (S.D.1993) and Limpert v. Bail, 447 N.W.2d 48, 51 (S.D.1989), where no privity of contract existed between the parties. There, to find a duty, the Court relied on a foreseeable third party and the obligations arising from the undertaking of professional services. The policy concerns expressed by the Court in the above cases, i.e., protection of innocent third parties who relied on the actions of others, do not present themselves in the instant case. DOT was not "rendering services to another" as was found necessary under the theory of professional negligence addressed by the Mid-Western and Limpert Courts.

¶14 Prosser and Keeton on Torts (5th ed 1984) introduces the relationship between tort actions and contract actions as follows:

Tort obligations are in general obligations that are imposed by law on policy considerations to avoid some kind of loss to

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others. They are obligations imposed apart from and independent of promises made and therefore apart from any manifested intention of parties to a contract or other bargaining transaction. Therefore, if the alleged obligation to do or not to do something that was breached could not have existed but for a manifested intent, then contract law should...