Folgers Architects Ltd. v. Kerns

Decision Date27 June 2000
Docket Number No. A-98-1326 to A-98-1328.
Citation9 Neb. App. 406,612 N.W.2d 539
PartiesFOLGERS ARCHITECTS LIMITED, ASSIGNEE OF FOLGERS ARCHITECTS & FACILITY DESIGN, INC., a Delaware corporation, appellee and cross-appellant, v. Richard A. KERNS et al., appellants and cross-appellees.
CourtNebraska Court of Appeals

P. Shawn McCann, of Sodoro, Daly & Sodoro, Omaha, for appellants.

Gregory C. Scaglione, of Koley, Jessen, Daubman & Rupiper, P.C., Omaha, for appellee.

SIEVERS and INBODY, Judges, and BUCKLEY, District Judge, Retired.

INBODY, Judge.

I. INTRODUCTION

Folgers Architects Limited (FAL), assignee of Folgers Architects & Facility Design, Inc. (FAFD), a Delaware corporation, brought an action against the defendants to collect unpaid architectural fees, reimbursable expenses, and termination fees relating to several apartment construction projects. FAL asserted causes of action under theories of breach of oral and written contracts, promissory estoppel, and quantum meruit. The district court for Douglas County entered judgment in favor of FAL against the defendants. This timely appeal followed.

II. STATEMENT OF FACTS
1. FACTUAL BACKGROUND

Sometime in late 1992 or early 1993, Jeffrey Anderzhon, an architect with Anderzhon Architects, Inc. (AAI), first met with Richard A. Kerns, to discuss the possibility of AAI's providing architectural services for the development of several apartment complexes. Weekly meetings were held to discuss the development of the apartment complexes and were attended by Anderzhon; Kerns; Gene Wilczewski, a developer; and Larry Hagewood, an engineer.

During the meetings, Kerns and Anderzhon came to a verbal agreement that Anderzhon would provide architectural services for apartment construction projects being developed. The apartment projects were known as Thornberry, Burwick, Walton Heath, Ashberry, Sussex Place, Greely, Wingpoint, Devonshire, Reno, and Kennamare. It was agreed that the design of the apartment projects would be based on two other apartment projects that Anderzhon had designed and that the fees for the architectural services would be on a per unit basis. It was further agreed that Anderzhon would be paid a $5,000 initial startup fee for each project and that Anderzhon would issue invoices for his services as the architectural services progressed.

Anderzhon and Kerns further agreed that as each apartment project progressed, a written form contract prepared by the American Institute of Architects, known in the industry as a B181 contract, would be executed in compliance with requirements of Housing and Urban Development (HUD). HUD required that a B181 contract be executed for all projects that sought HUD coinsurance for the private financing of multiple-unit dwellings.

In March 1993, Anderzhon began the architectural services for the apartment projects. On February 1, 1994, Anderzhon and Kerns executed a B181 contract for the Burwick project. The contract was entered into by Burwick Apartments, Ltd., as the owner and AAI as the architect. The contract outlined among other things the architect's services and responsibilities, the administration of the contract, the owner's responsibilities, the construction cost, payments to the architect, ownership and use of documents, termination of the agreement, and the basis of compensation.

In July 1994, AAI merged its operation with FAFD. However, Anderzhon kept the accounts receivable for the work AAI had performed on these projects prior to July 1994. All services provided by Anderzhon and FAFD after July 1994 were billed by FAFD. The evidence further shows that Anderzhon informed Kerns that his practice had merged with FAFD and that all future work relating to the apartment projects would be performed and billed by FAFD. FAFD, along with Anderzhon, continued to provide architectural services for the apartment projects. The evidence shows that Kerns made no objection to FAFD performing the architectural design work or billing for the services provided and reimbursable expenses incurred.

On November 1, 1994, Anderzhon and Kerns executed a B181 contract for the Walton Heath project. The contract was executed by Walton Heath Apartments, Ltd., as the owner and FAFD as the architect.

As each project began, Anderzhon would set up a billing system for the project. As architectural services were provided on a particular project, invoices were issued to Kerns. The invoices reflected the percentage of the work that had been completed on the project, the amount due, and the amount of the reimbursable expenses due. Kerns then issued checks for the payment of the invoices from checking accounts that were set up for each project.

Apparently, Kerns felt that the apartment projects were over budget, and he was having difficulty raising enough capital to cover all of the apartment construction projects. So, Kerns notified Anderzhon and FAFD that none of the apartment projects would be completed and that no additional architectural fees or reimbursable expenses associated with the apartment projects would be paid. Anderzhon and FAFD made several demands to Kerns for payment of the architectural fees due, and Kerns responded that he was "tapped out."

On May 5, 1995, Anderzhon sent Kerns a letter of termination, notifying Kerns that FAFD was terminating its services on the apartment projects because of Kerns' failure to proceed with the projects. On May 17, FAFD's legal counsel also sent Kerns a demand letter for the payment of the outstanding accounts receivable owed on the projects. No further payments were made on the projects.

In late 1995, 1996, and 1997, FAFD filed lawsuits against Kerns; Burwick Apartments, Ltd.; Thornberry Apartments, Inc.; Sussex Place Apartments, Inc.; Ashberry Apartments, Inc.; and Walton Heath Apartments, Inc., for breach of oral and written contracts relating to the nonpayment of the accounts receivable relating to the architectural work performed on the apartment projects. These suits were later consolidated for trial. On or about May 1, 1997, Anderzhon resigned his position with FAFD. At the time Anderzhon resigned, he assigned to FAFD the accounts receivable of AAI for architectural services provided on the apartment projects prior to July 1994.

In August 1997, FAFD discontinued its operations because of financial difficulties. At this time, FAFD assigned its accounts receivable to JLK, "an assignment entity." These receivables included the receivables related to the apartment projects at issue.

Subsequently, Ken Folgers, the former president of FAFD, formed FAL, an Illinois corporation. FAL then repurchased the accounts receivable previously assigned by FAFD to JLK. The receivables repurchased by FAL included the receivables at issue in this case.

The record reflects that the trial court allowed FAFD to amend the petitions to identify FAL as the assignee of FAFD and also granted the defendants leave to further plead or stand on their prior answers.

Trial on this matter was held before the Douglas County District Court without a jury on August 13, 14, and 27, 1998. Although several witnesses testified, for purposes of our review, we need only summarize the testimony of Anderzhon and Kerns below.

2. TESTIMONY OF ANDERZHON

Anderzhon testified that in late 1992 or early 1993, he and Kerns entered into a verbal agreement that Anderzhon would provide architectural services in connection with the construction of several apartment complexes being developed by Kerns.

Anderzhon described the type and the amount of work that he performed on each apartment project. The work performed on the apartment projects was broken down into several phases, and each phase was assigned a percentage of completion: the design phase, the construction document phase, the bid and negotiation phase, and the construction phase. When work was completed in one phase, Anderzhon would issue invoices to Kerns for the amount due on the projects. Anderzhon also offered into evidence the invoices that he had issued to Kerns on the projects. The invoices reflected the amounts due on the project, the expenses incurred by Anderzhon's performing the work, and the amounts Kerns had paid.

Anderzhon testified Kerns had verbally agreed to pay for the architectural services performed on the apartment projects and assured Anderzhon that Kerns was putting together other investors and that he would see that the outstanding invoices for the architectural services were paid.

3. TESTIMONY OF KERNS

Kerns testified that in 1993 and 1994, he met with Anderzhon to discuss the prospect of Anderzhon's providing architectural services for several apartment projects. Kerns claimed that he was not in charge of the apartment projects, that he was not responsible for making decisions on the projects, that he had minimal contact with Anderzhon, that he never personally directed Anderzhon to do anything with respect to the apartment construction projects, and that he was only responsible for arranging investors and providing the "seed money" needed to get the apartment projects started. Kerns contended that Wilczewski was actually in charge of putting together the projects and the team who worked on the projects.

Kerns further testified that Anderzhon was to provide architectural services on the apartment projects, but that Anderzhon was only entitled to be paid the $5,000 retainer and the reimbursable expenses he incurred. Kerns further claimed that Anderzhon was not entitled to be paid anything beyond the retainer and reimbursable expenses unless the apartment projects received final approval from HUD and the projects proceeded to closing. However, Kerns admitted on cross-examination that Anderzhon had been paid for a portion of the architectural services he performed and that Anderzhon had been paid more than the amount due for the retainer and reimbursable expenses on some of the projects.

Kerns testified that he never told Anderzhon that he would be...

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