J. Clancy, Inc. v. Khan Comfort, LLC

Decision Date10 February 2021
Docket Number#28856
Citation955 N.W.2d 382
CourtSouth Dakota Supreme Court
Parties J. CLANCY, INC., Plaintiff and Appellant, v. KHAN COMFORT, LLC, previously known as Khan Development, LLC ; Ghazanfar Khan, individually; Defendants and Appellees, and First Interstate Bank, a Montana Banking Corporation; Black Hills Community Economic Development, Inc., a South Dakota Non-Profit Corporation; United States Small Business Administration ; BKM Enterprises, Inc. d/b/a Watco Pools, a Montana Corporation; Rapid Fire Protection, Inc., a South Dakota Corporation; and Lawrence County, a political subdivision of the State of South Dakota, Defendants.

TIMOTHY J. BARNAUD, Belle Fourche, South Dakota, Attorney for plaintiff and appellant.

SCOTT SUMNER, Rapid City, South Dakota, Attorney for defendants and appellees.

KERN, Justice

[¶1.] J. Clancy, Inc. (J. Clancy), a construction company owned by Jere Clancy, sued Ghazanfar Khan (Khan) and his company, Khan Comfort, LLC (Khan Comfort), seeking enforcement of mechanic's liens it placed against the property. In the alternative, J. Clancy filed claims for breach of contract and unjust enrichment. Khan Comfort filed several counterclaims, including claims for overpayment and breach of contract.

[¶2.] After a bench trial, the circuit court concluded that J. Clancy's mechanic's liens were invalid and unenforceable because, in part, they were insufficiently itemized. It also held that a divisible, implied-in-fact contract, rather than an express contract, governed the relationship between the parties. The court rejected J. Clancy's breach of contract and unjust enrichment claims against Khan Comfort and instead found that J. Clancy breached the contract due to non-performance. It allowed J. Clancy to recover for the portions of the contract it had actually performed, but it ultimately determined that the value of J. Clancy's work was less than the payments Khan Comfort had already made. Accordingly, the court ordered J. Clancy to reimburse Khan Comfort for the overpayment. We reverse the circuit court's decision in part and remand for new determinations regarding breach and damages under the terms of the parties’ contract.

Facts and Procedural History

[¶3.] In 2012, Khan decided to convert his Comfort Inn hotel in Spearfish, South Dakota to a Hampton Inn (Spearfish project). After developing a product improvement plan (PIP) with Hilton Worldwide, the owner of the Hampton Inn brand, Khan began looking for a contractor to complete the work. Khan had previously hired J. Clancy to renovate the lobby area of Khan's Hampton Inn in Gillette, Wyoming (Gillette project) and was satisfied with his work. Khan approached J. Clancy to work on the Spearfish project, and the parties began contract negotiations.

[¶4.] In March 2012, Khan, acting on behalf of Khan Comfort, signed a document (March document) that listed the specific work J. Clancy needed to complete when renovating the hotel. The document included tasks such as crafting vanity bases for the guest bathrooms, procuring equipment items for a fitness room, and providing materials for reconstructing the breakfast, pool, and meeting rooms at the hotel. The amount charged for the work listed in the March document amounted to $191,258.11, but the document did not include the cost of labor or installation. A J. Clancy representative did not sign the document, and Khan Comfort did not pay the required 50% deposit to confirm the agreement. Likewise, J. Clancy did not, at this time, begin working on the listed projects.

[¶5.] In May 2012, Khan Comfort paid J. Clancy $20,000 as a deposit for work on the vanity bases and the fitness equipment. Upon receiving the deposit, J. Clancy began working on these specific items while the parties further negotiated the terms of an agreement. The next document, dated September 5, 2012 (September document), was J. Clancy's "standard proposal." It listed both the materials and labor that J. Clancy was willing to provide for Khan Comfort. The September document listed many of the same projects contemplated by the March document. However, it also enumerated several new projects and had a significantly higher total contract price of $308,922.28. With reference to labor costs, the September document provided that the "[p]ricing includes installation noted in Quote." J. Clancy also charged a marked-up price on the materials included in the September document to compensate for labor costs associated with procuring and installing the materials.

[¶6.] Khan, on behalf of Khan Comfort, signed the September document the same day that J. Clancy sent it to him on September 5, 2012, but a representative from J. Clancy did not sign it. The next day, Khan Comfort paid J. Clancy $154,000 (approximately 50% of $308,922.28) in partial payment for the renovations, as required by the September document. J. Clancy started renovations the next day on September 6. J. Clancy submitted several invoices to Khan Comfort as the project progressed and in conformance with the provisions of the September document. Jere Clancy testified that both the contract and the invoicing practices used in the Spearfish project were similar to the parties’ methods used in the prior Gillette renovation project.

[¶7.] As work progressed throughout the fall, the parties agreed to several change orders. Certain alterations were in writing while others were made orally. At some point, issues arose regarding whether J. Clancy was paying its subcontractors. To move construction along, Khan Comfort paid MLK Plumbing, which normally would have been J. Clancy's duty, for work MLK Plumbing performed in the bathrooms. Khan Comfort also gave Horst Acoustical a credit of $3,024 for free hotel rooms at other properties that Khan owned as partial satisfaction for the cost of remodeling the lobby and breakfast area.1

[¶8.] Aside from the initial payment in September, Khan Comfort made no progress payments to J. Clancy until December 12, 2012, when J. Clancy requested that Khan Comfort make two payments toward the project to ensure the construction schedule proceeded as expected. Khan Comfort wired the payments to J. Clancy (each for $35,000), and J. Clancy acknowledged receipt of the payments at trial.

[¶9.] J. Clancy left the construction site in February 2013. According to the testimony at trial, J. Clancy's property manager, Charles Moore, had walked through the premises with Khan to determine if additional work was necessary. Moore testified that Khan did not voice any dissatisfaction with the renovations during the walk-through even though the terms of the September document required that he do so within seven days of reviewing the work. Khan did not refute this contention at trial. Instead, he testified that he believed his dissatisfaction with the work was obvious because portions of the project were incomplete.

[¶10.] After the walk-through, Khan Comfort refused to make any further payments, which prompted J. Clancy to file two mechanic's liens against the property. The first lien (filed on April 29, 2013) demanded payment of $97,713.28 for various materials and products J. Clancy provided during renovations. The second lien (filed on May 10, 2013) listed a total of $7,422.05 for labor and materials supplied to complete the guestroom bath vanity bases.2 Along with other documents, J. Clancy attached a one-page sheet to the second lien detailing information regarding the cost of labor.

[¶11.] On May 17, 2013, J. Clancy filed a ten-count complaint in circuit court against Khan Comfort and Khan, in his personal capacity, to foreclose his mechanic's liens or, in the alternative, to recover for breach of contract and unjust enrichment for the materials and labor described in the liens. In response, Khan Comfort asserted several counterclaims, including claims for overpayment and breach of contract.3

[¶12.] In August 2018, the circuit court held a three-day bench trial to resolve the dispute. The court considered testimony from Jere Clancy, Charles Moore (J. Clancy's property manager), and Ghazanfar Khan. At the close of the evidence, the court took the matter under advisement and later issued 91 pages of findings of fact and conclusions of law addressing the enforceability of the mechanic's liens, the status of the contract, and the merits of J. Clancy's breach of contract and unjust enrichment claims. It also resolved the six counts contained in Khan Comfort's counterclaim.

[¶13.] The circuit court held that the documents attached to J. Clancy's mechanic's liens were insufficient to adequately itemize J. Clancy's labor fees for the project. For example, the court found the liens defective and invalid because they did not include the dates on which the labor was performed, the number of hours worked, the hourly wages paid, and the types of improvements made. Therefore, the court denied J. Clancy's claims seeking foreclosure on its mechanic's liens in their entirety.

[¶14.] With reference to J. Clancy's breach of contract claims, the circuit court held that neither the March nor the September document met the criteria for an express contract. Instead, the court concluded that the parties had an implied-in-fact contract. With respect to performance of the contract, the court found that J. Clancy's work did not constitute either full or substantial performance. Finding J. Clancy's partial performance "divisible into units or modules of performance[,]" the court concluded J. Clancy could recover only the reasonable value of the goods and services it supported with evidence at trial.

[¶15.] After a painstaking review of each contract invoice, the court concluded that the money Khan Comfort paid for J. Clancy's services exceeded the value of the work completed. Accordingly, the court rejected J. Clancy's claims altogether and found for Khan Comfort on its overpayment counterclaim (count 1). On December 6, 2018, the court ordered J. Clancy to...

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4 cases
  • Estate of Lynch v. Lynch
    • United States
    • South Dakota Supreme Court
    • May 17, 2023
    ...favorable to his own contentions than he has given in his own testimony." J. Clancy, Inc. v. Khan Comfort, LLC, 2021 S.D. 9, ¶ 22, 955 N.W.2d 382, 390 (quoting Law Capital, Inc. v. Kettering, 2013 S.D. 66, ¶ 13, 836 N.W.2d 642, 646). [¶37.] Regardless of Kevin's belief about whether the mon......
  • Detmers v. Costner
    • United States
    • South Dakota Supreme Court
    • August 2, 2023
    ...fully fixing the rights of each, there is no room for an implied promise." J. Clancy, Inc. v. Khan Comfort, LLC, 2021 S.D. 9, ¶ 27, 955 N.W.2d 382, 391 Koopman v. City of Edgemont by Dribble, 2020 S.D. 37, ¶ 20, 945 N.W.2d 923, 928). "[A]n express contract precludes the existence of a contr......
  • J. Clancy v. Khan Comfort, LLC
    • United States
    • South Dakota Supreme Court
    • November 9, 2022
    ...This vital distinction change[d] how a party may be found to be in breach and the remedies available to the parties." Id. ¶ 28 n.8, 955 N.W.2d at 392 n.8. explained the parties' responsibilities under the Contract as follows: "J. Clancy had the right to demand progress payments from [Khan],......
  • J. Clancy, Inc. v. Khan Comfort, LLC
    • United States
    • South Dakota Supreme Court
    • November 9, 2022
    ...had entered into an express contract for the renovations (Contract). J. Clancy, Inc. v. Khan Comfort, LLC , 2021 S.D. 9, ¶ 45, 955 N.W.2d 382, 397 ( J. Clancy I ).[¶2.] On remand, the circuit court found, based upon the original trial record, that J. Clancy had fully performed under the ter......
1 books & journal articles
  • Hard Hat Case Notes
    • United States
    • ABA General Library The Construction Lawyer No. 41-3, July 2021
    • July 1, 2021
    ...the finding of an express contract, binding both parties to the terms and conditions therein. J. Clancy, Inc. v. Khan Comfort, LLC , 955 N.W.2d 382 (2021). Government Contractor’s Claim for Breach Permitted Where Government Reduced the Amount of Government-Furnished Property Supplied In 201......

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