J.R. Hale Contracting Co. v. Union Pacific

• Decision Date: 12 September 2007
• Docket Number: No. 26,422.,26,422.
• Citation: 2008 NMCA 037,179 P.3d 579
• Parties: J.R. HALE CONTRACTING CO., INC., Plaintiff-Appellant/Cross-Appellee, v. UNION PACIFIC RAILROAD, a Delaware corporation, and K.B. Alexander Co. of Texas, Inc., a Texas corporation, Defendants-Appellees/Cross-Appellants.
• Court: Court of Appeals of New Mexico

179 P.3d 579

2008 NMCA 037

J.R. HALE CONTRACTING CO., INC., Plaintiff-Appellant/Cross-Appellee, v. UNION PACIFIC RAILROAD, a Delaware corporation, and K.B. Alexander Co. of Texas, Inc., a Texas corporation, Defendants-Appellees/Cross-Appellants.

No. 26,422.

Court of Appeals of New Mexico.

September 12, 2007.

Sean R. Calvert, Calvert Menicucci, P.C., Albuquerque, NM, for Appellant.

Atkinson & Thal, P.C., John S. Thal, Elizabeth Losee, Albuquerque, NM, for Appellees.

OPINION

SUTIN, Chief Judge.

{1} Subcontractor J.R. Hale Contracting Co., Inc. (Hale) sued to enforce a lien claim for labor and materials against owner Union Pacific Railroad (Union Pacific), claiming breach of contract against general contractor K.B. Alexander Co. of Texas, Inc. (Alexander), and also claiming a right to recover in quantum meruit against Union Pacific and Alexander (Defendants). The dispute centered on Hale's claim for the amounts alleged due for subballast required for a railroad-related construction project. Defendants sought partial summary judgment on three grounds: that Hale released its claims, that Hale's alleged loss was caused by its own mistake in estimating the amount of subballast required for the project, and that Hale could not successfully assert a quantum meruit claim. Defendants also filed a motion to recover attorney fees and costs. Hale, too, moved for partial summary judgment, seeking withheld retainage, as well as an interest penalty and attorney fees under the Retainage Act, NMSA 1978, §§ 57-28-1 to -11 (2001, as amended through 2007) (currently known as the Prompt Payment Act).

{2} The district court granted Defendants' motions for summary judgment dismissing Hale's contract and quantum meruit claims, and awarded Alexander attorney fees, but limited costs. The court awarded Hale the withheld retainage amount, and, related to this award, also awarded Hale an interest penalty and attorney fees. Hale appeals, as do Defendants by way of cross-appeal. We reverse the court's summary judgment dismissing Hale's contract claim. Reversal of the dismissal of the contract claim requires us also to reverse the rulings which involved the award of attorney fees and costs to Defendants as well as the dismissal of the quantum meruit claim that may have to be reevaluated after Hale's contract claim is revisited. We remand the foregoing issues and also remand the issues of attorney fees and costs to Hale and the cut-off date for the running of the Retainage Act interest penalty for further consideration consistent with this opinion. We hold that the court did not err in ruling that Alexander violated the Retainage Act.

BACKGROUND

I. Chronology of Material Circumstances

{3} In July 2002, Union Pacific sent out requests for bids in relation to construction of a project involving a parking lot facility to be used in connection with unloading vehicles from trains. After receiving Union Pacific's request for bids, Alexander obtained Hale's bid for placement of subballast consisting "of a foundation course for asphalt surface course or railroad ballast." This bid was based on estimated quantities of subballast bid on a contract unit price basis and not on a fixed price basis. Subballast required for the project, after excavation of existing soil, was divided into five separate depths of 24", 12", 16", 22", and 3". For example, as to the 12" component, which is at issue in this case, the unit price in Hale's bid was $5.11 a square yard, and the Hale and Alexander bids were based on installation of 4,392 square yards of material.

{4} Alexander's bid resulted in a contract in August 2002 between Union Pacific and Alexander. Alexander and Hale then entered into a Subcontract Agreement (the subcontract) in September 2002. The subcontract price was "a sum not to exceed ... [$716,070.04]." Hale and Alexander agreed to subballast quantities in terms of a square yard (sy) unit of measurement and at specific unit prices, as follows: 21,083 sy of 24" @ 9.48; 4,392 sy of 12" @ 5.11; 2,985 sy of 16" @ 6.90; 2,230 sy of 22" @ 9.45; and 1,985 sy of 3" @ 1.37. Hale certified "that the unit prices ... are the unit prices for which we will perform the work required to complete the referenced job in accordance with the plans and specifications included in the bidding documents."

{5} In estimating prices for its bid to provide subballast, Hale had to take into consideration the fact that it would be purchasing the subballast from a supplier on a price per ton basis. Thus, in order for Hale to estimate and bid a specific square yard unit price for each of the five depths at a certain compaction ratio, it had to mathematically determine the amount of subballast, in tons, that would be required for the project to fill the area at the various depths. At some point, when or just after Hale began its work, Hale discovered that it miscalculated its unit prices for subballast in its bid through an error in converting the contractual square yard quantities of subballast into tons of material to be purchased from its supplier.

{6} Work began on the project in September 2002 and, according to Hale, soon thereafter it became apparent that the original plans on which bids were requested and received did not sufficiently take into account the nature of hydrologic soil problems that existed in the area. Hale informed Alexander in writing on October 18, 2002, that the unstable soil conditions required additional subballast material to "be paid for separately." In turn, on the same day, Alexander informed Union Pacific of the "problems with the sub-grades." Further soil testing and analysis were then performed by Amarillo Testing and Engineering, Inc. (Amarillo), which provided a report and recommendation to Union Pacific on October 21, 2002. Amarillo recommended additional base course material.

{7} October 22, 2002, produced considerable activity. Attaching Amarillo's report and recommendation with respect to the problematic soil conditions, Alexander responded to Hale in a faxed communication in which Alexander stated that it had the same concerns as those expressed by Hale. The response read:

I received your letter and have the same concerns. I have attached the testing labs recommendation that came this morning. I am waiting on direction from [Union Pacific] on weather [sic] they want to proceed based on those recommendations. They will be on site this Thursday. Since your billings are based on quantity placed, there shouldn't be a problem if the total amount goes up some. Just make sure you include delivery tickets as backup with your invoices. Call if you have any questions.

Referring to the Amarillo report as calling for "two feet of base ... to bridge unstable ground," Union Pacific directed Alexander to proceed according to the Amarillo testing comment. Alexander then sent the foregoing Union Pacific communication to Hale, stating to Hale that Union Pacific had "given us the go-ahead to proceed based on the recommendation from Amarillo Testing." In addition, Alexander stated, "As I mentioned in the earlier fax, we need to make sure to keep the delivery tickets for the ballast material placed at the site for billing purposes. I am aware that there will most likely be some overages."

{8} Three days later, on October 25, 2002, Hale emailed Alexander indicating concerns about pipe bedding and backfill based on perceptions about Union Pacific's "`we will deal with it when it comes up' attitude," and stating that "[t]he Subballast will overrun because [for] all fills the [Union Pacific] people want us to use subballast in lieu of dirt." In a return email within one hour's time, Alexander notified Hale of a decision by Union Pacific to revise "the quantities that reflect the changes to the ballast material and the excavation," to be reflected in a change order showing that Union Pacific removed 4,681 cubic yards of excavation and added 9,000 square yards of 12" subballast. Alexander also informed Hale that Hale's "total add for this will be $18,231.67," and further indicated that "I think the subballast will still go over that because of the soft spots[,] so just make sure to send your delivery tickets with your invoices."

{9} As shown in an exhibit to Hale's application for payment number 2 (application no. 2), by November 19, 2002, Hale had furnished, placed, and compacted 18,000 of 21,083 square yards of 24" subballast called for by the subcontract, or 85% of the total required. In early December 2002, Hale and Alexander signed a change order, designated change order number 3 (change order no. 3) that changed the original 4,392 square yards of 12" subballast in the original bid and subcontract to 13,392 square yards, a 9,000 square yard increase at the $5.11 price. This change order no. 3 also reflected an additional $18,231.67 to be added to the original subcontract amount of $716,070.04, which, along with previous change order amounts, brought Hale's total subcontract with change orders to $740,174.21.

{10} On December 27, 2002, Hale submitted its application for payment number 3 (application no. 3) for the period ending December 20, 2002, confirming a total revised subcontract amount of $740,174.21. An exhibit to this application showed that Hale had furnished, placed, and compacted 3,083 square yards of 24" subballast, 13,392 square yards of 12" subballast, 2,985 square yards of 16" subballast, and 2,230 square yards of 22" subballast. These figures reflect and the exhibit shows that as of December 20, 2002, Hale had furnished, placed, and compacted 100% of the 16", 22", and 24" subballast called for in the subcontract. In regard to the 12" subballast, the exhibit reflects the original contract amount of 4,392 square yards and shows the 13,392 square yards that had been furnished, placed, and compacted, which indicates placement of the 9,000 square yards added by change order no. 3 and results in a 305% completion rate. The exhibit...