Jim's Excavating Service, Inc. v. HKM Associates, 93-166

• Decision Date: 25 August 1994
• Docket Number: No. 93-166,93-166
• Citation: 265 Mont. 494,878 P.2d 248,51 St.Rep. 623
• Parties: JIM'S EXCAVATING SERVICE, INC., a Montana Corporation, Plaintiff/Respondent/Cross-Appellant, v. HKM ASSOCIATES, a Montana Corporation, Defendant/Appellant.
• Court: Montana Supreme Court

Page 248

878 P.2d 248

265 Mont. 494

JIM'S EXCAVATING SERVICE, INC., a Montana Corporation Plaintiff/Respondent/Cross-Appellant, v. HKM ASSOCIATES, a Montana Corporation, Defendant/Appellant.

No. 93-166.

Supreme Court of Montana.

Submitted on Briefs April 21, 1994.

Decided July 12, 1994.

Rehearing Denied Aug. 25, 1994.

Neil G. Westesen and Donald L. Harris, Crowley, Haughey, Hanson, Toole & Dietrich, Billings, for appellant.

Stephen D. Bell and Robert L. Sterup, Dorsey & Whitney, Billings, for respondent.

John F. Sullivan, Hughes, Kellner, Sullivan & Alke, Helena, for amici curiae Consulting Engineers Council of MT and MT Technical Council.

NELSON, Justice.

Jim's Excavating Service, Inc. (JES), brought this action against the engineering firm of HKM Associates, (HKM), in the District Court of the Thirteenth Judicial District, Yellowstone County, claiming delay and extra work damages as a result of HKM's negligent design and supervision of the Lockwood Water User's Association water pipeline project. The jury returned a verdict in the amount of $381,000.00. HKM appeals and JES cross appeals on the issue of prejudgment interest. We affirm.

The following issues are raised on appeal:

I. Did the District Court err by permitting JES to sue HKM in tort to recover purely economic damages?

II. Did the District Court err by refusing to admit evidence that J-M's pipe representative, Vince Pacifico, informed JES at the beginning of the construction project that J-M's 24-inch PVC pipe could not be deflected?

III. Did the District Court err by permitting JES's damage expert to give his opinion concerning the damages JES incurred where the expert relied upon business records and long-accepted methodology?

IV. Did the District Court err by denying HKM's motion for a judgment notwithstanding the verdict (JNOV) or in the alternative a motion for a new trial?

V. Did the District Court err by failing to reduce the jury award against HKM by the amount JES received from settling with LWUA, J-M, and Northwest Pipe?

VI. Did the District Court err in denying JES's motion for prejudgment interest?

FACTUAL BACKGROUND

This litigation arises out of the construction of a water transmission pipeline for the Lockwood Water Users Association (LWUA). LWUA retained HKM, a Billings based engineering firm, to design the plans and specifications for the project. HKM also acted as project engineer through the entire project, from the design stage through completion. JES, a Billings construction contractor, was the low bidder on the project, and LWUA awarded the contract to JES in August 1985. The contract required JES to construct a water transmission main using 16-inch and 24-inch pipe.

A portion of the pipeline was to be laid through what is known as the "S" curve on Cerise Road. To negotiate this curve, the pipe would either have to be capable of being deflected at the joint, or special fittings would have to be installed. The project was originally designed to use ductile iron pipe, which is capable of deflection at the joint. Therefore, the plans and specifications on the original bidding and contract requirement forms issued in July 1985, did not call for fittings for the "S" curve on Cerise Road. Six days prior to releasing the bid, HKM issued an addendum to the bid forms requesting an alternate bid using polyvinyl chloride (PVC) pipe.

While designing the pipeline, J-M Manufacturing Co., Inc. (J-M), informed HKM's principal engineer Steve Quail, that the 24-inch PVC pipe could be deflected at the joint up to 3? . Relying on this information, Quail determined that the PVC pipe could be laid through the "S" curve without special fittings. Therefore, the addendum to the bid forms did not include any specifications that fittings be used for the "S" curve on Cerise Road.

JES submitted a bid which included the alternative bid for PVC pipe, and as stated above, was awarded the contract. JES decided Construction on the project began in September 1985. By the spring of 1986, JES was ready to lay the pipe at Cerise Road. The 24-inch pipe to be installed for this part of the project was delivered on April 10, 1986. Shortly thereafter, on April 18, 1986, a J-M representative told JES the pipe could not be deflected. Therefore fittings would have to be installed in order to negotiate the Cerise Road "S" curve. Because fittings had not been indicated for the Cerise Road portion of the project, JES had not ordered any, and none were immediately available. Construction of the pipeline effectively stopped until the fittings arrived. JES did complete the straight sections of the project while waiting for the fittings, and continued to work until May 6 or 7, 1986. The fittings arrived on July 14, 1986. However, JES was not able to resume work until their subcontractors had Worker's Compensation insurance. JES resumed work August 28, 1986. On September 4, 1986, there was a break in the Cenex gas line in the immediate area of the project. The area was evacuated by the sheriff, and the project was shut down. On September 10, HKM inspected the 24-inch fittings and discovered that the cement linings of the fittings were cracked and had to be returned for repair. The new fittings did not arrive on the project until October 5, or 6, 1986.

                to buy PVC pipe manufactured by J-M, from Northwest Pipe Fittings, Inc.  (Northwest Pipe).   JES had Northwest Pipe provide the required pipe information and certification to HKM.   The submittal informed [265 Mont. 499] HKM that 24-inch PVC pipe manufactured by J-M would be used on the project.   Included in the submittal was a deflection table indicating that the 24-inch pipe could be deflected up to 3?  at the joint without fittings.   Steve Quail called Northwest Pipe to verify that the deflection table applied to PVC pipe, and upon Northwest Pipe's assurance that the PVC pipe met the criteria listed in the deflection table, Quail determined that the proposed submittal satisfied the design plans and specifications, and approved the submittal without exception
                

While waiting for the equipment, JES could not do other work because its bonding was tied up, and because it had to keep its equipment on standby so that it would be available to begin work once the fittings did arrive. JES felt it was not free to use the equipment on a long-term basis on any other job. Due to the delay JES suffered economic loss.

PROCEDURAL BACKGROUND

JES filed a complaint against HKM and LWUA on May 8, 1987. The complaint contained a series of Counts, some in the nature of alternate theories of recovery, some in the nature of separate claims, some applicable to defendant HKM only, some applicable to defendant LWUA only, and some applicable to both defendants jointly. LWUA counterclaimed against JES and JES filed a third party complaint against Northwest Pipe and J-M, asking to be indemnified from the claims set forth in the LWUA's counterclaim.

Prior to trial, JES entered into a settlement agreement with LWUA whereby LWUA paid JES a total of $135,000 and dismissed the counterclaim asserted against JES. JES also entered into a settlement agreement with Northwest Pipe and J-M, whereby the sum of $135,000 was paid to JES in satisfaction of the claims asserted by JES against Northwest Pipe and J-M. By the terms of the agreements, JES did not release the claims it possessed against HKM. Therefore the remaining parties to the action were JES and HKM.

Following the settlements, JES filed an amended complaint against HKM only on March 7, 1989. The amended complaint incorporated some of the theories contained in the original complaint which named LWUA as co-defendant. The amended complaint alleged among other things, that HKM as project engineer owed JES, as contractor, a duty to act as a reasonable prudent member of its profession in its preparation of the contract plans and specifications, in its overall design of the project, in its direction, supervision and administration of the contract work, and its recommendations to the Project Owner with regard to contract payments and disputes. JES sought recovery of direct and consequential damages incurred as a result of HKM's negligent design.

A jury trial was held August 3 through 13, 1992. After certain pretrial motions, the case was submitted to a jury upon a negligence theory and the jury was asked to determine whether HKM was negligent in preparing the plans and specifications of the project and if so: whether HKM's negligence was a cause in fact of JES's damages; whether HKM's negligence was the proximate cause of damages to JES; and the amount of damages sustained by JES as a result of HKM's negligence. The jury was also asked whether JES was negligent, and if so, was the negligence of JES the cause in fact of its damages. The jury by its special verdict, determined that HKM was negligent and that its negligence was the cause in fact and proximate cause of JES's damages. The jury also determined that JES was negligent, but its negligence was not the cause in fact of its damages. The jury determined JES's damages to be in the amount of $381,000.

After trial HKM moved for a pro tanto reduction of the jury verdict. HKM argued that the $381,000 damage award should be reduced by $270,000, to reflect the compensation JES received from settling with LWUA, J-M, and Northwest Pipe. The District Court denied the motion, and entered judgment in favor of JES on October 30, 1992. HKM then moved for a judgment notwithstanding the verdict or in the alternative for a new trial. HKM based its motion in part on the argument that absent privity of contract, as a matter of law, HKM owed no duty to JES, and therefore JES could not bring a negligence action directly against HKM. After considering the briefs of both parties, the District Court denied this motion on December 17, 1992.

HKM appealed to this Court from this judgment, and JES cross appealed an order denying JES's motion for...