Lake Hills Invs., LLC v. Rushforth Constr. Co.

• Decision Date: 02 September 2021
• Docket Number: No. 99119-7,99119-7
• Parties: LAKE HILLS INVESTMENTS, LLC, a Washington limited liability company, Respondent, v. RUSHFORTH CONSTRUCTION CO., INC. d/b/a AP Rushforth, a Washington corporation; and Adolfson & Peterson Inc., a Minnesota corporation, Petitioners.
• Court: Washington Supreme Court

494 P.3d 410

LAKE HILLS INVESTMENTS, LLC, a Washington limited liability company, Respondent,

v.RUSHFORTH CONSTRUCTION CO., INC. d/b/a AP Rushforth, a Washington corporation; and Adolfson & Peterson Inc., a Minnesota corporation, Petitioners.

No. 99119-7

Supreme Court of Washington.

Argued June 24, 2021

Filed September 2, 2021

Amended September 14, 2021

Scott R. Sleight, Brett MacTavish Hill, Nicholas Calvin Korst, Ahlers Cressman & Sleight PLLC, 1325 Fourth Avenue, Suite 1850, Leonard J. Feldman, Peterson Wampold Rosato Feldman Luna, 1001 4th Ave. Ste. 4131, Seattle, WA, Stephanie Lynn Messplay, Van Siclen Stocks & Firkins, 721 45th St. Ne, Auburn, WA, for Petitioners.

Howard Mark Goodfriend, Ian Christopher Cairn, Smith Goodfriend PS, 1619 8th Ave. N., Seattle, WA, Alan B. Bornstein, Matthew Thomas Adamson, Jameson Pepple Cantu PLLC, 801 2nd Ave. Ste. 700, Seattle, WA, for Respondent.

John Stephen Riper, Robert Scott Marconi, Ashbaugh Beal LLP, 701 5th Ave. Ste. 4400, Seattle, WA, for Amici Curiae Associated General Contractors of Washington, Associated Builders and Contractors of Western Washington, National Utility Contractors Association of Washington

Garth A. Schlemlein, Schlemlein Fick & Franklin, PLLC, 66 S. Hanford St. Ste. 300, Seattle, WA, for Amici Curiae National Electrical Contractors Association Puget Sound Chapter, Mechanical Contractors Association of Western Washington, Sheet Metal and Air Conditioning Contractors' National Assoc., The Surety & Fidelity Association of America.

Ryan P. McBride, Jennifer McMillan Beyerlein, Andrew J. Gabel, Lane Powell PC, 1420 5th Ave. Ste. 4200, Seattle, WA, for Amicus Curiae American Council of Engineering Companies of Washington, Aia Washington Council.

Geoffrey F. Palachuk, Grant Steven Degginger, Jennifer McMillan Beyerlein, Lane Powell PC, 1420 5th Ave. Ste. 4200, Seattle, WA, Bob C. Sterbank, Attorney at Law, P.o. Box 987, Snoqualmie, WA.

Dierk Jon Meierbachtol, Washington State Attorney General's Office, P.o. Box 40113, Olympia, WA, for Amicus Curiae State of Washington.

Jackson Wilder Maynard Jr., Brooke Marie Frickleton, Building Industry Association of Washington, 300 Deschutes Way Sw Ste. 300, Tumwater, WA, for Amicus Curiae Building Industry Association of WA.

MADSEN, J.

¶1 Lake Hills Investments LLC sued AP Rushforth (AP) for breach of contract, alleging, among other things, that the work AP conducted on the Lake Hills Village project was defective. AP counterclaimed that Lake Hills underpaid them. At trial, an affirmative defense instruction (jury instruction 9) was given, stating that "AP has the burden to prove that Lake Hills provided the plans and specifications for an area of work at issue, that AP followed those plans and specifications, and that the [construction] defect resulted from defects in the plans or specifications. If you find from your consideration of all the evidence that this affirmative defense has been proved for a particular area, then your verdict should be for AP as to that area." 1 Clerk's Papers (CP) at 348-49. Lake Hills Inv., LLC v. Rushforth Constr. Co. , 14 Wash. App. 2d 617, 631, 472 P.3d 337 (2020).

¶2 The Court of Appeals held that this instruction understated AP's burden of proof and allowed the jury to find that if any part of the construction defect resulted from Lake Hills’ plans and specifications, then the jury could find for AP. The court concluded that the error was not harmless, reversed, and remanded for a new trial. We reverse the Court of Appeals.

BACKGROUND

¶3 Lake Hills contracted with AP to construct Lake Hills Village, a mixed-use property consisting of multiple buildings, including a King County library branch, two retail-office-residential buildings, three commercial buildings, some townhouses, an elevator tower, and a pedestrian bridge.

¶4 The project was built in phases. Phase 1 involved the library and an office building (building A). Phase 2C called for part of an underground garage, which included a ground concrete slab, a concrete topping slab on the parking garage for the aboveground parking lot, and the foundation for the two mixed-use buildings and a commercial building (buildings B, C, and D, respectively). Phase 3 consisted of the physical structures for buildings B, C, and D. Phase 4 involved townhouses. Under phase 5A, the elevator tower, the pedestrian bridge, the rest of the underground parking garage, and a retail space under building A were constructed. Phase 5B completed the construction plans with building F. AP was the general contractor for phases 2C, 3, 5A, and 5B.

¶5 Every phase of the project had its own substantial completion date and liquidated damages were assessed for any delays past the substantial completion date. All phases that AP was contracted to build (phases 2C, 3, 5A, and 5B) were delayed. In November 2014, Lake Hills sent a letter to AP notifying AP that because it was behind schedule and there was defective work on the site, such as excessive cracking in the concrete garage floor slab, AP was in breach of contract. AP asserted that the construction delays and defects stemmed from Lake Hills providing a defective "concept" rather than viable plans and specifications. Lake Hills filed suit against AP, alleging, among other claims, that AP had performed defective work in eight areas.¹ AP stopped working on Lake Hills Village and filed its own breach claim, alleging underpayment.

¶6 The trial lasted two months. Using a special verdict form, the jury returned a mixed verdict. On the question of whether AP had rendered defective work as to any area of work, the jury answered yes. It awarded damages in six of eight areas of claimed defects. The jury also found Lake Hills had breached the contract in several respects.² The net judgment to AP was $9.2 million, including $5.8 million in attorney fees and costs.

¶7 The Court of Appeals reversed based on jury instruction 9, the affirmative defense of defective plans or specifications. The court held that jury instruction 9 misstated the law governing AP's affirmative defense because a construction defect must result "solely" from the defective or insufficient plans or specifications. The court concluded the error in the affirmative defense instruction prejudiced Lake Hills. Relying on Kenney v. Abraham , 199 Wash. 167, 170, 90 P.2d 713 (1939), and other Washington cases,³ the court reasoned that "a party must perform its duties and a failure to perform entitles the injured party to damages proximately caused by the breach" with limited exceptions.⁴ Lake Hills , 14 Wash. App. 2d at 630, 472 P.3d 337. A defective plans affirmative defense, the court noted, can relieve a breaching general contractor of its liability if a contractor can prove an alternate proximate cause. The court noted that "AP's affirmative defense theory was that a single cause, defective plans or specifications, injured Lake Hills. To be relieved of all liability for its breaches, AP had to prove Lake Hills’ defective designs ‘solely’ caused the plaintiff's damages." Id . at 631, 472 P.3d 337. The Court of Appeals acknowledged that "including ‘solely’ may not be the only way to clarify the precise burden of proof for a defective plans affirmative defense." Id . at 631 n.43, 472 P.3d 337. But, the court held that some modifier was required because otherwise any evidence of a defect in the plans and specifications could allow AP to avoid all liability for the affected project area even if AP's negligence caused some of the damage.

¶8 AP appealed, and Lake Hills cross appealed. We granted review only on jury instruction 9. Multiple amici submitted briefing.⁵

ANALYSIS

A. The Affirmative Defense

¶9 The heart of this case is whether jury instruction 9 correctly stated the standard for the affirmative defense of defective plans and specifications.

¶10 An appellate court reviews a trial court's decision to give a jury instruction " ‘de novo if based [on] a matter of law, or for abuse of discretion if based [on] a matter of fact.’ " Hendrickson v. Moses Lake Sch. Dist. , 192 Wash.2d 269, 274, 428 P.3d 1197 (2018) (internal quotation marks omitted) (quoting Taylor v. Intuitive Surgical Inc. , 187 Wash.2d 743, 767, 389 P.3d 517 (2017) ). " ‘Prejudice is presumed if the instruction contains a clear misstatement of law[. However,] prejudice must be demonstrated if the instruction is merely misleading.’ " Paetsch v. Spokane Dermatology Clinic, PS , 182 Wash.2d 842, 849, 348 P.3d 389 (2015) (quoting Anfinson v. FedEx Ground Package Sys., Inc. , 174 Wash.2d 851, 860, 281 P.3d 289 (2012) ). "The presumption of prejudice from a misstatement of law can be overcome only on a showing that the error was harmless." Id .

¶11 By its terms, jury instruction 9 applied to Lake Hills’ first breach of contract claim, which alleged multiple construction defects in eight areas of work. The parties agreed that AP had a duty to construct the buildings in compliance with the contract documents, so the first element listed in jury instruction 9 was not at issue. Thus, Lake Hills had the burden of proving

2. That AP breached the contract by failing to construct certain areas of work in compliance with the contract documents; and

3. That Lake Hills was damaged as a result of AP's breach.

1 CP at 348.

¶12 Because the jury found AP was in breach,⁶ jury instruction 9 advised the jury to consider AP's affirmative defense that Lake Hills’ defective plans or specifications were the cause of the construction defects and damages.

For its affirmative defense, AP has the burden to prove that Lake Hills provided the plans and specifications for an area of work at issue, that AP followed those plans and specifications, and that the [construction] defect resulted from defects in the plans or specifications.

If you find from your consideration of all the evidence that this affirmative defense has been proved for a particular area, then your verdict should be for AP as to that area.

Id. at 348-49.

¶13 Before finalizing the...