Lake Hills Invs. LLC v. Rushforth Constr. Co., No. 79116-8-I

• Court: Court of Appeals of Washington
• Writing for the Court: Verellen, J.
• Citation: 472 P.3d 337,14 Wash.App.2d 617
• Parties: LAKE HILLS INVESTMENTS LLC, a Washington limited liability company, Appellant/Cross Respondent, v. RUSHFORTH CONSTRUCTION COMPANY, INC., d/b/a AP Rushforth, a Washington corporation, and Adolph & Peterson, Inc., a Minnesota corporation, Respondent/Cross Appellant.
• Decision Date: 14 September 2020
• Docket Number: No. 79116-8-I

14 Wash.App.2d 617
472 P.3d 337

LAKE HILLS INVESTMENTS LLC, a Washington limited liability company, Appellant/Cross Respondent,
v.
RUSHFORTH CONSTRUCTION COMPANY, INC., d/b/a AP Rushforth, a Washington corporation, and Adolph & Peterson, Inc., a Minnesota corporation, Respondent/Cross Appellant.

No. 79116-8-I

Court of Appeals of Washington, Division 1.

FILED September 14, 2020

Scott R. Sleight, Ahlers Cressman & Sleight PLLC, 999 3rd Ave. Ste. 3800, Seattle, WA, for Appellant.

Nicholas Calvin Korst, Ahlers Cressman & Sleight, PLLC, 999 3rd Ave. Ste. 3800, Leonard J. Feldman Peterson Wampold Rosato Feldman Luna, 1501 4th Ave. Ste. 2800, Howard Mark Goodfriend, Ian Christopher Cairns, Smith Goodfriend PS, 1619 8th Ave. N, Alan B. Bornstein, Matthew Thomas Adamson, Jameson Pepple Cantu PLLC, 801 2nd Ave. Ste. 700, Seattle, WA, for Respondent.

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

Scott R. Sleight, Ahlers Cressman & Sleight PLLC, Brett Mactavish Hill Ahlers & Cressman PLLC, 999 3rd Ave. Ste. 3800, Leonard J. Feldman, Peterson Wampold Rosato Feldman Luna, 1501 4th Ave. Ste. 2800, Seattle, WA, Stephanie Lynn Messplay, Van Siclen Stocks & Firkins, 721 45th St. Ne, Auburn, WA, Betsy A. Gillaspy, Gillaspy & Rhode, PLLC, 821 Kirkland Ave. Ste. 200, Kirkland, WA, for Respondent/Cross-Appellant.

PUBLISHED OPINION

Verellen, J.

14 Wash.App.2d 621

¶1 A contractor accused of breach of contract due to construction defects may assert the affirmative defense that the owner's plans and specifications were defective and caused all of the construction defects. Because the successful affirmative defense shields the contractor from all liability, the contractor is required to prove all construction defect damages established by the owner are attributable to defective plans and specifications. Here, jury instruction 9 misstated AP Rushforth Construction Company's burden of proving its affirmative defense, and a new trial is required.

¶2 Lake Hills Investments, LLC assigns error to two other instructions but fails to demonstrate prejudice. The court's instruction on liquidated construction delay damages misled the jury that it could excuse AP from delay days caused by agents of AP, but Lake Hills does not establish any prejudice. The court should have instructed the jury that only a material breach of the duty of good faith and fair dealing by hindrance could excuse performance by AP, but under these circumstances, the omission of "material"

472 P.3d 342

was harmless. None of the other issues raised on appeal and cross appeal warrant any relief.

¶3 Therefore, we reverse and remand for a new trial.

FACTS

¶4 Lake Hills Village consists of several buildings constructed around a large parking lot. The buildings are a public library, two mixed-use residential/retail buildings, three commercial buildings, and some townhouses. Connecting the library and an adjacent commercial building are an elevator tower and a pedestrian bridge.

¶5 These structures were constructed over several years in several phases. AP was the general contractor for four phases. Phase 1 was construction of the library and Building A, a commercial building. Phase 2C was construction of half of a large underground parking garage, including a

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large concrete slab on the ground; the concrete topping slab on the parking garage, which also served as the above-ground parking lot; and foundation work on the mixed-use buildings and another commercial building, which are called, respectively, Building B, Building C, and Building D. Phase 3 was completing construction of Buildings B, C, and D. Phase 4 was construction of the townhomes. Phase 5A was construction of the elevator tower, the pedestrian bridge, the rest of the underground parking garage, and construction of retail space under Building A. Phase 5B was construction of the third commercial building, Building F.

¶6 Construction on AP's portion of Lake Hills Village was supposed to begin on February 16, 2013, and be completed by January 31, 2015. Each phase of the project had its own substantial completion date, and Lake Hills could assess liquidated damages for delay days past those substantial completion dates.¹ Every phase of the project AP was contracted to build, phases 2C, 3, 5A, and 5B, was delayed. In November of 2014, Lake Hills notified AP it was in breach of the contract schedule and blamed AP's management practices and insufficient jobsite staffing. Lake Hills also began identifying work it considered defective, such as excessive cracking in the concrete garage floor slab. AP blamed the delays on Lake Hills "arbitrarily" cutting its pay applications, making it difficult for it to hire and retain subcontractors.² AP blamed construction defects on Lake Hills providing "a sketch" or "a concept" rather than buildable designs.³ Relations deteriorated, and in late October of

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2015, Lake Hills filed suit against AP for breach of contract. AP stopped work a few weeks later and filed its own breach claim alleging underpayment.

¶7 Pretrial, the parties produced more than 1,000,000 documents, took 59 depositions, and participated in six days of mediation. The court ruled that neither party could introduce evidence of the other party's "[d]isputes with others," and the court prohibited AP from introducing evidence of certifications Lake Hills made to its lender when requesting funds.⁴

¶8 The trial lasted almost two months, and the jury heard from two dozen witnesses. One witness, Oscar Del Moro, the owner's representative overseeing the Lake Hills Village project, testified for six-and-a-half days. Using a special verdict form, the jury returned a mixed verdict. It found that construction defects by AP breached the contract and awarded damages in six of eight areas of claimed defects. The jury also found that each phase of the project was completed past its substantial completion date, Lake Hills was responsible for the vast majority of

472 P.3d 343

delay days, AP did not breach by stopping work, and Lake Hills breached the contract by underpaying AP. The court awarded a net judgment in favor of AP of $9,624,695.80, including $5,866,016 in attorney fees and costs.

¶9 Lake Hills appeals, and AP cross appeals.

ANALYSIS

I. Jury Instructions

¶10 Lake Hills argues the court gave three erroneous jury instructions and erred by refusing to adopt its proposed instruction. We review jury instructions " ‘de novo if based upon a matter of law or for abuse of discretion if

14 Wash.App.2d 624

based upon a matter of fact.’ "⁵ Jury instructions are legally erroneous when, read as a whole, they fail to allow a party to argue its theory of the case, mislead the jury, or fail to inform the jury of the applicable law.⁶ An erroneous instruction is grounds for reversal if it prejudiced a party.⁷ We presume a party was prejudiced when the instruction contains a clear misstatement of the law, but when the instruction was merely misleading, the appellant must prove the instruction was prejudicial.⁸ The presumption of prejudice can be overcome on a showing that the error was harmless.⁹

A. Jury Instruction 9

¶11 When an owner includes its building plans and specifications as part of a contract, the contract contains an implied warranty that the plans and specifications are workable and sufficient.¹⁰ Breach of that warranty could be the basis of a contractor's claim,¹¹ counterclaim,¹² or affirmative

14 Wash.App.2d 625

defense.¹³ Here, AP alleged an affirmative defense based upon Lake Hills’ implied warranty, so our analysis is limited to breach of the owner's implied warranty as an affirmative defense.

¶12 Jury instruction 9 guided the jury on deciding Lake Hills’ breach of contract claim alleging multiple construction defects in eight different areas of work. The parties agreed AP had a duty to build in compliance with the contract, so Lake Hills had to prove:

472 P.3d 344

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.^{[14 ]}

Because the jury found AP liable,¹⁵ jury instruction 9 directed the jury to consider AP's affirmative defense that Lake Hills’ defective plans or specifications caused the construction defects and its damages. The court instructed the jury:

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,

14 Wash.App.2d 626

and

...