Lauro v. Visnapuu

• Decision Date: 09 September 2002
• Docket Number: No. 3546.,3546.
• Citation: 570 S.E.2d 551,351 S.C. 507
• Parties: Frank LAURO, d/b/a Colonial Restoration, Respondent, v. Kuldar VISNAPUU, Sandra Visnapuu, and Union Federal Savings Bank of Indianapolis, Defendants, Of Whom Kuldar Visnapuu and Sandra Visnapuu are, Appellants.
• Court: South Carolina Court of Appeals

351 S.C. 507

570 S.E.2d 551

Frank LAURO, d/b/a Colonial Restoration, Respondent, v. Kuldar VISNAPUU, Sandra Visnapuu, and Union Federal Savings Bank of Indianapolis, Defendants, Of Whom Kuldar Visnapuu and Sandra Visnapuu are, Appellants.

No. 3546.

Court of Appeals of South Carolina.

Submitted May 6, 2002.

Decided September 9, 2002.

Rehearing Denied October 17, 2002.

Richard S.W. Stoney and Jay T. Gouldon, of Charleston; and James B. Richardson, Jr., of Columbia, for appellants.

Richard S. Rosen and Kevin R. Eberle, of Charleston, for respondent.

HUFF, J.

This mechanic's lien foreclosure action was instituted by Frank Lauro, d/b/a Colonial Restoration (hereinafter Lauro). Kuldar and Sandra Visnapuu appeal from an order of the circuit court modifying an arbitration award in favor of Lauro. We reverse.¹

FACTUAL/PROCEDURAL BACKGROUND

Frank Lauro owns and operates Colonial Restoration, a Charleston business which provides restoration and contractor services. The Visnapuus contracted with Lauro to perform a substantial restoration project on their home located on Charleston's Meeting Street.

Lauro delivered to the Visnapuus a blank American Institute of Architects (AIA) document contract form. At the time of delivery, Lauro also prepared and delivered a proposed fill-in document for the AIA contract which provided a guaranteed maximum cost of $346,115.00 for completion of the restoration project.

Subsequently, the parties executed a proposal on December 2, 1997. Attached to the proposal was a detailed, ten page description of a "limited scope of work for renovations" to the Visnapuus' home. Specifically, the proposal included the following language:

We [Colonial Restoration] propose to furnish labor and material for renovation of the above referenced project for the maximum sum of Three Hundred and Forty-six Thousand, One Hundred and Fifteen dollars, ($346,115.00) with a limited scope of work.

The day after the Visnapuus executed the proposal, but prior to the execution of the AIA contract, Lauro met with his attorney regarding what would be necessary to make the arrangement between the parties a pure cost-plus contract without a guaranteed maximum. His attorney advised him on how to fill out the AIA contract to accomplish a cost-plus contract, and Lauro thereafter had his secretary fill out the contract. Lauro failed, however, to deliver this AIA contract back to his attorney for review. As a result, the document embodied numerous troublesome oversights in regard to the guaranteed maximum provision.

During the course of the restoration, Lauro periodically billed the Visnapuus for his work, and the Visnapuus paid approximately $257,901.00 as billed. A dispute arose between the parties, however, after Lauro submitted a July 2, 1998 invoice in the amount of $111,351.00, bringing the total cost of the project to date well above $346,115.00. Work was halted on the project and these proceedings were instituted.

On July 8, 1998, Lauro filed a mechanic's lien against the Visnapuus' home and commenced this mechanic's lien foreclosure action seeking $197,560.00, together with interest, costs and attorney's fees, alleging the Visnapuus improperly refused to pay the full amount due under a cost-plus contract. Lauro further asserted causes of action for slander, interference with economic relationships, and breach of contract accompanied by a fraudulent act. The Visnapuus answered, alleging that the contract was a guaranteed maximum sum contract, not a cost-plus contract, and that they refused to permit Lauro to complete the work because the invoice exceeded the maximum contract price and Lauro had failed to comply with the contract terms. The Visnapuus also counterclaimed alleging, among other things, Lauro was guilty of negligent construction, wrongfully filing the mechanic's lien, breach of contract, fraud, negligent misrepresentation, and breach of warranty of workmanlike services.

In July of 2000, the parties consented to submit the case for arbitration. The arbitrator issued his award on August 23, finding the parties agreed to a guaranteed maximum sum contract in the amount of $346,115.00. He concluded, however, the maximum cost provision encompassed only a limited scope of work as outlined in the ten page proposal, and Lauro was entitled to payment for work he performed outside the original scope on a separate, implied contract. The arbitrator assigned a value of $39,074.00 to work Lauro performed under this separate agreement, and awarded him that sum plus interest for one and one-third years in the amount of $4,563.19. The arbitrator specifically found interest for the entire period of a little more than two years was inappropriate because "the value of Colonial's performance was not clearly transmitted to the [Visnapuus]."

The arbitrator further found the Visnapuus had agreed to increase the original guaranteed maximum sum for work that was within the original scope of the project by $27,600.00. Accordingly, the effect of this increase was to raise the amount of the guaranteed maximum sum to $373,715.00. Having determined Lauro earned this full additional sum, he found Lauro was entitled to $27,600.00 plus interest of $5,188.85 on that amount. In addition, the arbitrator ordered the Visnapuus to pay $9,943.12 and $2,175.35, respectively, to two local suppliers for materials they provided to the project.

The arbitrator found insufficient evidence to support Lauro's claims for defamation and intentional interference of contract. He also determined the Visnapuus had failed to present sufficient evidence of deficient work by Lauro, and that the Visnapuus were not entitled to damages for increased financing charges that resulted from the filing of the mechanic's lien.

The arbitrator concluded the Visnapuus were to pay a total of $88,544.51, which included the work performed under the separate, implied contract with interest ($43,637.19), additional work performed pursuant to agreement of the parties under the contract with interest ($32,788.85), and payment to the two local material suppliers ($9,943.12 and $2,175.35). He further found Lauro had claimed a lien in the amount of $177,352.17 and the Visnapuus had offered nothing. He determined the differences between his award and the statutory fictional demand and counteroffer under S.C.Code Ann. § 29-5-10 were equal, and neither party was the prevailing party under the mechanic's lien statute. Therefore, he declined to award either party attorney's fees.

In September 2000, Lauro requested that the arbitrator modify his award to address the unpaid balance between the amount of the original guaranteed maximum sum ($346,115.00) and the amount the Visnapuus actually paid in satisfaction of that amount ($257,901.00). Lauro requested that the unpaid balance of the maximum sum contract in the amount of $88,214.00, including $22,934.00 of retainage, be added to the arbitration award, together with interest of $16,600.54. He also sought additional interest of $2,764.15 on the original award of $39,074.00 under the implied contract. He argued the addition of these amounts would render him the prevailing party in the action, thereby entitling him to an award of attorney's fees under the mechanic's lien statute. He also argued the statute required the Visnapuus be assigned a negative value to their counteroffer by taking into account their counterclaims, which would result in him being the prevailing party in any event.

On October 9, 2000, the arbitrator held a hearing on Lauro's motion to modify the award. In response to Lauro's argument that he was entitled to the difference between the original contract amount and the sum paid by the Visnapuus, the arbitrator stated as follows:

The question becomes—and I struggled with this; it wasn't something that was an oversight—was this: He was paid 257. We are dealing with a figure of 346 that I found and was convinced of—and I think it was unfortunate, but I was convinced of he agreed to. He did not perform the entire contract. That's undisputed.

So the fact that there's a guaranteed maximum price contract does not guarantee the performer of the contract the guaranteed maximum sum. That was my thought process. Now I will say this, I toyed with this idea. . . . There was a difference of—between 346 and 257, roughly $90,000. I struggled. Maybe Mr. Lauro would be entitled to 12 percent on that, since it was a cost plus issue. He certainly shouldn't be entitled to recover his entire guaranteed maximum when he didn't perform all the work. That was the basis of my award.

* * *

. . . . I did not overlook those things, but finding that it was a maximum guaranteed contract does not become, in my judgment, a self-fulfilling prophecy, and he's entitled to the maximum guaranteed sum.

* * *

So I want you to understand my thought process on it. It was not an oversight. . . . I think I put, apparently, he exceeded the maximum sum that was agreed on. I weighed that. Should he be entitled to the full amount? I had to conclude no, since he didn't complete the contract.

The arbitrator concluded he would not modify the award to include the difference between the guaranteed maximum sum and the amount paid, based on the fact that the total contract was not performed. He indicated he would look at the issue of retainage and make a determination based on that decision whether he needed to readdress the attorney's fees issue.

By letter dated October 10, 2000, the arbitrator notified the parties that he was "not inclined to change the order to allow Colonial to recover all of the `guaranteed maximum amount,' since when Colonial left the job, the job was not complete." He indicated he was concerned with the retainage issue, and the effect a determination of that issue might have on the determination of a prevailing party for purposes of attorney's fees.

Thereafter, on October 30, 2000, the arbitrator issued his arbitration award...