Mut. of Enumclaw Ins. Co. v. Gregg Roofing, Inc.

• Decision Date: 31 December 2013
• Docket Number: No. 42940–3–II.,42940–3–II.
• Citation: 178 Wash.App. 702,315 P.3d 1143
• Parties: MUTUAL OF ENUMCLAW INSURANCE COMPANY, a Washington corporation, Appellant/Cross Respondent, v. GREGG ROOFING, INC. a Washington corporation, Respondent/Cross Appellant.
• Court: Washington Court of Appeals

178 Wash.App. 702

315 P.3d 1143

MUTUAL OF ENUMCLAW INSURANCE COMPANY, a Washington corporation, Appellant/Cross Respondent,

v.GREGG ROOFING, INC. a Washington corporation, Respondent/Cross Appellant.

No. 42940–3–II.

Court of Appeals of Washington,

Division 2.

Dec. 31, 2013.

Danny L. Hitt, Attorney at Law, Portland, OR, Brent William Beecher, Hackett Beecher & Hart, Seattle, WA, for Appellant/Cross–Respondent.

Howard Mark Goodfriend, Ian Christopher Cairns, Smith Goodfriend PS, William James Leedom, Bennett Bigelow Leedom PS, Seattle, WA, for Respondent/Cross–Appellant.

MAXA, J.

¶ 1 Mutual of Enumclaw Insurance Co. (MOE) appeals a $1.5 million jury verdict award on Gregg Roofing, Inc.'s claim for tortious interference with a business relationship. The evidence at trial indicated that Gregg Roofing sustained minimal lost profits and consequential damages, meaning that a large majority of the damages award must have related to injury to its reputation. MOE argues that Gregg Roofing failed to present any evidence to quantify the amount of injury to its reputation, and therefore that the trial court erred when it denied MOE's CR 50 motion for judgment as a matter of law and its alternative motions for a new trial or reduction of the verdict. We agree, and hold that Gregg Roofing's evidence regarding injury to its reputation was insufficient to support the jury verdict. We reverse and remand for a new trial on the damages issue only.

FACTS

Claim Background

¶ 2 In June 2005, Parkside Church in Camas hired Gregg Roofing to install a new roof on the church and to repair dry rot. In August, after Gregg Roofing had removed the roof in preparation to install a new one, an unexpected rain storm damaged the building's interior when water leaked through the temporary covering Gregg Roofing had installed. The church filed a water damage claim with its insurer, MOE, which assigned its employee Robert Lowrie as the adjuster for the claim.

¶ 3 Lowrie met with the church's pastor and persuaded him to terminate Gregg Roofing's contract and instead to hire Charles Prescott Restoration, Inc. (CPR), owned by Donald Chill, to repair the water damage. The church hired CPR, fired Gregg Roofing, and did not allow Gregg Roofing to complete the remaining $5,301 on its $16,212 roof replacement contract. In exchange for being given the job, Chill gave Lowrie financial gifts and “kickbacks.” Clerk's Papers (CP) at 135. CPR fraudulently performed excessive and unnecessary repairs for which it received insurance payments, which Lowrie authorized despite knowing that the repairs were unnecessary. MOE paid a total of $2,345,537.66 to repair the damage to the church, a significant portion of which it paid to CPR.

¶ 4 MOE was subrogated to the church's rights and sued Gregg Roofing, alleging that Gregg Roofing had breached its contract by causing the damage to the church.¹ Gregg Roofing asserted various counterclaims, including a claim for tortious interference with a business relationship based on Lowrie convincing the church to fire Gregg Roofing. Gregg Roofing alleged that MOE was liable for Lowrie's conduct because he was acting within the scope of his employment with MOE.

Pretrial Rulings

¶ 5 In a separate lawsuit MOE also had sued Chill and CPR for fraud, negligent misrepresentation, and violation of the Consumer Protection Act, chapter 19.86 RCW. The trial court originally consolidated MOE's case against Chill and CPR with its case against Gregg Roofing. However, Gregg Roofing successfully moved to sever the two cases before trial. Gregg Roofing and MOE subsequently filed summary judgment motions, which resulted in the dismissal of all claims and counterclaims except MOE's breach of contract claim and Gregg Roofing's tortious interference with a business relationship claim.

¶ 6 During discovery, MOE propounded an interrogatory to Gregg Roofing asking for the amount of claimed damages and the method of calculation. Gregg Roofing's response was that damages to its business reputation were “ ‘at least $10,000.’ ” CP at 241. MOE also made a request for production for Gregg Roofing's tax returns, but Gregg Roofing failed to produce them until the week before trial. Allen Tiffany, Gregg Roofing's president, testified in his deposition that he could have retrieved the documents from his attic earlier but did not. Because Gregg Roofing failed to timely produce its tax returns and because MOE claimed that damages were speculative, MOE moved to exclude evidence of damage to Gregg Roofing's business reputation. The trial court denied the motion to exclude all evidence of damage to Gregg Roofing's business reputation, but granted MOE's motion to exclude evidence of lost profits except for the $5,301 remaining on the contract.

¶ 7 When the trial court granted Gregg Roofing's motion to sever MOE's case against Chill and CPR from the Gregg Roofing case, it also granted Gregg Roofing's motion to exclude evidence or argument regarding any fraud. Before trial, Gregg Roofing again moved to exclude evidence of Chill's fraud conviction and evidence that he was in prison, arguing that the evidence was irrelevant and inadmissible under ER 403. The trial court granted the motion. At trial, MOE made an offer of proof for evidence relating to Chill's fraud conviction as well as testimony regarding the connection between Chill and Lowrie. The trial court denied the request to admit them based on its previous rulings.

Damages Evidence

¶ 8 At trial, Gregg Roofing's only testimony regarding damages came from Tiffany, its president. With regard to lost profits, Tiffany testified that Gregg Roofing was not allowed to finish the project and therefore was not paid the $5,301.07 remaining on the contract. He stated that Gregg Roofing expected a 10 percent profit on the Parkside Church contract. Therefore, the total lost profits on the amount the church failed to pay were approximately $530. With regard to consequential damages, Tiffany testified that after the church incident Gregg Roofing was not asked to bid on several other residential and commercial roofing projects on which the company normally would have been expected to bid. He specifically mentioned two churches and a four-building apartment complex. Tiffany also testified that another contractor had recommended Gregg Roofing for a job, but that the project owner declined because of the “Parkside Church fiasco.” Report of Proceedings (RP) at 1646. Gregg Roofing did not provide any evidence regarding the profits it may have lost because it did not bid on these projects or any other evidence regarding financial losses relating to MOE's conduct.

¶ 9 Tiffany provided minimal testimony regarding the fact that Gregg Roofing had sustained injury to its reputation. He expressed his opinion that Gregg Roofing's business reputation had been injured. He explained that “everybody” knew that Gregg Roofing had started work on the church because its boldly-labeled yellow trucks had been there for two weeks before the flooding, and that the church's roof remained unfinished with plastic sheeting over the top of it for months. As noted above, Tiffany also mentioned not being asked to bid on several jobs, but admitted that “I don't know that I totally know how much work we missed and how much ... the word spread in a negative manner around the community.” RP at 1626. Tiffany concluded, “I know it's hurt ... our reputation, and our name for doing quality work was damaged.” RP at 1623.

¶ 10 Tiffany also provided almost no testimony regarding the amount of damages caused by Gregg Roofing's injured reputation. Tiffany made only five statements at trial regarding injury to reputation damages, and in four of those statements admitted that Gregg Roofing had no documents or any other evidence regarding the amount of damages.

Q. ... [I]s there anything else in terms of reputational damage ... that you can tell the jury about that you're testifying today that arise out of this breach of the contract? ... A.... I don't know how you ever come up with a number like that, I just know ... we've been severely damaged in our local neighborhood as a result of this.

RP at 1625–26.

Q. ... So you're not putting any numbers, you're not bringing out any documents, you're just going to let the jury decide what that is.

A. That's correct.

RP at 1626.

Q. There are no documents that support any claim of financial loss for damage to your reputation[,] correct?

A. That's correct. How do you put a number on that?

RP at 1667.

Q. ... And you didn't put a number on the damage to reputation today, did you?

A. No.

....

Q. ... [A]re you asking [the jury] to use their own good judgment to figure out how much that's worth to your business?

A. I'm praying that.

RP at 1673.

¶ 11 In the fifth statement, Tiffany was asked about Gregg Roofing's answer to the damages interrogatory, which stated that the amount of its reputation damages was at least $10,000. Tiffany acknowledged that this answer had been prepared by Gregg Roofing's lawyers. Tiffany testified that since 2009 he had observed additional damage to Gregg Roofing's reputation, but he did not quantify the amount.

¶ 12 Tiffany also was asked how he felt about seeing the unrepaired roof when he drove past the church, to which he responded, “Not very good.” RP at 1620. MOE objected, arguing, “There's no claim for emotional distress damages.” RP at 1620. The trial court overruled the objection and allowed Tiffany to continue. He stated, “[W]e knew that this was a very negative effect on our business and we were naturally very upset by it.” RP at 1621.

Verdict and Post Trial Motions

¶ 13 The jury found that Gregg Roofing did not breach its contract with the church. On Gregg Roofing's counterclaim, the jury found that MOE tortiously interfered with Gregg Roofing's contract with the church through Lowrie as its agent, and that the interference was a proximate cause of Gregg Roofing's damages. The jury awarded ...