New Pueblo Constructors, Inc. v. State

• Decision Date: 27 February 1985
• Docket Number: No. 17581-PR,17581-PR
• Citation: 144 Ariz. 95,696 P.2d 185
• Parties: NEW PUEBLO CONSTRUCTORS, INC., Plaintiff/Appellee, v. STATE of Arizona, Defendant/Appellant.
• Court: Arizona Supreme Court

Page 185

696 P.2d 185

144 Ariz. 95

NEW PUEBLO CONSTRUCTORS, INC., Plaintiff/Appellee, v. STATE of Arizona, Defendant/Appellant.

No. 17581-PR.

Supreme Court of Arizona, In Banc.

Feb. 27, 1985.

Lewis & Roca by John P. Frank, Joseph E. McGarry and Sarah H. Jenkins, Phoenix, for petitioner/appellee.

Robert K. Corbin, Atty. Gen. by James L. Hohnbaum, Joe Acosta, Jr. and Albert Morgan, Asst. Attys. Gen., Phoenix, for respondent/appellant.

Shimmel, Hill, Bishop & Gruender by Daniel F. Gruender and Kenneth C. Sundlof, Jr., Phoenix, for amicus curiae Associated General Contractors.

Fennemore, Craig, von Ammon, Udall & Powers by Calvin H. Udall and Rolf R. von Oppenfeld, Phoenix, for amici curiae W.R. Skousen Contractor, Inc.; C.S. McCrossan, Inc.; D.C. Speer Const. Co., Inc.; Clinton Campbell Contractor, Inc.

HAYS, Justice.

Plaintiff-petitioner, New Pueblo Constructors (NPC), entered into two contracts with defendant-respondent, the Arizona Department of Transportation (ADOT), to construct two adjoining segments of the interstate highway between Nogales and Tucson, known as the "Carmen" and "Tubac" projects. In the fall of 1977 and the spring of 1978, a catastrophic storm and unusually heavy rainfall caused extensive damage to both project areas and to work previously performed by NPC. NPC requested compensation for the additional costs in completing the work under a clause in both contracts that relieved the contractor of added expense caused by acts of God and other unforeseeable events beyond its control. NPC also sought to recover $31,500 assessed against it as liquidated damages for late completion of the Tubac project. After exhausting administrative remedies, NPC sued ADOT. On January 20, 1983, the jury returned a verdict of $256,891.23 in NPC's favor. This amount included both compensation for NPC's losses and a complete refund of money paid as liquidated damages. The trial court also awarded NPC $42,192 in attorney's fees and $17,792.94 in expert witness fees under A.R.S. § 12-348(A)(3). The Court of Appeals reversed the trial court with respect to all relief granted below and remanded the case for further proceedings. New Pueblo Constructors, Inc. v. Arizona Department of Transportation, 144 Ariz. 113, 696 P.2d 203 [1984]. We have jurisdiction. Ariz. Const. art. 6, § 5(3); Ariz.R.Civ.App.P., Rule 23; A.R.S. § 12-120.24. Amicus curiae, Associated General Contractors of Arizona and W.R. Skousen, contractors, were granted leave to file briefs in support of the petition for review. We accepted NPC's petition for review to address six questions:

1. Did the contractor fail as a matter of law to provide adequate notice of a claim for additional compensation in completing the contract?

2. Did ADOT's engineer have absolute discretion to refuse to waive liquidated damages, thereby barring submission of this issue to the jury?

3. Did the measurement of the contractor's damages for extra work by the modified total cost method and the jury verdict method rather than by isolating actual costs bar relief?

4. Does A.R.S. § 12-825 bar an award of attorney's fees or taxable costs against the state?

5. May a contractor recover attorney's fees under A.R.S. § 12-348(A)(3) for de novo review of a contract dispute?

6. May a contractor recover attorney's fees in a contract action against the state under A.R.S. § 12-341.01?

We vacate the court of appeals opinion. We dismiss ADOT's cross-petition to review the Court of Appeals determination that the statute of limitations has not run on NPC's claim. The relevant facts are discussed in our presentation of the issues.

I. DID THE CONTRACTOR PROVIDE NOTICE OF HIS CLAIM FOR COMPENSATION?

The work performed by NPC on the Carmen and Tubac projects involved, first of all, grading and draining the roadbed to form the "subgrade" (or graded roadbed). The "base" and "paving materials" would then be placed on the subgrade to form the highway. The "base" materials consist of rock of various sizes which is compacted into the subgrade. "Paving" or surface materials are a combination of asphalt and "mineral aggregate" (a mixture of various sizes of rock and sand) which is spread over the base layer of the roadway. Special backfill material was used in providing support for bridges and other construction. The contractor's original sources for the base, paving and special backfill materials were the Anamax and the Agua Linda aggregate mining pits near the Santa Cruz River.

On October 9 and 10, 1977, an extraordinary storm, part of Hurricane Heather, struck southern Arizona. This "hundred years" storm caused the biggest flood and runoff experienced in the area for 43 years. The governor declared a state of emergency for Pinal, Pima and Santa Cruz Counties, which included the area of these projects. This storm was followed by unusually heavy rainfall during the first few months of 1978.

The weather caused extensive damage to the highway project area. The soil in the project area became unstable; the ground below became so soft that heavy construction equipment sank in mudholes fed by groundwater. The subgrade was softened and had to be stabilized and the roadway refilled. Base material previously placed on the roadway became oversaturated and had to be removed and replaced. Stockpiled base and special backfill material in the Anamax pit eroded and washed away. The groundwater table in the Agua Linda pit ultimately rose from a level of 30 feet to 12 feet below the surface. As a result, a new section of the Agua Linda pit had to be developed for mineral aggregate and additional base material had to be excavated, crushed and hauled.

ADOT had actual knowledge of the adverse and continuing effects of the weather on the project. On November 4, 1977, ADOT sought and obtained a declaration by the federal government that the Santa Cruz River Basin, which included the project site, was a major disaster area. In late December, 1977, Karl Ronstadt, the president of NPC, met with the ADOT supervisor for the Carmen project and informed him of the increased costs of constructing the east frontage road. On December 23, 1977, the president of NPC phoned the state engineer, Oscar Lyons. The two men discussed the gravity of the flooding in the project area, the length and severity of the continuous rains, and the increased costs and delays caused by the weather. In late March or early April of 1978, the management of NPC met with the state engineer to discuss the situation. The state engineer suggested NPC make a claim under subsection 107.17 of the ADOT Standard Specifications for road and bridge construction, which was incorporated as part of both contracts. See Arizona Department of Transportation Standard Specifications (1969), and the 1977 Supplement, (hereinafter referred to as "Standard Specifications"). Subsection 107.17 provides in relevant part that:

Until final written acceptance of the project by the engineer, the contractor shall have the charge and care thereof and shall take every precaution against injury or damage to any part thereof by the action of the elements or from any other cause, whether arising from the execution or from the nonexecution of the work. The contractor shall rebuild, repair, restore and make good all injuries or damages to any portion of the work occasioned by any of the above causes before final acceptance and shall bear the expense thereof except damage to the work due to unforseeable [sic] causes beyond the control of and without the fault or negligence of the contractor, including but not restricted to acts of God, of the public enemy or governmental authorities. (Emphasis added.)

On March 16, 1978, NPC wrote a letter to the ADOT supervisors for the Carmen and Tubac projects. In that letter, NPC advised ADOT that the flooding, unseasonable rains, and rising water table were hampering their operations in the select, mineral aggregate and special backfill pits. The letter closed by warning that there would be a delay in completing the project. On March 23, 1978, DeWayne Tripp, ADOT project engineer, conceded in his study of the problem that the unusual weather that struck the project area during the six-month period after Hurricane Heather had adversely affected the work. On April 20, 1978, NPC wrote ADOT informing them that it intended to make a claim for compensation under subsection 107.17 for the unforeseeable and uncontrollable damage caused by the flooding and the weather. NPC also informed ADOT that they were compiling costs for this damage and information on the financial impact of the delays. On April 28, 1978, ADOT replied that they did not consider the information presented in NPC's letter to be a sufficient basis for a claim for additional compensation under subsection 105.17 of the Standard Specifications, supra. Subsection 105.17 provides in pertinent part that:

105.17 Claims for Adjustment and Disputes:

If for any reason, the contractor deems that additional compensation is due him for work or material not clearly covered in the contract or not ordered by the engineer as extra work, the contractor shall notify the engineer in writing of his intention to make claim for such additional compensation before he begins the work on which he bases the claim. If such notification is not given and the engineer is not afforded proper facilities by the contractor for keeping strict account of actual cost as required, the contractor hereby agrees to waive any claim for such additional compensation....

ADOT closed the letter by stating that until detailed information was presented concerning NPC's losses, there was no point in further discussing their claims for relief. On May 4, 1978, NPC wrote a letter warning ADOT that it intended to press its claims for compensation. NPC also requested ADOT to keep track of costs on the remaining fencing and excavation work (neither of which is a matter of dispute in this lawsuit). On June 27, 1978, NPC submitted an...