Public Service Co. v. DIAMOND D. CONST. CO.

Decision Date22 August 2001
Docket NumberNo. 21,590.,21,590.
Citation33 P.3d 651,131 N.M. 100,2001 NMCA 82
PartiesPUBLIC SERVICE COMPANY OF NEW MEXICO, Defendant-Appellant/Cross-Appellee, v. DIAMOND D CONSTRUCTION COMPANY, INC., Plaintiff-Appellee/Cross-Appellant.
CourtCourt of Appeals of New Mexico

Thomas C. Bird, Eric R. Burris, Kathleen M. Regan, Keleher & McLeod, P.A., Albuquerque, NM, for Appellant/Cross-Appellee.

Jane Bloom Yohalem, Santa Fe, NM, Thomas J. Hynes, Farmington, NM, for Appellee/Cross-Appellant.

Certiorari Quashed, No. 27,132, October 16, 2001.



{1} In this appeal we must decide whether the inclusion of an at-will termination clause in a contract relieves the parties of their duty, under the same contract, to use their best efforts to resolve disputes quickly and amicably. In addition, we must review the sufficiency of the evidence underlying the jury's award of punitive damages. Finally, we must determine whether the culpable mental states underlying punitive damages awards are synonymous with "tortious conduct, bad faith, intentional or willful acts," such that the 15 percent post-judgment interest rate set by NMSA 1978, § 56-8-4 (1993), should apply to all punitive damages awards.

{2} Defendant Public Service Company of New Mexico (PNM) appeals from a judgment awarding compensatory and punitive damages to Plaintiff Diamond D Construction Company, Inc. (Diamond D). At trial, the jury found that PNM breached its contract with Diamond D by failing to use its best efforts to quickly and amicably resolve a billing dispute and by wrongfully suspending work prior to terminating the contract. Before and after trial, PNM moved to dismiss Diamond D's claims on the grounds that (1) a contractual provision reserving the right to terminate the contract for any reason nullified all other provisions appearing to regulate the parties' dispute resolution rights and obligations, (2) PNM's refusal to verbally guarantee the adequacy of the workload after the parties had previously agreed to temporarily suspend work relieved PNM of its contractual obligation to provide an adequate workload up to the date of termination, and (3) the evidence was inadequate to show that PNM employees acted with a sufficiently culpable mental state to justify an award of punitive damages. The trial court rejected PNM's arguments and entered judgment on the jury's verdict. At the presentment hearing, Diamond D argued that it was entitled to an award of post-judgment interest at the rate of 15 percent per year, see § 56-8-4(A), based on the jury's finding that PNM had acted recklessly or wantonly in breaching the contract. The trial court rejected Diamond D's arguments and set the interest rate at eight and three-quarters percent. PNM appealed and Diamond D cross-appealed. We affirm.


{3} In May 1996, Diamond D and PNM entered into a contract for the remediation of contaminated pits in oil fields near Bloomfield, New Mexico. The remediation work involved excavating soil contaminated by discharge from natural gas wells, spreading out the soil to allow the contaminants to evaporate, and then returning the decontaminated soil to the excavated pits.

{4} The remediation contract between PNM and Diamond D includes several provisions relevant to this appeal. First, a termination clause gives PNM the right to terminate a construction contract for any reason, with fifteen days written notice:

31.2 Notwithstanding any of the foregoing or anything in this Contract to the contrary, PNM shall have the right, at any time and for any reason whatsoever, including its own convenience, before completion of Work and upon fifteen (15) calendar days advance written notice, to suspend, abandon, or terminate said Work, or any portion thereof, and to terminate this Contract, without regard to whether or not Contractor has defaulted or failed to comply with the provisions of this Contract.

The parties agree that this provision was modified by a contract change that extended the period of performance from one year to until the project was completed or "until terminated by either party providing thirty (30) days written formal notice to the other party."

{5} The second relevant provision is a dispute resolution clause that imposes a duty on both parties to attempt a prompt and amicable resolution of all disputes:

32.1 Disputes on any matter relating to this Contract shall be discussed and resolved by authorized representatives of each Party who have the authority to bind the Party that they represent. The Parties shall use their best efforts to amicably and promptly resolve the dispute.

Finally, the contract requires that PNM "ensure that an adequate number of pits are available for remediation each week," for the duration of the contract.

{6} According to Diamond D and several PNM employees, the first two years of the remediation project went well. The project was within budget and on schedule, and the parties were able to amicably and informally resolve any disputes that arose. During the winter of 1996-1997, Diamond D and PNM agreed to stop remediation work temporarily because the cold weather prevented the contaminants from evaporating, and mud, snow, and frozen soil greatly slowed the digging process.

{7} The following winter, however, PNM decided not to stop the work and asked Diamond D to work on so-called "wet pits," where contaminants have been carried away from the discharge point by the watertable and which therefore require more extensive excavation and remediation than other sites. The clean-up techniques used on wet pits are not affected substantially by cold weather. PNM gave Diamond D a list of equipment that would be needed to complete the wet pit work and told Diamond D not to schedule other work for that equipment. Diamond D complied with PNM's request and turned down other work so that the equipment would be available.

{8} PNM gave Diamond D a list of five wet pits to remediate. The president of Diamond D testified that these pits were sufficient to keep Diamond D busy until the regular remediation project resumed in April 1998. Diamond D began working on the wet pits in January 1998.

{9} Between December 1997 and January 1998, PNM became aware that PNM field staff had made verbal changes to the contract with Diamond D. These changes were not put into writing, as required by the terms of the contract. In February 1998, PNM initiated an audit of the contract. The auditors were instructed to compare Diamond D's financial reports and invoices to the original, written contract. The auditors identified approximately $120,000 in discrepancies in Diamond D's invoices, which PNM concluded represented overbilling by Diamond D. Ultimately, however, PNM concluded that, with the exception of $10,000, the invoices were proper.

{10} On March 5, 1998, PNM sent a letter to Diamond D, ordering an immediate stop to the wet pit work. In the letter, PNM indicated that it was considering termination of its contract with Diamond D. Diamond D responded to the letter by making repeated telephone calls to PNM management, requesting that Diamond D be given an opportunity to discuss and attempt to resolve the billing disputes. All PNM employees contacted by Diamond D refused to discuss the dispute, instead referring Diamond D to another employee or promising to get back to Diamond D, but never doing so.

{11} On March 13, 1998, PNM sent Diamond D a notice of intent to terminate the contract. Diamond D responded by repeating its urgent telephone calls to PNM management, but encountered the same unwillingness of PNM staff to discuss the dispute. As Diamond D's president testified, "[w]e contacted every person [at PNM] that we knew a name to." Finally, on March 26, 1998, Diamond D's president wrote a letter to PNM's president, "agree[ing] that under the terms of the contract either party may cancel at any time by giving 30 days notice," but nonetheless stating that Diamond D had carried out its part of the contract and requesting that someone at PNM respond to Diamond D's attempts to resolve the issue regarding invoices. Diamond D followed up on this letter with repeated telephone calls. No action was taken by PNM, and the contract was terminated on April 12, 1998.

{12} Diamond D filed a complaint alleging that PNM breached the remediation contract and committed a prima facie tort. Only the contract claims are relevant to this appeal. Diamond D's breach of contract claims were based on (1) the failure of PNM to use its best efforts to amicably and promptly resolve the billing dispute, as required by Clause 32.1 of the general provisions and (2) the failure of PNM to provide Diamond D with pits to remediate between the date of PNM's notice that work under the contract would be suspended and the date PNM's termination of the contract became effective. Diamond D sought compensatory and punitive damages. The punitive damages claim was based on allegations that PNM had acted recklessly in refusing to meet with Diamond D representatives and had wantonly disregarded Diamond D's rights under the contract.

{13} PNM responded by filing a motion for summary judgment, which was denied by the trial court. The case was tried before a jury. The jury found that PNM had breached the contract and awarded Diamond D $25,000 for PNM's failure to provide adequate pits and $365,000 for PNM's failure to attempt resolution of the billing dispute. In addition, the jury awarded Diamond D $1.5 million in punitive damages, finding that PNM's violation of the contract was wanton and reckless.

{14} At the presentment hearing, Diamond D argued that it was entitled to post-judgment interest at the 15 percent rate provided by Section 56-8-4(A) for judgments based on "tortious conduct, bad faith, intentional or willful acts." The trial court rejected Diamond D's argument and set the...

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