Ryan Cos. United States v. FDP WTC, LLC
| Decision Date | 06 October 2021 |
| Docket Number | No. 20-1366,20-1366 |
| Citation | 967 N.W.2d 361 (Table) |
| Parties | RYAN COMPANIES US, INC., Plaintiff-Appellee, v. FDP WTC, LLC, Defendant-Appellant. |
| Court | Iowa Court of Appeals |
Philip S. Bubb and Brandon R. Underwood of Fredrikson & Byron, P.A., Des Moines, for appellant.
Bradley D. Fisher and Brian D. Steffes of Fisher Bren & Sheridan, LLP, Minneapolis, MN and Stephen D. Marso of Whitfield and Eddy, P.L.C., Des Moines, for appellee.
Heard by Mullins, P.J., and May and Ahlers, JJ.
Contracts mean what they say. Here, a party that failed to follow what a contract said in terms of the procedure to change the scope of the contract seeks to avoid the consequences of that failure. We decline to allow such avoidance.
In 2016, FDP WTC, LLC (FDP) and Ryan Companies US, Inc. (Ryan) entered into a pair of owner-contractor contracts in which Ryan—the contractor—and FDP—the owner—agreed to terms for the construction of a hotel in Waterloo. The parties entered into the first contract (Courtyard Contract) with a guaranteed maximum price (GMP) of $22,626,869. The parties entered into the second contract (Sitework Contract) with a GMP of $2,501,864.1 For purposes of this appeal, the terms of the Courtyard Contract and Sitework Contract are identical.
Ryan's senior project executive testified that, before executing the contracts, FDP sought to reduce the contractual scope of the project to reduce the GMP for financing purposes. Nevertheless, Ryan's project manager testified that designs issued by FDP's architect did not match assumptions in the contracts, which required modifications in the GMP. To that end, the parties executed a series of change orders to modify the scope and GMP of the project. Ryan also submitted to FDP many more requests for change orders—known as Cost Events (CEs)—for additional work consistent with the architect's designs that would increase the GMP. FDP did not sign these CEs to increase the GMP. However, the project manager testified Ryan performed the work under the CEs after FDP requested or otherwise orally approved such work.
In 2018, Ryan petitioned to foreclose its mechanic's liens against FDP for the project. Ryan later amended its petition to add breach-of-contract claims. FDP answered and counterclaimed with its own breach-of-contract claims.2 The claims proceeded to a bench trial. The district court found for Ryan on its breach-of-contract and mechanic's lien foreclosure claims and denied FDP's breach-of-contract claims. The court entered judgment in Ryan's favor for $452,817 on the Courtyard Contract, $224,086 on the Sitework Contract, interest, attorney fees, and costs.
FDP appeals the district court's ruling for Ryan on the parties’ contract claims. FDP argues the court erred in awarding Ryan damages, foreclosing on Ryan's mechanic's liens, denying FDP credits for reductions in the scope of the parties’ contracts, and awarding Ryan attorney fees, costs, and interest. We reverse the district court's finding FDP breached the parties’ contracts, foreclosure of Ryan's mechanic's liens, and award to Ryan of attorney fees, costs, and interest. We affirm the finding that FDP did not prove Ryan breached the contracts.
The parties agree the contract claims were tried at law below and our review is for correction of errors at law. See NevadaCare, Inc. v. Dep't of Human Servs. , 783 N.W.2d 459, 465 (Iowa 2010). "If substantial evidence in the record supports a district court's finding of fact, we are bound by its finding." Iowa Mortg. Ctr., L.L.C. v. Baccam , 841 N.W.2d 107, 110 (Iowa 2013). "However, a district court's conclusions of law or its application of legal principles do not bind us."3 Id. We review actions to enforce mechanic's liens de novo. See Flynn Builders, L.C. v. Lande , 814 N.W.2d 542, 545 (Iowa 2012). "Review of a district court's grant of attorney fees is for an abuse of discretion." Homeland Energy Sols., LLC v. Retterath , 938 N.W.2d 664, 684 (Iowa 2020).
a. Error preservation
Even though breach of an express contract was one of the primary issues in dispute before the district court, Ryan asserts FDP failed to preserve error on its arguments. As shown below, interpretation of section 6.4 of the contracts is key to the parties’ dispute. Ryan asserts that because FDP did not specifically address section 6.4 before the district court, it preserved no argument on section 6.4 for appeal. See Meier v. Senecaut , 641 N.W.2d 532, 537 (Iowa 2002) (). However, FDP extensively argued before the district court that Ryan performed work outside the scope of the contracts and failed to obtain proper change orders to modify the scope to include this work. While FDP's trial filings do not address section 6.4, section 6.4 was an issue at trial and the court's ruling squarely addressed its language. Because FDP argued the scope of work and change orders at trial, and the court specifically considered and decided section 6.4 in its ruling, FDP's breach-of-contract arguments are preserved for our review.
b. Elements of breach of contract
To prevail on its breach-of-contract claim, Ryan must show:
(1) the existence of a contract; (2) the terms and conditions of the contract; (3) that [Ryan] has performed all the terms and conditions required under the contract; (4) [FDP's] breach of the contract in some particular way; and (5) that [Ryan] has suffered damages as a result of the breach.
Baccam , 841 N.W.2d at 111 (quoting Molo Oil Co. v. River City Ford Truck Sales, Inc. , 578 N.W.2d 222, 224 (Iowa 1998) ). FDP challenges the district court's interpretation of the terms of the contracts and whether Ryan performed pursuant to those terms.
The determination of the intent of the parties at the time they entered into the contract is the cardinal rule of contract interpretation. If the principal purpose of the parties is ascertainable from the words and other conduct of the parties in light of all the circumstances, we give those words and conduct great weight when interpreting the contract. When interpreting the meaning of a contract we may also look to extrinsic evidence such as, the situation and relations of the parties, the subject matter of the transaction, preliminary negotiations and statements made therein, usages of trade, and the course of dealing between the parties. However, the most important evidence of the parties’ intentions at the time they entered into the contract is the words of the contract.
NevadaCare , 783 N.W.2d at 466 (quotations and citations omitted).
The parties executed form contracts, modified to their needs, with a GMP. In a GMP contract, generally "the contractor assumes the risk of the costs exceeding a maximum price." Philip L. Bruner & Patrick J. O'Connor, Jr., 2A Bruner & O'Connor on Construction Law § 6:109 (Aug. 2021 Update). To that end, section 5.2.1 of both contracts states:
The Contract Sum[4 ] is guaranteed by the Contractor not to exceed [$22,626,869.00 for the Courtyard Contract and $2,501,864.00 for the Sitework Contract], subject to additions and deductions by Change Order as provided in the Contract Documents. Such maximum sum is referred to in the Contract Documents as the Guaranteed Maximum Price. Costs which would cause the Guaranteed Maximum Price to be exceeded shall be paid by the Contractor without reimbursement by the Owner.
(Emphasis added.) Similarly, section 8.1 states the contractor's reimbursable costs do not include costs "that would cause the Guaranteed Maximum Price to be exceeded," unless those costs are "included in Change Orders approved by the Owner." An attachment to the contracts defines "Change Order" as "a written instrument prepared by the Architect and signed by the Owner, Contractor, and Architect." The contracts also state they "represent[ ] the entire and integrated agreement between the parties" and "may be amended or modified only by a Modification.[5 ]"
The district court awarded damages above the GMP for work described in CEs. There is no dispute the parties did not sign a written change order to increase the GMP to include this additional work. Even so, Ryan asserts—and the court agreed—the contracts provide for another way to increase the GMP in section 6.4:
If no specific provision is made in Article 5 for adjustment of the Contractor's Fee in the case of changes in the Work,[6 ] or if the extent of such changes is such, in the aggregate, that application of the adjustment provisions of Article 5 will cause substantial inequity to the Owner or Contractor, the Contractor's Fee shall be equitably adjusted on the same basis that was used to establish the Fee for the original Work, and the Guaranteed Maximum Price shall be adjusted accordingly.
The plain language of section 6.4 shows its purpose is to permit adjustment to the Contractor's Fee, which the contracts set at 5% "of the Cost of the Work." It does not allow for a "catch all" adjustment of the GMP when Ryan fails to obtain a required change order—the claim urged by Ryan and accepted by the district court. Under section 6.4, when the work changes and the contract either does not address changes to the contractor's fee7 or such changes would "cause substantial inequity," then the contractor's fee will "be equitably adjusted." Section 6.4 allows adjustment of the GMP "accordingly," i.e., according to the adjustment in the contractor's fee. Nothing in section 6.4 allows adjustment of the GMP whenever it would be equitable to do so. Ryan's and the district court's interpretation would defeat guarantees elsewhere in the contracts that the owner need not reimburse the contractor for costs above the GMP and would defeat the written-change-order requirements of the contracts. We reject Ryan's and the...
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