Scarsella Brothers, Inc. v. Flatiron Constructors, Inc.
| Decision Date | 28 September 2020 |
| Docket Number | 78543-5-I |
| Parties | SCARSELLA BROTHERS, INC., a Washington Corporation, Appellant/ Cross-Respondent, v. FLATIRON CONSTRUCTORS, INC., a Delaware Corporation; WASHINGTON STATE DEPARTMENT OF TRANSPORTATION; LIBERTY MUTUAL INSURANCE COMPANY (Bond No. 015035206); TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA (Bond No. 105688202);FIDELITY AND DEPOSIT COMPANY OF MARYLAND/ZURICH AMERICAN INSURANCE COMPANY (Bond No. 9070286);FEDERAL INSURANCE COMPANY (Bond No. 82292503), THE CONTINENTAL INSURANCE COMPANY (Bond No. 929539824), and XL SPECIALTY INSURANCE COMPANY (Bond No. SUR7401972), Respondent/ Cross-Appellant. |
| Court | Washington Court of Appeals |
UNPUBLISHED OPINION
The Washington State Department of Transportation (WSDOT) contracted with Flatiron Constructors, Inc. (Flatiron) to be the prime contractor on a "design-build project" known as the 1-405 Bellevue to Lynnwood Project. Flatiron subcontracted with Scarsella Brothers, Inc. (Scarsella) for earthwork. Flatiron and Scarsella both appeal the trial court's decision made after a lengthy bench trial. Scarsella challenges the trial court decisions that the prime contract notice and claim provisions applied to its claims the denial of its claims that Flatiron waived enforcement and is estopped from enforcing the notice and claim provisions and the denial of its claims for quantum meruit recovery foreclosure of its retainage lien, attorney fees and costs and for prejudgment interest. Flatiron challenges the trial court's decision that it breached the Scarsella subcontract and awarded judgment against its payment bond.
We affirm.
On January 11, 2012, WSDOT contracted with Flatiron to serve as the prime contractor on a design-build project to widen and add express toll lanes to a segment of I-405 from Bellevue to Lynnwood. On July 21, 2012, Flatiron subcontracted with Scarsella to perform earthwork, retaining wall installation, and drainage construction. The value of the subcontract was $14, 865, 476.68. The subcontract identifies three categories of work: (1) bid item work; (2) extra work; and (3) force account work.
Sureties on Flatiron's "Contract Bond and Retainage Bond" include Liberty Mutual Insurance Company, Travelers Casualty and Surety Company of America, Fidelity and Deposit Company of Maryland/Zurich American Insurance Company, Federal Insurance Company, The Continental Insurance Company, and XL Specialty Insurance Company. Liberty Mutual Insurance Company is the surety on Scarsella's "Performance and Payment Bonds."
Flatiron required Scarsella to submit monthly "pay applications" with supporting documentation showing the work it performed for the month. From August 2012, to January 2015, Flatiron reviewed each pay application, met with Scarsella to discuss discrepancies, negotiated payment for quantities and extra work using force account worksheets, and would issue a determination about Scarsella's work and payment. During that time, Flatiron's engineers reviewed the pay estimates and verified Scarsella's work. Flatiron used Scarsella's pay applications to prepare its own monthly pay applications to WSDOT. After WSDOT paid Flatiron, Flatiron paid Scarsella a "progress payment."
In November 2014, Flatiron exercised its subcontract right to withhold Scarsella's payment. Flatiron claimed Scarsella did not document its work, follow required procedures, maintain documentation, substantiate force account billings, and substantiate pay applications as the subcontract required. Flatiron also claimed Scarsella caused project delays in breach of the subcontract. Before withholding payments, Flatiron raised these issues with Scarsella. Scarsella gave Flatiron some of the required documentation but not all. Flatiron told Scarsella it intended to pursue damages and intended to withhold payments because Scarsella did not provide full documentation.
For Scarsella's work on the project, Flatiron approved a total value of $17, 788, 284.60. Flatiron withheld $1, 849, 196.55 for bid item work; $194, 150.01 for non-force account extra work, and $709, 362.35 for force account work.
On August 14, 2015, Scarsella delivered a "Notice of Claim Lien" to WSDOT, Flatiron, and the sureties. Scarsella claimed $5, 680, 598.94 plus fees and costs.
On December 11, 2015, Scarsella sued Flatiron and the sureties. Scarsella claimed breach of contract, recovery against the payment bond, foreclosure on the lien against retainage, estoppel and waiver of prime contract provisions, breach of a covenant of good faith and fair dealing, and violation of RCW 39.76.011. Scarsella sought $12, 135, 173 plus prejudgment interest, attorney fees, and costs. Flatiron counterclaimed arguing Scarsella significantly delayed the completion of the project.
Trial occurred from July 5, 2017 to September 26, 2017. During trial, Flatiron acknowledged it withheld $2, 731, 437.97 in earned payments from Scarsella.
Amount Withheld
Force account work
$709, 362.35
Non-force account extra work
$194, 150.01
Bid item work
$1, 849, 196.55
Minus back charges
$(21, 270.94)
Total
On November 2, 2017, the trial court determined that subcontract section 2.6 authorized Flatiron to withhold payments, and Flatiron acted in good faith when it did so. The trial court decided Scarsella could not recover additional compensation for force account work and extra work because of its noncompliance with section 1-04.5(1) of the Prime Contract. The trial court ordered Flatiron to pay Scarsella $2, 731, 437.97 for its work. It denied Scarsella's claims that Flatiron waived compliance with and was estopped from enforcing the prime contract notice and claim provisions. It denied Scarsella's claims against the retainage as premature. The trial court also found Scarsella's documentation inconsistent and unreliable, and that Scarsella did not substantiate its work and claims. The trial court denied Flatiron's claim that Scarsella caused substantial project delays.
On January 19, 2018, Scarsella and Flatiron independently filed requests for entry of judgment, attorney fees and costs, and prejudgment interest. On May 14, 2018, the trial court partially granted Scarsella's and Flatiron's requests.
Scarsella appeals and Flatiron cross-appeals.
We review a trial court's decision in a bench trial for whether substantial evidence supports the trial court's findings of fact and whether those findings support the court's conclusions of law.[1] Substantial evidence is evidence sufficient to persuade a fair-minded person of its truth.[2] We review questions of law and statutory interpretation de novo.[3] So, we review a trial court's conclusions of law about contract interpretation de novo.[4]
Scarsella argues the prime contract notice and claim provisions do not apply to its claims for extra work. We disagree.
"If the parties to a contract clearly and unequivocally incorporate by reference into their contract some other document, that document becomes part of their contract."[5] A prime contract incorporated by reference in a subcontract is binding on the subcontractor.[6]
The subcontract between Scarsella and Flatiron provides "Subcontractor assumes toward Contractor all obligations that Contractor assumes toward Owner, insofar as applicable to the Work to be performed under this Subcontract."[7] As the subcontractor, Scarsella assumed toward Flatiron all obligations applicable to its work that Flatiron assumed under the prime contract toward WSDOT for Scarsella's work. The prime contract also provides procedures for Flatiron to submit notices, claims, and protests to WSDOT:
Because Scarsella assumed these same obligations toward Flatiron, Scarsella was required to comply with the prime contract's notice, claim, and protest provisions.
Next, Scarsella argues it did not waive certain claims when it did not follow the prime contract notice and claim provisions. We disagree.
Section 1-04.5 of the prime contract states, "By not protesting as this section provides, the Design-Builder also waives any additional entitlement and accepts from WSDOT any written order (including directions, instructions, interpretations, and determinations)."
In NOVA Contracting, Inc. v. City of Olympia, the Washington State Supreme Court upheld an identical protest provision.[8] It determined the phrase "waives any additional entitlement" applies to "'all' claims related to the 'protested [w]ork'" including damages.[9]
Because the subcontract incorporated the prime contract, Scarsella assumed toward Flatiron the same procedural obligations Flatiron owed WSDOT. So, under section 1-04.5 of the prime contract, Scarsella waived its right to protest if it did not comply with the prime contract's protest provisions.
Scarsella also argues the plain language of the subcontract replaces the prime contract notice and claim provisions because the subcontract provides a specific mechanism for calculating payments including payment for extra work.
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