Sirrah Enters., LLC v. Wunderlich

• Court: Arizona Court of Appeals
• Writing for the Court: HOWE, Judge
• Citation: Sirrah Enters., LLC v. Wunderlich, 240 Ariz. 163, 377 P.3d 360 (Ariz. App. 2016)
• Decision Date: 16 June 2016
• Docket Number: No. 1 CA–CV 15–0058,1 CA–CV 15–0058
• Parties: Sirrah Enterprises, LLC, an Arizona Corporation, Plaintiff/Counterdefendant/Appellant, v. Wayne and Jacqueline Wunderlich, husband and wife, Defendants/Counterclaimants/Appellees.

240 Ariz. 163

377 P.3d 360

Sirrah Enterprises, LLC, an Arizona Corporation, Plaintiff/Counterdefendant/Appellant

v.Wayne and Jacqueline Wunderlich, husband and wife, Defendants/Counterclaimants/Appellees.

No. 1 CA–CV 15–0058

Court of Appeals of Arizona, Division 1.

FILED June 16, 2016

Bremer Whyte Brown & O'Meara, Phoenix, By John J. Belanger, Paul O. Mittelstadt, Counsel for Plaintiff/Counterdefendant/Appellant

The Adams Law Firm, PLLC, Prescott, By Jeffrey R. Adams, Counsel for Defendants/Counterclaimants/Appellees

Judge Randall M. Howe delivered the opinion of the Court, in which Presiding Judge Kent E. Cattani and Judge Samuel A. Thumma joined.

OPINION

HOWE, Judge:

¶ 1 This appeal is based on a construction contract dispute between Sirrah Enterprises, LLC (“Sirrah”) and Wayne and Jacqueline Wunderlich (collectively, “the Wunderlichs”). Sirrah succeeded in a jury trial on a breach of contract claim against the Wunderlichs and was awarded damages, but the Wunderlichs succeeded on a counterclaim for breach of the implied warranty of workmanship and habitability and were awarded much greater damages. The trial court awarded attorneys' fees to the Wunderlichs as the prevailing party and denied Sirrah prejudgment interest on its award. Sirrah appeals from that judgment.

¶ 2 We hold that the trial court did not err by awarding the Wunderlichs attorneys' fees because the implied warranty of workmanship and habitability was an implied term of the construction contract and the nature and size of the jury's award for the breach of that warranty made the Wunderlichs the prevailing party in the dispute. We also hold, however, that the trial court erred in denying Sirrah prejudgment interest on its breach of contract claim because Sirrah timely requested interest and was entitled to it.

FACTS AND PROCEDURAL HISTORY

¶ 3 In April 2006, the Wunderlichs contracted with Sirrah, a licensed contractor, to construct a basement and exterior walls for a house on the Wunderlichs' property. Under the contract, the Wunderlichs were to pay Sirrah the actual cost of construction plus fifteen percent, which at the time of the contract Sirrah estimated would total $68,582. The contract also specified that any amounts due to Sirrah “shall accrue interest at the rate of one and one-half percent per month from the date due until paid.” Finally, the contract's attorneys' fees provision stipulated that “in the event either party ... is required to retain the services of an attorney to enforce any term or provision of this agreement, the prevailing party shall be entitled to and the losing party shall pay all expenses and costs including reasonable attorneys' fees incurred by the prevailing party.”

¶ 4 Sirrah began working on the Wunderlichs' property later that month, and the Wunderlichs made payments as Sirrah completed the work. In early December, Sirrah submitted an invoice for $26,908.47, but upon receiving that invoice, the Wunderlichs objected to the labor and materials that Sirrah's concrete subcontractor provided. Sirrah first reduced the balance owed to $22,259.33 and then to $19,878.49, but the Wunderlichs still did not pay. In January 2007, Sirrah completed the work and submitted a final invoice for $8,905.24. Again, the Wunderlichs did not pay.

¶ 5 Sirrah consequently sued the Wunderlichs, alleging, among other things, breach of contract for failure to pay and breach of the implied covenant of good faith and fair dealing for failing to fulfill their contractual obligations in a timely manner. Sirrah sought actual and compensatory damages to be proved at trial, “but in no event less than” $28,783.73, prejudgment interest at the statutory rate of ten percent per annum from the date the last invoice was issued, and attorneys' fees and costs pursuant to the contract and A.R.S. § 12–341.01.

¶ 6 The Wunderlichs counter-claimed, alleging, among other things, breach of contract, breach of the contract's implied warranty of workmanship and habitability, and breach of the implied covenant of good faith and fair dealing. Specifically, the Wunderlichs alleged that the walls Sirrah constructed were out of plumb and not square, that several batches of grout used on the project were less than 3,000 pounds per square inch as promised because Sirrah failed to supervise its use, and that Sirrah failed to follow industry standards and manufacturer requirements for the construction of the walls by failing to properly seal and support them. The Wunderlichs sought compensatory damages at an amount to be proved at trial as well as pre- and post-judgment interest.

¶ 7 After seven years of discovery and pretrial motions, the parties tried the case before a jury. The jury found in Sirrah's favor on its breach of contract claim against the Wunderlichs, awarding $31,374 in damages. The jury further found in Sirrah's favor on the Wunderlichs' claims for breach of contract and breach of the covenant of good faith and fair dealing. However, the jury found in the Wunderlichs' favor on their claim for breach of the implied warranty of workmanship and habitability, awarding them $297,782 in damages. Of that award, $214,579 was for the cost of demolition, repair, and reconstruction of Sirrah's work.

¶ 8 The Wunderlichs applied for attorneys' fees pursuant to A.R.S. § 12–341.01, arguing that their claim for breach of implied warranty arose out of contract, and claimed taxable costs pursuant to A.R.S. § 12–341. Sirrah objected, arguing that the Wunderlichs could not seek fees under A.R.S. § 12–341.01 because their contract had an attorneys' fees provision that took precedence over the statute. Sirrah also contended that the Wunderlichs could not seek fees under the contract because it allowed for fees only for successfully enforcing the contract, and the implied warranty claim was not based on the contract. Sirrah argued that it was the only party entitled to fees under the contract because it was the prevailing party on all attempts to enforce the contract.

¶ 9 The trial court disagreed. It ruled that the warranty of workmanship and habitability was implied by law in every home construction contract, so the Wunderlichs were entitled to attorneys' fees if they were the “successful party” under A.R.S. § 12–341.01 or the “prevailing party” under the contract. The court found that although the Wunderlichs breached the contract by not paying Sirrah, they were nevertheless the successful and prevailing party “under the totality of the circumstances” because the Wunderlichs proved—and a representative from Sirrah admitted—that the work Sirrah contracted to perform fell below standards in “nearly every aspect of the construction.” The court also found that the Wunderlichs were the prevailing and successful party because the jury found in the Wunderlichs' favor on the implied warranty claim and the jury's verdict on that claim was “substantially more” than the jury's verdict in Sirrah's favor on the breach of contract claim. The trial court additionally awarded the Wunderlichs, as the prevailing party, their taxable costs pursuant to A.R.S. § 12–341 and the terms of the contract.

¶ 10 Based on these rulings, the trial court ordered the Wunderlichs to submit a proposed final judgment. The Wunderlichs did so, and included in that judgment an award of prejudgment interest owed to them at the legal rate pursuant to A.R.S. § 44–1201, but not to Sirrah. Sirrah objected, arguing that it, not the Wunderlichs, was entitled to prejudgment interest as a matter of right pursuant to the contract. Sirrah attached its own proposed judgment, which included prejudgment interest on its award accruing from the date the last invoice was due pursuant to the contract at a monthly rate of one and one-half percent. The trial court denied Sirrah's request for prejudgment interest, stating—without explanation—that the request was untimely. The trial court also stated that “the amount is not actually due because of the substantial judgment awarded against the plaintiff.”

DISCUSSION

1. Attorneys' Fees in the Trial Court

¶ 11 Sirrah argues that the trial court erred by awarding the Wunderlichs attorneys' fees pursuant to A.R.S. § 12–341.01 and the contract because the Wunderlichs did not prevail on any claim to enforce the contract. We enforce a contractual provision for attorneys' fees according to its terms. Geller v. Lesk , 230 Ariz. 624, 627 ¶ 10, 285 P.3d 972, 975 (App.2012). Because Sirrah and the Wunderlichs contractually provided for the recovery of attorneys' fees here, A.R.S. § 12–341.01 does not apply. See A.R.S. § 12–341.01(A) (“This section shall in no manner be construed as altering, prohibiting or restricting present or future contracts ... that may provide for attorneys' fees.”). Accordingly, we review the trial court's ruling awarding attorneys' fees under the contract for an abuse of discretion, but review the court's interpretation of the contractual fee provision de novo as an issue of law. Murphy Farrell Dev., LLLP v. Sourant , 229 Ariz. 124, 133 ¶ 31, 272 P.3d 355, 364 (App.2012). We will affirm if a reasonable basis supports the trial court's ruling. Id. Here, the trial court did not abuse its discretion in awarding attorneys' fees to the Wunderlichs under the contract.

¶ 12 Sirrah first argues that the Wunderlichs' claim for breach of the implied warranty of workmanship and habitability was not an attempt to “enforce any term or provision” of the contract. In Arizona, a builder impliedly warrants that the construction will be completed in a workmanlike manner and that the structure will be habitable. Columbia Western Corp. v. Vela , 122 Ariz. 28, 33, 592 P.2d 1294, 1299 (App.1979). This warranty is imputed “into the contract for the construction ... of a residence.” Woodward v. Chirco Const. Co., Inc. , 141 Ariz. 514, 516, 687 P.2d 1269, 1271 (1984) (emphasis added). Thus, “a claim for a breach of the implied warranty of habitability sounds in contract.” Hall v. Read Dev., Inc. , 229 Ariz....