U.S. for Use of C.J.C., Inc. v. Western States Mechanical Contractors, Inc.

• Decision Date: 30 November 1987
• Docket Number: 84-1707,Nos. 84-1682,s. 84-1682
• Citation: 834 F.2d 1533
• Parties: 34 Cont.Cas.Fed. (CCH) 75,407 The UNITED STATES of America, for the Use of C.J.C., INC., a New Mexico corporation, Plaintiff-Appellee, v. WESTERN STATES MECHANICAL CONTRACTORS, INC., a New Mexico corporation; Commercial Union Insurance Co., a Massachusetts corporation; and Sandia Corporation, a New Mexico corporation, d/b/a Sandia National Laboratories, Defendants-Appellants. UNITED STATES of America, for the Use of HUGG SURVEYING CO., Plaintiff- Appellee, v. WESTERN STATES MECHANICAL CONTRACTORS, INC., a New Mexico corporation; and Commercial Union Insurance Co., a Massachusetts corporation, Defendants- Appellants. UNITED STATES of America, for the Use of HUGG SURVEYING CO., Plaintiff- Appellant, v. WESTERN STATES MECHANICAL CONTRACTORS, INC., a New Mexico corporation; and Commercial Union Insurance Co., a Massachusetts corporation, Defendants- Appellees. The UNITED STATES of America, for the Use of C.J.C., INC., a New Mexico corporation, Plaintiff-Appellant, v. WESTERN STATES MECHANICAL CONTRACTORS, INC., a New Mexico corporation; and Commercial Union Insurance Co., a Massachusetts corporation, Defendants- Appellees. UNITED STATES of America, for the Use of FRED SANCHEZ CONSTRUCTION COMPANY, Plaintiff-Appellee, v. WESTERN STATES MECHANICAL CONTRACTORS, INC., a New Mexico corporation; and Commercial Union Insurance Co., a Massachusetts corporation, Defendants- Appellants. to 84-1709 and 84-1758.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1533

834 F.2d 1533

34 Cont.Cas.Fed. (CCH) 75,407

The UNITED STATES of America, for the Use of C.J.C., INC., a New Mexico corporation, Plaintiff-Appellee, v. WESTERN STATES MECHANICAL CONTRACTORS, INC., a New Mexico

corporation; Commercial Union Insurance Co., a

Massachusetts corporation; and Sandia Corporation, a New

Mexico corporation, d/b/a Sandia National Laboratories,

Defendants-Appellants.

UNITED STATES of America, for the Use of HUGG SURVEYING CO., Plaintiff- Appellee, v. WESTERN STATES MECHANICAL CONTRACTORS, INC., a New Mexico

corporation; and Commercial Union Insurance Co.,

a Massachusetts corporation, Defendants-

Appellants.

UNITED STATES of America, for the Use of HUGG SURVEYING CO., Plaintiff- Appellant, v. WESTERN STATES MECHANICAL CONTRACTORS, INC., a New Mexico

corporation; and Commercial Union Insurance Co.,

a Massachusetts corporation, Defendants-

Appellees.

The UNITED STATES of America, for the Use of C.J.C., INC., a New Mexico corporation, Plaintiff-Appellant, v. WESTERN STATES MECHANICAL CONTRACTORS, INC., a New Mexico

corporation; and Commercial Union Insurance Co.,

a Massachusetts corporation, Defendants-

Appellees.

UNITED STATES of America, for the Use of FRED SANCHEZ

CONSTRUCTION COMPANY, Plaintiff-Appellee, v. WESTERN STATES MECHANICAL CONTRACTORS, INC., a New Mexico

corporation; and Commercial Union Insurance

Co., a Massachusetts corporation,

Defendants- Appellants.

Nos. 84-1682, 84-1707 to 84-1709 and 84-1758.

United States Court of Appeals Tenth Circuit.

Nov. 30, 1987.

Robert N. Singer (Barry D. Williams with him on the briefs), Singer, Smith & Williams, P.A., Albuquerque, N.M., for plaintiffs-appellants, C.J.C., Inc. and Hugg Surveying Co.

Tibo J. Chavez, Jr., Belen, N.M., for plaintiff-appellant, Fred Sanchez Const. Co.

Robert G. Kavanagh (Martin E. Threet with him on the briefs), Threet & King, Albuquerque, N.M., for defendants-appellees, Western States Mechanical Contractors, Inc.

Before MOORE, McWILLIAMS and ANDERSON, Circuit Judges.

STEPHEN H. ANDERSON, Circuit Judge.

I. Summary

These consolidated actions were brought by subcontractors against the prime contractor Western States Mechanical Contractors, Inc. ("Western") and its bonding company, seeking, inter alia, contract and quantum meruit damages relating to their work on construction of a live fire range at Kirtland Air Force Base, New Mexico. The project involved federal contracts. The claims, therefore, proceed under the Miller Act, as amended. 40 U.S.C. Secs. 270a-270d (1982).

Following a trial to the court, the district court entered judgment against Western and its surety in the following amounts for each subcontractor: Fred Sanchez Construction Co. ("Sanchez"), $190,000.00 for the value of work performed, less prior payments and the cost of correcting construction errors by Sanchez (for a total award of $3,774.67); C.J.C., Inc. ("CJC"), $160,384.27 in quantum meruit damages for the value of work performed; and Hugg Surveying Co. ("Hugg"), $11,208.40 pursuant to Hugg's subcontract with Western, plus interest and $4,885.37 in attorneys' fees. Western's cross-complaints for damages and set-off were all dismissed.

Sanchez, CJC and Hugg appeal on various grounds. Sanchez contends its award was inadequate and also appeals the denial of prejudgment interest, and attorneys' fees. CJC appeals the denial of punitive damages, consequential damages, prejudgment interest, and attorneys' fees. Hugg appeals only from the award of attorneys' fees, claiming that the award was inadequate because it was calculated under an erroneous standard.

Western appeals from the judgments for CJC and Hugg. As to CJC, Western contends it did not breach its contract, and that CJC is liable to Western for wrongfully leaving the project. Alternatively, Western argues that the district court improperly calculated the reasonable value of CJC's work. As to Hugg, Western contends the district court erred by including in the contract certain engineering and staking work. It also appeals the denial of claims for set-off.

We largely affirm the district court. We reverse the denial of prejudgment interest to CJC and remand the issue of Hugg's attorneys' fees for further consideration under a different standard.

II. Background

In March, 1982, Western signed a contract with Sandia National Laboratories ("Sandia") for the construction of a live fire range, buildings and utilities on property owned by the United States at Kirtland Air Force Base, New Mexico. The total amount of the prime contract was $798,898.00. Work was to be completed by September 30, 1982. Pursuant to the prime contract Western and Commercial Union Insurance Co., ("Commercial Union") as surety, delivered a payment bond for the protection of all persons supplying labor or material in the performance of work under the prime contract in accordance with the requirements of the Miller Act. 40 U.S.C. Sec. 270a (1982). The Miller Act requires prime contractors on major federal construction projects to post a payment bond to protect subcontractors and materialmen. ¹

A. Sanchez

In April, 1982, Western entered into a written subcontract with Sanchez, as a subcontractor for the earthwork portion of the project. The amount of the Sanchez subcontract was $295,706.00 and provided that Sanchez would also supply the engineering and surveying required to perform the earthwork.

Sanchez was the low bidder for the earthwork. Western, in preparing its bid for the prime contract, estimated that the earthwork portion of the contract would cost over $550,000.00, but that estimate included some work not covered by the Sanchez subcontract. Based on Western's bid, the trial court found that the reasonable value of the work to be performed under the Sanchez subcontract was $475,000.00. The court also concluded that Sanchez grossly underbid the value of the services to be performed under the subcontract. Had Sanchez completed the contract, it would have sustained substantial losses.

Sanchez commenced work on the subcontract on or about April 12, 1982. By mid-June, the earthwork portion of the contract was significantly behind schedule. However, the trial court found that Sanchez was prevented from proceeding on schedule by two developments beyond its control. First, Sandia personnel, with concurrence by Western, altered the order of the earthwork. Second, the plans for the project substantially underestimated the amount of rock excavation required. In July, Western and Sandia discovered major errors in the earthwork completed by Sanchez. On July 22, 1982, Western terminated the Sanchez subcontract and ordered Sanchez off the project site; Sanchez was given no opportunity to correct the errors. After considering the reasons for the delay, the trial court found that Sanchez was performing in a reasonable manner and that the termination by Western was wrongful and in breach of the subcontract.

Resolving conflicting estimates and testimony, the trial court concluded that Sanchez had completed 40% of the earthwork required under the subcontract when wrongfully terminated. Accordingly, the court awarded Sanchez, on a quantum meruit basis, 40% of the reasonable value of the earthwork ($475,000.00), or $190,000.00. However, the court also deducted $40,000.00 from the award as the cost of correcting construction errors by Sanchez.

B. CJC

Shortly before terminating Sanchez, Western began negotiating with CJC to replace Sanchez and complete the earthwork. In negotiating with CJC, Western represented that Sanchez had completed more than 50% of the earthwork and did not fully disclose the number or magnitude of the errors by Sanchez. After Western terminated Sanchez, it signed a written subcontract with CJC for the completion of certain items of earthwork left undone by Sanchez. Under the CJC subcontract, work was to be performed on an hourly basis, based on the equipment used by CJC. The subcontract included a $150,000.00 cap and a provision holding CJC harmless and free of all liabilities or deficiencies created by the prior earthmoving subcontractor. The trial court found that the CJC subcontract was limited in scope and did not call for general corrective work or for rebuilding improperly placed earthwork berms. The trial court also found that the CJC subcontract did not require CJC to provide engineering and surveying in connection with the earthwork. That task remained the responsibility of Western.

CJC's work was also delayed and complicated by several factors beyond its control. First, Western represented that Sanchez had been terminated and removed from the project site. In fact, Sanchez remained on site for more than a week after the CJC subcontract was signed. Second, the engineering and setting of survey stakes was delayed, further delaying CJC. Third, additional errors in the work by Sanchez were discovered which required extra time and work by CJC. Finally, the trial court found that Sanchez, CJC, and other subcontractors were delayed and hindered in their progress by the failure of Western to provide regular and consistent supervision of the project and to have qualified and competent supervisory personnel on site during construction.

The CJC subcontract called for payment by Western of weekly invoices submitted by CJC, such payments to be made no later than the 15th day of the following month. CJC submitted invoices for July and August, 1982 but was not paid for those invoices. CJC also submitted invoices for work performed during August, but was not paid by September 15, 1982. On September 17, 1982, CJC had received no payment for the work performed for Western. After notice to Western, CJC terminated work on the project and removed its men and equipment from the site. Sandia and Western had expressed continuing concerns about delays in the earthwork, but had never expressed any dissatisfaction with the quality of CJC's work.

Subsequently, Western hired a third earthmoving...