Walton General Contractors, Incorporated/Malco Steel, Inc. v. Chicago Forming, Inc.
| Decision Date | 22 April 1997 |
| Docket Number | Nos. 96-1028,96-1324 and 96-1326,s. 96-1028 |
| Parties | WALTON GENERAL CONTRACTORS, INC./Malco Steel, Inc., Appellant, v. CHICAGO FORMING, INC.; Peerless Insurance Company, Appellees. CHICAGO FORMING, INC., Third Party Plaintiff, v. UNITED STATES FIDELITY AND GUARANTY COMPANY, Third Party Defendant. WALTON GENERAL CONTRACTORS, INC./MALCO STEEL, INC., Appellee, v. CHICAGO FORMING, INC., Appellant, Peerless Insurance Company, Appellee. CHICAGO FORMING, INC., Third Party Plaintiff-Appellant, v. UNITED STATES FIDELITY AND GUARANTY COMPANY, Third Party Defendant-Appellee. WALTON GENERAL CONTRACTORS, INC./MALCO STEEL, INC., Appellee, v. CHICAGO FORMING, INC., Appellee, Peerless Insurance Company, Appellant. CHICAGO FORMING, INC., Third Party Plaintiff, v. UNITED STATES FIDELITY AND GUARANTY COMPANY, Third Party Defendant. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Stephen R. Miller (argued), Weston A. Sechtem, on the brief, Kansas City, MO, for appellant.
Bernard L. Balkin (argued), Keith Whitten, on the brief, Kansas City, MO, for appellee Peerless Ins.
Vincent Francis O'Flaherty (argued), Kevin E. Glynn and Michael K. Sears, on the brief, Kansas City, MO, for appellee Chicago Forming.
Before WOLLMAN, BRIGHT and MURPHY, Circuit Judges.
These appeals bring to this court a dispute between a contractor (Walton General Contractors, Inc./Malco Steel, Inc.), its subcontractor (Chicago Forming, Inc.), and the subcontractor's surety (Peerless Insurance Company). Initially, the contractor claimed that the subcontractor's delayed and defective performance caused the general contractor damages in excess of the agreed amount remaining due and owing under the subcontract, $352,408. The contractor sought a declaratory judgment determining its proper withholding under the subcontract and joined the subcontractor's surety because the contractor's claim exceeded the unpaid balance of the subcontract. Subsequently, the subcontractor filed a counterclaim for the full subcontract balance of $352,408.
A magistrate judge presided over the jury trial, resolved the post-trial motions and entered judgments regarding the controversy. The magistrate made the following awards:
1. According to the jury's findings, the subcontract entitled the contractor to withhold $233,629 for damages resulting from the subcontractor's delayed and defective performance. This award was less than the contractor initially claimed as damages.
2. According to the jury's findings, the subcontractor substantially performed the subcontract and, therefore, was entitled to the full $352,408 subcontract balance subject to the contractor's damages withholding discussed in item 1 above. The magistrate judge, therefore, ordered the contractor to pay the $118,779 difference between the two awards.
3. The magistrate judge granted the subcontractor prejudgment interest on $352,408 calculated from May 7, 1993, when the subcontractor demanded payment.
4. Although the subcontract included a provision entitling the prevailing party to attorneys' fees, the magistrate judge denied both the contractor's and the subcontractor's motions for attorneys' fees.
5. The magistrate judge dismissed the subcontractor's surety from the damages portion of the trial because the contractor reduced its damages claim below the subcontract balance of $352,408 shortly before trial, but retained jurisdiction over the surety for purposes of determining attorneys' fees. After the trial, the magistrate judge awarded the surety $148,726.24 in attorneys' fees against the subcontractor pursuant to their performance bond.
The parties appealed from the judgments and awards, and raise the following issues for our review:
1. The contractor claims that the subcontractor was not entitled to credit for excusable delays during the subcontract performance and, consequently, the magistrate judge erred by admitting the subcontractor's evidence of excusable delays. We reject the contractor's argument because the contractor introduced evidence that the subcontractor caused the delays and, thereby, opened the door for the subcontractor to submit rebuttal evidence.
2. The contractor claims that the magistrate judge erred by instructing the jury on the issue of substantial performance on the subcontractor's counterclaim. The contractor contends that the subcontractor offered insufficient evidence of substantial performance to warrant the instruction. In addition, the contractor asserts that the instructions failed to inform the jury that the subcontractor could not substantially perform with respect to the subcontract's provisions requiring the subcontractor to provide a ten-day notice of excusable delays. We reject both of these arguments and affirm the magistrate judge's choice and form of jury instructions.
3. The contractor claims the subcontract entitled the contractor to judgment as a matter of law against the subcontractor on the counterclaim because the subcontract authorized the contractor to withhold funds, even excessive amounts, without breaching the terms of the subcontract. We reject this claim. The parties' pleadings and presentation of evidence required the jury's determination on the appropriateness of the contractor's withholding of payment and the amount to which the contractor could withhold.
4. The contractor disputes the award of prejudgment interest granted to the subcontractor. We agree that the magistrate judge erroneously granted prejudgment interest to the subcontractor for the full amount of the subcontract balance without offsetting the contractor's damages.
5. The contractor and subcontractor appeal the magistrate judge's denial of their motions for attorneys' fees pursuant to the subcontract. We agree with the magistrate judge's decision because both parties breached the subcontract and, therefore, the subcontract entitled neither party to recover attorneys' fees.
6. The subcontractor claims that the magistrate judge erred by granting the surety attorneys' fees without determining whether the fees were reasonable. We reject this claim because the subcontractor fails to demonstrate that the magistrate judge abused his discretion.
7. The surety argues that the contractor, rather than the subcontractor, bears the liability for the surety's attorneys' fees according to the subcontract and because the contractor brought its claim against the surety in bad faith. We conclude that the subcontract creates no obligation on the part of the contractor to reimburse the surety for its litigation costs and that the contractor brought its claim in good faith. Accordingly, we reject both of the surety's arguments.
8. The surety claims that its performance bond agreement with the subcontractor entitles the surety to reimbursement of $20,000 it paid to settle a claim against the subcontractor by one of its suppliers. The contractor also claims that the subcontract entitles it to withhold $30,010 until the subcontractor provides the requisite waiver from the supplier of its claim. We remand both of these claims to the magistrate judge because the parties never raised them appropriately below. The facts appear to be undisputed.
Our discussion of each of these issues follows.
In 1992, Kansas City, Missouri entered into a construction contract with the contractor to build a convention center expansion. The contractor then entered into a subcontract with the subcontractor for $1,560,000 to build four cement pylons used to support the roof of the convention center. The subcontract required the subcontractor to obtain a surety to issue a bond in the contractor's favor guaranteeing the subcontractor's performance and payment of its suppliers. The performance bond between the subcontractor and surety incorporated the subcontract.
During the construction project, the contractor believed the subcontractor performed defective and untimely work. The contractor, therefore, began withholding payments from the subcontractor and at the time of trial, $352,408 of the subcontract remained unpaid. The contractor claimed it withheld $49,297 as retainage 1 because the subcontractor had work to complete, defects in the subcontractor's work placed the contractor at risk of further liability, and Kansas City had not accepted the work or paid the contractor. The subcontract authorized the contractor to withhold as much as ten percent retainage from each progress payment.
In addition to retainage, the contractor withheld $30,010 allegedly to protect itself from a potential claim for payment by one of the subcontractor's suppliers (Continental Steel & Conveyor Company). The contractor believed the subcontractor did not pay the supplier. The subcontract authorized the contractor to withhold payment until the subcontractor demonstrated that it paid all of its suppliers. Sometime after the trial, the subcontractor's surety paid the supplier $20,000 in settlement of its claim against the subcontractor.
Finally, the contractor claimed it withheld $319,398 as compensation for damages resulting from the subcontractor's breach of the subcontract. The contractor claimed the following amounts as damages: $151,102 due to the subcontractor's deficient work, $45,624 caused by the subcontractor's failure to perform work according to specifications, $51,087 of additional overtime costs, and $60,094 resulting from the subcontractor's failure to perform in a timely manner. Thus, the contractor claimed the subcontract entitled it to withhold the entire $352,408 subcontract balance as retainage, security for the supplier's claim and compensation for damages.
The contractor brought this diversity action against the subcontractor and its surety, seeking a declaratory judgment that the subcontractor breached the subcontract, thereby entitling the contractor to $352,408 in damages. This sum represents the full extent of the unpaid...
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