Ryan Companies US, Inc. v. FDP WTC, LLC ( 2021 )

IN THE COURT OF APPEALS OF IOWA
No. 20-1366
Filed October 6, 2021
RYAN COMPANIES US, INC.,
Plaintiff-Appellee,
vs.
FDP WTC, LLC,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Black Hawk County, David P.
Odekirk, Judge.
FDP WTC, LLC appeals a ruling in favor of Ryan Companies US, Inc.
awarding damages on breach-of-contract claims, foreclosing mechanic’s liens,
and awarding attorney fees, costs, and interest. AFFIRMED IN PART,
REVERSED IN PART, AND REMANDED.
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.
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AHLERS, Judge.
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.
I. Background Facts and Proceedings
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,
1 The parties later entered into a third related contract. The third contract is not at
issue on appeal.
3
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.
II. Standard of Review
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
2 The district court granted partial summary judgment to Ryan on its mechanic’s
liens related to the parties’ third contract. FDP appealed, and we affirmed those
liens related to the third contract. See Ryan Cos. US, Inc. v. FDP WTC, LLC, No.
19-1698, 2021 WL 211156, at *1 (Iowa Ct. App. Jan. 21, 2021).
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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).
III. Analysis
A. Ryan’s Breach-of-Contract Claims
1. Express contract
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
3 FDP notes the district court largely adopted Ryan’s proposed findings of fact and
conclusions of law on the breach-of-contract and mechanic’s lien foreclosure
claims, and thus FDP asks us to scrutinize the court’s ruling. See NevadaCare,
783 N.W.2d at 465 (“[W]here a district court adopts a prevailing counsel’s
proposed findings of fact and conclusions of law verbatim, we must scrutinize the
record more carefully when conducting our appellate review.”). At the court’s
invitation after trial, both parties submitted proposed findings of fact and
conclusions of law. On our review of the record, the court clearly based its ruling
on Ryan’s proposal, though the court also edited Ryan’s language and added
findings including explicit credibility findings. While the facts on appeal are mostly
undisputed and the court’s conclusions of law are not binding, we are mindful the
court adopted much of Ryan’s proposal, and we will scrutinize the court’s ruling
accordingly.
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appeal. See Meier v. Senecaut, 641 N.W.2d 532, 537 (Iowa 2002) (“It is a
fundamental doctrine of appellate review that issues must ordinarily be both raised
and decided by the district court before we will decide them on appeal.”). 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
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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]”
4 Section 5.1 states: “The Contract Sum is the Cost of the Work . . . plus the
Contractor’s Fee.”
5 The contracts define a “Modification” as a change order or certain other written
orders.
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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
6 The attachment states: “The term ‘Work’ means the construction and services
required by the Contract Documents, whether completed or partially completed,
and includes all other labor, materials, equipment and services provided or to be
provided by the Contractor to fulfill the Contractor’s obligations.”
7 Section 5.1.2 states: “Changes in the work are subject to Five Percent (5%) fee.”
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requirements of the contracts. We reject Ryan’s and the district court’s
interpretation of section 6.4.
In its brief to us, Ryan emphasizes “the designs and construction
documents were not complete when the contracts were executed, and the parties
understood and anticipated that the scope of work and GMP were subject to
change.” However, section 5.2.5 explicitly requires anticipated changes to be
provided in the GMP and any changes in scope “shall be incorporated by Change
Order.” Regardless of the extent of changes the parties expected after executing
the contracts, the contracts clearly guaranteed FDP would not have to pay more
than the GMP without written and signed change orders to increase the GMP. The
contracts do not show uncertainty or conditions on these requirements. See, e.g.,
Bouten Const. Co. v. M & L Land Co., 877 P.2d 928, 934–35 (Idaho Ct. App. 1994)
(finding language in the contract showed the initial GMP was preliminary and
subject to adjustment as described in the contract); Prof’l Serv. Indus., Inc. v. J.P.
Const., Inc., 491 N.W.2d 351, 353 (Neb. 1992) (finding a contract did not include
a GMP because, in part, the contract’s total amount explicitly stated “estimated”).
Likewise, there is no ambiguity in this provision that would allow us to look at
evidence beyond the plain language of the contracts. See Hartig Drug Co. v.
Hartig, 602 N.W.2d 794, 797 (Iowa 1999) (allowing extrinsic evidence to help
determine intent only if a contract is ambiguous or uncertain). When a contract
unambiguously requires a written change order or other procedure to modify the
contract, the contractor is generally not allowed to recover for additional work
unless the contractor followed this procedure or the owner waived the required
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procedure.8 See Ida Grove Roofing & Improvement, Inc. v. City of Storm Lake,
378 N.W.2d 313, 314–15 (Iowa Ct. App. 1985); see also Katsura v. City of San
Buenaventura, 65 Cal. Rptr. 3d 762, 763–64 (Cal. App. 2007); Tupelo
Redevelopment Agency v. Gray Corp., 972 So. 2d 495, 506–07 (Miss. 2007);
Ridley Elec. Co. v. Dormitory Auth. of State, 60 N.Y.S.3d 551, 553–54 (N.Y. App.
Div. 2017); Seneca Valley, Inc. v. Caldwell, 808 N.E.2d 422, 426–33 (Ohio Ct. App.
2004). Finding Ryan failed to obtain the contractually required change orders to
increase the GMP, we thus reverse the district court’s finding that FDP breached
the parties’ contracts.
2. Implied Contracts
Alternatively, Ryan argues the parties had implied-in-fact and implied-in-law
contracts that allow it to recover for the work performed under CEs but not included
in change orders. See Iowa Waste Sys. Inc. v. Buchanan Cnty., 617 N.W.2d 23,
29–31 (Iowa Ct. App. 2000) (discussing implied-in-fact and implied-in-law
contracts). The district court rejected the implied-contract theories because “[a]n
express contract and an implied contract cannot coexist with respect to the same
subject matter.” Legg v. W. Bank, 873 N.W.2d 763, 771 (Iowa 2016) (quoting
Chariton Feed & Grain v. Harder, 369 N.W.2d 777, 791 (Iowa 1985)). Ryan asserts
its claims are proper for implied contracts because the work at issue was outside
8 Ryan asserts it presented an argument to the district court that FDP waived the
change-order requirement because FDP authorized all extra work. While the
district court agreed “FDP provided Ryan with approval to perform the work that
was reflected in the” CEs, the court did not make specific findings on the issue of
waiver of the change-order requirement. See Cent. Iowa Grading, Inc. v. UDE
Corp., 392 N.W.2d 857, 860 (Iowa 1986) (discussing the elements for waiver of a
change-order requirement). Thus, any argument FDP waived the change-order
requirement is not preserved for our review. See Meier, 641 N.W.2d at 537.
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the scope of work and thus not covered by the parties’ express contracts. See id.
at 771–72 (“[T]here may be a contract implied in law on a point not covered by an
express contract . . . .” (quoting Smith v. Stowell, 125 N.W.2d 795, 800 (Iowa
1964))). However, the work at issue was covered by the parties’ express contracts
due to specific language in the contracts requiring valid change orders to add such
work to the scope of the project. As a result, we agree with the district court that
the recovery Ryan seeks is covered by the parties’ express contracts and no
recoveries on implied contract theories are available.
B. Mechanic’s Liens
FDP argues the foreclosure of Ryan’s mechanic’s liens must also be
reversed. The mechanic’s liens are based on the damages Ryan incurred from
FDP’s alleged breach of contract. Because we find FDP did not breach the parties’
contracts, we also reverse foreclosure of the mechanic’s liens. See Flynn Builders,
L.C., 814 N.W.2d at 545 (stating successful foreclosure of a mechanic’s lien
entitles the builder to no more than damages under the contract).
C. FDP’s Breach-of-Contract Claim
FDP argues Ryan breached the parties’ express contracts by reducing the
value of its work without a corresponding reduction in the GMP. FDP asserts Ryan
owes credits for these reductions. The district court found the parties agreed to
many reductions and additions to the scope of work and, relying on valuations in
the record, FDP failed to prove the reductions exceeded the additions so that it
was owed credits. The court also noted FDP did not seek credits for amounts it
paid to Ryan until Ryan filed its claims here, suggesting FDP itself did not believe
it was entitled to credits until Ryan filed its claims. We find substantial evidence to
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support the district court’s finding that FDP failed to prove it was entitled to credits
for reductions in work.
D. Attorney Fees, Costs, and Interest
The district court awarded attorney fees, costs, and interest to Ryan as the
prevailing party. Regarding the mechanic’s lien foreclosure claims, Iowa Code
section 572.32(1) allows “a prevailing plaintiff” to recover “reasonable attorney
fees.” Regarding the breach-of-contract claims, section 15.2 of the contracts
states:
In the event that any payment by [FDP] to [Ryan] is not paid when
due, [FDP] shall pay interest on said unpaid amount . . . . [FDP] shall
pay to [Ryan] all costs reasonably incurred by [Ryan] in the collection
of amounts payable to Contractor hereunder, including reasonable
attorney’s fees.
Because Ryan did not prevail on its mechanic’s lien foreclosure claims, Ryan is
not entitled to recover attorney fees on those claims under Iowa Code section
573.32(1). Similarly, because Ryan did not prevail on its breach-of-contract
claims, FDP did not fail to make a payment when due and Ryan is not entitled to
recover its collection costs under the terms of section 15.2 of the contract. As a
result, we also reverse the awards of attorney fees, costs, and interest.
IV. Conclusion
Because Ryan sought to increase costs of the work beyond the GMP
without obtaining valid change orders, 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 remand for dismissal of all such
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claims. We affirm the district court’s finding that FDP did not prove Ryan breached
the contracts.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.