Superior Steel, Inc. v. The Ascent at Roebling's Bridge, LLC ( 2017 )

· RE!'IDERED: DECEMBER 14, 2017
TO BE PUBLISHED
j5upr:ettt:e dtnurf n.f ~:enfurku
2015-SC-000204-DG
AND
2015-SC-000636-DG
SUPERIOR STEEL, INC., AND APPELLANTS/CROSS-APPELLEES
BEN HUR CONSTRUCTION ·
COMPANY, INC.
ON REVIEW FROM ·COURT OF APPEALS
V. . CASE NOS. 2012-CA-000440-MR, 2012-CA-000441-MR,
2012-CA-000494-MR AND 2012-CA-000495-MR
KENTON CIRCUIT COURT NOS. 07-CI-03886
AND 08-Cl-01309
THE ASCENT AT ROEBLING'S BRIDGE, APPELLE~S/CROSS-APPELLANTS
LLC.; CORPOREX DEVELOPMENT AND
CONSTRUCTION MANAGEMENT LLC; .
DUGAN & MEYE~S CONSTRUCTION
COMPANY AND ·WESTCHESTER FIRE
INSURANCE COMPANY
AND
2015-SC.,000635-DG
DUGAN & MEYERS CONSTRUCTION CROSS-APPELLANT
COMPANY
ON REVIEW FROM COURT OF APPEALS
V. CASE NOS. 2012-CA-000440-MR, 2012-CA-000441-MR,
2012-CA-000494-MR AND 2012-CA-000495-MR
CIRCUIT COURT NOS. 07-CI-03886
AND 08-CI-O 1309
THE ASCENT AT ROEBLING'S BRIDGE, CROSS-APPELLEES
LLC.; CORPOREX DEVELOPMENT AND
CONSTRUCTION MANAGEMENT LLC;
SUPERIOR STEEL, INC.; BEN HUR
CONSTRUCTION COMPANY, INC. AND
WESTCHESTER FIRE INSURANCE
COMPANY
OPINION OF THE COURT BY JUSTICE HUGHES
AFFIRMING IN PART, REVERSING IN PART, AND REMANDING
The Ascent at Roebling's Bridge (the "Project") is a 21-floor, luxury
condominium building in downtown Covington, owned by Appellee /Cross-
Appellant The Ascent at Roebling's Bridge, LLC ("Ascent") and developed by
Appellee /Cross-Appellant Corporex Development and Construction ·
Management LLC ("Corporex''). Corporex, the design builder, contracted with
Appellee/Cross-Appellant Dugan & Meyers Construction Company ("D&M"),
the construction manager and general contractor. D&M worked directly with·
subcontractors, including Appellant/ Cross-Appellee Superior Steel, Inc.
("Superior"), the steel fabricator, and Appellant/Cross-Appellee Ben Hur
Construction Company, Inc. ("Ben Hur"), the steel erector and Installer. When
new drawings led to extra work outside the scope of the original bid
documents, Superior. and Ben
.
Hur proceeded with the work, but they were
never paid for either that. work or the retainage amount owed under Superior's
contract with D&M. The two steel companies banded together as "the Steel
Team~ and brought suit against D&M, Ascent and Corporex.
After a fifteen-day jury trial, the Kenton Circuit Court.entered judgment
. in favor of Superior and Ben Hur against D&M and Ascent for the cost of the
extra work and the unpaid retainage as well as attorneys' fees incurred by .
I
Superior. D&M prevailed on its indemnification cross-claim against Corporex
and Ascent and on the negligence cross-claim asserted against it by Corporex
and Ascent. On appeal, the Court of Appeals reversed the judgment in its
entirety, unwinding the majority of the trial court's rulings and returning the
2
record and applicable la:w, we affirm the judgment of the Court of Appeals in
part, reverse in part, and remand for further proceedings consistent with this
Opinion.
FACTUAL AND PROCEDURAL BACKGROUND
In November 2005, Ascent hired Corporex to be the "design builder" for
the Project. 1 Later, in March 2006, Corporex hired D&M, as the construction
manager/ general contractor. for the Project. Corporex agreed to pay D&M a
$2.2 million lump sum, a $975,000 contractor's fee (plus any participation in
savings and a potential bonus), and a sum for the cost of the work as identified
in the "Initial Estimate."
In July 2006, D&M solicited bids for the fabrication.and erection of
structural steel for the Project. The bid package that D&M supplied to
potential subcontractors included architectural and structural drawings for the
Project. Notably, those drawings did not include a forces table (a chart which
identifies the forces acting upon each piece of steel to be used on the Project) or
designs for the steel connections.
On August 4, 2006, D&M received three bids, including one from
Superior, to be the subcontractor for the structural steel work. Subsequently,
D&M contacted Superior and inquired whether the company would be willing
to modify its bid proposal. As a cost saving measure, D&M wanted Superior to
I At the time of the Project and to this day, Ascent and Corporex exist as related
entities. They are referred to hereafter as Ascent/ Corporex except in reference to the
Corporex/D&M contract, to which Ascent was not a party, and in other instances
where a distinction is appropriate.
3
fabricate the steel for the project and have Ben Hur complete the erection and
installation work. Prior to Superior submitting its modified bid, the Project's
architect issued a revised se~ of drawings. Despite that fact; D&M instructed
Superior to not acknowledge the revised drawings in making its bid; D&M
wanted to be able to evaluate each of the bids it had received on an equal
basis. Superior's modified bid was accepted by D&M in September 20062 and
the parties' contract had a fixed price of $1,814,000. In turn, Superior
contracted with Ben Hur to erect the steel and metal decking for $444,000. As
structured, payment for all of the steel work flowed from Corporex to D&M and
then from D&M to Superior. Superior would then pay Ben Hur what it was
owed for erection and installation of the steel fabricated by Superior.
After Superior and Ben Hur were retained to work on the .Project, further
alterations were made to the structural design drawings issued by
Ascent/ Corporex. Corporex alerted D&M to the changes, and D&M in turn
informed Superior and Ben Hur. Superior and Ben Hur expressed concern
about the design changes as they would require additional work to be
performed, work beyond the original scope of the contract. 3 In response, D&M
separately directed both Superior ~d Ben Hur to perform the extra work, while
keeping track of the time and costs.
2 After D&M issued a letter of intent to award the steel and metal decking
contract to Superior, Superior and Ben Hur began working on the J>roject. This work
· was done prior to finalizing the contract between D&M and Superior.
3 The claimed value of the extra work performed by Ben Hur and Superior
fluctuated prior to and during the course of the litigation in this case.
4
Prior to starting the additional work, Ben flur's Vice President, Mark
Douglas, sought the personal assurance of D&M's President, Jay Meyers, along
with Corporex Vice-President Mike O'Donnell, that Ben Hur would be paid for
the additional work. In a meeting with Meyers, Douglas was directed to
proceed with the extra work, while tracking the time and costs. Meyers
reassured Douglas that Ben Hur would not be cheated~ On the day following
the meeting, Dan Dugan of D&M drafted a letter to· Superior acknowledging
that additional work was necessitated due to ~hanges to the design from the
original bid· documents and authorizing Superior to proceed with the additional
work. That draft letter was forwarded to O'Donnell at Corporex, who .directed
Dugan not to send the letter.
Later, Ben H71r and Superior submitted work orders to D&M detailing the·
additional work done on the Project. In turn, D&M submitted those work
orders to Corporex. While Ascent/ Corporex did pay for some of the extra work
performed, they failed to pay for additional work performed on the forces
table/design load increase, the roof edge c~ndition, and the roof tip. When
Superior submitted its written change order for this extra work, Bill Butler, a
principal at Ascent. and Corporex, ordered O'Donnell, the Corporex vice-
'
president, to address the claim at a later time. Eventually, Ascent/Corporex
refu!3ed to provide any additional compensation to Ben Hur and Superior. As
the basis for ·their refusal, Ascent/Corporex asserted that the amounts
requested by Superior and Ben Hur were excessive and that those claims were
due to D&M's mismap.agement of the Project. Ultimately, in addition to not
5
being paid for additional work performed on the forces table/ de~ign load
increase, the roof edge condition, and the roof tip, Superior also was not paid
· the $195,143.40 owed in retainage earned on the base contract work.4
After several months passed without payment, Superior and Ben Hur
filed mechanics' liens on the Project to secure payment of the amounts owed.
Subsequently, Ascent purchased lien discharge bonds from Westchester Fire
Insurance Company ("Westchester") to remove the liens and enable Ascent to
begin selling condominium units. In April 2008, Superior ~d Ben Hur filed
this suit naming Ascent, Corporex, D&M, and Westchester as defendants.
Superior and Ben Hur asserted claims against Ascent, Corporex, and D&M for
breach of contract, unjust enrichment, breach of express and implied
warranties, negligence, negligent misrepresentation, negligent supervision, and
promissory estoppel. D&M then filed a crossclaim against Ascent/ Corporex for
breach of contract and indemnification for all.monies owed to Superior and Ben
Hur.s Ascent/Corporex also filed a crossclaim against D&M alleging breach of
contract, negligent performance of contract, constructive fraud and
indemnification.
At trial, D&M disputed whether a written contract with Superior had
been agreed upon, and if so, which version of the contract would be enforced.
4 Retainage is "[a] percentage of what a landowner pays a contractor, withheld
·until the construction has been satisfactorily completed and all mechanic's liens are
released or have expired." BLACK'S LAW DICTIONARY (10th ed. 2014).
s Prior to trial, the trial court granted partial summary judgment in favor of
Corporex on D&M's breach of contract claim for its own attorneys' fees and costs.
6
Further, while D&M and Ascent admitted at trial that Superior and Ben Hur
had performed extra work, they asserted that the work was within the original
scope of the contract. Additionally, D&M argued that the retainage was not
owed due to Superior's alleged failure to comply with certain contract
. provisions.
After hearing all the evidence, the trial court directed a partial verdict in
favor of Superior against Ascent and D&M, jointly and severally, for the unpaid
retainage due under the contract, plus pre- and post-judgment interest. The
trial court also concluded "as a matter of law that there was an implied
contract between [D&M] anq. Ben Hur.· That implied contract would allow Ben
Hur to recover from [D&M] for work performed by it on the project if the work
..
had been authorized by [D&M]." The remaining issues were submitted to the
jury.
At the conclusion of the fifteen-day trial, the jury rendered its verdict in
less than an hour. The jury's conclusions, each of which was unanimous, were
as follows: 1) a contract existed between Superior and D&M (identified at trial
as Joint Exhibit #226) to fabricate and erect the struc.tural steel; 2) Superior
and Ben Hur performed extra work; 3) the total value of Superior's extra work
was $124,017.26; 4) the total value of Ben Hur's extra work was $284,295.53;
7
and 5) D&M did not fail to exercise ordinary care in the performance of its
obligations under the constructjon management contract with Corporex.6.
Subsequently, the trial court entered a final judgment consistent with
the jury's verdict and the directed verdict on the retainage. In its judgment,
the trial court rejected Superior and Ben Hur's trial claim that they were a
unitary plaintiff, the so-called "Steel Team." The trial court determined that
there was no legal basis for entering a judgment in favor of Superior and Ben
Hur as a unit, but that the companies needed to be evaluated individually .
. Accordingly, the trial court awarded $124,017.26 in damages to Superior for
the extra work it performed on the Project. The joint and several judgment was
'
based on contract as to D&M and on unjust enrichment as to Ascent. Further,
. .
the trial court determined that $195,143.40 was due to Superior for the unpaid
retainage under its contract with D&M. Again, the· award against D&M was
based on contract and the award against Ascent on unjust enrichment. As for
Ben Hur, the trial court awarded $284,295.53 for the value of the extra work it
performed on the Project. The joint and several judgment was premised on
implied contract as to D&M and on u~just enrichment as to Ascent.
While both Superior and Ben Hur requested an award of attorneys' fees,
expenses, and costs, the trial court determined that Superior was the only
party entitled to this relief. Superior, as the prevailing party, was due an
6 The instruction the trial court presented to the jury only concerned
Ascent/ Corporex's claim against D&M for negligence; the trial court declined to
instruct the jury on Ascent/Corporex's breach of contract claim.
8
award of ~ttorneys' fees, expenses, and costs in the amount of $349,241.70
under the terms of its contract with D&M. The trial court concludea that Ben
Hur had no contractual right to an award of attorneys' fees and no other legal
grounds for an award of attorneys' fees.
As to the dispute between D&M and Ascent/ Corporex, the trial court
concluded that Ascent/ Corporex were Jointly and severally liable to D&M for all
sums D&M was mandated to pay to Superior and Ben Hur on their contract
judgments (including attorneys' fees, costs, and expenses) by virtue of
indemnification. Further, the trial court ordered that the judgments entered in
favor of Superior and Ben Hur against D&M be stayed until Ascent/Corporex
either 1) satisfied D&M's indemnity judgment or 2) satisf1:ed Superior and Ben
Hur's judgments for unjust enrichment.
All parties appealed the trial court's final judgment to the Kentucky
Court of Appeals. The Court of Appeals vacated the judgment of the trial court
in its entirety and remanded the case for a new trial. Dissatisfied with the
.rulings of the Court of Appeals, all parties sought and were gr~ted
discretionary review. The principal issues before us are:
1. Superior and Ben Hur's unjust enrichment claim against Ascent and
Corporex. The Court of Appeals vacated the trial court's unjust enrichment
award to Superior and Ben Hur, reasoning that the existence of contractual
-remedies barred an equitable remedy.
2. Superior's breach of contract claim against D&M. In vacating the
judgment of the. trial court, the Court of Appeals agreed with D&M that the jury
9
should have been explicitly instructed as to the "pay-if-paid" provisions in the
D&M/Superior contract. Those provisions ·mandated that Superior was
entitled to payment from D&M when D&M received payment from Corporex.
In the appellate court's view, "[t]he jury should have been instructed to
determine if D&M's obligation to. pay Superior ever arose, and thus if D&M was
in breach, or if D&M was not obligated to pay Superior Steel until it first
received payment from Corporex, and thus it did not breach the contract .."7
3. The attorneys' fee award to Superior. The vacating of the trial court's
breach of contract judgment in favor of Superior on the D&M/Superior
contract also resulted in the Court of Appeals reversing the award of prevailing
party attorneys' fees and costs to Superior Steel from D&M.B
4. D&M's indemnification claims against Ascent/Corporex. The Court
of Appeals vacated the portion of the trial court's order which held Ascent/
Corporex were responsible to D&M under an indemnification theory for the
1 Additionally, the Court of Appeals concluded that the trial court erred in
permitting Ben Hur to recover against D&M for breach of an implied contract.
Specifically, the Court of Appeals concluded that the determination of whether there
was an implied contract between Ben Hur and D&M needed to be made by the jury,
not the trial court. Given our disposition of this matter, we do not reach whether the
trial court appropriately entered the implied contract judgment without presentation of
the claim to the jury.
s A related issue concerning the attorneys' fees in this case was the Court of
Appeals' determiriation that the trial court did not abuse its ~scretion in concluding
that Ben Hur was not entitled to payment of its portion of attorneys' fees. The Court
of Appeals agreed that as Ben Hur was not a party to the Superior/D&M contract and
because there was no prevailing party provision in its contract with Superior, Ben Hur
was not entitled to recover its attorneys' fees. Although the Court of Appeals found
that the trial court did not abuse its discretion in deciding this issue, this portion of
the ·trial court's order was vacated due to the appell~te court's conclusion that a retrial
of the case was necessary.
10
extra work and attorneys' fees awards. The appellate court held that D&M
lacked a legal'right to indemnification from Ascent/Corporex under either a
contractual or common law theory.
5. Corporex's cross-claims against D&M. At trial, Corporex had raised
cross-claims for breach of contract and negligence against D&M alleging that
D&M failed to adequate~y oversee and manage the construction of the Project.
However, the trial court decided to submit only the negligence claim to the jury,
concluding that the claims were mutually exclusive. The Court of Appeals
disagreed, determining that these were two separate and distinct claims and
both should have been presented to the jury. Additionally, the Court of
Appeals concluded that the trial court's negligence instruction was erroneous
as.it assumed Corporex was responsible for the disputed extra work.
ANALYSIS
I
I. The Court of Appeals Erred by Reversing the Trial Court's Judgment
Against Ascent for Unjust Enrichment.
The trial court awarded Superior and Ben Hur judgment against Ascent
under a claim for unjust enrichment fot the extra work performed on the forces
table/ design load increase, the roof edge condition, and the roof tip as well as
the unpaid retainage amount owed under Superior's contract with D&M.
Ascent/ Corporex maintain that the Court of Appeals properly reversed this
judgment as the chain of contracts on this construction project,9 including
9 To reiterate, Ascent/Corporex had a contract with D&M; D&M had a contract
with Superior; and Superior had a contract with Ben Hur. These are the express
contracts that are present in this case.
11
specifically the contract between Superior and D&M, bars any equitable claim
for unjust enrichment. We disagree, and begin our analysis with unjust
enrichment.
To recover on a claim of unjust enrichment a plaintiff is required to
"prove the following thr~e elements: '(1) benefit conferred upon defendant at
plaintiffs expense; (2) a resulting appreciation of benefit by defendant; and (3)
inequitable retention of [that] benefit without payment for its value."' Furiong
Dev. Co. v. Georgetown-Scott Cty. Planning & Zoning Comm'n, 504 S.W.3d 34,
39-40 (Ky. 2016) (quoting Jones v. Sparks, 297 S.W.3d 73, 78 (Ky. App. 2009)).
Because unjust enrichment is rooted in equity and "law trumps equity" Bell v.
Commonwealth, 423 S.W.3d 742, 748 (Ky. 2014), courts frequently note that
"unjust enrichment is unavailable when the terms of an express_ contract
control." Furlong Dev. Co., 504 S.W.3d at 40 (citing Sparks Milling Co. v.
Powell, 283 Ky. 669, 143 S.W.2d 75, 76 (Ky. 1940); and Bates v. Starkey, 212
Ky. 347, 279 S.W. 348, 350 (Ky. 1926)). A leading Court of Appeals decision,
Codell Constr. Co. v. Commonwealth, 566 S.W.2d 161 (Ky. App. 1977),
illustrates this basic principle.
In Codell, a road contractor won a bid to complete a construction project
for the Highway Department. Id. at 163. In making its bid, the contractor
relied upon information provided by.the Highway Department concerning the
·amount of rock to be excavated as part of the project. Significantly, the.
contract between the contractor and the Highway Department included an
express disclaimer regarding the accuracy of this information. After starting
12
work on the project, the contractor determined that additional work was
necessary and requested additional compensation. Id. The Highway
Department refused to pay more than the contract amount, and the contractor
initiated a lawsuit. Following the circuit court's grant of summary judgment
for the Highway Department, the Court. of Appeals affirmed. After explaining
that the disclaimer precluded extra compensation under the cont:act, the
Court of Appeals stated that "[t]he doctri?e of unjust enrichment has no
application in a situation where there is an explicit con~act which has been
performed." Id. at 165 (citing Ashton .contractors & Eng'rs, Inc. v. State 454
P.2d 1004 (Ariz. 1969)). In the appellate court's view,' the contractor had
entered into a bad bargain and the court had no "basis to salvage the
operation." Id.
In the case at bar, the jury determined that the relationship between
D&M and Superior was governed by.contract. Accordingly, had the trial court
permitted Superior to recover against ·D&M under a claim of unjust
enrichment, long-standing precedent makes clear that judgment would not be
sustained by this Court. Ascent/ Corporex maintain that the same result
applies to them even though they have no contractual relationship with either
Superior or Ben Hur because the controlling legal principle is that where a
party has an "adequate legal remedy available" it bars unjust enrichment
entirely regarc!Jess of whether the party. against whom unjust enrichment is
sought is the same party against \Yhom the legal remedy lies. We largely agree
with A~cent/ Corporex's ·statement of the general principle but reject the
13
conclusion that its application precludes an unjust enrichment award in this
case.
As Ascent/ Corporex acknowledge, their desired outcome is premised on
Superior and Ben Hur having an adequate remedy elsewhere, and in fact they
. have no such remedy. In short, they do not have a viable contractual remedy
against D&M because Ascent/ Corporex have not paid D&M for the extra steel
work, relieving D&M of any immediate obligation to pay Superior (and
consequently Superior paying Ben Hur) for the work performed. for Ascent/
Corporex's benefit.IO As explained more fully below, the D&M/Superior
·contract contains "pay-if-paid" provisions wherein D&M's obligation to pay
Superior is premised on having first received payment from "the Owner," i.e.,
Ascent/Corporex. Additionally, the D&M/Superior·contract, the form of which
Corporex had authority to approve under Section 3.8 of the Corporex/ D&M
contract, specifically states: "The Subcontractor [Superior] hereby
ackn~wledges that it relies on the credit of the Owner [Ascent/ Corporex], not
the Contractor [D&M] for payment of Subcontract Work." So there is a "chain
of contracts" as Ascent/ Corporex repeatedly note but there is also undeniable
"contractual gridlock" that traces back to Ascent/Corporex's failure to pay for
As repeatedly noted, Ben Hur had no contract with D&M although D&M was
10
responsible for Superior and Ben Hur working together on the Project, having asked
Superior to revise its bid so that Superior would fabricate the steel and Ben Hur would
erect and install. Ben Hur had a contract with Superior which in turn had the steel
contract with D&M.
14
work received. Unless and until Ascent/ Corporex pay D&M, Superior has no
real contractual remedy.
The tendency of courts and litigants to disfavor unjust enrichment claim~
when contracts abound, as in construction disputes such as this one, is fairly
commonplace· but as the drafters of the RESTATEMENT (THIRD) OF RESTITUTION AND
UNJUST ENRICHMENT aptly state:
Judicial statements to the effect that "there can be no unjust
enrichment in contract cases" can be misleading if taken casually.
Restitution claims of great practical significance arise in a
contractual context, but they occur at the margins, when a
valuable performance has been rendered under a contract that is
invalid, or subject to avoidance, or otherwise ineffective to regulate
the parties' obligations. Applied to any such circumstance, the
statement that there can be no unjust enrichment in contract cases
is plainly erroneous.
Id. at§ 2, cmt. c (2011) (emphasis supplied). As Superior and Ben Hur note,
the RESTATEMENT specifically ·addresses the situation where a party is
uncompensated under a contract with a third party for a performance that
ultimately benefits the defendant, the scenario presented here.
If the claimant renders to a third person a contractual performance .
for which the claimant does not receive the promised
compensation, and the effect of the claimant's uncompensated
performance is to confer a benefit on the defendant, the claimant is
·entitled to restitution from the defendant as necessary to prevent
unjust enrichment.
Id. at§ 25(1). ("Uncompensated Performance Under Contract with Third
Person"). Here, Superior and Ben Hur indisputedly rendered a contractual
15
performance to D&M, conferring a substantial benefit on Ascent/Corporex, for
which Superior and Ben Hur have never been paid.11
Courts in other jurisdictions have not hesitated to allow subcontractors
to recover from property owners that receive the benefit of their work provided
that the owner has not already paid the general contractor for the exact same
work. Thus, in Nation Elec. Contracting, LLC v St. Dimitrie Romanian Orthodox
Church, 74 A.3d 474, 481 (~onn. App. 2013), an electrical contractor recovered
judgment on an unjust enrichment theory against a church that had received
the benefit of extra electrical work beyond the scope of the original contract but
never paid the contractor or subcontractor for it. Similarly, in Zaleznik v. Gulf
Coast Roofing Co., 576 So~2d 776, 778-79 (Fla. App. 1991), three
.subcontractors recovered judgments against a homeowner for unjust
enrichment based on the work they performed for which the homeowner had
never paid the contractor or the subcontractors.
Ascent/ Corporex- cite competing authority including several. cases
.
addressing New York law, which limits a subcontractor to its contractual
recovery against the contractor and precludes recovery against the owner
unless the owner expressly agreed to be held liable to the subcontractor. See,
e.g., A&V 425 LLC Contracting Co. v. RFD SSth St. LLC., 15 Misc. 3d 196, 830
N.Y.S.2d 637 (N.Y. Sup. Ct. 2007). Kentucky has no such rule. Nor do we
11 In its brief, D&M candidly states: "Corporex refused to pay for the extra work,
giving Superior Steel no choice but.to initiate litigation to recover its extras and Dugan
& Meyers no choice but to defend and seek recovery of those extras from Corporex and
The Ascent." ·
16
have case law that allows unjust enrichment recovery against the owner only
where th.e contractor with whom the subcontractor contracted is insolvent or
judgment proof, the rationale that Ascent/ Corporex offer for cases such as
Zaleznik.
Ascent/Corporex argue that an insolvent contractor is also the reason
our Court of Appeals approved a potential unjust enrichment recovery by a
'
subcontractor against a property owner. in Dirt & Rock Rentals, Inc. v. Irwin &
Powell Constr., Inc., 838 S.W.2d 412, 414 (Ky. App. 1992), but the opinion
· makes no reference to the solvency of the contractor. In that case,
subcontractor Dirt & Rock Rentals, a heavy equipment lessor, was not paid by
the contractor, a joint venture that included Irwin and Powell Construction, for
heavy 'equipment it had lea~ed and used in developing a residential subdivision
·for HFH, Inc. The Court of Appeals concluded that the subcontractor could not
recover against HFH, the property owner, unless "the enrichment to HFH is
unjust." Id. Finding issues of fact~ the court reversed a summary judgment in
favor of HFH and remanded for further proceedings to determine whether HFH
had ever paid the joint venture/contractor for the machinery and equipment
that the subcontractor had provided pursuant to a lease.with the contractor.
The clear import was that an unjust enrichment award to the subcontractor
was proper if HFH had never paid the contractor.
Similarly, in Brock v. Pilot Corp., 234 S.W.3d 381, 384 (Ky. App. 2007), ' .
the Court of Appeals recognized that an unpaid sub-subcontractor who
provided work that enhanced property could have an unjust enrichment claim
17
against the landowner. "To recover pursuant to the equitable theory of unjust.
~nrichment, Brock [the unpaid sub-subcontractor] must demonstrate that Pilot
[the landowner] not only benefited from his efforts but also that Pilot did not
pay any person for the work Brock performed." Id., (citing Dirt & Rock Rentals
Inc., 838 S.W.2d at 412). Because the record reflected that the general
contractor was fully paid for all the work performed, including the hauling and
excavating work performed by sub-subcontractor Brock, the claim failed as a
matter of law. Nevertheless; ~e potential for an unjust ·enrichment recovery
against the landowner was clearly acknowledged.
Most recently, in Brown Sprinkler Corp. v. Somerset-Pulaski Cty. Dev.
Found, Inc., 335 S.W.3d 455 (Ky. App. 2010), the Court of Appeals rejected the
argument that a legal remedy via a mechanics' lien precluded an unjust
enrichment claim. In that case, the Somerset-Pulaski County Development
Foundation, Inc. (Foundation) entered into a contract with Cecil Saydah
Company (CSC), a California company, to lease a property to be used as a
manufaCturing company. Id. at 456. Subsequently, CSC contracted with
Brown Sprinkler Corporation (Brown) to install a sprinkler system in the
building but eventually CSC went bankrupt and abandoned the property
· without paying Brown any portion of the contract price. Per the terms of CSC's
contract with the Foundation, "any improvements made would become the
property of the Foundation as an integral part of, and not to be separate from,
the land." Id. After Brown unsuccessfully filed a lien against the Foundation's
18
property to secure payment,1 2 id. at 456-57, it brought suit a~ainst the
Foundation, arguing the landowner had been unjustly enriched. Id. at 457.
The circuit court granted the Foundation summary judgment based on the
premise that an adequate legal remedy-the mechanics' lien statute-barred
Brown from seeking the equitable remedy of unjust enrichment. Id.
The Court of Appeals reversed, observing that the mechanics' lien statute
"does not specifically state that a mechanics' lien is the only course of action tu ·
be taken by those seeking relief" and no other language in the statute
suggested the legislature sought to create an exclusive remedy. Id. at 457-58.
Relying on Guarantee Elec. Co. v. Big Rivers Elec. Corp., 669 F. Supp. 1371
(W.D. Ky. 1987), the Court of Appeals determined that "Brown's failure to
properly file a mechanics' lien . . . does not preclude it from attempting to
recover under a theory of unjust enrichment." Id. at 458.
The Court of Appeals thus expressly rejected the idea that a legal remedy by
statute precluded resort to equitable remedies such as quantum meruit and
unjust enrichment, and, in so doing, tacitly rejected the contract argument
advanced by Ascent/Corporex in the case at bar.
We are not bound by these appellate court decisions but we find them
representative of Kentucky courts' willingness to adopt equitable measures
where appropriate and wholly consistent with the principles in the
RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT discussed supra.
12 The lien was unsuccessful, due to Brown listing the Foundation's actual
address rather than the address of the subject property. Id. at 457, n.4.
19
The factors supporting invocation of equity in this case are numerous but we ·
first reemphasize that legal remedies, where available and adequate, apply first.
The legal remedy proffered by Ascent/Corporex is Superior's contractual
remedy against D&M but, as noted and explained below, Ascent/Corporex's
failure to pay D&M is a continuing impediment to the actual realization of that
contractual remedy. Contractual gridlock persists and no remedy was
forthcoming under the parties' contracts. To the extent they cite contract
provisions regarding change. order requirements and necessary applications for
payment by D&M and/ or Superior as excuses for non-payment,
Ascent/Corporex ignore their own role in failing to act on the requested change
orders and their assurances that both Superior and Ben Hu:r: would be paid, as
well as the adverse effect a final application for payment (at least by Superior)
could have on its claims for extra work beyond the scope of the original
drawings and contract. Moreover, Ascent/Corporex through the Corporex/
D&M contract had the right to approve all subcontractor contracts, including
specifically the form and contents. (The Corporex/D&M ~Construction:
Agreement" was an exhibit to the "Standard Form Agreement" between D&M
and Superior.)13 In addition to the "pay-if-paid" language, the Standard Form
Agreement (the D&M/Superior contract) specifically stated that Superior was
"rel[ying] on the credit of the Owner, not the Contractor, for payment of
13 To the extent Ascent/Corporex claim they had not seen or approved the
D&M/Superior contract, that omission was not Superior's responsibility and, in any
event, Ascent/Corporex were well aware that Superior was providing the steel work
pursuant to a subcontract that Ascent/Corporex had the right to approve.
20
Subcontract Work." While any recipient of a substantial benefit in the form of
. authorized extra work should not be surprised that payment will be due,
eventually, the D&M/Superior contract underscores that Superior was.
ultimately. relying on Ascent/ Corporex for payment. Finally, Ascent/ Corporex
do not contest (at least post-trial) that additional work \_Vas performed by
Superior and Ben Hur and that some amount of compensation is due.14 Under
these circumstances, we conclude that unjust enrichment is an entirely
appropriate equitable remedy and the tiial court did not err in ·so ruling. ·
Lastly, Ascent/Corporex contend that the trial court failed to properly
instruct the jury on unjust enrichment. They allege that the trial court's
instruction was flawed in that the extra work instructions, only referenced
D&M and Superior by name, and did not name or acknowledge Ben Hur;
Ascent, and Corporex. Ascent/ Corporex further note that the trial court's
instruction for extra work does not include the phrase "unjust enrichment."
Equitable claims, such as unjust enrichment, are heard and decided by
the trial court, not the jury. Steelvest, Inc. v. Scansteel Sero. Ctr, Inc., 908
S.W.2d 104, 108 (Ky. 1995) ("causes of action historically legal are triable by
jury and causes of action historically equitable are triable by the court");
Emerson v. Emerson, 709 S.W.2d 853, 855 (Ky. ·App. 1986) Oury verdict iri
14 The video record of a November 3, 2011, post-trial hearing reflects counsel for
Ascent and Corporex stating: "[W]e're not trying to dodge the bullet here. We are not
trying to weasel out of this, and that's why the appropriate remedy here is unjust
enrichment award against the owner[.]" While such admission does not factor into our
legal analysis, it further estab~shes that this outcome can coine as no s~rprise to
Ascent and Corporex.
21
unjust enrichment c_ase was advisory only because the remedy is "equitable in
nature" and trial court must make the necessary findings of fact and
conclusions of law although it may choose to adopt jury's findings).
Admittedly, there may be factual issues that are capable of jury determination
before application of an equitable remedy, but there is rio entitlement to a jury
trial on an unjust enrichment claim. See Steelvest, Inc., 908 S.W.2d at 107-09 ..
That said, we look at the challenged instructions, recognizing that the jury's
findings were relied upon by the trial court in crafting its unjust enrichment
remedy.
When reviewing the content of a trial court's jury instructions, this Court
engages in de novo review. Sargent v. Shaffer, 467 S.W.3d 198, 204 (Ky. 2015).
Having examined the trial court's jury instruction concerning the extra work
performed by Superior and Ben Hur, we find that that the instruction was
proper, fo~ purposes of both the asserted contract claim and determining the
amount, if any, of unjust enrichment. The only factual question regarding
Superior and Ben I;Iur's claim for unjust enrichment was whether the work on
the forces table/ design load increase, the roof edge condition, and the roof tip
fell within the scope of the original contract between Superior and. D&M.
Accordingly, tlie trial court properly drafted its instruction to focus the jury on
whether that effort was covered under the scope of the origin8.1. contract or
whether it should be deemed extra work. In the interrogatories accompanying
the trial court's instruction for extra work, the jury was asked if extra work had
been performed by Superior o~ Ben Hur and the value of that work. After
22
weighing the evidence, the jury unanimously concluded that Superior and Ben
Hur did perform extra work on the forces table/design load increase, the roof
edge condition, and the roof tip.
Contrary to Ascent/ Corporex's argument, there was no need for the trial
court to identify in its instruction that the extra work was done for the benefit
'
of Ascent/Corpor.ex, a fact that was never disputed. While Asc~nt/Corporex
disagreed with Superior and Ben Hur about whether the extra work was
covered by the contract and the value of that work, they never disputed that
they are the parties who received the benefit of it. See Furlong Dev. Co., 504
S.W.3d at 39-40). (second element of unjust enrichment claim is "a resulting
appreciation of benefit by defendant"). Nor, can Ascent/Corporex deny that
they never paid Superior; Ben Hur, or D&M for that extra work. See id. (third
element of unjust enrichment claim is "inequitable retention of benefit without
payment for its value").
Given the jury's findings and the undisputed facts in the case, the trial
court properly evaluated the legal consequences of all parties' actions and
applied an equitable remedy-unjust enrichment. As such, we conclude that
the Court of Appeals erred by reversing the trial court's judgment against
Ascent for unjust enrichment, and reinstate that portion of the trial court's
judgment.
23
II. The Court of Appeals Properly Reversed the Trial Court's Judgment
Against D&M for Breach of Contract
Superior and Ben HurI 5 contend that the Court of Appeals erred by
vacating the portion of the trial court's judgn:ient concerning their claims
against D&M for breach of contract. The Court of Appeals determined that the
jury should have been instructed as to the "pay-if-paid" provisions of the
contract between Superior and D&M. According to the Court of Appeals, "[t]he
jury should have been instructed to determine if D&M's obligation' to pay
Superior Steel ever arose, and thus if D&M was in breach, or if D&M was not
obligated to pay Superior Steel until it first received payment from Corporex,
and thus it did not breach the contract." Superior and Ben Hur argue that this
reasoning is. erroneous, as the interpretation of a contract is a legal issue for
the court's consideration, not the jury's.
In evaluating Superior and Ben Bur's claims for breach of contract
against D&M we begin by examining the instrument that governed their
relationship. "The interpretation of a contract, including determining whether
a contract is ambiguous, is a question of law for the courts and is subject to de
novo review." 3D Enters. Contracting Corp. v. Louisville & Jefferson Cty. Metro.
Sewer Dist., 174 S.W.3d 440, 448 (Ky. 2005) (quoting Cantrell Supply, Inc. v.
Liberty Mut. Ins. Co., 94 S.W.3d 381, 385 (Ky. App. 2002); see also Giddings &
Lewis, Inc. v. Indus. Ri.sk Insurers, 348 S.W.3d 729, 742 (Ky. 2011) ("Contract
is Again, Ben Hur was not a party to the D&M/Superior contract but derived
payment through that contract, as D&M was aware having "paired" Superior and Ben
Hur to provide the steel work on the Project.
24
construction is a matter of law and thus an issue for the trial court, not a jury,
to determine.") (citing Morganfield Nat'l Bank v. Damien Elder & Sons, 836
S.W.2d 893, 895 (Ky. 1992)).
"'In the absence of ambiguity, a written instrument will be enforced
strictly according to its terms,' and ~ court will interpret the contract's terms
by assigning language its ordinary meaning and without resort to extrinsic
evidence." Kentucky Shakespeare Festival, Inc. v. Dunaway, 490 S.W.3d 691,
694 .(Ky. 2016) (quoting· Wehr Constructors, Inc. v. Assurance Co. of America, ·
384 S.W.3d 680, 687 (Ky. 2012)). Courts will find that a contract is ambiguous
where "a reaaonable person would find it susceptible to different or
inconsistent interpretation·s." Id. at 694.:.95 (quoting Hazard Coal Corp. v.
Knight, 325 S.W.3d 290, 298 (Ky. 2010)).
If there is no ambiguity in the contract, a reviewing court must determine
the intention of the parties "from the four corners of that instrument."
Hoheimer v. Hoheimer, 30 S.W.3d 176, 178 (Ky. 2000)). Further, "'[i]n the
absence of ambiguity a written- instrument will be enforced strictly according to
its terms,' and a court will interpret the contract's terms by assigning language
its ordinary meaning and without resort to extrinsic evidence." Hazard Coal
Corp., 325 S.W.3dat 298 (quoting Frear v. P.T.A. Indu~., Inc., 103 S.W.3d 99,
106 (Ky. 2003)). The fact that a party may have intended different results is
inadequate to "construe a contract at variance with its plain and unambiguous
terms." 3D Enters. Contracting.Corp., 174 S.W.3d at 448 (quoting Cantrell, 94
S.W.3d at 385).
25
Here, the jucy was asked to determine whether D&M and Superior ever
agreed to a written contract and which of two different exhibits introduced at
. trial was the final contract. Joint Exhibit 226 was designated by the jucy as
the final contract. At the center of the contract dispute between D&M and .
Superior is the language prescribing payment, a ~o-called."pay-if-paid" clause,
which conditions D&M's payment of Superior on D&M having first been paid by
Ascent/ Corporex.· Although neither this Court nor the Court of Appeals has
previously addressed a "pay-if-paid" clause, they are not uncommon.
Given the increasingly complex nature of construction projects,
contractors and subcontractors have developed mechanisms to address the.
possibility that an "upstream" contracting party will become insolvent or
otherwise default, prompting the question of which of the "downstream" parties
will bear the risk of nonpayment. BMD Contractors, Inc. v. Fid. & Deposit Co.,
679 F.3d 643, 648 (7th Cir. 2012). One type of contractual provision designed
to address this risk is a "pay-if-paid" clause. "Pay-if-paid conditions shift the
risk of nonpayment from the contractor to the subcontractor by requiring the
subcontractor to wait for payment until the contractor has been paid." Eagle
Supply & Mfg., L.P. v. Bechtel Jacobs Co. LLC, 868 F.3d 423, 436 (6th Cir.
2017) (Citing Thos. J. Dyer Co~ v. Bishop Int'l Eng'g Co., 303 F.2d 655, 661 (6th
Cir. 1962)); see also Sloan & Co. v. Liberty Mut. Ins. Co., 653 F.3d 175, 179 (3d
Cir. 2011) ("In construction contract parlance, [a.'pay-if-paid clause1 means
that a subcontractor gets paid by the general contractor only if the owner pays
the general contractor for that subcontractor's work.")
26
"A typical 'pay-if-paid' clause might read: 'Contractor's receipt of payment
from the owner is a condition precedent to contractor's obligation to make
p~yment to the subcontractor; the subcontractor expressly assumes the risk of
the owner's nonpayment and the subcontract price includes this risk.'"
Mid.America Constr. Mgmt., Inc. v. MasTec North America, Inc., 436 F.3d 1257,
°1261-62 (10th Cir. 2006) (quoting Robert F. Carney & Adam Cizek, Payment
Provisions in Construction Contrq.cts and Construction Trust Fund Statutes: A
Fifty-State Suroey, 24 Construction Law, 5-6 (2004)). Courts generally
predicate their enforcement of a "pay-if-paid" clause on its language being clear
and unequivocal. Id. at 1262. See e.g., Lemoine Co. of Alabama, L.L.C. v. HLH
Constructors, Inc., 62 So. 3d 1020, 1027-28 (Ala. 2010) (because "plain and
unambiguous" "pay-if-paid" provision of contract had not been satisfied,
general contractor had no obligation to make final payment to subcontractor);
Transtar Elec., Inc. v. A.E.M Elec. Servs. Corp., 16 N.E.3d 645, 647 (Ohio 20i4)
(express "condition precedent" language established a "pay-if-paid" provision
transferring the risk of non-payment from the ·general contractor to the
subcontractor) ..
The contract between Superior and D&M contains two sections which are
germane to this discussion. First, Article 7 .11, "Claims Payment", states:
[n]o additional compensation shall be paid by the Contractor to the
Subcontractor for any claim arising out of the performance of this
Subcontract, unless the Contractor has collected corresponding
additional compensation from the owner, or other party inv:olved,
or unless by written agreement from the Contractor to the
Subcontractor prior to the execution of the Work performed under
27
said claim, which agreement and work order must be signed by an
officer of the Contractor. ·
Second, Article 8.2.5, "Time of Payment" reads in relevant part: ·"[r]eceipt of
payment by the Contractor from the Owner for the Subcontract Work is a
condition precedent to payment by the Contractor to the Subcontractor. The
subcontractor hereby acknowledges that it relies on the credit of the Owner,
not 'the Contractor for payment of Subcontract Work. "16
These contract provisions are not ambiguous. They clearly provide that
D&M's receipt of payment is a "condition precedent" to its obligation to pay
Superior. '"Condition precetjent' is a legal term of art with a clear meaning: 'An
aet or event, other than a lapse of time, that inust exist or occur before a duty
to perform something promised arises."' BMD Contractors, Inc., 679.F.3d at
650 (citing BLACK'S LAW DICTIONARY 334 (9th ed. 2009). This "pay-if-paid"
language, coupled with the express use of "condition precedent," unequivocally
allocates the nsk of nonpayment by the Project owner to Superior· and relieves
D&M of the obligation to pay until it receives payment from Ascent/Corporex
for the steel work performed. It is undisputed that Ascent/Corporex never paid·
D&M for the retainage or the disputed extra work.
'
Superior does not contest the existenc:e of a ."pay-if-paid" clause, but
argues instead that if the clause "cannot be harmonized with the rest of the
16 Article 11.4, "Multiparty Proceeding", reinforces the D&M-must-be-paid-first
concept in the event of a dispute: "In no event shall the Subcontractor be entitled to
damages, or compensation in excess of that.received by the Contractor from the
Owner arising out of the claim or complaint filed by the Subcontractor." We reject
Superior and Ben Hur's argument that once a dispute arises, the pay-if-paid
provisions no longer apply.
28
contract in a manner which supports the [trial] cour_t'sjudgment, this Court ·
should hold that the 'pay-if-paid' terms are unenforceable as a matter of pu,blic
policy." ·califomia and New York are two jurisdictions which have concluded
that pay-if-paid clauses are unenforceable as contrary to public policy due to
their impact on mechanic's lien rights. Wm. R. Clarke Corp. v. Safeco Ins. Co.,
938 P.2d 372, 374 (Cal. 1997); West-Fair Elec. Contractors v. Aetna Cas. & Sur.
Co., 661
.
N.E.2d 96,7,
.
968 (N.Y. 1995).
However, the decisions of California and New York's highest courts
appear to be outliers nationwide. While "pay-if-paid" clauses have fallen out of
favor in some states, the prohibition against their use has come from the
legislature rather than the courts. See e.g. N.C. Gen. Stat.§ 22C-2 (West,
Westlaw through 2016-2017 Legis. Sess.);17 Wis. Stat.§ 779.135 (West,
Westlaw through 2017 Act 60). Further, several courts have rejected the public
policy argument advanced by Superior. See e.g., Wellington Power Corp .. v. CNA.
Sur. Corp., 614 S.E.2d 680, ~85-86 (W.Va. 2005) ("pay-if-paid" condition
· precedent clause of contract in a public construction project did not violate the
public policy set forth in West Virginia's public bond statute); BMD Contractors,
Inc., 679 F.3d at 652-53 ("easily reject[ing]" public policy challenge to "pay-if-
11 The North Carolina statute states: "Performance by a subcontractor in
accordance with the provisions of its contract shall entitle it to payment from the party
with whom it contracts. Payment by the owner to a contractor is not a condition
precedent for payment to a subcontractor and payment by a contractor to a
subcontractor is not a condition precedent for payment to any other subcontractor,
and an agreement to the contrary iS"unenforceable." (emphasis supplied).
29
paid" clause given Indiana's "strong background presumption favoring freedom
of contract").
After considering the various approaches of our sister states, we decline
to hold that "pay-if-paid" terms are unenforceable as a matter of public policy .
.Kentucky, like Indiana, has long respected freedom of contract and allowed
parties to allocate among themselves the foreseeable risks. See Cumberland
Valley Contractors, Inc. v. Bell Cty. Coal Corp., 238 S.W.3d 644 (Ky. 2007); see
also Zeitz v. Foley, 264 S.W.2d 267, 268 (Ky. 1954) (explaining that contracts
should not "be set aside lightly" given that "right of private contract is no small
·part of the liberty of the citizen[.]"). While there are valid policy reasons for
disfavoring "pay-if-paid" provisions, any prohibition against this type of
contract clause should come from the legislature rather than from this Court. is
While ·the "pay-if-paid" provisions excuse D&M from having to pay until it
has received payment from Ascent/ Corporex and require the conclusion that
D&M has not breached the .contract, they in no way precluded Superior from
bringing a breach of contract action. There was a dispute between the parties·
as to which document actually constitutes the D&M/Superior contract and a
dispute about whether specific work attributable to the forces table/ design
load, the roof edge condition and the roof tip was extra work or within the
scope of the original-contract. Without initiating a breach of contract claim,
is We also reject Superior's argument that the provisions of Article 11 invalidate
the "pay-if-paid" clauses of the contract. Article 11, which identifies the process for
· multi-party proceedings; allows Superior to pursue a claim against D&M for unpaid ·
work but it does not nullify the "pay-if-paid" clauses of the contract. See fn. 15 supra.
30
Superior had no resolution of those issues. Post-suit it has a jury
determination regarding the specific document that constitutes the parti~s'
contract and a unanimous jury verdict establishing that it has met its
evidentiary burden of proving that the disputed work was indeed "extra work"
and that it was performed at the behest of D&M. Prior to initiating a breach of
contract suit, Superior had no sworn testimony unequivocally establishing that
D&M had never been paid by Ascent/ Corporex for the retainage and the,
disputed work. While there is no suggestion in. the record that D&M was ever
less than honest and forthcoming regarding its payment status vis-a-vis
Ascent/ Corporex, there are unscrupulous general contractors who do ·not deal
honestly and forthrightly with their subcontractors, retaining funds from the
owner intended for the subcontractor. A breach action provides a definitive
answer. As for one of Ascent/Corporex's defenses to the breach action, the
"pay-if-paid" provisions, this Court has declined the invitation to invalidate
them on public policy grounds but Superior had a credible argument that it
presented in the context of its breach of contract claim. If the. public policy
argument had been successful, the breach of contract judgment could be
sustained. Finally, and perhaps most importantly from Superior and Ben
Hur's st~ndpoint, only by pursuing this unavailing legal remedy ~ould it fully
establish the facts underlying this dispute and its eventual entitlement to an
unjust enrichment recovery from Ascent/Corporex. So, while the "pay-if-paid"
provisions preclude a breach of contract judgment in favor of Superior they di~
not preclude Superior from pursuing the contract claim.
31
III. The Attorneys' Fees Award to Superior is Not Sustainable.
We tum next to the trial court's award of attorneys' fees to Superior; The
basis for the trial court's award was its reading of Article 11.6, "Cost of Dispute
Resolution", a provision in the D&M/Superior contract. Article 11.6 reads in
pertinent part:
The prevailing party in any dispute arising out of or relating to this
Agreement or its breach that is resolved by a dispute resolution
procedure designated in the Subcontract Documents shall be
entitled to recover from the other party reasonable attorneys' fees,
costs and expenses incurred by the prevailing party in connection
with such dispute resolution process.
With this provision, the trial court determined that by succeeding on its breach
of contract claim against D&M, Superior was en.titled to an award of attorneys'
fees and expenses. As for Ben Hur, which the trial court held had an implied
rather than express contract with D&M, the court concluded that it had no
contractual right to attorneys' fees and the court could not find "compelling
'-
legal precedent to support such an award on equitable grounds." Of course,
our conclusion that Superior's breach of contract judgment must be reversed
raises the threshold issue of whether an attorneys' fee award is sustainable at
all.
"Generally, Kentucky courts apply the so-called American Rule r~garding
attorney's fees. That rule requires parties to pay their own fees and costs and
does not allow, as in the English courts, for the shifting of the prevailing party's
fees to the.loser." Rumpel v. Rumpel, 438 S.W.3d 354, 360 (Ky. 2014) (citing
Bell v. Commonwealth, 423 S.W.3d 742 (Ky. 2014); A1K Selective Self-Insurance
Fund v. Minton, 192 S.W.3d 415 (Ky. 2006)). However, one exception to this
32
general rule, is where the parties have agreed through a specific contractual
provision to allow for recovery of attorneys' fees. Aetna Cas. & Surety Co. v.
Commonwealth, 179. S.W.3d 830, 842 (Ky. 2005) (citing Nucor Corp. v. General
Elec. Co. 812 S.W.2d 136 (Ky. 1991)). An award of attorneys' fees is within the
sound discretion of the trial court and will not be disturbed "[a]bsent a showing
of an abuse of that discretion." Woodall v. Grange Mut. ·cas. Co., 648, S.W.2d ·
871, 873 (Ky. 1983). "The test for abuse ~f discretion is whether the trial
judge's decision was arbitrary, unreasonable, unfair, or unsupporte~ by sound
legal principles." Goodyear Tire & Rubber Co. v. Thompson, 11 S.W.3d 575, 581
(Ky. 2000) (citing Commonwealth v. English, 993 S.W.2d 941, 945 (Ky. 1999)).
As noted, interpretation of contract language is a matter of law and our
review is de novo but in this case the reversal of Superior's breach of contract
judgment against D&M renders our analysis of Article 11.6 quite different from
that engaged in by the trial court. Had the breach of contract juqgment
against D&M been sustainable, the trial court's award of attorney's fee was
certainly authorized by Article 11.6 and the specific award crafted was not an
abuse of discretion. Without the underpinning of a contract judgment,
however, Article 11.6 is necessarily read in a different light. The initial
reference in Article 11.6 to "the prevailing party in any dispute arising out of or
f
relating to this Agreement or its breach" is arguably broad enough .to
encompass Superior because although it did not prevail on a breach claim it
did prevail in what the contract refers to as a "multiparty proceeding." Article
11.4 is so entitled and provides in relevant part:
33
11.4 MULTIPARTY PROCEEDING The parties agree that to the
extent permitted by Subcontract Docum~nt all parties necessary to
resolve a claim shall be parties to the same dispute resolution
proceeding. To the extent disputes between the. Contractor and
Subcontractor involve in whole or in part disputes between the
Contractor and the Owner, disputes between the Subcontractor
and the Contractor shall be decided by the same tribunal and in
the same forum as disputes between the Contractor and the
Owner. In no event shall the Subcontractor be entitled to
damages, or compensation in excess of that received by the
Contractor from the Owner arising out of the claim or complaint
filed by the Subcontractor.
The multiparty proceeding eventually became a multiparty lawsuit and
Superior (and Ben Hur) finally prevailed on the substantive claim at the center
of the dispute-the extra work-albeit not through a contract claim. While the
initial language in Article 11.. 6 is probably broad enough to allow recovery of
attorneys' fees even where the party prevails through ffrion-contract claim, i.e.,
unjust enrichment, the problem·arises with the closi_ng language of that section
that reads "shall be entitled to recover from the other party reasonable
attorneys' fees, costs and expenses incurred by the prevailing party in
connection with such dispute process." (emphasis supplied). Ascent/Corporex
~ere not parties to the D&M/Superior contract and so are not bound by the
att~rneys' fees provision; they cannot be "the other party" as that language is
used in Article 11.6. And while Superior prevailed overall, so to speak, it did
not prevail as to D&M. Indeed, D&M is correct that given the pay-if-paid
language D&M was not in breach of the contract even though: Superior and
Ben Hur had rendered the requested performance of extra steel work and had
never been compensated for it. If Superior had prevailed as to D&M on any
34
theory, Article 11.6 was arguably broad enough to .allow attorneys' fees but the
victory achieved was against Ascent/Corporex and the D&M/Superior contract
does not provide a basis for an award of any attorneys' fees against D&M under
those circumstances. For that reason, the trial court's judgment awarding
such fees is reversed.19
IV. The Court of Appeals Correctly Determined that the Trial Court Should
Have Instructed the Jury on Ascent and Corporex's Claim for Breach of
Contract Against D&M But Erred in Finding the Negligence Instruction
Deficient
D&M contends that the Court of Appeals erred by vacating the trial
court's judgment and remanding the case for a new trial on Ascent/Corporex's
breach of contract and negligence claims against D&M. We agree with the
Court of Appeals that the trial cou:rt should have instructed the jury on
Ascent/ Corporex's breach of contract claim and begin with that claim before
turning to the more problematic negligence claim.
Ascent/ Corporex's cross-claim against D&M included a claim for "Breach
of Contract", alleging among other things that D&M (1) failed to advise them
that Superior's proposal was not based on the revised drawings which featured
the completed
. forces table; (2) failed to advise them of the "erector's
.
qualification" in Superior's proposal; (3) failed to timely and properly monitor
change requests made by Superior and Ben Hur (4) failed to timely and
properly monitor the performance of the alleged extra work; and (5) failed to
i9 The reversal of the breach of contract judgment ahd the attorney's fee award
renders irrelevant the indemnification of D&M by Ascent/ Corporex, identified as issue
no. 4 supra.
35
timely award a contract for the window washing system on the Project resulting
in additional
I
costs.
I
Ascent/ Corporex also asserted a "Negligent Performance of Contract"
claim against D&M, a claim which largely mirrored the contract breach
allegations. First, they alleged D&M breached its duty to perform its work "in a
reasonaoly prudent and careful manner ~d in amanner consistent with
industry standards." As part of this claim Ascent/ Corporex contended that
D&M (1) failed to disclose material information related to Superior's bid; (2)
failed to ensure that the bid was based on the revised plans and forces table;
(3) failed to advise of the "erector's qualification" in Superior's contract; (4)
negligently directed Superior not to consider the revised plans in prepanng its
proposal'; (5) failed to carefully manage the Pro-Bel subcontract; and (6) failed
to manage the &tee! claim in a manner that would have accurately assessed the
extra work performed by Ben Hur, if any.20
The trial court ultimately concluded that both claims could not be
presented to the jury. While discussing jury instructions, D&M argued that the
jury should be instructed on Ascent/ Corporex's breach of contract claim rather
~ .
than its negligent performance claim. Ascent/Corporex wanted both claim~
presented to the jury but the trial court ultimately disagreed and instructed the
20 The cross-claim also included a claim for "Constructive Fraud" and a claim
for "Indemnification" of Ascent and Corporex by D&M. Neither of those claims is
before the Court.
36
jury only as to Ascent/ Corporex's negligence claim against D&M. As noted, the
jury found in favor of D&M:
The trial court's decision on whether to instruct the jury on a specific
claim is reviewed for abuse of discretion. Sargent, 467 S.W.3d at 203-04. As
often stated, "the trial court must instruct the jury upon every theory
reasonably supported by the evidence.. 'Each party to an action is entitled to an
instruction upon his theory of the case if there is evidence to sustain it. m Id. at
.203 (quoting McAlpin v. Davis Const. Inc., 332 S.W.3d 741, 744 (Ky. App.
2011). Here, both Ascent/Corporex and D&M tendered breach of contract
instructions.· After a thorough review, we agree with Ascent/Corporex that the
trial court abused its discretion by not permitting the jury to consider the
breach of contract claim. Corporex and D&M had a 42-page contract detailing
· their rights and responsibilities. The cross-claim adequately pled breach of
contract and Corporex had evidence that may or may not have c.onvinced the
jury had the instruction been given.
In any event, D&M does not really argue that a breach of contract
instruction would have been improper (as noted, D&M argued for a contract
instruction, as opposed to negligence, during a .conference on jury
instructions), but rather that this issue was not properly preserved and that
Corporex "voluntarily abandoned its breach of contract claim" in the trial court.
The record refutes D&M's position. In c;tddition to submitting an _instruction for
breach of contract, Corporex argued to the trial court that recovery was proper
on both the contract and negligence claims and that the jury should render a
37
verdict on both. This proposed instruction and the objections of counsel were
sufficient to preserve this issue for appeal and dispel any suggestion that
Corporex voluntarily abandoned its contract claim. See· e.g., Sand Hill Energy, ·
Inc. v. Smith, 142 S.W.3d 153, 162-63 (Ky. 2004) ("Generally speaking, if a
party's 'offered instructions clearly present [the] party's position, no further
action is required' to preserve for appellate review an allegation that the trial
court erred by failing to give a requested instruction.") (citations omitted).
We also reject D&M's argument that the trial court's failure to instruct
·the jury on the breach of contract claim was harmless. D&:rvi errs by assuming
that because the jury determined that there was no negligence they would
similarly conclude that D&M had not breached its contract with
Ascent/Corporex. While the underlying facts of both claims were similar,
perhaps even identical, it was possible for the jury to determine that D&M
breached its specific contractual duties even if its actions were insufficient to
warrant relief under a negligence instruction. For example, Ascent/ Corporex's
. counsel questioned D&M representatives at trial regarding specific provisions .
.of its Construction Agreement with D&M including the bid process (Article
3.6.26) and change _orders (Article 8).2 1 Clearly Ascent/Corporex anticipated
arguing. that D&M's actions or inactions constituted a breach of specific
contractual obligations.22 The negligence instruction that was given focuses on
A copy of the Construction Agreement between Corporex and D&M was
21
admitted at trial as Joint Exhibit #3.
22 Under Article 3.8 of the Construction Agreement, "fa]ll portions of Work for
the Project that the Contractor's fD&M] organization is not accustomed to providing
38
the "[dJegree of care expected to be exercised by ordinary prudent persons
engaged in the business .of construction management." This is not the same
inquiry for the jury as considering whether D&M failed to meet certain specific
contractual obligations .. The breach of contract instruction tendered by
Ascent/ Corporex would have allowed the jury to focus on whether breach of
D&M's obligations under tl_?.e Construction Agreement, negotiated by the
parties, caused the additional steel work costs. Accordingly, Corporex is
entitled to proceed on remand on its claim for breach of contract.
Turning to the challenged negligence instruction, it is,not altogether clear
that Ascent/ Corporex had a negligence claim that was independent of its
contract claim. In concluding that both claims were proper and should have
been presented to the jury, the Court of Appeals cited Kevin Tucker & Assocs.,
Inc. v. Scott & Ritter, Inc., 842 S.W.2d 873 (Ky. App. 1992), a case involving a
city's negligence and breach of contract claims against ~ architectural firm.
In that case, the appellate court"rejected the argument that."any time an act
constitutes both a breach of contract and a tort of negligence, the plaintiff is
required to waive the tort and sue in contract." Id. at 874.· The Tucker court
shall be performed under Design Builder [Corporex] approved Subcontracts. The form
of all Subcontracts s:Q.all require the approval of Design Builder [Corporex]." In
dispute at trial was whether there was a contract between Superior and D&M and if so
what document was the governing instrument. Dan Dugan of D&M admitted at trial
that the subcontract between Superior and D&M was a mess and that D&M had not
done a good job getting an executed subcontract with Superior. Further, he
acknowledged that what D&M considered to be the signed contract with Superior was
only sent to Ascent/Corporex after the steel work had been completed. With an
appropriate instruction, the jury could have concluded that these actions or inactions
regarding the subcontract between D&M and Superior constituted a breach of the
Corporex/D&M Construction Agreement.
39
cited Hovennale v. Central Ky. Natural Gas Co., 282 S.W.2d 136, 137_(Ky.
1955), a case practiced under the "old Civil Cod°e" in which a landowner suing
a natural gas company for damages to his farm following the laying of a
pipeline was required to elect whether to prosecute an action in contract or
tort. The second case cited in Tucker, Alberti's Adm'x v. Nash, 282 S.W.2d 853
(Ky. 1955) was a wrongful death action following the capsizing of a small boat
wherein the court recognized that tort and con~ract claims could be joined:
Our high court affirmed a directed verdict for the defendants on a breach of
warranty claim, there being no evidence that the boat "was in an unsound
condition" and on the negligence claim given the absence of any legal duty to
either equip the boat with life preservers or warn of "choppy waters.". Id. at
854-55.
Although Ritter is accurate insofar as it holds a party having viable
contract and negligence claims may pursue both, the initiB.I inquiry is whether·
there is a negligence claim independent
.
of the contract claim. In Presnell
.
Constr. Managers, Inc. v. EH Constr., 1_34 S.W.3d 575 (Ky. 2004), a case not
cited by the parties; this Court was confronted with negligent supervision and
negligent misrepresentation claims involving a commercial b_uilding project.
The suit was brought by EH, a general contractor, against Presnell, the
project's construction manager. Both EH and Presnell had contracts with the
building owner, but there was no contractual relationship between EH and
Presnell.
40
This Court affirmed the Court of Appeals' holding that summary
judgment had been improperly granted on EH's negligent misrepresentation
claim, concluding that the interlocking construction contracts did not prohibit
a tort claim consistent with Section 552 of the RESTATEMENT (SECOND) OF TORTS, .
"Negligent Misrepresentation." However, the Court affirmed dismissal of EH's
negligent supervision claim because it did "not articulate a claim that is
independent of Presnell's contractual duties." Id. at 583. Even though the
contract referred to was Presnell's contract with the owner, not a contract
betWeen Presnell and EH, this Court applied the rule that "'one who is not a
party to the contract or in privity thereto may not.maintain an action for
negligence which c~nsists merely in the breach of the contract."' Id. at 579,
citing Penco, Inc. v. Detrex Chem. Indus., Inc., 672 S.W.2d 948, 951 (Ky. App.
1984).
Perhaps more importantly, Justice Keller's lengthy concurrence in
Presnell, joined by another ~ember of the Court, discussed extensively the
intersection of contra.ct and tort claims and the application of the "((conomic
loss" rule. Justice Keller stated:
The economic loss rule is a judicially created doctrine that marks
the fundamental boundary between contract law, which.is
designed to enforce the expectancy interests of the parties, and tort
law, which imposes a duty of reasonable care and thereby
encourages citizens to avoid causing physical harm to oth~rs. The
crux of the doctrine is not privity but the premise that economic
interests are protected, if at all, by contract principles, rather than
tort principles. Although originally rooted primarily in product
liability cases to protect manufacturers from tort.liability for -
damage that is limited to the product itself, the economic loss rule
has evolved into a modern, general prohibition against tort
recovery for economic loss.
41
Id at 583-84 (citations omitted). He agreed with the economic loss rule's
rationale that parties to a contract agree to allocate risks and thus do not need
"the special protections of tort law to recover for damages caused by breach of
~ontract." Id. at 589. Notably, Justice Keller quoted Town of Alma v. Azco ·
Constr. Inc., 1n P.3d 1256 (Colo. 2000) as follows:
The key to determining the availability of a contract or tort action
lies in determining the source of the duty that forms the basis of
the action .... [T]he question of whether the plaintiffmay maintain
an action in tort for purely economic loss turns on the
determination of the source_ of the duty the plaintiff claims the
defendant owed. A breach of duty which arises under the
·provisions of a contract between the parties must be addressed
under contract, and a tort action will not lie. A breach of a duty
arising independently of any contract duties between the parties,
however, may ·support a tort action.
134 S.W.3d at 589 (citation omitted, emphasis in original). The Colorado
Supreme Court recogniZed that some common law tort claims, such as ..
common laVI! fraud and negligent misrepresentation, were expressly designed to
remedy economic loss and thus exist independent of a breach of contract
claim. Id. at 590. The Presnell concurrence found these principles persuasive
and concluded that a party suffering economic loss from breach of a
. contractual duty could not assert
\
an independent tort claim absent an
indepen~ent duty of care under tort law. Id. Justice Keller found the negligent
supervision claim barred on "economic loss" grounds but agreed with the
majority that the rule would not bar a negligent misrepresentation claim.23
Relatively recently, in Giddings & Lewis, 348 S.W.3d at 729, this Court
23
adopted the "economic loss rule" in the context of a commercial purchaser of a
product. We held the purchaser was prevented from suing in tort (including for
42
The Presnell concurrence is not binding but it is consistent with Alberti's
Adm'x, the capsized .boat case where the Court recognized that a plaintiff may
assert not only a breach of contract but also a negligence claim provided there
is a separate legal. duty to undergird the tort claim. Moreover, the Presnell
majority plainly held that EM had no negligent supervision claim against
Presnell where that tort claim was not "independent of Presnell's contractual
duties." 134 S.W.3d at 583.
Here, it is difficult to differentiate Ascent/Corporex's "Breach of Contract"
claim from its "Negligent Performance of Contract" claim and indeed the claim
terminology itself suggests that the negligence is in the ,performance of
contractual duties. Ascent/ Corporex alleges D&M had a "duty to perform ...
work, including management of the steel bids and selection of the steel
contractor, in a reasonably prudent and careful manner and in a manner
consistent with industry standards." They do not allege the source of this
duty, ~ommon law or otherwise, but, regardless, ~t seems indistinguishable
from D&M's duties under the Corporex/D&M contract. The six specific·
examples of breach under the "Negligent Performance of Contract" claim (e.g.,
failure to ensure bids were based on most recent drawings, failure to advise
Corporex about the erector's qualification) match up very closely, if not exactly,
with the allegations regarding-the breach of the contract. In short, it is difficult
·negligent misrepresentation) for economic losses arising from the malfunction of the
product itself, recognizing that those damages had to be recovered under the parties'
contract. The parties have not raised the economic loss rule and we express no
opinion on its applicability to Ascent/Corporex's claims against D&M.
43
to conclude that Ascent/ Corporex even had a viable negligence claim
independent of the contract claim but, to the extent they did, the jury
instruction was adequate.
First, we note that D&M contends that Ascent/ Corporex waived appellate
review of the_ negligence instruction, by agreeing with the trial court wording for
this instruction, while Ascent/Corporex maintains that D&M's argument is a
.mischaracterization of their position concerning the negligence instruction .. In
reviewing the record, it is clear that Ascent/Corporex agreed at least with a
portion of the wording of the trial court's negligence instruction but, in any
event, having tendered a negligence instruction, Ascent/ Corporex preserved
their objection. Sand HillEnergy, 142 S.W.3d at 162-63.
In considering the content of the trial court's negligence instruction, we
engage in de nova review. Sargent, 467 S.W.3d at 204. The trial court's
negligence instruction, was the last p9rtion of the jury instructions and it~
consideration was predicated on the jury having'first determined that extra
work had been performed by Superior and/ or Ben Hur on the Project. The
instruction provides as follows:
The Deferidant, Corporex, on behalf of the Ascent at Roebling's
Bridge LLC, contracted with Dugan & Meyers to have Dugan &
Meyers serve as construction manager for the Ascent project.
Corporex is obligated to pay the cost of th~ project. You have
found that extra ~ork was incurred by the Plaintiffs in the
construction of the Ascent project. Corporex is respo"nsible for that
extra work except to the extent that such extra work was due to
the negligence of the Defendant, Dugan & Meyers, in performing its
duties under the construction management contract.
44
'Ordinary Care' as used in these Instructions is defined as that
, Degree of care e~pected to be exercised ·by ordinary prudent
persons engaged in the business of construction management.
Question No. 9: Oo you find from the evidence that the Defendant,
Dugan & Meyers, failed fo exercise ordinary care in the
performance of its obligations under the construction management
contract with Corporex and that such failure was a substantial
factor in causing the extra work performed by the Plaintiffs?"24
. Ascent/ Corporex contend that the trial court's instruction was erroneous
due to the statement that "Corporex is responsible for that extra work except to
the extent that such extra work was due to the negligence of the Defendant,
Dugan & Meye!s, in performing its duties under the construction management
24This instruction was not dramatically different from the one tendered by
Ascent/ Corporex.
INSTRUCTION NO. 14
Corporex's Claim Against Dugan & Meyers For Negligent Performance of
Contract
Corporex and The .Ascent allege that Dugan & Meyers failed to exercise ordinary-.
care in managing the project and that these failures caused Corporex to incur
monetary damages. ·
You are instructed that Dugan & Meyers had a duty to exercise ordinary care in
managing; among other things, the steel bid process, the steel work, Superior Steel's
and Ben Hur's change requests and the extra work claimed by Superior Steel and Ben
Hur. "Ordinary care" as applied to Dugan & Meyers means such care as you the
jurors would expect an ordinarily prudent per.son engag~d in the same type of
business to exercise under similar circumstances.
You will find for Corporex and The Ascent if you are satisfied from the evidence
as follows:
1. Dugan & Meyers breached its duty of ordinary care; and
2. Dugan & Meyers' failure to exercise ordinary care was a substantial factor in
causing Corporex to incur unanticipated additional costs for engineering, material and
labor provided by either Superior Steel or Ben Hur.
Proceed to Question No. 14.
Question No. 14 was simply whether D&M failed to comply·with its' duty and if such
failure was a substantial factor in causing the extra work.
45
contract." According to Ascent/ Corporex, this statement resolves the heart pf
their dispute with D&M, namely who is responsible for the alleged additional
work on the project. Further, Ascent/Corporex argue that this is not an
accurate statement of the relationship between the parties based on the terms
of their contracts, which required the "Steel Team" to seek payment from D&M
as opposed to Ascent/ Corporex. The Court of Appeals agreed that the trial
court's instruction was erroneous due to its statement regarding
Ascent/ Cqrporex's responsibility for the extra work on the Project.
We disagree that the trial court's negligence instruction was _faµlty. It
was uncontested at trial that representatives from Corporex and D&M ~ad met
with the "Steel Team" and informed them that they would be compensated for
extra work performed on the contract. Under the terms of the Corporex/D&M
contract, Corporex was obligated to pay D&M for the cost of the Project, which
would include the extra work performed by the "Steel Team." After D&M
received payment from Corporex, D&M would then be required to make
payment to Superior (and Superior to Ben Hur). As the jury found that
Superior and Ben Hur had performed extra work, they were ultimately due
compensation from Ascent/ Corporex as the owners of the Project. Instruction
No. VI acknowledged that fact, and the jury only encountered the Instruction
and accompanying interrogatory after it had first determined that extra work
was indeed performed.
To the extent a negligence instruction was even proper, the trial court
correctly instructed the jury. that they could decide that D&M's negligence
46
necessitated the extra work. If the jury determined that D&M had failed to
exercise ordinary care, the jury could then assess wpat portion of the costs of
the extra work it sought to attribute to D&M's negligence, thereby relieving
Ascent/Corporex_of some or all of the liability. Ultimately, the jury declined to
do so and found Ascent/ Corporex respop.sible for the cost of extra work done
on their Project. As the. trial court's negligence instruction was sufficient, the
Court of Appeals erred by finding otherwise.
CONCLUSION
For the reasons explained herein, we affirm the judgment of the Court of
Appeals in part, reverse in part, and remand for further proceedings consistent
with this Opinion.
Minton, C.J.; Cunningham, Keller and Venters, JJ., ·concur. VanMeter, ·
J., concurs in part and dissents in part by separate opinion in which Wright,
J., joins.
VANMETER, J., CONCURRING IN PART AND DISSENTING IN PART: I
concur with most of the well-written and thorough majority opinion. However,
I respectfully dissent with so much as holds Superior Steel's attorneys' fees are
not recoverable under its_ subcontract with Dugan & Meyers .. The attorneys'
fees provision in the subcontract is sufficiently broad to entitle Superior Steel
to attorneys' fees, since, as the m~jority notes, it was forced to litigate that it
had not breached the subcontract and was entitled to payment for the extra
work performed. Notwithstanding it ultimately had no remedy against Dugan
& Meyers to enforce payment under the subcontract, in my view, Superior Steel
47
was still "[t]he prevailing party in [a]·dispute arising out of or relating to this
Agreement o~ its breach[.]"
COUNSEL FOR APPELLANTS/CROSS-APPELLEES:
SUPERIOR STEEL, INC., AND BEN HUR
CONSTRUCTION COMPANY, INC.
. - .
Griffin Teny Sumner
John Kendrick Wells, IV
Donald Scott Gurney
Frost Brown Todd, LLC
. COUNSEL FOR APPELLEES/ CROSS-APPELLANTS
AND CROSS-APPELLEES:
THE ASCENT AT ROEBLING'S BRIDGE, LLC
Mark T. Hayden
John Nalbandian
Taft Stettinius & Hollister LLP
CORPOREX DEVELOPMENT AND CONSTRUCTION·
MANAGEMENT LLC., AND WESTCHESTER FIRE
INSURANCE COMPANY .
MarkT. Hayden
John. Nalbandian
Taft Stettinius & Hollister LLP
COUNSEL FOR CROSS-APPELLANT:
DUGAN & MEYERS CONSTRUCTION
COMPANY
Thomas J. Kirkwood
Kimberly Ellen Ramundo
Heather Hawkins
Thompson Hine LLP
48
COUNSEL FOR AMICUS CURIAE,
THE AMERICAN INSTITUTE OF STEEL
CONS°TRUCTION:
Kenneth Allen Bohnert
Edward Francis Busch
Scott Alan Johnson
Conliffe, Sandman & Sullivan
COUNSEL FOR AMICUS CURIAE,
THE AMERICAN SUBCONTRACTORS
ASSOCIATION:
Thomas Russell Yocum
Richard W~ber
Benjamin Yocum & Heather LLC
49