Construction Services, Inc. of Duluth v. Town of Alborn ( 2015 )

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2014).
STATE OF MINNESOTA
IN COURT OF APPEALS
A14-0977
Construction Services, Inc. of Duluth,
Appellant,
vs.
Town of Alborn,
Respondent.
Filed April 27, 2015
Affirmed
Reyes, Judge
St. Louis County District Court
File No. 69DUCV132351
William D. Paul, William Paul Law Office, Duluth, Minnesota (for appellant)
Daniel R. Gregerson, Margaret L. Evavold, Gregerson, Rosow, Johnson & Nilan, Ltd.,
Minneapolis, Minnesota (for respondent)
Considered and decided by Hudson, Presiding Judge; Bjorkman, Judge; and
Reyes, Judge.
UNPUBLISHED OPINION
REYES, Judge
Appellant Construction Services, Inc. of Duluth challenges a district court’s
summary judgment in favor of respondent Town of Alborn. Appellant seeks to collect
funds it claims it is entitled to under the parties’ construction contract arguing that (1) it
did not materially breach the parties’ contract; (2) respondent breached the contract by
failing to timely pay a draw request; and (3) respondent failed to follow the contract’s
termination procedure. We affirm.
FACTS
On April 30, 2008, the parties entered into a contract for the construction of a
wastewater-treatment facility. The contract price for the project was $509,610. Pursuant
to Minnesota law and article 5 of the contract, appellant entered into an indemnity
agreement (indemnity agreement) with performance and payment bonds from a surety
(performance bond), North American Specialty Insurance Company (NAS). See Minn.
Stat. § 574.26, subd. 2 (2014) (requiring contractors to obtain performance and payment
bonds for public-works projects). Appellant agreed to indemnify NAS for any losses
NAS might suffer as a result of issuing bonds for appellant.
The contract originally called for work to be substantially completed by November
30, 2008. However, unexpected weather conditions caused delays, and the parties
mutually agreed to extend the substantial completion date to June 30, 2009.
On June 9, 2009, the project’s engineer, Ayres Associates (Ayres), informed
appellant that appellant was unlikely to achieve substantial progress by the June 30
deadline. Ayres did not issue a certificate of substantial completion until July 15, 2009.
Attached to the certificate was a punch list of 265 items that, by the terms of the contract,
were required to be fixed or completed by appellant within 30 days. They were not
completed on time. On August 15, 2009, respondent’s town board, along with Ayres,
met with appellant to discuss outstanding punch-list items and a possible date for the
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project’s final completion. Appellant could not provide a final completion date at that
time.
On August 26, 2009, appellant submitted an application for the project’s sixth
progress payment in the amount of $151,001. The terms of the contract require appellant
to submit an application for payment to Ayres to receive a progress payment. Ayres
would then review the application and either make a written recommendation for
payment to respondent, or return the application to appellant with reasons why it was
refusing to recommend payment. If a payment application was returned, appellant was to
correct and resubmit the application. Payment would then be due 20 days after
respondent received a payment application with Ayres’s recommendation.
On September 10, 2009, respondent sent a letter to NAS and appellant notifying
them that it was considering declaring appellant to be in default after its failure to timely
complete its work.
On September 15, 2009, Ayres sent a memorandum to appellant informing them
that the amount approved on their August 26 application for the sixth progress payment
was reduced to $117,253. Ayres sent a follow-up memorandum on September 18, 2009,
which further reduced the approved payment price to $105,121.49. Appellant did not
resubmit a payment application and was unresponsive to Ayres’s letters.
In accordance with the performance bond, the parties held a conference on
September 18, 2009. At that time, appellant agreed to complete the remaining punch-list
items within one week of September 21, 2009. On October 2, 2009, the punch-list items
were still incomplete and respondent sent another letter to appellant proposing that they
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would not declare appellant to be in default if appellant agreed to pay for the additional
engineering and legal fees incurred as a result of the delay. In addition to the delay,
appellant failed to pay its subcontractors, resulting in mechanic’s liens on the property,
and appellant failed to complete closeout and warranty work as required by the contract.
Finally, on July 13, 2010, after a number of subsequent communications, conferences,
and failed mediation sessions, respondent terminated the contract pursuant to the terms of
the indemnity agreement. Following the termination procedures of the performance
bond, respondent notified appellant and NAS that it was declaring appellant to be in
default.
NAS filed suit against appellant to recoup losses that it incurred as a result of
acting as a surety for appellant and, in July 2011, was awarded default judgment against
appellant for $69,241.17. In September 2011, NAS sought to recover from respondent
any remaining contract funds due to appellant as a secured creditor pursuant to the
indemnity agreement. In March 2012, respondent paid NAS $4,928.37 in net contract
funds in accordance with NAS’s assertion of its right under the indemnity agreement. In
September 2013, appellant filed this lawsuit against respondent seeking to recover funds
it believes it was owed under the contract.1 Both parties filed motions for summary
judgment, and a motion hearing took place on March 11, 2014. The district court denied
appellant’s summary judgment motion, granted respondent’s motion, and summary
1
Appellant asserted four causes of action: (1) breach of contract; (2) unjust enrichment;
(3) quantum merit; and (4) failure to promptly pay. On appeal, appellant only argues that
it was entitled to summary judgment on its breach-of-contract theory and has accordingly
waived its other claims. See Melina v. Chaplin, 327 N.W.2d 19, 20 (Minn. 1982) (stating
that issues not briefed on appeal are waived).
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judgment was entered. The district court concluded that appellant’s assignment of its
rights to NAS barred the relief it sought from respondent. This appeal follows.
DECISION
“Summary judgment is appropriate when the evidence, viewed in the light most
favorable to the nonmoving party, establishes that no genuine issue of material fact exists
and that the moving party is entitled to judgment as a matter of law.” Citizens State Bank
Norwood Young Am. v. Brown, 849 N.W.2d 55, 61 (Minn. 2014); see also Minn. R. Civ.
P. 56.03. “No genuine issue of material fact exists when the record taken as a whole
could not lead a rational trier of fact to find for the nonmoving party.” Frieler v. Carlson
Mktg. Grp., Inc., 751 N.W.2d 558, 564 (Minn. 2008) (quotations omitted). A district
court’s grant of summary judgment is reviewed de novo. Dukowitz v. Hannon Sec.
Servs., 841 N.W.2d 147, 150 (Minn. 2014).
The district court concluded that summary judgment in favor of respondent was
appropriate because appellant had assigned any right to recovery to NAS in the event of
default. To determine whether the award of summary judgment was made in error, we
must decide if there is a genuine issue of material fact as to whether appellant defaulted
on the contract such that appellant’s indemnity agreement with NAS was triggered. “The
plain and ordinary meaning of the contract language controls, unless the language is
ambiguous.” Bus. Bank v. Hanson, 769 N.W.2d 285, 288 (Minn. 2009). The indemnity
agreement between appellant and NAS provides that appellant agrees to
assign, transfer, pledge and convey to [NAS] (effective as of
the date of each such bond, but only in the event of default,
breach or failure as referred to in preceding Section 4(c))
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. . . all of their rights under the contracts referred to in such
bonds, including their right, title and interest in and to
. . . (c) any and all sums due or which may thereafter become
due under such contracts, and all sums due or to become due
on all other contracts, bonded or unbonded, in which any or
all of the Indemnitors have an interest.
(Emphasis added). Section 4(c), as referenced above, states in relevant part:
If any such bond be given in connection with a
contract, [NAS] in its sole discretion is hereby authorized, but
not required . . . in the event of any breach or default in the
performance of the contract, or the breach of this Agreement
or of any bond connected therewith, or the failure to
diligently prosecute the work under any contract, or to pay
for labor and materials used in the prosecution of the
contract . . . to take possession of the work under the contract,
and, at the expense of the Indemnitors, to complete the
contract or cause the same to be completed or to consent to
the completion thereof.
(Emphasis added). Neither party claims the language of the indemnity agreement is
ambiguous. Accordingly, by the “plain and ordinary meaning of the contract language,”
Hanson, 769 N.W.2d at 288, appellant’s rights will be assigned “only in the event of
default, breach or failure” in the performance of the contract.
The district court stated that the terms of the indemnity agreement make clear that
“if [appellant] defaults on any of its bonded contracts then NAS assumes all [appellant’s]
rights and interest under that contract, even money due and owing to [appellant].”
(Emphasis added). The district court further stated that “[e]ven though [respondent]
gratuitously provided [appellant] with numerous extensions to complete the contracted
work . . . , [appellant] still managed to default and as a result [respondent] terminated the
contract.” Thus, it appears the district court concluded that there was no genuine issue of
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material fact with regard to appellant’s default. Appellant argues that this determination
was made in error.
I. Appellant’s breach
“The moving party has the burden of showing an absence of factual issues before
summary judgment can be granted.” Anderson v. State, Dep’t of Natural Res., 693
N.W.2d 181, 191 (Minn. 2005). Respondent alleges that there is no factual issue with
regard to appellant’s breach because appellant continuously failed to timely complete its
work and failed to timely pay for certain labor and material provided by subcontractors.
The record substantiates these claims. Despite agreeing to reach substantial completion
by June 30, 2009, appellant did not receive a certificate of substantial completion until 15
days later. Appellant then failed to complete the 265 items on the punch list within 30
days, as required by the contract. Moreover, in a letter dated March 19, 2009, respondent
notified appellant that it learned that appellant failed to make payments to the project’s
subcontractors. Because “failure to diligently prosecute the work” and “failure . . . to pay
for labor” are both specifically listed under section 4(c) of the indemnity agreement,
respondent satisfied its burden as the moving party to show an absence of factual issues.
“[W]hen the moving party makes out a prima facie case, the burden of establishing
that the facts raise a genuine issue falls to the opposing party.” Brown, 849 N.W.2d at
62. “To defeat a summary judgment motion, the nonmoving party must do more than
rest on averments or denials of the adverse party’s pleadings.” Id. at 61-62 (citing Minn.
R. Civ. P. 56.05). “[T]he nonmoving party must present more than evidence which
merely creates a metaphysical doubt as to a factual issue and which is not sufficiently
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probative with respect to an essential element of the nonmoving party’s case to permit
reasonable persons to draw different conclusions.” Valspar Refinish, Inc. v. Gaylord’s,
Inc., 764 N.W.2d 359, 364 (Minn. 2009) (quotation omitted). Here, appellant asserts that
even if it technically breached the terms of the contract, it did not materially breach the
contract because it received a certificate of substantial completion and finished 262 of the
265 required punch-list items. Appellant argues that the materiality of its breach is a fact
issue precluding summary judgment.
We disagree. “A material breach is ‘[a] breach of contract that is significant
enough to permit the aggrieved party to elect to treat the breach as total (rather than
partial), thus excusing that party from further performance and affording it the right to
sue for damages.’” BOB Acres, LLC v. Schumacher Farms, LLC, 797 N.W.2d 723, 728-
29 (Minn. App. 2011) (citing Black’s Law Dictionary 214 (9th ed. 2009)). A material
breach “goes to the root or essence of the contract.” 15 Samuel Williston & Richard A.
Lord, A Treatise on the Law of Contracts § 44:55 (4th ed. 2000). Even when viewed in
the light most favorable to appellant, a review of the record reveals that appellant’s
breach was material. Appellant failed to substantially complete the project by the agreed-
upon June 30 deadline. Although a certificate of substantial completion was eventually
issued, it was issued after the June 30 deadline and appellant failed to complete all of the
punch-list items within the required 30 days. Even after the parties extended the punch-
list deadline, appellant again failed to finish the remaining items. Moreover, appellant
did not pay its subcontractors, which resulted in mechanic’s liens on the property, and
appellant failed to complete closeout and warranty work which was required by the
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contract. These uncontested facts show that appellant’s breach was material and thus the
provisions of the indemnity agreement were triggered. As such, the district court
appropriately awarded summary judgment to respondent.
II. Respondent’s breach
In granting respondent’s motion for summary judgment, the district court
simultaneously denied appellant’s motion for summary judgment. Appellant argues that
the district court erred in denying its motion because respondent breached the contract
with respect to the proper payment and claims procedure. “The elements of a breach of
contract claim are (1) formation of a contract, (2) performance by plaintiff of any
conditions precedent to his right to demand performance by the defendant, and (3) breach
of the contract by defendant.” Lyon Fin. Servs., Inc. v. Ill. Paper & Copier Co., 848
N.W.2d 539, 543 (Minn. 2014) (quotation omitted). Because the parties do not dispute
that a contract was formed, our inquiry is limited to the second and third elements.
A. Breach via payment
Appellant first argues that respondent breached the contract by failing to timely
pay the sixth progress payment. Appellant argues that it satisfied its conditions precedent
sufficient to require payment. We are not persuaded. “A condition precedent is an event
that must occur before a party is required to perform a certain contractual duty.”
Minnwest Bank Cent. v. Flagship Prop. LLC, 689 N.W.2d 295, 299 (Minn. App. 2004).
As previously mentioned, the terms of the contract required appellant to submit payment
applications to Ayres, who would then either (1) issue a recommendation for payment to
respondent or (2) return the application to appellant with an explanation for its refusal.
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Upon refusal, appellant could reapply. The terms of the contract dictate that payment
was not due until respondent received a payment application with Ayres’s
recommendation that payment be delivered. Ayres twice reduced the amount approved
on appellant’s sixth progress payment application. Appellant failed to resubmit an
application. Thus, appellant failed to perform a condition precedent and its summary
judgment claim was properly denied.
B. Breach via claims procedure
Appellant next argues that respondent breached when it adjusted the contract price
without following the proper claims procedures. Under the contract, a party was required
to submit a claim to Ayres if it sought to adjust the contract price. Submitting a claim
required prompt written notice to the other party, who was then afforded the chance to
respond. At that time, Ayres would issue a decision on the proposed claim.
Respondent admits that it did not follow this procedure when it did not pay the
sixth progress payment in its entirety. Instead, respondent contends that it did not adjust
the contract price at all, but rather set-off its additional expenses incurred as a result of
appellant’s deficient performance. We agree.
The contract differentiates between contract price and set-offs. Contract price is
defined in terms of “work,” which “includes and is the result of performing or providing
all labor, services, and documentation necessary to produce such construction, and
furnishing, installing, and incorporating all materials and equipment into such
construction.” Accordingly, contract price relates to the price for appellant’s physical
labor. This price, however, can be offset by costs respondent incurs as a result of
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appellant’s insufficient performance. For example, in outlining the procedure for
progress payments upon substantial completion, the contract states that respondent will
pay a percentage of the contract price “less such amounts as [Ayres] shall determine or
[respondent] may withhold, for incomplete work.” Because the contract makes this
distinction, we agree that respondent did not make an adjustment to the contract price;
rather, respondent offset the contract price against the additional expenses it accrued as a
result of appellant’s delay. Thus, the district court did not err in denying summary
judgment on appellant’s breach-of-contract claim.
III. Wrongful termination
Finally, appellant contends that the district court improperly denied its summary
judgment motion because respondent did not follow the proper process for terminating
the contract. The district court did not address the merits of appellant’s wrongful-
termination claim because it determined that it was not properly pleaded. We agree with
the district court’s determination.
“A pleading which sets forth a claim for relief . . . shall contain a short and plain
statement of the claim showing that the pleader is entitled to relief.” Minn. R. Civ. P.
8.01. Minnesota is a notice-pleading state and “does not require absolute specificity in
pleading, but rather requires only information sufficient to fairly notify the opposing
party of the claim against it.” Donnelly Bros. Constr. Co. v. State Auto Prop. & Cas. Ins.
Co., 759 N.W.2d 651, 660 (Minn. App. 2009).
Appellant served its original complaint on September 18, 2013, and its amended
complaint on January 3, 2014. Neither explicitly asserted that respondent’s termination
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of the contract was wrongful. Instead, the complaints focused solely on the breach-of-
contract claims previously discussed. And while appellant argues that a breach-of-
contract claim incorporates and includes a wrongful-termination-of-contract claim, it
provides no citation for this proposition. See Schoepke v. Alexander Smith & Sons
Carpet Co., 290 Minn. 518, 519-20, 187 N.W.2d 133, 135 (1971) (declaring that
argument based on “mere assertion and not supported by any argument or
authorities . . . is waived and will not be considered on appeal unless prejudicial error is
obvious on mere inspection”). Thus, we agree with the district court’s determination that
appellant is precluded from bringing a wrongful-termination claim when it was not
properly pleaded.2
Affirmed.
2
Even if such a claim was properly pleaded, we disagree with appellant’s assertion that
the termination of the contract was wrongful. Appellant contends that under paragraph
15.02.C of the contract, certain payment and review procedures must occur prior to
termination. But paragraph 15.02.F reads: “If and to the extent that [appellant] has
provided a performance bond . . . the termination procedures of that bond shall supersede
the provisions of Paragraphs 15.02.B and 15.02.C.” Thus, respondent was required to
comply with the termination procedures of the performance bond issued by NAS under
the indemnity agreement and not the procedures outlined in paragraph 15.02.C of the
contract. A review of the record indicates that the termination procedures of the
performance bond were properly followed. Therefore, even if appellant properly pleaded
its wrongful-termination claim, the district court did not err in denying appellant’s motion
for summary judgment.
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